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Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 8, 2005
BY AND AMONG
WEBSIDESTORY, INC.
("PARENT"),
WSSI ACQUISITION COMPANY
("MERGER SUB"),
AVIVO CORPORATION
(THE "COMPANY")
AND
CHARLES M. LINEHAN
(THE "HOLDER REPRESENTATIVE")
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AGREEMENT AND PLAN OF MERGER
THIS
AGREEMENT AND PLAN OF MERGER (as amended from time to time
pursuant
to the terms hereof, this "Agreement") is
made and entered into as of February
8, 2005 by and among WebSideStory, Inc., a
Delaware corporation ("Parent"), WSSI
Acquisition Company, a California
corporation and a wholly owned subsidiary of
Parent ("Merger Sub"), Avivo Corporation, a
California corporation (the
"Company") and Charles M. Linehan, in his
capacity as Holder Representative (as
hereinafter defined).
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub
and the Company have each determined that
the merger of Merger Sub with and into
the Company (the "First Step Merger" or the
"Merger") is advisable and in the
best interests of their respective
shareholders, and such Boards of Directors
have approved the Merger, upon the terms
and subject to the conditions set forth
in this Agreement;
WHEREAS, for federal income tax purposes, Parent, Merger Sub and
the
Company intend that the First Step Merger
and the Second Step Merger (as defined
in Section 2.6 below), and integrated steps
in the transactions contemplated by
this Agreement, will together qualify as a
"reorganization" within the meaning
of Section 368(a) of the Internal Revenue
Code of 1986, as amended, (the "Code")
and the regulations promulgated thereunder
and that this Agreement constitutes a
"plan of reorganization" pursuant to such
regulations;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to
Parent's and Merger Sub's
willingness to enter into this Agreement,
certain of the holders of the
outstanding shares of Company capital stock
have executed and delivered to
Parent a support agreement in substantially
the form of Exhibit A (the
"Shareholder Support Agreements"), pursuant
to which they have agreed, among
other things, subject to the terms of such
Shareholder Support Agreement, to
vote the shares of Company Preferred Stock
and Company Common Stock held by such
Persons, beneficially or of record, to
approve and adopt this Agreement;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to
Parent's and Merger Sub's
willingness to enter into this Agreement,
certain of the holders of the
outstanding shares of Company capital stock
have executed and delivered to
Parent an agreement in substantially the
form of Exhibit B (the "Lockup
Agreements"), pursuant to which they have
agreed, among other things, subject to
the terms of such Lockup Agreement, to
certain restrictions on the resale of the
shares of Parent Common Stock that may be
received by such Persons in connection
with the Merger;
WHEREAS, concurrently with the execution and delivery of this
Agreement, as a condition and inducement to
Parent's and Merger Sub's
willingness to enter into this Agreement,
certain of the employee shareholders
of the Company have executed and delivered
to Parent an agreement in
substantially the form of Exhibit C (the
"Non-Competition Agreements"), pursuant
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to which they have agreed, among other
things, to refrain from competing with
Parent or the Company following
consummation of the Merger during the period
specified therein; and
WHEREAS, Parent, Merger Sub and the Company desire to make
certain
representations, warranties, covenants and
agreements in connection with the
transactions contemplated hereby and also
prescribe various conditions to the
transactions contemplated hereby.
AGREEMENT
NOW,
THEREFORE, in consideration of the foregoing premises, the
mutual
covenants, promises and agreements
hereinafter set forth, the mutual benefits to
be gained by the performance thereof, and
for other good and valuable
consideration, the receipt and sufficiency
of which are hereby acknowledged and
accepted, the parties hereto hereby agree
as follows:
ARTICLE I.
DEFINITIONS
SECTION
1.1 Certain Definitions. As used in this Agreement, the
following
terms shall have the following respective
meanings:
"Action" means any claim, action, suit, litigation or
proceeding,
arbitral action, governmental inquiry or
audit, criminal prosecution or other
investigation.
"Affiliate" means, when used with respect to a specified Person,
(a)
another Person that either directly or
indirectly, through one or more
intermediaries, controls, is controlled by,
or is under common control with, the
Person specified or (b) any director,
partner or officer of such Person or, for
any Person that is a limited liability
company, any manager or managing member
thereof. For purposes of this definition,
"control" (and its derivatives) means
the possession, directly or indirectly, of
the power to direct or cause the
direction of the management and policies of
a Person, whether through ownership
of equity, voting or other interests, as
trustee or executor, by contract or
otherwise.
"Aggregate Cash Portion" means $4,288,480, less the Excess
Transaction Expenses, if any.
"Aggregate Parent Stock Number" means 3,123,238 shares of
Parent
Common Stock.
"Aggregate Parent Stock Value" means the product obtained by
multiplying the Aggregate Parent Stock
Number by the Parent Stock Closing Price.
"Amended and Restated Registration Rights Agreement" means an
amended and restated registration rights
agreement for the benefit of certain
holders of Parent Common Stock, pursuant to
which certain holders of Company
Capital Stock will receive registration
rights, substantially in the form
attached as Exhibit D.
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"Ancillary Agreements" means the Escrow Agreement, the Lockup
Agreements, the Non-Competition Agreements,
the Amended and Restated
Registration Rights Agreement and
Shareholder Support Agreements.
"Applicable Percentage" means with respect to any holder of
Company
Common Stock and/or Company Preferred
Stock, a ratio, expressed as a percentage,
equal to the sum of the number of (i)
shares of Company Common Stock held by
such holder immediately prior to the
Effective Time, and (ii) shares of Company
Common Stock into which the shares of
Company Preferred Stock held by such
holder may be converted immediately prior
to the Effective Time, divided by the
Fully-Diluted Common Stock Number.
"Assumed Option Percentage" means the percentage obtained by
dividing (a) the Option Cap by (b) the Full
Option Assumption Number.
"Business" means the business and operations of the Company or
the
Parent, as appropriate, as currently
conducted.
"Business Day" means any day that is not a Saturday, Sunday or
other
day on which banks are required or
authorized by Law to be closed in the State
of New York.
"Cash" means cash and cash equivalents.
"Cancelled Option Percentage" means (a) 100% less (b) the
Assumed
Option Percentage.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq.
"CGCL" means the General Corporation Law of the State of
California.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation
Act of 1985, as amended.
"Code" shall have the meaning set forth in the Recitals to this
Agreement.
"Common Stock Cash Amount" means the quotient obtained by
dividing
(i) the Aggregate Cash Portion, less (A)
the Series A Cash Value multiplied by
the number of shares of Series A Preferred
Stock outstanding immediately prior
to the Effective Time, less (B) the Series
B Cash Value multiplied by the number
of shares of Series B Preferred Stock
outstanding immediately prior to the
Effective Time, less (C) the Series C Cash
Value multiplied by the number of
shares of Series C Preferred Stock
outstanding immediately prior to the
Effective Time, by (ii) the Fully Diluted
Common Stock Number.
"Common Stock Exchange Ratio" means the quotient obtained by
dividing (i) the Aggregate Parent Stock
Number less the Series A Stock Amount,
less the Series B Stock Amount, less the
Series C Stock Amount, divided by (B)
the Fully Diluted Common Stock Number.
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"Company Benefit Plan" means any plan, program, policy,
practice,
Contract or other arrangement providing for
compensation, severance, termination
pay, deferred compensation, performance
awards, stock or stock-related awards,
fringe benefits or other employee benefits
or remuneration of any kind, whether
written or unwritten, funded or unfunded,
including each "employee benefit
plan," within the meaning of Section 3(3)
of ERISA, which the Company or any
ERISA Affiliate of the Company maintains,
administers, contributes to or is
required to contribute to, or maintained,
administered, contributed to or was
required to contribute to, or under or with
respect to which the Company or any
ERISA Affiliate of the Company has or may
have any liability or obligation.
"Company Capital Stock" means the Company Preferred Stock and
the
Company Common Stock.
"Company Common Stock" means the common stock, no par value, of
the
Company.
"Company Common Stock Closing Value" means the sum of (a) the
product of (x) the fraction of a share of
Parent Common Stock equal to the
Common Stock Exchange Ratio, multiplied by
(y) the Parent Common Stock Closing
Value, plus (b) the Common Stock Cash
Amount.
"Company Employee" means an employee of the Company.
"Company Option Plan" means the Company's 1999 Equity Incentive
Plan, as adopted on December 15, 1999.
"Company Options" means options to purchase or otherwise
acquire
shares of Company Common Stock, whether
vested or unvested or exercisable or
unexercisable, granted pursuant to the
Company Option Plan.
"Company Preferred Stock" means the Series A Preferred Stock,
the
Series B Preferred Stock and the Series C
Preferred Stock of the Company.
"Confidentiality Agreement" means the Non-Disclosure Agreement
between Parent and the Company, dated as of
December 15, 2003.
"Consent" means any consent, approval, authorization,
clearance,
novation or waiver by any Person under any
Contract, Law, Permit or Governmental
Order.
"Contract" means any contract (including subcontracts),
agreement,
indenture, note, bond, loan, instrument,
lease, conditional sales contract,
mortgage, license, franchise agreement,
commitment, obligation, understanding or
undertaking, whether written or oral.
"Customer Termination Indemnity Payment" means (i) the quotient
equal to (A) the positive difference, if
any, between (x) the aggregate amounts
of expected revenues for the remaining
terms of the applicable customer
contracts in effect as of the Closing Date
(excluding any automatic renewal
terms beyond the then-current term for each
such contract), for each
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customer of the Business who terminated its
contract with the Company on or
prior to the nine month anniversary of the
Closing Date, solely as a result of
the failure by the Company to obtain the
prior consent of such customer to an
alleged assignment of such contract by
virtue of the Second Step Merger, less
(y) $300,000, divided by (B) $10,804,000;
multiplied by (ii) $63,877,500. For
avoidance of doubt, if the aggregate amount
set forth in clause (x) above is
less than or equal to $300,000, then the
Customer Termination Indemnity Payment
is zero.
"Debt" means any amount owed (including, without limitation,
unpaid
interest and fees thereon) in respect of
(i) borrowed money and (ii) capitalized
lease obligations; provided, however, that
notwithstanding the foregoing, Debt
shall not be deemed to include any accounts
payable incurred in the ordinary
course of business or any undrawn letters
of credit.
"Default" means (a) any breach or violation of, default under,
contravention of, or conflict with, any
Contract, Law, Governmental Order or
Permit, (b) any occurrence of any event
that with the passage of time or the
giving of notice or both would constitute a
breach or violation of, default
under, contravention of, or conflict with,
any Contract, Law, Governmental Order
or Permit, or (c) any occurrence of any
event that with or without the passage
of time or the giving of notice would give
rise to a right of any Person to
exercise any remedy or obtain any relief
under, to terminate or revoke, suspend,
cancel, or materially modify or change the
current terms of, or renegotiate, or
to accelerate the maturity or performance
of, or to increase or impose any
Liability under, any Contract, Law,
Governmental Order or Permit.
"Encumbrance" means any security interest, pledge, mortgage,
lien,
charge, adverse claim of ownership or use,
restriction on transfer (such as a
right of first refusal or other similar
rights), defect of title, or other
encumbrance of any kind or character.
"Environmental Law" means any Law pertaining to land use, air,
soil,
surface water, groundwater (including the
protection, cleanup, removal,
remediation or damage thereof), public or
employee health or safety or any other
environmental matter, including, without
limitation, the following laws as in
effect on the Closing Date: (i) Clean Air
Act (42 U.S.C. Section 7401, et seq.);
(ii) Clean Water Act (33 U.S.C. Section
1251, et seq.); (iii) Resource
Conservation and Recovery Act (42 U.S.C.
Section 6901, et seq.); (iv)
Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C.
Section 9601, et seq.); (v) Safe Drinking
Water Act (42 U.S.C. Section 300f, et
seq.); (vi) Toxic Substances Control Act
(15 U.S.C. Section 2601, et seq.);
(vii) Rivers and Harbors Act (33 U.S.C.
