<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
November 18, 1998
Date of Report (Date of earliest event reported)
FIRST VIRTUAL HOLDINGS INCORPORATED
(Exact name of registrant as specified in its charter)
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Delaware 000-21751 33-0612860
- ------------------------------- ----------------------- -------------------------------
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer Identification
incorporation) No.)
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4104 Sorrento Valley Boulevard, Suite 200
San Diego, California 92121
(Address of principal executive offices)
(619) 410-3700
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 5. OTHER EVENTS
On November 18, 1998, First Virtual Holdings Incorporated (the "Company")
entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") with DB Acquisition Corp. ("Sub"), a wholly owned subsidiary of the
Company, Distributed Bits L.L.C. ("DBits"), Derek Scruggs, DBI L.L.C., Richard
Angell as Member Representative and Chase Manhattan Bank & Trust Company,
National Association, providing for the merger of DBits with and into Sub. A
copy of the Reorganization Agreement and a related form of Registration Rights
Agreement are attached as Exhibits 2.1 and 2.2 and are incorporated herein by
reference.
On November 18, 1998, the Company issued a press release announcing the
execution of the Reorganization Agreement. A copy of the press release is
attached as Exhibit 99.1 and is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Unaudited Pro Forma Financial Information
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Unaudited Pro Forma Combined Condensed Financial Information of
First Virtual Holdings Incorporated, EMail Publishing, Inc. and
Distributed Bits L.L.C.
Unaudited Pro Forma Combined Condensed Balance Sheet
as of September 30, 1998 3
Unaudited Pro Forma Combined Statement of Operations
for the Nine Months Ended September 30, 1998 4
Unaudited Pro Forma Combined Statement of Operations
for the Year Ended December 31, 1997 5
Notes to Unaudited Pro Forma Financial Information 6
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(c) Exhibits
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2.1 Agreement and Plan of Reorganization dated November 18, 1998
by and among First Virtual Holdings Incorporated, DB
Acquisition Corp., Distributed Bits L.L.C., Derek Scruggs,
DBI L.L.C. and Richard Angell as Member Representative Chase
Manhattan Bank & Trust Company, National Association as Escrow
Agent.
2.2. Form of Registration Rights Agreement among the Company and
the members of Distributed Bits L.L.C.
99.1 Press Release dated November 19, 1998.
</TABLE>
<PAGE> 3
FIRST VIRTUAL HOLDINGS INCORPORATED,
EMAIL PUBLISHING, INC. AND DISTRIBUTED BITS L.L.C.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
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PENDING PURCHASE TRANSACTIONS PRO FORMA ADJUSTMENTS
------------------------------------------------------------
FIRST VIRTUAL EMAIL DISTRIBUTED EMAIL DISTRIBUTED COMBINED
HOLDINGS PUBLISHING BITS PUBLISHING BITS PRO FORMA
---------------------------------------------------------- ------------- -------------
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Assets
Current assets:
Cash and cash equivalents $ 7,620,705 $ 92,303 $ (22,707) $ -- $ -- $ 7,690,301
Accounts receivable 85,842 194,036 -- -- -- 279,878
Notes receivable 100,000 -- -- -- -- 100,000
Prepaid expenses and other 405,115 13,167 34,196 -- -- 452,478
---------------------------------------------------------- ------------- -------------
Total current assets 8,211,662 299,506 11,489 -- -- 8,522,657
Furniture, equipment
& software, net 1,285,885 230,894 98,183 -- -- 1,614,962
Organization and other
costs, net 57,277 -- -- -- -- 57,277
Intangibles -- -- 18,415,277 (d) 5,326,761 (i) 24,492,038
-- 500,000 (f) 250,000 (i)
Other assets 42,263 10,389 1,500 -- -- 54,152
---------------------------------------------------------- ------------- -------------
Total assets $ 9,597,087 $ 540,789 $ 111,172 $18,915,277 $ 5,576,761 $ 34,741,086
========================================================== ============= =============
Liabilities and
stockholders' equity
Current liabilities:
Accounts payable $ 671,879 $ 132,348 $ 82,144 $ 500,000 (f) $ 250,000 (j) $ 1,636,371
Accrued compensation
& related liabilities 146,294 -- 39,939 -- -- 186,233
Deferred revenue -- -- 36,000 -- -- 36,000
Accrued interest -- 4,002 -- -- -- 4,002
Other accrued liabilities 364,678 18,779 -- -- -- 383,457
Payable to First Virtual -- 100,000 -- -- -- 100,000
Payable on equipment -- 4,077 -- -- -- 4,077
Current portion, due to
stockholder 270,000 200,000 -- -- -- 470,000
Current portion, note
payable to bank -- 31,314 -- -- -- 31,314
Current portion, capital
lease obligations -- 35,200 14,053 -- -- 49,253
---------------------------------------------------------- ------------- -------------
Total current liabilities 1,452,851 525,720 172,136 500,000 250,000 2,900,707
Long term liabilities
Amount due to stockholder 125,000 -- -- -- -- 125,000
Note payable to bank -- 42,291 -- -- -- 42,291
Deferred rent -- 12,523 -- -- -- 12,523
Obligation under capital lease -- 38,602 32,272 -- -- 70,874
---------------------------------------------------------- ------------- -------------
Total long term liabilities 125,000 93,416 32,272 -- -- 250,688
Total liabilities 1,577,851 619,136 204,408 500,000 250,000 3,151,395
Stockholders' equity:
Preferred stock -- 632 -- (632)(a) -- --
Common stock 33,062 1,907 -- 632 (a) 1,350 (i) 34,970
(2,539)(b) -- --
558 (d) --
Members' equity -- -- 1,878,097 (1,878,097)(g) --
Additional paid in capital 46,034,536 1,240,295 -- 2,539 (b) 1,878,097 (g) 49,155,467
(694,811)(c) (1,927,223)(h) (2,622,034)
18,414,719 (d) 5,325,411 (i) 23,740,130
1,300,000 (e) 1,300,000
Warrants 1,080,828 -- -- -- -- 1,080,828
Deferred compensation (38,093) (626,370) (44,110) -- -- (708,573)
Accumulated deficit (39,091,097) (694,811) (1,927,223) 694,811 (c) 1,927,223 (h) (39,091,097)
(1,300,000)(e) (1,300,000)
---------------------------------------------------------- ------------- -------------
Total stockholders' equity 8,019,236 (78,347) (93,236) 18,415,277 5,326,761 31,589,691
---------------------------------------------------------- ------------- -------------
Total liabilities and
stockholders' equity $ 9,597,087 $ 540,789 $ 111,172 $18,915,277 $ 5,576,761 $ 34,741,086
========================================================== ============= =============
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See accompanying notes to unaudited pro forma
combined condensed financial statements.
<PAGE> 4
FIRST VIRTUAL HOLDINGS INCORPORATED,
EMAIL PUBLISHING, INC. AND DISTRIBUTED BITS L.L.C.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
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PENDING PURCHASE TRANSACTIONS PRO FORMA ADJUSTMENTS
------------------------------------------------------------
FIRST VIRTUAL EMAIL DISTRIBUTED EMAIL DISTRIBUTED COMBINED
HOLDINGS PUBLISHING BITS PUBLISHING BITS PRO FORMA
------------------------------------------------------------------------------------------
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Revenues $ 844,926 $ 951,041 $ -- $ -- -- $ 1,795,967
Cost of revenues 44,830 -- -- -- -- 44,830
------------------------------------------------------------------------------------------
Gross profit 800,096 951,041 -- -- -- 1,751,137
Operating expenses
Marketing & sales 1,423,492 345,141 -- -- -- 1,768,633
Research, development,
& engineering 3,892,823 76,432 611,109 -- -- 4,580,364
General & administrative 2,781,554 861,869 575,300 -- -- 4,218,723
Restructuring charge 812,166 -- -- -- -- 812,166
Depreciation and amortization 1,145,357 -- -- 7,093,229(a) 2,091,285(c) 10,329,871
------------------------------------------------------------------------------------------
Total operating expenses 10,055,392 1,283,442 1,186,409 7,093,229 2,091,285 21,709,757
------------------------------------------------------------------------------------------
Loss from operations (9,255,296) (332,401) (1,186,409) (7,093,229) (2,091,285) (19,958,620)
Interest income 128,364 1,994 -- -- -- 130,358
Interest expense (68,155) (26,059) -- -- -- (94,214)
Other income -- 400 -- -- -- 400
------------------------------------------------------------------------------------------
Net loss (9,195,087) (356,066) (1,186,409) (7,093,229) (2,091,285) (19,922,076)
Preferred stock dividend (153,126) -- -- -- -- (153,126)
------------------------------------------------------------------------------------------
Net loss applicable
to common shares $(9,348,213) $ (356,066) $(1,186,409) $(7,093,229) $(2,091,285) $(20,075,202)
==========================================================================================
Net loss per share,
basic and diluted $ (0.52) $ (0.19) $ (0.80)
========================== ============
Shares used in per share
computation, basic and
diluted 18,125,810 1,906,503 3,676,182(b) 1,350,000(d) 25,058,495
</TABLE>
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(a) Adjustment to reflect the nine-month amortization of goodwill and other
intangibles based on the allocation of the assumed purchase price in the
September 30, 1998 pro forma balance sheet for Email Publishing, Inc.
(b) Adjustment to the average common shares outstanding for the elimination of
EPub's shares and the issuance of 5,582,685 shares of First Virtual common
stock.
(c) Adjustment to reflect the nine-month amortization of goodwill and other
intangibles based on the allocation of the assumed purchase price in the
September 30, 1998 pro forma balance sheet for Distributed Bits.
(d) Adjustment to the average common shares outstanding for the issuance of
1,350,000 shares of First Virtual common stock for all the equity interests
at Distributed Bits based on an assumed purchase price of $5,527,635 in
First Virtual common stock at a price of $3.65 per share.
The above pro forma combined statement of operations does not include a $1.3
million in-process technolgy charge to be recorded by First Virtual Holdings in
conjunction with the proposed merger for the estimated fair value of the
in-process technology of Email Publishing.
See accompanying notes to unaudited pro forma
combined condensed financial statements.
<PAGE> 5
FIRST VIRTUAL HOLDINGS INCORPORATED,
EMAIL PUBLISHING, INC. AND DISTRIBUTED BITS L.L.C.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
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PENDING PURCHASE TRANSACTIONS PRO FORMA ADJUSTMENTS
------------------------------------------------------------
FIRST VIRTUAL EMAIL DISTRIBUTED EMAIL DISTRIBUTED COMBINED
HOLDINGS PUBLISHING BITS PUBLISHING BITS PRO FORMA
------------------------------------------------------------------------------------------
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Revenues $ 1,450,598 $ 335,631 $ -- $ -- $ -- $ 1,786,229
Cost of revenues 270,416 -- -- -- -- 270,416
------------------------------------------------------------------------------------------
Gross profit 1,180,182 335,631 -- -- -- 1,515,813
Operating expenses
Marketing & sales 5,424,110 115,223 -- -- -- 5,539,333
Research, development,
& engineering 6,687,177 71,850 477,738 -- -- 7,236,765
General & administrative 4,377,688 415,932 121,170 -- -- 4,914,790
Depreciation and amortization 1,097,716 -- -- 9,457,639(a) 2,788,380(c) 13,343,735
------------------------------------------------------------------------------------------
Total operating expenses 17,586,691 603,005 598,908 9,457,639 2,788,380 31,034,623
Loss from operations (16,406,509) (267,374) (598,908) (9,457,639) (2,788,380) (29,518,810)
Interest income 554,587 -- -- -- -- 554,587
Interest expense (95,360) 2,849 -- -- -- (92,511)
------------------------------------------------------------------------------------------
Net loss (15,947,282) (264,525) (598,908) (9,457,639) (2,788,380) (29,056,734)
Dividend imputed on
preferred stock (1,250,000) -- -- -- -- (1,250,000)
------------------------------------------------------------------------------------------
Net loss applicable
to common shares $(17,197,282) $ (264,525) $ (598,908) $(9,457,639) $(2,788,380) $(30,306,734)
Net loss per share,
basic and diluted $ (1.94) $ (0.14) $ (1.92)
=========== ========== ============
Shares used in per share
computation, basic and
diluted 8,842,367 1,877,646 3,705,039(b) 1,350,000(d) 15,775,052
</TABLE>
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(a) Adjustment to reflect the twelve-month amortization of goodwill and other
intangibles based on the allocation of the assumed purchase price in the
September 30, 1998 pro forma balance sheet for Email Publishing, Inc.
(b) Adjustment to the average common shares outstanding for the elimination of
EPub's shares and the issuance of 5,582,685 shares of First Virtual common
stock.
(c) Adjustment to reflect the nine-month amortization of goodwill and other
intangibles based on the allocation of the assumed purchase price in the
September 30, 1998 pro forma balance sheet for Distributed Bits.
(d) Adjustment to the average common shares outstanding for the issuance of
1,350,000 shares of First Virtual common stock for all the equity interests
at Distributed Bits based on an assumed purchase price of $5,527,635 in
First Virtual common stock at a price of $3.65 per share.
The above pro forma combined statement of operations does not include a $1.3
million in-process technology charge to be recorded by First Virtual Holdings in
conjunction with the proposed merger for the estimated fair value of the
in-process technology of Email Publishing.
See accompanying notes to unaudited pro forma
combined condensed financial statements.
<PAGE> 6
FIRST VIRTUAL HOLDINGS INCORPORATED
EMAIL PUBLISHING, INC. AND DISTRIBUTED BITS L.L.C.
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1.
The unaudited pro forma financial statements reflect the proposed and pending
acquisitions of Email Publishing, Inc. ("EPub") and Distributed Bits L.L.C.
("Dbits") for an aggregate purchase price of $26,290,935.
NOTE 2.
Upon consummation of the proposed merger, First Virtual will acquire all of the
common stock and all outstanding rights to acquire shares of common stock of
EPub in exchange for 5,582,685 shares of First Virtual common stock and the
assumption by First Virtual of options and warrants to acquire up to
approximately 417,315 additional shares of First Virtual common stock at a
weighted average exercise price of $.04 per share. The purchase price is
calculated to be $20,763,300 based on the fair market value of $3.38 per share
of First Virtual common stock. The purchase price also includes estimated merger
costs of $500,000. The purchase price is subject to change based upon
anti-dilution rights of the EPub stockholders during the one year period
following the closing of the merger. In the event that First Virtual is required
to issue additional shares of First Virtual common stock during this period,
additional purchase price will be recorded. The purchase price was allocated as
follows based upon a valuation of the tangible and intangible assets, including
acquired technology and in-process technology, by an independent appraiser, as
well as management's best estimates:
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Current assets acquired ................................. $ 299,506
Furniture, equipment and software ....................... 230,894
Other assets ............................................ 10,389
In-process technology ................................... 1,300,000
Developed technology .................................... 900,000
Goodwill ................................................ 18,015,277
Liabilities assumed ..................................... (619,136)
Deferred compensation ................................... 626,370
------------
$ 20,763,300
</TABLE>
The pro forma combined balance sheet includes the adjustments necessary as if
the proposed merger had occurred on September 30, 1998 and reflects the
allocation of the purchase price, issuance of First Virtual common stock and
elimination of EPub's equity accounts. These adjustments are summarized as
follows:
(a) Conversion of all outstanding preferred stock into common stock
(b) Elimination of existing EPub common stock
(c) Elimination of EPub's accumulated deficit
(d) Issuance of FV common stock (5,582,685 shares @ $.0001 par value) and
record the net assets and deferred compensation of EPub and excess purchase
price (goodwill and other intangibles)
(e) Write off of EPub's in-process technology (f) Accrue estimated merger costs
to be incurred by First Virtual
<PAGE> 7
NOTE 3.
First Virtual anticipates acquiring all equity interests, including options,
warrants or other purchase rights, if any, in Distributed Bits, in exchange for
1,350,000 shares of First Virtual common stock and warrants to purchase an
additional 250,000 shares of First Virtual common stock at an exercise price of
$6.00 per share and an additional 250,000 shares of First Virtual common stock
at $8.00 per share. The number of First Virtual shares to be issued is subject
to a reduction of 200,000 shares in lieu of cash consideration in the amount of
$250,000 at the option of Distributed Bits equity holders (the "Cash Election").
The purchase price is calculated to be $5,478,509 based on the fair market value
of $3.65 per share of First Virtual common stock. The purchase price also
includes estimated merger costs of $250,000 and the value of warrants of
$350,000. This purchase price will be allocated as follows, based upon
management's best estimates:
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Current assets acquired ................................. $ 11,489
Furniture, equipment and software ....................... 98,183
Other assets ............................................ 1,500
Goodwill ................................................ 5,576,761
Liabilities assumed ..................................... (204,408)
Deferred compensation ................................... 44,110
-----------
$ 5,527,635
</TABLE>
The pro forma combined balance sheet includes the adjustments necessary as if
the pending acquisition had occurred on September 30, 1998 and reflects the
allocation of the purchase price, issuance of First Virtual common stock
(assuming the Distributed Bits equity holders do not exercise the Cash Election)
and elimination of Distributed Bits' equity accounts. These adjustments are
summarized as follows:
(g) Elimination of existing Distributed Bits members' capital
(h) Elimination of Distributed Bits accumulated deficit
(i) Issuance of FV common stock (1,350,000 shares @ $.0001 par value) and
record the net liabilities and deferred compensation of Distributed Bits
and excess purchase price (goodwill and other intangibles)
(j) Record estimated merger costs
NOTE 4.
The allocation of the purchase price was applied to the historical balance sheet
or historical statements of operations of First Virtual, EPub and Distributed
Bits to arrive at the pro forma combined balance sheet and statements of
operations. The developed technology and goodwill are amortized over their
estimated useful lives of two years due to the unusually rapid pace of
technological development of the Internet. It is not uncommon for a specific
technology product or service in the industry to become obsolete in a relatively
short period of time. Furthermore, the Internet, as an industry, is in its
infancy stage with rapidly shifting trends, technologies, consumer preferences
and competitive pressures. The management of EPub has indicated that the
technologies and business models developed by their company appear generally to
have a useful life of no more than one or two years before they require complete
redevelopment. It is anticipated that this rapid rate of change will continue in
the future. The technology currently under development, for which technological
feasibility has not been established and for which there are no future
alternative uses, will be written off at the date of acquisition. Based on an
initial review of Distributed Bits technologies and their planned business
models, First Virtual's management anticipates that it will be appropriate to
use a two year life for Distributed Bits' intangibles as well. In addition, both
EPub and Distributed Bits are operating in very competitive environments and
competitive advantages are often short lived. The pro forma combined statements
of operations for the year ended December 31, 1997 and the nine months ended
September 30, 1998 reflect amortization expense of $12,246,019 and $9,184,514,
respectively.
<PAGE> 8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIRST VIRTUAL HOLDINGS INCORPORATED
Dated: November 30, 1998 By: /s/ Keith Kendrick
--------------------------------
Keith Kendrick
President
<PAGE> 9
INDEX TO EXHIBITS
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EXHIBIT DESCRIPTION
NUMBER -----------
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2.1 Agreement and Plan of Reorganization dated November 18, 1998
by and among First Virtual Holdings Incorporated, DB
Acquisition Corp., Distributed Bits L.L.C., Derek Scruggs,
DBI L.L.C. and Richard Angell as Member Representative Chase
Manhattan Bank & Trust Company, National Association as
Escrow Agent.
2.2 Form of Registration Rights Agreement among the Company and
the members of Distributed Bits L.L.C.
99.1 Press Release dated November 19, 1998.
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<PAGE> 1
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FIRST VIRTUAL HOLDINGS INCORPORATED
DB ACQUISITION CORP.
