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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
Date of Report (Date of earliest event reported): September 23, 1999
SECURITY FIRST TECHNOLOGIES CORPORATION
---------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 000-24931 58-2395199
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3390 PEACHTREE ROAD, NE, SUITE 1700, ATLANTA, GEORGIA 30326
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(Address of principal executive offices)
Registrant's telephone number, including area code: (404) 812-6200
NOT APPLICABLE
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
(a) On September 24, 1999, Security First Technologies Corporation, or
S1, announced, in a press release attached as Exhibit 99.1, that it had entered
into an Agreement and Plan of Merger (the "Merger Agreement") by which S1 will
acquire VerticalOne Corporation in a stock-for-stock exchange. The Merger
Agreement and the share of S1 common stock to be issued in the merger are
subject to applicable stockholder approvals of both S1 and VerticalOne and any
required regulatory filings and notices, as well as customary closing
conditions. The Merger Agreement is filed as Exhibit 2.1 and incorporated by
reference herein.
(b) On the same day, as also set forth in the attached press release,
S1 invested $15.0 million in VerticalOne by purchasing a new Series C preferred
stock. VerticalOne issued 2,608,242 shares of VerticalOne Series C preferred
stock to S1 at a purchase price of $5.751 per share. The Stock Purchase
Agreement is filed as Exhibit 99.2 and incorporated by reference herein.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
2.1 Agreement and Plan of Merger by and among Security First
Technologies Corporation, VerticalOne Acquisition
Corporation and VerticalOne Corporation dated as of
September 23, 1999.
99.1 Press Release dated September 24, 1999.
99.2 Series C Preferred Stock Purchase Agreement by and between
VerticalOne Corporation and Security First Technologies
Corporation dated as of September 23, 1999.
</TABLE>
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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.
SECURITY FIRST TECHNOLOGIES CORPORATION
(Registrant)
/s/ LISA A. WILKIE
-------------------------------------------
Lisa A. Wilkie
Controller
Date: September 29, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- --- -----------
<S> <C>
2.1 Agreement and Plan of Merger by and among Security First Technologies
Corporation, VerticalOne Acquisition Corporation and VerticalOne
Corporation dated as of September 23, 1999.
99.1 Press Release dated September 24, 1999.
99.2 Series C Preferred Stock Purchase Agreement by and between VerticalOne
Corporation and Security First Technologies Corporation dated as of
September 23, 1999.
</TABLE>
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AGREEMENT AND PLAN OF MERGER
SECURITY FIRST TECHNOLOGIES CORPORATION
VERTICALONE ACQUISITION CORPORATION
VERTICALONE CORPORATION
SEPTEMBER 23, 1999
TABLE OF CONTENTS
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Page
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ARTICLE I THE MERGER...........................................................................................................1
1.1. The Merger............................................................................................................1
1.2. Effective Time........................................................................................................2
1.3. Effects of the Merger.................................................................................................2
1.4. Conversion of VerticalOne Capital Stock...............................................................................2
1.5. Conversion of Merger Sub Common Stock.................................................................................3
1.6. Options, Warrants and Other Rights....................................................................................4
1.7. Certificate of Incorporation..........................................................................................4
1.8 ByLaws................................................................................................................4
1.9. Directors and Officers................................................................................................5
1.10. Tax Consequences......................................................................................................5
ARTICLE II EXCHANGE OF SHARES AND ESCROW........................................................................................5
2.1. S1 to Make Shares Available...........................................................................................5
2.2. Exchange of Shares....................................................................................................5
2.3. Escrow Agreement......................................................................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF
VERTICALONE..................................................................................................................7
3.1. Organization and Standing.............................................................................................7
3.2. Authorization; Binding Obligation.....................................................................................7
3.3. Subsidiaries..........................................................................................................8
3.4. Non-contravention.....................................................................................................8
3.5. Taxes and Tax Returns.................................................................................................8
3.6. Capitalization........................................................................................................9
3.7. Directors, Officers and Employees.....................................................................................10
3.8. Financial Statements..................................................................................................10
3.9. [Omitted].............................................................................................................10
3.10. Conduct of Business; Absence of Changes having a Material Adverse Effect..............................................10
3.11. Properties and Assets.................................................................................................11
3.12. Consents and Approval.................................................................................................11
3.13. Intellectual Property.................................................................................................11
3.14. Contracts.............................................................................................................13
3.15. Books and Records.....................................................................................................14
3.16. Litigation; Disputes..................................................................................................14
3.17. Pension and Benefit Plans.............................................................................................15
3.18. Compliance with Applicable Laws.......................................................................................16
3.19. Fees and Expenses of Brokers and Others...............................................................................16
3.20. Disclosure............................................................................................................16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF S1.................................................................................16
4.1. Organization and Standing.............................................................................................16
</TABLE>
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<TABLE>
<S> <C> <C>
4.2. Authorization; Binding Obligation.....................................................................................17
4.3. Subsidiaries..........................................................................................................17
4.4. Capitalization; Validity of Shares; Issuance..........................................................................18
4.5. Non-Contravention.....................................................................................................18
4.6. Financial Statements; Exchange Act Filings; Books and Records.........................................................19
4.7. Properties and Assets.................................................................................................19
4.8. Consents and Approval.................................................................................................20
4.9. Litigation; Disputes..................................................................................................20
4.10. Absence of Certain Changes or Events..................................................................................20
4.11. Compliance with Applicable Laws.......................................................................................20
4.12. Taxes and Tax Returns.................................................................................................21
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.............................................................................21
5.1. Covenants of VerticalOne..............................................................................................21
ARTICLE VI ADDITIONAL AGREEMENTS................................................................................................24
6.1. Regulatory Matters....................................................................................................24
6.2. Access to Information.................................................................................................25
6.3. Stockholder Meetings..................................................................................................26
6.4. Legal Conditions to Merger............................................................................................26
6.5. Stock Exchange Listing................................................................................................27
6.6. Employees.............................................................................................................27
6.7. Indemnification.......................................................................................................28
6.8. Freely Tradable Shares................................................................................................29
6.9. Additional Agreements.................................................................................................30
6.10. Advice of Changes.....................................................................................................30
6.11. Current Information...................................................................................................30
6.12. Transaction Expenses of VerticalOne...................................................................................30
6.13. Form S-8..............................................................................................................31
6.14. Lock-up...............................................................................................................31
6.15. Board of Directors....................................................................................................32
6.16. Tax Treatment.........................................................................................................32
ARTICLE VII CONDITIONS PRECEDENT................................................................................................32
7.1. Conditions to Each Party's Obligation To Effect the Merger............................................................32
7.2. Conditions to Obligations of S1 and Merger Sub........................................................................33
7.3. Conditions to Obligations of VerticalOne..............................................................................34
ARTICLE VIII TERMINATION AND AMENDMENT..........................................................................................35
8.1. Termination...........................................................................................................35
8.2. Effect of Termination.................................................................................................37
8.3. Amendment.............................................................................................................37
8.4. Extension; Waiver.....................................................................................................37
ARTICLE IX GENERAL PROVISIONS...................................................................................................37
9.1. Closing...............................................................................................................37
9.2. [Omitted].............................................................................................................38
9.3. Expenses..............................................................................................................38
</TABLE>
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<TABLE>
<S> <C> <C>
9.4. Notices...............................................................................................................38
9.5. Interpretation........................................................................................................39
9.6. Counterparts..........................................................................................................39
9.7. Entire Agreement......................................................................................................39
9.8. Governing Law.........................................................................................................39
9.9. Enforcement of Agreement..............................................................................................39
9.10. Severability..........................................................................................................39
9.11. Publicity.............................................................................................................39
9.12. Assignment; Limitation of Benefits....................................................................................40
9.13. Additional Definitions................................................................................................40
</TABLE>
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Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of September 23, 1999
(this "Agreement"), is entered into by and among Security First Technologies
Corporation, a Delaware corporation ("S1"), VerticalOne Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of S1
("Merger Sub"), and VerticalOne Corporation, a Delaware corporation
("VerticalOne").
WHEREAS, the Boards of Directors of S1, Merger Sub and VerticalOne
have determined that it is advisable and in the best interests of their
respective companies and stockholders to consummate the business combination
transaction provided for herein in which Merger Sub will, subject to the terms
and conditions set forth herein, merge with and into VerticalOne, with
VerticalOne being the Surviving Corporation (as defined in Section 1.1 hereof)
and a wholly owned subsidiary of S1 (the "Merger"); and
WHEREAS, the parties desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger; and
WHEREAS, contemporaneous with execution of this Agreement, S1 and
VerticalOne are entering into that certain Stock Purchase Agreement dated as of
the date hereof (the "Investment Agreement"), pursuant to which S1 has agreed
to purchase $15,000,000 of a newly designated series of preferred stock of
VerticalOne; and
WHEREAS, contemporaneous with execution of this Agreement, S1 and
VerticalOne are entering into a Strategic Marketing Agreement, dated as of the
date hereof (the "Strategic Marketing Agreement"), pursuant to which S1 agrees
to market to its customers certain products and services of VerticalOne, and a
related Warrant Agreement, also dated as of the date hereof (the "S1 Warrant
Agreement"), pursuant to which VerticalOne has granted to S1 a warrant to
purchase up to 1,000,000 shares of common stock of VerticalOne on the terms and
subject to the conditions set forth therein; and
WHEREAS, the execution of this Agreement and the consummation of the
transactions contemplated hereby by VerticalOne (including the issuance by
VerticalOne of the Series C Preferred Stock) represents consideration for an
overall strategic relationship entered in by and between VerticalOne and S1 as
of the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to
be legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. THE MERGER.
Subject to the terms and conditions of this Agreement, in accordance
with Section 251 of the Delaware General Corporation Law (the "DGCL"), at the
Effective Time (as defined in Section 1.2 hereof), Merger Sub shall merge into
VerticalOne, with VerticalOne being the surviving corporation (hereinafter
sometimes called the "Surviving Corporation") in the Merger. Upon consummation
of the Merger, the corporate existence of Merger Sub shall cease, and the
Surviving Corporation shall continue to exist as a Delaware corporation and a
wholly owned subsidiary of S1. Notwithstanding the foregoing, the parties
agree that they will take all such actions as may be reasonably necessary
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(including, without limitation, amending this Article I) to change the method
of effecting the Merger (including, without limitation, causing Merger Sub to
be the Surviving Corporation) if and to the extent reasonably necessary to
satisfy the condition set forth in Section 7.1(f); provided, however, that no
such change shall (i) alter or change the amount or kind of consideration to be
issued to holders of VerticalOne Capital Stock as provided for in this
Agreement, (ii) adversely affect the tax treatment of VerticalOne's
stockholders or (iii) materially impede or delay consummation of the
transactions contemplated by this Agreement.
1.2. EFFECTIVE TIME.
The Merger shall become effective on the Closing Date (as defined in
Section 9.1 hereof), upon the filing of the certificate of merger (the
"Certificate of Merger") in the form attached as EXHIBIT A hereto with the
Secretary of State of the State of Delaware (or at such later time as may be
agreed by VerticalOne and S1 in writing and specified in the Certificate of
Merger). The term "Effective Time" shall be the date and time when the Merger
becomes effective as set forth in the Certificate of Merger.
1.3. EFFECTS OF THE MERGER.
At and after the Effective Time, the Merger shall have the effects set
forth in Sections 259 and 261 of the DGCL.
1.4. CONVERSION OF VERTICALONE CAPITAL STOCK.
(a) At the Effective Time, subject to Section 1.4(c), 1.4(d),
1.4(e) and 1.4(g) hereof, each share of VerticalOne common stock, par value
$0.001 per share ("VerticalOne Common Stock"), issued and outstanding
immediately prior to the Effective Time (excluding shares held by stockholders
who perfect their dissenters' rights of appraisal as provided in Section 1.4(g)
hereof) shall, by virtue of this Agreement and without any action on the part
of the holder thereof, be converted into the right to receive, and be
exchangeable for, (i) 0.1903 shares of S1 Common Stock, par value $0.01 per
share ("S1 Common Stock") (the "Firm Exchange Ratio") and (ii) the contingent
right to receive up to 0.0097 shares of S1 Common Stock (as the same may be
adjusted as provided herein, the "Escrow Exchange Ratio"). The sum of the Firm
Exchange Ratio and the Escrow Exchange Ratio (0.2000 shares of S1 Common Stock)
is referred to herein as the "Exchange Ratio."
(b) At the Effective Time, subject to Sections 1.4(c), 1.4(d),
1.4(e) and 1.4(g) hereof, each share of VerticalOne Series A Preferred Stock
("VerticalOne Series A Stock"), each share of VerticalOne Series B Preferred
Stock ("VerticalOne Series B Stock"), and each share of VerticalOne Series C
Preferred Stock ("VerticalOne Series C Stock" and, together with the
VerticalOne Series A Stock and the VerticalOne Series B Stock, the "VerticalOne
Preferred Stock") issued and outstanding immediately prior to the Effective
Time (excluding shares held by stockholders who perfect their dissenters'
rights of appraisal as provided in Section 1.4(g) hereof) shall, by virtue of
this Agreement and without any action on the part of the holder thereof, be
converted into the right to receive, and be exchangeable for, (i) the number of
shares of S1 Common Stock which equals the number of whole shares of
VerticalOne Common Stock (rounding down where necessary) into which such share
of VerticalOne Preferred Stock would be convertible immediately prior to the
Effective Time, pursuant to VerticalOne's certificate of incorporation as in
effect at the Effective Time, multiplied by the Firm Exchange Ratio, and (ii)
the contingent right to receive up to the number of shares of S1 Common Stock
which equals the number of whole shares of VerticalOne Common Stock (rounding
down where necessary) into which such share of VerticalOne Preferred Stock
would be convertible immediately prior to the Effective Time, pursuant to
VerticalOne's certificate of incorporation as in effect at the Effective Time,
multiplied by the Escrow Exchange Ratio.
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(c) At the Effective Time, all of the shares of VerticalOne Common
Stock and VerticalOne Preferred Stock ("VerticalOne Capital Stock") converted
into S1 Common Stock pursuant to this Article I shall no longer be outstanding
and shall automatically be canceled and shall cease to exist, and each
certificate (each a "Certificate") previously representing any such shares of
VerticalOne Capital Stock shall thereafter represent the right to receive (i)
the number of whole Firm Shares (as defined below), (ii) cash in lieu of
fractional Firm Shares into which the shares of VerticalOne Capital Stock
represented by such Certificate have been converted pursuant to Section 1.4(a)
and 1.4(b) hereof, and (iii) the contingent right to receive Escrow Shares (as
defined below) as provided in the Escrow Agreement. Certificates previously
representing shares of VerticalOne Capital Stock shall be exchanged for
certificates representing whole shares of S1 Common Stock and cash in lieu of
fractional shares issued in consideration therefor upon the surrender of such
Certificates in accordance with Section 2.2 hereof, without any interest
thereon. If prior to the Effective Time, S1 should split or combine the S1
Common Stock, or pay a dividend or other distribution in S1 Common Stock, then
the Firm Exchange Ratio and the Escrow Exchange Ratio shall be appropriately
adjusted to fully reflect such split, combination, dividend or distribution.
For purposes of this Agreement, the "Firm Shares" shall mean the aggregate
number of shares of S1 Common Stock issuable pursuant to Sections 1.4(a)(i) and
1.4(b)(i) and "Escrow Shares" shall mean the aggregate number of shares of S1
Common Stock issuable pursuant to Sections 1.4(a)(ii) and 1.4(b)(ii).
(d) At the Effective Time, all shares of VerticalOne Capital Stock
that are owned by VerticalOne as treasury stock and all shares of VerticalOne
Capital Stock that are owned by S1 shall be canceled and shall cease to exist
and no stock of S1 or other consideration shall be delivered in exchange
therefor. All shares of S1 Common Stock that are owned by VerticalOne shall
become treasury stock of S1.
(e) Certificates for fractions of shares of S1 Common Stock will
not be issued. In lieu of a fraction of a share of S1 Common Stock, each
holder of VerticalOne Capital Stock otherwise entitled to a fraction of a Firm
Share shall be entitled to receive an amount of cash equal to (i) the fraction
of a share of the S1 Common Stock to which such holder would otherwise be
entitled, multiplied by (ii) the actual market value of the S1 Common Stock,
which shall be deemed to be the average of the daily closing prices per share
for S1 Common Stock for the ten consecutive trading days on which shares of S1
Common Stock are actually traded (as reported on the Nasdaq Stock Market
National Market System) ending on the third trading day preceding the date
hereof.
(f) Following consummation of the Merger, no holder of VerticalOne
Capital Stock shall be entitled to dividends or any other rights in respect of
any fraction of a share of S1 Common Stock.
(g) Any holder of shares of VerticalOne Capital Stock who perfects
such holder's dissenters' rights in accordance with and as contemplated by
Section 262 of the DGCL shall be entitled to receive such payments as may be
determined pursuant to such provision of Law; provided that no such payment
shall be made to any dissenting stockholder unless and until such dissenting
stockholder has complied with the applicable provisions of the DGCL and
surrendered to the Surviving Corporation the Certificate or Certificates
representing the shares of VerticalOne Capital Stock for which payment is
being made. In the event that after the Effective Time a dissenting
stockholder of VerticalOne fails to perfect or effectively withdraws or loses
such holder's rights to appraisal and of payment of such holder's shares of
VerticalOne Capital Stock, the Surviving Corporation shall issue and deliver
the consideration to which such holder of shares of VerticalOne Capital Stock
is entitled under this Section 1.4 (without interest) upon surrender of such
holder's Certificate or Certificates.
1.5. CONVERSION OF MERGER SUB COMMON STOCK.
Each of the shares of the common stock, par value $.01 per share, of
Merger Sub ("Merger Sub Common Stock") issued and outstanding immediately prior
to the Effective Time shall be
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cancelled and exchanged for one share of Common Stock of the Surviving
Corporation and all of the shares of Common Stock of the Surviving Corporation
issued in exchange for shares of Merger Sub Common Stock shall thereupon
constitute all of the issued and outstanding shares of the Surviving
Corporation.
1.6. OPTIONS, WARRANTS AND OTHER RIGHTS.
At the Effective Time, each option, warrant or other right or
instrument (each, an "instrument") granted by VerticalOne to purchase shares of
VerticalOne Common Stock which is outstanding and unexercised immediately prior
thereto, whether or not vested, shall be converted automatically into a
corresponding right to purchase shares of S1 Common Stock in an amount and at
an exercise price to be determined as provided below and, if applicable to any
particular instrument, subject to the terms of VerticalOne's 1998 Stock Option
Plan (the "VerticalOne Plan"):
(a) The number of shares of S1 Common Stock to be subject to the
instrument immediately after the Effective Time shall be equal to the product
of the number of shares of VerticalOne Common Stock subject to the instrument
immediately prior to the Effective Time, multiplied by the Exchange Ratio,
provided that any fractional shares of S1 Common Stock resulting from such
multiplication shall be rounded down to the nearest whole share; and
(b) The exercise price per share of S1 Common Stock under the
instrument immediately after the Effective Time shall be equal to the exercise
price per share of VerticalOne Common Stock under the instrument immediately
prior to the Effective Time divided by the Exchange Ratio, provided that such
exercise price shall be rounded up to the nearest whole cent.
The adjustment provided herein shall be and is intended to be effected
in a manner which is consistent with Section 424(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Except as set forth in SECTION 1.6 OF
THE VERTICALONE DISCLOSURE SCHEDULE, the duration, vesting schedule,
exercisability and other terms of each instrument immediately after the
Effective Time shall be the same as the corresponding terms in effect
immediately prior to the Effective Time. Except as set forth in SECTION 1.6 OF
THE VERTICALONE DISCLOSURE SCHEDULE, vesting of stock options under the
VerticalOne Plan shall not be accelerated as a result of the Merger.
Continuous employment with VerticalOne shall be credited to the optionee for
purposes of determining the vesting of all assumed VerticalOne options after
the Effective Time. It is intended that VerticalOne options assumed by S1
shall qualify following the Effective Time as incentive stock options are
defined in Section 422 of the Code to the extent such options qualified as such
immediately prior to the Effective Time and the provisions of this Section 1.6
shall be applied consistently with such intent. As soon as reasonably
practicable, but in no event more than 30 days after the Effective Time, S1
will issue to each holder of an assumed instrument notice of the foregoing
assumption by S1 of such VerticalOne instrument.
1.7. CERTIFICATE OF INCORPORATION.
At the Effective Time, the certificate of incorporation of
VerticalOne, as the Surviving Corporation, shall be amended to be the same form
of certificate of incorporation as Merger Sub, except that the name of the
Surviving Corporation shall be VerticalOne Corporation.
