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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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(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
21
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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
<PAGE>
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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<PAGE>
(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
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