DISTRIBUTED BITS L.L.C.
DEREK SCRUGGS
DBI L.L.C.
RICHARD ANGELL AS MEMBER REPRESENTATIVE
AND CHASE MANHATTAN BANK AND TRUST COMPANY, NATIONAL
ASSOCIATION AS ESCROW AGENT
DATED AS OF NOVEMBER 18, 1998
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I THE MERGER..........................................................................1
1.1 The Merger........................................................................1
1.2 Effective Time....................................................................2
1.3 Effect of the Merger..............................................................2
1.4 Certificate of Incorporation; Bylaws..............................................2
1.5 Directors and Officers............................................................2
1.6 Merger Consideration..............................................................2
1.7 Effect of Merger on DBits Membership Interests....................................3
1.8 Escrow Fund.......................................................................5
1.9 Surrender of DBits Membership Interests...........................................6
1.10 No Further Ownership Rights in DBits Membership Interests.........................6
1.11 Tax Consequences..................................................................7
1.12 Taking of Necessary Action; Further Action........................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF DBITS AND MAJORITY MEMBERS.......................7
2.1 Organization of DBits.............................................................7
2.2 DBits Capital Structure...........................................................7
2.3 Subsidiaries......................................................................8
2.4 Authority.........................................................................8
2.5 No Conflict.......................................................................9
2.6 Consents..........................................................................9
2.7 DBits Financial Statements........................................................9
2.8 No Undisclosed Liabilities........................................................9
2.9 No Changes.......................................................................10
2.10 Tax and Other Returns and Reports................................................11
2.11 Restrictions on Business Activities..............................................13
2.12 Title to Properties; Absence of Liens and Encumbrances...........................13
2.13 Intellectual Property............................................................14
2.14 Agreements, Contracts and Commitments............................................17
2.15 Interested Party Transactions....................................................18
2.16 Compliance with Laws.............................................................19
2.17 Governmental Authorization.......................................................19
2.18 Litigation.......................................................................19
2.19 Insurance........................................................................19
2.20 Minute Books.....................................................................19
2.21 Environmental Matters............................................................20
2.22 Brokers' and Finders' Fees; Third Party Expenses.................................20
2.23 Employee Matters and Benefit Plans...............................................20
2.24 Member Loans.....................................................................24
2.25 No Interference or Conflict......................................................24
2.26 Complete Copies of Materials.....................................................24
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TABLE OF CONTENTS
(Continued)
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2.27 Year 2000 Compliance.............................................................24
2.28 Representations Complete.........................................................25
ARTICLE II A FURTHER REPRESENTATIONS AND WARRANTIES OF THE MAJORITY MEMBERS..................25
2A.1 Due Authorization................................................................25
2A.2 No Violation.....................................................................26
2A.3 No Consent Needed................................................................26
2A.4 Ownership of DBits Capital Stock.................................................26
2A.5 Tax Matters......................................................................26
2A.6 Absence of Claims by the Majority Member.........................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF FIRST VIRTUAL AND SUB..........................27
3.1 Organization, Standing and Power.................................................27
3.2 Authority........................................................................27
3.3 Capital Structure................................................................27
3.4 No Conflict......................................................................28
3.5 Consents.........................................................................28
3.6 SEC Documents; First Virtual Financial Statements................................28
3.7 No Material Adverse Change.......................................................29
3.8 Litigation.......................................................................29
3.9 Brokers' and Finders' Fees; Third Party Expenses.................................29
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...............................................29
4.1 Conduct of Business of DBits.....................................................29
4.2 No Solicitation..................................................................32
ARTICLE V ADDITIONAL AGREEMENTS..............................................................32
5.1 DBits Member Approval............................................................32
5.2 Sale of Shares...................................................................33
5.3 Access to Information............................................................33
5.4 Confidentiality..................................................................33
5.5 Expenses.........................................................................33
5.6 Public Disclosure................................................................33
5.7 Consents.........................................................................34
</TABLE>
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TABLE OF CONTENTS
(Continued)
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5.8 FIRPTA Compliance................................................................34
5.9 Reasonable Efforts...............................................................34
5.10 Notification of Certain Matters..................................................34
5.11 Limitation on Transfers by DBI L.L.C.............................................34
5.12 Additional Documents and Further Assurances......................................35
5.13 Nasdaq National Market Listing...................................................35
5.14 Operating Loans and Member Loans.................................................35
5.15 Intellectual Property Agreements.................................................36
5.16 Severance Agreements.............................................................36
5.17 First Virtual Exchange Act Filings...............................................36
ARTICLE VI CONDITIONS TO THE MERGER..........................................................36
6.1 Conditions to Obligations of Each Party to Effect the Merger.....................36
6.2 Additional Conditions to the Obligations of DBits and Members....................37
6.3 Additional Conditions to the Obligations of First Virtual and Sub................38
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION AND
ESCROW ARRANGEMENTS............................................................40
7.1 Survival of Representations and Warranties.......................................40
7.2 General Indemnification by the Members...........................................40
7.3 Indemnification by First Virtual and Surviving Corporation.......................41
7.4 Limitation and Expiration of Indemnification.....................................41
7.5 Indemnification Procedures.......................................................42
7.6 Escrow Arrangements..............................................................44
7.7 Member Representative............................................................49
7.8 Remedies Cumulative..............................................................50
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...............................................51
8.1 Termination......................................................................51
8.2 Effect of Termination............................................................52
8.3 Amendment........................................................................52
8.4 Extension; Waiver................................................................52
ARTICLE IX GENERAL PROVISIONS................................................................52
9.1 Notices..........................................................................52
9.2 Interpretation...................................................................53
</TABLE>
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TABLE OF CONTENTS
(Continued)
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9.3 Counterparts.....................................................................54
9.4 Entire Agreement; Assignment.....................................................54
9.5 Severability.....................................................................54
9.6 Other Remedies...................................................................54
9.7 Governing Law....................................................................54
9.8 Arbitration......................................................................54
9.9 Rules of Construction............................................................55
</TABLE>
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<PAGE> 6
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
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Exhibit A Form of Articles of Merger
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Employment Agreement
Exhibit D Form of Non-Competition Agreement
Exhibit E Form of Repurchase Agreement
Exhibit F [Intentionally Omitted]
Exhibit G Form of Legal Opinion of Counsel to First Virtual
Exhibit H Form of Legal Opinion of Counsel to DBits
Exhibit I Form of Member's Certificate
Exhibit J Form of $6.00 Warrant
Exhibit K Form of $8.00 Warrant
Exhibit L Form of Transmittal Letter
</TABLE>
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<PAGE> 7
INDEX OF DBITS DISCLOSURE LETTER SECTIONS
<TABLE>
<CAPTION>
SECTION DESCRIPTION
- ------- -----------
<S> <C>
1.7(a)(I) Interests in Merger Consideration without Cash Election
1.7(a)(II) Interests in Merger Consideration with Cash Election
1.7(b)(I) Conversion of DBits Options if no Cash Election
1.7(b)(II) Conversion of DBits Options if Cash Election
2.1 DBits' Manager and Officers
2.2(a) Company Members
2.2(b) Company Options
2.5 Conflicts
2.6 Consents
2A.3 Consents for Member Action
2.7 DBits Financial Statements
2A.7 Member Claims Against DBits
2.8 Undisclosed Liabilities
2.9 Changes
2.10 Tax Returns and Audits
2.11 Restrictions on Business Activities
2.12(a) Leased Real Property
2.12(b) Liens on Property
2.13 Intellectual Property
2.13(k) Employees and Consultants
2.14 Agreements, Contracts and Commitments
2.15 Interested Party Transactions
2.17 Governmental Authorization
2.18 Litigation
2.22 Brokers/Finders Fees; Expenses of Transaction
2.24 Employee Matters
2.27 Year 2000 Compliance
4.1(h) Amendments
4.1(l) Severance Pay
4.1(m) Existing Agreements or Plans
6.3(i) Operating Loan Repayment
</TABLE>
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<PAGE> 8
INDEX OF FIRST VIRTUAL DISCLOSURE LETTER SECTIONS
<TABLE>
<CAPTION>
SECTION DESCRIPTION
- ------- -----------
<S> <C>
3.1 Organization, Standing and Power
3.2 Authority
3.3(a) Capital Structure
3.7 Absence of Certain Changes
</TABLE>
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<PAGE> 9
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "AGREEMENT") is made and
entered into as of November 18, 1998 by and among First Virtual Holdings
Incorporated, a Delaware corporation ("FIRST VIRTUAL"), DB Acquisition Corp., an
Illinois corporation and a wholly-owned subsidiary of First Virtual ("SUB"),
Distributed Bits L.L.C., an Illinois limited liability company ("DBITS"), Derek
Scruggs and DBI L.L.C. (the "MAJORITY MEMBERS") and with respect to Article VII,
Richard Angell as the Member Representative and Chase Manhattan Bank and Trust
Company, National Association as Escrow Agent.
RECITALS
A. The Boards of Directors of each of First Virtual and Sub and the
Manager of DBits believe it is in the best interests of each company and their
respective stockholders and members that First Virtual acquire DBits through the
statutory merger of DBits with and into Sub (the "MERGER") and, in furtherance
thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding membership interests of DBits ("DBITS MEMBERSHIP INTERESTS") and all
outstanding options, warrants or other rights to acquire or receive DBits
Membership Interests shall be converted into the right to receive shares of
common stock, par value $0.001 per share, of First Virtual ("FIRST VIRTUAL
COMMON STOCK") and warrants to purchase shares of First Virtual Common Stock.
C. A portion of any cash consideration and of the shares of First
Virtual Common Stock otherwise issuable by First Virtual in connection with the
Merger shall be placed in escrow by First Virtual, the release of which amount
shall be contingent upon certain events and conditions.
D. DBits, the Majority Members, First Virtual and Sub desire to make
certain representations and warranties and other agreements in connection with
the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Illinois Business Corporation Act and the Illinois
Limited Liability Company Act ("ILLINOIS LAW"), DBits shall be merged with and
into Sub, the separate corporate existence of DBits shall cease, and Sub shall
continue as the surviving corporation and as a wholly-owned subsidiary of First
Virtual. Sub as the
<PAGE> 10
surviving corporation after the Merger is hereinafter sometimes referred to as
the "SURVIVING CORPORATION."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "CLOSING") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of First Virtual, 4104 Sorrento Valley Boulevard, Suite 200, San Diego,
California, unless another place or time is agreed to by First Virtual and
DBits. The date upon which the Closing actually occurs is herein referred to as
the "CLOSING DATE." On the Closing Date, the parties hereto shall cause the
Merger to be consummated by filing Articles of Merger in the form attached
hereto as EXHIBIT A (the "ARTICLES OF MERGER") with the Secretary of State of
Illinois in accordance with the relevant provisions of applicable law (the time
of acceptance by the Secretary of State of Illinois of such filing being
referred to herein as the "EFFECTIVE Time"). The parties currently intend that
the Closing Date will occur on or prior to December 15, 1998.
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Illinois Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
DBits and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of DBits and Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by First Virtual prior to the
Effective Time, at the Effective Time, the Articles of Incorporation of Sub
shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended as provided by law and such Articles of Incorporation.
(b) Unless otherwise determined by First Virtual, the Bylaws of
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation, each to
hold office in accordance with the Articles of Incorporation and Bylaws of the
Surviving Corporation. The officers of Sub immediately prior to the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the Bylaws of the Surviving Corporation.
1.6 Merger Consideration. First Virtual will issue First Virtual Common
Stock and warrants to purchase First Virtual Common Stock (the "MERGER
CONSIDERATION") in exchange for the acquisition by First Virtual of all
outstanding DBits Membership Interests and all unexpired and unexercised
options, warrants or other rights to acquire DBits Membership Interests. The
Merger Consideration will be as follows:
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<PAGE> 11
(a) Merger Shares. Subject to reduction as provided in the last
sentence of this paragraph (a), First Virtual shall issue a total of 1,350,000
shares of First Virtual Common Stock (the "MERGER SHARES") (including First
Virtual Common Stock to be reserved for issuance upon exercise of any of DBits'
options and warrants to be assumed by First Virtual) in partial exchange for the
acquisition by First Virtual of all outstanding DBits Membership Interests and
all unexpired and unexercised options, warrants or other rights to acquire DBits
Membership Interests. The number of Merger Shares to be issued is subject to
reduction to 1,150,000 upon the election of DBits' Members to receive cash in
lieu of 200,000 of the Merger Shares as described in Section 1.6(b).
(b) Cash Election. Upon written notice provided to First Virtual
at least three business days prior to the Closing Date and executed by DBits and
the Member Representative, DBits may elect (the "CASH ELECTION") to reduce the
number of Merger Shares by 200,000 and receive in lieu thereof cash
consideration in the amount of $250,000 (the "CASH CONSIDERATION"); which cash
election, if made, shall not reduce the number of Registrable Securities as
provided in the Registration Rights Agreement.
(c) Merger Warrants. In addition to the Merger Shares and any
Cash Consideration, First Virtual will issue warrants for the purchase of a
total of 500,000 shares of First Virtual Common Stock (the "MERGER WARRANTS")
which, together with the Merger Shares and any Cash Consideration, will be
exchanged for all outstanding DBits Membership Interests and all unexpired and
unexercised options, warrants or other rights to acquire DBits Membership
Interests. The Merger Warrants to be issued will consist of: (i) warrants in the
form attached hereto as EXHIBIT J for the purchase of 250,000 shares of First
Virtual Common Stock at an exercise price of $6.00 per share with exercise to
occur within thirty (30) months of the Closing Date (the "$6.00 WARRANTS"); and
(ii) warrants in the form attached hereto as EXHIBIT K for the purchase of
250,000 shares of First Virtual Common Stock at an exercise price of $8.00 per
share with exercise to occur within forty-two (42) months of the Closing Date
(the "$8.00 WARRANTS").
1.7 Effect of Merger on DBits Membership Interests. Subject to the terms
and conditions of this Agreement, as of the Effective Time, by virtue of the
Merger and without any action on the part of Sub, DBits or the holder of any
DBits Membership Interests (the "MEMBERS"), the following shall occur:
(a) Conversion of DBits Membership Interests. As of the Effective
Time, the Membership Interests of each of the Members of DBits shall be canceled
and extinguished and be converted automatically into the right to receive:
(i) that number of Merger Shares determined by multiplying
(A) the aggregate number of Merger Shares minus the product of the aggregate
number of Merger Shares times the percentage ownership interest in DBits
represented by the DBits Membership Interests issuable upon conversion or
exercise in full of all convertible securities, options, warrants or other
rights to acquire DBits Membership Interests that are outstanding immediately
prior to the Effective Time as set forth in SECTION 2.2(b) of the DBits
Disclosure Letter (defined in Article II), after giving effect to such
conversion or exercise (the "OPTION PERCENTAGES"), by (B) the percentage of
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<PAGE> 12
ownership interest for each Member as set forth in SECTION 2.2(a) of the DBits
Disclosure Letter (defined in Article II), as adjusted for any conversions or
option exercises occurring after the date of this Agreement but before the
Effective Time (the "MEMBERSHIP INTEREST PERCENTAGES"); plus
(ii) if the Cash Election is made, the amount of Cash
Consideration determined by multiplying (A) $200,000 by (B) the Membership
Interest Percentages.
(iii) that number of $6.00 Warrants determined by
multiplying (A) 250,000 by (B) the Membership Interest Percentages; plus
(iv) that number of $8.00 Warrants determined by multiplying
(A) 250,000 by (B) the Membership Interest Percentages.
(v) If none of the DBits Options (as defined in Section
1.7(b)) outstanding as of the date of this Agreement are exercised at or prior
to Closing, based on the foregoing equations, the Members shall be entitled to
receive the number of Merger Shares, $6.00 Warrants and $8.00 Warrants and the
amount of Cash Consideration as set forth in SECTION 1.7(a)(I) of the DBits
Disclosure Letter if the Cash Election is not made and as set forth in SECTION
1.7(a)(II) of the DBits Disclosure Letter if the Cash Election is made.
(b) DBits Stock Options. At the Effective Time, all options to
purchase DBits Membership Interests then outstanding shall be assumed by First
Virtual in accordance with provisions described below.
(i) Assumption of DBits Options. At the Effective Time, each
outstanding option to purchase DBits Membership Interests (each a "DBITS
OPTION") whether vested or unvested, shall be assumed by First Virtual, in
connection with the Merger. Each DBits Option so assumed by First Virtual under
this Agreement shall continue to have, and be subject to, the same terms and
conditions as provided in the respective option agreements and any applicable
stock option plans immediately prior to the Effective Time, except that (A) such
DBits Option shall be exercisable for that number of whole shares of First
Virtual Common Stock equal to the product of the aggregate number of Merger
Shares times the Option Percentages, and (B) the per share exercise price for
the shares of First Virtual Common Stock issuable upon exercise of such assumed
DBits Option shall be equal to the aggregate exercise price of the DBits Option
divided by the number of shares of First Virtual Common Stock issuable upon
exercise of such DBits Option, rounded to the nearest whole cent. If none of the
DBits Options outstanding as of the date of this Agreement are exercised at or
prior to Closing, the number of shares of First Virtual Common Stock and the
exercise price per share for each Option holder will be as set forth in SECTION
1.7(b)(I) of the DBits Disclosure Letter if the Cash Election is not made, and
as set forth in SECTION 1.7(b)(II) of the DBits Disclosure Letter if the Cash
Election is made.
(ii) Incentive Stock Options. It is the intention of the
parties that DBits Options assumed by First Virtual qualify following the
Effective Time as incentive stock options as
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<PAGE> 13
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE") to the extent DBits Options qualified as incentive stock options
immediately prior to the Effective Time.
(iii) Notice of Assumption. Promptly following the Effective
Time, First Virtual will issue to each holder of an outstanding DBits Option a
document evidencing the foregoing assumption of such DBits Option by First
Virtual.
(c) Interests of Sub. Each share of Common Stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and exchanged for one validly issued, fully paid and nonassessable share of
Common Stock of the Surviving Corporation. Each stock certificate of Sub
evidencing ownership of any such shares shall continue to evidence ownership of
such shares of Interests of the Surviving Corporation.
(d) Adjustments. The number of Merger Shares, $6.00 Warrants and
$8.00 Warrants and the amount of any Cash Consideration issuable or payable to a
Member shall each be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into First Virtual Common Stock or DBits Membership
Interests), reorganization, recapitalization or other like change with respect
to First Virtual Common Stock or DBits Membership Interests occurring after the
date hereof and prior to the Effective Time.
(e) Fractional Shares. No fractional share of First Virtual
Common Stock, or $6.00 Warrant, or $8.00 Warrant to purchase a fractional share
shall be issued in the Merger. Any fractional share or fractional warrant shall
be eliminated, provided however, that the number of whole Merger Shares, $6.00
Warrants and $8.00 Warrants eliminated due to rounding shall be reallocated to
Members or holders of DBits Options as necessary so that the aggregate number of
Merger Shares, $6.00 Warrants and $8.00 Warrants shall equal the total Merger
Consideration.
(f) Name Change. It is anticipated that the stockholders of First
Virtual will approve a change in First Virtual's name from First Virtual to
MessageMedia, Inc. prior to the Effective Date. If the name change is approved,
the Merger Shares, $6.00 Warrants and $8.00 Warrants to be issued in connection
with the Merger will be issued under the name MessageMedia, Inc.
