AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

EXHIBIT 10.22

 

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

by and among

 

THE E.W. SCRIPPS COMPANY,

 

GREEN MONSTER ACQUISITION CORP.,

 

SHOPZILLA, INC.

 

and

 

THE SHAREHOLDERS’ REPRESENTATIVE

NAMED HEREIN

 

 

June 6, 2005

TABLE OF CONTENTS

 

 

-i-

 

-ii-

 

-iii-

 

Annex

 

Annex I –Working Capital Guidelines

 

Schedule

 

ARTICLE III Disclosure Schedule – Delivered Separately by the Company

 

Exhibits

 

 

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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

 

This Agreement and Plan of Merger and Reorganization (“ Agreement ”) is made on June 6, 2005, by THE E.W. SCRIPPS COMPANY, an Ohio corporation (“ Parent ”), GREEN MONSTER ACQUISITION CORP., a California corporation (“ Merger Sub ”), SHOPZILLA, INC., a California corporation (the “ Company ”), and Farhad Mohit as the Shareholders’ Representative (as defined herein).

 

RECITALS

 

A. Parent, Merger Sub and the Company intend to effect a merger of Merger Sub into the Company (the “ Merger ”) in accordance with this Agreement and the California General Corporation Law (the “ CGCL ”). Upon consummation of the Merger, Merger Sub will cease to exist, and the Company will become a wholly owned subsidiary of Parent.

 

B. This Agreement has been approved by the respective boards of directors of Parent, Merger Sub and the Company.

 

AGREEMENT

 

The parties, intending to be legally bound, agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Section 1.1 Definitions . For purposes of this Agreement, the following terms have the meanings specified in this Section:

 

“ Accountants ” is defined in Section 2.11(c) .

 

“ Acquisition Proposal ” is defined in Section 6.6(b) .

 

“ Acquisition Transaction ” means any transaction involving: (a) the sale, license, disposition or acquisition of all or a substantial portion of the business or assets of the Company; (b) the issuance, disposition or acquisition of (i) any capital stock or other equity security of the Company (other than Company Common Stock issued to employees of the Company upon exercise of Company Options in routine transactions in accordance with the Company’s past practices), (ii) any option, call, warrant or right (whether or not immediately exercisable) to acquire any capital stock or other equity security of the Company, or (iii) any security, instrument or obligation that is or may become convertible into or exchangeable for any capital stock or other equity security of the Company; in each of clauses (i) through (iii), representing in the aggregate 1% or more of the voting power of the Company; or (c) any merger, consolidation, share exchange, business combination, reorganization, recapitalization or similar transaction involving the Company, in each of clauses (a) through (c) other than the Contemplated Transactions and other than any transactions by or involving the Company that are permitted under Section 6.3 or Section 6.6 .

 

“ Adware ” is defined in Section 3.25(b) .

“ Affiliate ” means, with respect to any Person, any other Person (i) that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with such Person, (ii) that is a general partner, director, manager, trustee or principal officer of, or a limited partner owning more than 10% of, or that serves in a similar capacity with respect to, such Person, or (iii) of which such Person is a general partner, director, manager, trustee or principal officer or a limited partner owning more than 10% of, or with respect to which such Person serves in a similar capacity. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to direct or to cause the direction of the management or policies of the Person in question through the ownership of voting securities or by contract or otherwise.

 

“ Agreement ” is defined in the first paragraph of this Agreement.

 

“ Aggregate Escrow Cash Amount ” is defined in Section 2.5(c) .

 

“ Aggregate Exercise Amount ” is defined in Section 2.5(b) .

 

“ Aggregate Liquidation Preference ” is defined in Section 2.5(b) .

 

“ Award Amount ” is defined in Section 12.8(f) .

 

“ Break-Up Fee ” is defined in Section 11.1(h) .

 

“ Business Day ” means any day other than a Saturday or a Sunday, and any day other than a day that is a bank holiday in the State of California or the State of Ohio.

 

“ CGCL ” is defined in the Recitals.

 

“ Claimed Amount ” is defined in Section 12.8(a) .

 

“ Closing ” is defined in Section 2.3 .

 

“ Closing Date ” means the date as of which the Closing actually takes place.

 

“ Closing Date Balance Sheet ” means a consolidated balance sheet of the Company and its Subsidiary (together with related notes and supporting schedules and work papers) as of the Closing Date, prepared in accordance with GAAP and on a basis consistent with the basis on which the audited Financial Statements were prepared; provided, however, (i) amounts due to holders of unexercised and outstanding Company Options immediately prior to or at the Effective Time for the excess of the Preliminary Residual Share Amount over the Exercise Price per share of such options shall not be included in the Closing Date Balance Sheet and (ii) amounts due to holders of shares of Company Preferred Stock outstanding immediately prior to or at the Effective Time (excluding any shares of Company Preferred Stock converted into Common Stock prior to the Effective Time) shall not be included in the Closing Date Balance Sheet.

 

“ Closing Date Option Holder ” is defined in Section 2.12(a) .

 

“ Closing Date Shareholder ” is defined in Section 2.12(a) .

 

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“ Closing Date Working Capital ” is defined in Section 2.11(b) .

 

“ Closing Payment Schedule ” is defined in Section 2.12(a) .

 

“ Company ” is defined in the first paragraph of this Agreement.

 

“ Company Articles ” means the articles of incorporation of the Company.

 

“ Company Board ” means the Board of Directors of the Company.

 

“ Company Board Recommendation ” is defined in Section 6.7 .

 

“ Company Capital Stock ” means Company Common Stock and Company Preferred Stock.

 

“ Company Common Stock ” means the common stock, no par value, of the Company.

 

“ Company IP ” means the Owned IP together with the Licensed IP.

 

“ Company Options ” means any Contract to acquire shares of Company Common Stock from the Company, whether vested or unvested and whether exercisable or not exercisable.

 

“ Company Option Plan ” is defined in Section 3.3(b) .

 

“ Company Other Benefit Obligation ” is defined in Section 3.12 .

 

“ Company Plan ” is defined in Section 3.12 .

 

“ Company Preferred Stock ” means the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock.

 

“ Company Registered IP ” means federal, state and foreign: (a) patents, including applications therefor, (b) registered trademarks and applications to register trademarks, including intent-to-use applications, (c) copyrights registrations and applications to register copyrights, and (d) registered mask works and applications to register mask works; owned by, or filed by or on behalf of, or applied for, by the Company or its Subsidiary.

 

“ Company Stock Certificate ” is defined in Section 2.7(b) .

 

“ Confidential Information ” means inventions, analytics, algorithms, formulae, schematics, technical drawings, ideas, know-how, trade secrets, processes, procedures, graphs, drawings, reports, analyses, tools, engineering orders, databases, software, computer programs (whether in source code, object code or human readable form), program listings, new developments, and other proprietary information of the Company or its Subsidiary, however recorded or stored, which are not generally known to the public and are not readily ascertainable by lawful and proper means.

 

“ Consent ” means any approval, consent, ratification, waiver, or other authorization (including any Governmental Authorization).

 

“ Consent Solicitation Statement ” is defined in Section 6.7 .

 

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“ Contemplated Transactions ” means all of the transactions and other matters contemplated by this Agreement, including: (a) the Merger; (b) the performance by the Company, Parent and Merger Sub of their respective covenants and obligations under this Agreement; and (c) the solicitation and obtaining of the affirmative votes or written consents of the shareholders of the Company approving the principal terms of this Agreement.

 

“ Contested Amount ” is defined in Section 12.8(b) .

 

“ Contract ” means any agreement, contract, obligation, promise, or undertaking (whether written or oral and whether express or implied).

 

“ Damages ” means any loss, damage, liability (including any liability of Parent or the Surviving Corporation under Section 7.1 ), settlement, judgment, award, fine, penalty, fee (including reasonable attorneys’ fees, whether relating to a Third Party Claim or an action by an Indemnitee to enforce its rights under this Agreement), cost (including out-of-pocket costs of investigation) or expense of any nature.

 

“ Disclosure Schedule ” is the Disclosure Schedule within which the Schedules contemplated by this Agreement shall be included, as contemplated by Article III .

 

“ Dispute Period ” is defined in Section 12.8(b) .

 

“ Dissenting Shares ” is defined in Section 2.9(a) .

 

“ Effective Time ” is defined in Section 2.3 .

 

“ Encumbrance ” means any charge, claim, community property interest, condition, equitable interest, lien, option, pledge, security interest, right of first refusal, or restriction of any kind, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership.

 

“ Entity ” means any corporation (including any non-profit corporation), general partnership, limited partnership, limited liability partnership, joint venture, estate, trust, company (including any limited liability company or joint stock company), firm or other enterprise, association, union, political party, organization or unincorporated entity.

 

“ Environment ” means soil, land surface or subsurface strata, surface waters (including navigable waters, streams, ponds, drainage basins, and wetlands), groundwater, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, and any natural resource.