Section 401, et seq.);
(viii)
Endangered Species Act (16 U.S.C. Section
1531, et seq.); (ix) Occupational
Safety and Health Act (29 U.S.C. Section
651, et seq.); and (x) any other Law
relating to Hazardous Materials or
Hazardous Materials Activities.
"Environmental Permit" shall mean any permit, approval,
identification number, license and other
authorization required under any
applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of
1974,
as amended, any successor statute thereto,
and the rules and regulations
promulgated thereunder.
"ERISA Affiliate" of any Person means any entity that is, or at
any
relevant time was, a member of (i) a
controlled group of corporations (as
defined in Section 414(b) of the Internal
Revenue Code), (ii) a group of trades
or businesses under common control (as
defined in
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Section 414(c) of the Internal Revenue
Code) or (iii) an affiliated service
group (as defined under Section 414(m) of
the Internal Revenue Code or the
regulations under Section 414(o) of the
Internal Revenue Code with such Person.
"Escrow Fund" means, collectively, (i) 20% of the shares of
Parent
Common Stock which the holders of Company
Capital Stock are entitled to receive
pursuant to Section 3.1(b) (prior to any
contribution to the Escrow Fund), and
(ii) 20% of the cash amounts which the
holders of Company Capital Stock are
entitled to receive pursuant to Section
3.1(b) (prior to any contribution to the
Escrow Fund), in each such case reduced
proportionally by the amount of the
Audited Financials Adjustment Amount, if
any, with the Parent Common Stock
valued at the Parent Common Stock Price for
purposes of such reduction; and the
number of shares of Parent Common Stock and
the amount of cash so reduced shall
be retained by Parent free and clear of any
and all claims and interests of the
holders of Company Capital Stock.
"Excess Transaction Expenses" means any Transaction Expenses on
the
Transaction Expenses List (as defined in
Section 7.16) in excess of $250,000 in
the aggregate.
"Full Option Assumption Number" means the product of (a) the
Option
Exchange Ratio, multiplied by (b) the
number of shares of Company Common Stock
subject to the Outstanding Company Option
Awards immediately prior to the
Effective Time.
"Fully-Diluted Common Stock Number" shall equal (i) the
aggregate
number of shares of Company Common Stock
outstanding immediately prior to the
Effective Time, plus (ii) the aggregate
number of shares of Company Common Stock
into which the shares of Company Preferred
Stock outstanding immediately prior
to the Effective Time may be converted,
plus (iii) the aggregate number of
shares of Company Common Stock issuable
upon exercise in full of all Company
Options, whether vested or unvested,
outstanding immediately prior to the
Effective Time, less (iv) shares of Company
Common Stock and Company Preferred
Stock to be cancelled in accordance with
Section 3.1(a).
"GAAP" means generally accepted accounting principles in the
United
States.
"Governmental Authority" means any government, any governmental
entity, department, commission, board,
agency or instrumentality, and any court,
tribunal, or judicial body, whether
federal, state, county, local or foreign.
"Governmental Order" means any order, judgment, injunction,
decree,
stipulation or determination issued,
promulgated or entered by or with any
Governmental Authority of competent
jurisdiction.
"Hazardous Material" means any material or substance that is
prohibited or regulated by any
Environmental Law or that has been designated by
any Governmental Authority to be toxic,
hazardous or otherwise a danger to
health, reproduction or the environment,
including asbestos, petroleum, radon
gas, and radioactive matter.
"Hazardous Materials Activity" means the handling,
transportation,
transfer, recycling, storage, use,
treatment, manufacture, investigation,
removal, remediation, release,
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exposure of others to, sale, or
distribution of any Hazardous Material or any
product containing a Hazardous
Material.
"Intellectual Property" shall mean, collectively, (i)
Trademarks,
Patents, Copyrights, Domain Names and Trade
Secrets, as those terms are defined
in Section 5.14 of this Agreement, (ii)
Software, (iii) any proprietary
interest, whether registered or
unregistered, in know-how, database rights, data
in databases, website content, inventions,
invention disclosures or
applications, operating and manufacturing
procedures, designs, specifications
and the like, and (iv) any proprietary
interest in or to any documents or other
tangible media containing any of the
foregoing.
"IRS" means the United States Internal Revenue Service, and any
successor agency thereto.
"Knowledge of the Company" or "known to the Company" and any
other
phrases of similar import means, with
respect to any matter in question relating
to the Company, means the actual knowledge
of the individuals listed on Schedule
1.01 hereto.
"Law" means any federal, state, county, local or foreign
statute,
law, ordinance, regulation, rule, code,
order or rule of common law.
"Liability" means any and all debts, liabilities and obligations
of
any kind or nature, whether accrued or
fixed, absolute or contingent, matured or
unmatured, or determined or
determinable.
"Material Adverse Effect" as to any party means any change or
effect
that individually or together with any
other change, event, occurrence or
effect, is materially adverse to the assets
(including intangible assets),
Liabilities, business, prospective
revenues, prospective earnings, financial
condition or results of operations of such
party or which would materially
impair the ability of such party to perform
its obligations under this Agreement
or to consummate the transactions
contemplated by this Agreement, except for any
such changes or effects resulting directly
or indirectly from: (i) changes in
the industry in which such party operates,
which changes do not
disproportionately affect such party
relative to other participants in such
industry in any material respect; (ii)
changes in general economic conditions or
the securities markets generally; (iii) (A)
the announcement or pendency of any
of the transactions contemplated by this
Agreement, (B) legal, accounting, or
other professional fees or expenses (other
than investment banking or broker
fees) incurred in connection with the
transactions contemplated by this
Agreement, (C) the payment of any amounts
due to, or the provision of any other
benefits to, any officers or employees
under employment contracts,
non-competition agreements, employee
benefit plans, severance arrangements or
other arrangements in existence as of the
date of this Agreement and disclosed
in a Disclosure Schedule, (D) the taking of
any action reasonably required to
cause compliance with the terms of, or the
taking of any action required by,
this Agreement, (E) any breach by the other
party of this Agreement, (F) the
taking of any action approved or consented
to in writing by the other party, or
(G) any change in accounting requirements
or principles or any change in
applicable laws, rules or regulations or
the interpretation thereof, provided
such changes do not disproportionately
affect such party relative to the other
participants in such party's industry in
any material respect.
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"Multiemployer Plan" shall mean any "multiemployer plan," as
defined
in Section 4001(a)(3) or 3(37) of
ERISA.
"Option Cap" means the product of (a) the Common Stock Exchange
Ratio, multiplied by (b) the number of
shares of Company Common Stock subject to
the Outstanding Company Option Awards
immediately prior to the Effective Time.
"Option Exchange Ratio" means a fraction, the numerator of which
is
the Company Common Stock Closing Value and
the denominator of which is the
Parent Common Stock Closing Value.
"Outstanding Company Option Award" means an award of Company
Options
that is outstanding, unexercised and
unexpired immediately prior to the
Effective Time.
"Parent Stock Closing Price" means the average of the closing
prices
of the Parent Common Stock on the Nasdaq
National Market over the thirty (30)
day period ending three (3) days prior to
the Closing.
"Parent Common Stock Closing Value" means the average of the
closing
prices of the Parent Common Stock on the
Nasdaq National Market reported for the
period of five (5) consecutive trading days
ending one (1) day prior to the
Closing.
"Parent Common Stock" means the common stock, $0.001 par value
per
share, of Parent.
"Parent Common Stock Price" means $12.2618.
"Pension Plan" shall mean any "employee pension benefit plan"
as
defined in Section 3(2) of ERISA (other
than a Multiemployer Plan).
"Permitted Encumbrances" means (i) all statutory or other liens
for
Taxes or assessments which are not yet due
or delinquent, (ii) all cashiers',
landlords', workmen's, repairmen's,
warehousemen's and carriers' liens and other
similar liens imposed by Law incurred in
the ordinary course of business, and
(iii) all leases, subleases, licenses,
concessions or service contracts to which
the Company is a party in the ordinary
course of business.
"Person"
means any natural person or any legal, commercial or
governmental entity such as, but not
limited to, any general or limited
partnership, firm, corporation, limited
liability company, association, joint
venture, trust, unincorporated organization
or person acting in a representative
capacity, as well as any syndicate or group
that would be deemed to be a person
under Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, any
successor statutes thereto, and the rules
and regulations promulgated
thereunder.
"Post-Closing Tax Period" means any taxable period beginning
after
the Closing Date.
"Pre-Closing Tax Period" means any taxable period ending on or
before the Closing Date.
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"Pro Rata Share" shall mean, with respect to any holder of
Company
Capital Stock immediately prior to the
Effective Time, the percentage of the
aggregate Escrow Fund attributable to such
holder.
"Representative" means, with respect to a Person, its officers,
directors, employees, representatives and
agents.
"Series A Cash Value" means (i) $3.96694, less (ii) the Series
A
Share Value.
"Series A Exchange Ratio" means a ratio equal to the quotient
obtained by dividing (i) the Series A Share
Value by (ii) the Parent Stock
Closing Price.
"Series A Preference" means $3.96694 per share of Series A
Preferred
Stock, multiplied by the number of shares
of Series A Preferred Stock
outstanding immediately prior to the
Effective Time.
"Series A Preferred Stock" means the Series A Preferred Stock,
no
par value, of the Company.
"Series A Share Value" means (i) $3.96694, multiplied by (ii)
the
Share Exchange Ratio.
"Series A Stock Amount" means the number of shares of Parent
Common
Stock equal to the product of (i) the
number of shares of Series A Preferred
Stock outstanding immediately prior to the
Effective Time, multiplied by (ii)
the Series A Exchange Ratio (rounded down
to the nearest whole share).
"Series B Cash Value" means (i) $7.74, less (ii) the Series B
Share
Value.
"Series B Exchange Ratio" means a ratio equal to the quotient
obtained by dividing (i) the Series B Share
Value by (ii) the Parent Stock
Closing Price.
"Series B Preference" means $7.74 per share of Series B
Preferred
Stock, multiplied by the number of shares
of Series B Preferred Stock
outstanding immediately prior to the
Effective Time.
"Series B Preferred Stock" means the Series B Preferred Stock,
no
par value, of the Company.
"Series B Share Value" means (i) $7.74, multiplied by (ii) the
Share
Exchange Ratio.
"Series B Stock Amount" means the number of shares of Parent
Common
Stock equal to the product of (i) the
number of shares of Series B Preferred
Stock outstanding immediately prior to the
Effective Time, multiplied by (ii)
the Series B Exchange Ratio (rounded down
to the nearest whole share).
"Series C
Cash Value" means (i) $0.4997, less (ii) the Series C
Share Value.
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"Series C Exchange Ratio" means a ratio equal to the quotient
obtained by dividing (i) the Series C Share
Value by (ii) the Parent Stock
Closing Price.
"Series C Preference" means $0.4997 per share of Series C
Preferred
Stock, multiplied by the number of shares
of Series C Preferred Stock
outstanding immediately prior to the
Effective Time.
"Series C
Preferred Stock" means the Series C Preferred Stock, no
par value, of the Company.
"Series C Share Value" means (i) $0.4997, multiplied by (ii)
the
Share Exchange Ratio.
"Series C Stock Amount" means the number of shares of Parent
Common
Stock equal to the product of (i) the
number of shares of Series C Preferred
Stock outstanding immediately prior to the
Effective Time, multiplied by (ii)
the Series C Exchange Ratio (rounded down
to the nearest whole share).
"Share
Exchange Ratio" equals the quotient obtained by dividing (i)
the Aggregate Parent Stock Value, by (ii)
the sum of the Aggregate Cash Portion
plus the Aggregate Parent Stock Value.
