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IGN ENTERTAINMENT INC
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S-1
Jul 13, 4:17 PM ET
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IGN ENTERTAINMENT INC S-1
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Contents
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ARTICLE 1
DEFINITIONS
(a) Upon and subject to the terms and conditions of this Agreement, at the Effective Time (as defined below), the Merger Subsidiary shall be merged with and into Company (the “Merger”) upon the filing of a Certificate of Merger (the “Certificate of Merger”) with the California Secretary of State in accordance with the terms and conditions of this Agreement and the California Corporations Code (“California Code”), at which time the separate corporate existence of the Merger Subsidiary shall cease and the Company shall continue its existence. In its capacity as the corporation surviving the Merger, this Agreement sometimes refers to the Company as the “Surviving Corporation”.
(b) As soon as practicable after satisfaction or waiver of all conditions to the Merger set forth herein (excluding the delivery of any documents to be delivered at the Closing by any of the parties so long as the requirement to deliver such documents is susceptible of being satisfied), but in no event prior to March 3, 2003, the Company and Merger Subsidiary will file the Certificate of Merger and make all other filings or recordings required by the California Code in connection with the Merger. The Merger shall become effective at the time when the Certificate of Merger is duly filed with and accepted by the California Secretary of State, or at such later time as is agreed upon by the parties and specified in the Certificate of Merger (such time as the Merger becomes effective is referred to herein as the “Effective Time”).
(c) From and after the Effective Time, the Merger shall have the effect set forth in Section 1107 of the California Code.
(d) Subject to the satisfaction of all closing conditions specified in Article 10 hereof, the closing of the Merger (the “Closing”) shall be held at the offices of McDermott, Will & Emery, 18191 Von Karman Avenue, 4th Floor, Irvine, California on March 3, 2003 or such other place, time or date as Parent and the Holder Representative (as defined below) may mutually agree.
ARTICLE 3
CONVERSION OF SECURITIES AND RELATED MATTERS
(a) For purposes of this Agreement, “Dissenting Shares” means Company Shares held as of the Effective Time by a shareholder of the Company who has not voted such Company Shares in favor of the approval and adoption of this Agreement and the Transactions and with respect to which appraisal shall have been duly demanded and perfected in accordance with applicable law and not effectively withdrawn or forfeited prior to the Effective Time. Dissenting Shares shall not be converted into or represent the right to receive the Merger Consideration, unless such shareholder of the Company shall have forfeited his, her or its right to appraisal under applicable law or properly withdrawn, his, her or its demand for appraisal. If such dissenting shareholder has so forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares, then as of the occurrence of such event, such shareholder’s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger Consideration in respect of such Company Shares pursuant to Section 3.4.
(b) The Company shall give the Parent (i) prompt notice of any written demands for appraisal of any Company Shares, withdrawals of such demands, and any other instruments that relate to such demands received by the Company and (ii) the opportunity, prior to the Effective Time, to participate at its own expense, and after the Effective Time, direct all negotiations and proceedings with respect to demands for appraisal under applicable law. The Company shall not, except with the prior written consent of Parent (which consent will not be
(a) As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Company Shares or Merger Subsidiary Shares, except as otherwise provided in this Section 3.4, each Company Share issued and outstanding immediately prior to the Effective Time (other than shares to be canceled in accordance with Section 3.2, Dissenting Shares or Company Shares held by Parent or any Parent Affiliate) shall be converted into the following (together with the consideration to be delivered pursuant to Section 3.4(c), the “Merger Consideration”):
(i) With respect to each share of Common Stock, the right to receive in cash from Merger Subsidiary an amount (without interest) on the Closing Date equal to the quotient obtained by dividing (A) $54,600,000 less $1,648,005.49, which will be received in accordance with Section 3.4(a)(ii) by the holders of the Preferred Stock with respect to the liquidation preference thereon, less Transaction Expenses, less that amount of cash necessary to fund the Holdback Escrow Fund and the Indemnification Escrow Fund, plus the aggregate exercise price of all Company Options, plus or minus the Estimated Net Working Capital Adjustment Amount (as defined and determined below) divided by (B) the number of shares of Common Stock held or deemed held by all holders of Company Shares (other than Parent or any Parent Affiliate) that are issued and outstanding on the Closing Date after giving effect to the deemed exercise of all Company Options on or prior to the Closing Date and the deemed conversion of the Preferred Stock (or other security convertible or exchangeable into Common Stock) in accordance with its terms as amended (the “Cash Common Consideration”);
(ii) with respect to each share of the Preferred Stock, the right to receive in cash from Merger Subsidiary an amount (without interest) equal to the sum of (x) the quotient obtained by dividing (A) $1,648,005.49 by (B) the number of shares of Preferred Stock issued and outstanding on the Closing Date, plus (y) the product of the Cash Common Consideration multiplied by 0.5 (the “Cash Preferred Consideration” and collectively with the Cash Common Consideration, the “Cash Merger Consideration”); and
(iii) the right to receive cash, if any, upon distribution of the Holdback Escrow Fund and the Indemnification Escrow Fund in accordance with the terms of the Escrow Agreement.
(b) As of the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Company Shares or Merger Subsidiary Shares, except as
(c) (i) Prior to the Closing Date, the Company shall in good faith prepare, with the assistance of Parent, an estimated balance sheet of the Company as of the Closing Date (the “Estimated Closing Date Balance Sheet”). The Estimated Closing Date Balance Sheet shall be prepared in accordance with GAAP consistently applied, and otherwise consistent with the methodology used to prepare the Company’s balance sheet in the Most Recent Company Financial Statements (the “Base Balance Sheet”) and shall reflect the excess, if any, of (x) the total transaction costs payable and a good faith estimate of unbilled amounts over (y) the amount of Transaction Expenses deducted under Section 3.4(a)(i)(A), which excess shall be shown as a Current Liability for the purposes of this Section 3.4. Not later than five (5) business days prior to the Closing Date, the Company shall deliver to Parent the Estimated Closing Date Balance Sheet, together with worksheets and data that support the Estimated Closing Date Balance Sheet and any other information that Parent may reasonably request in order to verify the amounts reflected on the Estimated Closing Date Balance Sheet. As provided in Section 3.4(a)(i) hereof, the Cash Common Consideration to be paid at the Closing shall be adjusted, dollar for dollar, up or down, as appropriate, to the extent that the Working Capital set forth on the Estimated Closing Date Balance Sheet (the “Estimated Closing Working Capital”) exceeds or is less than $1,250,000 (the “Base Working Capital”), as applicable, with such difference being the “Estimated Working Capital Adjustment Amount”.
(ii) As soon as practical after the Closing Date, Ernst & Young LLP (“Accountant”) shall review the Company’s books and records and also shall review the Estimated Closing Date Balance Sheet to confirm that it was prepared in accordance with GAAP consistently applied and otherwise consistent with the methodology used to prepare the Base Balance Sheet, provided that the Estimated Closing Date Balance Sheet should reflect management’s best estimate of normal year-end adjustments, including the true-up of the vacation accrual, amortization of patents and trademarks, the mark to market of investments, and adjustments to reconcile subledger accounts to general ledger accounts. The Accountant also shall prepare a final balance sheet that reflects any differences between actual results and the estimates used to prepare the Estimated Closing Date Balance Sheet and reflects any discrepancies in the methodology used to prepare such final balance sheet from GAAP consistently applied and otherwise consistent with the methodology used to prepare the Base Balance Sheet (the “Post-Closing Balance Sheet”). All fees and expenses of the Accountant shall be paid by Parent. Parent shall, within forty-five (45) days of the Closing Date, deliver the Post Closing Balance Sheet to the Holders Representative, together with worksheets that detail any adjustments and the basis thereof. The Post Closing Balance Sheet, and the Working Capital at the Closing reflected thereon, shall be binding upon the parties upon approval of such Post Closing Balance Sheet by the Holder Representative. If the Holder Representative does not agree with the Post Closing Balance Sheet and the calculation of Working Capital at the Closing stated thereon (the “Closing Working Capital”), and
(iii) Within three (3) business days following determination of the Closing Working Capital in accordance with Section 3.4(c)(ii), (A) in the event the Closing Working Capital is less than the Estimated Closing Working Capital, the Parent shall be entitled to an amount equal to the difference between such amounts on a several and not joint basis from all Holders, provided that such amounts shall be paid first out of the Holdback Escrow and thereafter may be paid, at the election of the Parent, out of the Indemnification Escrow Fund, and, (B) in the event the Closing Working Capital is greater than the Estimated Closing Working Capital, Parent shall pay to the Holder Representative, on behalf of the Holders, the difference between such amounts, by wire transfer of immediately available funds or such other manner as the Parent and the Holder Representative mutually agree upon. The difference between the Base Working Capital and the Closing Working Capital is referred to as the “Final Net Working Capital Adjustment Amount”.