 

“ Environmental, Health, and Safety Liabilities ” means any cost, damages, liability or other obligation arising under Environmental Law or the provisions of Occupational Safety and Health Law governing Hazardous Materials and consisting of or relating to (a) any environmental, health, or safety matters or conditions (including on-site or off-site contamination, and regulation of Hazardous Materials); (b) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, damages, losses, claims, demands and response, investigative, remedial, or inspection costs and expenses arising under Environmental Law or the provisions of Occupational Safety and Health Law governing Hazardous Materials; (c) financial responsibility under Environmental Law or the provisions of Occupational Safety and Health Law governing Hazardous Materials for cleanup costs or corrective

 

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action, including any investigation, cleanup, removal, containment, or other remediation or response actions (“ Cleanup ”) required by applicable Environmental Law or the provisions of Occupational Safety and Health Law governing Hazardous Materials (whether or not such Cleanup has been required or requested by any Governmental Body or other Person) and for any natural resource damages; or (d) any other compliance, corrective, investigative, or remedial measures required under Environmental Law or the provisions of Occupational Safety and Health Law governing Hazardous Materials. The terms “ removal ,” “ remedial ,” and “ response action ” include the types of activities covered by the U.S. Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §9601 et seq ., as amended.

 

“ Environmental Law ” means any Legal Requirement in effect as of the date hereof or at any time during the existence of the Company that requires or relates to: (a) advising appropriate authorities, employees, and the public of intended or actual releases of pollutants or hazardous substances or materials, violations of discharge limits, or other prohibitions and of the commencements of activities that would have significant impact on the Environment; (b) preventing or reducing to acceptable levels the release of pollutants or hazardous substances or materials into the Environment; (c) reducing the quantities, preventing the release, or minimizing the hazardous characteristics of wastes that are generated; (d) cleaning up pollutants that have been released, preventing the threat of release of pollutants, or paying the costs of such clean up or prevention; (e) making responsible parties pay private parties for damages done to their health or the Environment, or permitting self-appointed representatives of the public interest to recover for injuries done to public assets; or (f) the use, storage, or disposal of Hazardous Materials.

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974 or any successor law, and rules and regulations issued pursuant thereto.

 

“ ERISA Affiliate ” is defined in Section 3.12 .

 

“ Escrow Agent ” means LaSalle Bank National Association.

 

“ Escrow Agreement ” means the Escrow Agreement to be entered into among Parent, the Shareholders’ Representative and the Escrow Agent on the Closing Date, substantially in the form of Exhibit A .

 

“ Escrow Balance ” is defined in Section 12.8(g) .

 

“ Escrow Fund ” means the escrow fund established pursuant to the Escrow Agreement for the purpose of securing the indemnification and other rights of Parent and the other Indemnitees pursuant to Article XII .

 

“ Escrow Participants ” is defined in Section 12.8(g) .

 

“ Escrow Participation ” is defined in Section 12.8(g) .

 

“ Escrow Termination Date ” is defined in Section 12.1 .

 

“ Estimated Closing Date Balance Sheet ” means a consolidated balance sheet of the Company and its Subsidiary as of the Closing Date based on the Company’s good faith estimate of the projected

 

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assets and liabilities of the Company and its Subsidiary as of such date and prepared in accordance with GAAP and on a basis consistent with the Company’s audited Financial Statements (but excluding footnotes); provided, however, (i) amounts due to holders of unexercised and outstanding Company Options immediately prior to or at the Effective Time for the excess of the Preliminary Residual Share Amount over the Exercise Price per share of such options shall not be included in the Estimated Closing Date Balance Sheet and (ii) amounts due to holders of shares of Company Preferred Stock outstanding immediately prior to or at the Effective Time (excluding any shares of Company Preferred Stock converted into Common Stock prior to the Effective Time) shall not be included in the Estimated Closing Date Balance Sheet.

 

“ Estimated Working Capital ” is defined in Section 2.11(a) .

 

“ Exercise Price ” means the cash amount required to purchase one share of Company Common Stock upon exercise of the Company Option to which such share relates.

 

“ Existing Policy ” is defined in Section 7.1(b) .

 

“ Facilities ” means any real property, leaseholds, or other interests in real property currently or formerly owned, occupied or operated by the Company or its Subsidiary and any buildings, structures, or equipment currently or formerly owned, leased, occupied or operated by the Company or its Subsidiary.

 

“ FCC ” means the Federal Communications Commission.

 

“ Final Order ” means an Order of a Governmental Body that is in full force and effect and with respect to which no appeal, request for stay, request for reconsideration or other request for review is pending; with respect to which the time for appeal, requesting a stay, requesting reconsideration or requesting other review has expired; and with respect to which the time for the Governmental Body to set aside the order sua sponte has expired.

 

“ Financial Statements ” is defined in Section 3.4(a) .

 

“ Fully Diluted Company Share Number ” is defined in Section 2.5(b) .

 

“ GAAP ” means generally accepted United States accounting principles.

 

“ Governmental Authorization ” means any approval, consent, license, permit, waiver, or other authorization issued, granted, given, or otherwise made available by or under the authority of any Governmental Body or pursuant to any Legal Requirement.

 

“ Governmental Body ” means any: (a) nation, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national governmental or quasi-governmental organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature.

 

“ HSR Act ” is defined in Section 8.1(b) .

 

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“ Hazardous Activity ” means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, storage, transfer, transportation, treatment, or use of Hazardous Materials in, on, or under the Facilities or any part thereof or the Release about, or from the Facilities or any part thereof into the Environment.

 

“ Hazardous Materials ” means any waste or other substance that is listed, defined, designated, or classified as, hazardous, radioactive, or toxic or a pollutant or a contaminant under any Environmental Law, including any regulated mixture or solution thereof.

 

“ Indemnified Company Personnel ” is defined in Section 7.1(a) .

 

“ Indemnitees ” means the following Persons: (a) Parent; (b) Parent’s current and future Affiliates (including the Surviving Corporation); (c) the respective Representatives of the Persons referred to in clauses “(a)” and “(b)” above; and (d) the respective successors and assigns of the Persons referred to in clauses “(a),” “(b)” and “(c)” above; provided, however , that the Persons who were shareholders of the Company prior to the Effective Time shall not be deemed to be “Indemnitees.”

 

“ Intellectual Property ” and “ IP ” mean all intellectual, industrial and/or proprietary rights, whether domestic or foreign, in and to the following, without limitation: (a) all inventions (whether or not patentable and whether or not reduced to practice) and invention disclosures; (b) all patents and all patent applications, including, without limitation, continuations, continuations-in-part, divisionals, provisionals, reexaminations, reissue applications and renewals; (c) all copyrights, whether registered or unregistered and all other rights corresponding thereto, and mask works and registrations and applications therefor; (d) all trade names, trademarks, trade dress, service marks and domain names (including, without limitation, any word, symbol, product configuration, icon, logo and all goodwill associated therewith) along with registrations therefor and applications for registration thereof; (e) all Confidential Information; and (f) all rights to sue or otherwise claim for past, present or future infringement or unauthorized use or disclosure of any of the assets, properties or rights described in the foregoing clauses (a) – (e).

 

“ IRC ” means the Internal Revenue Code of 1986, as amended, or any successor law, and the regulations issued by the IRS pursuant thereto.

 

“ IRS ” means the U.S. Internal Revenue Service or any successor agency, and, to the extent relevant, the U.S. Department of the Treasury.

 

An individual will be deemed to have “ Knowledge ” of a particular fact or matter if he or she is actually aware of such fact or matter; provided that, except as otherwise provided herein, such individual’s Knowledge shall be based upon reasonable inquiry consistent with his or her relevant title and responsibility. The Company will be deemed to have “ Knowledge ” of a particular fact or matter if any of Charles Davis, John Phelps, Brad Kates, Henri Asseily, Farhad Mohit or Stacey Olliff, in their capacities as officers of the Company, has, or at any time had, Knowledge of such fact or matter in accordance with the preceding sentence. Parent will be deemed to have “ Knowledge ” of a particular fact or matter if any employees of Parent with material involvement in the Contemplated Transactions (including the diligence performed by Parent on the Company prior to the date of this Agreement) has, or at any time had, Knowledge of such fact or matter in accordance with the first sentence of this definition.

 

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“ Legal Requirement ” means any Order, constitution, law, ordinance, principle of common law, regulation, statute, or treaty of any Governmental Body.

 

“ Letter of Transmittal ” is defined in Section 2.8(b) .

 

“ Licensed IP ” means all Intellectual Property used or held for use by the Company or its Subsidiary other than the Owned IP.