"Software" shall mean individually each, and collectively all,
of
the computer programs, including interfaces
and any embedded software programs
or applications, owned or licensed by the
Company or otherwise included as an
asset of the Company, including as to each
program, the processes and routines
used in the processing of data, the object
code, source code (as to third-party
source code, when rights to the source code
may be obtained), tapes, disks, and
all improvements, modifications,
enhancements, versions and releases relating
thereto.
"Subsidiary" means, any corporation or other organization,
whether
incorporated or unincorporated, (i) of
which such party or any other Subsidiary
of such party is a general partner
(excluding partnerships, the general
partnership interests of which held by such
party or any Subsidiary of such
party do not have a majority of the voting
interests in such partnership) or
(ii) at least a majority of the securities
or other interests of which having by
their terms ordinary voting power to elect
a majority of the Board of Directors
or others performing similar functions with
respect to such corporation or other
organization is directly or indirectly
owned or controlled by such party or by
any one or more of its Subsidiaries, or by
such party and one or more of its
Subsidiaries.
"Straddle Period" means any taxable period beginning before and
ending after the Closing Date.
"Tax" means any income, gross receipts, sales, use, occupancy,
ad
valorum, transfer, real estate, gains,
excise, employment, franchise, profits,
property, capital stock, premium, minimum
and alternative minimum or other
taxes, fees, stamp taxes and duties,
assessments, levies, fees or charges of any
kind whatsoever (whether payable directly
or by
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withholding), together with any interest
and any penalties, additions to tax or
additional amounts imposed by any Taxing
Authority with respect thereto.
"Tax Return" means a report, return, declaration or other
information or statement required to be
supplied to a Taxing Authority with
respect to any Tax, including any claim for
refund of any Tax.
"Taxing Authority" means any Governmental Authority responsible
for
the imposition or collection of any
Tax.
"Transaction Expenses" means the amount of all fees, costs and
expenses that have been incurred or that
are incurred by the Company in
connection with the transactions
contemplated by this Agreement, including (i)
any fees, costs or expenses payable to the
Company's outside legal counsel or to
any financial advisor, accountant or other
Person who performed services for or
on behalf of the Company, or who is
otherwise entitled to any compensation from
the Company, in connection with this
Agreement or any of the transactions
contemplated by this Agreement (except for
salaries and other compensation paid
or payable to employees of the Company and
fees (including accounting fees)
payable to service providers, in each case
unrelated to this Agreement or any
transaction contemplated by this Agreement,
and arising only in the ordinary
course of business consistent with past
practice), and (ii) all premiums, fees,
costs and expenses incurred by the Company,
or for which the Company has become
obligated, prior to the Closing in
connection with the purchase of any
directors' and officers' liability
insurance tail policy, but excluding up to
$175,000 of the fees or payments made under
Consulting Agreements disclosed on
Section 5.8(y) of the Company Disclosure
Schedule as of the date of this
Agreement.
"User Data" shall mean, to the extent collected or acquired by or
on
behalf of the Company: (w) all data related
to impression and "click through"
activity of users, including user
identification and associated activities at a
web site as well as pings and activity
related to closed loop reporting and all
other data associated with a user's
behavior on the Internet, including without
limitation all e-mail lists or other user
information acquired by the Company
directly or indirectly from a third party
that collected such information, (x)
all data that contains a personal element
allowing for the identification of a
natural person, (y) known, assumed or
inferred information or attributes about a
user or identifier, and (z) all derivatives
and aggregations of (w), (x) and
(y), including user profiles.
"Welfare Plan" shall mean any "employee welfare benefit plan"
as
defined in Section 3(1) of ERISA.
SECTION
1.2 Certain Additional Definitions. As used in this Agreement,
the
following terms shall have the respective
meanings ascribed in the respective
sections of this Agreement set forth
opposite each such below:
<TABLE>
<CAPTION>
Term
Section
------------------------------------
--------
<S>
<C>
Accounts Receivable
5.6(c)
Agreement
Preamble
Audited Company Financial Statements
5.6(a)
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Term
Section
---------------------------------------------
-------------------
<S>
<C>
Audited Financials Adjustment Amount
3.4
California Permit
7.19
Certificates
3.1(b)
CFO Closing Certificate
8.2(p)
Claim Notice
10.3(a)
Closing
2.2
Closing Date
2.2
Company
Preamble
Company Benefit Plan(s)
5.15
Company Disclosure Schedule
Article V Preamble
Company Financial Statements
5.6(a)
Company Inbound License Agreements
5.14(f)
Company Indemnified Parties
7.8(a)
Company Insurance Policies
5.18
Company Outbound License Agreements
5.14(f)
Company Owned Copyrights
5.14(d)
Content
5.14(g)
Copyrights
5.14(a)
Deductible Amount
10.4
Domain Names
5.14(a)
Dissenting Shares
4.2
Effective Time
2.3
Escrow Agent
3.5
Escrow Agreement
3.5
Exchange Agent
4.1(a)
Exchange Fund
4.1(a)
Express Search Advertising Auditor
3.6(d)
Express Search Advertising Adjustment
Amount
3.6(b)
Express Search Advertising Calculations
3.6(a)
Express Search Advertising Determination
Date
3.6(d)
Express Search Advertising Earn-Out
3.6(c)
Express Search Advertising Resolution
Period
3.6(d)
Express Search Advertising Revenue
3.6(a)
Fairness Approval
7.6
First Agreement of Merger
2.3
Holder Representative
10.8(a)
Indemnified Party
10.3(a)
Indemnity Notice
10.3(e)
Losses
10.2(a)
Majority Holders
10.8(a)
Merger
Recitals
Merger Sub
Preamble
Parent
Preamble
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Term
Section
--------------------------------------
--------------------
<S>
<C>
Parent Benefit Plans
7.9
Parent Disclosure Schedule
Article VI Preamble
Parent Indemnified Parties
10.2(a)
Parent SEC Filings
6.7
Parent Subsidiaries
6.4
Patents
5.14(a)
Permit
5.11
Permit Application
7.19
Post-Closing Partial Period
7.10(b)
Pre-Closing Partial Period
7.10(b)
Privacy Policies
5.14(o)
Scheduled Contracts
5.8
Separate Counsel
10.3(b)
Shareholder Consent
5.27
Shareholder Support Agreements
Recitals
Survival Period
10.1
Surviving Corporation
2.1
Third Party Claim
10.3(a)
Trademarks
5.14(a)
Trade Secrets
5.14(e)
Transfer Taxes
7.10(e)
Unaudited Company Balance Sheet
5.6(a)
Unaudited Company Financial Statements
5.6(a)
</TABLE>
ARTICLE II.
THE MERGER
SECTION
2.1 First Step Merger. Upon the terms and subject to the
conditions hereof, and in accordance with
the CGCL, Merger Sub shall be merged
with and into the Company at the Effective
Time (as hereinafter defined).
Following the Merger, the separate
corporate existence of Merger Sub shall
cease. The Company shall continue as the
surviving corporation following the
Merger (the "Surviving Corporation") and
shall succeed to and assume all the
rights and obligations of Merger Sub in
accordance with the CGCL. The separate
corporate existence of the Company, with
all of its rights, privileges,
immunities, powers and franchises, shall
continue unaffected by the
Merger.SECTION 2.2 Closing. The closing of
the Merger (the "Closing") shall take
place at the offices of Latham &
Watkins LLP, 12636 High Bluff Drive, Suite 300,
San Diego, California 92130 on the date
(such date hereinafter, the "Closing
Date") as soon as practicable after the
last of the conditions set forth in
Article VIII shall have been fulfilled or
waived or at such other date and place
as Parent and the Company shall agree in
writing.
SECTION
2.3 Effective Time. The Merger shall become effective when the
Agreement of Merger (the "First Agreement
of Merger"), executed in accordance
with the relevant provisions of the CGCL,
is accepted for record by the
Secretary of State of the State of
California. When used in this Agreement, the
term "Effective Time" shall mean the later
of the
13
<PAGE>
date and time at which the First Agreement
of Merger is accepted for record or
the date and time established by the First
Agreement of Merger.
SECTION
2.4 Effects of the Merger. At and after the Effective Time, the
Merger shall have the effects set forth in
the CGCL.
SECTION
2.5 Articles of Incorporation and Bylaws; Directors and
Officers.
(a) At the Effective Time, (i) the Articles of Incorporation of
the
Surviving Corporation shall be amended to
read in form and substance
substantially the same as Exhibit E hereto
and (ii) the Bylaws of the Surviving
Corporation shall be amended to read in
form and substance substantially the
same as Exhibit F hereto, in each case
until thereafter changed or amended as
provided therein or applicable Law.
(b) The directors and officers of Merger Sub immediately prior
to
the Effective Time shall be the directors
and officers, respectively, of the
Surviving Corporation as of the Effective
Time, until the earlier of their
resignation or removal or otherwise ceasing
to be a director or officer or until
their respective successors are duly
elected and qualified, as the case may be.
SECTION
2.6 Second Step Merger. Within thirty (30) days following the
Effective Time, Parent shall cause the
Surviving Corporation to merge with and
into a wholly-owned California corporation
or limited liability company
subsidiary (the "Second Step Merger"). The
First Step Merger and the Second Step
Merger shall be treated as integrated steps
in the transaction contemplated by
this Agreement and for any and all federal
and state income tax reporting
purposes shall be reported as a single
"merger transaction" within the meaning
of Section 368(a)(1)(A) of the Code.
Following the consummation of the Second
Step Merger, references in this Agreement
to the Surviving Corporation shall be
deemed to refer to the surviving
corporation resulting from such Second Step
Merger.
CONVERSION OF SECURITIES
SECTION
3.1 Conversion of Securities. As of the Effective Time, by
virtue
of the Merger and without any action on the
part of the holder of any shares of
Company Common Stock or Company Preferred
Stock or any shares of capital stock
of Merger Sub: (a) Each share of Company
Capital Stock that is held in the
treasury of the Company or by any wholly
owned subsidiary of the Company and
each share of Company Capital Stock owned
by Parent, Merger Sub or any other
wholly owned subsidiary of Parent shall be
cancelled and retired and no
consideration shall be delivered in
exchange therefor.
(b) Each share of Company Common Stock and Company Preferred
Stock
issued and outstanding immediately prior to
the Effective Time (other than
shares of Company Capital Stock to be
cancelled in accordance with Section
3.1(a) and other than Dissenting Shares (as
defined in Section 4.2)) shall be
converted at the Effective Time into the
right to receive:
(i) For each share of Company Common Stock: (A) subject to
Section 3.5(a), the fraction of a share of
Parent Common Stock equal to the
Common Stock Exchange Ratio; plus (B)
subject to Section 3.5(a), an amount in
cash, without interest, equal to the
14
<PAGE>
Common Stock Cash Amount (collectively (A)
and (B) shall be referred to as the
"Common Stock Consideration"); plus (C)
disbursements, if any, of Parent Common
Stock and cash required to be made from the
Escrow Fund with respect to such
share of Company Common Stock in accordance
with the Escrow Agreement (as and
when any such disbursements are required to
be made); plus (D) such holder's
Applicable Percentage of the Express Search
Advertising Earnout, if any, as and
when any such disbursements are required to
be made;
(ii) For each share of Series A Preferred Stock: (A) subject
to Section 3.5(a), the fraction of a share
of Parent Common Stock equal to the
Series A Exchange Ratio; plus (B) subject
to Section 3.5(a), an amount in cash,
without interest, equal to the Series A
Cash Value; plus (C) subject to Section
3.5(a), the Common Stock Consideration
multiplied by the number of shares of
Company Common Stock issuable upon
conversion of such share of Series A
Preferred Stock; plus (D) disbursements, if
any, of Parent Common Stock and cash
required to be made from the Escrow Fund
with respect to such share of Series A
Preferred Stock in accordance with the
Escrow Agreement (as and when any such
disbursements are required to be made);
plus (E) such holder's Applicable
Percentage of the Express Search
Advertising Earnout, if any, as and when any
such disbursements are required to be
made;
(iii) For each share of Series B Preferred Stock: (A) subject
to Section 3.5(a), the fraction of a share
of Parent Common Stock equal to the
Series B Exchange Ratio; plus (B) subject
to Section 3.5(a), an amount in cash,
without interest, equal to the Series B
Cash Value; plus (C) subject to Section
3.5(a), the Common Stock Consideration
multiplied by the number of shares of
Company Common Stock issuable upon
conversion of such share of Series B
Preferred Stock; plus (D) disbursements, if
any, of Parent Common Stock and cash
required to be made from the Escrow Fund
with respect to such share of Series B
Preferred Stock in accordance with the
Escrow Agreement (as and when any such
disbursements are required to be made);
plus (E) such holder's Applicable
Percentage of the Express Search
Advertising Earnout, if any, as and when any
such disbursements are required to be made;
and
(iv) For each share of Series C Preferred Stock: (A) subject
to Section 3.5(a), the fraction of a share
of Parent Common Stock equal to the
Series C Exchange Ratio; plus (B) subject
to Section 3.5(a), an amount in cash,
without interest, equal to the Series C
Cash Value; plus (C) subject to Section
3.5(a), the Common Stock Consideration
multiplied by the number of shares
issuable upon conversion of each share of
Series C Preferred Stock; plus (D)
disbursements, if any, of Parent Common
Stock and cash required to be made from
the Escrow Fund with respect to such share
of Series C Preferred Stock in
accordance with the Escrow Agreement (as
and when any such disbursements are
required to be made); plus (E) such
holder's Applicable Percentage of the
Express Search Advertising Earnout, if any,
as and when any such disbursements
are required to be made.