1.8 BYLAWS.
At the Effective Time, the bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation.
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1.9. DIRECTORS AND OFFICERS.
At the Effective Time, the directors of Merger Sub, together with
Gregg Freishtat, and the officers of VerticalOne immediately prior to the
Effective Time shall be the directors and officers of the Surviving
Corporation.
1.10. TAX CONSEQUENCES.
It is intended that the Merger shall constitute a reorganization
within the meaning of Section 368(a) of the Code, and that this Agreement shall
constitute a "plan of reorganization" for the purposes of the Code.
ARTICLE II
EXCHANGE OF SHARES AND ESCROW
2.1. S1 TO MAKE SHARES AVAILABLE.
At or prior to the Effective Time, S1 shall deposit, or shall cause to
be deposited, with S1's transfer agent, American Stock Transfer & Trust
Company, or such other bank, trust company or transfer agent as S1 may select
and is reasonably acceptable to VerticalOne (the "Exchange Agent"), for the
benefit of the holders of Certificates, for exchange in accordance with this
Article II, certificates representing the Firm Shares, cash in lieu of
fractional Firm Shares and any dividends or distributions pursuant to Section
2.2(b) hereof (such cash, dividends and certificates for shares of S1 Common
Stock being hereinafter referred to as the "Exchange Fund") to be issued
pursuant to Section 1.4 hereof and paid pursuant to Section 2.2(a) hereof in
exchange for outstanding shares of VerticalOne Capital Stock.
2.2. EXCHANGE OF SHARES.
(a) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent) and instructions for use in
effecting the surrender of the Certificates in exchange for certificates
representing Firm Shares, the cash in lieu of fractional Firm Shares into which
the shares of VerticalOne Capital Stock represented by such Certificate or
Certificates shall have been converted and any dividends or distributions
pursuant to Section 2.2(b) hereof. VerticalOne shall have the right to review
both the letter of transmittal and the instructions prior to such documents
being finalized. Upon surrender of a Certificate for exchange and cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange
therefor (x) a certificate representing that number of whole Firm Shares to
which such holder of VerticalOne Capital Stock shall have become entitled
pursuant to the provisions of Article I hereof, (y) a check representing the
amount of cash in lieu of fractional Firm Shares, if any, which such holder has
the right to receive in respect of the Certificate surrendered pursuant to the
provisions of this Article II, and (z) any dividends or distributions pursuant
to Section 2.2(b) hereof, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the cash in lieu of
fractional shares and unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) No dividends or other distributions declared after the
Effective Time with respect to S1 Common Stock and payable to the holders of
record thereof shall be paid to the holder of any unsurrendered Certificate
until the holder thereof shall surrender such Certificate in accordance with
this Article II. After the surrender of a Certificate in accordance with
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<PAGE> 9
this Article II, the record holder thereof shall be entitled to receive any
such dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to shares of S1 Common Stock
represented by such Certificate. No holder of an unsurrendered Certificate
shall be entitled, until the surrender of such Certificate, to vote the shares
of S1 Common Stock into which such holder's VerticalOne Capital Stock shall
have been converted.
(c) If any certificate representing shares of S1 Common Stock is
to be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer, and that the person requesting such exchange shall pay to
the Exchange Agent in advance any transfer or other taxes required by reason of
the issuance of a certificate representing shares of S1 Common Stock in any
name other than that of the registered holder of the Certificate surrendered,
or shall establish to the reasonable satisfaction of the Exchange Agent that
such tax has been paid or is not payable.
(d) After the close of business on the day immediately prior to
the Effective Time, there shall be no transfers on the stock transfer books of
VerticalOne of the shares of VerticalOne Capital Stock that were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for the consideration
provided in Article I.
(e) Any portion of the Exchange Fund that remains unclaimed by the
former holders of VerticalOne Capital Stock for six months after the Effective
Time will be returned to S1. Any former holders of VerticalOne Capital Stock
who have not complied with this Article II prior to such return shall
thereafter look only to S1 for payment of their Firm Shares, cash in lieu of
fractional shares and unpaid dividends and distributions on S1 Common Stock
deliverable in respect of each share of VerticalOne Capital Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of S1,
VerticalOne, the Exchange Agent or any other person shall be liable to any
former holder of shares of VerticalOne Capital Stock for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by S1, the
posting by such person of a bond in such amount as S1 may reasonably direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate a certificate representing the number of whole Firm
Shares to which the holder of such Certificate shall have become entitled
pursuant to the provisions of Article I hereof, cash in lieu of fractional
shares deliverable in respect thereof and any dividends or distributions
pursuant to Section 2.2(b) hereof pursuant to this Agreement.
(g) Whenever Firm Shares are deposited with the Exchange Agent
pursuant to Section 2.1 hereof, S1 shall also deposit the Escrow Shares,
rounded to the nearest whole share, and any dividends or distribution pursuant
to Section 2.2(b) hereof to be issued and paid pursuant to Section 1.4 hereof
with American Stock Transfer and Trust Company as escrow agent (the "Escrow
Agent") to collectively be held in escrow pursuant to the Escrow Agreement and
distributed in accordance with terms thereof.
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2.3. ESCROW AGREEMENT.
Pursuant to the escrow agreement, attached hereto as EXHIBIT B, to be
entered into among S1, the stockholder representative as named in the escrow
agreement and the Escrow Agent (the "Escrow Agreement"), the Escrow Shares and
other property to be delivered pursuant to Section 2.2(g) hereof shall be
delivered to the Escrow Agent at Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VERTICALONE
VerticalOne hereby makes the following representations and warranties
to S1 and Merger Sub as set forth in this Article III, subject to the
exceptions disclosed in writing in the VerticalOne Disclosure Schedule as of
the date hereof, each of which is being relied upon by S1 and Merger Sub as a
material inducement to enter into and perform this Agreement. All of the
disclosure schedules of VerticalOne referenced below or otherwise required
pursuant to this Agreement are referred to herein as the "VerticalOne
Disclosure Schedule."
3.1. ORGANIZATION AND STANDING.
VerticalOne is a corporation duly organized and validly existing under
the laws of the State of Delaware. VerticalOne has the full corporate power
and authority to own and operate its properties and assets, to carry on its
business as currently conducted, to execute and deliver this Agreement and,
subject to the conditions specified herein, to carry out and perform its
obligations under the terms of this Agreement. VerticalOne has furnished to S1
a true and complete copy of VerticalOne's certificate of incorporation, as
currently in effect, and a true and complete copy of VerticalOne's bylaws, as
currently in effect, in both cases, certified by its corporate secretary.
3.2. AUTHORIZATION; BINDING OBLIGATION.
VerticalOne has all requisite corporate power and authority to enter
into and to deliver this Agreement and, subject to the adoption of this
Agreement by the holders of a majority of the outstanding shares of VerticalOne
Common Stock, by the holders of a majority of the outstanding shares of
VerticalOne Series A Stock, by the affirmative vote of a majority of the votes
entitled to be cast by the holders of the outstanding shares of VerticalOne
Common Stock, VerticalOne Series A Stock and VerticalOne Series B Stock, voting
together as a single class, and by a majority of the votes entitled to be cast
by the holders of the outstanding shares of VerticalOne Series B Stock, voting
as a separate class, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of VerticalOne. The Board of Directors of VerticalOne has
declared the Merger and this Agreement advisable and directed that this
Agreement be submitted to VerticalOne's stockholders for adoption at a
VerticalOne special meeting of stockholders and, except for the adoption of
this Agreement by the requisite votes of the appropriate group of VerticalOne
stockholders, no other corporate proceedings on the part of VerticalOne (except
for matters related to setting the date, time, place and record date for such
special meeting) are necessary to approve or adopt this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by VerticalOne and (assuming due
authorization, execution and deliver by S1 and Merger Sub) constitutes a valid
and binding obligation of VerticalOne enforceable in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws effecting the enforcement of creditor's
rights.
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3.3. SUBSIDIARIES.
VerticalOne has no subsidiaries and no equity investment or other
interest in, nor has VerticalOne made advances or loans to, any corporation,
association, partnership, joint venture or other entity.
3.4. NON-CONTRAVENTION.
Neither the execution and delivery of this Agreement by VerticalOne,
nor the consummation by VerticalOne of the transactions contemplated hereby,
nor compliance by VerticalOne with any of the terms or provisions hereof, will
(i) violate any provision of the certificate of incorporation or bylaws of
VerticalOne, or (ii) assuming that the consents and approvals referred to in
Sections 3.2 and 3.12 hereof are duly obtained, (x) violate any Laws (as
defined in Section 9.13 hereof) applicable to VerticalOne or any of its
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of VerticalOne under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which VerticalOne is a
party, or by which it or any of its properties or assets may be bound or
affected, except, in each case, where such violation, conflict, breach, loss,
default, termination, cancellation or acceleration would not have a Material
Adverse Effect on VerticalOne or the Surviving Corporation.
3.5. TAXES AND TAX RETURNS.
(a) For purposes of this Section 3.5, VerticalOne shall include
VerticalOne and each other affiliated or related corporation or entity if
VerticalOne has or could have any material liability for the Taxes of such
corporation or entity. VerticalOne has duly filed all Tax Returns required to
be filed by it on or before the date hereof (all such returns being accurate
and complete in all material respects) and has duly paid or made provision in
the financial statements referred to in Section 3.8 hereof in accordance with
GAAP for the payment of all material Taxes that have been incurred or are due
or claimed to be due from it by Taxing Authorities on or before the date hereof
other than Taxes (a) that (x) are not yet delinquent or (y) are being contested
in good faith and set forth in SECTION 3.5 OF THE VERTICALONE DISCLOSURE
SCHEDULE and (b) that have not been finally determined. The charges, accruals,
and reserves with respect to Taxes in the financial statements referred to in
Section 3.8 are adequate (determined in accordance with GAAP) and are at least
equal to its liability for Taxes. There exists no proposed tax assessment
against VerticalOne except as disclosed in the financial statements referred to
in Section 3.8 hereof in accordance with GAAP. No consent to the application
of Section 341(f)(2) of the Code has been filed with respect to any property or
assets held, acquired, or to be acquired by VerticalOne. All Taxes that
VerticalOne is or was required to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper Taxing
Authority. All liability with respect to the Tax Returns of VerticalOne has
been satisfied for all years to and including 1998. No Taxing Authority has
notified VerticalOne of, or otherwise asserted, that there are any material
deficiencies with respect to the Tax Returns of VerticalOne subsequent to its
incorporation. There are no material disputes pending, or claims asserted for,
Taxes or assessments of VerticalOne, nor has VerticalOne given or been
requested to give any currently effective waiver extending the statutory period
of limitation applicable to any Tax Return. In addition, Tax Returns that are
accurate and complete in all material respects have been filed by VerticalOne
for all periods for which returns were due with respect to income and
employment tax withholding with respect to wages and other income and the
amounts shown on such Tax Returns to be due and payable have been paid in full
or adequate provision therefor in accordance with GAAP has been included by
VerticalOne in the financial statements referred to in
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Section 3.8 hereto. VerticalOne has provided or made available to S1 complete
and correct copies of its Tax Returns and all material correspondence and
documents, if any, relating directly or indirectly to Taxes for each taxable
year or other relevant period as to which the applicable statute of limitations
has not run on the date hereof. For this purpose, "correspondence and
documents" include, without limitation, amended Tax Returns, pending claims for
refunds, notices from Taxing Authorities of proposed changes or adjustments to
Taxes or Tax Returns that have not been finally resolved, consents to
assessment or collection of Taxes, acceptances of proposed adjustments, closing
agreements, rulings and determination letters and requests therefor, and all
other written communications to or from Taxing Authorities relating to any
material Tax liability of VerticalOne.
(b) For purposes of this Agreement:
"Tax" means any tax (including any income tax, capital gains
tax, value-added tax, sales tax, property tax, gift tax, or estate tax), levy
assessment, tariff, duty (including any customs duty), deficiency, or other
fee, and any related charge or amount (including any fine, penalty, interest,
or addition to tax), imposed, assessed, or collected by or under the authority
of any Taxing Authority or payable pursuant to any tax-sharing agreement or any
other contract relating to the sharing or payment of any such tax, levy,
assessment, tariff, duty, deficiency or fee.
"Tax Return" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Taxing Authority in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any law,
regulation or other legal requirement relating to any Tax.
"Taxing Authority" means any;
(a) nation, state, county, city, town, village, district
or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch,
department, official or entity and any court or other
tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of
any nature.
3.6. CAPITALIZATION.
The authorized capital stock of VerticalOne consists of 40,000,000
shares of common stock, $.001 par value per share, of which 7,552,400 shares
are issued and outstanding, and 15,980,097 shares of convertible preferred
stock (3,919,243 shares of VerticalOne Series A Stock, 7,716,050 shares of
VerticalOne Series B Stock and 4,344,804 shares of VerticalOne Series C Stock),
$.01 per value per share, of which 14,243,534 shares are issued and
outstanding, 3,919,243 of which are VerticalOne Series A Stock, 7,716,049
shares are VerticalOne Series B Stock, and 2,608,242 shares are VerticalOne
Series C Stock. SECTION 3.6 OF THE VERTICALONE DISCLOSURE SCHEDULE sets forth
a true and correct list of the shares of VerticalOne Capital Stock owned of
record and beneficially by each VerticalOne stockholder presently, to be
updated immediately prior to the Effective Time.
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2,411,500 shares of VerticalOne Common Stock are reserved for issuance of
options and 14,243,534 shares of VerticalOne Common Stock are reserved for
conversion of VerticalOne Preferred Stock. In addition, a warrant has been
granted to Jeffrey Rubin which is exercisable for 45,000 shares of VerticalOne
Common Stock for an exercise price of $.10 per share, a warrant has been issued
to Michael Karlin for 90,000 shares of VerticalOne Common Stock for an exercise
price of $.32 per share, and a warrant has been issued to S1 pursuant to the
Warrant Agreement. As of the date of this Agreement, except as set forth above,
VerticalOne does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling
for the purchase or issuance of any shares of VerticalOne Capital Stock or any
other equity securities of VerticalOne or any securities presenting the right
to purchase or otherwise receive any shares of VerticalOne Capital Stock, other
than as set forth at Section 3.6 of the VerticalOne Disclosure Schedule.
3.7. DIRECTORS, OFFICERS AND EMPLOYEES.
SECTION 3.7 OF THE VERTICALONE DISCLOSURE SCHEDULE sets forth an
accurate and complete list of all current directors, officers and employees of
VerticalOne, showing each such person's name, positions, and annual rate of
remuneration, and bonus arrangements and fringe benefits, not otherwise
required to be identified in SECTION 3.17 OF THE VERTICALONE DISCLOSURE
SCHEDULE, for the current fiscal year.
3.8. FINANCIAL STATEMENTS.
VerticalOne has prepared and furnished to S1, and there are included
as attachments to SECTION 3.8 OF THE VERTICALONE DISCLOSURE SCHEDULE, the
balance sheet of VerticalOne as of the end of the fiscal year ending December
31, 1998 and the statements of income, changes in stockholders' equity and cash
flows for such fiscal year, all of which are unaudited. VerticalOne also has
prepared and furnished to S1, and there are included as attachments to SECTION
3.8 OF THE VERTICALONE DISCLOSURE SCHEDULE, the balance sheets of VerticalOne
as of August 31, 1999, and the statements of income, changes in stockholders'
equity and cash flows for the period then ended, all of which are unaudited.
The financial statements referred to in the preceding two sentences, together
with all financial statements furnished to S1 after the date hereof pursuant to
this Agreement, are collectively referred to as the "VerticalOne Financial
Statements". The VerticalOne Financial Statements (a) are in accordance with
the books and records of VerticalOne, (b) present fairly the financial position
of VerticalOne as of the respective dates and the results of operations and
changes in financial position for the respective periods indicated, except that
unaudited interim financial statements are subject to year-end adjustments
which are not expected to be material in amount or effect, and (c) except as
indicated in the notes thereto, have been prepared in accordance with generally
accepted accounting principals ("GAAP") on a basis consistent with prior
accounting periods (except for the omission of footnotes). SECTION 3.8 OF THE
VERTICALONE DISCLOSURE SCHEDULE sets forth all changes in accounting methods
(for financial accounting purposes) at any time made, agreed to, requested or
required with respect to VerticalOne.
3.9. [OMITTED].
3.10. CONDUCT OF BUSINESS; ABSENCE OF CHANGES HAVING A MATERIAL
ADVERSE EFFECT.
Since August 31, 1999, (i) the business of VerticalOne has been
conducted only in the ordinary course of business, (ii) there have been no
changes in the business financial condition or results of operations of
VerticalOne which have had a Material Adverse Effect on VerticalOne, (iii)
VerticalOne has not incurred any material liability, except as contemplated by
this Agreement or in
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the ordinary course of business and (iv) there has been no material change in
any policy or practice followed by VerticalOne in the ordinary course of
business.
3.11. PROPERTIES AND ASSETS.
SECTION 3.11 OF THE VERTICALONE DISCLOSURE SCHEDULE lists all real
property owned by VerticalOne as of the date hereof. Except for (a) items
reflected in VerticalOne's financial statements as of August 31, 1999 referred
to in Section 3.8 hereof, (b) exceptions to title that do not interfere
materially with VerticalOne's use and enjoyment of owned or leased real
property, (c) liens for current real estate taxes not yet delinquent, or being
contested in good faith, properly reserved against (and reflected on the
financial statements referred to in Section 3.8 above), (d) properties and
assets sold or transferred in the ordinary course of business consistent with
past practices since August 31, 1999, and (e) items listed in SECTION 3.11 OF
THE VERTICALONE DISCLOSURE SCHEDULE, VerticalOne has good and, as to owned real
property, marketable and insurable title to all its properties and assets,
reflected in the VerticalOne Financial Statements, free and clear of all
encumbrances. All tangible personal property used by VerticalOne is in good
operating condition and repair (subject to ordinary wear and tear) and is
suitable and adequate for the uses for which it is intended and is being used.
There are no Laws or conditions of record which interfere with the intended use
by VerticalOne of any of the real or tangible personal property owned, leased,
or occupied by it.
3.12. CONSENTS AND APPROVAL.
(a) Except for (i) the effectiveness of a registration statement
on Form S-4 to register the shares of S1 Common Stock to be issued in
connection with the Merger (including the shares of S1 Common Stock that may be
issued upon the exercise of the options referred to in Section 1.6 hereof), and
the filing of the joint proxy statement/prospectus to be used in soliciting the
approval of VerticalOne's and S1's stockholders at the special meetings to be
held in connection with this Agreement and the transactions contemplated hereby
(the "Proxy Statement/Prospectus"), (ii) the approval of this Agreement by the
requisite votes of the stockholders of VerticalOne, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware,
(iv) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities (or related) laws and, if applicable, the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (v) such
filings, authorizations or approvals as may be set forth in SECTION 3.12(a) OF
THE VERTICALONE DISCLOSURE SCHEDULE, no consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity")- or
with any third party are necessary in connection with (1) the execution and
delivery by VerticalOne of this Agreement and (2) the consummation by
VerticalOne of the Merger and the other transactions contemplated hereby,
except, in each case, for such consents, approvals or filings, the failure of
which to obtain will not have (x) a Material Adverse Effect on the ability of
VerticalOne to consummate the transactions contemplated hereby or (y) a
Material Adverse Effect on VerticalOne, S1 or the Surviving Corporation
following the Effective Time.
(b) VerticalOne hereby represents to S1 that it has no knowledge
of any reason relating to VerticalOne why approval or effectiveness of any of
the applications, notices or filings referred to in Section 3.12(a) cannot be
obtained or granted on a timely basis.
3.13. INTELLECTUAL PROPERTY.
3.13.1 SECTION 3.13 OF THE VERTICALONE DISCLOSURE SCHEDULE sets forth
separately all patents and patent applications (domestic and foreign),
trademark registrations and trademark
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applications (domestic and foreign) and all copyright registrations (x) of which
VerticalOne is the exclusive owner, identifying the subject matter and any
related registration, (y) that VerticalOne uses pursuant to license or other
authorization of a third party, listing the subject matter, any ancillary
registration and the source of authorization and (z) that VerticalOne owns
jointly with a third party. SECTION 3.13 OF THE VERTICALONE DISCLOSURE SCHEDULE
also identifies all owned or licensed software that is integral to the delivery
by VerticalOne of the services it offers as of the date hereof to its end users.
