AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER
(this “ Agreement ”), is made as of September
10, 2009, by and among Shutterfly, Inc., a Delaware corporation
(“ Purchaser ”), Shutterfly Lightbox, Inc., a
Delaware corporation and a wholly-owned subsidiary of Purchaser
(“ Sub ”), TinyPictures Inc., a Delaware
corporation (the “ Company ”), and John Poisson,
an individual, as the representative of the stockholders (the
“ Stockholders ”) of the Company hereunder (the
“ Stockholder Representative
”). Capitalized terms used in this Agreement are
defined in Addendum A hereto.
RECITALS
WHEREAS, the Boards of Directors of
each of Purchaser, the Company and Sub have (i) determined that it
is desirable and in the best interests of each such corporation
that Purchaser, acquire all of the outstanding shares of capital
stock of the Company (the “ Shares ”), (ii)
pursuant to the corporations law of their respective jurisdictions,
approved this Agreement and the consummation of the transactions
contemplated hereby (the “ Merger ”), and (iii)
the Boards of Directors of each of the Company, Purchaser and Sub
have declared that this Agreement is advisable, fair and in the
best interests of its stockholders and approved the Merger upon the
terms and conditions set forth in this Agreement.
WHEREAS, the Board of Directors of
the Company has resolved to submit this Agreement and the Merger to
a vote of the Stockholders, and to recommend approval of this
Agreement and the Merger to the Stockholders.
WHEREAS, concurrently with the
execution of this Agreement, and as a condition to and as an
inducement to Purchaser’s willingness to enter into this
Agreement (i) the Stockholders who own more than an aggregate 97%
of the outstanding Shares are delivering a Stockholders Consent in
a form acceptable to Purchaser approving this Agreement, the Merger
and the transactions contemplated herein (the “
Stockholders Consent ”), and (ii) certain employees of
the Company are entering into employment arrangements with the
Company effective concurrent with the consummation of the
Merger.
NOW, THEREFORE, in consideration of
the premises and the mutual covenants hereinafter set forth, and
intending to be legally bound hereby, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger
. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time and in accordance with the
Delaware General Corporate Law (the “ Delaware Law
”), Sub shall be merged with and into the Company pursuant to
which (a) the separate corporate existence of Sub shall cease, (b)
the Company shall be the surviving corporation in the Merger (the
“ Surviving Corporation ”) and shall continue
its corporate existence under the laws of the State of Delaware as
a wholly owned subsidiary of Purchaser, and (c) all of the
properties, rights, privileges, powers and franchises of the
Company will vest in the Surviving Corporation, and all of the
debts, liabilities, obligations and duties of the Company will
become the debts, liabilities, obligations and duties of the
Surviving Corporation.
1.2 Effective
Time . As soon as practicable on the Closing Date,
the parties shall file with the Secretary of State of the State of
Delaware a certificate of merger (the “ Certificate of
Merger ”) executed in accordance with the relevant
provisions of the Delaware Law and shall make all other filings or
recordings required under the Delaware Law. The Merger
shall become effective at the time the Certificate of Merger is
accepted for filing by the Secretary of State of Delaware in
accordance with the Delaware Law. The date and time when
the Merger shall become effective is herein referred to as the
“ Effective Time ”.
1.3 Effects of the
Merger . The Merger shall have the effects provided
for herein and in the applicable provisions of the Delaware
Law.
1.4 Certificates of
Incorporation; Bylaws . The certificate of
incorporation and bylaws of Sub, as in effect immediately prior to
the Effective Time shall be the certificate of incorporation and
bylaws of the Surviving Corporation until amended in accordance
with the provisions thereof and applicable law.
1.5 Directors;
Officers . From and after the Effective Time, the
directors and officers of Sub serving immediately prior to the
Effective Time shall be the directors and officers of
the Surviving Corporation until the earlier of their resignation or
removal or until their respective successors are duly elected and
qualified, as the case may be.
1.6 Subsequent
Actions . If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions
or things are necessary or desirable to vest, perfect or confirm of
record or otherwise in the Surviving Corporation its right, title
or interest in, to or under any of the rights, properties or assets
of either the Company or Sub acquired or to be acquired by the
Surviving Corporation as a result of or in connection with the
Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name of and on behalf of either the
Company or Sub, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of
such corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any
and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
1.7 Effect on
Capital Stock . At the Effective Time, by virtue of
the Merger and without any action on the part of Purchaser, Sub,
the Company or any holder of any Shares or any shares of capital
stock of Sub:
(a) Capital Stock
of Sub . Each issued and outstanding share of
capital stock of Sub shall be converted into and become one validly
issued, fully paid and nonassessable share of common stock, par
value $.001 per share, of the Surviving Corporation.
(b) Cancellation of
Treasury Stock . Any Shares that are owned by the
Company as treasury stock shall be automatically cancelled and
shall cease to exist and no consideration shall be delivered in
exchange therefor.
(c) Cancellation of
Stock Owned By Purchaser or Sub . Any Shares that
are owned by Purchaser or Sub immediately prior to the Effective
Time shall automatically be cancelled and retired and shall cease
to exist, and no cash or other consideration shall be exchanged
therefor.
(d) Conversion of
Company Capital Stock .
(i) Series A
Preferred Stock. Subject to the terms and
conditions of this Agreement, including, without limitation,
Section 1.11(a) (regarding the Escrow Amount), each share of Series
A Preferred Stock of the Company issued and outstanding immediately
prior to the Effective Time (other than Shares described in Section
1.7(c) hereof and any Dissenting Shares) shall be converted into
the right to receive the Series A Per Share Merger Consideration,
without interest.
(ii) Series B
Preferred Stock. Subject to the terms and
conditions of this Agreement, including, without limitation,
Section 1.11(a) (regarding the Escrow Amount), each share of Series
B Preferred Stock of the Company issued and outstanding immediately
prior to the Effective Time (other than Shares described in Section
1.7(c) hereof and any Dissenting Shares) shall be converted into
the right to receive the Series B Per Share Merger Consideration,
without interest.