1.8 Escrow Fund. As soon as practicable after the Effective Time, First
Virtual shall cause to be distributed to Chase Manhattan Bank and Trust Company,
National Association as escrow agent (the "ESCROW AGENT") a certificate or
certificates representing that number of shares of First Virtual Common Stock
equal to the 20% of the Merger Shares which shall be registered in the name of
the Escrow Agent and 20% of the Cash Consideration in the event of a Cash
Election (the "ESCROW AMOUNT") all held pursuant to the terms set forth in
Article VII of this Agreement. The portion of the Escrow Amount contributed on
behalf of each Member shall be in proportion to the aggregate number of Merger
Shares and the amount of any Cash Consideration which such Member would
otherwise be entitled to receive in the Merger by virtue of ownership of DBits
Membership Interests. The shares and any cash deposited in the escrow fund
established pursuant to Article VII (the "ESCROW FUND") shall be beneficially
owned by the holders on whose behalf such shares were
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<PAGE> 14
deposited in the Escrow Fund in accordance with the terms of Article VII and
shall be available to compensate First Virtual for certain damages as provided
in Article VII.
1.9 Surrender of DBits Membership Interests. Each Member shall deliver
at the Closing a letter of transmittal in the form attached hereto as EXHIBIT L
(the "TRANSMITTAL LETTER") properly executed by the Member which: (i) shall
evidence the surrender of all such Member's DBits Membership Interests in
exchange for the Merger Consideration, and (ii) instructions for receiving the
Merger Consideration. Immediately following the Effective Time, First Virtual
shall deliver to each Member certificates representing the number of whole
shares of First Virtual Common Stock, $6.00 Warrants, and $8.00 Warrants (less
the number of shares of First Virtual Common Stock to be deposited in the Escrow
Fund on such holder's behalf pursuant to Article VII hereof) to which such
Member is entitled pursuant to Section 1.7, and the DBits Membership Interests
so surrendered shall forthwith be canceled. Until surrendered to First Virtual
pursuant to a Transmittal Letter, any outstanding DBits Membership Interests
will be deemed from and after the Effective Time, for all corporate purposes, to
evidence only the right to receive Merger Consideration in accordance with
Section 1.7.
(a) Transfers of Ownership. If any certificate for shares of
First Virtual Common Stock, or $6.00 Warrant, or $8.00 Warrant is to be issued
in a name other than that in which the DBits Membership Interests surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the DBits Membership Interests so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to First Virtual or any agent designated by it any
transfer or other taxes required by reason of the issuance of a certificate for
shares of First Virtual Common Stock in any name other than that of the
registered holder of the DBits Membership Interests surrendered.
(b) Lost, Stolen or Destroyed Certificates. Not applicable.
(c) No Liability. Notwithstanding anything to the contrary in
this Section 1.9, neither the Surviving Corporation nor any party hereto shall
be liable to a holder of shares of First Virtual Common Stock or DBits
Membership Interests for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.10 No Further Ownership Rights in DBits Membership Interests. The
shares of First Virtual Common Stock, $6.00 Warrants and $8.00 Warrants and any
Cash Consideration issued upon the surrender for exchange of DBits Membership
Interests in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to such DBits Membership
Interests, and there shall be no further registration of transfers on the
records of the Surviving Corporation of DBits Membership Interests which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, DBits Membership Interests are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
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<PAGE> 15
1.11 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of DBits and Sub, the officers and directors of DBits and
Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF DBITS AND MAJORITY MEMBERS
DBits and the Majority Members hereby, jointly and severally, represent
and warrant to First Virtual and Sub, subject to such exceptions as are
specifically disclosed in the disclosure letter (referencing the appropriate
section number) supplied by DBits and Majority Members to First Virtual (the
"DBITS DISCLOSURE LETTER") and dated as of the date hereof, as follows:
2.1 Organization of DBits. DBits is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Illinois. DBits has the power to own its properties and to carry on its business
as now being conducted. DBits is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of DBits (hereinafter referred to
as a "MATERIAL ADVERSE EFFECT"). DBits has delivered a true and correct copy of
its Articles of Organization and Operating Agreement, each as amended to date,
to First Virtual. SECTION 2.1 of the DBits Disclosure Letter lists the Manager
and officers of DBits.
2.2 DBits Capital Structure.
(a) The ownership of DBits consists of DBits Membership Interests
as set forth in SECTION 2.2(a) of the DBits Disclosure Letter all of which are
issued and outstanding. There are no other classes or series of ownership
interests of DBits of any kind outstanding or issuable. All holders of
outstanding DBits Membership Interests (the "MEMBERS"), together with their
domicile addresses and the number of membership interests held by such persons,
are set forth in SECTION 2.2(a) of the DBits Disclosure Letter. All outstanding
DBits Membership Interests are duly authorized, validly issued, fully paid and
non-assessable and, except as provided in the Operating Agreement, are not
subject to preemptive rights created by statute, the Articles of Organization or
Operating Agreement of DBits or any agreement to which DBits is a party or by
which it is bound and have been issued in compliance with federal and state
securities laws. DBits has no other DBits Membership Interests authorized,
issued or outstanding.
(b) DBits has reserved and authorized for issuance Membership
Interests representing 20% ownership of DBits for issuance to employees and
consultants pursuant to its Unit Option Plan
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<PAGE> 16
(the "OPTION PLAN"), of which 3.31 percent are subject to outstanding,
unexercised options and 16.69 percent remain available for future grant. DBits
has not reserved or authorized the issuance of any DBits Membership Interests
upon exercise of outstanding DBits Options granted outside the Option Plan.
SECTION 2.2(b) of the DBits Disclosure Letter sets forth for each outstanding
DBits Option, the name of the holder of such option, the domicile address of
such holder, the percentage of DBits Membership Interests subject to such DBits
Option, the exercise price of such DBits Option and the vesting schedule for
such DBits Option, including the extent vested to date and whether the
exercisability of such DBits Option will be accelerated and become exercisable
by reason of the transactions contemplated by this Agreement. Except for DBits
Options described in SECTION 2.2(b) of the DBits Disclosure Letter, there are no
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which DBits is a party or by which it is bound obligating
DBits to issue, deliver, sell, repurchase or redeem, or cause to be issued,
delivered, sold, repurchased or redeemed, any DBits Membership Interests or
obligating DBits to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. The holders of DBits Options have been or will be
given, or shall have properly waived, any required notice prior to the Merger,
and all such rights will be terminated at or prior to the Effective Time except
to the extent assumed by First Virtual pursuant to Section 1.7(b) hereof. As a
result of the Merger, First Virtual will be the record and sole beneficial owner
of all DBits Membership Interests and rights to acquire or receive such DBits
Membership Interests whether or not such DBits Membership Interests are
outstanding.
2.3 Subsidiaries. DBits does not have and has never had any subsidiaries
or affiliated companies and does not otherwise own and has never otherwise owned
any shares of Interests or any interest in, or control, directly or indirectly,
any other corporation, partnership, association, joint venture or other business
entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by DBits' Members, DBits has all requisite power and authority to
enter into this Agreement and any Related Agreement (as hereinafter defined) to
which it is a party and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and all Related Agreements
to which DBits is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the part
of DBits, subject only to the approval of the Merger by DBits' Members and no
further action is required on the part of DBits to authorize this Agreement and
any Related Agreements to which DBits is a party or the transactions
contemplated hereby or thereby. DBits' Manager has approved the Merger and this
Agreement in accordance with the DBits Operating Agreement. This Agreement and
all Related Agreements to which it is a party have been duly executed and
delivered by DBits and constitute valid and binding obligations of DBits,
enforceable in accordance with their terms. The "RELATED AGREEMENTS" shall mean
all such ancillary agreements required in this Agreement to be executed and
delivered in connection with the transactions contemplated hereby, including the
Registration Rights Agreement, the Employment Agreement, the Non-Competition
Agreement and the Repurchase Agreement.
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<PAGE> 17
2.5 No Conflict. Except as set forth in SECTION 2.5 of the DBits
Disclosure Letter, the execution and delivery of this Agreement by DBits does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "CONFLICT") (i) any provision of
the Articles of Organization or Operating Agreement of DBits or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to DBits or its properties or assets
other than Conflicts that shall have been waived in writing by First Virtual
prior to the Effective Time, except for such Conflicts as would not reasonably
be expected to have a Material Adverse Effect on DBits.
2.6 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict) is required by or with respect
to DBits in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Articles of Merger with the Secretary of State of Illinois, (ii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) such other consents, waivers, authorizations, filings,
approvals and registrations which are set forth in SECTION 2.6 of the DBits
Disclosure Letter and (iv) consents, waivers, approvals, orders or
authorizations of, registrations, declarations or filings, the absence of which
would not reasonably be expected to have a Material Adverse Effect on DBits.
2.7 DBits Financial Statements. SECTION 2.7 of the DBits Disclosure
Letter sets forth the following financial statements (collectively, the "DBITS
FINANCIALS") of DBits: (i) the DBits audited balance sheets as of December 31,
1996 and December 31, 1997 and the related audited statements of operations and
cash flows for the period from September 6, 1996 (inception) through December
31, 1996 and the twelve-month period ended December 31, 1997 and (ii) the DBits
unaudited balance sheet as of September 30, 1998 (the "CURRENT BALANCE SHEET")
and the unaudited statements of operations and cash flows for the nine (9)
months then ended (which unaudited financial statements are collectively called
the "UNAUDITED STATEMENTS"). The DBits Financials have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
basis consistent throughout the periods indicated and present fairly the
financial condition, operating results and cash flows of DBits as of the dates
and during the periods indicated therein, subject to normal year-end
adjustments; provided, however, that the Unaudited Statements lack footnotes and
certain other presentation items. As of the Closing Date, none of the payable
accounts of DBits will have been outstanding for more than thirty (30) days.
2.8 No Undisclosed Liabilities. Except as set forth in SECTION 2.8 of
the DBits Disclosure Letter, DBits does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (whether or
not required to be reflected in financial statements in accordance with GAAP),
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<PAGE> 18
which individually or in the aggregate, (i) has not been reflected in the DBits
Financials or (ii) has not arisen in the ordinary course of DBits' business
since the date of the Current Balance Sheet, consistent with past practices.
2.9 No Changes. Except as set forth in SECTION 2.9 of the DBits
Disclosure Letter, since the date of the Current Balance Sheet, there has not
been, occurred or arisen any:
(a) transaction by DBits except in the ordinary course of
business as conducted on the date of the Current Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Articles of Organization or
Operating Agreement of DBits;
(c) capital expenditure or commitment by DBits, either
individually or in the aggregate, exceeding $5,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of DBits (whether or not covered by insurance);
(e) labor trouble or claim of wrongful discharge or other
unlawful labor practice or action;
(f) change in accounting methods or practices (including any
change in depreciation or amortization policies or rates) by DBits;
(g) revaluation by DBits of any of its assets;
(h) declaration, setting aside or payment of a dividend or other
distribution with respect to the membership interests of DBits, or any direct or
indirect redemption, purchase or other acquisition by DBits of any of its
membership interests;
(i) increase in the salary or other compensation payable or to
become payable to any of its officers, directors, employees or advisors, or the
declaration, payment or commitment or obligation of any kind for the payment of
a bonus or other additional salary or compensation to any such person except as
otherwise contemplated by this Agreement;
(j) any agreement, contract, lease or commitment (collectively a
"DBITS AGREEMENT") or any extension or modification of the terms of any DBits
Agreement which (i) involves the payment of greater than $5,000 per annum or
which extends for more than one (1) year, (ii) involves any payment or
obligation to any affiliate of DBits or any Subsidiary, or (iii) involves the
sale of any material assets;
(k) sale, lease, license or other disposition of any of the
assets or properties of DBits, except in the ordinary course of business as
conducted on that date and consistent with past practices;
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(l) amendment or termination of any material contract, agreement
or license to which DBits is a party or by which it is bound;
(m) loan by DBits to any person or entity, incurring by DBits of
any indebtedness, guaranteeing by DBits of any indebtedness, issuance or sale of
any debt securities of DBits or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(n) waiver or release of any right or claim of DBits, including
any write-off or other compromise of any account receivable of DBits;
(o) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of DBits or its affairs;
(p) notice of any claim of ownership by a third party of DBits'
Intellectual Property (as defined in Section 2.13) or of infringement by DBits
of any third party's Intellectual Property rights;
(q) issuance or sale by DBits of any of its membership interests,
or securities exchangeable, convertible or exercisable therefor, or of any other
of its securities;
(r) change in pricing or royalties set or charged by DBits to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed Intellectual Property to DBits;
(s) event or condition of any character that has or could be
reasonably expected to have a Material Adverse Effect on DBits; or
(t) negotiation or agreement by DBits or any officer or employees
thereof to do any of the things described in the preceding clauses (a) through
(s) (other than negotiations with First Virtual and its representatives
regarding the transactions contemplated by this Agreement).
2.10 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"TAX" or, collectively, "TAXES", means (i) any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts; (ii) any liability for the payment of any amounts of
the type described in clause (i) as a result of being a member of an affiliated,
consolidated, combined or unitary group for any period; and (iii) any liability
for the payment of any amounts of the type described in clause (i) or (ii) as a
result of any express or implied obligation to indemnify any other person or as
a result of any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
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(b) Tax Returns and Audits. Except as set forth in SECTION 2.10
of the DBits Disclosure Letter:
(i) DBits as of the Effective Time will have prepared and
timely filed or made a timely request for extension for all and filed all
required federal, state, local and foreign returns, estimates, information
statements and reports ("RETURNS") relating to any and all Taxes concerning or
attributable to DBits or its operations and such Returns are true and correct
and have been completed in accordance with applicable law.
(ii) DBits as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue as shown on the Returns and
(B) will have withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld.
(iii) DBits has not been delinquent in the payment of any
Tax nor is there any Tax deficiency outstanding, proposed or assessed against
DBits, nor has DBits executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of DBits is
currently in progress, nor has DBits been notified of any request for such an
audit or other examination.
(v) DBits does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and DBits has no knowledge of any basis for the
assertion of any such liability attributable to DBits, its assets or operations.
(vi) DBits has provided to First Virtual copies of all
federal and state income and all state sales and use Tax Returns for all periods
since the date of its inception.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS") on the assets of DBits
relating to or attributable to Taxes.
(viii) Neither DBits nor any Majority Member has knowledge
of any basis for the assertion of any claim relating or attributable to Taxes
which, if adversely determined, would result in any Lien on the assets of DBits.
(ix) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of DBits
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible by DBits as an expense under applicable law.
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(x) DBits has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by DBits.
(xi) DBits is not a party to a tax sharing or allocation
agreement nor does DBits owe any amount under any such agreement.
(xii) DBits is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiii) DBits' tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on DBits' tax books and records.
(xiv) DBits is an accrual basis taxpayer and its tax basis
and its assets for purposes of determining its future amortization, depreciation
and other federal income tax deductions is accurately reflected on DBits' tax
books and records.
(c) Executive Compensation Tax. DBits does not have, or will not
have as a result of the transactions contemplated by this Agreement, any
liabilities for Taxes (for example under Section 280G of the Code) as a result
of the amount of remuneration paid or to be paid to its employees.
2.11 Restrictions on Business Activities. There is no agreement
(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which DBits is a party or otherwise binding upon DBits which has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of DBits, any acquisition of property (tangible or intangible) by DBits
or the conduct of business by DBits. Without limiting the foregoing, DBits has
not entered into any agreement under which DBits is restricted from selling,
licensing or otherwise distributing any of its products to any class of
customers, in any geographic area, during any period of time or in any segment
of the market.
2.12 Title to Properties; Absence of Liens and Encumbrances.
(a) DBits owns no real property, nor has it ever owned any real
property. SECTION 2.12(a) of the DBits Disclosure Letter sets forth a list of
all real property currently, or at any time in the past, leased by DBits, the
name of the lessor, the date of the lease and each amendment thereto and, with
respect to any current lease, the aggregate annual rental and/or other fees
payable under any such lease. All such current leases are in full force and
effect, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any existing default or event of default
(or event which with notice or lapse of time, or both, would constitute a
default).
(b) DBits has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or
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held for use in its business, free and clear of any Liens (as defined in Section
2.10(b)(vii)), except as reflected in SECTION 2.12(b) of the DBits Disclosure
Letter and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have
the following definitions:
"INTELLECTUAL PROPERTY" shall mean any or all of the following
and all rights in, arising out of, or associated therewith anywhere in the
world: (i) all United States, international and foreign patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyrights registrations and applications therefor; (iv) all
industrial designs and any registrations and applications therefor throughout
the world; (v) all trade names, logos, common law trademarks and service marks;
trademark and service mark registrations and applications therefor and all
goodwill associated therewith throughout the world; (vi) all databases and data
collections and all rights therein throughout the world; and (vii) all computer
software including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is recorded,
(viii) any similar, corresponding or equivalent rights to any of the foregoing
and (ix) all documentation related to any of the foregoing.
"DBITS INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that is owned by, or exclusively licensed to, DBits.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; and (iv) any other DBits Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued by, filed with, or recorded by, any state, government or other
public legal authority.
(b) SECTION 2.13(b) of the DBits Disclosure Letter lists all
Registered Intellectual Property owned by, or filed in the name of, DBits (the
"DBITS REGISTERED INTELLECTUAL PROPERTY"), and lists any proceedings or actions
before any court, tribunal (including the United States Patent and Trademark
Office (the "PTO") or equivalent authority anywhere in the world) related to any
of DBits Registered Intellectual Property Rights.
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(c) DBits (i) owns and has good and exclusive title to each item
of DBits Intellectual Property, including all DBits Registered Intellectual
Property listed in SECTION 2.13(b) of the DBits Disclosure Letter, free and
clear of any Liens, (ii) is the exclusive owner of all trademarks and trade
names used in connection with the operation or conduct of the business of DBits,
including the sale of any products or the provision of any services by DBits and
(iii) owns exclusively, and has good title to, all copyrighted works that are
DBits products or other works of authorship that DBits otherwise purports to
own.
(d) To the extent that any Intellectual Property has been
developed or created by a third party for, or at the direct or indirect expense
of, DBits, DBits has a written agreement with such third party with respect
thereto and DBits thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property by operation of law or by valid assignment.
(e) Except as set forth on SECTION 2.13(e) of the DBits
Disclosure Letter, DBits has not transferred ownership of, or granted any
license of or right to use or authorized the retention of any rights to use, any
Intellectual Property that is or was DBits Intellectual Property, to any third
party.
(f) To the knowledge of DBits and the Majority Members, the
operation of the business of DBits as it currently is conducted, including but
not limited to, to the extent applicable, DBits' design, development,
manufacture, use and sale of the products, technology (including products or
technology currently under development) or services of DBits, does not infringe
or misappropriate the Intellectual Property of any other person, violate the
rights of any person (including rights to privacy or publicity), or constitute
unfair competition or trade practices under the laws of any jurisdiction. DBits
has not received notice from any person claiming that such operation or any act,
product or service of DBits infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade practices
under the laws of any jurisdiction.
(g) Except as set forth in SECTION 2.13(g) of the DBits
Disclosure Letter, DBits owns or has the right to all Intellectual Property
necessary to the conduct of its business as it is currently conducted or is
reasonably contemplated to be conducted, including, without limitation, the
design, development, manufacture, use and sale of all products and technology
currently manufactured or sold by DBits or under development by DBits and the
performance of all services provided or contemplated to be provided by DBits.
(h) Each item of DBits Registered Intellectual Property is valid
and subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such DBits Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property. SECTION 2.13(h) of the DBits Disclosure Letter lists all actions that
must be taken by DBits within sixty (60) days of the Closing Date, including the
payment of any registration, maintenance or renewal fees or the filing of any
documents, applications or certificates for the purposes of maintaining,
perfecting or preserving or
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renewing any DBits Intellectual Property. In each case in which DBits has
acquired any Intellectual Property rights from a third party (other than by
license), DBits has obtained a valid and enforceable assignment sufficient to
irrevocably transfer all rights in such Intellectual Property (including the
right to seek past and future damages with respect to such Intellectual
Property) to DBits and, to the maximum extent provided for by, and in accordance
with, applicable laws and regulations, DBits has recorded each such assignment
with the relevant governmental authorities, including the PTO, the U.S.