3.13.2 VerticalOne owns or has the right to use pursuant to license,
sublicense, agreement or permission all Intellectual Property. Except as set
forth in SECTION 3.13 OF THE VERTICALONE DISCLOSURE SCHEDULE and license fees
paid in respect of "shrink-wrap" software, VerticalOne pays no royalty to
anyone with respect to any Intellectual Property. Each item of Intellectual
Property owned or used by VerticalOne immediately prior to the Closing Date
will be owned or available for use on identical terms and conditions
immediately subsequent to the Closing Date.
3.13.3 SECTION 3.13 OF THE VERTICALONE DISCLOSURE SCHEDULE identifies
each patent, franchise, trademark, copyright or other registration that has
been issued to VerticalOne with respect to any of its Intellectual Property,
identifies each pending application or application for registration that
VerticalOne has made with respect to any of its Intellectual Property and
identifies each license, agreement or other permission that VerticalOne has
granted to any third party with respect to any of its Intellectual Property
(together with any exceptions thereto). VerticalOne has made available to S1
correct and complete copies of all such patents, franchises, registrations,
applications, licenses, agreements and permissions (as amended to date) and all
other written documentation evidencing ownership and prosecution (if
applicable) of each such item. SECTION 3.13 OF THE VERTICALONE DISCLOSURE
SCHEDULE also identifies each trade name or unregistered trademark used by
VerticalOne in connection with its business. With respect to each item of
Intellectual Property required to be identified on SECTION 3.13 OF THE
VERTICALONE DISCLOSURE SCHEDULE:
(i) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling or
charge;
(ii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim or demand is pending or, to
the knowledge of VerticalOne, is threatened which
challenges the legality, validity, enforceability,
use or ownership of the item; and
(iii) VerticalOne has not licensed or permitted any third
party to use any such item.
3.13.4 VerticalOne has not infringed upon or misappropriated any
intellectual property of any third party, and VerticalOne has not received any
unresolved charge, complaint, claim, demand or notice alleging any such
infringement from any third party or misappropriation (including any claim that
VerticalOne must obtain an independent license from any third party or refrain
from using any intellectual property rights of any third party). To the
knowledge of VerticalOne, no third party has infringed upon or misappropriated
any Intellectual Property rights of VerticalOne.
3.13.5 The Software owned or purported to be owned by VerticalOne was
either (i) developed by employees of VerticalOne within the scope of their
employment; (ii) developed by independent contractors or consultants who have
assigned their rights to VerticalOne pursuant to written agreements; or (iii)
otherwise acquired by VerticalOne from a third party.
3.13.6 All employees and independent contractors and consultants of
VerticalOne have executed and delivered to VerticalOne, agreements regarding
the protection of VerticalOne's
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proprietary information and the assignment to VerticalOne of any Intellectual
Property arising from services performed for VerticalOne by such persons.
3.13.7 VerticalOne has obtained or entered into appropriate written
agreements with its employees and with third parties in connection with the
disclosure to or use or appropriation by, employees and third parties, of trade
secret or proprietary information owned by VerticalOne and not otherwise
protected by a patent, a patent application, copyright, trademark, or other
registration or legal scheme ("Confidential Information"). Except as set forth
in SECTION 3.13 OF THE VERTICALONE DISCLOSURE SCHEDULE, VerticalOne has not
furnished the source code of any of its Software products to any third party,
deposited any such source code in escrow or otherwise provided access to such
source code to any third party.
3.13.8 VerticalOne will have taken reasonable steps with the intent
of ensuring that its products (including existing products and technology and
products and technology currently under development) will, when used in
accordance with associated documentation on a specified platform or platforms,
be capable of accurately processing, providing, and receiving date data from,
into, and between the twentieth and twenty-first centuries, including the years
1999 and 2000, and, making leap year calculations, provided that all other
non-VerticalOne products (e.g., hardware, software and firmware) used in or in
combination with VerticalOne's products, properly exchange data with
VerticalOne's products, except for failures which would not be materially
adverse to the business of VerticalOne.
3.13.9 For purposes of this Section 3.13, the term "Intellectual
Property" shall mean the following items as necessary for the operation of the
business of VerticalOne of gathering of personal information from various Web
sites and delivering that information to end users over the Internet: (a)
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto and all patents, patent applications and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions and reexaminations thereof, (b)
trademarks, service marks, trade dress, logos, trade names and corporate names,
including all goodwill associated therewith and all applications, registrations
and renewals in connection therewith, (c) copyrightable works, copyrights and
all applications, registrations and renewals in connection therewith, (d) trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and
marketing plans and proposals), (e) computer software, together with all
translations, adaptations, derivations and combinations thereof (including data
and related documentation), (f) all other proprietary rights, and (g) all
copies and tangible embodiments thereof (in whatever form or medium).
3.14. CONTRACTS.
3.14.1 SECTION 3.14 OF THE VERTICALONE DISCLOSURE SCHEDULE contains
an accurate and complete list as of the date of this Agreement of: (a) all
Contracts (as defined in Section 9.13 hereof), including: (i) all Contracts for
the employment of any officer, employee, consultant or independent contractor
(other than standard offer letters which provide for no more than at-will
employment); (ii) all distributor, dealer, manufacturer's representative, sales
agency or advertising agreements; (iii) all Contracts for the future purchase,
sale or lease of materials, supplies, services, merchandise or equipment
involving payments of more than $250,000 over its remaining term (including,
without limitation, periods covered by any option to renew by either party);
(iv) all Contracts for the purchase, sale or lease of any real estate; and (v)
all Contracts granting any preferential rights to purchase any of its real or
tangible personal property, other than in the ordinary course of business; (b)
all Contracts which contains any provisions requiring VerticalOne to indemnify
any other party thereto; (c) all joint venture agreements; (d) all outstanding
loans to any affiliate of VerticalOne;
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(e) all Contracts containing Contracts not to compete and exclusivity Contracts
that impose any restriction on any business operations of VerticalOne; and (f)
all Contracts guaranteeing payment or any other obligation of any affiliate of
VerticalOne to any other Person. VerticalOne has made available to S1 true and
complete copies of each Contract listed (or required to be listed) in SECTION
3.14 OF THE VERTICALONE DISCLOSURE SCHEDULE (and all amendments and
modifications thereto) (collectively, the "Material Contracts"). VerticalOne
has performed and, to the knowledge of VerticalOne, every other party has
performed, each material term, covenant and condition of each Material Contract
that is to be performed by any of them at or before the date of this Agreement.
3.14.2 Each Material Contract, to the knowledge of VerticalOne, is in
full force and effect and constitutes a valid and binding obligation of, and is
legally enforceable against, each party thereto. There does not exist under
any Material Contract any event of default and no event has occurred that
would, with the passage of time or compliance with any applicable notice
requirements, constitute a default by VerticalOne, or, to the knowledge of
VerticalOne, any other party under the Material Contracts. Except as set forth
in SECTION 3.14 OF THE VERTICALONE DISCLOSURE SCHEDULE, to the knowledge of
VerticalOne, no party to any of the Material Contracts intends to cancel,
terminate, or exercise any option under any of the Contracts. Except as set
forth in SECTION 3.14 OF THE VERTICALONE DISCLOSURE SCHEDULE, consummation of
the transactions contemplated by this Agreement will not (and will not give any
firm, person or other entity a right to) terminate or modify any rights of, or
accelerate or increase any obligation of, VerticalOne under any Material
Contract.
3.14.3 VerticalOne, as lessee, has the right under valid and
subsisting leases to occupy, use and possess all property leased by it, and
there has not occurred under any such lease any breach, violation or default by
VerticalOne which would have a Material Adverse Effect on VerticalOne, and
VerticalOne has not experienced any material uninsured damage or destruction
with respect to such properties since December 31, 1998. VerticalOne enjoys
peaceful and undisturbed possession under all leases for the use of all
property under which it is the lessee.
3.15. BOOKS AND RECORDS.
Except as set forth in SECTION 3.15 OF THE VERTICALONE DISCLOSURE
SCHEDULE, the books of account, stock records, minute books and other records
of VerticalOne are true and complete and have been maintained in accordance
with good business practices, and the matters contained therein are
appropriately and accurately reflected in the Financial Statements.
3.16. LITIGATION; DISPUTES.
3.16.1 Except as set forth on SECTION 3.16 OF THE VERTICALONE
DISCLOSURE SCHEDULE, there are no actions, suits, claims, arbitrations,
proceedings or investigations pending, or to the knowledge of VerticalOne,
threatened or reasonably anticipated against, affecting or involving
VerticalOne or its business or properties or assets, or the transactions
contemplated by this Agreement, at law or in equity or admiralty, or before or
by any court, arbitrator or governmental authority, domestic or foreign.
VerticalOne is not operating under, subject to or in default with respect to
any order, award, writ, injunction, decree or judgment of any court, arbitrator
or governmental authority.
3.16.2 VerticalOne is not involved in or, to the knowledge of
VerticalOne, does not reasonably anticipate any dispute with any of its current
or former employees, agents, brokers, distributors, vendors, customers,
business consultants, representatives or independent contractors (or any
current or former employees of any of the foregoing persons or entities).
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3.17. PENSION AND BENEFIT PLANS.
3.17.1 SECTION 3.17 OF THE VERTICALONE DISCLOSURE SCHEDULE sets forth
a true and complete list of each employee benefit plan (within the meaning of
Section 3(3) of ERISA), arrangement or agreement that is maintained or
contributed to as of the date of this Agreement, or that has within the last
six years been maintained or contributed to, by VerticalOne or any other entity
which together with VerticalOne would be deemed a "single employer" within the
meaning of Section 4001 of ERISA or Code Sections 414(b), (c) or (m) or under
which VerticalOne has any liability (collectively, the "Plans").
3.17.2 VerticalOne has heretofore made available to S1 true, correct
and complete copies of each of the Plans and all related documents, including
but not limited to (i) the actuarial report for such Plan (if applicable) since
such Plan came into existence, (ii) the most recent determination letter from
the Internal Revenue Service (if applicable) for such Plan, (iii) the current
summary plan description and any summaries of material modification, (iv) all
annual reports (Form 5500 series) for each Plan filed since such Plan came into
existence, (v) all agreements with fiduciaries and service providers relating
to the Plan, and (vi) all substantive correspondence relating to any such Plan
addressed to or received from the Internal Revenue Service, the Department of
Labor, the Pension Benefit Guaranty Corporation or any other governmental
agency.
3.17.3 Except as set forth at SECTION 3.17 OF THE VERTICALONE
DISCLOSURE SCHEDULE, (i) each of the Plans has been operated and administered
in all material respects in compliance with applicable Laws, including but not
limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code is so qualified,
(iii) with respect to each Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such Plan, based upon the actuarial
assumptions used for funding purposes in the most recent actuarial report
prepared by such Plan's actuary with respect to such Plan, did not, as of its
latest valuation date, exceed the then current value of the assets of such Plan
allocable to such accrued benefits, (iv) no Plan provides benefits, including,
without limitation, death or medical benefits (whether or not insured), with
respect to current or former employees of VerticalOne beyond their retirement
or other termination of service, other than (w) coverage mandated by applicable
Law, (x) death benefits or retirement benefits under a Plan that is an
"employee pension plan," as that term is defined in Section 3(2) of ERISA, (y)
deferred compensation benefits under a Plan that are accrued as liabilities on
the books of VerticalOne, or (z) benefits the full cost of which is borne by
the current or former employee (or his beneficiary), (v) no liability under
Title IV of ERISA has been incurred by VerticalOne that has not been satisfied
in full, and no condition exists that presents a material risk to VerticalOne
incurring a material liability thereunder, (vi) no Plan is a "multi employer
pension plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by VerticalOne as of the Effective Time
with respect to each Plan and all other liabilities of VerticalOne with respect
to each Plan, in respect of current or prior plan years have been paid or
accrued in accordance with generally accepted accounting practices and Section
412 of the Code, (viii) VerticalOne has not engaged in a transaction in
connection with which VerticalOne could be subject to either a civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant
to Section 4975 or 4976 of the Code, (ix) to the knowledge of VerticalOne,
there are no pending, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Plans or any trusts
related thereto, and (x) all Plans (other than Plans providing for the payment
of benefits from the general assets of VerticalOne) could be terminated as of
the Effective Time without material liability; (xi) no Plan, program, agreement
or other arrangement, either individually or collectively, provides for any
payment by VerticalOne that would not be deductible under Code Sections
162(a)(1), 162(m) or 404 or that would constitute a "parachute payment" within
the meaning of Code Section 280G; (xii) no "accumulated funding deficiency" as
defined in Section 302(a)(2) of ERISA or Section 412 of the Code, whether or
not waived, and no "unfunded current liability" as determined under Section
412(l) of the Code exists with respect to any Plan; and (xiii) no Plan has
experienced a "reportable event" (as such term is defined in Section
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4043(b) of ERISA) that is not subject to an administrative or statutory waiver
from the reporting requirement.
3.18. COMPLIANCE WITH APPLICABLE LAWS.
VerticalOne has not received any notice of any alleged violation of
any federal, state or local Law relating to VerticalOne or the assets or
properties of VerticalOne.
3.19. FEES AND EXPENSES OF BROKERS AND OTHERS.
Except as set forth in SECTION 3.19 OF THE VERTICALONE DISCLOSURE
SCHEDULE, no agent, broker, investment or commercial banker, person or firm
acting on behalf of VerticalOne is or will be entitled to any broker's or
finder's fee or any other commission or similar fee directly or indirectly in
connection with any of the transactions contemplated by this Agreement.
3.20. DISCLOSURE.
None of the information supplied or to be supplied by or on behalf of
VerticalOne for inclusion in the Registration Statement will, at the time the
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to make the statements made therein, not misleading, except that no
representation or warranty is made by VerticalOne with respect to statements
made or incorporated by reference therein about S1 or Merger Sub. None of the
information supplied or to be supplied by or on behalf of VerticalOne for
inclusion in the Joint Proxy Statement/Prospectus will, at the time the Joint
Proxy Statement/Prospectus is mailed to the stockholders of VerticalOne or S1,
at the time of VerticalOne Special Meeting or the S1 Special Meeting or as of
the Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein in order to make the
statements made therein, in the light of the circumstances under which they
were made, no misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF S1
S1 hereby makes the following representations and warranties to
VerticalOne as set forth in this Article IV, subject to the exceptions
disclosed in writing in the S1 Disclosure Schedule as of the date hereof, each
of which is being relied upon by VerticalOne as a material inducement to enter
into and perform this Agreement. All of the disclosure schedules of S1
referenced below or otherwise required of S1 pursuant to this Agreement are
referred to herein as the "S1 Disclosure Schedule."
4.1. ORGANIZATION AND STANDING.
(a) S1 is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. S1 has the full
corporate power and authority to own and operate its properties and assets, to
carry on its business as currently conducted, to execute and deliver this
Agreement, to sell and issue the S1 Common Stock hereunder, and, subject to the
conditions specified herein, to carry out and perform its obligations under the
terms of this Agreement. S1 has furnished to VerticalOne a true and complete
copy of S1's certificate of incorporation, as currently in effect, and a true
and complete copy of S1's bylaws, as currently in effect, in both cases,
certified by its corporate secretary.
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(b) Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Each Subsidiary
of S1 (each, a "S1 Subsidiary") and the jurisdiction of its organization is set
forth at SECTION 4.1 OF THE S1 DISCLOSURE SCHEDULE. Each S1 Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization except as set forth at SECTION 4.1
OF THE S1 DISCLOSURE SCHEDULE. Each S1 Subsidiary has the corporate power and
authority to own or lease all of its properties and assets and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business in each jurisdiction in which the nature of any material business
conducted by it or the character or location of any material properties or
assets owned or leased by it makes such licensing or qualification necessary.
The chartering and other corporate governance documents of each S1 Subsidiary,
copies of which have previously been made available to VerticalOne, are true,
correct and complete copies of such documents as in effect as of the date of
this Agreement.
4.2. AUTHORIZATION; BINDING OBLIGATION.
(a) S1 has all requisite corporate power and authority to enter
into and to deliver this Agreement, and, subject to approval by the holders of
a majority of the shares of S1 Common Stock represented in person or by proxy
at the S1 Special Meeting at which the issuance of the shares of S1 Common
Stock in the Merger contemplated hereby is considered, to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of S1. The Board of Directors of S1
has declared the issuance of the shares of S1 Common Stock in the Merger and
this Agreement advisable and directed that the issuance of the shares of S1
Common Stock in the Merger be submitted to S1's stockholders for approval at
the S1 Special Meeting and, except for the approval of such matter by the
requisite vote of S1's stockholders, no other corporate proceedings on the part
of S1 (except for matters related to setting the date, time, place and record
date for the S1 Special Meeting) are necessary to approve this Agreement or to
consummate the transactions contemplated hereby. This Agreement, has been duly
and validly executed and delivered by S1, and constitutes a valid and binding
obligation of S1 enforceable in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws effecting the enforcement of creditor's rights.
(b) Merger Sub has all requisite corporate power and authority to
enter into and to deliver this Agreement, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
approved by the Board of Directors of Merger Sub. The Board of Directors of
the Merger Sub has declared this Agreement advisable and directed the approval
of this Agreement and the Merger be submitted to Merger Sub's stockholder for
approval by such stockholder and, except for the approval of such matters by
the required vote of Merger Sub's stockholder, no other corporate proceedings
on the part of Merger (except for matters related to setting the date, time,
place and record date for the special meeting, if applicable) are necessary to
approve this Agreement or to consummate the transactions contemplated hereby.
This Agreement, has been duly and validly executed and delivered by Merger Sub
and constitutes a valid and binding obligation of Merger Sub enforceable in
accordance with its terms, except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws effecting the
enforcement of creditor's rights.
4.3. SUBSIDIARIES.
S1's direct subsidiaries are Security First Technologies, Inc.,
Horizontal Corporation, Sahara Strategy Corporation, S1 Europe Holdings, N.V.
and Security First Technologies Holding LLC, and S1 does not otherwise directly
own any other corporation, association or business entity.
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4.4. CAPITALIZATION; VALIDITY OF SHARES; ISSUANCE.
(a) The authorized capital stock of S1 consists of (i) 350,000,000
shares of S1 Common Stock, of which 27,674,239 shares were outstanding at
August 31, 1999 and (ii) 25,000,000 shares of serial preferred stock, par value
$.01 per share ("S1 Preferred Stock"), 1,637,832 shares of which were
designated as "Series A Convertible Preferred Stock," 749,064 of which were
designated as "Series B Redeemable Convertible Preferred Stock" and 215,000
shares of which were designated as "Series C Redeemable Convertible Preferred
Stock." At August 31, 1999, 391,450 shares of Series A Convertible Preferred
Stock, 749,064 shares of Series B Redeemable Convertible Preferred Stock and
215,000 shares of Series C Redeemable Convertible Preferred Stock were
outstanding. At such date, there were 13,953,024 shares of S1 Common Stock
reserved for issuance pursuant to employee stock options (of which options for
8,960,912 shares are currently outstanding). All of the issued and outstanding
shares of S1 Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof, and upon issuance in accordance
with the terms hereof, the shares of S1 Common Stock to be issued in the Merger
are duly authorized and upon issuance in accordance with the terms hereof, will
be validly issued, and fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof. As of the date
of this Agreement, except as set forth above, S1 does not have and is not bound
by any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of S1 Common Stock or S1 Preferred Stock or any other equity securities of S1
or any securities presenting the right to purchase or otherwise receive any
shares of S1 Common Stock or S1 Preferred Stock, other than as set forth at
SECTION 4.4(a) OF THE S1 DISCLOSURE SCHEDULE.
(b) Except as set forth at SECTION 4.4(b) OF THE S1 DISCLOSURE
SCHEDULE, S1 owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the S1 Subsidiaries, free and clear of all
liens, charges, encumbrances and security interests whatsoever, and all of such
shares are duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof. No S1 Subsidiary has or is bound by any outstanding
subscriptions, options, warrants, calls, commitments or agreements of any
character calling for the purchase or issuance of any shares of capital stock
or any other equity security of such Subsidiary or any securities representing
the right to purchase or otherwise receive any shares of capital stock or any
other equity security of such Subsidiary.