(iii) Company Common
Stock. Subject to the terms and conditions of this
Agreement, each share of Common Stock of the Company issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) shall be cancelled for no consideration
immediately prior to the Effective Time.
(iv) Options and
Warrants. Prior to the Effective Time, any
and all outstanding options, warrants or other rights to acquire
capital stock or other securities of the Company shall be
terminated for no consideration and shall be of no force and
effect. The Stock Plan and any other plan, program or
arrangement providing for the issuance or grant of any other
interest in respect of the capital stock or securities of the
Company shall terminate as of the Effective Time.
1.8 Dissenting
Shares . Notwithstanding anything in this Agreement
to the contrary, the Shares (other than shares to be cancelled in
accordance with Sections 1.7(b) and 1.7(c)) outstanding immediately
prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has
properly demanded appraisal for such shares in accordance with
Section 262 of the Delaware Law and Chapter 13 of the California
Corporations Code (the “ California Law ”)
(“ Dissenting Shares ”), shall not be converted
into or be exchangeable for the right to receive such
Stockholder’s applicable portion of the Merger Consideration
unless and until such holder fails to perfect or withdraws or
otherwise loses his right to appraisal and payment under the
Delaware Law and California Law. If, after the Effective
Time, any such holder fails to perfect or withdraws or loses his
right to appraisal, such Dissenting Shares shall thereupon be
treated as if they have been converted as of the Effective Time
into the right to receive such Stockholder’s portion of the
Merger Consideration, if any, to which such holder is entitled in
accordance with Section 1.7 hereof, without
interest. The Company shall give Purchaser (i)
reasonably prompt notice of any demands received by the Company for
appraisal of shares pursuant to the Delaware Law and California Law
and (ii) the opportunity to participate in all negotiations and
proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Purchaser, make
any payment with respect to, or settle or offer to settle, such
demands. Any communication to be made by the Company to
any Stockholder with respect to such demands shall be submitted to
Purchaser in advance and shall not be presented to any Stockholder
prior to the Company receiving Purchaser’s
consent. Notwithstanding anything to the contrary
contained herein, to the extent that Purchaser, the Surviving
Corporation or the Company (i) makes any payment or payments in
respect of any Dissenting Shares in excess of the consideration
that otherwise would have been payable in respect of such Shares in
accordance with this Agreement or (ii) any Damages (including
reasonable attorneys’ and consultants’ fees, costs and
expenses and including any such reasonable fees, costs and expenses
incurred in connection with investigating, defending against or
settling any action or proceeding) in respect of any Dissenting
Shares (excluding payments for such shares) ((i) and (ii) together
“ Excess Dissenting Share Payments ”), Purchaser
shall be entitled to recover the amount of such Excess Dissenting
Share Payments in accordance with the terms, and subject to the
limitations, of Article IX hereof.
1.9 Exchange of
Certificates .
(a) At the Closing,
the Company shall deliver to Purchaser the original stock
certificates representing at least 97% of the issued and
outstanding Shares (the “ Requisite Shares
”). Until surrendered as contemplated by this
Section 1.9, each certificate for the Shares shall be deemed at any
time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration Per Share
allocable to the Shares represented by such
certificate. Except for interest accrued on the Escrow
Amount, no interest will be paid or will accrue on any amount
payable as Merger Consideration. From and after the
Effective Time, the holders of Shares shall cease to have any
rights with respect to Shares represented thereby, except for the
right to payment as provided herein or by applicable
law.
(b) At the Effective
Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers of any shares
of capital stock thereafter on the records of the
Company. If, after the Effective Time, a stock
certificate evidencing Shares outstanding as of the Effective Time
(other than representing Shares described in Sections 1.7(b) or (c)
hereof) is presented to the Surviving Corporation, it shall be
cancelled and exchanged for payment as provided in this Section
1.9.
(c) If any stock
certificate evidencing Shares outstanding as of the Effective Time
shall have been lost, stolen or destroyed upon the making of an
affidavit of that fact by the holder thereof, the Surviving
Corporation shall pay or cause to be paid in exchange for such
lost, stolen or destroyed stock certificate the relevant portion of
the Merger Consideration to which such holder is entitled in
accordance with Section 1.7(d) hereof for Shares represented
thereby; provided , however , that the Surviving
Corporation or Purchaser may, in their discretion, require the
delivery of a satisfactory indemnity.
(d) Any Stockholder
who has not exchanged their Shares pursuant to Article II within
one year after the Effective Date shall be entitled to look to
Purchaser only as general creditors thereof with respect to such
portion of the Merger Consideration payable in respect thereof,
without interest. Notwithstanding anything to the
contrary in this Section 1.9, neither Purchaser or the Surviving
Corporation shall be liable to any Stockholder for any amount
properly delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
1.10 Withholding
Rights . Purchaser shall be entitled to deduct and
withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement such amounts as may be required to be
deducted or withheld therefrom under any provision of federal,
local or foreign tax law or under any applicable legal requirement,
and to request and be provided any necessary tax forms, including
IRS Form W-9 or other appropriate form, as applicable, or any
similar information. To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such amounts
would otherwise have been paid.
1.11 Merger
Consideration; Escrow .