All such
shares of Company Common Stock and Company Preferred Stock,
when
so converted, shall no longer be
outstanding and shall automatically be
cancelled and retired, and each holder of a
certificate or certificates (the
"Certificates") representing any such
shares of Company Common Stock or Company
Preferred Stock, shall cease to have any
rights with respect thereto, except the
right to receive the consideration provided
herein.
15
<PAGE>
(c) Each issued and outstanding share of the capital stock of
Merger
Sub shall be converted into and become as
of the Effective Time one fully paid
and nonassessable share of common stock, no
par value per share, of the
Surviving Corporation.
(d) If, between the date of this Agreement and the Effective
Time,
the outstanding shares of Company Common
Stock or Company Preferred Stock or
Parent Common Stock shall have been changed
into, or exchanged for, a different
number of shares or a different class of
shares by reason of any stock dividend,
subdivision, reclassification,
recapitalization, split, combination,
contribution or exchange of shares, the
Common Stock Exchange Ratio, the Option
Exchange Ratio, the Series A Exchange
Ratio, the Series B Exchange Ratio and the
Series C Exchange Ratio shall be adjusted
as appropriate to reflect such stock
dividend, subdivision, reclassification,
recapitalization, split, combination,
contribution or exchange of shares.
(e) Notwithstanding anything to the contrary contained herein
and
subject to Article VI, Section 3.3 of the
Company's Articles of Incorporation,
(i) each share of Series A Preferred Stock
shall not be entitled to receive in
the aggregate (including the Series A Cash
Value, the Series A Share Value, the
Common Stock Consideration (with all shares
of Parent Common Stock included
therein valued at the Parent Stock Closing
Price) and any portion of the Express
Search Advertising Earnout to which such
share is entitled) an amount greater
than $15.86776 per share of Series A
Preferred Stock (the "Series A Cap"); (ii)
each share of Series B Preferred Stock
shall not be entitled to receive in the
aggregate (including the Series B Cash
Value, the Series B Share Value, the
Common Stock Consideration (with all shares
of Parent Common Stock included
therein valued at the Parent Stock Closing
Price) and any portion of the Express
Search Advertising Earnout to which such
share is entitled) an amount greater
than $30.96 per share of Series B Preferred
Stock (the "Series B Cap") and (iii)
each share of Series C Preferred Stock
shall not be entitled to receive in the
aggregate (including the Series C Cash
Value, the Series C Share Value, the
Common Stock Consideration (with all shares
of Parent Common Stock included
therein valued at the Parent Stock Closing
Price) and any portion of the Express
Search Advertising Earnout to which such
share is entitled) an amount greater
than $1.9988 per share of Series C
Preferred Stock (the "Series C Cap"). To the
extent each holder of Series A Preferred
Stock receives the Series A Cap per
share, each holder of Series B Preferred
Stock receives the Series B Cap per
share and each holder of Series C Preferred
Stock receives the Series C Cap per
share, any additional payments shall be
distributed to the holders of Company
Common Stock on a pro rata basis (not
including Dissenting Shares and any Common
Stock issuable upon conversion of Preferred
Stock for which the limitations set
forth in this Section 3.1(e) have been
reached).
SECTION
3.2 Assumption of Company Options.
(a) The Company shall use commercially reasonable efforts to
obtain
the consent of the holders of the Company
Options, to provide that, at the
Effective Time, each Outstanding Company
Option Award shall be cancelled in part
in respect of a cash payment as provided in
Section 3.2(b) and shall be assumed
and converted in part as provided in
Section 3.2(c); provided, however, that
obtaining any such consents shall not be a
requirement for, or a
16
<PAGE>
condition to, the right or authority of
Parent and the Company to take any of
the actions described in this Section
3.2.
(b) At the Effective Time, each Outstanding Company Option
Award
shall be automatically cancelled with
respect to a portion of the shares of
Company Common Stock subject thereto, as
described in this Section 3.2(b) (such
cancelled portion, the "Cancelled Option
Portion"). The number of shares of
Company Common Stock subject to the
Cancelled Option Portion of such Outstanding
Company Option Award shall be determined
immediately prior to the Effective Time
and shall equal the product of (i) the
Cancelled Option Percentage, multiplied
by (ii) the total number of shares of
Company Common Stock subject to such
Outstanding Company Option Award. The
Cancelled Option Portion shall consist of
vested and unvested shares of Company
Common Stock in the same proportion as
existed under the Outstanding Company
Option Award immediately prior to the
Effective Time (after taking into
consideration any accelerated vesting as a
result of the Merger). In respect of the
cancellation and termination of each
holder's Cancelled Option Portion, Parent
shall pay to such holder an amount in
cash (if greater than zero dollars ($0))
equal to (x) the number of shares of
Company Common Stock subject to such
Cancelled Option Portion immediately prior
to the Effective Time (without regard to
whether such shares were vested or
unvested immediately prior to the Effective
Time), multiplied by (y) the amount
equal to (i) the Company Common Stock
Closing Value, less (ii) the exercise
price per share under the Outstanding
Company Option Award. Such Cancelled
Option Portion, and any and all rights of
the holder under such Cancelled Option
Portion, shall terminate as of the
Effective Time. The Cancelled Option Portion
shall not be assumed by Parent in
connection with the Merger, and Parent shall
not grant an option to purchase shares of
Parent Common Stock in substitution of
the Cancelled Option Portion. Parent's
payment of the consideration described in
this Section 3.2(b) in respect of the
Cancelled Option Portion shall be in full
and final satisfaction of any and all
obligations of Parent, the Company or the
Surviving Corporation with respect to such
Cancelled Option Portion under the
Company Option Plan and the applicable
agreements thereunder. Parent and the
Company shall, and shall cause the
administrator of the Company Option Plan to,
take such commercially reasonable actions
as are necessary or appropriate to
accomplish the foregoing cancellation of
the Cancelled Option Portion in
accordance with the Company Option Plan.
Parent and the Company shall be
entitled to require payment in cash or
deduction from compensation payable to
each holder pursuant to this Section 3.2(b)
of any sums required by federal,
state or local tax law to be withheld with
respect to the consideration to be
paid to such holder with respect to the
Cancelled Option Portion.
(c) At the Effective Time, each Outstanding Company Option
Award
shall be assumed by Parent, and converted
into an option to purchase shares of
Parent Common Stock, with respect to a
portion of the shares of Company Common
Stock subject thereto, as described in this
Section 3.2(c) (such assumed
portion, the "Assumed Option Portion"). The
number of shares of Company Common
Stock subject to the Assumed Option Portion
of such Outstanding Company Option
Award shall be determined immediately prior
to the Effective Time and shall
equal the product of (i) the Assumed Option
Percentage, multiplied by (ii) the
total number of shares of Company Common
Stock subject to such Outstanding
Company Option Award. The Assumed Option
Portion shall consist of vested and
unvested shares of Company Common Stock in
the same proportion as existed under
the Outstanding Company Option Award
immediately
17
<PAGE>
prior to the Effective Time (after taking
into consideration any accelerated
vesting as a result of the Merger). Each
Assumed Option Portion shall continue
to have, and be subject to, the same terms
and conditions as set forth in the
Company Option Plan and any agreement
issued thereunder pursuant to which such
Assumed Option Portion was granted, in each
case, as in effect immediately prior
to the Effective Time, except that, upon
assumption and conversion (i) such
Assumed Option Portion shall be exercisable
(or shall become exercisable in
accordance with its terms) for that number
of shares of Parent Common Stock
equal to the product of (x) the number of
shares of Company Common Stock subject
to such Assumed Option Portion immediately
prior to the Effective Time,
multiplied by (y) the Option Exchange
Ratio, rounded down to the nearest whole
number of shares of Parent Common Stock,
(ii) the per share exercise price of
Parent Common Stock subject to such Assumed
Option Portion shall be equal to the
quotient obtained by dividing (x) the
exercise price per share of Company Common
Stock subject to such Assumed Option
Portion immediately prior to the Effective
Time by (y) the Option Exchange Ratio,
rounded up to the nearest whole cent,
(iii) any reference in the Assumed Option
Portion to the Company shall be deemed
a reference to Parent, and (iv) any
references in the Assumed Option Portion to
Company Common Stock shall be deemed a
reference to Parent Common Stock.
Notwithstanding anything in this Section
3.2(c) to the contrary, the assumption
and conversion of the Assumed Option
Portion provided for herein shall be
undertaken in such a manner so as to
satisfy the requirements of Section 424(a)
of the Code and Treasury Regulation Section
1.424-1 (assuming that such Assumed
Option Portion were an "incentive stock
option" under Section 422 of the Code
immediately prior to the assumption and
conversion) and so as not to cause such
Assumed Option Portion to constitute a
deferral of compensation subject to
Section 409A of the Code solely as a result
of such assumption and conversion
and otherwise in accordance with
Q/A-4(d)(ii) of the Internal Revenue Service
Notice 2005-1. Parent and the Company
shall, and shall cause the administrator
of the Company Option Plan to, take such
commercially reasonable actions as are
necessary or appropriate to accomplish the
foregoing assumption and conversion
of the Assumed Option Portion in accordance
with this Section 3.2(c) and the
Company Option Plan and any agreement
issued thereunder pursuant to which such
Assumed Option Portion was granted.
(d) Prior to the Effective Time, the board of directors of
Parent
and its compensation committee, as
applicable, may take all necessary action to
assume and adopt, effective as of the
Effective Time, the Company Option Plan.
SECTION
3.3 Restricted Stock Awards.
(a) If any shares of Company Common Stock that are outstanding
immediately prior to the Effective Time are
unvested or are subject to a
repurchase option, risk of forfeiture or
other condition providing that such
shares ("Company Restricted Stock") may be
forfeited or repurchased by the
Company upon any termination of the
shareholders' employment, directorship or
other relationship with the Company (and/or
any affiliate of the Company) under
the terms of any stock option exercise
agreement, restricted stock purchase
agreement or other agreement with the
Company that does not by its terms provide
that such repurchase option, risk of
forfeiture or other condition lapses upon
consummation of the transactions
contemplated hereby, then the shares of Parent
Common Stock and the cash consideration
issued upon the conversion of such
shares in the Merger will continue to be
unvested and subject to the same or
18
<PAGE>
equivalent repurchase options, risks of
forfeiture or other conditions following
the Effective Time. The certificates
representing such shares of Parent Common
Stock may accordingly be marked with
appropriate legends noting such repurchase
options, risks of forfeiture or other
conditions and any cash consideration to
be issued upon the conversion of shares of
Company Restricted Stock may be held
in escrow by Parent or its designee until
such repurchase options, risks of
forfeiture or other conditions lapse or are
exercised by Parent. The Company
shall use commercially reasonable efforts
to ensure that, from and after the
Effective Time, the Surviving Corporation
is entitled to exercise any such
repurchase option or other right set forth
in any such restricted stock purchase
agreement or other agreement.