(iv) As used in this Section 3.4(c) “Working Capital” means Current Assets minus Current Liabilities; “Current Assets” means and includes all accounts receivable (net of allowance for doubtful accounts consistent with past practice), cash, cash equivalents, prepaid expenses and all other current assets of the Company, in each case as determined in accordance with GAAP, consistently applied; and “Current Liabilities” means and includes all accounts payable, accrued expenses, accrued but unpaid taxes, deferred revenues, deferred rent and all other current or long-term liabilities of the Company, in each case as determined in accordance with GAAP, consistently applied and, in the case of accrued but unpaid taxes, deferred revenues and deferred rent, regardless of whether such liabilities will mature or become due more than 12 months from the date of the applicable financial statements. For purposes of clarity, both the Estimated Closing Date Balance Sheet and the Post Closing Balance Sheet shall assume completion of the Transactions, and no Transaction related asset or liability will be used in the definition of Current Asset or Current Liability. Schedule 3.4 attached hereto contains a sample calculation of Working Capital for illustrative purposes.
(a) Exchange and Payment Procedures. At or prior to the Effective Time, each holder of Company Shares shall deliver to the Parent Certificates accompanied by stock
(b) No Further Rights in Company Shares. All cash paid upon surrender of Certificates in accordance with the terms hereof shall be deemed to have been delivered or paid in full satisfaction of all rights pertaining to Company Shares represented thereby. From and after the Effective Time, the holders of Certificates shall cease to have any rights with respect to Company Shares, except as otherwise provided herein or by law. As of the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers on the Company’s stock transfer books of any Company Shares. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section 3.5.
(c) No Liability. None of Parent, the Surviving Corporation or the Holder Representative shall be liable to any Person in respect of any Company Shares for any amounts paid to a public official pursuant to any applicable abandoned property, escheat or similar law. If any Certificates shall not have been surrendered immediately prior to such earlier date on which any payment pursuant to this Article 3 would otherwise escheat to or become property of any governmental entity, the payment in respect of such Certificate shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interests of any Person previously entitled thereto.
(d) Withholding Rights. The Surviving Corporation deduct and withhold from the Cash Consideration otherwise payable hereunder to any Person any amounts that it is required to deduct and withhold with respect to payment under any provision of federal, state, local or foreign income tax law. To the extent that the Surviving Corporation withholds those amounts, the withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of Company Shares in respect of which deduction and withholding was made by the Surviving Corporation, as the case may be.
(e) Lost Certificates. If any Certificate has been or has claimed to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that Certificate has been lost, stolen or destroyed 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 that Certificate, the Surviving Corporation will deliver in exchange for such lost, stolen or destroyed Certificate, the proper amount of the Merger Consideration as contemplated by this Article 3.
(a) Immediately prior to the Effective Time, (i) each Company Option shall be cancelled, and the Company shall pay each holder of Company Options the excess of (A) the Cash Common Consideration (less required deductions or withholding) in the manner specified in this Article 3 payable with respect to each Company Share subject to such holder’s Company Options as if such Company Options had been exercised immediately prior to the Effective Time over (B) the aggregate exercise price of such Company Options, and (ii) each Company Granted Option will be cancelled. In addition, each holder of Company Options shall receive the right to receive cash, if any, upon distribution of the Holdback Escrow Fund and the Indemnification Escrow Fund in accordance with the terms of the Escrow Agreement in amounts equivalent to those received by holders of Common Shares on an as-if-exercised basis. For the avoidance of doubt, any Company Granted Option that is not a Company Vested Option, and any Company Vested Option that is not a Company Option, shall be cancelled without the payment of any cash amount to the holder thereof.
(b) Prior to the Effective Time, the Company shall take all actions (including, if appropriate, amending the terms of any option plan or arrangement or obtaining optionee consents) that are necessary to give effect to the transactions contemplated by Section 3.6(a) including, without limitation, using commercially reasonable efforts to obtain from each holder of a Company Option an executed option termination agreement in form and substance reasonably satisfactory to Parent.
(a) Section 3.4(c) provides for a post-closing adjustment of the Merger Consideration and Article 12 provides that Parent and its Affiliates shall be entitled to indemnification from and against certain Losses. On the Closing Date, the Holder Representative, Parent, and such person as Parent and the Holder Representative shall mutually select (the “Escrow Agent”) shall enter into an Indemnification Escrow Agreement in the form of Exhibit B attached hereto (the “Escrow Agreement”) providing for the formation of an escrow fund (the “Escrow Fund”). At Closing pursuant to this Article 3, cash with an aggregate value of $6,460,000 (less the Deposit) which would otherwise be delivered to the Holders as Merger Consideration (the “Escrowed Consideration”) shall be deposited into and held in escrow pursuant to the terms of the Escrow Agreement, $1,000,000 of which shall secure the Holders obligation to repay Merger Consideration if required under Section 3.4(c) (the “Holdback Escrow Fund”), and $5,460,000 of which shall secure the indemnity obligations to the Surviving Corporation and Parent under this Agreement (the “Indemnification Escrow
(b) Company agrees to use commercially reasonable efforts to have all Holders execute this Agreement or a joinder thereto.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
(a) The authorized capital stock of the Company consists of (i) 30,000,000 shares of Common Stock of which, as of the date of this Agreement, 17,674,463 shares are issued and outstanding, (v) 907,992 shares of Preferred Stock, all of which, as of the date of this Agreement, are issued and outstanding, and (vi) 592,008 shares of undesignated preferred stock, none of which is issued and outstanding as of the date of this Agreement. There are outstanding stock options issued by the Company to purchase an aggregate of 6,731,703 shares of Common Stock. All issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All issued and outstanding shares of capital stock of the Company are held of record by the shareholders identified on Schedule 4.5. Schedule 4.5 also identifies (i) the holders of each Company Option, (ii) the number of Company Options held by such holder, (iii) the exercise price of each Company Option and (iv) any terms relating to the acceleration of vesting. All Company Shares that may be issued upon the exercise of the Company Options will (upon issuance in accordance with their terms) be duly authorized, fully paid and nonassessable.
(b) Except as set forth in this Section 4.5 or in Schedule 4.5, there are no outstanding (vii) shares of capital stock or voting securities of the Company, (viii) securities of the Company convertible into or exchangeable for shares of capital stock or voting securities of the Company or (ix) options or other rights to acquire from the Company or other obligation of the Company to issue, any capital stock, voting securities or securities convertible into or exchangeable for capital stock or voting securities of the Company (the items in clauses (i), (ii) and (iii) being referred to collectively as the “Company Securities”). Except as set forth in Schedule 4.5, there are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any of the Company Securities. Except as set forth on Schedule 4.5, there are no agreements or understandings to which the Company is a party or by which they are bound with respect to the voting of any Company Shares or the sale or transfer (or restrictions on sale or transfer) of such Company Shares and the Company has no knowledge of any such agreements or understandings to which it is not a party.
(c) This Agreement may be entered into and the Transactions may be consummated without the Company, or to the knowledge of the Company, any Holder being required to provide any person a right of first refusal or right of first offer or similar right.