Copyright Office, or their respective equivalents in any relevant foreign
jurisdiction, as the case may be.
(i) Except as set forth in SECTION 2.13(i) of the DBits
Disclosure Letter, there are no contracts, licenses or agreements between DBits
and any other person with respect to DBits Intellectual Property under which
there is any dispute known to DBits or any Majority Member regarding the scope
of such agreement, or performance under such agreement including with respect to
any payments to be made or received by DBits thereunder.
(j) Except as set forth on SECTION 2.13(j) of the DBits
Disclosure Letter, to the knowledge of DBits and the Majority Members, no person
is infringing or misappropriating any of DBits Intellectual Property.
(k) Except as set forth in SECTION 2.13(k) of the DBits
Disclosure Letter, DBits has taken all reasonable steps that are required to
protect DBits' rights in confidential information and trade secrets of DBits or
provided by any third party to DBits. Without limiting the foregoing, DBits has,
and enforces, a policy requiring each employee, consultant and contractor to
execute proprietary information and confidentiality and assignment agreements
substantially in DBits' standard forms and all current and former employees,
consultants and contractors of DBits have executed such agreements. SECTION
2.13(k) of the DBits Disclosure Letter contains a schedule providing the
following information for all of DBits' current and former employees,
consultants and contractors (broken down by category (employee, consultant and
contractor)): name, dates of service, and brief description of the tasks
performed and projects they worked on during their period of service.
(l) Except as set forth in SECTION 2.13(l) of the DBits
Disclosure Letter, there are no proceedings or actions before any court,
tribunal (including the PTO or equivalent authority anywhere in the world)
related to any DBits Intellectual Property.
(m) Except as set forth in SECTION 2.13(m) of the DBits
Disclosure Letter, no DBits Intellectual Property or product, technology or
service of DBits is subject to any proceeding or outstanding decree, order,
judgment, agreement or stipulation that restricts in any manner the use,
transfer or licensing thereof by DBits or may affect the validity, use or
enforceability of such DBits Intellectual Property.
(n) No (i) product, service or publication of DBits, (ii)
material published or distributed by DBits or (iii) conduct or statement of
DBits, constitutes obscene material, a defamatory statement or material, false
advertising or otherwise violates any law or regulation.
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2.14 Agreements, Contracts and Commitments.
(a) Except as set forth on SECTION 2.14(a) of the DBits
Disclosure Letter, DBits does not have, is not a party to nor is it bound by:
(i) any contract, license or agreement to which DBits is a
party (A) with respect to DBits Intellectual Property licensed or transferred to
any third party or (B) pursuant to which a third party has licensed or
transferred any Intellectual Property to DBits, with a potential value or cost
in excess of $5,000;
(ii) any collective bargaining agreements,
(iii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations,
(iv) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements,
(v) any employment or consulting agreement, contract or
commitment with an employee or individual consultant or salesperson or any
material consulting or sales agreement, contract or commitment under which any
firm or other organization provides services to DBits,
(vi) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement,
(vii) any fidelity or surety bond or completion bond,
(viii) any lease of personal property having a value
individually in excess of $5,000,
(ix) any contract, license or agreement between DBits and
any third party wherein or whereby DBits has agreed to, or assumed, any
obligation or duty to warrant, indemnify, hold harmless or otherwise assume or
incur any obligation or liability with respect to the infringement or
misappropriation by DBits or such third party of the Intellectual Property of
any third party;
(x) any agreement of indemnification or guaranty,
(xi) any agreement, contract or commitment containing any
covenant limiting the freedom of DBits to engage in any line of business or to
compete with any person,
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(xii) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $5,000,
(xiii) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of DBits' business,
(xiv) any mortgages, indentures, loans or credit agreements,
security agreements or other agreements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof,
(xv) any purchase order or contract for the purchase of raw
materials involving $5,000 or more,
(xvi) any construction contracts,
(xvii) any distribution, joint marketing or development
agreement,
(xviii) any other agreement, contract or commitment that
involves $5,000 or more or is not cancelable without penalty within thirty (30)
days.
(b) Except as set forth in SECTION 2.14(b) of the DBits
Disclosure Letter, DBits is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract, license or
commitment listed or required to be listed in SECTION 2.14(a) of the DBits
Disclosure Letter (a "CONTRACT"), and neither DBits nor the Majority Members are
aware of any event that would constitute such a breach, violation or default
with the lapse of time, giving of notice or both. Each Contract is in full force
and effect and, to the knowledge of the DBits and the Majority Members, except
as otherwise disclosed in SECTION 2.14(b) of the DBits Disclosure Letter, all
other parties to each Contract are in compliance with, and have not breached any
term of, such Contract. DBits has obtained, or will obtain prior to the Closing
Date, all necessary consents, waivers and approvals of parties to any Contract
as are required thereunder in connection with the Merger or to remain in effect
without modification after the Closing. Following the Effective Time, DBits will
be permitted to exercise all of DBits' rights under the Contracts to the same
extent DBits would have been able to had the Merger not occurred and without the
payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which DBits would otherwise be required to pay.
2.15 Interested Party Transactions. Except as set forth on SECTION 2.15
of the DBits Disclosure Letter, no officer, director or stockholder of DBits
(nor any ancestor, sibling, descendant or spouse of any of such persons, or any
trust, partnership or corporation in which any of such persons has or has had an
interest), has or has had, directly or indirectly, (i) an economic interest in
any entity which furnished or sold, or furnishes or sells, services or products
that DBits furnishes or sells, or proposes to furnish or sell, (ii) an economic
interest in any entity that purchases from or sells or furnishes to, DBits, any
goods or services or (iii) a beneficial interest in any contract or agreement
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set forth in any Contract; provided, however, that ownership of no more than one
percent (1%) of the outstanding voting stock of a publicly traded corporation
and no more than 5% of the outstanding equity of any other entity shall not be
deemed an "economic interest in any entity" for purposes of this Section 2.15.
2.16 Compliance with Laws. DBits has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any foreign, federal, state or local statute, law or
regulation.
2.17 Governmental Authorization. SECTION 2.17 of the DBits Disclosure
Letter accurately lists each consent, license, permit, grant or other
authorization issued to DBits by a governmental entity (i) pursuant to which
DBits currently operates or holds any interest in any of its properties or (ii)
which is required for the operation of its business or the holding of any such
interest (herein collectively called "DBITS AUTHORIZATIONS"). DBits
Authorizations are in full force and effect and constitute all DBits
Authorizations required to permit DBits to operate or conduct its business or
hold any interest in its properties or assets.
2.18 Litigation. There is no action, suit or proceeding of any nature
pending or to DBits' knowledge threatened against DBits, its properties or any
of its officers or directors, in their respective capacities as such nor, to the
knowledge of DBits and the Majority Members, is there any reasonable basis
therefor. Except as set forth in SECTION 2.18 of the DBits Disclosure Letter, to
DBits' knowledge, there is no investigation pending or threatened against DBits,
its properties or any of its officers or directors by or before any governmental
entity. SECTION 2.18 of the DBits Disclosure Letter sets forth, with respect to
any pending or threatened action, suit, proceeding or investigation, the forum,
the parties thereto, the subject matter thereof and the amount of damages
claimed or other remedy requested. No governmental entity has at any time
challenged or questioned the legal right of DBits to conduct its operations as
presently or previously conducted.
2.19 Insurance. DBits maintains commercial and general liability
insurance policies of a nature and in amounts customary and sufficient for
similarly situated businesses. With respect to the insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of DBits, there is no claim by DBits pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and DBits is
otherwise in material compliance with the terms of such policies and bonds (or
other policies and bonds providing substantially similar insurance coverage).
DBits has no knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.20 Minute Books. The minute books of DBits and its predecessor
companies made available to counsel for First Virtual are the only minute books
of DBits and contain a reasonably accurate summary of all meetings of members
(or committees thereof) and the Manager or actions by written consent since the
time of organization of DBits and its predecessor companies.
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2.21 Environmental Matters.
(a) Hazardous Material. DBits has not operated any underground
storage tanks, and has no knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that
DBits has at any time owned, operated, occupied or leased. DBits has not
released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended,
and the regulations promulgated pursuant to said laws, (a "HAZARDOUS MATERIAL").
No Hazardous Materials are present as a result of the actions or omissions of
DBits, or, to DBits' knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof, that DBits has at any time
owned, operated, occupied or leased.
(b) Hazardous Materials Activities. DBits has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has DBits disposed of, transported, sold, or manufactured
any product containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "HAZARDOUS MATERIALS ACTIVITIES") in violation of
any rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. DBits currently holds all environmental approvals,
permits, licenses, clearances and consents (the "ENVIRONMENTAL PERMITS")
necessary for the conduct of DBits' Hazardous Material Activities and other
businesses of DBits as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to
DBits' knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of DBits. DBits is not aware of any
fact or circumstance which could involve DBits in any environmental litigation
or impose upon DBits any environmental liability.
2.22 Brokers' and Finders' Fees; Third Party Expenses. Except as set
forth on SECTION 2.22 of the DBits Disclosure Letter, DBits has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
2.23 Employee Matters and Benefit Plans.
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(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.23(a)(i) below (which definition shall apply
only to this Section 2.23), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other person or entity under
common control with DBits within the meaning of Section 414(b), (c), (m) or (o)
of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "DBITS EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan",
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by DBits or any Affiliate for
the benefit of any "Employee" (as defined below), and pursuant to which DBits or
any Affiliate has or may have any material liability contingent or otherwise;
(iv) "EMPLOYEE" shall mean any current, former, or retired
employee, officer, or director of DBits or any Affiliate;
(v) "EMPLOYEE AGREEMENT" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or similar agreement or contract between DBits or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as
defined below) which is a "multiemployer plan", as defined in Section 3(37) of
ERISA; and
(viii) "PENSION PLAN" shall refer to each DBits Employee
Plan which is an "employee pension benefit plan", within the meaning of Section
3(2) of ERISA.
(b) Schedule. SECTION 2.23(b) of the DBits Disclosure Letter
contains an accurate and complete list of each DBits Employee Plan and each
Employee Agreement, together with a schedule of all liabilities, whether or not
accrued, under each such DBits Employee Plan or Employee Agreement. DBits does
not have any plan or commitment, whether legally binding or not, to establish
any new DBits Employee Plan or Employee Agreement, to modify any DBits Employee
Plan or Employee Agreement (except to the extent required by law or to conform
any such DBits Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to First Virtual in
writing, or as required by this Agreement), or to enter into
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any DBits Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. DBits has provided to First Virtual (i) correct
and complete copies of all documents embodying or relating to each DBits
Employee Plan and each Employee Agreement including all amendments thereto and
written interpretations thereof; (ii) the most recent annual actuarial
valuations, if any, prepared for each DBits Employee Plan; (iii) the three most
recent annual reports (Series 5500 and all schedules thereto), if any, required
under ERISA or the Code in connection with each DBits Employee Plan or related
trust; (iv) if DBits Employee Plan is funded, the most recent annual and
periodic accounting of DBits Employee Plan assets; (v) the most recent summary
plan description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each DBits Employee
Plan; (vi) all IRS determination letters and rulings relating to DBits Employee
Plans and copies of all applications and correspondence to or from the IRS or
the Department of Labor ("DOL") with respect to any DBits Employee Plan; (vii)
all communications material to any Employee or Employees relating to any DBits
Employee Plan and any proposed DBits Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to DBits; and (viii) all registration
statements and prospectuses prepared in connection with each DBits Employee
Plan.
(d) Employee Plan Compliance. Except as set forth in SECTION
2.23(d) of the DBits Disclosure Letter, (i) DBits has performed in all material
respects all obligations required to be performed by it under each DBits
Employee Plan, and each DBits Employee Plan has been established and maintained
in all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and regulations, including but not
limited to ERISA or the Code; (ii) no "prohibited transaction", within the
meaning of Section 4975 of the Code or Section 406 of ERISA, has occurred with
respect to any DBits Employee Plan; (iii) there are no actions, suits or claims
pending, or, to the knowledge of DBits, threatened or anticipated (other than
routine claims for benefits) against any DBits Employee Plan or against the
assets of any DBits Employee Plan; and (iv) each DBits Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to DBits, First Virtual or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are no inquiries or proceedings pending or,
to the knowledge of DBits or any affiliates, threatened by the IRS or DOL with
respect to any DBits Employee Plan; and (vi) neither DBits nor any Affiliate is
subject to any penalty or tax with respect to any DBits Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. DBits does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has DBits contributed to or
been requested to contribute to any Multiemployer Plan.
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(g) No Post-Employment Obligations. Except as set forth in
SECTION 2.23(g) of the DBits Disclosure Letter, no DBits Employee Plan provides,
or has any liability to provide, life insurance, medical or other employee
benefits to any Employee upon his or her retirement or termination of employment
for any reason, except as may be required by statute, and DBits has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) Effect of Transaction.
(i) Except as set forth in SECTION 2.23(h)(i) of the DBits
Disclosure Letter, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any DBits
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth in SECTION 2.23(h)(ii) of the DBits
Disclosure Letter, no payment or benefit which will or may be made by DBits or
First Virtual or any of their respective affiliates with respect to any Employee
will be characterized as an "excess parachute payment", within the meaning of
Section 280G(b)(1) of the Code.
(i) Employment Matters. Except as set forth in SECTION 2.23(i) of
the Disclosure Letter, DBits (i) is in compliance in all material respects with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
all amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears of
wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against DBits is
pending or, to the knowledge of DBits and the Majority Members, threatened.
Except as set forth in SECTION 2.23(j) of the DBits Disclosure Letter, DBits is
not involved in or, to the knowledge of DBits and the Majority Members,
threatened with, any labor dispute, grievance, or litigation relating to labor,
safety or discrimination matters involving any Employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in material liability to DBits. Neither DBits nor any of its subsidiaries has
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act which would, individually or in the aggregate, directly or
indirectly result in a material liability to DBits. Except as set forth in
SECTION 2.23(j) of the DBits Disclosure Letter, DBits is not presently, nor has
it
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been in the past, a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no collective bargaining
agreement is being negotiated by DBits.
(k) No COBRA Violation. To the knowledge of DBits and the
Majority Members neither DBits nor any Affiliate has, prior to the Effective
Time and in any material respect, violated any of the health care continuation
requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, or any similar provisions of state law applicable to its employees.
2.24 Member Loans. Certain of the Members have loaned funds to DBits
during the period from September 1, 1998 until the date of this Agreement to
fund DBits' operating expenses ("MEMBER LOANS"). As of the date of this
Agreement, the total principal amount of the Member Loans is $172,000 (which
shall be reduced to $147,000 upon payment of the Recent Member Loans (as defined
in 5.14(b)). The proceeds of the Member Loans have been used to pay current
expenses of DBits only and have not been used to satisfy accounts payable that
were over thirty (30) days old as of September 1, 1998 (the "AGING
RECEIVABLES"). The Member Loans and the accrued interest on the Member Loans as
of the date of this Agreement does not exceed the product of (i) $150,000 and
(ii) the number of months (including the fraction of any month if the date of
this Agreement does not fall on the last day of a month) between September 1,
1998 and the date of this Agreement.
2.25 No Interference or Conflict. To the knowledge of DBits and the
Majority Members, no manager, officer, employee or consultant of DBits is
obligated under any contract or agreement or subject to any judgment, decree or
order of any court or administrative agency, that would interfere with such
person's efforts to promote the interests of DBits or that would interfere with
DBits' business. Neither the execution nor delivery of this Agreement, nor the
carrying on of DBits' business as presently conducted or proposed to be
conducted nor any activity of such managers, officers, employees or consultants
in connection with the carrying on of DBits' business as presently conducted or
proposed to be conducted, will, to DBits' or any Majority Member's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract or agreement under which any of such
manager, officers, employees or consultants are currently bound.
2.26 Complete Copies of Materials. DBits has delivered or made available
true and complete copies of each document (or summaries of same) that has been
requested by First Virtual or its counsel.
2.27 Year 2000 Compliance.
(a) As used in this Section 2.27, the term "SYSTEM" refers to
hardware, firmware, software and other equipment, systems and components of such
equipment or system, and the term "YEAR 2000 COMPLIANT" as it applies to a
System means that the System:
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(i) Will function properly and completely as designed
before, during and after January 1, 2000, without changes in operation in
connection with dates after December 31, 1999;
(ii) Will not abnormally end or abort or provide invalid or
incorrect results as a result of date data, specifically including date data
which represents or references dates after December 31, 1999, or dates falling
in different centuries;
(iii) Will respond to two digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined and predetermined
manner and will store and provide output of date information in ways that are
unambiguous as to century; and
(iv) Will correctly recognize and process the date of
February 29, and any related data, during leap years, including the leap year
occurring in the year 2000.
SECTION 2.27 of the DBits Disclosure Letter describes (i) the steps
DBits has completed to date in order to determine whether or not its Systems are
Year 2000 Compliant, (ii) the degree to which its Systems are Year 2000
Compliant and a list or description of its Systems that are not Year 2000
Compliant, (iii) the costs incurred to date in order that its Systems will be
Year 2000 Compliant, and (iv) the costs that will need to be incurred in the
future for its Systems to be completely Year 2000 Compliant.
2.28 Representations Complete. None of the representations or warranties
made by DBits or the Majority Members (as modified by DBits Disclosure Letter),
nor any statement made in the DBits Disclosure Letter or certificate furnished
by DBits pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the stockholders of DBits in connection with
soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE II A
FURTHER REPRESENTATIONS AND WARRANTIES OF THE MAJORITY MEMBERS
Each Majority Member further represents and warrants separately and
severally to First Virtual and Sub as follows on the date hereof and as of the
Closing Date:
2A.1 Due Authorization. This Agreement has been duly and validly
executed and delivered by, or on behalf of, the Majority Member and, assuming
the due authorization, execution and delivery by First Virtual and Sub,
constitutes a valid and binding obligation of the Majority Member enforceable
against the Majority Member in accordance with its terms except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies. If the Majority Member is a business entity, the
execution and delivery of this Agreement and all Related Agreements to which it
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is a party have been duly authorized by all necessary action on the part of such
entity and constitute valid and binding obligations of such entity, enforceable
in accordance with their terms.
2A.2 No Violation. Neither the execution and delivery of this Agreement
nor the performance by the Majority Member of its obligations hereunder will
Conflict with any agreement or commitment to which the Majority Members is a
party, or violate any statute or law or any judgment, decree, order, regulation
or rule of any court or other Governmental Entity applicable to the Majority
Member. There are no legal proceedings pending, or to the Majority Member's
knowledge, threatened, against such Majority Member which would prevent
consummation of the transactions contemplated by this Agreement.
2A.3 No Consent Needed. Except as disclosed in SECTION 2A.3 of the DBits
Disclosure Letter, no consent, waiver, approval, order or authorization of, or
declaration, filing or registration with, any Governmental Entity or any third
party is required to be made or obtained by the Majority Member in connection
with the execution and delivery by the Majority Member of this Agreement or the
performance by the Majority Member of his or its obligations hereunder or the
consummation by the Majority Member of the transactions contemplated herein.
2A.4 Ownership of DBits Membership Interests. Such Majority Member is
the sole record and beneficial owner of DBits Membership Interests in the
percentage set forth next to his or its name in SECTION 2.2(a) of the DBits
Disclosure Letter, and such percentage is to be sold pursuant to this Agreement.