4.5. NON-CONTRAVENTION.
Neither the execution and delivery of this Agreement by S1 or Merger
Sub nor the consummation by S1 or Merger Sub of the transactions contemplated
hereby or thereby, nor compliance by S1 or Merger Sub with any of the terms or
provisions hereof or thereof, will (i) violate any provision of (x) the Amended
and Restated Certificate of Incorporation or Amended and Restated Bylaws of S1
or (y) the certificate of incorporation or bylaws of Merger Sub, or (ii)
assuming that the consents and approvals referred to in Sections 4.2 and 4.8
are duly obtained, (x) violate any Laws applicable to S1 or Merger Sub or any
of their properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of S1 or Merger Sub
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or other instrument or
obligation to which S1 or Merger Sub is a party, or by which S1 or Merger Sub
or any of their properties or assets may be bound or affected, except, in each
case, where such violation, conflict, breach, loss, default, termination,
cancellation or acceleration would not have a Material Adverse Effect on S1.
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4.6. FINANCIAL STATEMENTS; EXCHANGE ACT FILINGS; BOOKS AND RECORDS.
S1 has previously made available to VerticleOne true, correct and
complete copies of the consolidated balance sheets of S1 and its Subsidiaries
as of December 31 for the fiscal years 1998 and 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the fiscal years 1996 through 1998, inclusive, as reported in S1's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998, filed with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), in each case accompanied by the audit
report of KPMG LLP, independent public accountants with respect to S1, and the
interim financial statements of S1 as of and for the six months ended June 30,
1999 and 1998, as included in S1's quarterly report on Form 10-Q for the
quarter ended June 30, 1999, as filed with the SEC. The financial statements
referred to in this Section 4.6 (including the related notes, where applicable)
(the "S1 Financial Statements") fairly present (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in nature and
amount) the results of the consolidated operations and consolidated financial
condition of S1 and its Subsidiaries for the respective fiscal periods or as of
the respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply with applicable accounting requirements
and with the published rules and regulations of the SEC with respect thereto;
and each of such statements (including the related notes, where applicable) has
been prepared in accordance with GAAP consistently applied during the periods
involved, except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q or any successor form. S1's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 and all
subsequently filed reports under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act comply in all material respects with the appropriate requirements
for such reports under the Exchange Act, and S1 has previously made available
to VerticalOne true, correct and complete copies of such reports. The books
and records of S1 and its Subsidiaries have been, and are being, maintained in
all material respects in accordance with GAAP and any other applicable legal
and accounting requirements.
4.7. PROPERTIES AND ASSETS.
Except for (a) items reflected in S1's consolidated financial
statements as of December 31, 1998 referred to in Section 4.6 hereof, (b)
exceptions to title that do not interfere materially with S1's use and
enjoyment of owned or leased real property, (c) liens for current real estate
taxes not yet delinquent, or being contested in good faith, properly reserved
against (and reflected on the financial statements referred to in Section 4.6
above), (d) properties and assets sold or transferred in the ordinary course of
business consistent with past practices since December 31, 1998, and (e) items
listed in SECTION 4.7 OF THE S1 DISCLOSURE SCHEDULE, S1 (for purposes of this
section, including its Subsidiaries) has good, and as to real property, valid
and marketable title to all of its properties and assets reflected in the S1
Financial Statements, free and clear of all encumbrances, except as set forth
in the S1 Financial Statements. All personal property used by S1 is in good
operating condition and repair (subject to ordinary wear and tear) and is
suitable and adequate for the uses for which it is intended or is being used.
Each of S1 and its Subsidiaries owns or possesses the right to use all material
trademarks, service marks, trade names, copyrights, patents, and licenses
currently used by it in the conduct of its business. No material product or
service offered and no material trademark, service mark, or similar right used
by S1 or its Subsidiaries infringes any rights or patents of any other person,
and, as of the date hereof, neither S1 nor any of its Subsidiaries has received
any written or oral notice of any claim of such infringement. There are no
Laws, conditions of record, or other impediments which interfere with the
intended use by S1 of any of the property owned, leased, or occupied by it.
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4.8. CONSENTS AND APPROVAL.
(a) Except for (i) the effectiveness of a registration statement
containing the Proxy Statement/Prospectus in connection with obtaining
stockholder approval of the S1 Issuance by the requisite vote of stockholders
of S1, (ii) the approval of this Agreement and the issuance of S1 Common Stock
in the Merger by the requisite vote of the stockholders of S1 and Merger Sub,
respectively, (iii) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required
under applicable federal and state securities (or related) laws and, if
applicable, the HSR Act, (v) such filings and approvals as are required to be
made or obtained with Nasdaq (or such other exchange as may be applicable) in
connection with the issuance of the shares of S1 Common Stock pursuant to this
Agreement, and (vi) such other consents and approvals as may be set forth in
SECTION 4.8 OF THE S1 DISCLOSURE SCHEDULE, no consents or approvals of or
filings or registrations with any Governmental Entity or with any third party
are necessary in connection with (1) the execution and delivery by S1 and
Merger Sub of this Agreement and (2) the consummation by S1 and Merger Sub of
the Merger, the S1 Issuance and the other transactions contemplated hereby,
except for such consents, approvals or filings the failure of which to obtain
will not have (x) a Material Adverse Effect on the ability of S1 or Merger Sub
to consummate the transactions contemplated hereby or (y) a Material Adverse
Effect on VerticalOne, S1 or the Surviving Corporation following the Effective
Time.
(b) S1 hereby represents to VerticalOne that it has no knowledge
of any reason relating to S1 or its Subsidiaries why approval or effectiveness
of any of the applications, notices or filings referred to in Section 4.8(a)
cannot be obtained or granted on a timely basis.
4.9. LITIGATION; DISPUTES.
Except as set forth in SECTION 4.9 OF THE S1 DISCLOSURE SCHEDULE,
there are no actions, suits, claims, arbitrations, proceedings or
investigations pending, or to the knowledge of S1, threatened or reasonably
anticipated against, affecting or involving S1 or its business or properties or
assets, or the transactions contemplated by this Agreement, at law or in equity
or admiralty, or before or by any court, arbitrator or governmental authority,
domestic or foreign in each case which will have a Material Adverse Effect on
S1. S1 is not operating under, subject to or in default with respect to any
order, award, writ, injunction, decree or judgment of any court, arbitrator or
governmental authority.
4.10. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Except as disclosed in its reports filed prior to the date hereof
under the Exchange Act, there have been no changes in the business, operations,
results of operations or financial condition of S1 and its Subsidiaries which
have had a Material Adverse Effect on S1, and since December 31, 1998 neither
S1 nor any of its Subsidiaries has incurred any material liability, except as
contemplated hereby or in the ordinary course of their business consistent with
their past practices and which has not had a Material Adverse Effect on S1.
Since December 31, 1998, S1 and its Subsidiaries have carried on their
respective businesses in the ordinary and usual course consistent with their
past practices.
4.11. COMPLIANCE WITH APPLICABLE LAWS.
Neither S1 nor any Subsidiary thereof has received any notice of any
alleged violation, of any federal, state or local Law relating to S1, its
Subsidiaries or the assets or properties of S1 or its Subsidiaries.
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<PAGE> 24
4.12. TAXES AND TAX RETURNS.
For purposes of this Section 4.12, S1 shall include S1 and each S1
Subsidiary and each other affiliated or related corporation or entity if S1 or
any S1 Subsidiary has or could have any material liability for the Taxes of
such corporation or entity. S1 has duly filed all Tax Returns required to be
filed by it on or before the date hereof (all such returns being accurate and
complete in all material respects) and has duly paid or made provision in the
financial statements referred to in Section 4.6 hereof in accordance with GAAP
for the payment of all material Taxes that have been incurred or are due or
claimed to be due from it by Taxing Authorities on or before the date hereof
other than Taxes (a) that (x) are not yet delinquent or (y) are being contested
in good faith and set forth in SECTION 4.12 OF THE S1 DISCLOSURE SCHEDULE and
(b) that have not been finally determined. The charges, accruals, and reserves
with respect to Taxes in the financial statements referred to in Section 4.6
are adequate (determined in accordance with GAAP) and are at least equal to its
liability for Taxes. There exists no proposed tax assessment against S1 except
as disclosed in the financial statements referred to in Section 4.6 hereof in
accordance with GAAP. No consent to the application of Section 341(f)(2) of
the Code has been filed with respect to any property or assets held, acquired,
or to be acquired by S1. All Taxes that S1 is or was required to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Taxing Authority. All liability with respect to the
Tax Returns of S1 has been satisfied for all years to and including 1998. No
Taxing Authority has notified S1 of, or otherwise asserted, that there are any
material deficiencies with respect to the Tax Returns of S1 subsequent to 1994.
There are no material disputes pending, or claims asserted for, Taxes or
assessments of S1, nor has S1 given or been requested to give any currently
effective waiver extending the statutory period of limitation applicable to any
Tax Return. In addition, Tax Returns that are accurate and complete in all
material respects have been filed by S1 for all periods for which returns were
due with respect to income and employment tax withholding with respect to wages
and other income and the amounts shown on such Tax Returns to be due and
payable have been paid in full or adequate provision therefor in accordance
with GAAP has been included by S1 in the financial statements referred to in
Section 4.6 hereto. All S1 Tax Returns have been examined by the relevant
Taxing Authorities, or closed without audit by applicable statutes of
limitations, and all deficiencies proposed as a result of such examinations
have been paid or settled, for all periods before and including the taxable
year ended December 31, 1994. S1 has provided or made available to VerticalOne
complete and correct copies of its Tax Returns and all material correspondence
and documents, if any, relating directly or indirectly to Taxes for each
taxable year or other relevant period as to which the applicable statute of
limitations has not run on the date hereof. For this purpose, "correspondence
and documents" include, without limitation, amended Tax Returns, pending claims
for refunds, notices from Taxing Authorities of proposed changes or adjustments
to Taxes or Tax Returns that have not been finally resolved, consents to
assessment or collection of Taxes, acceptances of proposed adjustments, closing
agreements, rulings and determination letters and requests therefor, and all
other written communications to or from Taxing Authorities relating to any
material Tax liability of S1.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. COVENANTS OF VERTICALONE.
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, except
as expressly contemplated or permitted by this Agreement or with the prior
written consent of S1, VerticalOne shall carry on its business in the ordinary
course consistent with past practices. VerticalOne will use its reasonable
efforts to (x) preserve its business organization intact, (y) keep available to
itself and S1 the present services of the employees of VerticalOne and (z)
preserve for itself and S1 the goodwill of the customers of
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VerticalOne and others with whom business relationships exist. Without
limiting the generality of the foregoing, and except as set forth in the
VERTICALONE DISCLOSURE SCHEDULE or as otherwise contemplated by this Agreement
or consented to by S1 in writing, VerticalOne shall not:
(a) declare or pay any dividends on, or make other distributions
in respect of, any of its capital stock;
(b) (i) split, combine or reclassify any shares of its capital
stock or issue, authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(ii) repurchase, redeem or otherwise acquire (except repurchases of unvested
shares in connection with the termination of the employee relationship with any
employee pursuant to and in accordance with stock option or purchase agreements
in effect on the date of this Agreement or entered into after the date of the
Agreement in compliance herewith), any shares of the capital stock of
VerticalOne, or any securities convertible into or exercisable for any shares
of the capital stock of VerticalOne;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock, or enter into any
agreement with respect to any of the foregoing, except upon the conversion of
shares of the Preferred Stock in accordance with VerticalOne's certificate of
incorporation or the exercise or fulfillment of instruments, all to the extent
outstanding and in existence on the date of this Agreement or issued after the
date of this Agreement in compliance herewith;
(d) amend its certificate of incorporation, bylaws or other
similar governing documents;
(e) authorize or permit any of its officers, directors, employees
or agents to, directly or indirectly, solicit, initiate or knowingly encourage
any inquiries relating to, or the making of any proposal for, hold substantive
discussions or negotiations with, knowingly provide any information to, any
person, entity or group (other than S1) concerning any Acquisition Transaction
(as defined below), or approve, endorse or recommend any such proposal or enter
into any letter of intent or similar document or any contract, agreement or
commitment relating to any Acquisition Transaction. VerticalOne will promptly
cease and cause to be terminated any existing activities, discussions or
negotiations previously conducted with any parties other than S1 with respect
to any of the foregoing. As used in this Agreement, Acquisition Transaction
shall mean any offer, proposal or expression of interest relating to (i) any
tender or exchange offer, (ii) merger (other than the Merger), consolidation or
other business combination involving VerticalOne or (iii) the acquisition in
any manner of a substantial equity interest in, or a substantial portion of the
assets of VerticalOne other than the transactions contemplated or permitted by
this Agreement, involving or contemplating the acquisition or purchase of more
than 20%, in the case of any class or series of capital stock, or 20%, in the
case of the assets of VerticalOne, as well as any lease or sale transaction out
of the ordinary course of business of more than 20% of the assets of
VerticalOne or any liquidation or dissolution of VerticalOne;
(f) make capital expenditures aggregating in excess of $250,000;
(g) enter into any new line of business or, except in the ordinary
course of business, or enter into any material contract (as defined in Item
601(b)(10) of Regulation S-K), or other contract requiring aggregate payments
exceeding $100,000 or (ii) modify, amend or transfer in any material respect,
or terminate, any material contact to which VerticalOne is a party or waive,
release, or assign any material rights thereunder;
(h) acquire or agree to acquire, by merging or consolidating with,
or by purchasing an equity interest in or a material amount of assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise
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<PAGE> 26
acquire any material amount of assets, other than in connection with
foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings, or in the ordinary course of business;
(i) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being or becoming untrue or in any of the conditions to the Merger
set forth in Article VII not being satisfied, or in a violation of any
provision of this Agreement, except, in every case, as may be required by
applicable law;
(j) change its methods of accounting in effect at December 31,
1998 except as required by changes in GAAP as concurred to by S1's independent
auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate the
VerticalOne Plan or any agreement, arrangement, plan or policy between
VerticalOne and one or more of its current or former directors or officers,
(ii) increase in any manner the compensation of any employee or director or
pay any benefit not required by any plan or agreement as in effect as of the
date hereof (including, without limitation, the granting of stock options,
stock appreciation rights, restricted stock, restricted stock units or
performance units or shares) other than normal course increases in pay,
consistent with past practice, (iii) enter into, modify or renew any contract,
agreement, commitment or arrangement providing for the payment to any director,
officer or employee of compensation or benefits, other than normal increases in
pay, consistent with past practice, (iv) hire any new employee at an annual
base salary compensation in excess of $150,000, (v) pay expenses of any
employees or directors for attending conventions or similar meetings which
conventions or meetings are held after the date hereof, other than in the
ordinary course of business consistent with past practices; (vi) promote any
employee other than consistent with past practices, or (vi) pay any retention
or other bonuses to any employees;
(l) except for short-term borrowings with a maturity of one year
or less in the ordinary course of business consistent with past practices,
incur any indebtedness for borrowed money, assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity;
(m) sell or purchase any real property or enter into a lease,
relocate, open or close any office, except that VerticalOne may enter into a
lease and open an office at a to-be-determined location in Northern California;
(n) make any equity investment or commitment to make such an
investment in any entity or real estate;
(o) waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of any options or restricted stock, or reprice
options granted under any employee, consultant, director or other stock plans
or authorize cash payments in exchange for any options granted under any of
such plans;
(p) transfer or license to any person or entity or otherwise
extend, amend or modify in any material respect any rights to material
Intellectual Property other than in the ordinary course of business, or enter
into grants to future patent rights, other than as may be required by
applicable Laws;
(q) agree or commit to do any of the actions set forth in (a) -
(p) above.
The consent of S1 to any action by VerticalOne that is not permitted by any of
the preceding paragraphs shall be evidenced by a writing signed by the
President or any Executive Vice President of S1.
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ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. REGULATORY MATTERS.
(a) Upon the execution and delivery of this Agreement, S1 and
VerticalOne (as to information to be included therein pertaining to
VerticalOne) shall promptly cause to be prepared and filed with the SEC a
registration statement of S1 on Form S-4, including the joint proxy statement -
prospectus (the "Joint Proxy Statement/Prospectus") to be delivered to the
VerticalOne and S1 stockholders in connection with the Merger (the
"Registration Statement") for the purpose of registering the S1 Common Stock to
be issued in the Merger, and for soliciting the approval of this Agreement and
the Merger by the stockholders of VerticalOne and S1. S1 and VerticalOne shall
use their reasonable best efforts to have the Registration Statement declared
effective by the SEC as soon as possible after the filing. The parties shall
each promptly notify the other upon the receipt of any comments from the SEC or
its staff, or any other governmental officials, supply each other with all such
correspondence with any Governmental Entity other than confidential
information, and cooperate in responding to and considering any questions or
comments from the SEC staff regarding the information contained in the
Registration Statement. If at any time after the Registration Statement is
filed with the SEC, and prior to the Closing Date, any event relating to S1 or
VerticalOne is discovered by such party which should be set forth in an
amendment of, or a supplement to, the Registration Statement, including the
Joint Proxy Statement/Prospectus, such party shall promptly inform the other,
and shall furnish all necessary information relating to such event whereupon
the appropriate party shall promptly cause an appropriate amendment to the
Registration Statement or supplement to the Joint Proxy Statement/Prospectus to
be filed with the SEC. Upon the effectiveness of such amendment or supplement,
the parties (if prior to the meetings of stockholders pursuant to Section 6.3
hereof) will take all necessary action as promptly as practicable to permit an
appropriate amendment or supplement to be transmitted to their stockholders
entitled to vote at such meetings. S1 shall also use reasonable efforts to
obtain all necessary state securities law or "Blue Sky" permits and approvals
required to carry out the transactions contemplated by this Agreement. Each
party shall furnish all information as may be reasonably requested by the other
in connection with any such action.
(b) As promptly as practicable following the execution and
delivery of this Agreement, if applicable, each of VerticalOne and S1 will
prepare and file with the United States Federal Trade Commission (the "FTC")
and the Antitrust Division of the United States Department of Justice (the
"DOJ") Notification and Report Forms relating to the transactions contemplated
herein if and as required by the HSR Act, as well as comparable pre-merger
notification forms required by the merger notification or control laws and
regulations of any applicable jurisdiction, as agreed by the parties (the
"Antitrust Filings"). The parties will comply with any requests for additional
information relating to the Antitrust Filings and will use their reasonable
best efforts to secure all required approvals of the Antitrust Filings.
(c) The parties hereto shall cooperate with each other and use
their reasonable best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings
(which shall include the Antitrust Filings), and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger). VerticalOne and S1 shall have the right to review in
advance, and to the extent practicable each will consult the other on, in each
case subject to applicable laws relating to the exchange of information, all
the information relating to VerticalOne or S1 and Merger Sub, as the case may
be, which appears in any filing made with, or written materials submitted to,
any third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement and will promptly notify each other of any
communication with any Governmental Entity and provide the other with an
opportunity to participate in any meetings with
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a Governmental Entity relating thereto; provided, however, that nothing
contained herein shall be deemed to provide either party with a right to review
any information provided to any Governmental Entity on a confidential basis in
connection with the transactions contemplated hereby. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as
promptly as practicable. The parties hereto agree that they will consult with
each other with respect to the obtaining of all permits, consents, approvals
and authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and
each party will keep the other apprised of the status of matters relating to
contemplation of the transactions contemplated herein.
(d) Each of S1 and VerticalOne shall use its reasonable best
efforts to resolve objections, if any, which may be asserted with respect to
the Merger under antitrust laws, including, without limitation, the HSR Act.
In the event a suit is threatened or instituted challenging the Merger as
violative of antitrust laws, each of S1 and VerticalOne shall use its
reasonable best efforts to avoid the filing of, or resist or resolve such suit.
S1 and VerticalOne shall use their reasonable best efforts to take such action
as may be required by: (x) the DOJ or the FTC in order to resolve such
objections as either of them may have to the Merger under antitrust laws, or
(y) any federal or state court of the United States, in any suit brought by a
private party or Governmental Entity challenging the Merger as violative of
antitrust laws, in order to avoid the entry of, or to effect the dissolution
of, any injunction, temporary restraining order, or other order which has the
effect of preventing the consummation of the Merger. Reasonable best efforts
shall not include the willingness of S1 to accept an order agreeing to the
divestiture, or the holding separate, of any assets of S1 or VerticalOne which
S1 reasonably determines to be material to S1 or to benefits of the transaction
for which it has bargained for hereunder.