(a) any event, occurrence, development or state of circumstances or facts that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;
(b) any declaration, setting aside or payment of any dividend or other distribution with respect to any shares of capital stock of the Company, or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of, or other ownership interests in, the Company;
(c) any amendment of any terms of any outstanding security of the Company;
(d) any incurrence, assumption or guarantee by the Company of any indebtedness for borrowed money;
(e) any creation or other incurrence by the Company of any Lien on any property or asset of the Company other than in the ordinary course of business consistent with past practices;
(f) any making of any material loan, advance or capital contributions to or investment in any Person;
(g) any damage, destruction or other casualty loss (whether or not covered by insurance) affecting the business or assets of the Company that has had or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the Company;
(h) any transaction or commitment made, or any contract or agreement entered into, by the Company relating to its assets or business (including the acquisition or disposition of any assets) or any relinquishment by the Company of any contract or other right, in either case, material to the Company, taken as a whole, other than transactions and commitments in the ordinary course of business consistent with past practices;
(i) any change in any method of accounting, method of tax accounting or accounting principles or practice by the Company, except for any such change required by reason of a concurrent change in GAAP;
(j) any (i) entering into of any severance or termination pay plan or agreement with (or amendment to any existing arrangement with) any director, officer or employee of the Company, (ii) increase in benefits payable under any existing severance or termination pay policies or employment agreements, (iii) any entering into of any employment, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any director, officer or employee of the Company which provides for payments in excess of $100,000 to any person, (iv) establishment, adoption or amendment (except as required by applicable law) of any collective bargaining, bonus, profit-sharing, thrift, pension, retirement, deferred compensation, compensation, stock option, restricted stock or other benefit plan or arrangement covering any director, officer or employee of the Company, or (v) increase in compensation, bonus or other benefits payable to any director, officer or employee of the Company, other than, in the case of clause (v) with respect to employees that are not executive officers, in the ordinary course of business consistent with past practice;
(k) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company, which employees were not subject to a collective bargaining agreement at the Most Recent Company Fiscal Year End, or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees; or
(l) any agreement or understanding whether in writing or otherwise, that would result in any of the foregoing transactions or events or require the Company to take any of the foregoing actions.
(a) liabilities or obligations disclosed and provided for in the Company Financial Statements or in the notes thereto;
(b) liabilities or obligations under this Agreement or incurred in connection with the Transactions;
(c) liabilities and obligations incurred in the ordinary course of business consistent with past practice and past experience of the Company since the date of the Most Recent Company Financial Statements that are not required by GAAP to be reflected on the Company’s balance sheet; and
(d) any liabilities and obligations arising under the express terms of any Material Contract set forth on Schedule 4.13 (excluding any liabilities or obligations arising out of any breach or violation by the Company of the terms and conditions of any Material Contract).
(a) To the knowledge of the Company, all leases of real property and personal property to which it is a party are enforceable in accordance with their respective terms and there does not exist under any such lease any default or any event which with notice or lapse of time or both would constitute a default.
(b) The equipment owned by the Company has no material defects, is in good operating condition and repair and has been reasonably maintained consistent with standards generally followed in the industry (giving due account to the age and length of use of same, ordinary wear and tear excepted), is adequate and suitable for its present uses.
(c) To the Company’s knowledge, none of the structures on any leased real property encroaches upon real property of another Person, and no structure of any other Person substantially encroaches upon any of such leased real property.
(d) To the Company’s knowledge such real property, and its continued use, occupancy and operation as currently used, occupied and operated, does not, constitute a nonconforming use under all applicable building, zoning, subdivision and other land use and similar laws, regulations and ordinances.
(e) The property and assets owned or leased by the Company, or which it otherwise has the right to use, constitute all of the property and assets used or held for use in connection with the businesses of the Company and is adequate to conduct such businesses as currently conducted.
(f) The Company does not own any real property.
(g) The consummation of the Merger and the Transactions will not result in any lease or sublease no longer continuing to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;
(h) The Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; and
(i) The Company is not aware of any Lien, easement, covenant or other restriction applicable to the real property subject to such lease, except for recorded easements, covenants and other restrictions which do not materially impair the current uses or the occupancy by the Company of the property subject thereto.
(j) Schedule 4.12 sets forth a complete and accurate list of all material real property leased or subleased, directly or indirectly, by the Company.
(a) Schedule 4.13 sets forth a complete and accurate list of the following contracts and other agreements to which the Company is a party (the “Material Contracts”):
(i) any agreements (or group of related agreements) for the lease of real or personal property to or from any Person providing for annual lease payments in excess of $50,000;
(ii) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products, or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, that involves consideration in excess of $50,000;
(iii) any agreement constituting a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it has created, incurred, assumed, or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $50,000 or under which it has imposed a Lien on any of its assets, tangible or intangible;
(v) any agreements between the Company and its Affiliates that involves consideration in excess of $50,000;
(vi) any agreements for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation in excess of $100,000 or any severance agreement;
(vii) any agreement between the Company and any officer, director or shareholder of the Company or any Affiliate thereof;
(viii) any agreement (or group of related agreements) currently in effect in which the Company has granted or acquired “most favored nation” provisions or has granted exclusivity to any person;
(ix) any agreement materially restricting the Company’s or a successor’s ability to hire or solicit for hire employees;
(x) any agreement which contains any provisions requiring the Company to indemnify any other party thereto (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the ordinary course of business);
(xi) the standard forms of any agreements used by the Company in the ordinary course of its business; and
(xii) any other agreement (or group of related agreements) the performance of which involves consideration in excess of $50,000.
(b) The Company is not a party to any agreement that expressly limits in a material manner the ability of the Company to compete in, or conduct, any line of business or to compete with any Person, in any geographic area or during any period of time.
(c) The Company is not a party to any written agreement, consent agreement or memorandum of understanding with, and is not a party to any commitment letter or similar undertaking to, and is not subject to any order or directive by, and is not a recipient of any supervisory letter from and has not adopted any board resolution at the request of any government body, agency, official or authority, domestic or foreign, that materially restricts, or would reasonably be expected to restrict materially, the conduct of its business, or that requires, or would reasonably be expected to require, materially adverse actions by the Company.
(a) Except as set forth on Schedule 4.14, the Company exclusively owns or has adequate and enforceable rights to use, without payment to a third party, pursuant to license, sublicense, agreement, or permission all Intellectual Property Rights necessary for the operation of the Company’s business as it is presently conducted, free and clear of all Liens. The Intellectual Property Rights owned, used or held for use by the Company in connection with the operation of its business as of the date hereof will continue to be owned or available for use by the Company as of the Effective Time in the same manner as such Intellectual Property Rights were owned, used or held for use by the Company as of the date hereof.
(b) Schedule 4.14 sets forth a list of all patents and patent applications owned by the Company or used or held for use by the Company; all registered trademarks owned by the Company or used or held for use by the Company; all material unregistered trademarks owned by the Company or used or held for use by the Company; all copyrights owned by the Company or held for use by the Company; all material licenses, sublicenses and other agreements as to which the Company is a party and pursuant to which any Person is authorized to use any Intellectual Property Rights, including (i) the identity of all parties thereto, (ii) a description of the nature and subject matter thereof, (iii) the applicable royalty and (iv) the term thereof.
(c) Except as set forth on Schedule 4.14, (i) the Company has not been a defendant in any action, suit, investigation or proceeding relating to, or otherwise has not been notified of, any alleged claim of infringement of any Intellectual Property Rights, and the Company has no knowledge of any other such infringement by the Company and (ii) the Company has no outstanding claim or suit for, and has no knowledge of, any continuing infringement by any other Person of any Intellectual Property Rights. The Company is not a party to or the subject of any outstanding judgment, injunction, order, decree or agreement restricting the use of any Intellectual Property Right by the Company or restricting the licensing thereof by the Company to any Person. To the Company’s knowledge, no Intellectual Property Right is subject to any outstanding judgment, injunction, order, decree or agreement restricting the use thereof by the Company or restricting the licensing thereof by the Company to any Person.