Such DBits Membership Interests is not subject to any Lien or to any rights of
first refusal of any kind. Except as disclosed in SECTION 2.2(b) of the DBits
Disclosure Letter, there are no options, warrants, calls, rights, commitments or
agreements of any character, written or oral, to which the Majority Member is
party or by which he or it is bound obligating the Majority Member to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold
repurchased or redeemed, any DBits Membership Interests or obligating the
Majority Member to grant or enter into any such option, warrant, call, right,
commitment or agreement. The Member has good and valid title to, and has the
sole right to transfer such DBits Membership Interests to Sub. Such interests
constitute all of DBits Membership Interests owned, beneficially or of record,
by the Majority Member. Sub will receive good title to such DBits Membership
Interests, subject to no claim, lien, pledge, charge, security interest or other
encumbrance retained, granted or permitted by the Member. The Majority Members
has not engaged in any sale or other transfer of its DBits Membership Interests
in contemplation of the Merger.
2A.5 Tax Matters. The Majority Member has had an opportunity to review
with its own Tax advisors the Tax consequences to the Majority Member of the
Merger and the transactions contemplated by this Agreement, including the sale
of his or its ownership interests in DBits to Sub. The Majority Member
understands that he or it must rely solely on his or its advisors and not on any
statements or representations by First Virtual or Sub, or any of their agents.
The Majority Member understands that he or it (and not First Virtual or Sub)
shall be responsible for his or its own tax liability that may arise as a result
of the Merger or the transactions contemplated by this Agreement.
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2A.6 Absence of Claims by the Majority Member. Except as set forth in
SECTION 2.A6 of DBits the Disclosure Letter, the Majority Member has no claim
against DBits whether present or future, contingent or unconditional, fixed or
variable under any contract or on any other legal basis whatsoever.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FIRST VIRTUAL AND SUB
First Virtual and Sub, jointly and severally, subject to such exceptions
as are specifically disclosed in the disclosure letter (referencing the
appropriate section number) supplied by First Virtual (the "FIRST VIRTUAL
DISCLOSURE LETTER") and dated as of the date hereof, hereby represent and
warrant to DBits and each of the Members of DBits as follows:
3.1 Organization, Standing and Power. First Virtual is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Illinois. Each of First Virtual and
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on First Virtual and Sub as a whole.
3.2 Authority. First Virtual and Sub have all requisite corporate power
and authority to enter into this Agreement and the Related Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of First Virtual and Sub and no other proceedings of First Virtual or Sub or
First Virtual's shareholders are necessary other than approval by First Virtual
stockholders of an increase in First Virtual's authorized Common Stock. This
Agreement and the Related Agreements have been duly executed and delivered by
First Virtual and Sub and constitute the valid and binding obligations of First
Virtual and Sub, enforceable in accordance with their respective terms. Except
as disclosed in SECTION 3.2 of the First Virtual Disclosure Letter, neither
First Virtual nor Sub are required to give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by this
Agreement and the Related Agreements.
3.3 Capital Structure.
(a) The authorized stock of First Virtual consists of 40,000,000
shares of Common Stock, $.001 par value, of which 33,091,260 shares were issued
and outstanding as of October 30, 1998, and 5,000,000 shares of Preferred Stock,
$.001 par value, none of which is issued or outstanding. It is anticipated that,
prior to the Effective Time, the Certificate of Incorporation of First Virtual
will be amended to increase the authorized number of shares of First Virtual
Common Stock to 100,000,000. The authorized Interests of Sub consists of 1,000
shares of Common Stock, $0.001 par value per share, 100 shares of which, as of
the date hereof, are issued and outstanding and
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are held by First Virtual. Except as described in the SEC Documents (as defined
in Section 3.6), and in SECTION 3.3(a) of the First Virtual Disclosure Letter,
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued Interests of
First Virtual or obligating First Virtual to issue or sell any shares of
Interests of, or other equity interests in, First Virtual. All outstanding
shares of First Virtual and Sub have been duly authorized, validly issued, are
fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
(b) The shares of First Virtual Common Stock to be issued
pursuant to the Merger, when issued, will be duly authorized, validly issued,
fully paid, non-assessable, and free of all liens, encumbrances or rights other
than those created or imposed by the holders thereof.
3.4 No Conflict. The execution and delivery by First Virtual and Sub of
this Agreement and any Related Agreements to which they are a party do not, and
the consummation of the transactions contemplated hereby and thereby will not as
of the Effective Time, present a Conflict with (i) any provision of the
Certificate of Incorporation and Bylaws of First Virtual or Sub, (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise or license to which First Virtual or Sub or any of their
respective properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to First Virtual
or Sub or their respective properties or assets, other than Conflicts that shall
have been waived prior to the Effective Time, except for such Conflicts as would
not reasonably be expected to have a Material Adverse Effect on First Virtual or
Sub.
3.5 Consents. No consent, waiver, approval, order or authorization of,
or registration, declaration or filing with any Governmental Entity or any third
party, including a party to any agreement with First Virtual (so as not to
trigger any Conflict), is required by or with respect to First Virtual or Sub in
connection with the execution and delivery of this Agreement and any Related
Agreements to which First Virtual or Sub is a party or the consummation of the
transactions contemplated hereby and thereby, except for (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable securities laws, (ii) the filing of
the Articles of Merger with the Secretary of State of Illinois, (iii) consents,
waivers, approvals, orders or authorizations, registrations, declarations or
filings, the absence of which would not reasonably be expected to have a
Material Adverse Effect on First Virtual or Sub.
3.6 SEC Documents; First Virtual Financial Statements. First Virtual has
filed all forms, reports and documents required to be filed with the Securities
and Exchange Commission (the "SEC") since December 31, 1996. First Virtual has
furnished or made available to DBits true and complete copies of all reports,
proxy statements (including Preliminary Copies of the Proxy Statement in
connection with the Agreement and Plan of Reorganization between First Virtual
and Email Publishing Inc. and certain other parties dated August 20, 1998) or
registration statements filed by it with the SEC since June 30, 1997, all in the
form so filed (all of the foregoing being collectively referred to as the "SEC
DOCUMENTS"). As of their respective filing dates, the SEC Documents complied in
all material respects with the requirements of the Securities Act of 1933 (the
"SECURITIES ACT") or the Securities Exchange Act of 1934 (the "EXCHANGE ACT") as
the case may be,
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and none of the SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC prior to the date of this Agreement. The
financial statements of First Virtual, including the notes thereto, included in
the SEC Documents (the "FIRST VIRTUAL FINANCIAL STATEMENTS") comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and present fairly the
consolidated financial position of First Virtual at the dates thereof and the
consolidated results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
There has been no change in First Virtual accounting policies except as
described in the notes to the First Virtual Financial Statements; provided,
however, First Virtual may have restated or may restate one or more of the First
Virtual Financial Statements to reflect acquisitions entered into subsequent to
the respective dates thereof.
3.7 No Material Adverse Change. Except as set forth in SECTION 3.7 of
the First Virtual Disclosure Letter, since June 30, 1998, First Virtual has
conducted its business in the ordinary course and there has not occurred: (a)
any material adverse change in the financial condition, liabilities, assets or
business of First Virtual; (b) any amendment or change in the Certificate of
Incorporation or Bylaws of First Virtual; or (c) any acquisition, sale or
transfer of any material asset except in the ordinary course of First Virtual's
business.
3.8 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which First Virtual or Sub has received any
notice of assertion against First Virtual or Sub, which in any manner challenges
or seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or the Related Agreements.
3.9 Brokers' and Finders' Fees; Third Party Expenses. Neither First
Virtual nor Sub has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of DBits. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, DBits agrees (except to the extent that First
Virtual shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its
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present officers and employees and preserve their relationships with customers,
suppliers, distributors, licensors, licensees, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. DBits shall promptly notify First
Virtual of any event or occurrence or emergency not in the ordinary course of
its business, and any material event involving or adversely affecting DBits or
its business. Except as expressly contemplated by this Agreement, DBits shall
not, without the prior written consent of First Virtual:
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business.
(b) Transfer to any person or entity any rights to any DBits
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business);
(c) Enter into or amend any agreements pursuant to which any
other party is granted marketing, distribution or similar rights of any type or
scope with respect to any products of DBits;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in DBits Disclosure Letter;
(e) Commence any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
Interests, or split, combine or reclassify any of its Interests or issue or
authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of Interests of DBits, or repurchase, redeem or
otherwise acquire, directly or indirectly, any shares of its Interests (or
options, warrants or other rights exercisable therefor);
(g) Except for the issuance of DBits Membership Interests upon
exercise of presently outstanding DBits Options, issue, grant, deliver or sell
or authorize or propose the issuance, grant, delivery or sale of, or purchase or
propose the purchase of, any shares of its Interests or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities;
(h) Cause or permit any amendments to its Articles of
Organization or Operating Agreement other than amendment of the Operating
Agreement to update schedules to reflect changes in the ownership of Membership
Interests or as otherwise described in the DBits Disclosure Letter;
(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
DBits;
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(j) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practice;
(k) Incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities of DBits or guarantee any
debt securities of others, except for indebtedness for the Operating Loans as
contemplated by Section 5.14 hereof;
(l) Grant, pay, or commit to pay, any severance or termination
pay to any director, officer, employee or consultant, including payments made
pursuant to written agreements outstanding on the date hereof (which agreements
are disclosed in SECTION 4.1(l) of the DBits Disclosure Letter);
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees,
except as may be required under existing agreements or plans as disclosed in
SECTION 4.1(m) of the DBits Disclosure Letter;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice;
(o) Pay, discharge or satisfy, in an amount in excess of $5,000,
in any one case, or $5,000, in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of liabilities reflected or reserved
against in DBits Financial Statements or arising in the ordinary course of
business after September 30, 1998 or arising in connection with the transactions
contemplated by this Agreement;
(p) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(q) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(r) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(s) Waive or commit to waive any rights with a value in excess of
$5,000, in any one case, or $5,000, in the aggregate;
(t) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
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(u) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which DBits directly or indirectly holds any interest on the date hereof; or
(v) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (u) above, or any other action that
would prevent DBits from performing or cause DBits not to perform its covenants
hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, neither DBits nor the Majority Members will (nor will DBits or the
Majority Members permit any of DBits' officers, directors, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than First Virtual and its designees: (a)
solicit, conduct discussions with or engage in negotiations with any person,
relating to the possible acquisition of DBits (whether by way of merger,
purchase of Interests, purchase of assets or otherwise) or any material portion
of its or their Interests or assets, (b) provide information with respect to it
to any person, other than First Virtual, relating to the possible acquisition of
DBits (whether by way of merger, purchase of Interests, purchase of assets or
otherwise) or any material portion of its or their Interests or assets, (c)
enter into an agreement with any person, other than First Virtual, providing for
the acquisition of DBits (whether by way of merger, purchase of Interests,
purchase of assets or otherwise) or any material portion of its or their
Interests or assets or (d) make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of DBits or any of it
subsidiaries (whether by way of merger, purchase of Interests, purchase of
assets or otherwise) or any material portion of its or their Interests or assets
by any person, other than by First Virtual. DBits shall immediately cease and
cause to be terminated any such contracts or negotiations with third parties
relating to any such transaction or proposed transaction. In addition to the
foregoing, if DBits or any Majority Member receives prior to the Effective Time
or the termination of this Agreement any offer or proposal relating to any of
the above, DBits or the Majority Member, as applicable, shall immediately notify
First Virtual thereof, including information as to the identity of the offer or
the party making any such offer or proposal and the specific terms of such offer
or proposal, as the case may be, and such other information related thereto as
First Virtual may reasonably request.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 DBits Member Approval. As promptly as practicable after the
execution of this Agreement and at such time as is permitted by applicable law,
DBits shall submit this Agreement and the transactions contemplated hereby to
its Members for approval and adoption as provided by Illinois Law and its
Articles of Organization and Operating Agreement and such other documents
necessary to satisfy the requirements of Section 4(2) of the Securities Act and
Regulation D thereunder. DBits shall use its best efforts to solicit and obtain
the consent of its Members sufficient to approve the Merger and this Agreement
and to enable the Closing to occur as promptly as practicable. The materials
submitted to DBits' Members shall be subject to review and approval by First
Virtual and include copies of the SEC Documents and information regarding DBits,
the terms
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of the Merger and this Agreement and the recommendation of the Manager of DBits
in favor of the Merger and this Agreement.
5.2 Sale of Shares. The parties hereto acknowledge and agree that the
Merger Shares and Warrants and the shares of First Virtual Common Stock issuable
upon exercise of the Warrants issuable to the DBits Members pursuant to Section
1.7 hereof, shall constitute "restricted securities" within the meaning of Rule
144 under the Securities Act. The certificates for such securities shall bear
appropriate legends to identify such privately placed shares as being restricted
under the Securities Act, to comply with applicable state securities laws and,
if applicable, to notice the restrictions on transfer of such shares. It is
acknowledged and understood that First Virtual is relying upon the written
representations made by the Members in the Member's Certificates attached hereto
as EXHIBIT I.
5.3 Access to Information. Each party shall afford the others and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of First Virtual, to reasonable limits on access
to its technical and other nonpublic information. No information or knowledge
obtained in any investigation pursuant to this Section 5.3 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees to keep
the terms of this Agreement (except to the extent contemplated hereby)
confidential and further agrees that all information or knowledge obtained in
any investigation pursuant to Section 5.3 shall be "CONFIDENTIAL INFORMATION"
subject to the Nondisclosure Agreement dated July 28, 1998 between First Virtual
and DBits.
5.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties ("THIRD PARTY EXPENSES") incurred by a party, in
connection with the negotiation and effectuation of the terms and conditions of
this Agreement and the transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses, except that First
Virtual shall pay fifty percent (up to a maximum of $10,000) of the expenses of
the audit of DBits' financial statements by Ernst & Young and First Virtual
shall pay for the entire cost of the review by Ernst & Young of DBits' September
30, 1998 unaudited financial statements; provided that in the event that the
Merger is consummated, all Third Party Expenses incurred by DBits or the
Majority Members (other than fifty percent (up to $10,000) of the expenses for
the audit by Ernst & Young and the costs of the review of the September 30, 1998
financial statements) shall be paid by the Majority Members on or before the
Closing Date.
5.6 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to First Virtual,
by the rules and regulations of the National
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Association of Securities Dealers, Inc., prior to the Effective Time, no
disclosure (whether or not in response to an inquiry) of the terms of this
Agreement shall be made by any party hereto unless approved by First Virtual and
DBits prior to release, provided that such approval shall not be unreasonably
withheld.
5.7 Consents. DBits shall use its best efforts to obtain the consents,
waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in the DBits Disclosure Letter) so as to preserve all rights of and
benefits to DBits thereunder. DBits and First Virtual shall work together to
obtain the consent of WebLogic to the assignment and amendment of the WebLogic
ISV Software License Agreement in a manner reasonably acceptable to First
Virtual to fulfill its anticipated business needs.
5.8 FIRPTA Compliance. On or prior to the Closing Date, DBits shall
deliver to First Virtual a properly executed statement in a form reasonably
acceptable to First Virtual for purposes of satisfying First Virtual's
obligations under Treasury Regulation Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken, all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that First Virtual shall not be required to agree to
any divestiture by First Virtual or DBits or any of First Virtual's subsidiaries
or affiliates of shares of Interests or of any business, assets or property of
First Virtual or its subsidiaries or affiliates or DBits or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.10 Notification of Certain Matters. DBits and the Majority Members
shall give prompt notice to First Virtual, and First Virtual shall give prompt
notice to DBits, of (i) the occurrence or non-occurrence of any event, the
occurrence or non-occurrence of which is likely to cause any representation or
warranty of DBits or Majority Members and First Virtual, respectively, contained
in this Agreement to be untrue or inaccurate at or prior to the Effective Time
and (ii) any failure of DBits or First Virtual, as the case may be, to comply
with or satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any notice
pursuant to this Section 5.10 shall not limit or otherwise affect any remedies
available to the party receiving such notice.
5.11 Limitation on Transfers by DBI L.L.C.. DBI L.L.C. will not transfer
or encumber any of the Merger Consideration it receives pursuant to this
Agreement for a period of twelve months from the Closing Date other than sales
of First Virtual Common Stock pursuant to the
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Registration Rights Agreement ("REGISTERED SALES"). Any proceeds obtained by DBI
L.L.C. from Registered Sales shall not be distributed or encumbered for a period
of twelve months following the Closing Date; provided that, unless the FV
Indemnified Parties shall have asserted a Claim pursuant to Section 7.5 for
Damages in an amount that exceeds the value of the Merger Consideration and cash
in the Escrow Fund, which Claim remains unresolved as of the respective dates
below, DBI LLC may distribute the following amounts of the proceeds from
Registered Sales on the following dates:
(a) one-quarter of the proceeds realized in the 90 days after the
Closing Date, on the 90th day after the Closing Date;
(b) one-half of the proceeds realized in the 180 days after the
Closing Date, less the proceeds distributed pursuant to (a) above, on the 180th
day after the Closing Date;
(c) three-quarters of the proceeds realized in the 270 days after
the Closing Date, less the proceeds distributed pursuant to (a) and (b) above,
on the 270th day after the Closing Date; and,
(d) the balance of the proceeds on the anniversary date of the
Closing Date.
5.12 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.13 Nasdaq National Market Listing. First Virtual shall authorize the
Merger Shares and the shares of First Virtual Common Stock issuable upon
exercise of the Warrants for listing on the Nasdaq National Market upon official
notice of issuance.
5.14 Operating Loans and Member Loans.
(a) First Virtual shall loan DBits funds to satisfy ordinary
operating expenses in an amount not to exceed the product of (i) $150,000 and
(ii) the number of months (including any fraction of a month) (the "OPERATING
LOANS") from the date of this Agreement until the Closing Date or Termination in
accordance with Section 8.1. Advances shall be made in amounts specified by
DBits within five (5) days following the date of receipt of a written statement
specifying in reasonable detail DBits' proposed application of the proceeds (the
"SPENDING PLAN"), which Spending Plan shall be satisfactory to First Virtual.
First Virtual shall not unreasonably withhold its consent to any Spending Plan,
provided that such Spending Plan shall in the good faith judgment of the Manager
of DBits be consistent with maintaining and preserving DBits' operations. The
proceeds of any loan shall be used only for the purposes set forth in the
Spending Plan delivered with respect to such loan.
(b) Upon execution of this Agreement, First Virtual shall repay
in cash the principal and interest, accruing at the rate of 9% per annum, on the
Member Loans extended to DBits
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on or after October 30, 1998 and up to the date of this Agreement (the "RECENT
MEMBER LOANS"); provided that the Recent Member Loans and the accrued interest
thereon shall not exceed $26,000, excluding any portion of the Recent Member
Loans that were used to pay Aging Receivables or expenses not in the ordinary
course of DBits' business. Notwithstanding anything herein to the contrary
(including without limitation Section 1.3 hereof), neither First Virtual nor the
Surviving Corporation shall have any obligation to repay any Recent Member Loans
in excess of the foregoing amount.
(c) First Virtual shall repay the principal and interest of the
Member Loans, other than the Recent Member Loans, upon the Closing as provided
in Section 6.2(d) hereof.
5.15 Intellectual Property Agreements. DBits shall use its reasonable
best efforts to enter into confidentiality and intellectual property assignment
agreements in forms reasonably acceptable to First Virtual with all of its
present or past employees, consultants and independent contractors that have not
previously entered into such agreements or where the existing agreements are not
acceptable to First Virtual.