(a) Merger
Consideration; Escrow Amount . The purchase price
for all of the Shares is an aggregate amount of One Million Three
Hundred Thousand Dollars ($1,300,000) less the amount of any
Negative Working Capital as of the Closing Date (the “
Adjusted Purchase Price ”) less the amount of
Retention Bonuses payable to the Plan Participants pursuant to
Section 1.11(c) below (with the amount per Stockholder set forth on
Exhibit A attached hereto) (the “ Merger
Consideration ”), however, One Hundred Fifty Thousand
Dollars ($150,000) (the “ Escrow Amount ”) of
the Merger Consideration and the Retention Bonuses shall be held in
escrow (the “ Escrow ”) and shall be available
to fund any of the indemnity obligations of the Company pursuant to
Article IX , in each case in accordance with the terms of an
escrow agreement, substantially in the form of Exhibit
B (the “ Escrow Agreement
”). Purchaser shall withhold the Escrow Amount
from each Stockholder’s portion of the Merger Consideration
on a pro rata basis based upon the portion of the Merger
Consideration allocable to each such Stockholder and from the
Retention Bonuses as set forth on Exhibit A attached
hereto. The “Closing Merger Consideration”
shall mean the Merger Consideration less the Escrow Amount withheld
from the Stockholder's portion of the Merger Consideration (with
such amounts per Stockholder set forth on
Exhibit A attached hereto). The
parties intend, and agree to file Returns consistent with the
position, that the Stockholders include in income their applicable
portion of the interest or other income earned on the Escrow
Amount. At least three (3) Business Days
prior to the Closing Date, the Company shall deliver to the
Purchaser a certificate estimating the Negative Working Capital as
of the Closing Date with adequate detail of such current assets and
current liabilities.
(b) Payment of the
Merger Consideration . At least three (3)
Business Days prior to the Closing Date, the Stockholders
Representative shall provide wire transfer instructions or a
mailing address for payment of the Closing Merger Consideration and
the Escrow Amount. At the Closing, Purchaser shall
deliver (i) to each Stockholder such Stockholders portion of the
Closing Merger Consideration (as set forth in Exhibit A) in
immediately available funds by wire transfer or check and (ii) to
the Escrow Agent, the Escrow Amount in immediately available funds
by wire transfer.
(c) Management
Retention Plan . Purchaser shall pay an amount equal
to 10% of the Adjusted Purchase Price (the " Retention Bonus
") less the Escrow Amount withheld from the Retention Bonuses to
the Company's payroll account for distribution to
certain of the Company's employees (the " Plan Participants
") pursuant to the Company's Management Retention
Plan. A list of the proposed Plan Participants and the
allocation of the Retention Bonus shall be provided by the Company
to Purchaser at least five (5) business days prior to the Closing
Date. Immediately upon receipt of the funds for the
Retention Bonus, the Company shall pay each Plan Participant their
respective portion of the Retention Bonus (less amounts necessary
to pay all applicable withholding and payroll taxes and other
deductions required by law and less any amounts withheld for the
Escrow).
ARTICLE II
THE CLOSING
2.1 Time and Place
of Closing . The closing of the purchase and sale
provided for in this Agreement (the “ Closing ”)
shall occur at the offices of Orrick, Herrington & Sutcliffe
LLP, 1000 Marsh Road, Menlo Park, California 94025, at 10:00 A.M.
on the third (3rd) Business Day after the day on which all of the
conditions to closing set forth in Article VII are
satisfied or waived (other than conditions that are intended to be
satisfied at the Closing), or at such other date, time or place as
the parties may agree (the “ Closing Date
”).
2.2 Deliveries by
Purchaser . Subject to the terms and conditions of
this Agreement, at the Closing, Purchaser shall deliver, or caused
to be delivered, the following:
(a) to each
Stockholder, such Stockholder’s portion of the Closing Merger
Consideration as set forth on Exhibit A attached hereto;
provided, however, that Purchaser has received a Stockholders
Consent and Stockholders Certificate executed by such Stockholder
and the certificate(s) and documents described in Section 2.3(b)
below with respect to the Shares held by such
Stockholder;
(b) to the Escrow
Agent, the Escrow Amount;
(c) to the
Stockholders Representative, the Escrow Agreement executed by
Purchaser and the Escrow Agent;
(d) an offer of
employment (each, an “ Offer ,” and together,
the “ Offers ”) from Purchaser to each of the
Company’s employees that will continue employment with
Purchaser or a subsidiary of Purchaser (the “ Continuing
Employees ”) with terms and conditions mutually agreed
upon by Purchaser and each such Continuing Employee; and
(e) such other
further documents and instruments as counsel for Purchaser and the
Company mutually agree to be reasonably necessary to consummate the
Merger.
2.3 Deliveries by
the Company . Subject to the terms and conditions of
this Agreement, at the Closing the Company shall deliver, or cause
to be delivered, to Purchaser the following:
(a) a copy of the
Certificate of Incorporation and Bylaws or other organizational
document of the Company, and resolutions of the Company’s
Board of Directors and Stockholders with respect to this Agreement,
the Merger and the transactions contemplated hereunder, in each
case, certified by the corporate secretary of the
Company;
(b) original stock
certificates evidencing the Requisite Shares properly endorsed or
with stock powers executed in blank or otherwise and having all
necessary documentary or stock transfer tax stamps affixed thereto
at the expense of Stockholders in a form suitable for transfer of
valid title thereto to Purchaser, free and clear of any
Encumbrances;
(c) the stock transfer
book, minute book and corporate seal of the Company;
(d) certificate of
good standing with respect to the Company, dated within five (5)
days of the Closing Date, from the Secretary of State of the State
of Delaware and of the State of California;
(e) duly executed
Consents of all third parties required by the Company to consummate
the Merger, in form and substance reasonably satisfactory to
Purchaser, including those Consents set forth on Schedule
3.3 ;
(f) a legal opinion
from counsel to the Company concerning the matters set forth in
Exhibit C .
(g) a certificate
executed by the Company’s Chief Executive Officer, dated as
of the Closing Date, certifying that:
(i) the
representations and warranties of the Company set forth in this
Agreement, or in any written statement or certificate that shall be
delivered to Purchaser by the Company under this Agreement, are
true and correct on and as of the date made and as of the Closing
Date as if made on the date thereof (except to the extent such
representation or warranty specifies an earlier date),
(ii) the Company has
performed all obligations and covenants required to be performed by
each of them under this Agreement and any other agreement or
document entered into in connection herewith prior to the Closing
Date; and
(iii) if there is
Negative Working Capital as of the Closing Date, that the detailed
statement of the current assets and the liabilities of the Company
attached to such certificate is true, correct and complete as of
the Closing Date.