(d) Neither the operation of the Company’s business as it is presently conducted nor any Intellectual Property Right owned or purported to be owned by the Company infringes or conflicts with the rights of others under any Intellectual Property Right, other than any patent. To the knowledge of the Company, neither the operation of the Company’s business as it is presently conducted nor any Intellectual Property Right owned or purported to be owned by the Company infringes or conflicts with the rights of others under any patent.
(e) Except as set forth on Schedule 4.14, the Company has (A) not collected any personally identifiable information from any third parties other than in the ordinary course of business, and (B) in connection with any collection of personally identifiable information described on Schedule 4.14, materially complied with all applicable regulations and its publicly available privacy policy (if any) relating to the collection, storage and onward transfer of all personally identifiable information collected by the Company or by third parties having authorized access to Company’s databases or other records.
(f) No current or former employee or consultant of the Company owns any rights in or to any of the Intellectual Property Rights owned or purported to be owned by the Company.
(g) To the knowledge of the Company, there is no violation or infringement by a third party of any of the Intellectual Property Rights owned or purported to be owned by the Company.
(h) The Company’s current standard form user agreement or terms of use are in material compliance with all applicable regulations or laws.
(i) The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of trade secrets owned, used or held for use by the Company (the “Company Trade Secrets”), including, without limitation, requiring each Company employee and consultant and any other person with access to Company Trade Secrets to execute a binding confidentiality agreement, copies or forms of which have been provided to the Parent and, to the Company’s knowledge, there has not been any breach by any party to such confidentiality agreements.
(j) Except as set forth on Schedule 4.14 or pursuant to a written source code license agreement that contains confidentiality provisions restricting the disclosure and use of the source code to the licensee, (A) the Company has not directly or indirectly granted any rights, licenses or interests in the source code of the Products, and (B) since the Company developed the source code of the Products, the Company has not provided or disclosed the source code of the Products to any person or entity;
(k) the Products perform as the Company has warranted to its customers.
(l) the Products do not contain any “viruses”, “time bombs”, “key-locks”, or any other devices created that could disrupt or interfere with the operation of the Products or the
(a) Filing and Payment. Except as set forth on Schedule 4.17(a), (i) all Tax returns, statements, reports, claims for refund and forms (including estimated tax or information returns and reports) relating to Taxes, including all schedules and attachments thereto, required to be filed with any Taxing Authority with respect to any Pre-Closing Tax Period by or on behalf of the Company (collectively, the “Returns”) have, to the extent required to be filed on or before the date hereof (taking into account extensions), been filed when due in accordance with all applicable laws, and all such Returns were true, correct and complete in all material respects, taking into account any amendments thereto; (ii) all Taxes due and payable to Taxing Authorities with respect to the Company (whether or not shown on any of the Returns) have been timely paid to the appropriate Taxing Authority; and (iii) all Taxes due to other persons or entities (for example, under Tax allocation or indemnity agreements), have been timely paid, or withheld and remitted to the appropriate person or entity.
(b) Financial Records. Except as set forth on Schedule 4.17(b), (i) the unpaid Taxes of the Company for the period through the closing date of the Base Balance Sheet will not materially exceed the reserves for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Base Balance Sheet of the Company, rather than in any notes thereto; (ii) the unpaid Taxes of the Company (including any Taxes owed with regard to any Person other than the Company) for any Pre-Closing Tax Period, including any Pre-Closing Tax Period for which no Return has yet been filed, will not materially exceed the reserves for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Estimated Closing Date Balance Sheet of the Company, rather than in any notes thereto; and (iii) all information set forth in the Company Financial Statements (including notes thereto) relating to Tax matters is true and complete in all material respects.
(c) Procedure and Compliance. Except as set forth on Schedule 4.17(c), (i) all Returns of the Company through the Tax year ended December 31, 1999 have been examined and closed or have had the applicable period for assessment under applicable law, after giving effect to extensions or waivers, expire, and Returns that have been audited have been specially identified; (ii) the Company is not delinquent in the payment of any Tax and has not requested any extension of time within which to file any Return; (iii) the Company currently is not the beneficiary of any extension or waiver of the statute of limitations period applicable to any Return, which period (after giving effect to such extension or waiver) has not yet expired, and has not agreed to any extension of time with respect to any Tax assessment or deficiency which has not yet expired; (iv) there is no claim, audit, action, suit, proceeding, adjustment or investigation now pending or to the Company’s knowledge proposed or threatened against (or with respect to) the Company in respect of any Tax liability by any Taxing Authority; (v) there are no requests for rulings or determinations in respect of any Tax or Tax Asset pending between the Company and any Taxing Authority; (vi) during the five-year period ending on the date hereof, the Company has not made or changed any material tax election, changed any annual tax accounting period, or adopted or changed any material method of tax accounting, nor has it, to the extent it may affect or relate to the Company, filed any amended Return, entered into any closing agreement, settled any Tax claim or assessment, or surrendered any right to claim a Tax refund; (vii) there are no liens or encumbrances for Taxes upon any of the assets of the Company (except for current Taxes not yet due); (viii) no adjustment that would increase the Tax liability, or reduce any Tax Asset, of the Company has been made, or, to the Company’s knowledge, proposed or threatened by a Taxing Authority during any audit of a Pre-Closing Tax Period which could reasonably be expected to be made, proposed or threatened in an audit of any subsequent Pre-Closing Tax Period or Post-Closing Tax Period; (ix) the Company has filed all claims or requests for refunds of Taxes to which it is entitled; and (x) the Company has not received a tax opinion with respect to any transaction relating to the Company other than a transaction in the ordinary course of business. The Company will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any Post-Closing Tax Period as a result of any (i) change in the method of accounting for a Pre-Closing Tax Period; (ii) “closing agreement” as defined in Code Section 7121 (or any corresponding or similar provision of state, local or foreign income Tax law) executed on or prior to the Closing Date; (iii) intercompany transactions or any excess loss account described in Treasury
(d) Certain Agreements and Arrangements. Except as set forth on Schedule 4.17(d), (i) the Company is not party to a lease, other than a lease that is, for income tax purposes, a “true” lease under which the Company owns or uses the property subject to the lease; (ii) the Company is not party to a lease involving a defeasance of rent, interest or principal; (iii) the Company has not been a member of an affiliated, consolidated, combined or unitary group, other than one of which the Company was the common parent, that filed a consolidated Tax Return or its equivalent, nor has the Company made any election or participated in any arrangement whereby any Tax liability of the Company was determined or taken into account for Tax purposes with reference to or in conjunction with any Tax liability of any other person; (iv) the Company is not a party to, or bound by, any tax indemnity, tax sharing or tax allocation agreement or arrangement, and the Company does not have any material liability for the Taxes of any other person (other than the Company) under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law) as a transferee or successor, by contract, or otherwise; (v) the Company has not entered into any agreement or arrangement with any Taxing Authority with regard to the Tax liability of the Company affecting any Tax period for which the applicable statute of limitations, after giving effect to extensions or waivers, has not expired; (vi) the Company is not a direct or indirect beneficiary of (or a direct or indirect obligor of) a guarantee of tax benefits or any other arrangement that has the same economic effect (including an indemnity from a seller or lessee of property, or other insurance) with respect to any transaction or tax opinion relating to the Company; (vii) the Company is not a party to any understanding or arrangement described in Section 6111(d) or Section 6662(d)(2)(C)(iii) of the Code; (viii) during the five-year period ending on the date hereof, the Company has not distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 or Section 361 of the Code; and (ix) the Company has not participated in or cooperated with an international boycott within the meaning of Section 999 of the Code and has not been requested to do so in connection with any transaction or proposed transaction.