5.16 Severance Agreements. DBits shall use its reasonable best efforts
to eliminate any severance payment obligations of the Surviving Corporation to
any employee of DBits through means that will not create a liability for the
Surviving Corporation. Notwithstanding anything herein to the contrary
(including without limitation Section 1.3 hereof), neither First Virtual nor the
Surviving Corporation shall assume any obligation to make severance payments to
any current or past DBits employees.
5.17 First Virtual Exchange Act Filings. First Virtual shall use its
reasonable best efforts to file on a current basis with the SEC all reports and
other documents required of First Virtual under the Exchange Act to enable the
Members to benefit from the restricted security resale provisions of Rule 144
under the Securities Act.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Member Approval. This Agreement and the Merger shall have
been approved and adopted by the Members of DBits by the requisite vote under
applicable law and DBits' Operating Agreement.
(b) Securities Law Compliance. The issuance of First Virtual
Common Stock in the Merger shall be exempt from the registration requirement of
the federal securities laws and shall have been qualified or shall be exempt
under all applicable state securities laws.
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(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Litigation. There shall be no bona fide action, suit, claim
or proceeding of any nature pending, or overtly threatened, against First
Virtual or DBits, their respective properties or any of their officers or
directors, arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
6.2 Additional Conditions to the Obligations of DBits and Members. The
obligations of DBits and Members to consummate the Merger and the transactions
contemplated by this Agreement shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions, any of which may be waived,
in writing, exclusively by DBits:
(a) Representations and Warranties. The representations and
warranties of First Virtual and Sub in this Agreement shall be true and correct
in all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and First
Virtual and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by them as of the Effective Time.
(b) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or the business, assets
(including intangible assets), financial condition or results of operations of
First Virtual and its subsidiaries, taken as a whole.
(c) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
liabilities, financial condition or results of operations of First Virtual since
the date hereof. For purposes of this condition, a decline in the trading price
of First Virtual's Common Stock, whether occurring at any time or from time to
time, as reported by Nasdaq or any other automated quotation system or exchange
shall not constitute a material adverse change; provided, however, that the
commencement of any action for de-listing of the Common Stock of First Virtual
from the Nasdaq National Market shall constitute a material adverse change.
(d) Payment of Member Loans. First Virtual shall repay at Closing
the Member Loans, other than the Recent Member Loans (the "REMAINING MEMBER
LOANS"), in cash, together with interest thereon at the rate of 9% per annum;
provided that the Remaining Member Loans and the accrued interest thereon shall
not exceed the product of (i) $150,000 and (ii) the number of months (including
the fraction of any month if the date of execution of this Agreement shall not
occur on the last day of a month) from September 1, 1998 through October 29,
1998, excluding any portion of the Remaining Member Loans that were used to pay
Aging Receivables or expenses not in the ordinary course of DBits' business.
Notwithstanding anything herein to the contrary (including
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without limitation Section 1.3 hereof), neither First Virtual nor the Surviving
Corporation shall have any obligation to repay any Remaining Member Loans in
excess of the foregoing amount.
(e) Legal Opinion. DBits shall have received a legal opinion from
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to First
Virtual, in substantially the form attached hereto as EXHIBIT G.
(f) Registration Rights Agreement. First Virtual shall have
executed and delivered the Registration Rights Agreement in substantially the
form attached hereto as EXHIBIT B.
(g) Certificates of First Virtual and Sub. DBits shall have been
provided with certificates executed on behalf of First Virtual and Sub by the
President or Vice President of First Virtual and Sub to the effect that, as of
the Effective Time, the conditions set forth in Section 6.2 (a), (b) and (c)
have been satisfied.
6.3 Additional Conditions to the Obligations of First Virtual and Sub..
Obligations of First Virtual and Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by First Virtual:
(a) Representations, Warranties and Covenants. The
representations and warranties of DBits and the Majority Members in this
Agreement shall be true and correct in all material respects on and as of the
Effective Time as though such representations and warranties were made on and as
of the Effective Time and DBits and the Majority Members shall have performed
and complied in all material respects with all covenants and obligations of this
Agreement required to be performed and complied with by them as of the Effective
Time.
(b) Claims. There shall not have occurred any claims (whether or
not asserted in litigation) which may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect.
(c) Third Party Consents. Any and all consents, waivers, and
approvals listed in DBits Disclosure Letter shall have been obtained, except for
those that would not have a Material Adverse Effect on DBits, provided that the
failure of DBits and First Virtual to obtain an assignment and amendment of the
WebLogic ISV Software License Agreement to provide for use of the ISV software
as part of ResponseNow in a service bureau model under substantially similar
economic terms shall be deemed a Material Adverse Effect.
(d) Legal Opinion. First Virtual shall have received a legal
opinion from the Law Offices of Anthony O. Brown, P.C., legal counsel to DBits,
in substantially the form of EXHIBIT H hereto.
(e) Employment and Non-Competition Agreements. Derek Scruggs
shall have executed and delivered to First Virtual an Employment Agreement in
substantially the form attached hereto as EXHIBIT C, and a Non-Competition
Agreement in substantially the form attached hereto as
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EXHIBIT D, and such Employment Agreements and Non-Competition Agreement shall be
in full force and effect.
(f) Share Repurchase and Vesting Agreement. Derek Scruggs shall
have executed and delivered to First Virtual a Share Repurchase and Vesting
Agreement in substantially the form attached hereto as EXHIBIT E.
(g) Member's Certificate. Each Member of DBits shall have
executed and delivered to First Virtual a Member's Certificate in substantially
the form attached hereto as EXHIBIT I.
(h) No Material Adverse Changes. There shall not have occurred
any material adverse change in the business, assets (including intangible
assets), results of operations, liabilities (contingent or accrued) or financial
condition of DBits since the date hereof.
(i) Operating Loan Information. First Virtual shall have received
from DBits at least five business days prior to the Closing Date, SECTION 6.3(i)
of the DBits Disclosure Letter identifying Members that provided funds for the
Members Loan to DBits and identifying the amounts due to such Members as of the
Closing Date under the terms of the Members Loan.
(j) Registration Rights Agreement. Each Member of DBits shall
have executed and delivered to First Virtual the Registration Rights Agreement
in substantially the form attached hereto as EXHIBIT B.
(k) Member Approval. The holders of at least 90% of the DBits
Membership Interests shall have approved this Agreement, the Merger and the
transactions contemplated thereby, and no DBits Member shall continue to have a
right to exercise appraisal, dissenters or similar rights under applicable law
with respect to their DBits Membership Interests by virtue of the Merger.
(l) DBits Equity Ownership. At the Effective Time, DBI LLC and
Derek Scruggs together shall own no less than sixty-five percent (65%) of DBits
Membership Interests plus the total DBits Membership Interests issuable upon
exercise in full of all options, warrants or other rights to acquire DBits
Membership Interests.
(m) Intellectual Property Agreements. DBits shall have obtained
and delivered to First Virtual written confidentiality and intellectual property
assignment agreements, in forms reasonably acceptable to First Virtual, executed
by all present employees, all past employees involved with intellectual property
development, and all past and present consultants and independent contractors.
(n) No Severance Payments. Notwithstanding anything in Section
4.1(l) and (m) to the contrary, DBits shall have eliminated any severance
payment obligations of the Surviving Corporation without incurring a liability
to DBits or the Surviving Corporation.
(o) Approval of Increase in First Virtual Authorized Capital
Stock. An amendment to First Virtual's Certificate of Incorporation to increase
First Virtual's authorized
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capital stock shall have been approved by the required vote of the holders of
Common Stock of First Virtual pursuant to the Delaware General Corporation Law
and the rules of the Nasdaq National Market and First Virtual will use its
reasonable best efforts to obtain such approval.
(p) Certificate of DBits and Majority Members. First Virtual
shall have been provided with a certificate executed by the Majority Members and
executed on behalf of DBits by its Chief Executive Officer to the effect that,
as of the Effective Time the provisions set forth in Section 6.3 (a) through
(c), (h) and (k) through and (n) have been satisfied.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION AND ESCROW ARRANGEMENTS
7.1 Survival of Representations and Warranties.
(a) Representations and Warranties of DBits, Majority Members and
Members. The representations and warranties of DBits, the Majority Members and
the Members in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Merger and continue until 5:00 p.m. Delaware time
on:
(i) the first anniversary of the Closing Date, in the case
of all representations, warranties and covenants other than those specified in
clauses 7.1(a)(ii) and (iii) below; or
(ii) the second anniversary of the Closing Date in the case
of representations and warranties contained in Section 2.13 hereof (intellectual
property); or
(iii) the expiration date of the longest applicable federal
or state statute of limitation (including extensions thereof), or if there is no
applicable statute of limitation, ten (10) years after the Closing Date in the
case of the representations and warranties contained in Sections 2.21
(environmental matters) and 2.10 (taxes) hereof.
(b) Representations and Warranties of First Virtual and Sub. The
representations and warranties of First Virtual and Sub in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Merger and
continue until 5:00 p.m. Delaware time on the first anniversary of the closing
Date.
7.2 General Indemnification by the Members. Each Member, jointly and
severally, covenants and agrees to indemnify, defend, protect and hold harmless
First Virtual, Sub and the Surviving Corporation and their respective officers,
directors, employees, stockholders, assigns, successors and affiliates
(individually, an "FV INDEMNIFIED PARTY" and collectively, the "FV INDEMNIFIED
PARTIES") from, against and in respect of:
(a) all claims, losses, liabilities, damages, deficiencies, costs
and expenses, including reasonable attorneys' fees and expenses of investigation
(collectively "Damages")
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suffered, sustained, incurred or paid by any Indemnified Parties in connection
with, resulting from or arising out of, directly or indirectly, any breach of
any representation, warranty, covenant or agreement of DBits, the Majority
Members or the Members set forth in this Agreement, the Disclosure Letter or in
any Certificate delivered pursuant to this Agreement in connection herewith;
(b) any Damages incident to DBits severance obligations as
provided in Section 5.16; and
(c) any Damages relating to intellectual property claims made by
present or former DBits employees, consultants or independent contractors.
7.3 Indemnification by First Virtual and Surviving Corporation. First
Virtual and Surviving Corporation, jointly and severally, covenant and agree to
indemnify, defend, protect and hold harmless DBits, the Members and their
respective officers, directors, employees, stockholders, members, assigns,
successors and affiliates (individually, a "DB INDEMNIFIED PARTY" and
collectively, the "DB INDEMNIFIED PARTIES") from, against and in respect of all
Damages suffered, sustained, incurred or paid by any DB Indemnified Parties in
connection with, resulting from or arising out of, directly or indirectly, any
breach of any representation, warranty, covenant or agreement of First Virtual
or Sub set forth in this Agreement or in the Registration Rights Agreement.
7.4 Limitation and Expiration of Indemnification. Notwithstanding
anything in Section 7.2 or 7.3 above or elsewhere in this Agreement or
otherwise:
(a) Definitions.
(i) "PRO RATA PORTION" with respect to any Member of DBits
(including the Majority Members) shall mean the ratio obtained by dividing (i)
the value of the Merger Consideration received by such Member pursuant to the
Merger (including the portion thereof contributed to the Escrow Fund) by (ii)
the aggregate value of the Merger Consideration. For purposes of the foregoing,
the Merger Shares shall be valued at the average closing price of First Virtual
Common Stock as reported on the Nasdaq National Market System for the twenty
(20) consecutive trading day period ending on the third trading day prior to the
Closing Date (the "CLOSING DATE PRICE"), and Merger Warrants shall be valued as
of the Closing Date by Ernst & Young, LLP, First Virtual's independent
accountants, in a manner consistent with GAAP warrant valuation principles.
(ii) "TOTAL MERGER CONSIDERATION" means the cash value of
all Merger Shares valued at the Closing Date Price plus the value of all Merger
Warrants valued as of the Closing Date by Ernst & Young, LLP, First Virtual's
independent accountants, in a manner consistent with GAAP warrant valuation
principles, plus the amount of any Cash Consideration.
(b) No FV Indemnified Party or DB Indemnified Party (each an
"INDEMNIFIED PARTY") may recover any Damages unless the aggregate amount of such
Damages shall exceed the sum of $50,000 (the "INDEMNIFICATION THRESHOLD"); in
such case, the Indemnified Party may
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recover the total of its Damages, including the first $50,000; provided,
however, that the Indemnification Threshold shall not apply to Damages as
described in Section 7.2(b) and (c).
(c) Any claims for Damages by the FV Indemnified Parties shall
first be asserted against the Escrow Fund as provided in Section 7.6 below; and
no claims for Damages may be asserted against DBits or the Majority Members
unless and until the Escrow Fund is inadequate to satisfy such Damages (or the
Escrow Fund has been terminated and its assets distributed to the Members of
DBits), in which event, and subject to clause (d) of this Section 7.4, the FV
Indemnified Parties may assert claims and proceed against the Majority Members
for the amount of Damages that remain unsatisfied after exhaustion or
termination of the Escrow Fund (the "UNSATISFIED DAMAGES").
(d) Notwithstanding anything to the contrary in this Agreement,
the Related Agreements or elsewhere, each Majority Members' obligation for
Unsatisfied Damages shall be limited to the value of the Total Merger
Consideration.
(e) Notwithstanding anything to the contrary in this Agreement,
the Related Agreements or elsewhere, Members of DBits (other than the Majority
Members) shall not have personal liability or obligation of any kind or nature
whatsoever, whether in law or in equity; the FV Indemnified Parties' sole
recourse for Damages as against any Member that is not a Majority Member shall
be limited to their rights to obtain Merger Shares and Cash Consideration from
the Escrow Fund as provided in Section 7.6 below.
(f) The aggregate amount of First Virtual and Sub's liability
under this Article VII shall not exceed the value of the Total Merger
Consideration.
The Members shall not have any right of contribution from DBits with
respect to any Damages claimed by First Virtual after the Effective Time.
Nothing herein shall limit the liability of DBits, the Members, First Virtual or
Sub for any breach of any representation, warranty or covenant if the Merger
does not close.
7.5 Indemnification Procedures. All claims and demands for
indemnification under this Article VII ("CLAIMS") shall be asserted and resolved
as follows:
(a) Direct Claims by Parties. In the event that any FV
Indemnified Party or a DB Indemnified Party (each an "INDEMNIFIED PARTY") has a
Claim against any party obligated to provide indemnification pursuant to Section
7.2 or 7.3 hereof (an "INDEMNIFYING PARTY") which does not involve a Claim being
asserted against or sought to be collected by a third party, the Indemnified
Party shall with reasonable promptness notify the Indemnifying Party of such
Claim, specifying the nature of such Claim and the amount or the estimated
amount thereof to the extent then feasible (the "CLAIM NOTICE"). If the
Indemnifying Party does not notify the Indemnified Party within thirty (30) days
after the date of delivery of the Claim Notice that it disputes such Claim, with
a detailed statement of the basis of such position (the "DISPUTE NOTICE"), the
amount of such Claim shall be conclusively deemed a liability of the
Indemnifying Party hereunder.
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(b) Third Party Claims.
(i) In the event that any Claim for which the Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against an
Indemnified Party by a third party (a "THIRD PARTY CLAIM"), the Indemnified
Party shall deliver a Claim Notice to the Indemnifying Party. The Indemnifying
Party shall have thirty (30) days from date of delivery of the Claim Notice to
notify the Indemnified Party (A) whether the Indemnifying Party disputes
liability to the Indemnified Party hereunder with respect to the Third Party
Claim, and, if so, the basis for such a dispute, and (B) if such party does not
dispute liability, whether or not the Indemnifying Party desires, at the sole
cost and expense of the Indemnifying Party, to defend against the Third Party
Claim, provided that the Indemnified Party is hereby authorized (but not
obligated) to file any motion, answer or other pleading and to take any other
action which the Indemnified Party shall deem necessary or appropriate to
protect the Indemnified Party's interests.
(ii) In the event that the Indemnifying Party notifies the
Indemnified Party that the Indemnifying Party does not dispute the Indemnifying
Party's obligation to indemnify with respect to the Third Party Claim, the
Indemnifying Party shall defend the Indemnified Party against such Third Party
Claim by appropriate proceedings, provided that, unless the Indemnified Party
otherwise agrees in writing, the Indemnifying Party may not settle any Third
Party Claim (in whole or in part) if such settlement does not include a complete
and unconditional release of the Indemnified Party. If the Indemnified Party
desires to participate in, but not control, any such defense or settlement the
Indemnified Party may do so at its sole cost and expense. If the Indemnifying
Party elects not to defend the Indemnified Party against a Third Party Claim,
whether by failure of such party to give the Indemnified Party timely notice as
provided herein or otherwise, then the Indemnified Party, without waiving any
rights against such party, may settle or defend against such Third Party Claim
in the Indemnified Party's sole discretion and the Indemnified Party shall be
entitled to recover from the Indemnifying Party the amount of any settlement or
judgment and, on an ongoing basis, all indemnifiable costs and expenses of the
Indemnified Party with respect thereto, including interest from the date such
costs and expenses were incurred.
(iii) If at any time, in the reasonable opinion of the
Indemnified Party, notice of which shall be given in writing to the Indemnifying
Party, any Third Party Claim seeks material prospective relief which could have
a material adverse effect on any Indemnified Party, the Indemnified Party shall
have the right to control or assume (as the case may be) the defense of any such
Third Party Claim and the amount of any judgment or settlement and the
reasonable costs and expenses of defense shall be included as part of the
indemnification obligations of the Indemnifying Party hereunder. If the
Indemnified Party elects to exercise such right, the Indemnifying Party shall
have the right to participate in, but not control, the defense of such Third
Party Claim at the sole cost and expense of the Indemnifying Party; provided
that any settlement of such matter shall be subject to the approval of the
Indemnifying Party, which approval shall not be unreasonably withheld or
delayed.
(c) Nothing herein shall be deemed to prevent an Indemnified
Party from making a Claim, and an Indemnified Party may make a Claim hereunder,
for potential or contingent Damages
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provided the Claim Notice sets forth the specific basis for any such potential
or contingent claim or demand to the extent then feasible and there is
reasonable grounds to believe that such Claim will likely be made.
(d) The Indemnified Party's failure to give reasonably prompt
notice as required by this Section 7.5 of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve the Indemnifying Party of any liability which the Indemnifying
Party may have to the Indemnified Party unless the failure to give such notice
materially and adversely prejudiced the Indemnifying Party.
(e) The parties will make appropriate adjustments for any Tax
benefits, Tax detriments or insurance proceeds in determining the amount of any
indemnification obligation under this Article VII, provided that no Indemnified
Party shall be obligated to continue pursuing any payment pursuant to the terms
of any insurance policy.
(f) The parties agree that an Indemnified Party shall use all
reasonable commercial efforts to recover any Damages from a third party that
would likely be deemed responsible for such Damages to the extent that the
Indemnified Party has the right to make such Claim against such third party.
(g) Notwithstanding anything to the contrary in this Agreement,
the Related Agreements or elsewhere, the Majority Members (or either of them)
may satisfy their indemnification obligations for Unsatisfied Damages, in whole
or in part, by assigning to First Virtual a number of Merger Shares, and if all
Merger Shares have been so assigned, by assigning to First Virtual Merger
Warrants, which in each case shall be valued for this purpose at the Closing
Date Price per Share and Warrant and the amount of the Unsatisfied Damages shall
be reduced by the aggregate value of the Merger Shares or Warrants so assigned.