SECTION
3.4 Audited Financial Statement Adjustment.
(a) As promptly as practicable after the date of this Agreement,
the
Company shall deliver to Parent the
Company's audited balance sheet at December
31, 2004 and its audited statements of
income, shareholders' equity and cash
flows for the year ended December 31, 2004
(the "2004 Audited Financial
Statements"), all in reasonable detail and
prepared in accordance with GAAP,
audited and accompanied by a report and
opinion of an independent certified
public accountant of nationally recognized
standing, which report and opinion
shall be prepared in accordance with
generally accepted auditing standards. The
2004 Audited Financial Statements shall be
accompanied by a written statement
prepared and certified by the Company's
Chief Financial Officer setting forth in
reasonable detail: (i) the amount of the
Company's revenues for the year ended
December 31, 2004 as set forth on the face
of the Company's 2004 Audited
Financial Statements (the "2004 Audited
Revenue"); (ii) the amount of the
Company's revenues for the year ended
December 31, 2004 as set forth on the face
of the Unaudited Company Financial
Statements (the "2004 Unaudited Revenue");
and (iii) the calculation of the Audited
Financials Adjustment Amount, if any,
calculated in accordance with Section
3.4(b).
(b) As used in this Section 3.4(b), the term "Revenue
Percentage"
shall be a fraction (expressed as a
percentage, rounded to the nearest four
decimal points), the numerator of which
shall be the amount of the 2004 Audited
Revenue and the denominator of which shall
be the amount of the 2004 Unaudited
Revenue. The "Audited Financials Adjustment
Amount" shall be calculated as
follows:
(i) If the Revenue Percentage is greater than or equal to
97.0%, the Audited Financials Adjustment
Amount shall be zero.
(ii) If the Revenue Percentage is less than 97.0%, the Audited
Financials Adjustment Amount shall be equal
to the product of (A) 100% less the
Revenue Percentage (with such difference
expressed as a fraction), multiplied by
(B) $63,877,500.
SECTION
3.5 Escrow.
(a) On the Closing Date, (i) Parent, the escrow agent (the
"Escrow
Agent") and the Holder Representative shall
execute the escrow agreement
substantially in the form attached hereto
as Exhibit G (the "Escrow Agreement")
and (ii) Parent shall deposit with the
Escrow Agent, for the benefit and on
behalf of the holders of shares of Company
Common Stock and Company Preferred
Stock outstanding immediately prior to the
Effective Time (other than
19
<PAGE>
Dissenting Shares), the number of shares of
Parent Common Stock and the amount
of cash that constitutes the Escrow Fund,
for disbursement in accordance with
the terms of the Escrow Agreement. The
holders of Company Common Stock and
Company Preferred Stock shall be deemed to
have contributed the Escrow Fund to
the Escrow Agent.
(b) Each holder of Company Common Stock and Company Preferred
Stock
outstanding immediately prior to the
Effective Time shall be entitled to receive
his, her or its Pro Rata Share of
distributions from the Escrow Fund, at such
times and in the manner set forth in the
Escrow Agreement.
SECTION
3.6 Express Search Advertising Post-Closing Adjustment or
Earn-Out.
(a) Express Search Advertising Revenue Statement and
Calculations.
Not later than thirty (30) days following
the fifteen (15) month anniversary of
the Closing Date, Parent shall calculate,
prepare and deliver to the Holder
Representative a statement showing the
revenues earned by the Surviving
Corporation from the Company's Express
Search Advertising Agreements identified
on the Company Disclosure Schedule as of
the date of this Agreement (the
"Express Search Advertising Contracts")
during the period commencing on the
Closing Date and ending on the fifteen
month anniversary of the Closing Date,
calculated in accordance with GAAP (such
revenue amount, the "Express Search
Advertising Revenue") and showing in
reasonable detail the calculation of the
Express Search Advertising Adjustment
Amount calculated in accordance with
Section 3.6(b) or the amount of the Express
Search Advertising Earn-Out
calculated in accordance with Section
3.6(c), as applicable. The statement of
calculations referred to in this Section
3.6(a) shall be referred to herein as
the "Express Search Advertising
Calculations."
(b) Express Search Advertising Adjustment Amount. The "Express
Search Advertising Adjustment Amount," if
any, shall be determined as set forth
in this Section 3.6(b):
(i) If the Express Search Advertising Revenue is less than
$1,812,500, then, Parent shall have a claim
against the Escrow Fund under the
Escrow Agreement in the amount of
$6,500,000; and
(ii) If the Express Search Advertising Revenue is less than
$3,625,000 but greater than or equal to
1,812,500, then, Parent shall have a
claim against the Escrow Fund under the
Escrow Agreement in an amount equal to
the product of (i) a fraction, the
numerator of which is $3,625,000 less the
actual Express Search Advertising Revenue,
and the denominator of which is
$3,625,000, multiplied by (ii) $13,000,000;
and
(iii) If the Express Search Advertising Revenue is greater
than or equal to $3,625,000, then, the
Express Search Advertising Adjustment
Amount shall be zero.
(iv) Promptly following the Express Search Advertising
Determination Date, and in any event within
five (5) Business Days of the
Express Search Advertising Determination
Date, the Escrow Agent shall pay to
Parent out of the Escrow Fund such amounts
as are owed to Parent in respect of
the Express Search Advertising Adjustment
Amount, if any, under this Section
3.6(b), pursuant to the terms of the Escrow
Agreement.
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<PAGE>
(c) Express Search Advertising Earn-Out. If the Express Search
Advertising Revenue is greater than
$3,625,000, then, Parent shall, subject to
any required Tax withholdings, pay to each
holder of Company Common Stock and
Company Preferred Stock outstanding
immediately prior to the Effective Time
(other than Dissenting Shares), his, her or
its Applicable Percentage of the
Express Search Advertising Earn-Out. The
"Express Search Advertising Earn-Out"
shall be an amount equal to the product of
(x) a fraction, the numerator of
which is the actual Express Search
Advertising Revenue less $3,625,000, and the
denominator of which is $3,625,000,
multiplied by (ii) $4,500,000, provided,
that in no event shall such Express Search
Advertising Earnout exceed
$4,500,000. Parent shall make such payment
in respect of the Express Search
Advertising Earn-Out within five (5)
Business Days after the Express Search
Advertising Determination Date; provided,
however, that Parent shall pay to any
holder of Company Restricted Stock his or
her Applicable Percentage of the
Express Search Advertising Earn-Out on the
first Business Day that is 150 days
after the 15 month anniversary of the
Closing Date. At Parent's election, the
Express Search Advertising Earn-Out shall
be paid in cash, or (to the extent
then permitted by the rules of the Nasdaq
National Market or its successor) in
that number of shares of Parent Common
Stock equal to the amount of the Express
Search Advertising Earn-Out divided by the
Parent Common Stock Price, or in any
combination of cash and shares of Parent
Common Stock valued at the Parent
Common Stock Price (to the extent then
permitted by the rules of the Nasdaq
National Market or its successor).
(d) Express Search Advertising Dispute Resolution. If the
Holder
Representative shall disagree with the
Express Search Advertising Calculations,
it shall notify Parent of such disagreement
in writing, setting forth in
reasonable detail the particulars of such
disagreement, within thirty (30)
calendar days after its receipt of the
Express Search Advertising Calculations.
Following the delivery of the Express
Search Advertising Calculations statement,
Parent shall provide the Holder
Representative and its representatives access to
the records and employees of the Surviving
Corporation to the extent necessary
for a review of the Express Search
Advertising Revenues and Express Search
Advertising Calculations and shall cause
the employees of the Surviving
Corporation to cooperate with the Holder
Representative in connection with such
review. In the event that the Holder
Representative does not provide such a
notice of disagreement to Parent within
such 30-day period, the Holder
Representative shall be deemed to have
accepted the Express Search Advertising
Calculations delivered by the Surviving
Corporation, which shall be final,
binding and conclusive for all purposes
hereunder. In the event any such notice
of disagreement is timely provided, Parent
and the Holder Representative shall
use commercially reasonable efforts for a
period of thirty (30) calendar days
(the "Express Search Advertising Resolution
Period") to resolve any
disagreements with respect to the Express
Search Advertising Revenues or the
Express Search Advertising Calculations.
If, at the end of the Express Search
Advertising Resolution Period, they are
unable to resolve such disagreements,
then the Express Search Advertising
Calculations along with the Holder
Representative's notice of disagreement
(both modified to reflect only
unresolved disagreements) and a written
response from Parent to the Holder
Representative's notice of disagreement
(setting forth in reasonable detail the
particulars of Parent's disagreement) shall
be submitted within ten (10) days
after the last day of the Express Search
Advertising Resolution Period to such
nationally recognized independent
accounting firm as may be mutually selected by
Parent and the Holder Representative (the
"Express Search Advertising Auditor")
to resolve any remaining disagreements. If
Parent and the Holder Representative
are unable to agree on the
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<PAGE>
Express Search Advertising Auditor, then
Parent and the Holder Representative
shall each have the right to request the
American Arbitration Association to
appoint the Express Search Advertising
Auditor, which shall not have had a
material relationship with Parent, the
Company or the Holder Representative
subsequent to December 31, 2001. The
Express Search Advertising Auditor shall
determine as promptly as practicable, but
in any event within thirty (30)
calendar days of the date on which such
dispute is referred to the Express
Search Advertising Auditor, whether (and
only with respect to the remaining
disagreements submitted to the Express
Search Advertising Auditor) and to what
extent (if any) the Express Search
Advertising Calculations require adjustment;
provided, the scope of the dispute to be
resolved by the Express Search
Advertising Auditor shall be limited to
whether the Express Search Advertising
Revenue was calculated in accordance with
GAAP, and whether there were
mathematical errors in the Express Search
Advertising Calculations, and the
Express Search Advertising Auditor shall
not make any other determination. In
reaching its determination, the only
alternatives available to the Express
Search Advertising Auditor will be to (i)
accept the position of Parent, (ii)
accept the position of the Holder
Representative or (iii) accept a position
between those two positions. The Express
Search Advertising Auditor will
determine the allocation of its costs and
expenses based on the inverse of the
percentage which its award (before such
allocation) bears to the total amount of
the total items in arbitration as
originally submitted to it. Accordingly,
should the items in arbitration total in
amount to $1,000 and the Express Search
Advertising Auditor awards $600 in favor of
the Holder Representative's
position, 60% of the costs and expenses
would be assessed against Parent and 40%
of the costs and expenses would be
satisfied from the Escrow Fund. The
determination of the Express Search
Advertising Auditor shall be final,
conclusive and binding on the parties. The
date on which the Express Search
Advertising Calculations are finally
determined in accordance with this Section
3.6(d) is hereinafter referred as to the
"Express Search Advertising
Determination Date."
(e) Strategic Actions. During the fifteen (15) months following
the
Closing Date, Parent shall not and shall
not cause the Surviving Corporation to
take any action with respect to the
Surviving Corporation or its business,
products or services that is intended to
reduce Express Search Advertising
Revenue or avoid paying the Express Search
Advertising Earn-Out under this
Section 3.6; provided, that nothing herein
shall create any enforceable right on
the part of any employee of the Company to
continued employment with Parent or
the Surviving Corporation.