(e) Property and Leases. Except as set forth on Schedule 4.17(e), (i) to the Company’s knowledge, the Company does not own an interest in real property in any jurisdiction in which a Tax is imposed on the transfer of an interest in real property and which treats the transfer of an interest in an entity that owns an interest in real property as a transfer of the interest in real property; (ii) none of the property owned or used by the Company is subject to a tax benefit transfer lease executed in accordance with Section 168(f)(8) of the Internal Revenue Code of 1954, as amended; and (iii) none of the property owned by the Company is “tax-exempt use property” within the meaning of Section 168(h) of the Code. The Company has not been a United States real property holding corporation within the meaning of Code Section 897(c)(2) during the applicable period specified in Code Section 897(c)(1)(A)(ii).
(f) Certain Elections. Except as set forth on Schedule 4.17(f), (i) no election has been made under Treasury Regulations Section 301.7701-3 or any similar provision of Tax law to treat the Company as an association, corporation or partnership; (ii) the Company is not
(g) Definitions. The following terms, as used herein, have the following meanings:
(a) Schedule 4.18(a) contains a correct and complete list identifying each material “employee benefit plan”, as defined in Section 3(3) of ERISA, each employment, severance or similar contract, plan, arrangement or policy (excluding individual offer letters relating to “at will” employment on terms that could be changed in the Company’s discretion) and each other plan or arrangement providing for compensation, bonuses, profit-sharing, stock option or other stock related rights or other forms of incentive or deferred compensation, vacation benefits, insurance (including any self-insured arrangements), health or medical benefits, employee assistance program, disability or sick leave benefits, workers’ compensation, supplemental unemployment benefits, severance benefits or post- employment or retirement benefits (including compensation, pension, health, medical or life insurance benefits) which is maintained, administered or contributed to by the Company or any ERISA Affiliate and covers any employee or former employee (or beneficiary thereof) of the Company or with respect to which the Company has any liability. Copies of such plans (and, if applicable, related trust or funding agreements or insurance policies) and all amendments thereto and written interpretations thereof have been made available to Parent together with the most recent annual report (Form
(b) A copy of the most recent actuarial report for each Employee Plan subject to Title IV of ERISA has been made available to Parent. No “accumulated funding deficiency”, as defined in Section 412 of the Code, has been incurred with respect to any Employee Plan subject to such Section 412, whether or not waived. No “reportable event”, within the meaning of Section 4043 of ERISA, for which the notice requirement is not waived by the regulations thereunder, and no event described in Section 4062 or 4063 or ERISA, has occurred in connection with any Employee Plan. Neither the Company nor any ERISA Affiliate of the Company has (i) engaged in, or is a successor or parent corporation to an entity that has engaged in, a transaction described in Sections 4069 or 4212(c) of ERISA or (ii) incurred, or reasonably expects to incur prior to the Effective Time, (A) any liability under Title IV of ERISA arising in connection with the termination of, or a complete or partial withdrawal from, any plan covered or previously covered by Title IV of ERISA or (B) any liability under Section 4971 of the Code that in either case could become a liability of the Company or Parent or any of its ERISA Affiliates after the Effective Time. Neither the Company nor any ERISA Affiliate nor any predecessor thereof sponsors, maintains or contributes to, or has in the past sponsored, maintained or contributed to, any “multiemployer plan,” as defined in Section 3(37) of ERISA.
(c) Each Employee Plan which is intended to be qualified under Section 401(a) of the Code has received a favorable determination letter, or has pending or has time remaining in which to file, an application for such determination from the Internal Revenue Service, and the Company is not aware of any reason why any such determination letter should be revoked. The Company has made available to Parent copies of the most recent Internal Revenue Service determination letters with respect to each such Plan. Each Employee Plan has been maintained in material compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations, including but not limited to ERISA and the Code, which are applicable to such Plan. No material events have occurred with respect to any Employee Plan that could result in payment or assessment by or against the Company of any material excise taxes under Sections 4972, 4975, 4976, 4977, 4979, 4980B, 4980D, 4980E or 5000 of the Code.
(d) Except as set forth in Schedule 4.18(d), the consummation of the transactions contemplated by this Agreement will not (either alone or together with any other event) entitle any employee or independent contractor of the Company to severance pay or accelerate the time of payment or vesting or trigger any payment of funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation pursuant to, any Employee Plan. There is no contract, agreement, plan or arrangement covering any employee or former employee of the Company or any Affiliate that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to the terms of Sections 162(m) or 280G of the Code (or any corresponding provision of local or foreign Tax law).
(e) Except as set forth on Schedule 4.18(e), the Company does not have any liability in respect of post-retirement health, medical or life insurance benefits for retired, former
(f) Except as set forth on Schedule 4.18(f), there has been no amendment to, written interpretation or announcement (whether or not written) by the Company relating to, or change in employee participation or coverage under, an Employee Plan which would increase materially the expense of maintaining such Employee Plan above the level of the expense incurred in respect thereof for the fiscal year ended December 31, 2002. Each Employee Plan may be amended, terminated or otherwise modified by the Company to the greatest extent permitted by applicable law, including the elimination of any and all future benefit accruals under any Employee Plan and no employee communications or provisions of any Employee Plan document has failed to effectively reserve the right of the Company to so amend, terminate or otherwise modify such Employee Plan.
(g) Except as disclosed in Schedule 4.18(g), the Company is not a party to or subject to, and is not currently negotiating in connection with entering into, any collective bargaining agreement or other contract or understanding with a labor union or labor organization.
(h) Except as disclosed on Schedule 4.18(h), all contributions and payments accrued under each Employee Plan, determined in accordance with prior funding and accrual practices, as adjusted to include proportional accruals for the period ending as of the date hereof, have been discharged and paid on or prior to the date hereof except to the extent reflected as a liability in the Company Financial Statements.
(i) Except for claims for benefits occurring in the ordinary course, there is no action, suit, investigation, audit or proceeding pending against or involving or, to the knowledge of the Company, threatened against or involving, any Employee Plan before any court or arbitrator or any state, federal or local governmental body, agency or official.
(j) Schedule 4.18 sets forth the aggregate amount of accrued vacation to which all of the Company’s employees are entitled.
(b) The Company is not a party to or bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Company has no knowledge of any organizational effort made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of the Company.
(c) To the knowledge of the Company, the Company has fully complied with all employment-related laws during the relevant period, including without limitation laws related to the maintenance of workers’ compensation insurance, fair employment practice laws (including without limitation the Americans with Disabilities Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act an the Pregnancy Discrimination Act), the Family and Medical Leave Act, the Fair Labor Standards Act and all analogous state laws, except where the failure to comply would not reasonably be expected to have a Material Adverse Effect on the Company. For purposes of this Section 4.21(c), the relevant period with respect to each law shall mean that period preceding the Closing Date equivalent to the length of the applicable limitations period under such law.
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF HOLDERS
(a) Holder has good title to all of the Company Shares listed opposite such Holder’s name on Schedule 4.5(a). All of such Company Shares are owned beneficially and of record solely by Holder, and except as provided in the Investor Rights Agreement or as set forth in Schedule 5.3, as of the date of this Agreement, all of such Company Shares are owned free and clear of all Liens. Each Holder that is a natural person either (a) is unmarried or (b) at Closing, will deliver an executed spousal consent in form and substance reasonably satisfactory to Parent. Immediately prior to the Effective Time, all of Holder’s Company Shares and Company Options set forth on Schedule 4.05(a) shall be owned by such Holder free and clear of all Liens.
(b) Holder has the right to enter into this Agreement and to consummate the Transactions without providing any person a right of first refusal or right of first offer or similar right.