(e) S1 and VerticalOne shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
6.2. ACCESS TO INFORMATION.
(a) Upon reasonable notice and subject to applicable Laws relating
to the exchange of information, VerticalOne shall provide to the officers,
employees, accountants, counsel and other representatives of S1 and Merger Sub,
access, during normal business hours during the period prior to the Effective
Time, to all its properties, books, contracts, commitments and records and,
during such period, VerticalOne shall make available to S1 all information
concerning its business, properties and personnel as S1 may reasonably request
(except as to information which is confidential or competitively sensitive
("Confidential Matters")) provided that such investigation shall be reasonably
related to the transactions contemplated hereby and shall not interfere
unnecessarily with normal operations. Each party will hold all such
information in confidence to the extent required by, and in accordance with,
the provisions of the confidential information and non-disclosure agreement
between the parties dated September 10, 1999 (the "Confidentiality Agreement").
The parties agree and acknowledge that the Confidentiality Agreement will
continue in full force and effect in accordance with its terms.
(b) Upon reasonable notice and subject to applicable Laws relating
to the exchange of information, S1 shall, and shall cause Merger Sub to,
provide to the officers, employees, accountants, counsel and other
representatives of VerticalOne, access, during normal business hours during the
period prior to the Effective Time, to such information regarding S1, (except
as to Confidential Matters), as shall be reasonably necessary for VerticalOne
to fulfill its obligations pursuant to this Agreement or which may be
reasonably necessary for VerticalOne to confirm that the
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representations and warranties of S1 contained herein are true and correct and
that the covenants of S1 contained herein have been performed in all material
respects. S1 also will provide a copy of each report, schedule, registration
statement and other document filed by it during such period pursuant to the
requirements of federal securities laws and all other information concerning
its business as VerticalOne may reasonably request (except Confidential
Matters). VerticalOne will hold all such information in confidence to the
extent required by, and in accordance with, the provisions of the
Confidentiality Agreement.
(c) No investigation by either of the parties or their respective
representatives shall affect the representations and warranties or covenants of
the other set forth herein.
(d) VerticalOne shall provide S1 with true, correct and complete
copies of all financial information provided to the directors of VerticalOne in
connection with meetings of its Board of Directors or committees thereof,
except as to Confidential Matters. S1 shall provide the chief executive office
of VerticalOne true, correct and complete copies of all financial information
provided to the directors of S1 in connection with meetings of its board of
Directors or committees thereof, except as to Confidential Information.
6.3. STOCKHOLDER MEETINGS.
(a) VerticalOne shall take all steps necessary to duly call, give
notice of, convene and hold a meeting of its stockholders within 45 days after
the Registration Statement becomes effective for the purpose of voting upon the
adoption of this Agreement (the "VerticalOne Special Meeting"). The Board of
Directors of VerticalOne shall declare the advisability of the Merger and
recommend to VerticalOne's stockholders adoption of this Agreement, together
with any matters incident thereto, and shall oppose and third party proposal or
other action that is inconsistent with this Agreement or the consummation of
the transactions contemplated hereby, unless the Board of Directors of
VerticalOne reasonably determines, following consultation with VerticalOne's
legal counsel, that to declare the Merger inadvisable or to withdraw such
recommendation or opposition, as the case may be, would be required in the
exercise of its fiduciary duties.
(b) S1 shall take all steps necessary to duly call, give notice
of, convene and hold a meeting of its stockholders within 45 days after the
Registration Statement becomes effective for the purpose of voting upon the
approval of S1 issuing of shares of S1 Common Stock in the Merger so that it
may perform its obligations under Article II hereof, and to increase the number
of shares available under its Stock Option Plan so that it may perform its
obligations under Section 6.6 hereof (the "S1 Special Meeting"). The Board of
Directors of S1 shall recommend to S1's stockholders approval of such issuance
of S1 Common Stock.
(c) The Board of Directors of S1 shall approve the Merger as the
sole stockholder of Merger Sub. S1 shall vote, and shall cause each of its
Subsidiaries to vote, all shares of VerticalOne Capital Stock owned by it or
any of its Subsidiaries in favor of adoption of this Agreement.
(d) VerticalOne and S1 will coordinate and cooperate with respect
to the timing of, calling, mailing notice and convening the VerticalOne Special
Meeting and the S1 Special Meeting.
6.4. LEGAL CONDITIONS TO MERGER.
Each of S1 and VerticalOne shall use their reasonable best efforts (a)
to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
with respect to the Merger and, subject to the conditions set forth in Article
VII hereof, to consummate the transactions contemplated by this Agreement and
(b) to obtain (and to cooperate with the other party to obtain) any consent,
authorization, order or
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approval of, or any exemption by, any Governmental Entity and any other third
party which is required to be obtained by VerticalOne or S1 in connection with
the Merger and the other transactions contemplated by this Agreement.
6.5. STOCK EXCHANGE LISTING.
S1 shall cause the shares of S1 Common Stock to be issued in the
Merger and pursuant to VerticalOne options assumed hereunder to be approved for
quotation on the Nasdaq Stock Market National Market System (or any national
securities exchange on which the S1 Common Stock has become listed, or approved
for listing) prior to the Closing.
6.6. EMPLOYEES.
(a) S1 agrees that, in connection with the Merger, 2.0 million
shares of S1 Common Stock will be available for grant to employees of
VerticalOne, pursuant to one or more of the S1 stock option plans. The
selection of the optionees and the number of shares subject to each such option
shall be made by Gregg Freishtat or his designee (the "Employee
Representative") and ratified by S1 in accordance with its stock option plans,
such ratification not to be unreasonably withheld. The optionees may be
selected before or after the Closing Date. The exercise price of options
granted at Closing or for two months after the Closing Date shall be the lesser
of the fair market value of a share of S1 Common Stock as of the close of
business on the date hereof or the Closing Date (fair market value meaning the
closing price of S1 Common Stock on the applicable day). The exercise price of
options granted after such two-month period shall be the fair market value of
the S1 Common Stock on the date of grant. Except as otherwise provided in the
specific option grant to an optionee as consented to by S1, the options granted
to each optionee shall vest over four years, 25% at each one-year anniversary
date of the grant. Notwithstanding Section 5.1 hereof, VerticalOne may grant
instruments to purchase any number of shares of VerticalOne Common Stock after
the date hereof but prior to the Closing Date, provided that (i) the exercise
or conversion price with respect to any such instrument is not less than $5.751
per share and (ii) the grant of any such instrument to purchase shares of
VerticalOne Common Stock shall, upon consummation of the Merger, have the
effect of reducing the number of shares of S1 Common Stock (determined by
converting the number of shares of VerticalOne Common Stock subject to such
instruments into the corresponding number of shares of S1 Common Stock at the
Exchange Ratio) otherwise available for grant pursuant to this Section 6.6(a).
(b) S1 will have no obligation to retain any employee or group of
employees of VerticalOne following the Effective Time. As soon as practicable
after the execution of this Agreement, VerticalOne and S1 shall confer and work
together in good faith to agree upon mutually acceptable employee benefit and
compensation arrangements (and terminate VerticalOne employee plans immediately
prior to the Effective Time, if appropriate) so as to provide benefits to
VerticalOne employees initially upon the Merger which are generally equivalent
to those being provided to employees of S1 at the Effective Time as long as
such benefits are not materially less favorable as those available to the
employees of VerticalOne immediately preceding the Effective Time. If,
however, during a two-year period beginning on the Closing Date, S1 causes the
termination of a VerticalOne employee over the objection of the Employee
Representative, such employee shall be paid a one-time severance payment equal
to his or her then current salary for 90 days and any options granted under the
VerticalOne Plan or granted pursuant to Section 6.6(a) hereof which are then
unvested, but which vest in the next twelve months, will automatically vest.
(c) Any shares of VerticalOne Common Stock subject to options
currently outstanding under the VerticalOne Plan, which options are forfeited
by an employee who leaves VerticalOne's employment or are otherwise terminated
in accordance with the VerticalOne Plan without being exercised, shall be
available for re-grant by the Employee Representative before or at any time
within two years following the Closing Date subject to the ratification
provided for in Section 6.6(a). Any such
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re-grants that take effect after the Merger shall be effected as grants of
instruments to purchase shares of S1 Common Stock, after taking into account
the conversion of the shares of VerticalOne Common Stock underlying such
forfeited options into shares of S1 Common Stock at the Exchange Ratio, and
taking into account the appropriate exercise price for such instruments based
on the provisions of Section 6.6(a) of this Agreement.
6.7. INDEMNIFICATION.
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil, criminal or administrative, in
which any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of VerticalOne (the "Indemnified Parties") is, or is threatened to be,
made a party based in whole or in part on, or arising in whole or in part out
of, or pertaining to (i) the fact that he is or was a director, officer or
employee of VerticalOne or any of VerticalOne's subsidiaries, or a trustee
administering an employee benefit plan of VerticalOne or (ii) this Agreement or
any of the transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Time (an "Indemnifiable Claim"), the
parties hereto agree to cooperate and use their best efforts to defend against
and respond thereto to the extent permitted by applicable law and the
certificate of incorporation and bylaws of VerticalOne.
(b) It is understood and agreed that after the Effective Time, the
Surviving Corporation and S1 shall indemnify and hold harmless, as and to the
fullest extent permitted by applicable law and the certificate of incorporation
and bylaws of the Surviving Corporation or the certificate of incorporation and
bylaws of S1, as may be the case, each such Indemnified Party against any
losses, claims, damages, liabilities, costs, expenses (including reasonable
attorney's fees and expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law upon receipt of any undertaking required by applicable
law), judgments, fines and amounts paid in settlement in connection with any
such threatened or actual claim, action, suit, proceeding or investigation in
connection with an Indemnifiable Claim, and in the event of any such threatened
or actual claim, action, suit, proceeding or investigation (whether asserted or
arising before or after the Effective Time), the Indemnified Parties may retain
counsel reasonably satisfactory to S1; provided, however, that (1) S1 shall
have the right to assume the defense thereof and upon such assumption S1 shall
not be liable to any Indemnified Party for any legal expenses of other counsel
or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if S1 elects not to assume
such defense or counsel for the Indemnified Parties reasonably advises the
Indemnified Parties that there are issues which raise conflicts of interest
between S1 and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to S1, and S1 shall pay the reasonable fees and
expenses of such counsel for the Indemnified Parties, (2) S1 shall be obligated
pursuant to this paragraph to pay for only one firm of counsel for each
Indemnified Party and one firm of local counsel, and (3) S1 shall not be liable
for any settlement effected without its prior written consent (which consent
shall not be unreasonably withheld or delayed).
(c) S1 shall have no obligation to advance expenses incurred in
connection with a threatened or pending action, suit or preceding in advance of
final disposition of such action, suit or proceeding, unless (1) S1 would be
permitted to advance such expenses pursuant to the DGCL and S1's certificate of
incorporation or bylaws, and (2) S1 receives an undertaking by the Indemnified
Party to repay such amount if it is determined that such party is not entitled
to be indemnified by S1 pursuant to the DGCL and S1's certificate of
incorporation or bylaws, VerticalOne's certificate of incorporation or bylaws,
or this Agreement. Any Indemnified Party wishing to claim indemnification
under this Section 6.7, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify S1 thereof; provided, however, that
the failure to so notify shall not affect the obligations of S1 under this
Section 6.7 except to the extent such failure to notify materially prejudices
S1. S1's
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obligations under this Section 6.7 continue in full force and effect for a
period of six years from the Effective Time; provided, however, that all rights
to indemnification in respect of any claim asserted or made within such period
shall continue until the final disposition of such claim.
(d) S1 shall use commercially reasonable efforts to cause the
persons serving as officers and directors of VerticalOne immediately prior to
the Effective Time to be covered by a directors' and officers' liability
insurance policy ("Tail Insurance") of substantially the same coverage and
amounts containing terms and conditions which are generally not less
advantageous than VerticalOne's current policy with respect to acts or
omissions occurring prior to the effective Time which were committed by such
officers and directors in their capacity as such for an aggregate premium cost
for the Tail Insurance of not more than 150% of the premium for current
coverage (the "Maximum Amount"), and for a period not less than two years. If
the amount of the premiums necessary to maintain or procure such insurance
coverage exceeds the Maximum Amount, S1 shall use its reasonable efforts to
maintain the most advantageous policies of directors' and officers' liability
insurance obtainable for a premium equal to the Maximum Amount.
(e) In the event S1 or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of S1 assume
the obligations set forth in this section.
(f) In addition to the obligations listed in Section 6.7(b), S1
agrees to indemnify, defend and hold harmless the Indemnified Parties at all
times after the Effective Time from and against any and all claims, damages,
losses, liabilities, payments, costs, obligations and expenses (including,
without limitation, all legal, accounting and other professional fees and
disbursements) (collectively, "Damages") to the extent such Damages arise out
of, result from or relate to:
(1) a breach in any material respect of any
representation or warranty made by S1 contained in
this Agreement;
or
(2) a breach in any material respect of any agreement or
undertaking made by S1 in this Agreement, the Escrow
Agreement, the Investment Agreement, the Warrant
Agreement, or any other agreement delivered by or on
behalf of VerticalOne or S1 pursuant to this
Agreement.
(g) All representations and warranties, covenants, agreements and
undertakings of VerticalOne and S1 continued in or made pursuant to this
Agreement or in any certificate furnished pursuant hereto shall survive for a
period of 12 months after the Effective Time; provided, however, that if a
claim is still pending under the Escrow Agreement at the end of such period,
the particular representation, warranty, covenant, agreement and/or undertaking
upon which such claim is based will survive (but only with respect to such
claim) until the claim is resolved in accordance with the provisions of the
Escrow Agreement.
(h) Each party shall cooperate with the other in determining the
validity of any third party claim or assertion and in defending the validity of
any third party claim or assertion in defending against third parties with
respect to the same.
6.8. FREELY TRADABLE SHARES.
If, for whatever reason, any former VerticalOne stockholder receives
shares of S1 Common Stock at the Effective Time that are either "restricted
securities" within the meaning of SEC Rule 144(a)(3) under the Securities Act
of 1933, as amended (the "Securities Act"), or otherwise (other
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than by reason of the application of the restrictions set forth in Section 6.14
or, in the case of a former VerticalOne stockholder who becomes an affiliate of
S1, by reason of S1 trading policies applicable to others similarly situated)
is precluded by Rule 145 under the Securities Act from selling or disposing of
all of the shares of S1 Common Stock received by such person in the Merger
within one calendar quarter immediately following the Effective Time in the
absence of an effective registration statement therefor, shall be entitled to
registration rights for such shares as set forth in EXHIBIT C.
6.9. ADDITIONAL AGREEMENTS.
In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities and franchises of any of the parties to the Merger, the
proper officers and directors of each party to this Agreement and S1's
Subsidiaries shall take all such necessary action as may be reasonably
requested by either party or any such person. S1 shall cause Merger Sub to
perform all of its obligations under this Agreement and the transactions
contemplated hereby.
6.10. ADVICE OF CHANGES.
S1 and VerticalOne shall promptly advise the other party of any change
or event that, individually or in the aggregate, has had, or would reasonably
be expected to have, a Material Adverse Effect on it or to cause or constitute
a material breach of any of its representations, warranties or covenants
contained herein. From time to time prior to the Closing Date, each party will
promptly supplement or amend its disclosure schedule delivered in connection
with the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to
be set forth or described in such disclosure schedule or which is necessary to
correct any information in such disclosure schedule which has been rendered
inaccurate thereby. No supplement or amendment to such disclosure schedule
shall have any effect for the purpose of determining satisfaction of the
conditions set forth in Sections 7.2(a) or 7.3(a) hereof, as the case may be,
or the compliance by VerticalOne with the covenants set forth in Section 5.1
hereof.
6.11. CURRENT INFORMATION.
Each party will promptly notify the other of any material change in
the normal course of its business or in the operation of its properties and of
any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of litigation involving it, and will keep the other fully informed of such
events.
6.12. TRANSACTION EXPENSES OF VERTICALONE.
(a) For planning purposes, VerticalOne shall, within 30 days from
the date hereof, provide S1 with its estimated budget of transaction-related
expenses reasonably anticipated to be payable by VerticalOne in connection with
this transaction, including the fees and expenses of counsel, accountants,
investment bankers and other professionals. VerticalOne shall promptly notify
S1 if or when it determines that it will expect to exceed its budget.
(b) Promptly after the execution of this Agreement, VerticalOne
shall ask all of its attorneys and other professionals to render current and
correct invoices for all unbilled time and disbursements. VerticalOne shall
accrue and/or pay all of such amounts promptly thereafter.
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(c) S1, in reasonable consultation with VerticalOne, shall make
all arrangements with respect to the printing and mailing of the Joint Proxy
Statement/Prospectus. S1, if it deems necessary, also shall engage (at S1's
expense) a proxy solicitation firm to assist in the solicitation of proxies for
the S1 Special Meeting and the VerticalOne Special Meeting. VerticalOne agrees
to cooperate as to such matters.
6.13. FORM S-8.
S1 agrees to file a registration statement on Form S-8 for the shares
of S1 Common Stock issuable with respect to assumed VerticalOne stock options,
as described in Section 1.6 of this Agreement, and, to the extent not already
covered by an effective registration statement, the shares of S1 Common Stock
issuable with respect to S1 options granted pursuant to Sections 6.6(a) and
6.6(c) of this Agreement, in each case as soon as reasonably practicable after
the Effective Time and shall maintain the effectiveness of each such
registration statement thereafter for so long as any of such options or other
rights remain outstanding.
6.14. LOCK-UP.
(a) The holders of VerticalOne Series A Stock and VerticalOne
Series B Stock shall not be permitted to sell any shares of S1 Common Stock
received upon conversion of their VerticalOne Preferred Stock pursuant to this
Agreement for 180 days after the Closing Date; (x) provided, however, (i) if S1
does not give notice (the "Offering Notice") within 90 days after the Closing
Date of its intention to register shares for sale in a public offering, (ii) if
S1 does not file a registration statement regarding such sale within 21 days
after the date of the Offering Notice, or (iii) if such registration statement
is filed, it is subsequently withdrawn or the offering to which it relates is
subsequently abandoned or otherwise terminated, each holder of VerticalOne
Series A Stock and VerticalOne Series B Stock may sell half of such holder's
shares 90 days after the Closing Date and the other half 180 days after the
Closing Date; and (y) provided further that if such registration is effected,
but each of the holders of VerticalOne Series A Stock and VerticalOne Series B
Stock are not able (under the terms of any underwriting agreement for the
offering to which such registration statement relates) to sell at least
one-half of such holder's shares in such registration, then each former holder
of VerticalOne Series A Stock and VerticalOne Series B Stock may sell such
number of such holder's shares of S1 Common Stock as is equal to the difference
between one-half of such holder's shares and the number of shares of such
holder sold in the offering for the remainder of the 180 days after the Closing
Date. In the event that such holders are permitted to sell S1 Common Stock
during the 180 day period after the Closing Date, other than shares sold in the
offering to which such Offering Notice relates or other than shares sold in
accordance with proviso (y) of the preceding sentence, each holder of
VerticalOne Series A Stock and VerticalOne Series B Stock may not sell more
than 25,000 shares per day.
(b) VerticalOne shall use its best efforts to cause all holders of
shares of VerticalOne Common Stock outstanding as of the Effective Time to
agree not to sell any shares of S1 Common Stock received upon conversion of
such VerticalOne Common Stock pursuant to this Agreement except as follows:
33% of the S1 Common Stock received may be sold six months after the Closing
Date; 66%, 12 months after the Closing Date; and the other 100%, 18 months
after the Closing Date.
(c) The agreements set forth in this section shall be memorialized
by a lock-up agreement attached hereto as EXHIBIT D, which VerticalOne shall
use its best efforts to cause the holders of VerticalOne Common Stock,
VerticalOne Series A Stock and VerticalOne Series B Stock to execute.
(d) Each certificate representing shares of S1 Common Stock
received by holders of VerticalOne Common Stock, VerticalOne Series A Stock and
VerticalOne Series B Stock in the Merger shall be stamped or otherwise
imprinted with a legend substantially in the following form:
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The sale, transfer or assignment, pledge, or encumbrance of the securities
represented by this certificate are subject to the terms and conditions of an
Agreement and Plan of Merger dated September 23, 1999 among Security First
Technologies Corporation, VerticalOne Acquisition Corporation and VerticalOne
Corporation. Copies of such agreement may be obtained at no cost by written
request made by the holder of record of this certificate to the Secretary of
Security First Technologies Corporation.
S1 need not register a transfer of legended S1 Common Stock and may
instruct its transfer agent not to register such transfer, unless the
conditions specified in the legend are satisfied.
6.15. BOARD OF DIRECTORS.
Promptly following the Effective Time, the Board of Directors of S1
will take all actions necessary in order for Gregg Freishtat to be appointed
promptly to S1's Board of Directors for a term ending at the third annual
meeting of S1 stockholders after the Effective Time; provided, however, that S1
shall have no obligation to invite Gregg Freishtat to serve on S1's Board of
Directors if he is not both Chief Executive Officer and a member in good
standing of VerticalOne's Board of Directors immediately prior to the Effective
Time.