 

“ Material Adverse Effect ” or “ Material Adverse Change ” as to any Person means any change, circumstance, or event that is materially adverse to the financial condition, business, assets, operating results, or operations of such Person and its Subsidiaries, taken as a whole, or the ability of such Person to consummate or perform the Contemplated Transactions in accordance with the terms of this Agreement; provided, however, that in no event shall any of the following, either alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, a Material Adverse Effect or Material Adverse Change: (A) any change in any Legal Requirement (other than any Order binding on the applicable party or its Subsidiaries), (B) any change in GAAP or official interpretations thereof, (C) any change resulting from or arising out of market, economic or political conditions in general or in the particular industries in which the applicable party or any of its Subsidiaries conducts business (including any change arising out of acts of terrorism, or war, weather conditions or other force majeure events), unless such conditions disproportionately affect the applicable party and its Subsidiaries, taken as a whole, (D) any change resulting from or arising out of the announcement of this Agreement, the consummation of the Merger or any action taken as required by this Agreement or at the written request of the other party or parties hereto or any action not taken in compliance with negative covenants set forth in this Agreement, and (F) any change arising out of or resulting from any legal claim or Proceeding instituted by any shareholder of any party hereto arising out of or related to this Agreement, the Merger or any other Contemplated Transaction.

 

“ Maximum Premium ” is defined in Section 7.1(b) .

 

“ Merger ” is defined in the Recitals.

 

“ Merger Sub ” is defined in the first paragraph of this Agreement.

 

“ Minimum Closing Working Capital ” means the sum of $500,000.

 

“ Nondisclosure Agreement ” means the BizRate.com Mutual Nondisclosure Agreement between Parent and BizRate.com dated September 14, 2004, as amended pursuant to Section 13.3 .

 

“ Non-Dissenting Shareholder ” means each holder of shares of Company Capital Stock (giving effect to Section 2.5(e) as applicable) that does not perfect such shareholder’s dissenters’ rights under the CGCL and is otherwise entitled to receive consideration pursuant to Section 2.5(a) .

 

“ Notice of Indemnification Claim ” is defined in Section 12.8(a) .

 

“ Occupational Safety and Health Law ” means any Legal Requirement designed to provide safe and healthful working conditions and to reduce occupational safety and health hazards.

 

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“ Option Consideration ” is defined in Section 2.6 .

 

“ Order ” means any award, decree, decision, injunction, judgment, order, ruling, subpoena or verdict entered, issued, made, or rendered by any court, administrative agency or other Governmental Body or by any arbitrator or arbitration panel.

 

“ Ordinary Course of Business ” means an action taken by a Person only if such action is consistent with the past customs and practices of such Person and is taken in the ordinary course of such Person’s normal day-to-day operations.

 

“ Organizational Documents ” means (a) the articles or certificate of incorporation and bylaws or code of regulations of a corporation; or (b) the articles of organization or certificate of formation or similar document and limited liability company agreement or operating agreement or similar document of a limited liability company; (c) any charter or similar document adopted or filed in connection with the creation, formation, or organization of a Person; and (d) any amendment to any of the foregoing.

 

“ Other Benefit Obligations ” is defined in Section 3.12 .

 

“ Owned IP ” means all Intellectual Property owned by the Company or its Subsidiary, or in which the Company or its Subsidiary has an ownership interest, including but not limited to, the Company Registered IP.

 

“ Parent ” is defined in the first paragraph of this Agreement.

 

“ Past Acquisition ” is defined in Section 3.1(f) .

 

“ Payment Agent ” is defined in Section 2.8(a) .

 

“ Payment Fund ” is defined in Section 2.8(a) .

 

“ PBGC ” is defined in Section 3.12 .

 

“ Pension Plan ” is defined in Section 3.12 .

 

“ Person ” means any individual, Entity or Governmental Body.

 

“ Personally Identifiable Information ” is defined in Section 3.25 (b) .

 

“ Plan ” is defined in Section 3.12 .

 

“ Plan Sponsor ” is defined in Section 3.12 .

 

“ Pre-Closing Period ” means the period from the date of this Agreement through the Effective Time.

 

“ Preliminary Residual Per Share Amount ” is defined in Section 2.5(b) .

 

“ Proceeding ” means any action, arbitration, audit, hearing, inquiry, examination, investigation, litigation, or suit or proceeding (whether civil, criminal, administrative, investigative, appellate or

 

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informal) commenced, brought, conducted, or heard by or before, or otherwise involving, any Governmental Body or any arbitrator or arbitration panel.

 

“ Proportionate Share ” is defined in Section 2.5(c) .

 

“ Public Software ” means any software that contains, or is derived in any manner (in whole or in part) from, any software that is distributed as free software, open source software (e.g., Linux) or similar licensing or distribution models, including software licensed or distributed under any of the following licenses or distribution models, or licenses or distribution models similar to any of the following: (a) GNU’s General Public License (GPL) or Lesser/Library GPL (LGPL), (b) the Artistic License (e.g., PERL), (c) the Mozilla Public License, (d) the Netscape Public License, (e) the Sun Community Source License (SCSL), (f) the Sun Industry Standards License (SISL), (g) the BSD License, and (h) the Apache License.

 

“ Qualified Plan ” is defined in Section 3.12 .

 

“ Record Date ” means the record date for the written consent or approval of the shareholders of the Company approving the principal terms of the Merger, which record date shall be the twentieth calendar day following the date of this Agreement.

 

“ Related Party ” is defined in Section 3.26 .

 

“ Release ” means any spilling, leaking, emitting, discharging, depositing, escaping, leaching, dumping, or other releasing into the Environment, whether intentional or unintentional.

 

“ Renegotiation Period ” is defined in Section 11.1(h) .

 

“ Representative ” means with respect to a particular Person, any director, officer, member, manager, employee, agent, consultant, advisor, or other representative of such Person, including legal counsel, accountants, and financial advisors.

 

“ Required Merger Shareholder Vote ” is defined in Section 3.24(a) .

 

“ Response Notice ” is defined in Section 12.8(b) .

 

“ Rules ” is defined in Section 12.8(f) .

 

“ Series A Preferred Stock ” is defined in Section 2.5 .

 

“ Series B Preferred Stock ” is defined in Section 2.5 .

 

“ Series C Preferred Stock ” is defined in Section 2.5 .

 

“ Shareholders’ Representative ” is defined in Section 13.16(a) .

 

“ Spyware ” is defined in Section 3.25(b) .

 

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An Entity shall be deemed to be a “ Subsidiary ” of another Person if such Person directly or indirectly owns or purports to own, beneficially or of record, (a) an amount of voting securities or other interests of such Entity that is sufficient to enable such Person to elect at least a majority of the members of such Entity’s board of directors or other governing body, or (b) at least 50% of the outstanding equity or financial interests of such Entity.

 

“ Superior Proposal ” is defined in Section 6.6(b) .

 

“ Surviving Corporation ” is defined in Section 2.1 .

 

“ Tax ” means (a) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem , value added, franchise, profits, license, withholding on amounts paid to or by the Company or its Subsidiary, payroll, employment, excise, severance, stamp occupation, premium, property, environmental or windfall profit tax, custom, duty, governmental fee, or other tax or other like assessment or charge of any kind whatsoever, together with any interest or any penalty, addition to tax or additional amount, imposed by any Governmental Body responsible for the imposition of any such tax (domestic or foreign), (b) any liability of the Company or its Subsidiary for the payment of any amounts of the type described in clause (a) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period prior to the Closing, and (c) any liability of the Company or its Subsidiary for the payment of any amounts of the type described in clause (a) as a result of any obligation to indemnify any other Person.

 

“ Tax Return ” means any return (including any information return), report, statement, schedule, notice, form, or other document or information filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection, or payment of any Tax or in connection with the administration, implementation, or enforcement of or compliance with any Legal Requirement relating to any Tax.

 

“ Termination Date ” is defined in Section 11.1(c) .

 

“ Third Party Claim ” is defined in Section 12.5 .

 

“ Third Party Intellectual Property Rights ” means Intellectual Property rights of a third party.

 

A claim, demand, Proceeding, dispute, or other matter will be deemed to have been “ Threatened ” if any written demand or statement has been made or any written notice has been given that a claim, demand, Proceeding, dispute, or other matter will be asserted or filed.

 

“ Transaction Expense ” means any out-of-pocket fee, cost, expense, payment, expenditure, or obligation incurred by the Company or its Subsidiary prior to the date of this Agreement, during the Pre-Closing Period or at the Effective Time that (a) relates directly or indirectly to (i) the Company’s involvement or participation in the investigation and review conducted by Parent and its Representatives, and any investigation or review conducted by other prospective purchasers of all or a portion of the business of the Company, with respect to the business of the Company (and the furnishing of information to Parent and its Representatives and such other prospective purchasers and their Representatives in connection with such investigation and review), (ii) the negotiation, preparation, review, execution, delivery or performance of this Agreement (including the Disclosure Schedule), the

 

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Consent Solicitation Statement or any certificate, opinion, Contract or other instrument or document delivered or to be delivered in connection with any of the Contemplated Transactions, (iii) the preparation and submission of any filing or notice required to be made or given in connection with any of the Contemplated Transactions, and the obtaining of any Consent required to be obtained in connection with any of the Contemplated Transactions, or (iv) the consummation of the Merger or any of the other Contemplated Transactions, or (b) is expected to become due or payable, in whole or in part as an obligation of the Surviving Corporation after the Effective Time, as a result of the consummation of the Merger or any of the other Contemplated Transactions; provided, however , that “Transaction Expenses” shall not include any employee severance or other costs that are or may become payable as a result of actions taken by Parent or Surviving Corporation after the Effective Time.