(h) executed Offers
from each Continuing Employee pursuant to which each Continuing
Employee accepts employment with Purchaser;
(i) the Escrow
Agreement executed by the Company and the Stockholders
Representative;
(j) executed
non-competition agreements from each of John Poisson and Ian
Jeffrey in substantially the form attached hereto as Exhibit
D ;
(k) a properly
executed Foreign Investment and Real Property Tax Act of 1980
Notification Letter signed by the Company, in form and substance
reasonably satisfactory to Purchaser, which states that Shares do
not constitute “United States real property interests”
under Section 897(c) of the Code, for purposes of satisfying
Purchaser’s obligations under Treasury Regulation
Section 1.1445-2(c)(3);
(l) copies of the
Stockholder Consents of the outstanding capital stock of the
Company evidencing approval by no less than 97 of the outstanding
shares of capital stock of the Company as of the date of this
Agreement evidencing the approval of this Agreement, all of the
Merger Documents, the Merger and all the transactions contemplated
hereunder;
(m) certificate signed
by Stockholders holding the Requisite Shares containing
representation and warranties, and a general release in favor of
the Company in substantially the form attached hereto as
Exhibit E (the “ Stockholders
Certificate ”); and
(n) such other further
documents and instruments as counsel for the Company and Purchaser
mutually agree to be reasonably necessary to consummate the
Merger.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
Except as set forth in the
corresponding sections of the disclosure schedule delivered by the
Company to Purchaser concurrently with the execution and delivery
of this Agreement (the “ Disclosure Schedule ”),
the Company hereby represents and warrants to Purchaser and Sub,
that, as of the date hereof:
3.1 Organization
and Qualification . The Company is a corporation
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has all
requisite power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted. The Company is duly qualified or licensed as
a foreign corporation to conduct business and is in good standing
in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such
qualification or licensing necessary, and in which the failure to
be so qualified or licensed would have a Material Adverse
Effect. The Company has delivered to Purchaser complete
and correct copies of the Certificate of Incorporation and Bylaws
of the Company, including any amendments thereto, and the Company
is not in violation of any of the provisions of its Certificate of
Incorporation or Bylaws. The Company has delivered to
Purchaser true and complete copies of the stock certificates, stock
transfer books and minute books of the Company.
3.2 Authority
.
(a) The
Company has all necessary corporate power and authority to execute
and deliver this Agreement and the other Merger Documents, to
perform its respective obligations thereunder, and to consummate
the transactions contemplated thereby; provided ,
however , that consummation of the Merger is subject to
obtaining the following approvals of various classes and series of
stockholders of the Company: (i) at least sixty percent (60%) of
the outstanding shares of Preferred Stock (voting together as a
single class on an as-converted basis), a majority of the
outstanding shares of Common Stock, and a majority of the
outstanding shares of capital stock (on an as-converted basis), in
each case in favor of adoption of this Agreement and the Merger
(the “ Company Stockholder Approval ”), and the
Company Stockholder Approval is the only vote or approval of the
holders of any class or series of capital stock of the Company
which is necessary to adopt this Agreement and the Merger and such
Company Shareholder Approval has been duly and validly obtained
concurrently herewith. The execution, delivery and
performance by the Company of this Agreement and the Merger and
each of the Merger Documents to which the Company will be a party
and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly and validly
authorized by the Board of Directors of the Company and the
stockholders of the Company and no other corporate proceedings on
the part of the Company or its stockholders are necessary to
authorize the execution and delivery of this Agreement and the
Merger or any of the Merger Documents or to consummate the
transactions contemplated hereby or thereby. This
Agreement and the other Merger Documents have been duly and validly
executed and delivered by the Company and assuming due
authorization, execution and delivery hereof by Purchaser and Sub,
constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable
principles related to or limiting creditors’ rights generally
and by the availability of equitable remedies and
defenses.
(b) The
Board of Directors of the Company, at a meeting held September 9,
2009, (i) determined that this Agreement, the Merger Agreement and
the Merger are fair to and in the best interests of the Company and
its stockholders and (ii) resolved to recommend that the
Company’s stockholders approve and adopt this Agreement, the
Merger and the transactions contemplated hereunder.
3.3 No Conflicts;
Required Consents . No Consents other than those set
forth in Schedule 3.3 are required with respect to the
Company’s execution and delivery of this Agreement and the
other Merger Documents and the consummation of the
Merger. The execution, delivery and performance of this
Agreement and the other Merger Documents by the Company does not
and will not, with or without notice, lapse of time or both, (i)
conflict with or violate the Company’s Certificate of
Incorporation, Bylaws or other organizational documents, (ii)
conflict with or violate any Legal Requirement applicable to the
Company or by which any property or asset of the Company is bound
or affected, (iii) assuming the Consents listed in Schedule
3.3 are obtained, result in any breach of or constitute a
default under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the
creation of any Encumbrance on any property or asset of the Company
pursuant to any note, bond, mortgage, indenture, Contract, lease,
license, permit, franchise or other instrument or obligation, (iv)
violate or conflict with any other material restriction of any kind
or character to which the Company is subject, or (v) require the
Company to obtain any Consent of, or make or deliver any filing or
notice to, a Governmental Authority.
3.4
Capitalization . The authorized capital stock of
the Company consists of:
(a) 11,140,000 shares
of Preferred Stock, of which 4,015,000 shares have been designated
Series A Preferred Stock, all of which are
issued and outstanding, and 7,125,000 shares have been designated
Series B Preferred Stock, 6,931,738 shares of
which are issued and outstanding. All of the outstanding
shares of Preferred Stock have been duly authorized, are fully paid
and nonassessable and were issued in compliance with all applicable
federal and state securities laws, and were not issued in violation
of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any
provision of the Delaware Law, the Company’s Certificate of
Incorporation, Bylaws, other organizational document, or any
agreement or obligation to which the Company is a party or
otherwise bound.