6.16. TAX TREATMENT.
Each of the parties undertakes and agrees to use its reasonable
efforts to cause the Merger, and to take no action which would cause the Merger
not, to qualify for treatment as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code for federal income tax purposes.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVALS.
This Agreement, including the Certificate of Merger and the Merger
shall have been approved and adopted at the VerticalOne Special Meeting by the
affirmative vote of a majority of the votes entitled to be cast by the holders
of the outstanding shares of VerticalOne Common Stock, VerticalOne Series A
Stock and VerticalOne Series B Stock, voting together as a single class, and by
a majority of the votes entitled to be cast by the holders of the outstanding
shares of VertricalOne Series C Stock, voting as a separate class, in person or
by proxy. The issuance of shares of S1 Common Stock in the Merger shall have
been approved by the holders of a majority of the outstanding shares of S1
Common Stock represented at the S1 Special Meeting in person or by proxy.
(b) STOCK EXCHANGE LISTING.
The shares of S1 Common Stock which shall be issued in the Merger
(including the S1 Common Stock that may be issued upon exercise of the options
referred to in Section 1.6 hereof)
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upon consummation of the Merger shall have been authorized for quotation on the
Nasdaq Stock Market National Market System (or any national securities exchange
on which the S1 Common Stock may become listed).
(c) REGISTRATION STATEMENT.
The Registration Statement shall have become effective under the
Securities Act, and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC; provided, however,
this condition is not applicable if Section 6.8 becomes applicable.
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY; HSR ACT.
No order, injunction or decree issued by any court or agency of
competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Merger or any of the other
transactions contemplated by this Agreement or the Certificate of Merger shall
be in effect. No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger. All
waiting periods, if any, under the HSR Act or foreign merger notification
requirements, if applicable, relating to the transactions contemplated hereby
will have expired or been terminated early and all material foreign antitrust
approvals required to be obtained prior to the Merger in connection with the
transactions contemplated hereby shall have been obtained.
(e) NO PENDING GOVERNMENTAL ACTIONS.
No proceeding initiated by any Governmental Entity seeking an
Injunction preventing consummation of the Merger shall be pending or shall have
been threatened in writing.
(f) FEDERAL TAX OPINION.
S1 and VerticalOne shall have received from Alston & Bird LLP,
VerticalOne's special counsel, an opinion to S1 and VerticalOne, in form and
substance reasonably satisfactory to them, substantially to the effect that on
the basis of facts, representations, and assumptions set forth in such opinion
which are consistent with the state of facts existing at the time of such
opinion, the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code. In rendering
such opinion, such counsel may require and, to the extent such counsel deems
necessary or appropriate, may rely upon representations made in certificates of
officers of VerticalOne, S1, Merger Sub, their respective affiliates and
others. If Alston & Bird LLP does not render such opinion, this condition may
be satisfied if Hogan & Hartson L.L.P., S1's special counsel, renders such
opinion, relying upon such representations.
7.2. CONDITIONS TO OBLIGATIONS OF S1 AND MERGER SUB.
The obligation of S1 and Merger Sub to effect the Merger is also
subject to the satisfaction or waiver by S1 at or prior to the Effective Time
of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of VerticalOne set forth in this
Agreement shall be true and correct as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date; provided, however, that for purposes of this paragraph, such
representations and
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<PAGE> 37
warranties shall be deemed to be true and correct, unless the failure or
failures of such representations and warranties to be so true and correct,
individually or in the aggregate, would have a Material Adverse Effect on
VerticalOne. Such determination of aggregate Material Adverse Effect shall be
made as if there were no materiality qualifications in such representations and
warranties. S1 shall have received a certificate signed on behalf of
VerticalOne by each of the President and Chief Executive Officer and the Chief
Financial Officer of VerticalOne to the foregoing effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS OF VERTICALONE.
VerticalOne shall have performed in all material respects all
covenants and agreements required to be performed by it under this Agreement at
or prior to the Closing Date, except in each case where such nonperformance
does not or would not have a Material Adverse Effect on any of VerticalOne, S1
or the Surviving Corporation. S1 shall have received a certificate signed on
behalf of VerticalOne by each of the President and Chief Executive Officer and
the Chief Financial Officer of VerticalOne to such effect.
(c) CONSENTS UNDER AGREEMENTS.
The consent, approval or waiver of each person whose consent or
approval shall be required in order to permit the succession by S1, to the
extent applicable, to any obligation, right or interest of VerticalOne under
any Contract shall have been obtained except for those, the failure of which to
obtain, will not result in a Material Adverse Effect on S1 or VerticalOne.
(d) NO MATERIAL ADVERSE EFFECT.
There shall have been no Material Adverse Effect with respect to
VerticalOne, which is continuing.
(e) ACCOUNTANT'S COMFORT LETTER.
VerticalOne shall have caused to be delivered on the respective dates
thereof to S1 "comfort letters" from KPMG LLP, VerticalOne's independent public
accountants, dated the date on which the Registration Statement or last
amendment thereto shall become effective, and dated the date of the Closing
(defined in Section 9.1 hereof), and addressed to S1 and VerticalOne, with
respect to VerticalOne's financial data presented in the Joint Proxy
Statement/Prospectus, which letters shall be based upon Statements on Auditing
Standards Nos. 72 and 76.
7.3. CONDITIONS TO OBLIGATIONS OF VERTICALONE.
The obligation of VerticalOne to effect the Merger is also subject to
the satisfaction or waiver by VerticalOne at or prior to the Effective Time of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES.
The representations and warranties of S1 and Merger Sub set forth in
this Agreement shall be true and correct as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date; provided, however, that for purposes of this paragraph, such
representations and warranties shall be deemed to be true and correct, unless
the failure or failures of such representations and warranties to be so true
and correct, individually or in the aggregate, would have a Material Adverse
Effect on S1. Such determination of aggregate Material Adverse Effect shall be
made as if there were no materiality qualifications in such representations and
warranties.
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VerticalOne shall have received a certificate signed on behalf of S1 by each of
the President and Chief Executive Officer and the Chief Financial Officer of S1
to the foregoing effect.
(b) PERFORMANCE OF COVENANTS AND AGREEMENTS OF S1.
S1 and Merger Sub shall have each performed in all material respects
all covenants and agreements required to be performed by it under this
Agreement at or prior to the Closing Date, except in each case where such
nonperformance does not or would not have a Material Adverse Effect on any of
VerticalOne, S1 or the Surviving Corporation. VerticalOne shall have received
a certificate signed on behalf of S1 by each of the President and Chief
Executive Officer and the Chief Financial Officer of S1 to such effect.
(c) NO MATERIAL ADVERSE EFFECT.
There shall have been no Material Adverse Effect with respect to S1,
which is continuing.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. TERMINATION.
This Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of VerticalOne or S1, if applicable:
(a) by mutual consent of S1 and VerticalOne in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either S1 or VerticalOne if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and nonappealable;
(c) by either S1 or VerticalOne if the Merger shall not have been
consummated on or before January 10, 2000 (the "Original Final Date"), unless
the failure of the Closing to occur by such date shall be due to the failure of
the party seeking to terminate this Agreement to perform or observe the
covenants and agreements of such party set forth herein; provided, however,
that if the Merger has not been consummated as of the Original Final Date
because S1 or VerticalOne has not received a required consent or approval from
one or more Governmental Entities, or any waiting period required by law has
not expired or been terminated, in either case in a time frame sufficient to
permit the Merger to be consummated by the Original Final Date; or in the event
that S1, in its discretion, reasonably exercised, postpones the Closing due to
the pending nature of a proposed acquisition or business combination of another
Person by S1 or an underwritten offering of its equity or debt securities, then
S1 may, by the delivery to VerticalOne of the notice (an "Extension Notice")
not earlier than January 6, 2000 and not later than the close of business on
the Original Final Date, extend the Closing Date to a date not later than March
1, 2000 (and such extension shall be given effect irrespective of whether
VerticalOne responds as contemplated in the following sentence). Upon receipt
of such Extension Notice, VerticalOne may, in its sole discretion, provide
notice to S1 within five business days following its receipt of such Extension
Notice, of its desire to consummate the Merger on the basis of its satisfaction
of the conditions to Closing set forth in Sections 7.2(a), (b), (c) and (d).
If VerticalOne so elects, then it shall provide to S1 the certificates referred
to in the final sentences of Sections 7.2(a) and 7.2(b) as to its satisfaction
of such conditions as of the Original Final Date (or such
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later date as of which such notice from VerticalOne is delivered) (the date of
such delivery, the "Certificate Date"). The effect of the delivery of such
certificate shall be as follows: (i) VerticalOne shall be deemed to have
satisfied such conditions to Closing as of the Certificate Date and no further
satisfaction of such conditions on the part of VerticalOne shall be necessary
as of the Closing Date and (ii) the "Distribution Date," as such term is
defined in the Escrow Agreement shall mean one year from the Certificate Date;
(d) by either S1 or VerticalOne (provided that S1 is not in breach
of its obligations under Section 6.3 hereof) if the approval of the
stockholders of either party required for the consummation of the Merger shall
not have been obtained by reason of the failure to obtain the required vote at
either the S1 Special Meeting or the VericalOne Special Meeting or at any
adjournment or postponement thereof, respectively;
(e) by either S1 or VerticalOne (provided that the terminating
party is not then in breach of any representation, warranty, covenant or other
agreement contained herein that, individually or in the aggregate, would give
the other party the right to terminate this Agreement) if there shall have been
a breach of any of the representations or warranties set forth in this
Agreement on the part of the other party, if such breach, individually or in
the aggregate, has had or is reasonably likely to have a Material Adverse
Effect on the breaching party, and such breach shall not have been cured within
30 days following receipt by the breaching party of written notice of such
breach from the other party hereto or such breach, by its nature, cannot be
cured prior to the Closing or within 30 days, whichever is longer;
(f) by either S1 or VerticalOne (provided that the terminating
party is not then in breach of any representation, warranty, covenant or other
agreement contained herein that, individually or in the aggregate, would give
the other party the right to terminate this Agreement) if there shall have been
a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, and such breach shall not have been
cured within 30 days following receipt by the breaching party of written notice
of such breach from the other party hereto or such breach, by its nature,
cannot be cured prior to the Closing or within 30 days, whichever is longer,
except in each case where such breach does not or would not have a Material
Adverse Effect on any of VerticalOne, S1 or the Surviving Corporation;
(g) by S1, if VerticalOne's Board of Directors, for any reason,
(i) fails to call and hold within 45 days of the effectiveness of the
Registration Statement the VerticalOne Special Meeting to consider and approve
this Agreement and the transactions contemplated hereby, (ii) withdraws or
amends or modifies in a manner adverse to S1 or fails to recommend to
stockholders the approval of this Agreement and the transactions contemplated
hereby, (iii) approves or recommends any third party proposal for an
Acquisition Transaction that is inconsistent with the transactions contemplated
by this Agreement, (iv) fails to recommend rejection of a tender or exchange
offer relating to VerticalOne's securities which is commenced by a third party
not affiliated with S1, within ten business days from the date the tender or
exchange offer commenced, or (v) violates Section 5.1(e) of this Agreement; and
(h) by VerticalOne, if S1's Board of Directors, for any reason,
(i) fails to call and hold within 45 days of the effectiveness of the
Registration Statement the S1 Special Meeting to consider and approve the
issuance of shares of S1 Common Stock in the Merger, or (ii) withdraws or
amends or modifies in a manner adverse to VerticalOne or fails to recommend to
stockholders the approval of the issuance of shares of S1 Common Stock in the
Merger.
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8.2. EFFECT OF TERMINATION.
In the event of termination of this Agreement by either S1 or
VerticalOne as provided in Section 8.1 hereof, this Agreement shall forthwith
become void and have no effect except (i) the last two sentences of Section
6.2(a), and Sections 8.2 and 9.3 hereof shall survive any termination of this
Agreement, and (ii) notwithstanding anything to the contrary contained in this
Agreement, no party shall be relieved or released from any liabilities or
damages arising out of its willful or intentional breach of any provision of
this Agreement.
8.3. AMENDMENT.
Subject to compliance with applicable law, this Agreement may be
amended by the parties hereto, by action taken or authorized by their
respective Board of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of
VerticalOne or S1; provided, however, that after any approval of the
transactions contemplated by this Agreement by VerticalOne's stockholders,
there may not be, without further approval of such stockholders, any amendment
of this Agreement which (i) alters or changes the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of
VerticalOne, (ii) alters or changes any term of the certificate of
incorporation of the Surviving Corporation to be effected by the Merger, or
(iii) alters or changes any of the terms and conditions of this Agreement if
such alteration or change would adversely affect the holders of any class or
series thereof of VerticalOne. This Agreement may not be amended except by 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, the parties hereto, by action
taken or authorized by their respective Boards of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, and (c) waive compliance with any of the
agreements or conditions 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 a written instrument signed on behalf of such party, but such extension or
waiver or failure to insist on strict compliance with an obligation, covenant,
agreement or condition shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1. CLOSING.
Subject to the terms and conditions of this Agreement, the closing of
the Merger (the "Closing") will take place at 10:00 a.m. at the main offices of
S1 on (i) the fifth business day following the receipt of the last requisite
regulatory approval or stockholder approval and after all applicable waiting
periods have expired or been terminated or (ii) such other date, place and time
as the parties may agree in writing (the "Closing Date").
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9.2. [OMITTED].
9.3. EXPENSES.
Except as provided in Section 6.12(c) and in this Section 9.3, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
expense, provided that all filing and other fees paid to the SEC and all
printing and mailing expenses associated with the registration statement and
the Joint Proxy Statement/Prospectus shall be borne by S1.
9.4. NOTICES.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, mailed by registered or
certified mail (return receipt requested) or delivered by an express courier
(with confirmation) 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 S1, to:
Security First Technologies Corporation
3390 Peachtree Road, NE
Suite 1700
Atlanta, GA 30326
Attn.: Robert F. Stockwell
Chief Financial Officer
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, DC 20004
Attn.: Stuart G. Stein, Esq.
and
(b) if to VerticalOne, to:
VerticalOne Corporation
Two Concourse Parkway, Suite 700
Atlanta, GA 30328
Attn: Gregg S. Freishtat
Chairman and Chief Executive Officer
with a copy (which shall not constitute notice) to:
Alston & Bird LLP
601 Pennsylvania Avenue, N.W.
North Building, 11th Floor
Washington, DC 20004
Attn.: David E. Brown, Jr., Esq.
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9.5. INTERPRETATION.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of or an Exhibit or Schedule to
this Agreement unless otherwise indicated. 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. Whenever
the words "include," "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation."
9.6. COUNTERPARTS.
This Agreement may be executed in counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
9.7. ENTIRE AGREEMENT.
This Agreement (including the disclosure schedules, exhibits,
documents and the instruments referred to herein, which hereby incorporated by
reference) constitutes the entire agreement and supersedes all prior agreements
and understandings, both written and oral, among the parties with respect to
the subject matter hereof, other than the Escrow Agreement, the Confidentiality
Agreement and the Certificate of Merger.
9.8. GOVERNING LAW.
This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware, without regard to any applicable conflicts of
law rules.
9.9. ENFORCEMENT OF AGREEMENT.
The parties hereto agree that irreparable damage would occur in the
event that the provisions of this Agreement were not performed in accordance
with its specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
thereof in any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are entitled at law or
in equity.
9.10. SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
9.11. PUBLICITY.
Except as otherwise required by law or the rules of The Nasdaq Stock
Market (or any national securities exchange on which the S1 Common Stock may
become listed), so long as this
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Agreement is in effect, neither S1 nor VerticalOne shall, or shall permit any
of S1's Subsidiaries to, issue or cause the publication of any press release or
other public announcement with respect to, or otherwise make any public
statement concerning, the transactions contemplated by this Agreement or the
Certificate of Merger without the consent of the other party, which consent
shall not be unreasonably withheld. S1 and VerticalOne agree that the joint
press release announcing the signing of this Agreement shall contain a
statement regarding the use of VerticalOne's technology in such form and
content as the parties shall mutually agree in their sole and absolute
discretion.
9.12. ASSIGNMENT; LIMITATION OF BENEFITS.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns. Except as otherwise specifically provided in Sections
6.6 and 6.7 hereof, this Agreement (including the documents and instruments
referred to herein) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder, and the covenants,
undertakings and agreements set out herein shall be solely for the benefit of,
and shall be enforceable only by, the parties hereto and their permitted
assigns.
9.13. ADDITIONAL DEFINITIONS.
In addition to any other definitions contained in this Agreement, the
following words, terms and phrases shall have the following meanings when used
in this Agreement.
"affiliate": of any Person means any director, officer or 5% or
greater stockholder of such Person, any spouse or other person living in the
same household of such director, officer or stockholder, or any company,
partnership or trust in which any of the foregoing persons is an officer, 5% or
greater stockholder, general partner or 5% or greater trust beneficiary.
"Contract": shall mean any contract, agreement, license, instrument
and understanding (whether or not in writing) to which VerticalOne or S1 is a
party which, if it imposes a future annual monetary obligation on any party
thereto, that monetary obligation is $25,000 or greater, except for a Contract
for which another monetary obligation is specified herein.
"knowledge": "know" or "known" means with respect to a party hereto,
with respect to a matter in question, that the directors or any executive
officer of such party has actual knowledge of such matter.
"Laws": any and all statutes, laws, ordinances, rules, regulations,
orders, permits, judgments, injunctions, decrees, case law and other rules of
law enacted, promulgated or issued by any Governmental Entity.
"Material Adverse Effect": with respect to S1 or VerticalOne, as the
case may be, means a condition, event, change or occurrence that has had or
would have a material adverse effect upon VerticalOne or upon S1 and its
Subsidiaries, taken as a whole, as the case may be, taking into account (A) the
business, customers, assets, capitalization, financial condition and results of
operations of VerticalOne or S1 and its Subsidiaries (in each case, taken as a
whole), other than as a result primarily of (i) the direct effect of the public
announcement, pendency or consummation of the Merger, or (ii) changes in
general economic conditions or changes affecting the industry generally in
which such entity operates, or (iii) changes in the trading price for S1 Common
Stock (excluding any condition, event, change or occurrence underlying such
change to the extent such condition, event, change or occurrence would
otherwise constitute a Material Adverse Effect), or (B) the ability of S1
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or VerticalOne to perform its obligations under, and to consummate the
transactions contemplated by, this Agreement or the Certificate of Merger.
"Person": shall mean an individual, corporation, partnership,
association, joint venture, trust, unincorporated organization, other entity or
group (as defined in Section 13(d) of the Exchange Act).
"Subsidiary": with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated,
which is consolidated with such party for financial reporting purposes.
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IN WITNESS WHEREOF, S1, Merger Sub, and VerticalOne have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized as of the date first above written.
SECURITY FIRST TECHNOLOGIES CORPORATION
By:
-------------------------------------------
Name: Robert F. Stockwell
Title: Chief Financial Officer and Treasurer
VERTICALONE ACQUISITION CORPORATION
By:
-------------------------------------------
Name: Robert F. Stockwell
Title: Director and President
VERTICALONE CORPORATION
By:
-------------------------------------------
Name: Gregg S. Freishtat
Title: Chairman and Chief Executive Officer
42
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Exhibits
Exhibit A - Certificate of Merger - omitted
Exhibit B - Escrow Agreement - omitted
Exhibit C - Registration Rights Agreement - omitted
Exhibit D - Share Retention Agreement - omitted
43
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Exhibit 99.1
FRIDAY SEPTEMBER 24, 7:45 AM EASTERN TIME
COMPANY PRESS RELEASE
SOURCE: Security First Technologies
SECURITY FIRST TECHNOLOGIES TO EXTEND PRODUCT OFFERING THROUGH ACQUISITION -
VERTICALONE CORPORATION TO BECOME S1 CORPORATION SUBSIDIARY -
ATLANTA, Sept. 24 /PRNewswire/ -- Security First Technologies (Nasdaq: SONE
<http://finance.yahoo.com/q?s=sone&d=t> - news </n/s/sone.html>), announced
today it has agreed to acquire privately-held VerticalOne Corporation, an
Atlanta-based consolidator, organizer and presenter of personal account
information via the Internet, to extend its product offering and further
solidify its position as the leading strategic technology provider and innovator
in the Internet-based financial services industry.