 

“ Unresolved Escrow Claim ” is defined in Section 12.8(g)(ii) .

 

“ Websites ” is defined in Section 3.25 .

 

“ Welfare Plan ” is defined in Section 3.12 .

 

“ Working Capital ” means the consolidated working capital of the Company and its Subsidiary as of the Closing Date determined from the books and records of the Company and its Subsidiary in accordance with GAAP, applied on a basis consistent with the basis on which the audited Financial Statements were prepared, and in accordance with the Working Capital Guidelines set forth on Annex I .

 

ARTICLE II

 

THE MERGER

 

Section 2.1 The Merger . Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time (as defined in Section 2.3 ), Merger Sub shall be merged with and into the Company, and the separate existence of Merger Sub shall cease. The Company will continue as the surviving corporation in the Merger (the “ Surviving Corporation ”).

 

Section 2.2 Effect of the Merger . The Merger shall have the effects set forth in this Agreement and in the applicable provisions of the CGCL.

 

Section 2.3 Closing; Effective Time . The consummation of the Merger (the “ Closing ”) will take place at the offices of the Company at 10:00 a.m. (local time) on the first Business Day immediately following the date on which the last of the conditions set forth in Article IX and Article X is satisfied or waived (other than conditions that by their nature cannot be satisfied until the Closing Date, but subject to satisfaction or waiver of such conditions), or at such other time, date and place as the parties may agree. Subject to the provisions of Article XI , failure to consummate the Closing on the date and time determined pursuant to this Section will not result in the termination of this Agreement and will not relieve any party of any obligation under this Agreement. Subject to the provisions of this Agreement, an agreement of merger satisfying the applicable requirements of the CGCL and otherwise satisfactory in form and substance to Parent shall be duly executed by the Company and Merger Sub and, concurrently with or as soon as practicable following the Closing, shall be delivered to the Secretary of State of the State of California for filing (together with the officers’ certificates required by the CGCL). The Merger

 

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shall become effective at the time of such filing or at such later time specified in such filing (the “ Effective Time ”).

 

Section 2.4 Articles of Incorporation and Bylaws; Directors and Officers . Unless otherwise determined by Parent prior to the Effective Time, at the Effective Time:

 

(a) the Articles of Incorporation of Merger Sub as in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Corporation; provided, however, that Article I of the Articles of Incorporation of the Surviving Corporation shall be amended and restated to read as follows: “The name of this corporation is Shopzilla, Inc.”;

 

(b) the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended; provided, however, that the name of the Surviving Corporation shall be Shopzilla, Inc.; and

 

(c) the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, to serve until their respective successors are duly elected or appointed and qualified.

 

Section 2.5 Conversion of Shares .

 

(a) Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any holder of any shares of the Company Capital Stock or any Company Options:

 

(i) each share of Series A Preferred Stock, no par value, of the Company (“ Series A Preferred Stock ”) outstanding immediately prior to the Effective Time (excluding any shares of Series A Preferred Stock converted into Company Common Stock prior to the Effective Time) shall be converted into the right to receive, in cash, $0.5377;

 

(ii) each share of Series B Preferred Stock, no par value, of the Company (“ Series B Preferred Stock ”) outstanding immediately prior to the Effective Time (excluding any shares of Series B Preferred Stock converted into Company Common Stock prior to the Effective Time) shall be converted into the right to receive, in cash, $4.3465;

 

(iii) each share of Series C Preferred Stock, no par value, of the Company (“ Series C Preferred Stock ”) outstanding immediately prior to the Effective Time (excluding any shares of Series C Preferred Stock converted into Company Common Stock prior to the Effective Time) shall be converted into the right to receive, in cash, the sum of (x) $10.77 plus (y) the Preliminary Residual Per Share Amount (such amount in clause (y) to be reduced by the amount to be withheld pursuant to Section 2.5(c) );

 

(iv) any shares of Company Capital Stock owned by the Company, Parent, Merger Sub or any direct or indirect wholly owned Subsidiary of the Company, Parent or Merger Sub immediately prior to the Effective Time shall be canceled and retired and shall cease to exist without payment of any consideration with respect thereto;

 

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(v) each share of Company Common Stock outstanding immediately prior to the Effective Time (other than shares of Company Capital Stock described in clause “(iv)” above) shall be converted into the right to receive an amount in cash equal to the Preliminary Residual Per Share Amount (calculated pursuant to Section 2.5(b) ) (such amount to be reduced by the amount to be withheld pursuant to Section 2.5(c) ); and

 

(vi) each share of the common stock, no par value, of Merger Sub outstanding immediately prior to the Effective Time shall be converted into one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.

 

(b) The “ Preliminary Residual Per Share Amount ” shall be calculated as follows:

 

$525,000,000 + A + B + C – D

E

 

A

= If the Estimated Working Capital (as estimated pursuant to Section 2.11(a) ) exceeds the Minimum Closing Working Capital, then A shall be a positive number equal to such excess; if such Estimated Working Capital equals the Minimum Closing Working Capital, then A shall be zero; and if such Estimated Working Capital is less than the Minimum Closing Working Capital, then A shall be a negative number equal to such deficiency.

 

B

= The aggregate dollar amount, up to a maximum of $5,000,000, of all Transaction Expenses (as certified pursuant to Section 2.12(a) ) paid in cash by the Company or its Subsidiary prior to, and to be paid in cash by the Company or its Subsidiary at, the Effective Time; provided that the determination of such cash payments shall include the amounts of all drafts, checks and wire transfers issued on accounts of the Company and its Subsidiary for such Transaction Expenses which remain outstanding and uncleared as of the Effective Time.

 

C

= The aggregate dollar amount that would have been received by the Company if all Company Options outstanding and unexercised as of the Effective Time had been exercised prior to the Effective Time (the “ Aggregate Exercise Amount ”).

 

D

= The sum of: (i) the product of (A) the aggregate number of shares of Series A Preferred Stock outstanding immediately prior to the Effective Time (excluding any shares of Series A Preferred Stock converted into Company Common Stock prior to the Effective Time) multiplied by (B) $0.5377; plus (ii) the product of (A) the aggregate number of shares of Series B Preferred Stock outstanding immediately prior to the Effective Time (excluding any shares of Series B Preferred Stock converted into Company Common Stock prior to the Effective Time) multiplied by (B) $4.3465; plus (iii) the product of (A) the aggregate number of shares of Series C Preferred Stock outstanding immediately prior to the Effective Time (excluding any

 

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shares of Series C Preferred Stock converted into Company Common Stock prior to the Effective Time) multiplied by (B) $10.77 (the “ Aggregate Liquidation Preference ”).

 

E

= The sum of (i) the aggregate number of shares of Company Common Stock outstanding immediately prior to the Effective Time (including any such shares that are subject to a repurchase option or risk of forfeiture under any restricted stock purchase agreement or other Contract and any such shares issuable in connection with the conversion of shares of Company Preferred Stock as to which conversion notices have been given prior to the Effective Time), plus (ii) the aggregate number of shares of Company Common Stock purchasable under or otherwise subject to Company Options (whether vested or unvested) outstanding and unexercised immediately prior to the Effective Time, plus (iii) the aggregate number of shares of Company Common Stock purchasable under or otherwise subject to warrants and other rights (other than Company Options) to acquire shares of Company Common Stock (whether or not immediately exercisable) outstanding immediately prior to the Effective Time, plus (iv) the aggregate number of shares of Company Common Stock issuable upon the conversion of any convertible securities of the Company (other than shares of Company Preferred Stock) outstanding immediately prior to the Effective Time, plus (v) the aggregate number of shares of Company Common Stock into which the aggregate number of shares of Series C Preferred Stock outstanding immediately prior to the Effective Time (excluding any shares of Series C Preferred Stock converted into Company Common Stock prior to the Effective Time) are convertible (the “ Fully Diluted Company Share Number ”).