ARTICLE IV.
EXCHANGE OF CERTIFICATES
SECTION
4.1 Exchange of Certificates.
(a) Exchange Agent; Exchange Fund. Prior to the Effective Time,
Parent shall (i) designate its transfer
agent as the exchange agent (the
"Exchange Agent"), to issue and deliver
certificates (or record book-entry
transfers) with respect to the shares of
Parent Common Stock issuable pursuant
to Section 3.1(b), and (ii) deposit, or
shall cause to be deposited, cash
deliverable pursuant to Section 3.1(b), and
cash in lieu of fractional shares,
in each case in exchange for shares of
Company Capital Stock (other than
Dissenting Shares) (the shares of
22
<PAGE>
Parent Common Stock, together with cash
delivered pursuant to Section 3.1(b) and
cash in lieu of fractional shares, being
hereinafter referred to as the
"Exchange Fund"). Except as contemplated by
Section 4.1(e) hereof, the Exchange
Fund shall not be used for any other
purpose.
(b) Exchange Procedures for Certificates. Promptly following
the
Effective Time, the Surviving Corporation
or the Exchange Agent shall mail to
each holder of record of a Certificate,
other than Certificates to be canceled
or retired pursuant to Section 3.1(a), (i)
a letter of transmittal (which shall
specify that delivery shall be effected,
and risk of loss and title to the
Certificates shall pass, only upon actual
delivery of the Certificates to the
Exchange Agent and shall be in a form and
have such other provisions as Parent
and the Company may reasonably agree) and
(ii) instructions for use in effecting
the surrender of the Certificates in
exchange for the consideration provided
herein. Upon surrender of a Certificate for
cancellation to the Exchange Agent
or to such other agent or agents as may be
appointed by the Surviving
Corporation, together with such letter of
transmittal, duly executed, and such
other documents as may reasonably be
required by the Exchange Agent, the holder
of such Certificate shall be entitled to
receive in exchange therefor, the
amount of consideration into which the
shares of Company Capital Stock
theretofore represented by such Certificate
shall have been converted pursuant
to Section 3.1(b), and the Certificates so
surrendered shall forthwith be
cancelled. No interest will be paid or will
accrue on any cash payable upon the
surrender of any Certificate. If payment is
to be made to a person or entity
other than the person or entity in whose
name the Certificate so surrendered is
registered, it shall be a condition of
payment that such Certificate shall be
properly endorsed or otherwise in proper
form for transfer and that the person
or entity requesting such payment shall pay
any transfer or other taxes required
by reason of such Certificate or establish
to the satisfaction of the Surviving
Corporation that such tax has been paid or
is not applicable. Until surrendered
as contemplated by this Section 4.1(b),
each Certificate (other than
Certificates representing Dissenting Shares
and Certificates representing any
shares of Company Capital Stock to be
cancelled or retired pursuant to Section
3.1(a)) shall be deemed at any time after
the Effective Time to represent only
the right to receive upon such surrender
the consideration provided herein,
without interest.
(c) No Liability. None of the Exchange Agent, Parent, the
Surviving
Corporation or any party hereto shall be
liable to any holder of shares of
Company Capital Stock for any shares of
Parent Common Stock (or dividends or
distributions with respect thereto) or cash
or interest from the Exchange Fund
delivered to a public official pursuant to
any abandoned property, escheat or
similar Law. Persons who prior to the
Merger held shares of Company Capital
Stock shall look only to the Parent
(subject to the terms of this Agreement and
abandoned property, escheat and other
similar laws) with respect to any
consideration that may be payable upon due
surrender of the Certificates held by
them, without interest.
(d) Distributions with Respect to Unexchanged Shares of Parent
Common Stock. No dividends or other
distributions declared or made after the
Effective Time with respect to Parent
Common Stock with a record date after the
Effective Time shall be paid to the holder
of any unsurrendered Certificate with
respect to the shares of Parent Common
Stock represented thereby, and no cash
payment in lieu of fractional shares shall
be paid to any such holder pursuant
to Section 4.1(e), unless and until the
holder of such Certificate shall
surrender
23
<PAGE>
such Certificate. Subject to the effect of
escheat, tax or other applicable
Laws, following surrender of any such
Certificate, there shall be paid to the
former holder thereof who is entitled to a
stock certificate (or a book-entry
transfer) representing whole shares of
Parent Common Stock issued in exchange
therefor, without interest, (A) promptly
the amount of any cash payable with
respect to a fractional share of Parent
Common Stock to which such holder is
entitled pursuant to Section 4.1(e) and the
amount of dividends or other
distributions with a record date after the
Effective Time theretofore paid with
respect to such whole shares of Parent
Common Stock and (B) at the appropriate
payment date, the amount of dividends or
other distributions, with a record date
after the Effective Time but prior to
surrender and a payment date occurring
after surrender, payable with respect to
such whole shares of Parent Common
Stock.
(e) Fractional Shares. No certificates, scrip or book-entries
representing fractional shares of Parent
Common Stock shall be issued in
connection with the Merger, no dividend or
distribution with respect to Parent
Common Stock shall be payable on or with
respect to any fractional share and
such fractional share interests will not
entitle the owner thereof to any rights
of a stockholder of Parent. In lieu of
fractional shares of Parent Common Stock,
each holder of Company Capital Stock shall
receive from Parent an amount of cash
(rounded to the nearest whole cent) equal
to the product of (i) the fraction of
a share of Parent Common Stock to which
such holder would otherwise be entitled
(after aggregating all fractional shares of
Parent Common Stock issuable to such
holder) multiplied by (ii) the Parent
Common Stock Price. The fractional share
determination shall be made individually
for each holder of Company Capital
Stock. As soon as practicable after the
determination of the amount of cash, if
any, to be paid to holders of Company
Capital Stock with respect to any
fractional share interests, the Exchange
Agent shall promptly pay such amounts
to such holders, subject to and in
accordance with the terms of Section 4.1(d).
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund
which remains undistributed to the holders
of Company Capital Stock for twelve
(12) months after the Effective Time shall
be delivered to Parent upon demand,
and any holders of Company Capital Stock
who have not theretofore complied with
this Article 4 shall thereafter look only
to Parent for the shares of Parent
Common Stock, cash deliverable pursuant to
Section 3.1(b), any cash in lieu of
fractional shares of Parent Common Stock to
which they are entitled pursuant to
Section 4.1(e), and any dividends or other
distributions with respect to Parent
Common Stock to which they are entitled
pursuant to Section 4.1(d), in each
case, without any interest thereon, and any
disbursements required to be made
from the Escrow Fund pursuant to the terms
of the Escrow Agreement.
(g) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an
affidavit of that fact by the Person
claiming such Certificate to be lost,
stolen or destroyed, together with the
delivery of any agreement to indemnify
Parent, and, if required by Parent, the
posting by such Person of a bond, in such
reasonable amount as Parent may
direct, as indemnity against any claim that
may be made against it with respect
to such Certificate, the Exchange Agent
will issue in exchange for such lost,
stolen or destroyed Certificate the shares
of Parent Common Stock, the cash
deliverable pursuant to Section 3.1(b), any
cash in lieu of fractional shares of
Parent Common Stock to which the
holders
24
<PAGE>
thereof are entitled pursuant to Section
4.1(e) and any dividends or other
distributions to which the holders thereof
are entitled pursuant to Section
4.1(c), in each case, without any interest
thereon, and any disbursements
required to be made from the Escrow Fund
pursuant to the terms of the Escrow
Agreement.
(h) Affiliate Letter. Notwithstanding anything herein to the
contrary, Certificates surrendered for
exchange by any Affiliate of the Company
shall not be exchanged until Parent has
received an executed letter from such
Affiliate in the form attached hereto as
Exhibit H (an "Affiliate Letter").
SECTION
4.2 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, if required by
the CGCL, but only to the extent
required thereby, shares of Company Capital
Stock which are issued and
outstanding immediately prior to the
Effective Time and which are held by
holders of such shares of Company Capital
Stock who have not voted in favor of
the Merger and who have properly exercised
appraisal rights with respect thereto
in accordance with Section 1300 of the CGCL
(the "Dissenting Shares") will not
be exchangeable for the right to receive
the consideration specified herein, and
holders of such shares of Company Capital
Stock will be entitled to receive
payment of the appraised value of such
shares of Company Capital Stock in
accordance with the provisions of
California Law unless and until such holders
fail to perfect or effectively withdraw or
lose their rights to appraisal and
payment under the CGCL. If, after the
Effective Time, any such holder fails to
perfect or effectively withdraws or loses
such right, such shares of Company
Capital Stock will thereupon be treated as
if they had been converted into and
to have become exchangeable for, at the
Effective Time, the right to receive the
consideration specified herein, without any
interest thereon, and such
consideration shall be subject to Section
3.5(a). The Company shall give Parent
(A) notice of any written demands for
appraisal, withdrawals of demands for
appraisal and any other related instruments
received by the Company and (B) the
opportunity to direct all negotiations and
proceedings with respect to demands
for appraisal. The Company will not, except
with the prior written consent of
Parent, voluntarily make any payment with
respect to any demands for appraisal
or settle or offer to settle any such
demand.
SECTION
4.3 No Further Ownership Rights in Shares of Company Capital
Stock; Closing of Company Transfer Books.
At and after the Effective Time, each
holder of a Certificate shall cease to have
any rights as a shareholder of the
Company, except for, in the case of a
holder of a Certificate (other than shares
to be cancelled pursuant to Section 3.1(a)
and other than Dissenting Shares),
the right to surrender his or her
Certificate in exchange for payment of the
consideration specified herein or, in the
case of a holder of Dissenting Shares,
to perfect his or her right to receive
payment for his or her shares of Company
Capital Stock pursuant to California Law
and no transfer of shares of Company
Capital Stock shall be made on the stock
transfer books of the Surviving
Corporation. At the Effective Time, the
stock transfer books of the Company
shall be closed, and no transfer of shares
of Company Capital Stock shall
thereafter be made. If, after the Effective
Time, Certificates are presented to
the Surviving Corporation, they shall be
cancelled and exchanged as provided for
herein.
SECTION
4.4 Withholding Rights. Each of the Company, the Surviving
Corporation and Parent shall be entitled to
deduct and withhold from the
consideration otherwise payable pursuant to
this Agreement to any holder of
shares of Company Capital Stock or any
holder of
25
<PAGE>
Company Options such amounts as it is
required to deduct and withhold with
respect to the making of such payment under
the Internal Revenue Code and the
rules and regulations promulgated
thereunder, and any provision of applicable
Law (including without limitation, under
Section 1445 of the Internal Revenue
Code, if applicable). To the extent that
amounts are so withheld by the Company,
the Surviving Corporation or Parent, as the
case may be, such withheld amounts
shall be treated for all purposes of this
Agreement as having been paid to the
holder of the shares of Company Capital
Stock or holder of Company Options in
respect of which such deduction and
withholding was made by the Company, the
Surviving Corporation or Parent, as the
case may be.