(b) 30,000,000 shares
of Common Stock, 1,716,133 shares of which are issued and
outstanding. All of the outstanding shares of
Common Stock have been duly authorized, are fully paid and
nonassessable and were issued in compliance with all applicable
federal and state securities laws, and were not issued in violation
of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any
provision of the Delaware Law, the Company’s Certificate of
Incorporation, Bylaws, other organizational document, or any
agreement or obligation to which the Company is a party or
otherwise bound.
(c) The Company has
reserved 2,027,597 shares of Common Stock for issuance to officers,
directors, employees and consultants of the Company pursuant to its
2005 Stock Plan duly adopted by the Board of Directors and approved
by the holders of the Company’s voting capital stock (the
“ Stock Plan ”). Of such reserved
shares of Common Stock, no shares have been issued pursuant to
restricted stock purchase agreements, options to purchase 869,500
shares have been granted and are outstanding immediately prior to
the Closing Date (the “ Outstanding Options ”),
and 1,148,097 shares of Common Stock remain available for issuance
to officers, directors, employees and consultants pursuant to the
Stock Plan. As of the Closing Date, all the
Outstanding Options will have been terminated and will be of no
further force and effect. Other than the
Outstanding Options, there are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other agreements or commitments
obligating the Company to issue, sell or otherwise cause to become
outstanding any of its capital stock, or any other securities
convertible into, exchangeable for or evidencing the right to
subscribe for or otherwise purchase, redeem or acquire any shares
of capital stock of the Company or any interest
therein. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation or similar rights
with respect to the Company. There are no voting
trusts, proxies, stockholder agreements or other agreements or
understandings with respect to the voting of the capital stock of
the Company. To the Company’s knowledge, no Seller is a party
to nor bound by any option, contract, agreement or arrangement to
sell, assign, transfer or otherwise dispose of any of the
Shares. The Company has never adjusted or amended the
exercise price of any stock options previously awarded, whether
through amendment, cancellation, replacement grant, repricing, or
any other means. The terms of the Stock Plan and
the applicable stock option agreements permit the automatic
termination of the Outstanding Options, without the consent,
approval or any action on the part of the holders of such
securities, the Company’s stockholders, or otherwise and
without any acceleration of the exercise schedule or vesting
provisions with respect to such options, if the fair market value
of each such Outstanding Option is less than the exercise price of
each such Outstanding Option as of the Effective Time of the Merger
and, as a result such terms, all of the Options will terminate upon
the Closing. True and complete copies of all agreements
and instruments relating to or issued under the Stock Plan have
been made available to Purchaser and such agreements and
instruments have not been amended, modified or supplemented, and
there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form(s) provided to
Purchaser.
(d) As of the Closing
Date, the Shares constitute all of the issued and outstanding
capital stock of the Company. The rights, preferences
and privileges of the Shares are as set forth in the
Company’s Certificate of Incorporation. A true and
complete list of all of the Company’s securityholders
immediately prior to the Closing Date is attached hereto as
Schedule 3.4(d) and includes the name of the securityholder, the
type and number of securities held by each such holder, and the
exercise price with respect to the options.
3.5
Subsidiaries . The Company has no
subsidiaries. The Company does not directly or
indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or
other business association or Entity.
3.6 Financial
Statements . The Company has delivered to Purchaser
the unaudited balance sheet, and the related unaudited statements
of operations, changes in stockholders’ equity and cash flows
of the Company (a) as of and for the twelve (12) months
ended December 31, 2007 and December 31, 2008, and (b) as of and
for the eight-months ended August 31, 2009 (the “Financial
Statement Date”) (collectively, the “ Financial
Statements ”). The Financial Statements (a)
are true, accurate and complete in all respects, (b) are consistent
with the books and records of the Company, (c) present fairly and
accurately the financial condition of the Company as of the date
thereof and the results of operations, changes in
stockholders’ equity and cash flows of the Company for the
periods covered thereby, and (d) have been prepared in accordance
with GAAP, applied on a consistent basis throughout the periods
covered, except that the Financial Statements are subject to
year-end adjustments and do not contain all of the footnotes
required by GAAP.
3.7 No Undisclosed
Liabilities . The Company has no liabilities,
obligations or commitments of any nature (whether known or unknown,
absolute, accrued, contingent, liquidated or otherwise), except (a)
liabilities, obligations or commitments which are appropriately
reflected or reserved against in the Financial Statements, or (b)
liabilities, obligations or commitments which have been incurred in
the ordinary course of business since the Financial Statement Date,
and not in excess of $10,000 in the aggregate.
3.8 Absence of
Changes . Except as contemplated or permitted by
this Agreement, since the Financial Statement Date:
(a) the Business of
the Company has been conducted in all material respects in the
ordinary course consistent with past practice;
(b) no event or
circumstance has occurred that has had or is reasonably likely to
have a Material Adverse Effect;
(c) the Company has
not: (i) amended its Certificate of Incorporation, Bylaws or other
organizational document; (ii) except with respect to the Shares,
issued, sold, transferred, pledged, disposed of or encumbered any
share of any class or series of its common stock or securities
convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of its
common stock; (iii) declared, set aside or paid any dividend or
other distribution payable in cash, stock or property with respect
to any shares of its common stock; (iv) split, combined or
reclassified any shares of its common stock; or (v) redeemed,
purchased or otherwise acquired directly or indirectly any shares
of its common stock, or any instrument or security which consists
of or includes a right to acquire such shares;
(d) the Company has
not adopted a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization of the Company;
(e) neither the
Company nor, to the Company’s knowledge, any of the
Stockholders, has taken any action, agreed to take
any action, or omitted to take any action that would constitute a
breach of Section 5.1 or 5.2 if such action or
omission were taken between the date of this Agreement and the
Closing Date; and
(f) the Company has
not made any agreement to do any of the foregoing, other than
negotiations with Purchaser and its Representatives regarding the
Merger.
3.9 Contracts
.