7.6 Escrow Arrangements.
(a) Escrow Fund. As security for the indemnity provided for in
Section 7.2 hereof and by virtue of this Agreement, the Members will be deemed
to have received and deposited with the Escrow Agent the Escrow Amount (plus any
additional shares as may be issued upon any stock split, stock dividend or
recapitalization effected by First Virtual after the Effective Time) without any
act of any Member. The Escrow Agent may execute this Agreement following the
date hereof and prior to the Effective Time, and such later execution, if so
executed after the date hereof, shall not affect the binding nature of this
Agreement as of the date hereof between the other signatories hereto. The
portion of the Escrow Fund contributed on behalf of each Member shall be in
proportion to the aggregate Merger Shares and any Cash Consideration which such
holder would otherwise be entitled under Section 1.7.
(b) Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate on the
first anniversary of the Closing Date (the "RELEASE DATE")
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(the "ESCROW PERIOD"); provided, however, that the Escrow Period shall not
terminate with respect to any amount which, in reasonable judgement of First
Virtual, subject to the objection of the Member Representative (as defined in
Section 7.7 below) and the subsequent arbitration of the matter in the manner
provided in Section 7.6(f) hereof, is necessary to satisfy any unsatisfied
claims specified in any Officer's Certificate delivered to the Escrow Agent
prior to termination of such Escrow Period with respect to facts and
circumstances existing prior to the termination of such Escrow Period (the
"UNSATISFIED ESCROW CLAIMS"). Promptly following the Release Date, First Virtual
shall issue instructions to the Escrow Agent to release to the Members any cash
and First Virtual Common Stock remaining in the Escrow Fund on the Release Date
less the sum of any cash plus the number of shares valued at the Closing Date
Price in the aggregate equal to the amount of the Unsatisfied Escrow Claims. As
soon as all of the Unsatisfied Escrow Claims have been resolved, the Escrow
Agent shall deliver to the Members the remaining portion of the Escrow Fund not
required to satisfy such claims. Deliveries of Escrow Amounts to the Members
pursuant to this Section 7.6(b) shall be made in proportion to their respective
original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of First
Virtual and shall hold and dispose of the Escrow Fund only in accordance with
the terms hereof.
(ii) Any shares of First Virtual Common Stock or other
equity securities issued or distributed by First Virtual (including shares
issued upon a stock split) ("NEW SHARES") in respect of First Virtual Common
Stock in the Escrow Fund which have not been released from the Escrow Fund shall
be added to the Escrow Fund and become a part thereof. New Shares issued in
respect of shares of First Virtual Common Stock which have been released from
the Escrow Fund shall not be added to the Escrow Fund but shall be distributed
to the record holders thereof. Cash dividends on First Virtual Common Stock
shall not be added to the Escrow Fund but shall be distributed to the record
holders thereof.
(iii) Each Member shall have voting rights with respect to
the shares of First Virtual Common Stock contributed to the Escrow Fund by such
Member (and on any voting securities added to the Escrow Fund in respect of such
shares of First Virtual Common Stock).
(iv) The Cash Consideration, if any, placed in the Escrow
Fund, together with all interest accruing thereon, shall be invested by the
Escrow Agent, without distinction as to principal and income, upon receipt of
written instructions from an officer of First Virtual and the Member
Representative, in one or more of the following investments: (i) interest
bearing open-ended or time deposits of any domestic bank with assets in excess
of $500,000,000 (including deposit in the Escrow Agent's bank money market
deposit accounts), including one or more accounts maintained in the commercial
banking department (if any) of the Escrow Agent; or (ii) any other investment
vehicle pursuant to the written instructions from First Virtual and the Member
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Representative including, without limitation, money market and other mutual
funds offered or advised by Escrow Agent or any of Escrow Agent's affiliates.
Notwithstanding the foregoing, the Escrow Agent shall have the power to sell or
liquidate the foregoing investments whenever the Escrow Agent shall be required
to release all or any portion of the Escrow Fund pursuant to Section 7.6(d)
hereof. The Escrow Agent shall not be liable for any loss resulting from any
investment made pursuant to this Agreement other than those losses resulting
from its gross negligence or willful misconduct or bad faith. In effecting any
such sale or liquidation Escrow Agent may without inquiry rely upon written
instructions from an authorized officer of First Virtual and the Member
Representative as to which investments to sell or liquidate. The parties
acknowledge that payment of any interest earned on the funds invested in this
escrow will be subject to backup withholding penalties unless either a properly
completed Internal Revenue Service Form W8 or W9 certification is submitted to
Escrow Agent at the time of execution of this Agreement.
(d) Claims Upon Escrow Fund. Upon receipt by the Escrow Agent at
any time on or before the last day of the Escrow Period of a certificate signed
by any officer of First Virtual (an "OFFICER'S CERTIFICATE"): (A) stating that
First Virtual has paid or properly accrued or reasonably anticipates that it
will have to pay or accrue Damages, and (B) specifying in reasonable detail the
individual items of Damages included in the amount so stated, the date each such
item was paid or properly accrued, or the basis for such anticipated liability,
and the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the provisions of
Section 7.6(e) hereof, deliver to First Virtual out of the Escrow Fund, as
promptly as practicable, first any cash and then shares of First Virtual Common
Stock held in the Escrow Fund valued at the Closing Date Price with an aggregate
value equal to such Damages.
(e) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered to the Member Representative, and for a period of thirty (30)
days after such delivery, the Escrow Agent shall make no delivery to First
Virtual of any Escrow Amounts pursuant to Section 7.6(d) hereof unless the
Escrow Agent shall have received written authorization from the Member
Representative to make such delivery. After the expiration of such thirty (30)
day period, the Escrow Agent shall make delivery of cash or shares of First
Virtual Common Stock from the Escrow Fund in accordance with Section 7.6(d)
hereof; provided, however, that no such payment or delivery may be made if the
Member Representative shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Member Representative shall object in
writing to any claim or claims made in any Officer's Certificate, the Member
Representative and First Virtual shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Member Representative and First Virtual should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall be
furnished to the Escrow
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Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of First Virtual Common Stock from the
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith
negotiation, either First Virtual or the Member Representative may demand
arbitration of the matter unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to arbitration;
and in either such event the matter shall be settled by arbitration conducted by
one arbitrator mutually agreeable to First Virtual and the Member
Representative. In the event that within forty-five (45) days after submission
of any dispute to arbitration, First Virtual and the Member Representative
cannot mutually agree on one arbitrator, First Virtual and the Member
Representative shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The arbitrator or arbitrators, as the
case may be, shall set a limited time period and establish procedures designed
to reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgement of the arbitrator or majority of the
three arbitrators, as the case may be, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator or a
majority of the three arbitrators, as the case may be, shall rule upon motions
to compel or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a competent court of
law or equity, should the arbitrators or a majority of the three arbitrators, as
the case may be, determine that discovery was sought without substantial
justification or that discovery was refused or objected to without substantial
justification. The decision of the arbitrator or a majority of the three
arbitrators, as the case may be, as to the validity and amount of any claim in
such Officer's Certificate shall be binding and conclusive upon the parties to
this Agreement. Such decision shall be written and shall be supported by written
findings of fact and conclusions which shall set forth the award, judgment,
decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s)
may be entered in any court having jurisdiction. Any such arbitration shall be
held in San Diego County, California, under the rules then in effect of the
American Arbitration Association. The arbitrator(s) shall determine how all
expenses relating to the arbitration shall be paid, including without
limitation, the respective expenses of each party, the fees of each arbitrator
and the administrative fee of the American Arbitration Association.
(g) Third-Party Claims. In the event First Virtual becomes aware
of a third-party claim which First Virtual believes may result in a demand
against the Escrow Fund, First Virtual shall notify the Member Representative of
such claim, and DBits Members shall be entitled, at their expense, to
participate in any defense of such claim. First Virtual shall have the right in
its sole discretion to settle any such claim; provided, however, that except
with the consent of the Member Representative, no settlement of any such claim
with third-party claimants shall be determinative of the amount of any claim
against the Escrow Fund. In the event that the Member Representative has
consented to any such settlement, DBits Members shall have no power or authority
to object under any provision of this Article VII to the amount of any claim by
First Virtual against the Escrow Fund with respect to such settlement.
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(h) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of First
Virtual and the Member Representative, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of any
court. In case the Escrow Agent obeys or complies with any such order, judgment
or decree of any court, the Escrow Agent shall not be liable to any of the
parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
(iii) The Escrow Agent shall not be liable in any respect on
account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration
of any rights under any statute of limitations with respect to this Agreement or
any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow
Agent shall not be liable to any party for damages, losses, or expenses, except
for negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement of affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by him/her in good faith in accordance with
the advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the
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Escrow Agent will not be required to determine the controversy or to take any
action regarding it. The Escrow Agent may hold all documents and shares of First
Virtual Common Stock and may wait for settlement of any such controversy by
final appropriate legal proceedings or other means as, in the Escrow Agent's
discretion, the Escrow Agent may be required, despite what may be set forth
elsewhere in this Agreement. In such event, the Escrow Agent will not be liable
for damage. Furthermore, the Escrow Agent may at its option, file an action of
interpleader requiring the parties to answer and litigate any claims and rights
among themselves. The Escrow Agent is authorized to deposit with the clerk of
the court all documents and shares of First Virtual Common Stock held in escrow,
except all cost, expenses, charges and reasonable attorney fees incurred by the
Escrow Agent due to the interpleader action and which the parties jointly and
severally agree to pay. Upon initiating such action, the Escrow Agent shall be
fully released and discharged of and from all obligations and liability imposed
by the terms of this Agreement.
(vii) The parties and their respective successors and
assigns agree jointly and severally to indemnify and hold Escrow Agent harmless
against any and all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, including allocated
costs of in-house counsel and disbursements that may be imposed on Escrow Agent
or incurred by Escrow Agent in connection with the performance of his/her duties
under this Agreement, including but not limited to any litigation arising from
this Agreement or involving its subject matter other than arising out of its
negligence or willful misconduct.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the state of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. Upon appointment of a successor escrow
agent, the Escrow Agent shall be discharged from any further duties and
liability under this Agreement.
(ix) In no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits) even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(x) Any corporation into which the Escrow Agent in its
individual capacity may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual capacity shall be a
party, or any corporation to which substantially all the corporate trust
business of the Escrow Agent in its individual capacity may be transferred,
shall be the Escrow Agent under this Agreement without further act.
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(i) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by First Virtual in accordance with the standard
fee schedule of the Escrow Agent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to the Escrow Fund or its subject matter, the Escrow
Agent shall be reasonably compensated for such extraordinary services and
reimbursed for all costs, attorney's fees, including allocated costs of in-house
counsel, and expenses occasioned by such default, delay, controversy or
litigation.
7.7 Member Representative.
(a) In the event that the Merger is approved by the Members of
DBits, effective upon such vote, and without further act of any stockholder,
Richard Angell shall be appointed as agent and attorney-in-fact (the "MEMBER
REPRESENTATIVE") for each Member, for and on behalf of Members, to give and
receive notices and communications, to make the Cash Election, to authorize
delivery to First Virtual of cash and shares of First Virtual Common Stock from
the Escrow Fund in satisfaction of claims by First Virtual, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Member Representative for the accomplishment
of the foregoing. Such Member Representative may be changed by the members of
DBits from time to time upon not less than thirty (30) days prior written notice
to First Virtual; provided, however, that a Member Representative may not be
removed unless holders of a two-thirds interest of the Escrow Fund agree to such
removal and to the identity of the substituted agent. Any vacancy in the
position of Member Representative may be filled by approval of the holders of a
majority in interest of the Escrow Fund. No bond shall be required of the Member
Representative, and the Member Representative shall not receive compensation for
his or her services. Notices or communications to or from the Member
Representative shall constitute notice to or from each of the Members.
(b) The Member Representative shall not be liable for any act
done or omitted hereunder as Member Representative while acting in good faith
and in the exercise of reasonable judgment. The Members on whose behalf the
Escrow Amount was contributed to the Escrow Fund shall severally indemnify the
Member Representative and hold the Member Representative harmless against any
loss, liability or expense incurred without negligence or bad faith on the part
of the Member Representative and arising out of or in connection with the
acceptance or administration of the Member Representative's duties hereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Member Representative.
(c) A decision, act, consent or instruction of the Member
Representative shall constitute a decision of all Members for whom a portion of
the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund
and shall be final, binding and conclusive upon each of such
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Members, and the Escrow Agent and First Virtual may rely upon any such decision,
act, consent or instruction of the Member Representative as being the decision,
act, consent or instruction of each and every such Member. The Escrow Agent and
First Virtual are hereby relieved from any liability to any person for any acts
done by them in accordance with such decision, act, consent or instruction of
the Member Representative.
7.8 Remedies Cumulative. The remedies set forth in this Article VII are
cumulative and shall not be construed to restrict or otherwise affect any other
remedies that may be available to the FV or the DB Indemnified Parties,
respectively, under any other agreement or pursuant to statutory or common law.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual consent of DBits and First Virtual;
(b) by First Virtual or DBits if: (i) the Effective Time has not
occurred by December 31, 1998, (ii) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
(iii) there shall be any statute, rule, regulation or order enacted, promulgated
or issued or deemed applicable to the Merger by any Governmental Entity that
would make consummation of the Merger illegal;
(c) by First Virtual if there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity, which would: (i) prohibit
First Virtual's ownership or operation of any portion of the business of DBits
or (ii) compel First Virtual to dispose of or hold separate all or a portion of
the business or assets of DBits or First Virtual as a result of the Merger;
(d) by First Virtual if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of DBits or any Member and such breach has not been cured within ten
(10) calendar days after written notice to DBits; provided, however, that, no
cure period shall be required for a breach which by its nature cannot be cured;
(e) by First Virtual if more than thirty days after the date of
this Agreement, DBits has not entered into confidentiality and intellectual
property assignment agreements as provided in Section 6.3(m) hereof;
(f) by DBits if neither it nor any Member is in material breach
of their respective obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of First Virtual or Sub and such breach has not
been cured within ten (10) calendar days after written notice to First Virtual
or
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Sub; provided, however, that, no cure period shall be required for a breach
which by its nature cannot be cured;
(g) by First Virtual if an event having a Material Adverse Effect
on DBits shall have occurred after the date of this Agreement;
(h) by DBits if any "material adverse change" (as defined in
Section 6.2(c) hereof) with respect to First Virtual shall have occurred after
the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of First Virtual, DBits, the
Majority Members, or their respective officers, directors, Manager, Members or
stockholders; provided, however, that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided, further, that
the provisions of Sections 5.4, 5.5, 5.6 and Article VII of this Agreement shall
remain in full force and effect and survive any termination of this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto at
any time by execution of an instrument in writing signed on behalf of each of
the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, First
Virtual, on the one hand, and DBits and the Majority Members, on the other, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to First Virtual or Sub, to:
First Virtual Holdings Incorporated
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<PAGE> 61
4104 Sorrento Valley Blvd., Suite 200
San Diego, CA 92121
Attention: Keith S. Kendrick, President
Telephone: 619-410-3700
Facsimile: 619-410-3701
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: John T. Sheridan
Telephone: 650-493-9300
Facsimile: 650-493-6811
(b) if to DBits, to:
Scott Paseltiner
440 S. LaSalle Street, 28th Floor
Chicago, IL 60606
Telephone No.: (312) 913-5802
Facsimile No.: (312) 913-5858
with a copy to:
Anthony O. Brown
500 Skokie Boulevard, Suite 585
Northbrook, IL 60062
Telephone No.: 847-509-0774
Facsimile No.: 847-509-1330
(c) if to the Member Representative:
Richard Angell
401 S. LaSalle, Suite 700
Chicago, IL 60605
Telephone No.: (312) 786-4711
Facsimile No.: (312) 786-4777
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<PAGE> 62
(d) if to the Escrow Agent:
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725
San Francisco, CA 94111
Attention: James Nagy
Telephone No.: (415) 954-9507
Facsimile No.: (415) 693-8850
9.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the DBits Disclosure
Letter, the First Virtual Disclosure Letter, the Exhibits hereto, and the
documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided, except that First
Virtual and Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law
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<PAGE> 63
provision or rule (whether of the State of California or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of California.
9.8 Arbitration. Any dispute or controversy arising out of, relating to,
or in connection with this Agreement, or the interpretation, validity,
construction, performance, breach, or termination thereof, shall be settled by
binding arbitration to be held in San Diego County, California, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
supplemented by the Large Complex Case Procedures of the American Arbitration
Association (the "RULES"). The arbitrator may grant injunctions or other relief
in such dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction. At the
request of either party, the arbitration proceedings pursuant hereto will be
conducted confidentially. In such case all documents, testimony and records
shall be received, heard and maintained by the arbitrator(s) in confidence under
seal, available for inspection only by the arbitrator(s), the parties and their
respective attorneys and their respective experts, who shall agree in advance
and in writing to receive all such information confidentially and to maintain
such information in confidence. The arbitrator(s) shall apply California law to
the merits of any dispute or claim, without reference to rules of conflicts of
law. The arbitration proceedings shall be governed by federal arbitration law
and by the Rules, without reference to state arbitration law. The costs and
expenses of such arbitration (including the reasonable fees and expenses of one
counsel for each of the parties) shall be paid by the non-prevailing party in
such arbitration, as determined by the arbitrator(s).
9.9 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[Signature Pages Follow]
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<PAGE> 64
IN WITNESS WHEREOF, First Virtual, Sub, DBits, Derek Scruggs, DBI LLC
and the Member Representative and Escrow Agent (as to Article VII only) have
caused this Agreement to be signed individually or by their duly authorized
respective officers, all as of the date first written above.
FIRST VIRTUAL HOLDINGS INCORPORATED
By /s/ KEITH S. KENDRICK
----------------------------------
Name: Keith S. Kendrick
Title: President
DB ACQUISITION CORP.
By /s/ KEITH S. KENDRICK
----------------------------------
Name: Keith S. Kendrick
Title: President
DISTRIBUTED BITS L.L.C.
By: DBI, L.L.C., its Manager
By: /s/ SCOTT PASELTINER
----------------------------------
Name: Scott Paseltiner
Title: Manager
[Signature Page to Agreement and Plan of Reorganization]
<PAGE> 65
MAJORITY MEMBERS
/s/ DEREK SCRUGGS
------------------------------------
Derek Scruggs
DBI L.L.C.
By /s/ SCOTT PASELTINER
----------------------------------
Name: Scott Paseltiner
Title: Manager
MEMBER REPRESENTATIVE
/s/ RICHARD ANGELL
------------------------------------
Richard Angell, solely in his capacity as Member
Representative and not personally
CHASE MANHATTAN BANK AND TRUST
COMPANY, NATIONAL ASSOCIATION
By
----------------------------------
Name:
Title:
[Signature Page to Agreement and Plan of Reorganization]
<PAGE> 1
EXHIBIT 2.2
EXHIBIT B
FIRST VIRTUAL HOLDINGS INCORPORATED
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("AGREEMENT") is made as of December
15, 1998, between First Virtual Holdings Incorporated ("FIRST VIRTUAL"), and the
former Members of Distributed Bits LLC ("DBITS") listed on EXHIBIT A hereto (the
"STOCKHOLDERS"), pursuant to that certain Agreement and Plan of Reorganization
dated November 18, 1998 by and among First Virtual, DB Acquisition Corp., DBits,
Derek Scruggs, DBI LLC and Chase Manhattan Bank and Trust Company, National
Association (the "REORGANIZATION AGREEMENT").
1. DEFINITIONS. As used in this Agreement:
(a) "EFFECTIVE TIME" means the Effective Time of the Merger as
defined in Section 2.1 of the Reorganization Agreement.
(b) "FORM S-3" means such form under the Securities Act as in effect
on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC which similarly permits inclusion or
incorporation of substantial information by reference to other documents filed
by First Virtual with the SEC.