SECTION
4.5 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving
Corporation will be authorized to
execute and deliver, in the name and on
behalf of the Company or Merger Sub, any
deeds, bills of sale, assignments or
assurances and to take and do, in the name
and on behalf of the Company or Merger Sub,
any other actions and things to
vest, perfect or confirm of record or
otherwise in the Surviving Corporation any
and all right, title and interest in, to
and under any of the rights, properties
or assets acquired or to be acquired by the
Surviving Corporation as a result
of, or in connection with, the Merger.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the written disclosure schedule dated as
of
the date of this Agreement and previously
delivered by the Company to Parent and
Merger Sub (the "Company Disclosure
Schedule") (it being understood that the
Company Disclosure Schedule shall be
arranged in sections corresponding to the
sections contained in this Agreement, and
the disclosures in any section of the
Company Disclosure Schedule shall qualify
the representations in the
corresponding section of this Article V and
shall be deemed made in any other
section or sections of the Company
Disclosure Schedule where the relevance of
such disclosures is reasonably apparent
from the text of such disclosure), the
Company hereby represents and warrants to
Parent and Merger Sub as follows:
SECTION
5.1 Organization. The Company is a corporation duly organized,
validly existing and in good standing under
the Laws of the State of California,
and has all requisite corporate power and
authority to own, operate or lease the
properties and assets now owned, operated
or leased by it, and to carry on its
business as it is currently being
conducted. The Company is duly qualified or
licensed as a foreign corporation to do
business, and is in good standing, under
the Laws of each jurisdiction in which the
character of its properties owned,
operated or leased by it, or the nature of
its activities, makes such
qualification necessary, except in those
jurisdictions where the failure to be
so qualified or licensed and in good
standing would not, individually or in the
aggregate, have a Company Material Adverse
Effect. Section 5.1 of the Company
Disclosure Schedule sets forth a true,
correct and complete list of each
jurisdiction in which the Company is
qualified to do business as a foreign
corporation. The copies of the Company's
articles of incorporation and bylaws
delivered by the Company to Parent prior to
the execution of this Agreement are
accurate, complete and correct copies of
such instruments as in effect on the
date of this Agreement.
26
<PAGE>
SECTION
5.2 Capitalization.
(a) Authorized, Issued and Outstanding Capital Stock. The
authorized
capital stock of the Company consists of
Forty-One Million One Hundred
Ninety-Nine Thousand Nine Hundred and
Thirty (41,199,930) shares, without par
value, of which (i) Thirty-Six Million
(36,000,000) shares are Company Common
Stock and (ii) Five Million One Hundred
Ninety-Nine Thousand Nine Hundred Thirty
(5,199,930) shares are Company Preferred
Stock, of which (x) One Million Eight
Thousand Three Hundred Thirty-Four
(1,008,334) shares have been designated as
Series A Preferred Stock, (y) One Million
Nine Hundred Thirty Five Thousand Two
Hundred Sixty Nine (1,935,269) shares have
been designated as Series B Preferred
Stock and (z) Two Million Two Hundred
Thousand (2,200,000) shares have been
designated as Series C Preferred Stock. As
of the date of this Agreement, there
are issued and outstanding 6,662,535 shares
of Company Common Stock, 1,008,334
shares of Series A Preferred Stock,
1,935,269 shares of Series B Preferred Stock
and 2,017,210 shares of Series C Preferred
Stock. The Company has no other
capital stock authorized, issued or
outstanding. Section 5.2(a) of the Company
Disclosure Schedule sets forth name of each
holder of shares of Company Capital
Stock, as well as the number of shares of
Company Common Stock and Company
Preferred Stock held by each such holder.
There are no accrued or unpaid
dividends with respect to any issued and
outstanding shares of Company Common
Stock or Company Preferred Stock.
(b)
Company Options. As of the date of this Agreement, 2,143,218
shares of Common Stock are reserved for
issuance upon the exercise of
outstanding Company Options that were
granted pursuant to the Company Option
Plan. 1,592,373 shares of Common Stock are
reserved for issuance for awards not
yet granted pursuant to the Company Option
Plan, and no shares of Company Common
Stock, no shares of Series A Preferred
Stock, no shares of Series B Preferred
Stock and no shares of Series C Preferred
Stock are reserved for issuance
pursuant to outstanding warrants. Section
5.2(b) of the Company Disclosure
Schedule sets forth the name of each holder
of Company Options, as well as the
number of Company Options held by each such
holder, the vesting schedule for
each such Company Option (including a
description of the circumstances under
which such vesting schedule can or will be
accelerated) and the price per share
of Company Common Stock for which each such
Company Option is exercisable
(without taking into account whether or not
such Company Option is in fact
exercisable on the date of this Agreement).
The Company has delivered or made
available to Parent true, accurate and
complete copies of each plan or agreement
pursuant to which any Company Option has
been granted, including any and all
amendments thereto. No Options (or any
portion thereof, and including after
Parent's assumption thereof as described in
Section 3.2) will be entitled to
accelerated vesting as a result of the
Merger.
(c) No Other Company Capital Stock or Company Options. Except
for
the Company Options and Company Preferred
Stock referred to above, there are no
outstanding options, rights or warrants or
convertible securities or other
rights of any kind to purchase or otherwise
acquire any shares of Company
Capital Stock or other securities of the
Company. Except for the aggregate of
3,735,591 shares of Company Common Stock
reserved for issuance upon exercise of
Company Options granted or to be granted
under the Company Option Plan and
11,602,897 shares of Company Common Stock
reserved for issuance upon conversion
of
27
<PAGE>
outstanding shares of Company Preferred
Stock, no shares of capital stock of the
Company are reserved for issuance.
(d) No
Other Agreements. Except as set forth in Section 5.2(d) of
the Company Disclosure Schedule, there are
no contractual obligations (whether
written or oral) that have not been
complied with in all material respects or
properly waived, to which the Company is a
party, or by which it is bound, that
(i) restricts the transfer of; (ii) affects
the voting rights of; (iii) requires
or allows the repurchase, redemption or
disposition of, or contains any right of
first refusal with respect to; (iv)
requires the registration or sale of; or (v)
grants any preemptive or antidilutive right
with respect to, any shares of
Company Common Stock, Company Preferred
Stock or any capital stock of, or other
equity interests in, the Company.
(e) Valid Issuances. All of the issued and outstanding shares
of
capital stock of the Company have been duly
authorized and validly issued, are
fully paid and nonassessable and are free
of any preemptive rights in respect
thereto. All outstanding securities of the
Company have been issued in
compliance with all applicable state and
federal securities Laws. The stock
ledgers and related records that have been
delivered or made available by the
Company to Parent are complete and
accurate.
SECTION
5.3 Subsidiaries.
(a) The Company has never had and it does not currently have
any
Subsidiaries. There are no other Persons in
which the Company owns, of record or
beneficially, any direct or indirect equity
interest or any right (contingent or
otherwise) to acquire any equity interest.
The Company is not a member of any
partnership or limited liability company,
nor is the Company a participant in
any joint venture or similar arrangement
constituting a legal entity.
SECTION
5.4 Authorization; No Conflicts
(a) The Company has full corporate power and authority to
execute
and deliver this Agreement and the
Ancillary Agreements to which it is a party,
to perform its obligations hereunder and
thereunder and to consummate the
transactions contemplated hereby and
thereby. The execution and delivery of this
Agreement and the Ancillary Agreements to
which the Company is a party and the
consummation of the transactions
contemplated hereby and thereby have been duly
and validly approved by the Company's Board
of Directors and except for (i) the
Shareholder Consent and (ii) the filing of
the First Agreement of Merger with
the Secretary of State of the State of
California, no other corporate
proceedings on the part of the Company are
necessary to approve this Agreement
or the Ancillary Agreements to which the
Company is a party or to authorize or
consummate the transactions contemplated
hereby or thereby. This Agreement and
the Ancillary Agreements to which the
Company is a party have been duly and
validly executed and delivered by the
Company and (assuming the due
authorization, execution and delivery of
this Agreement and the Ancillary
Agreements to which the Company is a party
by each of the other parties hereto
and thereto) constitute valid and binding
obligations of the Company,
enforceable against the Company in
accordance with their respective terms,
except as the enforceability thereof may be
subject to or limited by bankruptcy,
insolvency, reorganization, moratorium or
similar Laws relating to or affecting
the rights of
28
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creditors generally and the availability of
equitable relief (whether in
proceedings at law or in equity).
(b) Assuming the Shareholder Consent, the filing of the First
Agreement of Merger with the Secretary of
State of the State of California, the
Fairness Approval and that those consents,
authorizations, filings,
notifications and other actions set forth
on Section 5.5 of the Company
Disclosure Schedule have been obtained or
made, neither the execution and
delivery by the Company of this Agreement
or the Ancillary Agreements to which
the Company is a party nor the consummation
by the Company of any of the
transactions contemplated hereby or
thereby, nor compliance by the Company with
any of the terms or provisions hereof or
thereof, will (i) violate any provision
of the articles of incorporation, charter
or bylaws or comparable organizational
documents of the Company or (ii) (x)
violate, conflict with or require any
notice, filing, consent, waiver or approval
under any material Law to which the
Company or any of its properties, contracts
or assets are subject, or (y)
violate, conflict with, result in a breach
of any provision of or the loss of
any benefit under, constitute a default (or
an event which, with or without
notice or lapse of time, or both, would
constitute a default) under, result in
the termination of or a right of
termination or cancellation under, accelerate
or result in a right of acceleration of the
performance required by, result in
the creation of any Encumbrance upon the
Company Preferred Stock, the Company
Common Stock or any Encumbrance upon the
properties, contracts or assets of the
Company under, or require any notice,
approval, waiver or consent under, any
material note, bond, mortgage, indenture,
deed of trust, customer contract,
license, lease, agreement or other
instrument or obligation to which the Company
is a party, or by which the Company or any
of its properties or assets may be
bound or affected in any material
respect.
SECTION
5.5 Consents, Approvals, Etc. Except for the Shareholder
Consent,
the filing of the First Agreement of Merger
with the Secretary of State of the
State of California, the Fairness Approval
and those consents, approvals and
notices set forth on Section 5.5 of the
Company Disclosure Schedule, no consents
or approvals of or notices to or filings,
declarations or registrations with any
Governmental Authority or any third party
are necessary in connection with (i)
the execution and delivery by the Company
and its Affiliates of this Agreement
or any of the Ancillary Agreements to which
the Company is a party or (ii) the
consummation by the Company or any of its
Affiliates of the transactions
contemplated hereby or thereby so as to
permit the Surviving Corporation to
continue the Business after the Closing
Date.
SECTION
5.6 Financial Statements.
(a) The Company has delivered to Parent copies of (i) the
unaudited
consolidated balance sheet of the Company
as of December 31, 2004 and the
related consolidated statements of income
and changes in shareholders' equity
for the year ended December 31, 2004 (the
statements referred to in this clause
(i) (including the balance sheet), the
"Unaudited Company Financial Statements"
and the unaudited balance sheet as of
December 31, 2004, the "Unaudited Company
Balance Sheet"); and (ii) the audited
consolidated balance sheets of the Company
as of December 31, 2003 and 2002 and the
related consolidated statements of
income and changes in shareholders' equity
for the fiscal years ended December
31, 2003 and 2002 (the statements referred
to in this clause (ii) (including the
balance sheets), the "Audited
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Company Financial Statements" and together
with the Unaudited Company Financial
Statements, the "Company Financial
Statements."). The Company Financial
Statements present fairly, in all material
respects, the financial position of
the Company as of the respective dates
thereof and the results of the Company's
operations for the fiscal periods therein
set forth. Except as set forth on
Section 5.6 of the Company Disclosure
Schedule, the Company Financial Statements
have been prepared in accordance with GAAP
consistently applied throughout such
fiscal periods (subject to normal year-end
audit adjustments with respect to the
Unaudited Company Financial Statements),
except as may be indicated in the notes
thereto with respect to the Unaudited
Company Financial Statements.
(b) The Company maintains a system of internal accounting
controls
sufficient to provide reasonable assurance
that (i) transactions are executed
with management's authorizations, (ii)
transactions are recorded as necessary to
permit preparation of financial statements
in accordance with GAAP and to
maintain accountability for assets, (iii)
the Company tracks and monitors its
assets and (iv) the recorded accountability
for assets is compared with existing
assets at reasonable intervals and
appropriate action is taken with respect to
any differences.
(c) The Company has delivered to Parent an itemization of the
accounts receivable (including aging) of
the Company as of January 31, 2005 (the
"Accounts Receivable"). The Accounts
Receivable represent bona fide claims
against debtors for sales, services
performed or other charges arising on or
before the respective dates of recording
thereof. All Accounts Receivable have
been billed in accordance with the past
practice of the Company consistently
applied and, to the Knowledge of the
Company, are collectible in the ordinary
course of business within one hundred
twenty (120) days, except to the extent of
an amount not in excess of the reserve for
doubtful accounts reflected on the
Unaudited Company Balance Sheet.