(a) Schedule
3.9 provides a true and complete list of the following
contracts to which the Company is a party (collectively, the
“ Material Contracts ”):
(i) Real Property
Leases, Personal Property Leases, Contracts related to insurance,
Contracts affecting any Company Intellectual Property or the
Company’s information systems or software, Contracts with
independent contractors, Company Benefit Plans and Governmental
Approvals;
(ii) Any Contract for
capital expenditures or for the purchase of goods or services in
excess of $10,000;
(iii) Any Contract
obligating the Company to sell or deliver any product or service at
a price which does not cover the cost (including labor, materials
and production overhead) plus the customary profit margin
associated with such product or service;
(iv) Any Contract
involving financing or borrowing of money, or evidencing
indebtedness, any liability for borrowed money, any obligation for
the deferred purchase price of property in excess of $5,000
(excluding normal trade payables) or guaranteeing in any way any
Contract in connection with any Person;
(v) Any joint venture,
partnership, cooperative arrangement or any other Contract
involving a sharing of profits;
(vi) Any Contract with
any Governmental Authority;
(vii) Any Contract
relating to any license or royalty arrangement;
(viii) Any power of
attorney, proxy or similar instrument;
(ix) Any Contract to
indemnify any Person or to share in or contribute to the liability
of any Person;
(x) Any Contract
containing covenants not to compete in any line of business or with
any Person in any geographical area or that would otherwise result
in Purchaser being bound by, or subject to, any non-compete or
other restriction on the operation or scope of its businesses,
including the Business;
(xi) Any Contract
related to the acquisition of a business or the equity of any other
Entity;
(xii) Any Contract
within or needed in the ordinary course of the Company’s
operation of the Business;
(xiii) Any warranty
Contract with respect to services rendered by the Company or
products sold or leased by the Company; and
(xiv) Any proposed
arrangement of a type that, if entered into, would be a Contract
described in any of (i) through (xiii) above.
(b) True and complete
copies of each written Material Contract and true and complete
written summaries of each oral Material Contract (including all
amendments, supplements, modifications and waivers thereof) have
been delivered to Purchaser by the Company.
(c) Each Material
Contract is currently valid and in full force and effect, and, to
the Company’s Knowledge, is enforceable by the Company in
accordance with its terms.
(d) The Company is not
in default, and no party has notified the Company that it is in
default, under any Material Contract. No event has
occurred, and no circumstance or condition exists, that might, with
or without notice or the lapse of time or both: (i) result in a
violation or breach of any of the provisions of any Material
Contract; (ii) give any Person the right to declare a default or
exercise any remedy under any Material Contract; or (iii) give any
Person the right to accelerate the maturity or performance of any
Material Contract or to cancel, terminate or modify any Material
Contract.
3.10 Insurance
. Schedule 3.11 sets forth a true and complete
list of all insurance policies, self-insurance arrangements and
indemnity bonds that insure the Company and the Business
(collectively, the “ Insurance Policies
”). All Insurance Policies are legal, valid,
binding and enforceable in accordance with their respective terms
and are in full force and effect and all premiums due and payable
thereon have been paid. The Company is not in material
breach or default of any Insurance Policy, and to the Knowledge of
the Company, no event has occurred which, with or without notice or
the lapse of time or both, would constitute such a breach or
default, or permit termination or modification of any Insurance
Policy. There is no claim under any Insurance Policy that has been
improperly filed or as to which any insurer has questioned,
disputed or denied liability. The Company has not
received any notice of cancellation or non-renewal of, or a
material increase in the premium with respect to, any Insurance
Policy. The consummation of the Merger will not cause a
breach, termination, modification or acceleration of any Insurance
Policy.
3.11 Assets other than
Real Property.
(a) Schedule
3.11(a ) sets forth a true and complete list of all material
tangible personal property assets that are owned or leased by the
Company, specifying for each asset whether such asset is owned or
leased. The Company is the true and lawful owner or
lessee of and has good and valid title to, or a valid leasehold
interest in, all personal property reflected on Schedule
3.11(a) , in each case free and clear of all
Encumbrances.
(b) The Company owns
or leases all tangible personal property necessary for the conduct
of the Business as presently conducted. All tangible
personal property of the Company is located at its offices at 454
Natoma Street, San Francisco,
California 94102. To the Knowledge of the
Company, all tangible personal property of the Company is free from
material defects and is in good working order, ordinary wear and
tear excepted.
3.12 Real
Property . The Company does not own any real
property.
3.13 Intellectual
Property .
(a) General
. Schedule 3.13(a) sets forth a true and
complete list of all Company Intellectual Property that is either
Registered Intellectual Property Rights or owned by others and
licensed to the Company (except for generally commercially
available off-the-shelf software products), specifying as to each,
as applicable: (i) the nature of such Company Intellectual
Property; (ii) the owner of such Company Intellectual Property;
(iii) in the case of Registered Intellectual Property Rights, the
jurisdictions by or in which such intellectual property has been
issued or registered or in which an application for such issuance
or registration has been filed (or, in the case of Domain Names,
the registrars with which such Domain Names are registered),
including the respective registration or application numbers and
dates of issuance, registration or filing; and (iv) Contracts,
licenses, sublicenses, agreements and other arrangements to which
the Company is a party and pursuant to which any Person (including
the Company) is authorized to use such intellectual property,
including the identity of all parties thereto, a description of the
nature and subject matter thereof, the applicable royalty and the
term thereof. Each item of Company Intellectual Property
owned by or exclusively licensed to the Company: (x) is valid,
subsisting and in full force and effect; (y) has not been abandoned
or passed into the public domain; and (z) is free and clear of all
Encumbrances, except for non-exclusive licenses granted to end-user
customers in the ordinary course of business.
(b) Sufficiency of
Company Intellectual Property. The Company
Intellectual Property constitutes all of the Intellectual Property
Rights used in and/or necessary to the conduct of the Business as
it is currently conducted, and as it is currently planned or
contemplated to be conducted by the Company prior to the Closing
and, to the Knowledge of the Company, by Purchaser following the
Closing, including the design, development, manufacture, use,
import and sale of any of the Company’s products (including
those currently under development).