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF PARENT
ARTICLE 7 COVENANTS OF THE COMPANY
(a) the Company will not adopt or propose any change to its articles of incorporation or bylaws;
(b) the Company will not merge or consolidate with any other Person or acquire a material amount of stock or assets of any other Person;
(c) the Company will not sell, lease, license or otherwise dispose of any subsidiary or assets, securities or property except (i) pursuant to any existing contracts or commitments set forth on Schedule 4.13 and (ii) in the ordinary course consistent with past practice;
(d) the Company will not (i) take any action that would make any representation and warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time or (ii) omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time;
(e) except for the accelerated vesting of Company Options prior to the Effective Time, the Company will not adopt or amend any bonus, profit sharing, compensation, severance, termination, stock option, pension, retirement, deferred compensation, employment or
(f) the Company will not increase in any manner the compensation or fringe benefits of any director, officer or employee except, in the case of employees who are not executive officers, for normal increases in the ordinary course of business that are consistent with past practice and that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company and the Company will not pay any bonuses to its officers or employees except (i) for employees who are not executive officers, for bonuses payable in the ordinary course of business in amounts and at such times as are consistent with past practice, (ii) pursuant to the Company’s 2003 Bonus Plan in accordance with the terms described on Schedule 4.18, (iii) for executive officers in accordance with the terms of their employment agreements set forth on Schedule 4.18(a) and (iv) the bonus described on Schedule 4.8(f).
(g) the Company will not pay any benefit not required by any currently existing plan or arrangement (including, without limitation, grant stock options or stock appreciation rights or remove existing restrictions in any benefit plans or agreements);
(h) without the prior written consent of Parent, the Company will not make or change any Tax election, change any annual Tax accounting period, adopt or change any method of Tax accounting, file any amended Return, enter into any closing agreement, settle any Tax claim or assessment, surrender any right to claim a Tax refund (or offset or other reduction in Tax liability) consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment or take or omit to take any other action relating to the filing of any Return or the payment of any Tax, if such election, adoption, change, amendment, agreement, settlement, action or omission would have the effect of materially increasing the Tax liability or materially reducing any Tax attribute (including a Tax Asset) of the Company or any Subsidiary on the Closing Date;
(i) the Company will not forgive any existing indebtedness to the Company or discharge any security interest in favor of the Company, or make any loans, advances (other than to customers of the Company in an aggregate amount not in excess of $25,000) or capital contributions to, or investments in, any other Person;
(j) the Company will not pay, discharge or satisfy any material claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice or in accordance with their terms, of material liabilities reflected or reserved against in, or contemplated by, the most recent consolidated financial statements (or the notes thereto) of the Company;
(k) the Company will not enter into any Material Contract which may result in total payments or liability by in excess of $50,000, and the Company will not enter into multiple Material Contracts which may result in total aggregate payments or liability by or to it in excess of $100,000;
(l) the Company will not enter into, amend, terminate, take or omit to take any action that would constitute a violation of or default under any Material Contract, except where such action would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company;
(m) the Company will not make or commit to make capital expenditures in excess of $300,000 in the aggregate;
(n) the Company will not, without prior notification and consultation with Parent, terminate any employee under circumstances which would result in severance payments to such employee or pay any severance benefits to any employee on account of such employee’s termination other than in accordance with past practice disclosed on Schedule 4.18;
(o) the Company will maintain in full force and effect in all material respects the insurance policies listed on Schedule 4.15 or substantially similar replacement policies;
(p) the Company will not create, incur or assume any indebtedness (including, without limitation, refinancing or modifying any existing indebtedness), assume, guarantee, endorse or otherwise become liable or responsible (whether, directly, contingently or otherwise) for the indebtedness of another Person, enter into any agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing (other than indebtedness or liabilities created, incurred, assumed, guaranteed, endorsed or entered into in the ordinary course of business consistent with past practice within the last twelve months of operations or as required by this Agreement);
(q) the Company will not mortgage or pledge any of its property or assets or subject any such property or assets to any security interest;
(r) the Company will not change any of its methods, principles or practices of accounting currently in effect other than as required by GAAP;
(s) the Company will not enter into or amend or otherwise modify any agreement or arrangement with Persons that are affiliates or, as of the date of this Agreement, are officers or directors of the Company;
(t) the Company will not institute or settle any legal proceeding involving the Company or in connection with which the Company could have any liability or obligations; and
(u) the Company will not license, encumber or transfer to any person or entity any rights to Intellectual Property Rights other than licenses or transfers necessary to conduct development or perform services in the ordinary course of business consistent with past practices;
(v) the Company will not write down or write up (or fail to write down or write up in accordance with consistent past practice) the value of any receivables or revalue any assets of the Company, other than in the ordinary course of business and in accordance with GAAP;
(w) the Company will not allow any permit that was issued or related to the Company to lapse or terminate or fail to renew any such permit or any insurance policy that is scheduled to terminate or expire within 30 calendar days of the date of this Agreement; and
(x) the Company will not (A) declare, set aside or pay any dividend or make any other distribution or payment (whether in cash, stock or other property) with respect to any of the Company Shares or (B) directly or indirectly redeem, purchase or otherwise acquire any of its shares of capital stock, or make any commitment for any such action; provided; however, this covenant shall not apply to the repurchase of Company Shares held by the Company employees, officers, directors, consultants, independent contractors, advisors, or other persons who have performed services for the Company that are subject to existing restricted stock purchase agreements or stock option exercise agreements disclosed in Schedule 4.5(a) or (b) under which the Company has the right to repurchase such shares at cost, or other agreed basis, upon the occurrence of certain events, such as termination of employment or services;
(y) the Company will not agree or commit to do any of the foregoing.
(a) From the date hereof until the Effective Time and subject to applicable law and the confidentiality agreement between the Company and Parent (the “Confidentiality Agreement”), the Company shall (i) give Parent, its counsel, financial advisors, auditors and other authorized representatives reasonable access to the offices, properties (including for the purposes of conducting Phase I environmental site assessments), books and records of the Company, (ii) furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives such financial and operating data and other information as such Persons may reasonably request and (iii) instruct the employees, counsel, financial advisors, auditors and other authorized representatives of the Company to cooperate with Parent in its investigation of the Company. Any investigation pursuant to this Section shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the Company. No information or knowledge obtained by Parent in any investigation pursuant to this Section shall affect or be deemed to modify any representation or warranty made by the Company hereunder.
(b) The Company shall not be required to permit any inspection or to disclose any information, which would result in the disclosure of any trade secrets of third parties that are the subject of a contract to which the Company is a party or violate any obligation of the Company with respect to confidentiality if the Company shall have used reasonable best efforts to obtain the consent of such third party for such inspection or disclosure. All requests for
(a) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the Transactions;
(b) any notice or other communication from any governmental or regulatory agency or authority in connection with the Transactions;
(c) any actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting the Company that relate to the consummation of the Transactions; and
(d) any material breach of a representation or warranty of the Company contained herein or the occurrence of any event that could reasonably be expected to have a Material Adverse Effect on the Company. No such notification shall be deemed to cure any misrepresentation or breach of warranty or constitute an amendment of any representation, warranty or statement in this Agreement or in the disclosure schedules.
(a) During a period of two (2) years after the Closing, the Majority Holder (i) will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, participate, assist or invest in any Competing Business (as hereinafter defined) anywhere in the United States; (ii) will refrain from directly or indirectly employing, attempting to employ, recruiting or otherwise soliciting, inducing or influencing any person to leave employment with Parent or the Surviving Corporation; and (iii) will refrain from soliciting or encouraging any customer or supplier to terminate or otherwise modify adversely its business relationship with Parent or the Surviving Corporation. The Majority Holder understands that the restrictions set forth in this Section are intended to protect
(b) For purposes of this Agreement, the term “Competing Business” shall mean any video-gaming related business which is competitive with any business that the Company or any of its affiliates conducted prior to Closing or any business Parent or the Surviving Corporation or any of their Affiliates conducts at any time during the employment of the Majority Holder by Parent or the Surviving Corporation (including, for these purposes, any products or services of which the Majority Holder has knowledge that the Company or Surviving Corporation has in development and plans to release within twelve months of the date of the termination of the Majority Holder’s employment). Notwithstanding the foregoing, the Majority Holder may (i) be employed by any entity involved in a Competing Business so long as the Majority Holder does not participate in the portion of the entity that is involved in the Competing Business; (ii) be employed by an entity that engages in a Competing Business so long as such entity receives less than ten percent (10%) of its revenue from the Competing Business; and (iii) own up to two percent (2%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business.