 

(c) On or immediately prior to the Closing Date, Parent shall deliver the Aggregate Escrow Cash Amount to the Escrow Agent as a contribution to the Escrow Fund. The Aggregate Escrow Cash Amount shall be withheld from the consideration otherwise payable to the Non-Dissenting Shareholders pursuant to Section 2.5(a)(iii)(y) and Section 2.5(a)(v) and the Closing Date Option Holders pursuant to Section 2.6 , and such amount shall be withheld on a pro rata basis based on the respective Proportionate Shares of the Non-Dissenting Shareholders and Closing Date Option Holders. The Escrow Fund shall be held by the Escrow Agent in accordance with the terms of this Agreement and the Escrow Agreement and shall be disbursed solely in accordance with the terms of this Agreement and the Escrow Agreement. For purposes of this Agreement:

 

(i) the “ Aggregate Escrow Cash Amount ” shall be $26,250,000; and

 

(ii) the “ Proportionate Share ” of a Non-Dissenting Shareholder or a Closing Date Option Holder shall be the fraction having a numerator equal to the total consideration payable to such Non-Dissenting Shareholder pursuant to Section 2.5(a)(iii)(y) and Section 2.5(a)(v) (disregarding amounts to be withheld pursuant to Section 2.5(c) ) or such Closing Date Option Holder pursuant to Section 2.6 (disregarding amounts to be withheld pursuant to Section 2.5(c) ) and in each case having a denominator equal to the total of all consideration payable to all Non-Dissenting Shareholders pursuant to Section 2.5(a)(iii)(y) and Section 2.5(a)(v) (disregarding amounts to be withheld pursuant to Section 2.5(c) ) and all Closing Date Option Holders pursuant to Section 2.6 (disregarding amounts to be withheld pursuant to Section 2.5(c) ); and

 

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(d) In the event that, subject to and in compliance with Section 6.3 , the Company declares, makes, effects or establishes a record date for a stock split, reverse stock split, stock dividend, recapitalization or similar transaction during the Pre-Closing Period, then the consideration payable in respect of shares of Company Capital Stock pursuant to Section 2.5(a) shall be appropriately adjusted.

 

(e) If a holder of shares of Company Preferred Stock delivers an election to the Company in accordance with Section B(3) of Article III of the Company Articles prior to the Effective Time, then, for purposes of this Agreement, the shares of Company Preferred Stock subject to such election shall be treated as if they had been converted into shares of Company Common Stock pursuant to such Section B(3) of Article III prior to the Effective Time. The Company shall deliver to Parent accurate and complete copies of all such elections received by the Company.

 

Section 2.6 Company Option Plans .

 

(a) Subject to the terms and conditions of this Agreement, at the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any holder of any shares of the Company Capital Stock or any Company Options, each Company Option that is outstanding and unexercised immediately prior to or as of the Effective Time shall be cancelled and converted into the right to receive cash, without interest, from the Surviving Corporation in an amount (the “ Option Consideration ”) equal to the product of (i) the number of shares of Company Common Stock subject to such Company Option (assuming full vesting of all Company Options) and (ii) the excess of the Preliminary Residual Per Share Amount (calculated pursuant to Section 2.5(b) ) over the Exercise Price per share of such Company Option (such product to be reduced by amounts to be withheld pursuant to Section 2.5(c) ). The Option Consideration shall be payable by the Payment Agent to each holder of a Company Option promptly after the Effective Time, subject to applicable withholding of Taxes, as contemplated by Section 2.8 . All unexercised Company Options as of the Effective Time that have an Exercise Price equal to or exceeding the Preliminary Residual Per Share Amount shall be immediately cancelled and forfeited without any liability on the part of the Surviving Corporation or Parent.

 

(b) Immediately prior to the Effective Time, the Company’s repurchase option with respect to each share of restricted Common Stock held by or issued or granted to any current or former employee, consultant or director that is outstanding immediately prior to the consummation of the Merger, whether granted under the Company Option Plan, or otherwise, shall immediately lapse.

 

Section 2.7 Cancellation of Shares; Closing of Transfer Books .

 

(a) At the Effective Time, all shares of Company Capital Stock converted pursuant to Section 2.5(a) shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each holder of a certificate representing any such shares immediately prior to the Effective Time shall cease to have any rights with respect thereto, except the right to receive the consideration provided for in Section 2.5(a) , without interest.

 

(b) At the Effective Time, the stock transfer books of the Company shall be closed with respect to all shares of Company Capital Stock outstanding immediately prior to the Effective Time. No further transfer of any such shares of Company Capital Stock shall be made on such stock transfer books after the Effective Time. If, after the Effective Time, a valid certificate previously representing any

 

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shares of Company Capital Stock (a “ Company Stock Certificate ”) is presented to the Payment Agent, the Surviving Corporation or Parent, such Company Stock Certificate shall be canceled and shall be exchanged as provided in Section 2.8 .

 

Section 2.8 Exchange of Certificates .

 

(a) Promptly after the date of this Agreement but in any event prior to the Closing Date, Parent shall select a reputable bank or trust company reasonably acceptable to the Company to act as payment agent in the Merger (the “ Payment Agent ”). Immediately prior to the Effective Time, Parent shall deposit with the Payment Agent a sufficient amount of cash to make payments to the Non-Dissenting Shareholders in accordance with Section 2.5(a) and to the Closing Date Option Holders pursuant to Section 2.6 (in each case, excluding amounts to be withheld pursuant to Section 2.5(c) ). The cash amount so deposited with the Payment Agent is referred to collectively as the “ Payment Fund .”

 

(b) Prior to the Closing, the Company will cause to be delivered to shareholders of the Company (i) a letter of transmittal containing such provisions as Parent, Company and the Payment Agent may reasonably specify (a “ Letter of Transmittal ”), and (ii) instructions for use in effecting the surrender of Company Stock Certificates. After the surrender of a Company Stock Certificate to the Payment Agent for exchange at or after the Effective Time, together with a duly executed Letter of Transmittal and such other documents as may be reasonably required by Parent or the Payment Agent, the holder of such Company Stock Certificate shall be entitled to receive in exchange therefor the cash consideration that such holder has the right to receive pursuant to Section 2.5(a) (excluding any amounts to be withheld pursuant to Section 2.5(c) ) and the Company Stock Certificate so surrendered shall be canceled. Until surrendered as contemplated by this Section 2.8 , each Company Stock Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive, after the surrender thereof, the consideration contemplated by this Article II . If any Company Stock Certificate shall have been lost, stolen or destroyed, Parent may, in its discretion and as a condition to the delivery of any consideration payable in the Merger in respect of shares represented by such lost, stolen or destroyed Company Stock Certificate, require the owner of such lost, stolen or destroyed Company Stock Certificate to provide an appropriate affidavit of such loss, theft or destruction, and if the amount of such consideration is more than $100,000, to deliver a bond (in such sum as Parent may reasonably direct) as indemnity against any claim that may be made against Parent, the Surviving Corporation or the Payment Agent with respect to such lost, stolen or destroyed Company Stock Certificate.

 

(c) Any portion of the Payment Fund that remains undistributed to holders of Company Stock Certificates as of the date that is 180 days after the Closing Date shall be delivered by Payment Agent to Parent upon demand, and any holders of Company Stock Certificates who have not theretofore surrendered their Company Stock Certificates in accordance with this Section 2.8 shall thereafter look only to Parent for payment of any consideration payable to such holder in the Merger.

 

(d) Neither Parent nor the Surviving Corporation shall be liable to any holder or former holder of Company Capital Stock for any consideration payable in the Merger that has been delivered to any public official in good faith pursuant to any applicable abandoned property law, escheat law or similar Legal Requirement.

 

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Section 2.9 Dissenting Shares .

 

(a) Notwithstanding anything to the contrary contained in this Agreement, shares of Company Capital Stock that are or become “dissenting shares” within the meaning of Section 1300(b) of the CGCL (“ Dissenting Shares ”) at or after the Effective Time shall not be converted into or represent the right to receive the consideration specified in Section 2.5(a) , but shall be entitled only to such rights as are granted by the CGCL to Dissenting Shares.

 

(b) If any Dissenting Shares shall lose their status as such (through failure to perfect or otherwise), then, as of the later of the Effective Time or the date of loss of such status, such shares shall automatically be converted into and shall represent only the right to receive consideration in accordance with Section 2.5(a) (including giving effect to the amounts to be withheld pursuant to Section 2.5(c) ), without interest thereon, after the surrender of the Company Stock Certificate representing such shares.

 

(c) The Company shall give Parent: (i) prompt notice of any written demand received by the Company prior to the Effective Time to require the Company to purchase shares of Company Common Stock pursuant to the CGCL, any withdrawal of any such demand and any other demand, notice or instrument delivered to the Company prior to the Effective Time pursuant to the CGCL; and (ii) the opportunity to participate in all negotiations and Proceedings with respect to any such demand, notice or instrument. The Company shall not make any payment or settlement offer prior to the Effective Time with respect to any such demand, notice or instrument unless Parent shall have consented in writing to such payment or settlement offer.

 

Section 2.10 Further Action . If, at any time after the Effective Time, any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full right, title and possession of and to all rights and property of Merger Sub and the Company, the officers and directors of the Surviving Corporation and Parent shall be fully authorized to take such lawful and necessary action.

 

Section 2.11 Working Capital Adjustments; Escrow .