(c) Title to
Company Intellectual Property. Each item of Company
Intellectual Property either: (i) is exclusively owned by the
Company and was written and created solely by employees or
contractors of the Company acting within the scope of their
employment or contractor relationships, or by third parties, all of
which employees, contractors and third parties have validly and
irrevocably assigned all of their rights, including any
Intellectual Property Rights therein, to the Company, and no third
party owns or has any rights to any such Company Intellectual
Property; or (ii) is duly and validly licensed to the Company for
use in the manner currently used by the Company and, to the
Knowledge of the Company, in the manner contemplated by Purchaser
following the Closing. In each case in which the Company
has acquired any Intellectual Property Rights from any Person, the
Company has obtained a valid and enforceable assignment (and/or
waivers in the case of moral rights) sufficient to irrevocably
transfer all rights in such Intellectual Property Rights (including
the right to seek past and future damages with respect thereto) to
the Company. No Person who has licensed Intellectual
Property Rights to the Company has ownership rights or license
rights to improvements made by the Company in such Intellectual
Property Rights. The Company has not transferred to any
Person ownership of, or granted any exclusive license of or any
exclusive right to use, or authorized the retention of any
exclusive rights to use or joint ownership of, any Intellectual
Property Rights that are or were Company Intellectual Property to
any Person.
(d) Validity;
Enforceability. To the Knowledge of the Company,
there are no facts or circumstances that would: (i) render any
Company Intellectual Property invalid or unenforceable; (ii)
adversely affect any pending application for any Registered
Intellectual Property Right; or (iii) adversely affect or impede
the ability of the Company to use any Company Intellectual Property
in the conduct of the Business as it is currently conducted or by
Purchaser following the Closing. The Company has not
misrepresented, or failed to disclose, and have no Knowledge of any
misrepresentation or failure to disclose, any fact or circumstance
in any application for any Registered Intellectual Property Right
that would constitute fraud or a misrepresentation with respect to
such application or that would otherwise affect the validity or
enforceability of any Registered Intellectual Property
Right.
(e) Maintenance of
Registered Intellectual Property Rights. All
necessary registration, maintenance and renewal fees in connection
with each item of Registered Intellectual Property Rights have been
paid and all necessary documents and certificates in connection
with such Registered Intellectual Property Rights have been filed
with the relevant patent, copyright, trademark, domain name
registrar or other authorities in the United States or foreign
jurisdictions, as the case may be, for the purposes of maintaining
such Registered Intellectual Property Rights. There are
no actions that must be taken by the Company within one hundred
twenty (120) days following the Closing, including the payment of
any registration, maintenance or renewal fees or the filing of any
responses to office actions, documents, applications or
certificates for the purposes of obtaining, maintaining,
perfecting, preserving or renewing any Registered Intellectual
Property Rights. To the maximum extent provided for by,
and in accordance with, applicable laws and regulations, the
Company has recorded in a timely manner each such assignment of a
Registered Intellectual Property Right assigned to the Company with
the relevant governmental authority, including the United States
Patent and Trademark Office (the “ PTO ”), the
U.S. Copyright Office or their respective counterparts in any
relevant foreign jurisdiction, as the case may be.
(f) Conduct of the
Company. The Company has taken commercially
reasonable steps to protect, preserve and maintain (i) the
confidentiality of the Company Intellectual Property, (ii) the
value and the Company’s rights in the Confidential
Information of the Company and (iii) the confidentiality of
Intellectual Property provided by any Person to the Company,
including by having and enforcing a policy requiring all current
and former officers, employees, consultants and contractors of the
Company to execute appropriate confidentiality and assignment
agreements, copies of which have been delivered to
Purchaser. To the Knowledge of the Company, there has
been no unauthorized disclosure of any Confidential Information
related to the Business, the Company, or violation of obligations
of confidentiality with respect to such. Each individual
who has had access to any Confidential Information has signed a
confidentiality agreement with respect thereto.
(g) No Violation;
Restriction.
(i) The operation of
the Business as it is currently conducted, including, but not
limited to, the design, development, use, import, branding,
advertising, promotion, marketing, manufacture and sale of any of
the Company’s products (including any currently under
development) or services, does not and will not, infringe or
misappropriate any Intellectual Property Rights of any Person,
violate any privacy or publicity right of any Person (including any
right to privacy or publicity), or constitute unfair competition or
trade practices under the laws of any jurisdiction, and the Company
has not received notice from any Person claiming that such
operation or any of the Company’s products (including any
currently under development) or services infringes or
misappropriates any Intellectual Property Rights of any Person
(including any right of privacy or publicity), or constitutes
unfair competition or trade practices under the laws of any
jurisdiction (nor does the Company have Knowledge of any basis
therefor).
(ii) To the Knowledge
of the Company, no Person is violating, infringing or
misappropriating any Company Intellectual Property
Right.
(iii) There are no
Proceedings before any Governmental Authority (including before the
PTO) anywhere in the world related to any of the Company
Intellectual Property, including any Registered Intellectual
Property Rights.
(iv) No Company
Intellectual Property or product or service offered by the Company
is subject to any Proceeding or any outstanding Order, office
action, settlement agreement or stipulation that restricts in any
manner the use, transfer or licensing thereof by the Company or
that may affect the validity, use or enforceability of such Company
Intellectual Property.
(h)
Transferability . All Company Intellectual
Property owned or licensed to the Company is fully transferable,
alienable or licensable by Purchaser without restriction and
without payment of any kind to any third party. The
consummation of the Merger as contemplated hereby will not result
in any loss of, or the diminishment in value of, any Company
Intellectual Property or the right to use any Company Intellectual
Property.
(i) Effect of
Merger . Neither this Agreement nor the Merger will,
as a result of arrangements entered into by the Company or any
Seller, result in: (i) Purchaser granting to any third party any
right to, or with respect to, any Intellectual Property Right owned
by, or licensed to, Purchaser; (ii) Purchaser being bound by, or
subject to, any non-compete or other restriction on the operation
or scope of its businesses, including the Business; or (iii)
Purchaser being obligated to pay any royalties or other amounts to
any third party.