Under the terms of the agreement, Security First Technologies will issue
VerticalOne stockholders approximately 3.86 million shares of common stock.
Security First Technologies will also issue approximately 2.5 million Security
First Technologies options both in exchange for VerticalOne options held by
employees and for new options issued to VerticalOne employees. In addition,
Security First Technologies has invested $15 million in VerticalOne preferred
stock and has entered into a strategic marketing agreement which is in effect
until closing. Based on Security First Technologies' closing price of $38.375 on
September 23, 1999, the value of the VerticalOne transaction is approximately
$166 million.
"VerticalOne was built on a vision that parallels our own, and the result is a
truly innovative company with a solution that greatly enhances our VFM
application suite," said James S. Mahan, III, Security First Technologies CEO.
"Our mission is to empower financial organizations to build better relationships
with their customers and enhance revenue generating opportunities by adding
value to their Internet solutions. By blending VerticalOne's services with our
solution, we will continue to raise the bar for Internet-based financial
services by delivering the most competitive and comprehensive financial services
solutions available in the industry."
<PAGE> 2
VerticalOne's technology provides the end user confidential viewing and access
to banking, investments, credit cards, communications, reward programs, and
bills from multiple vendors. Once users submit a single user name and password,
VerticalOne's service instantly aggregates all of an end user's password
protected information from various web sites, each of which may have disparate
user names and passwords. By combining Security First Technologies' applications
with VerticalOne's service, financial institutions become consolidators of their
customers' financial data while acting as an aggregator of third party account
information from other financial institutions or account sources. As a result,
financial institutions can offer a robust, interactive financial destination
that provides customers with all their various account information at one site.
"This is an exciting opportunity for VerticalOne and its employees who have
worked diligently over the past year to ensure our company's success," added
Gregg Freishtat, Chairman and Chief Executive Officer of VerticalOne. "With
Security First Technologies' strong reach in the financial services industry and
our focus on Internet destination site partners, together we will be a key
player in the emerging space of content personalization on the Internet. Our
goal is to bring a new level of convenience to consumers on the Internet for
accessing and managing personal account information in one place, while
enhancing traditional brick and mortar companies' Internet and eCommerce
strategies."
Benefits of Acquisition for Financial Institutions
-- Increases customer retention by providing end users
consolidated, personalized information at one site
-- Generates revenue through relationship management
capabilities that provide targeted, one-to-one marketing
-- Creates competitive advantage by ensuring a more
feature-rich financial destination
Benefits of Acquisition for End Users
-- Access to more than 100 online personal accounts
from one Web site
-- Availability of all online account summaries on one
screen, including number of reward points earned, number of messages
received, investment net equity, balances due and balances remaining
-- Detailed information about each relationship, such
as account history, dates and descriptions
-- Links to other sites to conduct transactions
2
<PAGE> 3
Security First Network Bank (SFNB) will have the opportunity to become one of
the first financial institutions to offer VerticalOne's service through its
VFM-powered Internet bank. Eric Hartz, SFNB's president, commented, "Security
First Network Bank has a reputation for financial innovation, and is committed
to providing our customers with a consolidated statement of their financial net
worth. VerticalOne's state-of-the-art technology gives SFNB an opportunity to be
one of the first banks that will allow their customers access to all of their
personal online accounts in addition to their financial accounts."
Additional Terms of the Agreement
Security First Technologies previously announced acquisitions of FICS Group N.V
of Brussels, Belgium and Edify Corporation (Nasdaq: EDFY
<http://finance.yahoo.com/q?s=edfy&d=t> - news </n/e/edfy.html>) of Santa Clara,
California, the result of which will form a new company called S1 Corporation.
VerticalOne will become a subsidiary of S1 Corporation and will retain the
VerticalOne name. S1 Corporation will deliver VerticalOne's technology directly
to financial institutions as an optional service through its Data Center, while
the VerticalOne subsidiary will continue to sell its services to other
destination sites on the Web, such as portals and ISPs. Gregg Freishtat will
serve as the new subsidiary's CEO and will become a member of S1 Corporation's
Board of Directors. The transaction will be accounted for on a purchase
accounting basis and is subject to customary regulatory filings and approval by
Security First Technologies and VerticalOne shareholders.
About Security First Technologies
Security First Technologies builds, delivers and operates integrated,
transactional and brandable Internet applications for financial institutions.
Security First Technologies' secure solutions are available for in-house
implementations or can be outsourced to the Security First Technologies Data
Center. Security First Technologies also offers training, product integration
and customer service center outsourcing. Security First Technologies, through
direct sales and channel partnerships, has agreed to provide software
applications and technology to more than 100 financial entities. Security First
Technologies can be reached at www.S1.com <http://www.S1.com>.
About VerticalOne Corporation
Headquartered in Atlanta, VerticalOne Corporation is a privately held company
founded in 1998 to enable the next generation of Internet content
personalization services for consumers. VerticalOne has built the information
infrastructure that will empower Internet destination sites to offer their
3
<PAGE> 4
online customers a single point-of-access to a wide variety of personal content
and account information including reward programs, communications, investments,
credit card and bank statements, and other bills or personal accounts. The
company received more than $16 million in equity capital from Flatiron Partners,
Chase Capital Partners, TTC Ventures, Kinetic Ventures, and other investors.
More information about the company can be obtained from the World Wide Web at
<http://www.verticalone.com> or by email to [email protected]
<mailto:[email protected]>.
Goldman Sachs and Hogan & Hartson LLP are acting as financial and legal advisers
to Security First Technologies; CS First Boston and Alston & Bird LLP are
serving as financial and legal advisers to VerticalOne.
Forward-looking statements
Statements in this news release concerning future results, performance,
expectations or intentions are forward-looking statements. Actual results,
performance or developments may differ materially from forward-looking
statements as a result of known or unknown risks, uncertainties and other
factors, including those identified in the Company's filings with the Securities
and Exchange Commission, press releases and other public communications.
SOURCE: Security First Technologies
4
<PAGE> 1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VERTICALONE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 2
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 2
ARTICLE III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
1. Dividends.
-- ---------
2. Liquidation.
-- -----------
3. Redemption.
-- ----------
4. Voting Rights.
-- -------------
5. Conversion.
-- ----------
6. Definitions.
-- -----------
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
ARTICLE V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
</TABLE>
<PAGE> 2
Exhibit A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VERTICALONE CORPORATION
(originally incorporated October 8, 1998)
The undersigned, Neal McEwen and J. Stephen Hufford, being the
President and Secretary, respectively, of VerticalOne Corporation, a corporation
organized and existing under the laws of the State of Delaware, on behalf of
said corporation, hereby certify as follows:
FIRST: The name of the corporation (hereinafter the "Corporation") is
VerticalOne Corporation.
SECOND: The Certificate of Incorporation of the Corporation as in
effect on the date hereof is hereby amended to read in its entirety as set forth
on Exhibit A hereto.
THIRD: That said Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Sections 228, 242 and 245 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we have executed this Certificate this 23rd day of
September, 1999.
/s/ NEAL McEWEN
---------------------------------------
President
Attest: /s/ J. STEPHEN HUFFORD
----------------------
Secretary
<PAGE> 3
EXHIBIT A
ARTICLE I
The name of the corporation is VerticalOne Corporation (the
"Corporation").
ARTICLE II
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
ARTICLE III
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 55,980,097 shares, consisting of
(a) 40,000,000 shares of Common Stock, par value $0.001 per share (the "Common
Stock"), (b) 15,980,097 shares of Convertible Preferred Stock, par value $.01
per share, 3,919,243 of which are designated Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), 7,716,050 of which are designated Series
B Convertible Preferred Stock (the "Series B Preferred Stock") and 4,344,804 of
which are designated Series C Convertible Preferred Stock (the "Series C
Preferred Stock"), all of which Series A, B and C Preferred Stock are
collectively referred to together as the "Preferred Stock."
The designations, powers, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations and
restrictions thereof in respect of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Preferred Stock and the Common Stock are as
follows:
PREFERRED STOCK
1. DIVIDENDS.
The holders of the Series A, Series B and Series C Preferred Stock
shall be entitled to receive, when, as and if declared by the Board, out of
funds legally available for that purpose, dividends at the same amount as
dividends paid with respect to the Common Stock treating each share of Series A,
Series B and Series C Preferred Stock as being equal to the number of Shares of
Common Stock into which each share of Series A, Series B and Series C Preferred
Stock is then convertible.
2. LIQUIDATION.
(a) Upon any Liquidation of the Corporation, the holders of the shares
of Series B Preferred Stock and the Series C Preferred Stock shall first be
entitled, before any distribution or payment is made upon any common, preferred
or any other capital stock of the Corporation (including the Series A Preferred
Stock) ranking on Liquidation junior to the Series B Preferred Stock and the
Series C Preferred Stock, an amount equal to the price originally paid to the
Corporation for such share (as adjusted for stock splits, stock dividends and
the like) plus,
- 2 -
<PAGE> 4
in the case of each share, any dividends declared but unpaid thereon (the
"Original Cost"), computed to the date payment thereof is made available (such
amount payable with respect to one share of Series B Preferred Stock and one
share of Series C Preferred Stock being sometimes referred to as the
"Liquidation Preference Payment" and with respect to all shares of Series B
Preferred Stock and all shares of Series C Preferred Stock being sometimes
referred to as the "Liquidation Preference Payments").
(b) Upon any Liquidation of the Corporation, subsequent to payment by
the Corporation of the Liquidation Preference Payments to the holders of the
Series B Preferred Stock and the holders of the Series C Preferred Stock, the
holders of the Series A Preferred Stock shall be entitled to receive an amount
equal to $1.00 per share (as adjusted for stock splits, stock dividends and the
like) plus, in the case of each share, any dividends declared but unpaid thereon
computed to the date payment is made available (the "Series A Liquidation
Payments").
(c) If upon a Liquidation of the Corporation, the assets to be
distributed among the holders of Series B Preferred Stock and the Series C
Preferred Stock shall be insufficient to permit payment in full to the holders
of Series B Preferred Stock and the Series C Preferred Stock of their respective
Liquidation Preference Payments, then the entire assets of the Corporation to be
so distributed shall be distributed ratably among the holders of Series B
Preferred Stock and the Series C Preferred Stock pro rata based upon their
respective Liquidation Preference Payment amounts. Upon a Liquidation of the
Corporation, immediately after the holders of Series B Preferred Stock and the
Series C Preferred Stock shall have been paid in full the Liquidation Preference
Payments, the remaining net assets of the Corporation available for distribution
shall be used to pay the Series A Liquidation Payments; if the remaining net
assets shall be insufficient to permit payment in full to the holders of the
Series A Preferred Stock of the Series A Liquidation Payments, then the
remaining net assets shall be distributed ratably among the holders of the
Series A Preferred Stock . After the Liquidation Preference Payments and the
Series A Liquidation Payments shall have been made in full, the remaining net
assets of the Corporation available for distribution shall be distributed
ratably among the holders of Series B Preferred Stock and the holders of Common
Stock. After receiving the Series A Liquidation Payments and Series C
Liquidation Payments, the holders of the Series A and Series C Preferred Stock
shall not participate in any distribution made to the holders of the Series B
Preferred Stock or the Common Stock.
(d) Written notice of such Liquidation, stating a payment date, the
amount of the Liquidation Preference Payments and the Series A Liquidation
Payments, and the place where said Liquidation Preference Payments and the
Series A Liquidation Payments, shall be payable, shall be delivered in person,
mailed by certified or registered mail, return receipt requested, or sent by
telecopier or telex, not less than 20 days prior to the payment date stated
therein, to the holders of record of Series B Preferred Stock and the Series C
Preferred Stock. Such notice shall be addressed to each such holder at its
address as shown by the records of the Corporation.
3. REDEMPTION.
(a) At the election of the holders of a Majority in Interest of the
shares of Series B Preferred Stock, the Corporation shall redeem one-third of
the outstanding Series B
- 3 -
<PAGE> 5
Preferred Stock on each of December 31, 2005, December 31, 2006, and December
31, 2007 (each a "Redemption Date"). At the election of the holders of a
Majority in Interest of the shares of Series C Preferred Stock, the Corporation
shall redeem one third of the outstanding Series C Preferred Stock on each of
the Redemption Dates. Such elections shall be provided to the Corporation in
writing at least 90 days prior to the Redemption Date. If the assets of the
Corporation available for redemption of the Series B Preferred Stock or the
Series C Preferred Stock, as applicable, shall be insufficient to permit the
payment of the full price required to be paid under this Section 3, then the
holders of Series B Preferred Stock, or the Series C Preferred Stock, as
applicable, shall share ratably in any such redemption according to the
respective amounts which would be payable in respect of the number of shares
that such holders own if all amounts payable on or with respect to such shares
were paid in full.
(b) On and after any Redemption Date, all rights in respect of the
shares of Series B Preferred Stock or Series C Preferred Stock to be redeemed on
such Redemption Date, except the right to receive the Redemption Price, shall
cease and terminate and such shares shall no longer be deemed to be outstanding,
whether or not the certificates representing such shares have been received by
the Corporation; provided, however, that if default shall be made by the
Corporation in the payment of the Redemption Price, such rights shall remain in
full force and effect and be exercisable, and such shares shall be deemed to
remain outstanding, until such default is cured.
(c) Anything contained in this Section 3 to the contrary
notwithstanding, the holders of shares of Series B Preferred Stock and the
Series C Preferred Stock requested by such holders as herein provided to be
redeemed pursuant to this Section 3 shall have the right, exercisable at any
time up to the close of business on the Redemption Date to convert all or any
part of such shares to be redeemed as herein provided into shares of Common
Stock pursuant to Section 5 hereof; provided, however, that if default shall be
made by the Corporation in the payment of the Redemption Price as herein
provided, such right shall be exercisable until such default is cured. If, and
to the extent, any shares of Series B Preferred Stock or Series C Preferred
Stock so entitled to redemption are converted into shares of Common Stock by the
holders thereof prior to the close of business on the Redemption Date, the total
number of shares of Series B Preferred Stock or Series C Preferred Stock
otherwise to be redeemed on such date shall be reduced by the number of shares
of Series B Preferred Stock or Series C Preferred Stock so converted.
(d) To the extent that on any Redemption Date, the Corporation is not
legally permitted (by Delaware law, this Amended and Restated Certificate of
Incorporation, its by-laws, contractual provisions, or otherwise) to pay the
Redemption Price of any shares of Series B Preferred Stock or Series C Preferred
Stock required to be redeemed by the Corporation on such Redemption Date, the
Corporation shall promptly take all action (including, without limitation, a
revaluation of assets or a prepayment of indebtedness restricting such
redemption) as may be permitted by applicable law to permit such redemption in
full. If the Corporation remains unable after the taking of such action to
repurchase any or all of such shares, the Corporation shall immediately
repurchase such shares upon the termination of such legal prohibition.
(e) The price (the "Redemption Price") at which each share of Series B
Preferred Stock and each of the Series C Preferred Stock is to be redeemed by
the Corporation
- 4 -
<PAGE> 6
pursuant to this Section 3 shall be equal to the Liquidation Amount plus
interest at a rate of 10 percent per annum (accruing from the date of issuance
and calculated based on 365 days per year) of such share on the date of such
redemption; provided that such interest payments shall be reduced (but not
below zero) by the amount of dividends previously paid on each such share of
Series B Preferred Stock or each such share of Series C Preferred Stock. The
conversion of any shares of the Series B Preferred Stock or Series C Preferred
Stock into Common Stock shall have no effect on the Redemption Price payable in
connection with the redemption of the shares of Series B Preferred Stock or
Series C Preferred Stock not so converted.
(f) Any communication or notice relating to redemption given pursuant
to this Section 3 shall be sent by first-class certified mail, return receipt
requested, postage prepaid, to the holders of record of shares of Series B
Preferred Stock or Series C Preferred Stock, as applicable, at their respective
addresses as the same shall appear on the books of the Corporation, or to the
Corporation at the address of its principal, or registered office, as the case
may be. At any time on or after the Redemption Date, the holders of record of
shares of Series B Preferred Stock, or the Series C Preferred Stock, as
applicable, being redeemed in accordance with this Section 3 shall be entitled
to receive the Redemption Price as determined upon actual delivery to the
Corporation or its agents of the certificates representing the shares to be
redeemed.
4. VOTING RIGHTS.
(a) Notwithstanding anything to the contrary in this Amended and
Restated Certificate of Incorporation, the Series C Preferred Stock shall be
non-voting stock and shall not have the right to elect a director to the Board
of the Corporation or otherwise have any voting rights until such time as the
Agreement and Plan of Merger, dated as of September 23, 1999, by and among the
Corporation, VerticalOne Acquisition Corporation and Security First Technologies
Corp., a Delaware corporation ("Security First") is terminated and any
expiration or termination period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, shall have expired (the "Voting Trigger
Date").
(b) In addition to the rights provided by law or in the Corporation's
By-laws, each share of Preferred Stock (other than holders of the Series C
Preferred Stock prior to the Voting Trigger Date) shall entitle the holder
thereof to such number of votes as shall equal the number of shares of Common
Stock into which such share of Preferred Stock is then convertible pursuant to
Section 5 at the record date for the determination of stockholders entitled to
vote or, if no record date is established, at the date such vote is taken. The
holders of Preferred Stock (other than holders of the Series C Preferred Stock
prior to the Voting Trigger Date) shall be entitled to vote on all matters as to
which holders of Common Stock shall be entitled to vote, in the same manner and
with the same effect as such holders of Common Stock, voting together with the
holders of Common Stock as one class.
(c) In addition to the other rights specified in this Section 4, the
holders of a Majority in Interest of the shares of Series B Preferred Stock
outstanding, voting separately as one class, shall at all times have the special
and exclusive right to elect two directors to the Board, the holders of a
Majority in Interest of
- 5 -
<PAGE> 7
the shares of Series A Preferred Stock outstanding, voting separately as one
class, shall at all times have the special and exclusive right to elect one
director to the Board and, after the Voting Trigger Date, the holders of a
Majority in Interest of the shares of Series C Preferred Stock outstanding,
voting separately as one class, shall at all times have the special and
exclusive right to elect one director to the Board, in each case, in accordance
with the provisions set forth in the Stockholders' Agreement. In any election
of directors by the holders of Preferred Stock pursuant to this Section 4(b),
each holder of Preferred Stock (other than holders of the Series C Preferred
Stock prior to the Voting Trigger Date) shall be entitled to one vote for each
share of Preferred Stock held. The Corporation shall take all actions
necessary to effectuate the terms and provisions of this Section 4(b). The
special and exclusive voting rights of the holders of Preferred Stock contained
in this Section 4(b) may be exercised either at a special meeting of the
holders of Preferred Stock called as provided below, or at any annual or
special meeting of the stockholders of the Corporation, or by written consent
of such holders in lieu of a meeting. The directors to be elected pursuant to
this Section 4(b) shall serve for terms extending from the date of their
election and qualification until their successors shall have been elected and
qualified. If at any time any directorship to be filled by the holders of
Preferred Stock pursuant to this Section 4(b) has been vacant for a period of
10 days, the Secretary of the Corporation shall, upon the written request of
any holder of such Preferred Stock, call a special meeting of the holders of
such Preferred Stock for the purpose of electing a director or directors to
fill such vacancy or vacancies. Such meeting shall be held at the earliest
practicable date, and at such place, as is specified in or determined in
accordance with the By-laws of the Corporation. If such meeting shall not be
called by the Secretary of the Corporation within 10 days after personal
service of such written request on him or her, then any holder of Preferred
Stock may designate in writing one of their members to call such meeting at the
expense of the Corporation, and such meeting may be called by such person so
designated upon the notice required for annual meetings of stockholders and
shall be held at such place as specified in such notice. Any holder of
Preferred Stock so designated shall have access to the stock books of the
Corporation relating to Preferred Stock for the purpose of calling a meeting of
the stockholders pursuant to these provisions. At any meeting held for the
purpose of electing directors as provided in this Section 4(b), the presence,
in person or by proxy, of the holders of record of shares representing at least
a majority of the voting power of the applicable series Preferred Stock then
outstanding shall be required to constitute a quorum of the applicable series
Preferred Stock for such election. A vacancy in the directorships to be
elected by the holders of applicable series Preferred Stock pursuant to this
Section 4(b) may be filled only by vote or written consent in lieu of a meeting
of the holders of at least a majority of the voting power of the applicable
series Preferred Stock.