(c) "MATERIAL EVENT" means the happening of any event during the
period that the registration statement described in Section 3 hereof is required
to be effective as a result of which, in the judgment of First Virtual, such
registration statement or the related prospectus contains or may contain any
untrue statement of a material fact or omits or may omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading.
(d) "REGISTRABLE SECURITIES" means the Merger Shares and the Warrant
Shares held by the Stockholders and any shares of Common Stock of First Virtual
issued as a dividend or other distribution with respect to, or in exchange for
or replacement of, such shares; provided, however, that Registrable Securities
shall not include (x) any shares of Common Stock of First Virtual that have been
previously sold to the public or (y) any shares of Common Stock of First Virtual
that may be sold in the public market by a Stockholder pursuant to Rule 144
under the Securities Act in a single three (3) month period.
(e) "SEC" means the Securities and Exchange Commission.
(f) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
(g) "SIX MONTH ANNIVERSARY" means the date six months from the
Closing Date of the Reorganization Agreement.
<PAGE> 2
(h) "WARRANT SHARES" means 500,000 shares of First Virtual Common
Stock issuable upon exercise of the Merger Warrants.
Terms not otherwise defined herein have the meanings given to them in
the Reorganization Agreement.
2. PIGGYBACK REGISTRATIONS. First Virtual shall notify all Stockholders
in writing at least thirty (30) days prior to the filing of any registration
statement under the Securities Act following the Closing Date for purposes of a
public offering of Common Stock of First Virtual (other than relating to
employee benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 (or any successor Rule) of the Securities Act) in
connection with the proposed offer and sale for money of any of its securities
either for its own account or on behalf of any other security holder. Each
Stockholder desiring to include in any such registration statement all or any
part of the Registrable Securities held by such Stockholder shall, within
fifteen (15) days after the receipt of the above-described notice from First
Virtual, so notify First Virtual in writing. Such notice shall state the
intended method of disposition of the Registrable Securities by such
Stockholder. First Virtual agrees to include in any such registration statement
such shares of Registrable Securities for which it has received written requests
to register such shares by the Stockholders thereof within fifteen (15) days
after the receipt of written notice from First Virtual, provided that the
Stockholders in the aggregate may seek registration of a maximum of 200,000 and
100,000 of the Merger Shares, respectively, in the first and second registration
statements filed following the Closing Date and not in any subsequent
registration statement except as provided in Section 3 below. In the event that
the Stockholders request registration of more than the maximum number of Merger
Shares in either of the first two registration statements, First Virtual shall
reduce the number of shares to be registered by each Stockholder on a pro rata
basis, based on the number of shares of Merger Shares held by each Stockholder,
to reduce the aggregate number of Merger Shares registered to 200,000 and
100,000, respectively.
(a) Underwriting. If the registration statements under which First
Virtual gives notice under this Section 2 are for an underwritten offering,
First Virtual shall so advise the Stockholders. In such event, the right of any
such Stockholder to be included in a registration pursuant to this Section 2
shall be conditioned upon such Stockholder's participation in such underwriting
and the inclusion of such Stockholder's Registrable Securities in the
underwriting to the extent provided herein. All Stockholders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by First Virtual. Notwithstanding
any other provision of the Agreement, if the underwriter with respect to a
registration pursuant to this Section 2 determines in good faith that marketing
factors require a limitation of the number of shares to be underwritten, then
First Virtual shall so advise all Stockholders participating in such
registration and the number of shares that may be included in the underwriting
shall be accordingly reduced, provided that any shares included in such
underwriting for the account of any other stockholder of record of First Virtual
is also so reduced on a pro rata basis based on the number of shares of First
Virtual Common Stock held at the time notice of the registration is delivered.
(b) Right to Terminate Registration. First Virtual shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2 prior to the effectiveness of such
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<PAGE> 3
registration whether or not any Stockholder has elected to include securities in
such registration. The registration expenses of such withdrawn registration
shall be borne by First Virtual in accordance with Section 6 hereof.
3. FORM S-3 REGISTRATION. If as of the Six Month Anniversary fewer than
300,000 of the Registrable Securities have been included in Piggyback
Registrations pursuant to Section 2, First Virtual shall prepare and file with
the SEC, and use its reasonable best efforts to have declared effective within
60 days of the Six Month Anniversary, a Registration Statement on Form S-3
providing for the resale by the Stockholders of a number of shares of
Registrable Securities equal to the difference between 300,000 and the number of
shares registered pursuant to Section 2; provided, that First Virtual is
eligible to use Form S-3 at such time pursuant to applicable laws and
regulations and provided further that the Stockholders shall provide all such
information and materials relating to the Stockholders, as applicable, and take
all such action as may be required in order to permit First Virtual to comply
with all the applicable requirements of the SEC and to obtain any desired
acceleration of the effective date of such Form S-3, such provision of
information and materials to be a condition precedent to the obligations of
First Virtual pursuant to this Agreement and the Reorganization Agreement. The
offering made pursuant to such registration shall not be underwritten and shall
remain effective for a period ending on the earlier of six months or the date
when all of the remaining unsold Registrable Securities may be sold in a
three-month period pursuant to Rule 144.
4. POSTPONEMENT OF REGISTRATION.
(a) Registration. Notwithstanding Section 3 above, First Virtual
shall be entitled to postpone the declaration of effectiveness of any Form S-3
prepared and filed pursuant to Section 3 for a reasonable period of time, but
not in excess of 90 calendar days after the applicable deadline, if the Board of
Directors of First Virtual determines in good faith that there exists a Material
Event.
(b) Material Event. The Stockholders agree that, upon receipt of any
notice from First Virtual of the happening of a Material Event, the Stockholders
will forthwith discontinue disposition of the Registrable Securities pursuant to
any Form S-3 described in Section 3 until the Stockholders' receipt of copies of
supplemented or amended prospectuses prepared by First Virtual (which First
Virtual will use its reasonable best efforts to prepare and file promptly), and,
if so directed by First Virtual, the Stockholders will deliver to First Virtual
all copies in their possession, other than permanent file copies then in the
Stockholders' possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In no event shall First Virtual
delay causing to be effective a supplement or post-effective amendment to any
Form S-3 pursuant to Section 3 or the related prospectus, for more than 90
consecutive days or 180 days during any 365 consecutive calendar day period.
5. OBLIGATIONS OF FIRST VIRTUAL. Except as set forth in Sections 2, 3
and 4, whenever required to effect the registration of any Registrable
Securities, First Virtual shall (i) prepare and file with the SEC a registration
statement, which registration statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading,
-3-
<PAGE> 4
(ii) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act (including any amendments or supplements which may be necessary
as a result of transfers of Registrable Securities); (iii) furnish to the
Stockholders such number of copies of any prospectus (including any preliminary
prospectus and any amended or supplemented prospectus) as the Stockholders may
reasonably request in order to effect the offering and sale of the shares of the
Registrable Securities to be offered and sold, but only while First Virtual
shall be required under the provisions hereof to cause such registration
statement to remain current; (iv) use its commercially reasonable efforts to
register or qualify the shares of the Registrable Securities covered by such
registration statement under the securities or blue sky laws of such
jurisdictions as the Stockholders shall reasonably request (provided that First
Virtual shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such jurisdiction where it has not been qualified), and do any and all other
acts or things which may be reasonably necessary or advisable to enable the
Stockholders to consummate the public sale or other disposition of the
Registrable Securities in such jurisdictions; (v) cause all such Registrable
Securities to be listed on each securities exchange or National Association of
Securities Dealers, Inc. Automated Quotation System on which similar securities
issued by First Virtual are then listed; (vi) so long as the registration
statement remains effective, promptly prepare, file and furnish to the
Stockholders a reasonable number of copies of any supplements to or amendments
of such prospectus; (vii) notify the Stockholders promptly of any request by the
SEC for the amending or supplementing of such registration statement or
prospectus or for additional information; and (viii) advise the Stockholders
promptly after it shall receive notice or obtain knowledge thereof, of the
issuance of any stop order by the SEC suspending the effectiveness of any
registration statement or the initiation or threatening of any proceeding for
that purpose and promptly use commercially reasonable efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such stop order should
be issued.
6. EXPENSES. First Virtual shall pay the expenses incurred by First
Virtual in connection with any registration of Registrable Securities pursuant
to this Agreement including all SEC, NASD and blue sky registration and filing
fees, printing expenses, transfer agents' and registrars' fees, and the fees and
disbursements of First Virtual's outside counsel and independent auditors. The
Stockholders shall be responsible for all underwriting discounts and commissions
and transfer taxes, as well as any other expenses incurred by the Stockholders.
7. INDEMNIFICATION. In the event of any offering registered pursuant to
this Agreement:
(a) First Virtual will indemnify each Stockholder with respect to any
registration effected pursuant to this Agreement, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement, or any
amendment or supplement thereto, or prospectus related thereto, incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading, or any violation by First Virtual of the Securities Act, in
connection with any such
-4-
<PAGE> 5
registration, and will reimburse such Stockholder, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that First
Virtual will not be liable in any such case (i) to the extent that any such
claim, loss, damage, liability or expense arises out of or is based in any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with information furnished to First Virtual by
such Stockholder or (ii) if a copy of the final prospectus relating to any
registration statement (as then amended or supplemented if First Virtual shall
have furnished any amendments or supplements thereto) (the "FINAL PROSPECTUS")
was not sent or given by or on behalf of such Stockholder to a purchaser of
Stockholder's Registrable Securities, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the
Registrable Securities to such purchaser, and if the final prospectus (as so
amended or supplemented) would have cured the defect giving rise to such loss,
claim, damage or liability.
(b) Each Stockholder will severally indemnify First Virtual, each of
its directors and officers, and each person who controls First Virtual within
the meaning of Section 15 of the Securities Act, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) or a material fact
contained in any registration statement, or any amendment or supplement thereto,
or prospectus related thereto, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement or prospectus in reliance upon and in
conformity with information furnished to First Virtual by such Stockholder and
will reimburse First Virtual, the remaining Stockholders, such directors,
officers, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, provided, however, that in no event shall the
indemnity provided under this Section 7(b) exceed the net proceeds from the
offering received by Stockholder.
(c) Each party entitled to indemnification under this Section 7 (the
"INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has notice of any claim as to which indemnity may be sought, and shall permit
the Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom, and the Indemnified Party may participate in such defense
at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to give
notice. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. Whether
or not the defense of any claim or action is assumed by the Indemnifying Party,
such Indemnifying Party will not be subject to any liability for any settlement
without its consent.
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<PAGE> 6
(d) The obligations of First Virtual and the Stockholders under this
Section 7 shall survive the completion of any offering of stock in a
registration statement under this Agreement.
8. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause First Virtual
to register Registrable Securities pursuant to this Agreement may be assigned by
the Stockholders only to (i) a subsidiary, parent or affiliate of a Stockholder
which is a corporation, (ii) as a distribution made by a Stockholder which is a
partnership, limited liability company or corporation to its partners, members
and stockholders, as the case may be, in accordance with their interest in such
entity, or (iii) by a Stockholder which is an individual to a member of
Stockholder's immediate family or a trust established for the benefit of
Stockholder or members of its immediate family; provided, however, that upon the
death of any Stockholder which is an individual, the rights to cause First
Virtual to register Registrable Securities pursuant to this Agreement shall
inure to such Stockholder's devisee, legatee or other designee and provided
further that the rights set forth in Sections 2 and 3 hereof shall be
transferable only to persons acquiring the lesser of all of the Registrable
Securities of any Stockholder or 100,000 shares of Registrable Securities (as
adjusted for stock splits, stock dividends and similar events).
9. AMENDMENT OF REGISTRATION RIGHTS. This Agreement may be amended by
the holders of a majority of the Registrable Securities and First Virtual at any
time by execution of an instrument in writing signed on behalf of each of the
parties.
10. GRANT OF ADDITIONAL REGISTRATION RIGHTS. The Stockholders
acknowledge that First Virtual may acquire other companies, businesses or assets
and in the course of such acquisitions may grant the equity owners thereof
registration rights with respect to their shares of First Virtual on terms which
would be negotiated at such time and may be materially different than the terms
of this Agreement.
11. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties, at the following addresses: (a) if to the
Stockholders, at the Stockholders' addresses as set forth in the securities
register of First Virtual or (b) if to First Virtual at 4104 Sorrento Valley
Blvd., Suite 200, San Diego, California 92121, Attention: Keith S. Kendrick,
President, facsimile no. (619) 410-3701.
12. GOVERNING LAW; INTERPRETATION. This Agreement shall be construed in
accordance and governed for all purposes by the laws of the State of California
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
13. SEVERABILITY; SURVIVAL. If any portion of this Agreement is held by
a court of competent jurisdiction to conflict with any federal, state or local
law, or to be otherwise invalid or unenforceable, such portion of this Agreement
shall be of no force or effect, and this Agreement shall otherwise remain in
full force and effect and be construed as if such portion had not been included
in this Agreement.
-6-
<PAGE> 7
14. ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties and supersedes all prior discussions, agreement and
understandings relating to the subject matter hereof.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
[Signature Pages Follow]
-7-
<PAGE> 8
IN WITNESS WHEREOF, First Virtual and the Stockholders have caused this
Agreement to be executed as of the date first above written.
FIRST VIRTUAL HOLDINGS INCORPORATED
By ____________________________________
Name: Keith S. Kendrick
Title: President
STOCKHOLDERS
DBI L.L.C.
By ____________________________________
Name:
Title:
_______________________________________
Derek Scruggs
ILLINOIS DEVELOPMENT FINANCE AUTHORITY
By ____________________________________
Name:
Title:
_______________________________________
John Stafford
_______________________________________
Anthony O. Brown
_______________________________________
Marshall Toplansky
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
-8-
<PAGE> 9
_______________________________________
Scott Musser
_______________________________________
Douglas Quach
[SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT]
-9-
<PAGE> 10
EXHIBIT A
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
No. of Registrable
Stockholders No. of Registrable Warrant Shares
Merger Shares ------------------------------------
$6.00 Warrants $8.00 Warrants
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DBI, L.L.C.
c/o Scott Paseltiner
440 South LaSalle Street, Suite
2800
Chicago, IL 60605
- ----------------------------------------------------------------------------------------------------
Derek Scruggs
1859 S. Allport
Chicago, IL 60608
- ----------------------------------------------------------------------------------------------------
Illinois Development Finance
Authority
233 S. Wacker Drive
Suite 5310
Chicago, IL 60606
- ----------------------------------------------------------------------------------------------------
John Stafford
440 S. LaSalle Street
Chicago, IL 60605-1028
- ----------------------------------------------------------------------------------------------------
Anthony O. Brown
538 Monroe Ave
Glencoe, IL 60022
- ----------------------------------------------------------------------------------------------------
Marshall Toplansky
753 Bluff Ave
Glencoe, IL 60022
- ----------------------------------------------------------------------------------------------------
Scott Musser
971 Portsmith Ln.
Bollingbrook, IL 60440-5212
- ----------------------------------------------------------------------------------------------------
Douglas Quach
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FIRST VIRTUAL HOLDINGS INCORPORATED SIGNS
DEFINITIVE AGREEMENT TO ACQUIRE DISTRIBUTED BITS
Acquisition to Complement E-Messaging Services
SAN DIEGO -- Nov. 19, 1998 -- First Virtual Holdings Inc. (NASDAQ: FVHI), a
leader in advanced messaging systems for Internet commerce, announced today that
it has signed a definitive agreement to acquire Distributed Bits, L.L.C. Under
the terms of the agreement, First Virtual will acquire 100 percent of the
outstanding interests in Distributed Bits in exchange for 1.35 million shares of
First Virtual common stock and warrants to purchase an additional 250,000 shares
of First Virtual common stock at an exercise price of $6.00 per share and
250,000 shares of First Virtual common stock at an exercise price of $8.00 per
share. In addition, First Virtual will retire approximately $175,000 in
outstanding Distributed Bits debt. The transaction, which is subject to
satisfaction of certain conditions, is expected to close in early December.
Distributed Bits (www.dbits.com) is a leading developer of customer e-mail
management products and solutions. Its flagship product, ResponseNow, is an
integrated inbound e-mail management system that helps companies manage large
volumes of incoming e-mail inquiries initiated by customers. ResponseNow will
complement First Virtual's Interactive Messaging Platform, an e-mail based
messaging system that processes incoming customer replies which result from
targeted e-mail communications.
"Our goal is to provide the most robust solution to our customers who are
looking to expand their presence on the Internet," said Keith S. Kendrick,
president of First Virtual. "Distributed Bits' inbound messaging solution,
coupled with the First Virtual Interactive Messaging Platform, will allow us to
offer the most comprehensive e-messaging solution available today."
"The Web has revolutionized commerce, but e-mail is the killer app in building
customer relationships online," said Derek Scruggs, CEO of Distributed Bits.
"The combined technologies of Distributed Bits and First Virtual will close the
loop of inbound and outbound e-mail,
<PAGE> 2
allowing organizations to maintain an open dialogue with their most important
asset: customers."
About Distributed Bits, L.L.C.
Founded in 1996 and headquartered in Chicago, Distributed Bits, L.L.C. is a
leader in innovative inbound e-mail management products and solutions. The
company's mission is to deliver product and service solutions that leverage
e-mail throughout an organization's customer contact points, resulting in lower
costs, increased revenues and improved customer satisfaction.
About SOFTBANK Holdings Inc.
SOFTBANK Holdings Inc. is the holding company for all of SOFTBANK Corp.'s
U.S.-based activities. Its major operating companies include Ziff-Davis (NYSE:
ZD), Kingston Technology Company, SOFTBANK Content Services, and UTStarcom.
SOFTBANK is the largest shareholder of Yahoo! (NASDAQ: YHOO) and E*TRADE
(NASDAQ: EGRP), and a minority investor in The Rights Exchange, GeoCities
(NASDAQ: GCTY), CyberCash (NASDAQ: CYCH), First Virtual Holdings (NASDAQ: FVHI)
and E-LOAN. In addition, through affiliated venture funds in the U.S. and Japan,
the SOFTBANK Group has made more than 70 investments in Internet companies.
www.softbank.com
About First Virtual Holdings
Founded in 1994, First Virtual Holdings Inc. is a leader in advanced messaging
systems for Internet commerce. The Company offers a fully integrated system for
relationship-based transactive messaging using standard e-mail. With patented
technologies, its flagship product the Interactive Messaging Platform takes full
advantage of e-mail as a one-to-one interactive communications and sales
channel. First Virtual is headquartered in San Diego and is a member of the
SOFTBANK family of companies, a leading investor in Internet companies including
E*TRADE Group, GeoCities, Kingston Technology, Yahoo! and Ziff-Davis. SOFTBANK
owns approximately 64 percent of the outstanding common stock of First Virtual.
E*TRADE Group is a minority investor in First Virtual.
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act. With
the exception of the historical information contained in this release, the
matters described herein contain forward-looking statements that involve risk
and uncertainties. These risk factors
<PAGE> 3
include, but are not limited to, the impact of competitive products and pricing,
governmental regulations, financial projections, technological difficulties, the
ability to acquire Distributed Bits L.L.C., and/or other factors outside the
control of First Virtual, which are detailed from time to time in First
Virtual's SEC reports, including the report on Form 10-K for the year ended
December 31, 1997. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. First
Virtual undertakes no obligation to release publicly the result of any revisions
to these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
First Virtual Holdings Incorporated
4104 Sorrento Valley Boulevard, Suite 200, San Diego, Calif. 92121
Tel: 619/ 410-3700; Fax: 619/ 410-3701; www.firstvirtual.com
Investor Relations inquiries should be sent to [email protected]