(j) Company Source
Code . The Company has no Contracts pursuant to
which the Company has deposited, or is or may be required to
deposit, in escrow with a third party, any Company Source
Code. Neither the Company nor any third party acting on
its behalf, has disclosed or delivered to any Person, or permitted
the disclosure or delivery to any Person of, any Company Source
Code. No event has occurred, and no circumstance or
condition exists, that (with or without notice or lapse of time or
both) will, or would reasonably be expected to, result in the
disclosure or delivery by the Company or any third party acting on
the Company’s behalf to any Person of any Company Source
Code.
(k) Government or
Third Party Funding. No government funding;
facilities of a university, college, other educational institution
or research center; or funding from third parties was used in the
development of Software programs or applications owned by the
Company. To the Knowledge of the Company, no current or
former employee, consultant or independent contractor of the
Company, who was involved in, or who contributed to, the creation
or development of any of the Company Intellectual Property, has
performed services for any government, or any university, college,
or other educational institution or research center during a period
of time during which such employee, consultant or independent
contractor was also performing services for the Company.
(l) Open Source
. No Software covered by any Company Intellectual
Property is distributed as “open source software” under
any licensing or distribution model that purports to require the
distribution of or access to source code or purports to restrict
the ability to charge for distribution of or to use Software for
commercial purposes (including, but not limited to, the GNU General
Public License, GNU Lesser General Public License, Mozilla Public
License, Netscape Public License, Sun Community Source License and
Sun Industry Standards License) (“ Open Source
”) that is incorporated into, integrated or bundled with, or
used in the development or compilation of any of the
Company’s products or services. The Company has
used commercially reasonable efforts to (i) identify Open Source,
(ii) regulate the use and distribution of Open Source in connection
with its products and services and the development thereof, and
(iii) avoid the release of the source code of any Software included
in the Company Intellectual Property.
(m) Privacy
. The Company has complied with all applicable laws and
with the Company’s published privacy policies and internal
guidelines and procedures, each as in effect from time to time,
relating to privacy and data security, including with respect to
the collection, use, disclosure and transfer (including
cross-border transfers) of Personally Identifiable Information
collected, used or held by the Company. The Company has
made all disclosures to, and obtained all necessary consents from,
all users, customers and workers (i.e., employees, independent
contractors and temporary employees) required by applicable law
relating to privacy and data security and has filed registrations
as required with the applicable data protection authority (a list
of those registrations is attached as Schedule 3.13(m
)). To the Knowledge of the Company, the execution,
delivery and performance of this Agreement and the consummation of
the Merger, including the provision of information about users of
the Company’s products and services by the Company to
Purchaser, complies with all Legal Requirements relating to privacy
and data security, and the Company has made all disclosures to, and
obtained all necessary consents from, all users, customers and
workers as required by applicable law and with the Company’s
published privacy policies and internal guidelines and procedures
with respect thereto.
(n) DMCA Safe
Harbors . The Company operates and has operated the
Business in such a manner as to take reasonable advantage if and
when applicable of the safe harbors provided by Section 512 of the
Digital Millennium Copyright Act (“ DMCA ”),
including by informing users of its products and services of such
policy, designating an agent for notice of infringement claims, and
registering such agent with the U.S. Copyright Office,
expeditiously and if feasible upon receiving notice of possible
infringement, in accordance with the “notice and
take-down” procedures of the DMCA.
(o) No
Contaminants . To the Knowledge of the Company, the
Software used in the operation of the Business (i) is substantially
free of any material defects, bugs and errors in accordance with
generally-accepted industry standards, and (ii) does not contain or
make available any disabling codes or instructions, spyware, Trojan
horses, worms, viruses or other software routines that permit or
cause unauthorized access to, or disruption, impairment,
disablement, or destruction of, Software, data or other materials
that could not be timely remedied using generally-accepted industry
standard measures (collectively, “ Contaminants
”).
(p) Data
Security . Since its inception, the Company has
taken commercially reasonable steps and implemented commercially
reasonable safeguards to ensure that the information technology
systems used in connection with the operation of the Business are
substantially free from Contaminants. The Company takes
and has taken commercially reasonable measures (and all measures
required by law) to ensure that Personally Identifiable Information
is protected against unauthorized access, disclosure, use,
modification or other misuse or misappropriation. To the
Knowledge of the Company, there have been no unauthorized or
accidental accesses, acquisitions, disclosures, intrusions or
breaches of the security of such information technology systems or
complaints, notices to, or Proceedings conducted or claims asserted
by any Person (including any Governmental Authority) regarding the
collection, use, transmission or disclosure or sharing of
Personally Identifiable Information by any Person or violation of
any applicable Legal Requirement; and there is no reasonable basis
for the same and no such claim has been threatened in writing or
pending. The Company has implemented commercially
reasonably necessary and prudent security patches and upgrades that
are generally available for the information technology systems used
in the Business.
3.14 Taxes
.
(a) All Tax Returns
required to be filed by, or with respect to, the Company on or
prior to the Closing Date have been timely filed and all Taxes that
are due and payable (whether or not shown on any Tax Return) have
been timely paid or have been accrued for on the Financial
Statements. The Company is not delinquent in the payment
of any assessment or governmental charge with respect to such Tax
Returns. Schedule 3.14(a) lists all federal,
state, local and foreign income Tax Returns filed with respect to
the Company and all such Tax Returns are true, correct and complete
in all material respects. The Tax Returns of the Company
have never been examined by the IRS or other Taxing Authority and
the Company is not the subject of any Tax audit with respect to
such Tax Returns nor has any Governmental Authority conducted an
investigation or audit of, or commenced any claim or proceeding in
respect of the Company in respect of Taxes and, to the Knowledge of
the Company, no such audits, claims or proceedings are
threatened. No liens for Taxes have been filed against
the Company.
(b) No claim has ever
been made in writing that is currently pending by any Governmental
Authority in a jurisdiction where the Company does not file Tax
Returns that the Company is or may be subject to Tax in that
jurisdiction.
(c) There