(c) It is the intention of the parties that if any of the restrictions or covenants contained herein is held to cover a geographic area or to be for a length of time which is not permitted by applicable law, or is in any way construed to be too broad or to any extent invalid, such provision shall not be construed to be null, void and of no effect, but to the extent such provision would be valid or enforceable under applicable law, a court of competent jurisdiction shall construe and interpret or reform this Section to provide for a covenant having the maximum enforceable geographic area, time period and other provisions (not greater than those contained herein) as shall be valid and enforceable under such applicable law.
ARTICLE 8 COVENANTS OF PARENT
(a) Following the Effective Time Parent shall cause employees of the Company (“Company Employees”) to be covered under employee benefit plans that are substantially comparable, in the aggregate, to the employee benefit plans of the Parent under which similarly situated employees of Parent are covered. Parent shall cause service with the Company to be recognized as service for eligibility and vesting (but not accrual of benefits, except that such service shall count toward the accrual of benefits after the Closing Date under vacation, disability and severance plans of Parent) purposes of all employee benefit and compensation plans and arrangements applicable to Company Employees after the Effective
(b) No provision of this Agreement shall create any third party beneficiary rights in any employee or former employee (including any beneficiary or dependent thereof) of the Company in respect of continued employment (or resumed employment) with Parent and no provision of this Agreement shall create such rights in any such persons in respect of any benefits that may be provided, directly or indirectly, under any employee program or any plan or arrangement which may be established by Parent. No provision of this Agreement shall constitute a limitation on the rights to amend, modify or terminate after the Effective Time any such plans or arrangements of Company.
ARTICLE 9 COVENANTS OF PARENT AND THE COMPANY
(a) Subject to the terms and conditions of this Agreement, Company and Parent will use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate the Transactions, including, in the case of Parent, causing Merger Subsidiary to take such actions. In furtherance and not in limitation of the foregoing, each of Parent and Company agrees to make an appropriate filing of a Notification and Report Form pursuant to the HSR Act (and any other filings required under or the laws of any jurisdiction regulating competition or antitrust matters, including those set forth on Schedule 10.1) with respect to the transactions contemplated hereby as promptly as practicable and in any event within forty
(b) In connection with the efforts referenced in Section 9.1(a) to obtain all requisite approvals and authorizations for the Transactions under the HSR Act or any other Antitrust Law, each of Parent and Company shall use its reasonable best efforts to (i) cooperate in all respects with each other in connection with any filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party, (ii) keep the other party informed in all material respects of any material communication received by such party from, or given by such party to, the Federal Trade Commission (the “FTC”), the Antitrust Division of the Department of Justice (the “DOJ”) or any other governmental authority and of any material communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby and (iii) permit the other party to review any material communication given by it to, and consult with each other in advance of any meeting or conference with, the FTC, the DOJ or any such other governmental authority or, in connection with any proceeding by a private party, with any other Person. For purposes of this Agreement, “Antitrust Law” means the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal Trade Commission Act, as amended, and all other federal, state and foreign, if any, statutes, rules, regulations, orders, decrees, administrative and judicial doctrines and other laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.
ARTICLE 10 CONDITIONS TO THE MERGER
(a) the representations and warranties of the Company and the Holders set forth in Articles 4 and 5 above which are not qualified by “materiality” or Material Adverse Effect shall be true and correct in all material respects at and as of the Closing Date and the representations and warranties of the Company and the Holders set forth in Articles 4 and 5 above which are qualified by “materiality” or Material Adverse Effect shall be true and correct in all respects at and as of the Closing Date;
(b) the Company and the Holders shall have performed and complied with all of its covenants hereunder in all material respects through the Closing Date;
(c) there shall not be any judgment, order, decree, stipulation, injunction (temporary or permanent), or charge in effect preventing the consummation of any of the transactions contemplated by this Agreement;
(d) all applicable waiting periods (and any extensions thereof) or approvals required under the HSR Act or the laws of any jurisdiction regulating competition or antitrust matters set forth on Schedule 10.1 shall have expired or otherwise been terminated and all other Governmental approvals, if any, required for the consummation of the Transactions shall have been obtained and be in effect as of the Closing Date;
(e) There shall not have occurred any event, occurrence, development or state of circumstances or facts that, individually or in the aggregate, has had or could reasonably be expected to have, a Material Adverse Effect on the Company;
(f) the Company shall have delivered to Parent a certificate to the effect that each of the conditions specified above in Sections 10.1(a)-(e) is satisfied; provided that such
(g) Holders of not more than five percent (5%) of the Company Shares shall have exercised any appraisal or dissenters rights;
(h) All other consents, authorizations, orders and approvals of (or filings or registrations with) any governmental commission, board, other regulatory body or third parties required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby shall have been obtained or made, in form and substance reasonably satisfactory to Parent, except where the failure to have obtained or made any such consent, authorization, order, approval, filing or registration could not individually or in the aggregate, reasonably be expected to have a Material Adverse Effect on the Company;
(i) Parent and the Merger Subsidiary shall have received from counsel to the Company an opinion concerning customary matters in form and substance satisfactory to Parent;
(j) The Company and the Holders shall have entered into the Escrow Agreement;
(k) The Investors Rights Agreement shall have been terminated;
(l) The Company’s shareholders shall have approved the Transactions in accordance with the California Code; and
(m) Each Holder who is a married natural person shall have delivered an executed spousal consent in form and substance reasonably satisfactory to Parent.
(a) the representations and warranties of Parent set forth in Article 6 above which are not qualified by “materiality” or Material Adverse Effect shall be true and correct in all material respects at and as of the Closing Date and the representation and warranties of Parent set forth in Article 6 above which are qualified by “materiality” or Material Adverse Effect shall be true and correct in all respects at and as of the Closing Date;
(b) Parent and Merger Subsidiary shall have performed and complied with all of their covenants hereunder in all material respects through the Closing Date;
(c) there shall not be any judgment, order, decree, stipulation, injunction, or charge in effect preventing the consummation of any of the transactions contemplated by this Agreement;
(d) all applicable waiting periods (and any extensions thereof) or approvals required under the HSR Act and the laws of any foreign jurisdiction regulating competition or antitrust matters set forth on Schedule 10.2 shall have expired or otherwise been terminated;
(e) the Parent shall have delivered to the Company and the Holders, a certificate to the effect that each of the conditions specified above in Sections 10.2(a)-(d) is satisfied; provided that such certificate may disclose any facts or circumstances arising after the date hereof which would cause any representations or warranties to be incorrect or agreements or covenants to be unfulfilled; and
(f) the Company’s shareholders shall have approved the Transactions.
ARTICLE 11 TERMINATION
(a) The parties may terminate this Agreement by written consent of the Company, the Holder Representative and Parent at any time prior to the Closing;
(b) Parent may terminate this Agreement by giving written notice to the Company and the Holder Representative at any time prior to the Closing in the event the Company or any Holder that has executed this Agreement or a joinder thereto has breached any representation, warranty, or covenant contained in this Agreement in any material respect, and such breach is not cured upon the earlier to occur of (x) ten (10) business days after notice of such breach has been given by Parent to the Company and the Holder Representative or (y) the date this Agreement is terminated pursuant to paragraph 11.1(d) below;
(c) The Company and the Holder Representative may terminate this Agreement by giving written notice to Parent at any time prior to the Closing in the event Parent or Merger Subsidiary has breached any representation, warranty, or covenant contained in this Agreement in any material respect, and such breach is not cured upon the earlier to occur of (x) ten (10) business days after notice of such breach has been given by the Company and the Holder Representative to Parent and Merger Subsidiary or (y) the date this Agreement is terminated pursuant to paragraph 11.1(d) below; and
(d) Any of the Company, the Holder Representative or Parent may terminate this Agreement if the Closing has not occurred prior to one hundred twenty (120) days from the date hereof; provided, that no party then in breach may have the right to terminate this Agreement under the terms hereof.