 

(a) The Company shall prepare and deliver to Parent at least five (5) Business Days prior to the Closing Date the Estimated Closing Date Balance Sheet and a statement of the Company’s good faith estimate of the Working Capital of the Company (the “ Estimated Working Capital ”).

 

(b) Parent shall prepare and deliver to Shareholders’ Representative within ninety (90) calendar days after the Effective Time a Closing Date Balance Sheet and a statement of the Working Capital of the Company (the “ Closing Date Working Capital ”), which shall (i) be accompanied by all information reasonably necessary to determine the information contained in such Closing Date Balance Sheet and statements and such other information as may be reasonably requested by the Shareholders’ Representative and (ii) be duly certified by the Chief Financial Officer of Parent to be true, correct and complete in all material respects as of the Closing Date. The Shareholders’ Representative will be afforded a reasonable opportunity to observe, and to consult with Parent’s accountants regarding, the procedures undertaken by Parent’s accountants in connection with the preparation of such Closing Date Balance Sheet and statements.

 

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(c) If Shareholders’ Representative does not notify Parent in writing within twenty (20) Business Days after receipt of Parent’s statement of the Closing Date Working Capital that it disputes any of the information or calculations provided in Parent’s statement of the Closing Date Working Capital, Parent’s statement of the Closing Date Working Capital shall be final and conclusive. If Shareholders’ Representative disagrees with any of the information or calculations provided by Parent in its statement of the Closing Date Working Capital, Shareholders’ Representative may, within twenty (20) Business Days after delivery of such statement to it, deliver a written notice to Parent stating in reasonable detail the existence and nature of such disagreement. Any such notice of disagreement shall specify those items or amounts as to which Shareholders’ Representative disagrees. If such notice of disagreement shall be delivered, the parties shall use their reasonable best efforts to reach agreement on the disputed items or amounts within twenty (20) Business Days after Parent’s receipt of such notice. If the parties are unable to reach agreement on the disputed items within such period, then the issues in dispute will be submitted to PricewaterhouseCoopers LLP, independent public accountants (the “ Accountants ”), for review and resolution, with instructions to complete the review as promptly as practicable. Parent and Shareholders’ Representative each will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party or its Subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants. The resolution of the Accountants shall be conclusive and binding on the parties and may be entered and enforced in any court of competent jurisdiction. One-half of the fees and expenses charged by the Accountants shall be paid by Parent and the remaining one-half shall be paid from the Escrow Fund; and Parent and Shareholders’ Representative hereby agree to give joint written instruments to the Escrow Agent for such disbursement.

 

(d) The Estimated Closing Date Balance Sheet and the related statement of the Estimated Working Capital, and the Closing Date Balance Sheet and the related statement of the Closing Date Working Capital, shall be prepared in accordance with GAAP, and using the same accounting principles, practices and methodologies, consistently applied, that were used to prepare the December 31, 2004 Balance Sheet. Solely for purposes of determining the Estimated Working Capital and the Closing Date Working Capital, the parties hereby agree to the Working Capital Guidelines set forth on Annex I .

 

(e) During its review period, the Shareholders’ Representative and his Representatives shall have access during regular business hours and upon reasonable notice to all relevant books and records and employees of the Surviving Corporation to the extent he reasonably deems necessary to review matters and information related to the preparation of the Closing Date Balance Sheet (and including without limitation any financial and other information relating to periods after the Closing Date that may be relevant to or helpful in the review of the Closing Date Balance Sheet and the calculation of the Closing Date Working Capital) in a manner not unreasonably interfering with the business of the Surviving Corporation.

 

Within three (3) Business Days after the final determination of the Closing Date Working Capital pursuant to Section 2.11(c) , if the Estimated Working Capital exceeds the Closing Date Working Capital (as determined under Section 2.11(c) , the amount of such excess shall be payable to Parent, and Parent and the Shareholders’ Representative shall jointly execute and deliver to the Escrow Agent a written notice instructing the Escrow Agent to disburse such amounts from the Escrow Fund to Parent as soon

 

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as practicable, by wire transfer of immediately available funds to an account designated by Parent. Conversely, if the Estimated Working Capital is less than the Closing Date Working Capital (as determined under Section 2.11(c) ), Parent shall promptly deliver the amount of such deficiency to the Escrow Agent for placement into the Escrow Fund as soon as practicable, by wire transfer of immediately available funds.

 

Section 2.12 Closing Payment Schedule .

 

(a) Two (2) Business Days prior to the Closing, the Company shall deliver to Parent a definitive closing payment schedule (the “ Closing Payment Schedule ”), duly certified by the Chief Financial Officer and the Secretary of the Company as accurately setting forth (to the extent practicable as of such date):

 

(1) the Estimated Working Capital;

 

(2) the Transaction Expenses and their status as paid or accrued;

 

(3) the Aggregate Exercise Amount;

 

(4) the Aggregate Liquidation Preference;

 

(5) the Fully Diluted Company Share Number;

 

(6) the Preliminary Residual Per Share Amount;

 

(7) the name of each holder of record of outstanding shares of Company Capital Stock immediately prior to the Effective Time (after giving effect to any exercises of Company Options prior to the Effective Time) (each, a “ Closing Date Shareholder ”);

 

(8) the number of shares of Company Capital Stock of each class and series held by each Closing Date Shareholder immediately prior to the Effective Time;

 

(9) the number of Dissenting Shares held by each Closing Date Shareholder;

 

(10) the cash amount, if any, to be withheld and contributed to the Escrow Fund on behalf of each Closing Date Shareholder pursuant to Section 2.5(c) ;

 

(11) the consideration that each Closing Date Shareholder is entitled to receive pursuant to Section 2.5(a) (both before and after deduction of the cash amounts to be withheld and contributed to the Escrow Fund on behalf of such Closing Date Shareholder pursuant to Section 2.5(c) );

 

(12) the name of each holder of outstanding and unexercised Company Options immediately prior to the Effective Time (each, a “ Closing Date Option Holder ”);

 

(13) the number of shares of Company Common Stock issuable to each Closing Date Option Holder;

 

(14) the aggregate Exercise Price payable by each Closing Date Option Holder;

 

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(15) the cash amount, if any, to be withheld and contributed to the Escrow Fund on behalf of each Closing Date Option Holder pursuant to Section 2.5(c) ; and

 

(16) the consideration that each Closing Date Option Holder is entitled to receive pursuant to Section 2.6 (both before and after deduction of the cash amounts to be withheld and contributed to the Escrow Fund on behalf of such Closing Date Option Holder pursuant to Section 2.5(c) ).

 

(b) Concurrent with delivery of the Closing Payment Schedule, the Company shall also deliver to Parent, in such detail as shall be reasonably acceptable to Parent, all information on which the calculations reflected in the Closing Payment Schedule are based.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the Schedules included in the Disclosure Schedule, the Company represents and warrants to Parent and Merger Sub as follows:

 

Section 3.1 Organization and Good Standing.

 

(a) The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of California, with full corporate power and authority to own the assets that it purports to own and to perform all its obligations under this Agreement. The Company is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect on the Company.

 

(b) The Company has delivered to Parent copies of its Organizational Documents, as currently in effect.

 

(c) The Company has no Subsidiaries other than Shopzilla (Europe) Limited, a corporation organized, validly existing, and in good standing under the laws of England and Wales, with full corporate power and authority to own the assets that it purports to own. The Company’s Subsidiary is duly qualified to do business as a foreign corporation and is in good standing under the laws of each state, country, or other jurisdiction in which either the ownership or use of the properties owned or used by it, or the nature of the activities conducted by it, requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect on the Company. The Company has delivered to Parent copies of its Subsidiary’s Organizational Documents, as currently in effect.

 

(d) Neither the Company nor its Subsidiary is a general partner of, or otherwise liable for any of the debts or other obligations of, any general partnership, limited partnership or any other Person.

 

(e) Neither the Company nor its Subsidiary has conducted any business under any fictitious name, assumed name, trade name or other name in any jurisdiction, other than its current corporate name.

 

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(f) Neither the Company nor its Subsidiary has at any time effected the acquisition of all or a substantial portion of the securities, assets or business of any other Person (each a “ Past Acquisition ”). Neither the Company nor its Subsidiary has at any time directly or indirectly sold or otherwise disposed of (i) all or a substantial portion of its business or assets, or (ii) all or a substantial portion of the capital stock or other securities of the Company’s Subsidiary.

 

Section 3.2 Authority; Binding Nature of Agreement; No Conflict .

 

(a) The Company has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and, subject to obtaining the Required Merger Shareholder Vote, the consummation of the Contemplated Transactions by the Company have been duly and validly authorized by the Company. The Company Board (at a meeting duly called and held) has (i) unanimously determined that the Merger is in the best interests of the Company and its shareholders, (ii) unanimously authorized and approved the execution, delivery and performance of this Agreement by the Company and unanimously approved the Merger and the other Contemplated Transactions, and (iii) unanimously recommended the approval of the principal terms of the Merger by the holders of Company Capital Stock and directed that this Agreement and the Merger be submitted for consideration by the Company’s shareholders. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (A) laws of general application relating to bankruptcy or insolvency, or moratorium or other similar laws affecting or relating to creditors’ rights generally, and (B) rules of law governing specific performance, injunctive relief and other equitable remedies, regardless of whether asserted in a Proceeding in equity or at law.