(d) To the Knowledge of the Company, there are no outstanding
claims
against the Company that, in the aggregate,
are material to the Company, to
return any products by reason of alleged
overshipments, defective products or
otherwise, or of products in the hands of
customers under a written agreement
that such products would be returnable. No
outstanding purchase commitment of
the Company presently is in excess of the
normal, ordinary and usual
requirements of the Business or was made at
any price materially in excess of
the now current market price or contains
terms or conditions materially more
onerous than those usual and customary in
the Business.
(e) The Company has made and kept (and given Parent access to)
its
books and records and accounts, which, in
reasonable detail, accurately and
fairly reflect the activities of the
Business. The minute books of the Company
previously delivered or made available to
Parent materially and accurately
reflect all action previously taken by the
shareholders, board of directors and
committees of the board of directors of the
Company. The copies of the stock
book records of the Company previously
delivered or made available to Parent in
connection with Parent's due diligence are
true, correct and complete, and
accurately reflect all transactions
effected in the Company's equity securities
through and including the date of this
Agreement. The Company has not engaged in
any material transaction, maintained any
bank account or used
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any material corporate funds except for
transactions, bank accounts and funds
which have been and are reflected in the
Company's books and records.
SECTION
5.7 Undisclosed Liabilities
(a) Except as set forth on Section 5.7 of the Company
Disclosure
Schedule, the Company has no liabilities or
obligations (absolute, accrued,
contingent or otherwise) except (a)
liabilities and obligations under contracts
and commitments incurred in the ordinary
course of business and not required
under GAAP to be reflected in the Company
Financial Statements which, in both
cases, individually or in the aggregate,
are not material to the assets,
properties, business, financial condition
or operating results of the Company,
(b) liabilities and obligations which are
reflected and properly reserved
against in the Company Financial Statements
in accordance with GAAP, and (c)
liabilities and obligations incurred in the
ordinary course of business and
consistent with past practice since the
Unaudited Company Balance Sheet Date.
None of the liabilities or obligations
described in this Section 5.7 relates to
any breach of Contract, breach of warranty,
tort, infringement, misappropriation
or violation of law or arose out of any
Action.
(b) The Company has never affected or otherwise been involved in
any
"off-balance sheet arrangements" (as
defined in Item 303(a)(4) of Regulation S-K
under the Securities Exchange Act of 1934,
as amended). Without limiting the
generality of the foregoing, the Company is
not providing a guarantee of any
debt or other obligation of any other
Person.
SECTION
5.8 Contracts. Section 5.8 of the Company Disclosure Schedule
sets
forth a complete and accurate list or
description of all Contracts as of the
date of this Agreement: (v) pursuant to
which the Company is either obligated to
pay or entitled to receive in excess of
$25,000 and that is not otherwise
required to be disclosed pursuant to
subsections (x), (y) or (z) of this Section
5.8; (w) agreements set forth under
subsection (v) that are not terminable by
the Company within ninety (90) days from
the date of this Agreement without
penalty or further obligation on the part
of the Company; (x) that involve
material payments based on profits or
revenues of the Company; (y) that are
employment, management, consulting or
severance agreements or other agreements
or arrangements with any employees or
independent contractors of the Company
that differ in any material respect from
the Company's current standard form of
any of the foregoing (other than standard
offer letters which provide for no
severance benefits materially in excess of
such benefits afforded to Company
employees generally), of which copies of
such standard forms have been
previously furnished by the Company to
Parent; or (z) that include any
noncompetition or nonsolicitation covenant
or any exclusive dealing or similar
arrangement that limits the ability of the
Company or any of its Affiliates to
compete (geographically or otherwise) in
any line of business (collectively, the
"Scheduled Contracts"). True, correct and
complete copies of the current
standard form of offer letter, employee
invention and proprietary rights
assignment agreements, option agreements,
user agreement or privacy policy used
by the Company (and any prior forms of
offer letter, employee invention and
proprietary rights assignment agreements,
option agreements, user agreement or
privacy policy that are currently in effect
and that differ in any material
respect from the Company's current standard
forms) have been previously
furnished to Parent. True, correct and
complete copies of each Scheduled
Contract have been made available to
Parent. As of the date of this Agreement,
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<PAGE>
each of the Scheduled Contracts is a legal,
valid and binding obligation of the
Company (assuming the due authorization,
execution and delivery by the other
parties thereto) and is in full force and
effect and enforceable in accordance
with its terms, except as such
enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and
similar Laws relating to or affecting
creditors generally and by the availability
of equitable remedies (whether in
proceedings at law or in equity). The
Company has not received notice of
cancellation of or default under or intent
to cancel or call a default under any
of the Scheduled Contracts. The Company has
performed all obligations required
to be performed by it to date under the
Scheduled Contracts where such
nonperformance would result in a material
breach of or material default under
any such Scheduled Contract, and there
exists no event or condition which with
or without notice or lapse of time or both
would be a material breach or a
material default on the part of the Company
or, to the Knowledge of the Company,
on the part of any other party to such
Scheduled Contracts.
SECTION
5.9 Tax Matters.
(a) Filing of Tax Returns. The Company has timely filed with
the
appropriate Tax authorities all Tax Returns
required to be filed through the
date of this Agreement. All Taxes due and
owing from the Company at any time
were timely paid. The Company is not
currently the beneficiary of any extension
of time within which to file any Tax
Return. No claim has ever been made by an
authority in a jurisdiction where the
Company does not file Tax Returns that it
may be subject to taxation by that
jurisdiction.
(b) Payment of Taxes. The unpaid Taxes of the Company (and
proper
accruals for such Taxes under GAAP) (i) did
not, as of the date of the Unaudited
Company Financial Statements, exceed the
reserve for Tax liability (excluding
any reserve for deferred Taxes established
to reflect timing differences between
book and Tax income) set forth on the face
of the Unaudited Company Balance
Sheet (rather than in any notes thereto),
and (ii) will not exceed that reserve
as adjusted for operations and transactions
through the Closing Date in
accordance with the past custom and
practice of the Company in filing its Tax
Returns. Since the date of Unaudited
Company Financial Statements, the Company
has not incurred any liability for Taxes
outside the ordinary course of business
or otherwise inconsistent with past custom
and practice.
(c) Audits, Investigations or Claims. No deficiencies for Taxes
of
the Company have been claimed, proposed or
assessed by any Tax authority or
other Governmental Authority. There are no
pending or, to the Knowledge of the
Company, threatened audits, assessments or
other actions for or relating to any
liability in respect of Taxes of the
Company, and there are no matters under
discussion with any Tax authorities or
other Governmental Authorities, or known
to the Company with respect to Taxes that
are likely to result in an additional
liability for Taxes with respect to the
Company. The Company has delivered or
made available to Parent complete and
accurate copies of federal, state and
local Tax Returns of the Company and its
predecessors for the years ended
December 31, 2000, 2001, 2002 and 2003, and
complete and accurate copies of all
examination reports and statements of
deficiencies assessed against or agreed to
by the Company, or any of its respective
predecessors since December 31, 2000.
None of the Company nor any of its
predecessors has waived any statute of
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<PAGE>
limitations in respect of Taxes or agreed
to any extension of time with respect
to a Tax assessment or deficiency, nor has
any request been made in writing for
any such extension or waiver. No power of
attorney (other than powers of
attorney authorizing employees of the
Company to act on behalf of the Company,
as applicable) with respect to any Taxes
has been executed or filed with any Tax
authority.
(d) Liens. There are no Encumbrances for Taxes other than
Encumbrances for Taxes not yet due and
payable on any assets of the Company
(e) Tax Elections. All material elections with respect to Taxes
affecting the Company as of the date of
this Agreement, to the extent such
elections are not shown on or in the Tax
Returns that have been delivered or
made available to Parent, are set forth on
Section 5.9(e) of the Company
Disclosure Schedule. The Company (i) has
not consented at any time under former
Section 341(f)(1) of the Code to have the
provisions of former Section 341(f)(2)
of the Code apply to any disposition of the
assets of the Company, (ii) has not
agreed to, or is or will be required by
virtue of any of the transactions
contemplated by this Agreement to, make any
adjustment under Section 481(a) of
the Code by reason of a change in
accounting method or otherwise, (iii) has not
made an election, or is required, to treat
any of its assets as owned by another
Person pursuant to the provisions of former
Section 168(f) of the Code or as
tax-exempt bond financed property or
tax-exempt use property within the meaning
of Section 168 of the Code, (iv) has not
acquired or owns any assets that
directly or indirectly secure any debt the
interest on which is tax exempt under
Section 103(a) of the Code, (v) has not
made or will make a consent dividend
election under Section 565 of the Code,
(vi) has not elected at any time to be
treated as an S corporation within the
meaning of Sections 1361 or 1362 of the
Code, or (vii) has not made any of the
foregoing elections or is required to
apply any of the foregoing rules under any
comparable state or local Tax
provision.
(f) Tax Sharing Agreements. There are no Tax-sharing agreements
or
similar arrangements (including indemnity
arrangements) with respect to or
involving the Company.
(g) Other Entity Liability. The Company has never been a member
of
an affiliated group filing a consolidated
federal income Tax Return (other than
a group the common parent of which is the
Company). The Company has no liability
for the Taxes of any Person (other than
Taxes of the Company) (i) under Treasury
Regulation Section 1.1502-6 (or any similar
provision of state, local, or
foreign Law), (ii) as a transferee or
successor, (iii) by contract, or (iv)
otherwise.
(h) No Withholding. The Company has withheld and paid all Taxes
required to have been withheld and paid in
connection with amounts paid or owing
to any employee, independent contractor,
creditor, stockholder or other third
party.
(i) USRPHC. The Company has never been a United States real
property
holding corporation within the meaning of
Section 897(c)(2) of the Code during
the applicable period specified in section
897(c)(1)(A)(ii) of the Code
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(j) Partnerships, Single Member LLCs, CFCs, PHCs and PFICs. The
Company (i) is not a partner for Tax
purposes with respect to any joint venture,
partnership, or other arrangement or
contract which is treated as a partnership
for Tax purposes, (ii) does not own a
single member limited liability company
which is treated as a disregarded entity
other than LLC, (iii) is not a
stockholder of a "controlled foreign
corporation" as defined in Section 957 of
the Code (or any similar provision of
state, local or foreign law), (iv) is not
a "personal holding company" as defined in
Section 542 of the Code (or any
similar provision of state, local or
foreign law), and (v) is not a "passive
foreign investment company" within the
meaning of Section 1297 of the Code.
(k) Permanent Establishment. The Company does not have, or did
not
have, a permanent establishment in any
foreign country, as defined in any
applicable Tax treaty or convention between
the United States of America and
such foreign country
(l) Disallowance of Interest Deductions. None of the
outstanding
indebtedness of the Company constitutes
indebtedness with respect to which any
interest deductions may be disallowed under
Sections 163(i) or 163(l) or 279 of
the Code or under any other provision of
Law.
(m) International Boycotts. The Company has not participated in
or
is participating in an international
boycott within the meaning of Section 999
of the Code.
(n) Tax Shelters. The Company has not entered into any
transaction
identified as a "listed transaction" for
purposes of Treasury Regulations
Sections 1.6011-4(b)(2) or
301.6111-2(b)(2). If the Company has entered into any
transaction such that, if the treatment
claimed by it were to be disallowed, the
transaction would constitute a substantial
understatement of federal income Tax
within the meaning of Section 6662 of the
Code, then it believes that it has
either (x) substantial authority for the
Tax treatment of such transaction or
(y) disclosed on its Tax Return the
relevant facts affecting the Tax treatment
of such transaction.
(o) Spin-Offs. The