ARTICLE 12 SURVIVAL AND INDEMNIFICATION
(a) From and after the Effective Time and subject to the limitations set forth herein, the Holders agree, severally and not jointly, to indemnify Parent and its Affiliates against and hold them harmless from, and as to each Holder on whose behalf the Escrowed Consideration has been deposited into the Escrow Fund, Parent shall be entitled to indemnification as to such Holder exclusively from the Escrow Fund for, any and all Losses incurred or suffered by Parent, and any Affiliate of Parent or the Company resulting from, arising out of, relating to, or caused by (i) a misrepresentation or breach by the Company of any representation or warranty contained in Article 4 or any exhibit, schedule or other document delivered pursuant to this Agreement, or any covenant or agreement of the Company or Holder Representative contained in this Agreement or any exhibit, schedule or other document delivered
(b) From and after the Effective Time and subject to the limitations set forth herein, each Holder, severally and not jointly, agrees to indemnify Parent and its Affiliates against and hold them harmless from any and all Losses incurred or suffered by Parent, and Affiliate of Parent or the Company resulting from, arising out of, relating to, or caused by a misrepresentation or breach by the Holder of any representation or warranty contained in Article 5 or any exhibit, schedule or other document delivered pursuant to this Agreement, or any covenant or agreement of the Holder contained in this Agreement or any exhibit, schedule or other document delivered in connection with this Agreement.
(c) From and after the Effective Time and subject to the limitations set forth herein, each Holder, severally and not jointly, agrees to indemnify Parent and its Affiliates against and hold them harmless from any and all severance amounts (consistent with the Company’s past practice or agreements entered into prior to Closing) paid to, or Losses related to the termination of, any employees, independent contractors or consultants who are (x) hired by the Company after the date hereof and prior to the Effective Time, and (y) terminated by Parent or the Surviving Corporation within ninety (90) days following the Closing, but excluding any such employee, independent contractor or consultant with respect to which Parent has given its prior written consent to such individual being hired by the Company.
(d) For all purposes under this Agreement, any liability that shall be undertaken by the Holders on a several, but not joint, basis, shall mean either (a) if any such Loss relates solely to such Holder or actions taken solely by such Holder in his, her or its capacity as a shareholder or optionholder of the Company, the total of such related Loss, or (b) if any such Loss does not relate to any particular Holder or actions taken by a particular holder, a percentage of such Loss equal to each Holder’s percentage ownership of Company Stock (assuming for this purpose that all Company Options had been exercised) at the Effective Time; provided, however, that no holder of Company Options shall be liable under this Article 12 for any amounts in excess of his, her or its proceeds received under Section 3.6 (after giving effect to all other indemnification payments made by such Holder).
(a) If any third party shall notify any party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against the other party (the “Indemnifying Party”) under this Article 12, then the Indemnified Party shall promptly notify the Indemnifying Party thereof in writing; provided that no delay on the part of the Indemnified Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is materially prejudiced.
(b) The Indemnifying Party will have the right to elect, by written notice within ten (10) business days of notification of such claim, to assume the defense of the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as the Third Party Claim involves only money damages in an amount (together with the amount of all then pending Third Party Claims and all other pending claims for indemnification hereunder) less than the maximum amount that the Indemnifying Party is then obligated to indemnify the Indemnified Party and does not seek an injunction or other equitable relief unless the equitable relief sought could not have a Material Adverse Effect on the Indemnified Party; provided that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be unreasonably withheld) unless the judgment or proposed settlement involves only the payment of money damages that are paid in full by the Indemnifying Party and does not impose an injunction, other equitable relief or other liabilities or obligations upon the Indemnified Party. The Indemnified Party may participate in such defense through counsel of its own choosing at its own expense, notwithstanding the foregoing, if the Indemnified Party has reasonably concluded (upon the advice of counsel to the Indemnified Party) that (i) there may reasonably be legal defenses available to them that are different from or in addition to or inconsistent with those available to the Indemnifying Party, or (ii) there is any conflict of interest between the Indemnifying Party and any Indemnified Party, such Indemnified Party shall be permitted to participate in the defense of such action with counsel selected by such Indemnified Party, which counsel shall be reasonably acceptable to the Indemnifying Party, and the Indemnifying Party shall pay the reasonable fees and expenses of such counsel, subject to receiving reasonable documentation of such fees and expenses.
(c) Unless and until the Indemnifying Party assumes the defense of the Third Party Claim as provided in Section 12.4(b), the Indemnified Party may defend against the Third Party Claim in any manner he or it may reasonably deem appropriate.
(d) In no event will the Indemnified Party consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party.
(a) From and after the Effective Time, neither Parent nor Merger Subsidiary shall be entitled to indemnification from and against any Losses caused by the breach of any representation or warranty of the Holders or the Company under Section 12.2 (A) until Parent and Merger Subsidiary have suffered aggregate Losses by reason of all breaches in excess of $200,000 (after which point, subject to clause (B) below, Parent and Merger Subsidiary will be entitled to indemnification from and against all subsequent Losses), (B) to the extent Losses suffered by Parent or Merger Subsidiary and for which Parent or Merger Subsidiary have received payments pursuant to this Article 12 equal to $5,460,000 (after which point neither Parent nor Merger Subsidiary will be entitled to any further indemnification from and against any other such Losses). All calculations of Losses shall be determined without regard to any Material Adverse Effect qualification contained in any representation, warranty or covenant giving rise to the claim for indemnity hereunder.
(b) From and after the Effective Time, the Parent shall not have any obligation under Section 12.3 above to indemnify the Holders or the Company from and against any Losses caused by the breach of any representation or warranty of Parent or Merger Subsidiary (A) until the Holders and the Company have suffered aggregate Losses by reason of all breaches in excess of $200,000 (after which point, subject to clause (B) below, Parent will be obligated to indemnify the Holders and the Company from and against all subsequent Losses), (B) to the extent Losses suffered by the Holders or the Company and for which the Holders and the Company have received payments pursuant to this Article 12 equal to $5,460,000 (after which point Parent will
(c) The limitations set forth in paragraph 12.8(a) above and in Section 12.7 shall not apply with respect to a breach by the Company or any Holder of the representations and warranties set forth in Sections 4.5, 4.16, 4.17, 4.22 or 5.3 or a breach of the agreement set forth in Section 13.3. The limitation set forth in paragraph 12.8(a)(A) above shall not apply with respect to claims for indemnification under Section 12.2(a)(ii) above.
(a) Cooperation on Tax Matters.
(i) Parent, the Company and the Holders shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 12.9 and any audit, litigation or other proceeding with respect to Taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Company and the Holders agree to retain all books and records with respect to Tax matters pertinent to the Company relating to any taxable period beginning before the Closing Date until six months after the expiration of the statute of limitations (and, to the extent notified by Parent or the Holders, any extensions thereof) for the respective Tax periods, and to abide by all record retention agreements entered into with any Tax Authority.
(ii) Parent and the Holders agree, upon request, to use their best efforts to obtain any certificate or other document from any governmental authority or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).
(iii) Parent and the Holders agree, upon request, to provide the other Party with all information that either Party may be required to report pursuant to Code Section 6043 and all Treasury Regulations promulgated thereunder.
(b) Tax Sharing Agreements. All Tax sharing agreements or similar agreements with respect to or involving the Company shall be terminated as of the Closing Date and, after the Closing Date, the Company shall not be bound thereby or have any liability thereunder.
(c) Certain Taxes and Fees. All transfer, documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees, recording charges and other fees and charges (including any penalties and interest) incurred in connection with the consummation of the transactions contemplated by this Agreement shall be borne by the Holders.
ARTICLE 13
MISCELLANEOUS
(a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by the Company, the Holder Representative (in accordance with his authority granted hereunder), Parent and Merger Subsidiary or, in the case of a waiver, by each party against whom the waiver is to be effective. If an amendment is approved by the board of directors of each constituent corporation and, if it changes any of the principal terms of this Agreement (within the meaning of California Code), by the outstanding shares of each constituent corporation in the same manner as the original Agreement, the Agreement so amended shall then constitute the Agreement of Merger.
(b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
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