 

(b) Neither the execution and delivery of this Agreement nor the consummation or performance of any of the Contemplated Transactions by the Company will, directly or indirectly (with or without notice or lapse of time):

 

(i) subject to obtaining the Required Merger Shareholder Vote, contravene, conflict with, or result in a violation of (A) any provision of the Organizational Documents of the Company, (B) any resolution adopted by the Company Board or the shareholders of the Company, or (C) any agreement or instrument pursuant to which any shares of Company Capital Stock or any securities (including Company Options) exercisable for or convertible into shares of Company Capital Stock have been issued;

 

(ii) subject to obtaining the Required Merger Shareholder Vote and compliance with the requirements set forth in Section 3.2(c) , contravene, conflict with, or result in a violation of any Legal Requirement applicable to the Company or its Subsidiary;

 

(iii) contravene, conflict with, or result in a violation of any of the terms of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company or its Subsidiary or that otherwise relates to the business of, or any of the material assets owned or used by, the Company or its Subsidiary;

 

(iv) cause the Company or its Subsidiary to become subject to, or to become liable for the payment of, any Tax;

 

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(v) cause any of the assets owned or used by the Company or its Subsidiary to be reassessed or revalued by any taxing authority or other Governmental Body;

 

(vi) contravene, conflict with, or result in a violation or breach of, in any material respect, any Contract to which the Company or its Subsidiary is bound;

 

(vii) result in the imposition or creation of any Encumbrance upon or with respect to any of the material assets owned or used by the Company or its Subsidiary or any shares of Company Capital Stock or Company Options; or

 

(viii) contravene, conflict with, or result in a violation, breach, or acceleration of any provision of any employment agreement between the Company or its Subsidiary and any employee, except for acceleration of vesting of Company Options pursuant to their terms.

 

(c) Neither the Company nor its Subsidiary is required to obtain any Consent from or give any notice to any Person in connection with the execution and delivery of this Agreement or the consummation or performance of any of the Contemplated Transactions except for (i) the filing of the Articles of Merger with the Secretary of State of the State of California, (ii) applicable requirements, if any, of U.S. federal securities laws and blue sky laws, (iii) such filings, authorizations, orders or approvals as may be required by the HSR Act, if any, (iv) approval of this Agreement, the Merger and the other Contemplated Transactions, by the shareholders of the Company, and (vi) such instances in which the failure to obtain such Consent or give such notice would not, individually or in the aggregate, have a Material Adverse Effect on the Company.

 

Section 3.3 Capitalization .

 

(a) The authorized shares of Company Capital Stock consist of the following: (i) 16,737,940 shares of Series A Preferred Stock, all of which are issued and outstanding as of the date of this Agreement; (ii) 11,000,000 shares of Series B Preferred Stock, 9,973,512 shares of which are issued and outstanding as of the date of this Agreement; (iii) 6,500,000 shares of Series C Preferred Stock, 4,771,851 shares of which are issued and outstanding; and (iv) 115,762,060 shares of Company Common Stock, 46,616,955 shares of which are issued and outstanding as of the date of this Agreement. The Company has separately provided to Parent a schedule which accurately and completely sets forth (i) the name of each holder of record of the issued and outstanding shares of Company Capital Stock as of the date of this Agreement and (ii) the number of shares of Company Capital Stock of each class and series held by each such shareholder as of the date of this Agreement.

 

(b) As of the date of this Agreement, (i) 6,922,770 shares of Company Common Stock are subject to issuance pursuant to outstanding Company Options, and (ii) 2,055,992 shares of Company Common Stock are reserved for future option grants under the Company’s 1998 Stock Plan (the “ Company Option Plan ”). The Company has separately provided to Parent a schedule which accurately and completely sets forth the following information as of the date of this Agreement: (i) the name of the holder of each outstanding Company Option; (ii) the Company Option Plan pursuant to which such Company Option was granted; (iii) the number of shares of Company Common Stock subject to such Company Option, and the applicable Exercise Price per share of Company Common Stock; (iv) the vesting schedule applicable to such Company Option; (v) the expiration date of such Company Option; and (vi) whether such option has been designated as an Incentive Stock Option (ISO). All outstanding

 

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options to acquire shares of Company Common Stock were granted pursuant to the terms of the Company Option Plan. The Company has delivered to Parent accurate and complete copies of the Company Option Plan, and the forms of all stock option agreements evidencing any Company Options.

 

(c) To the Company’s Knowledge (without any inquiry), all issued and outstanding shares of Company Capital Stock are free and clear of all Encumbrances. All issued and outstanding shares of Company Capital Stock are duly authorized, validly issued, fully paid and nonassessable, and were issued in conformity with all applicable state and federal securities laws. Except for all of the issued and outstanding shares of Company Capital Stock, the Company has no other equity securities of any class issued, reserved for issuance, or outstanding. Except for the Company Options, there are no outstanding options, offers, warrants, conversion rights, agreements, or other rights to subscribe for or to purchase securities from the Company. No shares of Company Capital Stock carry, and no shareholder of the Company has been granted, any preemptive rights. The Company is not obligated under any agreement, arrangement or understanding to redeem or otherwise purchase any shares of Company Capital Stock or Company Options. Other than as contemplated by this Agreement, there are no Contracts to which the Company or any of its Affiliates is bound relating to the issuance, sale or transfer of any Company Capital Stock. The Company neither owns, nor has a Contract to acquire, any equity or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

 

(d) The authorized shares of capital stock of the Company’s Subsidiary consist of 1,000 shares of common stock, £1 par value, 1,000 shares of which are issued and outstanding (“ Subsidiary Shares ”). All of the Subsidiary Shares are owned and held of record by the Company free and clear of all Encumbrances. All Subsidiary Shares are duly authorized, validly issued, fully paid and nonassessable, and were issued in conformity with all applicable Legal Requirements. Except for the Subsidiary Shares, the Company’s Subsidiary has no other securities of any class or kind, issued, reserved for issuance or outstanding. There are no options, offers, warrants, conversion rights, Contracts or other rights to subscribe for or to purchase shares of capital stock of any class or kind of the Company’s Subsidiary or any other equity, debt or other securities of any class or kind of the Company’s Subsidiary, issued, reserved for issuance or outstanding, nor are there any Contracts to which the Company’s Subsidiary or any of its Affiliates is bound which otherwise relate to the issuance, sale or transfer of any capital stock of any class or kind of the Company’s Subsidiary or any other equity, debt or other securities of any class or kind of the Company’s Subsidiary. The Company’s Subsidiary neither owns, nor has a Contract to acquire, any capital stock or other equity, debt or other securities of any Person or any direct or indirect equity or ownership interest in any other business.

 

Section 3.4 Financial Statements .

 

(a) The Company has delivered to Parent the audited consolidated balance sheets of the Company and its Subsidiary as at December 31, 2002, December 31, 2003, and December 31, 2004, and the related consolidated statements of operations, stockholders’ deficit and cash flows of the Company and its Subsidiary, including all notes thereto, for the fiscal years then ended, and the unaudited balance sheet as of March 31, 2005, and the related consolidated statements of operations, stockholders’ deficit and cash flows of the Company and its Subsidiary for the three (3) months then ended, including all notes thereto (all such financial statements and notes are hereafter collectively referred to as the “ Financial Statements ”). The Financial Statements fairly present in all material respects the financial position and the results of operations, changes in stockholders’ equity and cash flows as of the respective dates of and for the periods then ended, all in accordance with GAAP consistently applied throughout

 

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the periods covered, subject, in the case of interim financial statements, to normal recurring year-end adjustments (the effect of which will not, individually or in the aggregate, be material), and the absence of notes.

 

(b) The Company maintains a system of internal accounting controls for itself and its Subsidiary that provide reasonable assurance that (i) transactions are executed with management’s authorization; (ii) transactions are recorded as necessary to permit preparation of the financial statements of the Company and its Subsidiary in accordance with GAAP and to maintain accountability for their respective assets; and (iii) access to the assets of the Company and its Subsidiary is permitted only in accordance with management’s authorization.

 

(c) There is no “off-balance sheet” transaction, arrangement or relationship between the Company or its Subsidiary and any unconsolidated Person, including any structured finance, special purpose, or limited purpose Person.

 

(d) To the Company’s Knowledge (without any inquiry), there are no significant deficiencies or material weaknesses in either the design or operation of internal controls of the Company that are reasonably likely to adversely affect the ability of the Company to record, process, summarize and report financial information in a materially accurate manner. With respect to periods after January 1, 2002, the Company has no Knowledge of any fraud or suspected fraud involving any employee of the Company who has or had a role in the internal controls related to financial reporting.

 

Section 3.5 Books and Records . The books of account, minute books, and stock record books of the Company and its Subsidiary, all of which have been made available to Parent, are complete and correct in all material respects and have been maintained in all material respects in accordance with applicable Legal Requirements. The minute books of the Company and its Subsidiary contain records, accurate and complete in all material respects, of all meetings held of, and actions taken by, the respective boards of directors and shareholders of the Company or its Subsidiary.

 

Section 3.6 Title to Assets . Neither the Company nor its Subsidiary has ever owned and neither currently owns any real property. The Company or its Subsidiary owns and has good title to all material personal property and other material assets (whether tangible or intangible) reflected as owned in the most recent Financial Statements, in their books and records and in the Disclosure Schedule. All such personal property and assets of the Company and its Subsidiary are free and clear of all Encumbrances, except (i) liens for Taxes not yet delinquent, (ii) liens for licenses granted to use Intellectual Property, and (iii) as would not materially impair the use of such personal property or assets by the Company or its Subsidiary in the Ordinary Course of Business.

 

Section 3.7 Condition and Sufficiency of Facilities . The Facilities currently occupied, used or operated by the Company and its Subsidiary are, in all material respects, in reasonably serviceable operating condition and repair (ordinary wear and tear excepted).

 

Section 3.8 Accounts Receivable . All accounts receivable of the Company and its Subsidiary (collectively, the “ Accounts Receivable ”) represent valid obligations arising from bona fide sales actually made or services actually performed in the Ordinary Course of Business. Schedule 3.8 contains a list, complete and accurate in all material respects, of all Accounts Receivable as of March 31, 2005, which list sets forth the aging of such Accounts Receivable. The Company’s allowance for doubtful

 

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accounts on its most recent Financial Statements is adequate and was calculated consistent with past custom and practice.

 

Section 3.9 Bank Accounts . Schedule 3.9 sets forth the account number and names of authorized signatories with respect to each account maintained by or for the benefit of the Company and its Subsidiary at any bank or other financial institution.

 

Section 3.10 No Undisclosed Liabilities . Neither the Company nor its Subsidiary has any liabilities of any nature (whether known or unknown and whether absolute, accrued, contingent, or otherwise) except for (i) liabilities reflected or reserved against in the consolidated balance sheet dated March 31, 2005, (ii) current liabilities incurred in the Ordinary Course of Business since March 31, 2005, or (iii) liabilities not required to be disclosed on a balance sheet in accordance with GAAP.

 

Section 3.11 Taxes .

 

(a) The Company and its Subsidiary have timely filed all Tax Returns that they were required to file (taking into account all extensions). All such Tax Returns were correct and complete in all material respects. All Taxes due and owing (taking into account all extensions) by the Company or its Subsidiary (whether or not shown on any Tax Return) have been timely paid. Neither the Company nor its Subsidiary currently is the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made in writing or reasonably could be made by any Governmental Body in a jurisdiction where the Company or its Subsidiary does not file Tax Returns asserting that the Company or its Subsidiary is or may be subject to taxation by that jurisdiction. There are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of Company or its Subsidiary.

 

(b) The Company and its Subsidiary have withheld and paid all Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other Person.

 

(c) No foreign, federal, state, or local Tax Proceeding is pending or being conducted with respect to the Company or its Subsidiary. To the Company’s Knowledge, neither the Company nor its Subsidiary has received from any Governmental Body having taxing authority (including jurisdictions where Company or its Subsidiary have not filed Tax Returns) any (i) notice indicating an intent to open an audit or other review or Proceeding, (ii) request for information related to Tax matters, or (iii) written notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Governmental Body against the Company or its Subsidiary. The Company has made available to Parent correct and complete copies of all federal, state, local and foreign income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company or its Subsidiary filed or received since December 31, 1997.

 

(d) Neither the Company nor its Subsidiary has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency the effect of which is to extend the statute of limitations or time with respect to which a Tax assessment or deficiency may be imposed or asserted to a date after the date hereof. The Company has provided to Parent a list of all Tax Returns required to be filed by the Company or its Subsidiary on or before October 31, 2005.

 

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(e) Neither the Company nor its Subsidiary has been a United States real property holding corporation within the meaning of IRC §897(c)(2) during the applicable period specified in IRC §897(c)(1)(A)(ii). The Company and its Subsidiary have disclosed on their federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of IRC §6662 and IRC §6662A. Neither the Company nor its Subsidiary is a party to or bound by any Tax allocation or sharing agreement. Neither the Company nor its Subsidiary (A) has been a member of an “affiliated group” (as defined under the IRC §1504) filing a consolidated federal income Tax Return (other than a group the common parent of which was the Company) or (B) has any liability for the Taxes of any Person (other than the Company or its Subsidiary) under Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by Contract, or otherwise. Neither the Company nor its Subsidiary has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code or has been requested to do so in connection with any transaction or proposed transaction.

 

(f) Since December 31, 2004, neither the Company nor its Subsidiary has incurred any liability for Taxes arising from extraordinary gains or losses, as that term is used in GAAP, outside the Ordinary Course of Business.

 

(g) Neither the Company nor its Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of any:

 

(i) change in method of accounting for a taxable period ending on or prior to the Closing Date;

 

(ii) “closing agreement” as described in IRC §7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date;

 

(iii) intercompany transaction to which the Company and its Subsidiary are parties;

 

(iv) installment sale or open transaction disposition made on or prior to the Closing Date;

 

(v) prepaid amount received on or prior to the Closing Date; or

 

(vi) lease made pursuant to IRC §168(f)(8).

 

(h) Neither the Company nor its Subsidiary has distributed stock of another Person, or has had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by IRC §355 or IRC §361 within the past two years.

 

(i) The Company’s Subsidiary has not filed any elections to be treated other than as a taxable corporation.

 

Section 3.12 Employee Benefits .

 

(a) As used in this Section, the following terms have the following meanings:

 

“ Company Other Benefit Obligation ” means an Other Benefit Obligation owed, adopted, or followed by the Company or an ERISA Affiliate, with respect to an employee.

 

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“ Company Plan ” means all Plans of which the Company or its Subsidiary is or was a Plan Sponsor, or to which the Company or its Subsidiary otherwise contributes or has contributed, with respect to an employee.

 

“ ERISA Affiliate ” means, with respect to the Company or its Subsidiary, any other Person that, together with the Company or its Subsidiary, would be treated as a single employer under IRC §414.

 

“ Other Benefit Obligations ” means all material obligations, arrangements, or customary practices, whether or not legally enforceable, written or oral to provide benefits, other than salary or wages, as compensation for services rendered, to present or former directors, employees, or agents, other than obligations, arrangements, policies, procedures, programs, or practices that are Plans. Other Benefit Obligations include, by way of example, consulting agreements under which the compensation paid does not depend upon the amount of service rendered, sabbatical policies, severance payment policies, practices or procedures and fringe benefits within the meaning of IRC §132.

 

“ PBGC ” means the Pension Benefit Guaranty Corporation, or any successor thereto.

 

“ Pension Plan ” has the meaning set forth in ERISA §3(2)(A).

 

“ Plan ” has the meaning set forth in ERISA §3(3).

 

“ Plan Sponsor ” has the meaning set forth in ERISA §3(16)(B).

 

“ Qualified Plan ” means any Company Plan that meets or purports to meet the requirements of IRC §401(a).

 

“ Welfare Plan ” has the meaning set forth in ERISA §3(1).

 

(b) (i) Schedule 3.12(b)(i) contains a complete and accurate list of all Plans of which the Company or its Subsidiary is or has been a Plan Sponsor, in which the Company or its Subsidiary participates or has participated, or to which the Company or its Subsidiary contributes or has contributed. None of the Company, its Subsidiary or any ERISA Affiliate has ever established, maintained, or contributed to or otherwise participated in, or had an obligation to maintain, contribute to, or otherwise participate in, any voluntary employees’ benefit association under IRC §501(c)(9), Pension Plan subject to Title IV of ERISA or multi-employer plan as defined in ERISA §3(37)(A).

 

(ii) Schedule 3.12(b)(ii) contains a complete and accurate list of all Company Other Benefit Obligations.

 

(iii) Neither the Company nor its Subsidiary has any liability for post-retirement benefits other than Pension Plans.

 

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(iv) The financial cost of all obligations owed under any Company Plan or Company Other Benefit Obligation as of March 31, 2005, is included in the balance sheet as of that date.

 

(c) The Company has made available to Parent copies, current as of the date hereof, of:

 

(i) all documents that set forth the terms of each Company Plan, Company Other Benefit Obligation and of any related trust (or other funding vehicle), including (A) all plan descriptions and summary plan descriptions of Company Plans for which the Company or its Subsidiary is required to prepare, file, and distribute plan des