(d) The Corporation shall not, without the affirmative consent or
approval of the holders of a Majority in Interest of the shares of the Series B
Preferred Stock then outstanding, voting separately as a class:
(i) in any manner authorize, create, designate, issue or sell any
class or series of capital stock (including any shares of treasury stock)
or rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which by
its terms is convertible into or exchangeable for any equity security or
has any other equity feature or any security that is a combination of debt
and equity, which, in each case, as to the payment of dividends,
distribution of assets or redemptions, including, without limitation,
distributions to be made upon a Liquidation, is pari passu with or is
senior to the Series B Preferred Stock or which in any manner adversely
affects the holders of the Series B Preferred Stock;
- 6 -
<PAGE> 8
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other special
rights, or the qualifications, limitations or restrictions, of the Series B
Preferred Stock;
(iii) reclassify the shares of any class or series of
capital stock into shares of any class or series of capital stock (A)
ranking, either as to payment of dividends, distributions of assets or
redemptions, including, without limitation, distributions to be made upon a
Liquidation, senior to or on a parity with such Series B Preferred Stock,
or (B) which in any manner adversely affects the rights of the holders of
such Series B Preferred Stock in their capacity as such;
(iv) take any action to cause any amendment, alteration or
repeal of any of the provisions of (A) the Restated Certificate of
Incorporation or (B) the By-laws of the Corporation, if such amendment,
alteration or repeal would materially and adversely affect the Series B
Preferred Stock;
(v) approve or authorize any Liquidation or any recapitalization
or reorganization of the Corporation or any subsidiary;
(vi) approve or authorize the redemption of any shares of
the Common Stock, other than the shares of Common Stock repurchased from
directors, employees or consultants of the Corporation or any subsidiary
pursuant to agreements under which the Corporation has the option to
repurchase such shares upon the occurrence of certain events, including,
without limitation, termination of employment or service;
(vii) approve or authorize the incurrence of any indebtedness or
the issuance of any guarantee of any obligation of any other person or
entity (other than a subsidiary) if the aggregate amount of the principal
amount of such indebtedness and the principal amount of the indebtedness so
guaranteed shall exceed the stockholders equity of the Corporation;
(viii) approve or authorize the payment of any dividend or other
distribution upon shares of capital stock other than the Series B Preferred
Stock; or
(ix) consummate a Sale of the Corporation.
(e) During any period in which the holders of the Series C Preferred
Stock do not have the right to elect a director to the Board, such holders shall
have the right to one (1) representative (the "Series C Observer") attend
meeting of the Board, and the Corporation shall permit the Series C Observer to
attend all such meetings as an observer. The Series C Observer shall not have
the right to vote on any matter presented to the Board or any committee thereof.
The Corporation shall give the Series C Observer written notice of each meeting
of the Board and all written materials and other information given to the
Corporation's directors in the same manner and at the same time such notices,
materials and other information are given to the directors. If the Board
proposes to take any action by written consent in lieu of a meeting, the
Corporation shall give written notice thereof to the Series C Observer prior to
the effective date of such consent describing the nature and substance of such
action. The Series C Observer shall keep confidential all confidential
information provided to it in its capacity as an observer;
- 7 -
<PAGE> 9
provided that the Series C Observer may disclose such confidential information
to the holders of the Series C Preferred Stock. The holders of the Series C
Preferred Stock shall also be bound by this provisions of this confidentiality
obligation, except that the holders of the Series C Preferred Stock may
disclose such confidential information to their directors, officers and
employees who need to know such information.
5. CONVERSION.
(a) Upon the terms set forth in this Section 5, by surrender of the
certificate representing each share (i) each holder of each share of Series A
Preferred Stock shall have the right, at such holder's option, at any time and
from time to time, to convert all or any part of such shares into the number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (A) $1.00 by (B) the Conversion Price (defined below) as
last adjusted and then in effect, (ii) each holder of each share of Series B
Preferred Stock shall have the right, at such holder's option, at any time and
from time to time, to convert all or any part of such shares into the number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (A) the Original Cost by (B) the Conversion Price (as
defined below), as last adjusted and then in effect and (iii) each holder of
each share of Series C Preferred Stock shall have the right, at such holder's
option, at any time and from time to time, to convert all or any part of such
shares into the number of fully paid and nonassessable shares of Common Stock
equal to the quotient obtained by dividing (A) the Original Cost by (B) the
Conversion Price (defined below) as last adjusted and then in effect. The
conversion price per share at which shares of Common Stock shall be issuable
upon conversion of shares of Series A Preferred Stock shall be $1.00, the
conversion price per share at which shares of Common Stock shall be issuable
upon conversion of shares of Series B Preferred Stock shall be $1.62 and the
conversion price per share at which shares of Common Stock shall be issuable
upon conversion of the shares of the Series C Preferred Stock shall be $5.754
(in each case, the "Conversion Price"), as adjusted pursuant to paragraph (e)
below. The holder of any shares of Preferred Stock may exercise the conversion
right pursuant to this paragraph (a) by delivering to the Corporation the
certificate for the shares to be converted, duly endorse or assigned in blank or
to the Corporation (if required by it), accompanied by written notice stating
that the holder elects to convert such shares and stating the name or names
(with address) in which the certificate or certificates for the shares of Common
Stock are to be issued. Conversion shall be deemed to have been effected on the
date when such delivery is made or upon the consummation of a Qualified Public
Offering as provided below, if applicable (the "Conversion Date").
(b) Upon the terms set forth in this Section 5 upon the consummation
of a Qualified Public Offering, (i) each share of Series A Preferred Stock shall
automatically be converted into that number of fully paid and nonassessable
shares of Common Stock equal to the quotient obtained by dividing (A) $1.00 by
the (B) applicable Conversion Price, as last adjusted and then in effect, (ii)
each share of Series B Preferred Stock shall automatically be converted into
that number of fully paid and nonassessable shares of Common Stock equal to the
quotient obtained by dividing (A) the Original Cost by (B) the applicable
Conversion Price, as last adjusted and then in effect and (iii) each share of
Series C Preferred Stock shall automatically be converted into that number of
fully paid and nonassessable shares of Common Stock equal to the quotient
obtained by dividing (A) the Original Cost by the (B) applicable Conversion
Price, as last adjusted and then in effect. All shares of Series A Preferred
Stock and Series C Preferred
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Stock shall also automatically be converted into Common Stock in accordance with
the terms set forth in clause (i) and (iii) above upon the vote of a Majority in
Interest of the holders of the Series A Preferred Stock and Series C Preferred
Stock, respectively.
(c) As promptly as practicable after the conversion of any shares of
Preferred Stock into Common Stock under paragraph (a) or (b) above, the
Corporation shall issue and deliver to or upon the written order of such holder,
to the place designated by such holder, a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled, and a
cash amount in respect of any fractional interest in a share of Common Stock as
provided in paragraph (d) below. The person in whose name the certificate or
certificates for Common Stock are to be issued shall be deemed to have become a
stockholder of record on the applicable Conversion Date unless the transfer
books of the Corporation are closed on that date, in which event such person
shall be deemed to have become a stockholder of record on the next succeeding
date on which the transfer books are open, but the Conversion Price shall be
that in effect on the Conversion Date, and the rights of the holder of the
shares of Preferred Stock so converted shall cease on such Conversion Date. Upon
conversion of only a portion of the number of shares covered by a certificate
representing shares of Preferred Stock surrendered for conversion, the
Corporation shall issue and deliver to or upon the written order of the holder
of the certificate so surrendered for conversion, at the expense of the
Corporation, a new certificate covering the number of shares of Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(d) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Preferred Stock. The number of full shares of Common
Stock issuable upon conversion of Preferred Stock shall be computed on the basis
of the aggregate number of shares of such Preferred Stock to be converted.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any such shares, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the
product of (A) the price of one share of Common Stock as determined in good
faith by the Board and (B) such fractional interest. The holders of fractional
interests shall not be entitled to any rights as stockholders of the Corporation
in respect of such fractional interests.
(e) The Conversion Price shall be subject to adjustment from time to
time as follows:
(i) If the Corporation shall, at any time or from time to time
after the Original Issuance Date, issue any shares of Common Stock other
than Excluded Stock without consideration or for a consideration per share
less than the Conversion Price in effect immediately prior to the issuance
of such Common Stock, then such Conversion Price, as in effect immediately
prior to each such issuance, shall forthwith be lowered to a price equal to
the quotient obtained by dividing:
(A) an amount equal to the sum of (x) the total number of shares
of Common Stock outstanding on a fully-diluted basis immediately prior
to such issuance, multiplied by the Conversion Price in effect
immediately prior to such issuance, and (y) the consideration received
by the Corporation upon such issuance; by
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(B) the total number of shares of Common Stock outstanding on a
fully-diluted basis immediately after the issuance of such Common
Stock.
(ii) For the purposes of any adjustment of a Conversion Price pursuant to
clause (i) above, the following provisions shall be applicable:
(A) In the case of the issuance of Common Stock for cash in a public
offering or private placement, the consideration shall be deemed to be the
amount of cash paid therefor after deducting therefrom any discounts,
commissions or placement fees payable by the Corporation to any underwriter
or placement agent in connection with the issuance and sale thereof.
(B) In the case of the issuance of Common Stock for a consideration
in whole or in part other than cash, the consideration other than cash shall
be deemed to be the fair market value thereof as determined in good faith by
the Board, irrespective of any accounting treatment.
(C) In the case of the issuance of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible into or
exchangeable for Common Stock, or options to purchase or rights to subscribe
for such convertible or exchangeable securities except for options to
acquire Excluded Stock:
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock shall be deemed to have been issued at the
time such options or rights were issued and for a consideration equal to
the consideration (determined in the manner provided in subdivisions (A)
and (B) above), if any, received by the Corporation upon the issuance of
such options or rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible
or exchangeable securities or upon the exercise of options to purchase
or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof shall be deemed to have
been issued at the time such securities, options, or rights were issued
and for a consideration equal to the consideration received by the
Corporation for any such securities and related options or rights
(excluding any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be received by
the Corporation upon the conversion or exchange of such securities or
the exercise of any related options or rights (the consideration in each
case to be determined in the manner provided in subdivisions (A) and (B)
above);
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<PAGE> 12
(3) on any change in the number of shares or exercise price of
Common Stock deliverable upon exercise of any such options or rights or
conversions of or exchanges for such securities, other than a change
resulting from the antidilution provisions thereof, the Conversion Price
shall forthwith be readjusted to such Conversion Price as would have
been obtained had the adjustment made upon the issuance of such options,
rights or securities not converted prior to such change, or options or
rights related to such securities not converted prior to such change,
been made upon the basis of such change;
(4) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration
of any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment made
upon the issuance of such options, rights, securities or options or
rights related to such securities been made upon the basis of the
issuance of only the number of shares of Common Stock actually issued
upon the exercise of such options or rights, upon the conversion or
exchange of such securities, or upon the exercise of the options or
rights related to such securities and subsequent conversion or exchange
thereof; and
(5) No further adjustment of the Conversion Price adjusted upon
the issuance of any such options, rights, convertible securities or
exchangeable securities shall be made as a result of the actual issuance
of Common Stock on the exercise of any such rights or options or any
conversion or exchange of any such securities.
(iii) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is increased by a stock dividend payable in
shares of Common Stock or by a subdivision or split-up of shares of Common
Stock, then, following the record date for the determination of holders of
Common Stock entitled to receive such stock dividend, subdivision or split-up,
the Conversion Price shall be appropriately decreased so that the number of
shares of Common Stock issuable on conversion of each share of Preferred Stock
shall be increased in proportion to such increase in outstanding shares.
(iv) If, at any time after the Original Issuance Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date for such
combination, the Conversion Price shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of each share of
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(v) In the event of any capital reorganization of the Corporation, any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock
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<PAGE> 13
dividend or subdivision, split-up or combination of shares), or any
consolidation or merger of the Corporation, each share of Preferred Stock shall
after such reorganization, reclassification, consolidation, or merger be
convertible into the kind and number of shares of stock or other securities or
property of the Corporation or of the corporation resulting from such
consolidation or surviving such merger to which the holder of the number of
shares of Common Stock deliverable (immediately prior to the time of such
reorganization, reclassification, consolidation or merger) upon conversion of
such share of Preferred Stock would have been entitled upon such
reorganization, reclassification, consolidation or merger. The provisions of
this clause shall similarly apply to successive reorganizations,
reclassifications, consolidations or mergers.
(vi) No adjustment in any Conversion Price shall be required unless such
adjustment would require an increase or decrease of at least $0.01 in such
Conversion Price; provided that any adjustments not required to be made by
virtue of this sentence shall be carried forward and taken into account in any
subsequent adjustment. All calculations under paragraphs (i) through (v) above
shall be made to the nearest one hundredth (1/100) of a cent or the nearest one
tenth (1/10) of a share, as the case may be.
(vii) In any case in which the provisions of this paragraph (e) shall
require that an adjustment shall become effective immediately after a record
date of an event, the Corporation may defer until the occurrence of such event
(1) issuing to the holder of any share of Preferred Stock converted after such
record date and before the occurrence of such event the shares of capital stock
issuable upon such conversion by reason of the adjustment required by such event
in addition to the shares of capital stock issuable upon such conversion before
giving effect to such adjustments, and (2) paying to such holder any amount in
cash in lieu of a fractional share of capital stock pursuant to paragraph (d)
above; provided, however, that the Corporation shall deliver to such holder an
appropriate instrument evidencing such holder's right to receive such additional
shares and such cash.
(viii) Whenever a Conversion Price shall be adjusted as provided in
paragraph (iv), the Corporation shall make available for inspection during
regular business hours, at its principal executive offices or at such other
place as may be designated by the Corporation, a statement, signed by its chief
executive officer, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by first class certified
mail, return receipt requested and postage prepaid, to each holder of Preferred
Stock at such holder's address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of
any notice required to be mailed under the provisions of paragraph (ix) below.
(ix) If the Corporation shall propose to take any action of the types
described in clause (v) of this paragraph (e), the Corporation shall give notice
to each holder of shares of Preferred Stock, in the manner set forth in
paragraph (viii) above, which notice shall specify the record date, if any, with
respect to any such action and the date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to
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<PAGE> 14
the extent such effect may be known at the date of such notice) on the
Conversion Price and the number, kind or class of shares or other securities or
property which shall be deliverable or purchasable upon the occurrence of such
action or deliverable upon conversion of shares of Preferred Stock. In the
case of any action which would require the fixing of a record date, such notice
shall be given at least 20 days prior to the date so fixed, and in case of all
other action, such notice shall be given at least 30 days prior to the taking
of such proposed action. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of any such action.
(x) The Corporation shall at all times keep reserved, free from
preemptive rights, out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the Preferred Stock,
sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Preferred Stock.
(xi) Without duplication of any other adjustment provided for in this
Section 5, at any time the Corporation makes or fixes a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in securities of the Corporation other than shares of
Common Stock, provision shall be made so that each holder of Preferred Stock
shall receive upon conversion thereof, in addition to the shares of Common Stock
receivable thereupon, the number of securities of the Corporation which it would
have received had its shares of Preferred Stock been converted into shares of
Common Stock on the date of such event and had such holder thereafter, during
the period from the date of such event to and including the date of conversion,
retained such securities receivable by it pursuant to this paragraph during such
period, subject to the sum of all other adjustments called for during such
period under this Section 5 with respect to the rights of such holder of
Preferred Stock.
(xii) No adjustment shall occur under this Section 5 in connection with
(A) the issuance of shares of Preferred Stock to Security First pursuant to the
Series C Preferred Stock Purchase Agreement, dated September 23, 1999, between
the Corporation and Security First, (B) the issuance of the warrant ("Security
First Warrant") to Security First pursuant to the Strategic Marketing and Sales
Agency Agreement, dated September 23, 1999, between the Corporation and Security
First, (C) the issuance of shares of Common Stock pursuant to the Security First
Warrant in accordance with its original terms, (D) the issuance of the warrant
("Rubin Warrant") to Jerry Rubin, which is exercisable for 45,000 shares of
Common Stock for an exercise price of $.10 per share, (E) the issuance of shares
of Common Stock pursuant to the Rubin Warrant in accordance with its original
terms, (F) the issuance of the warrant ("Karlin Warrant') to Michael Karlin,
which is exercisable for 90,000 shares of Common Stock for an exercise price of
$.32 per share, and (G) the issuance of shares of Common Stock pursuant to the
Karlin Warrant in accordance with its original terms.
6. DEFINITIONS.
As used herein, the following terms shall have the following meanings:
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<PAGE> 15
(a) "Affiliate" means, with respect to any Person, any of (a) a
director, officer or stockholder holding 5% or more of the capital stock (on a
fully diluted basis) of such Person, (b) a spouse, parent, sibling or descendant
of such Person (or a spouse, parent, sibling or descendant of a director,
officer, or partner of such Person) and (c) any other Person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, another Person. The term "control" includes,
without limitation, the possession, directly or indirectly, of the power to
direct the management and policies of a Person, whether through the ownership of
voting securities, by contract or otherwise.
(b) "Board" shall mean the Board of Directors of the Corporation.
(c) "Excluded Stock" means (1) shares (as adjusted equitably for stock
dividends, stock splits, combinations, etc.) of Common Stock issuable upon
exercise of stock options (the issuance of which was duly approved by the Board)
granted to directors, officers, employees and consultants of the Corporation or
its subsidiaries and (2) shares of Common Stock issued upon conversion of shares
of Preferred Stock.
(d) "Independent Third Party" means, immediately prior to the
contemplated transaction, any person or entity which (i) does not own in excess
of five percent (5%) of the Corporation's capital stock deemed outstanding at
such time (on a fully-diluted basis) and (ii) is not an Affiliate of any such
owner.
(e) "Liquidation" means any Sale of the Corporation or voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, other than any dissolution, liquidation or winding up in connection
with any reincorporation of the Corporation in another jurisdiction.
(f) "Liquidation Amount" means as to each share of Series B Preferred
Stock the original price therefor to the Corporation upon the issuance thereof
plus all accrued and unpaid dividends thereon through the date of payment of
such amount to the holder thereof.
(g) "Majority in Interest" means, at any point in time, Preferred
Stockholders of a particular series of Preferred Stock owning, in the aggregate
more than 50% of the Common Stock owned by all such Preferred Stockholders at
such time (determined on a fully diluted basis, assuming the conversion of all
securities convertible into Common Stock and the exercise of all options and
warrants then exercisable for Common Stock).
(h) "Original Issuance Date" means, with respect to the Series A
Preferred Stock, the date of original issuance of the first share of Series A
Preferred Stock, with respect to the Series B Preferred Stock, the date of
original issuance of the first share of Series B Preferred Stock and with
respect to the Series C Preferred Stock, the date of original issuance of the
first share of Series C Preferred Stock.
(i) "Qualified Public Offering" shall mean a public offering of the
securities of the Corporation underwritten by an underwriter generally
recognized as a major bracket underwriter yielding net proceeds to the
Corporation of not less than $25,000,000 (net of all underwriting discounts,
commissions and expenses) and at an enterprise valuation of not less than
$100,000,000.
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<PAGE> 16
(j) "Sale of the Corporation" means the sale of the Corporation to one
or more Independent Third Parties, pursuant to which such party or parties
acquire (i) capital stock or other securities of the Corporation possessing the
voting power to elect a majority of the Corporation's Board (whether by merger,
consolidation or issuance, sale or transfer of the Corporation's capital stock)
or (ii) all or substantially all of the Corporation's assets determined on a
consolidated basis.
(k) "Stockholders' Agreement" means the Stockholders' Agreement dated as
of May 10, 1999 and amended and restated as of September 23, 1999, among the
Corporation and the other parties thereto.
COMMON STOCK
Each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held on all matters as to which holders of Common
Stock shall be entitled to vote. Except for and subject to those rights
expressly granted to the holders of the Preferred Stock, or except as may be
provided by the laws of the State of Delaware, the holders of Common Stock shall
have exclusively all other rights of stockholders including, but not by way of
limitation, (i) the right to receive dividends, when and as declared by the
Board out of assets legally available therefor and (ii) in the event of any
distribution of assets upon a Liquidation or otherwise, the right to receive
ratably and equally all the assets and funds of the Corporation remaining after
the payment to the holders of shares of the holders of the Preferred Stock of
the specific amounts which they are entitled to receive, respectively, upon such
Liquidation as herein provided.
ARTICLE IV
The business and affairs of the Corporation shall be managed by or under
the direction of the Board, and the directors need not be elected by ballot
unless required by the By-laws of the Corporation.
ARTICLE V
In furtherance and not in limitation of the powers conferred by the laws
of the State of Delaware, subject to Section 4(c)(iv) of Article III, the Board
is expressly authorized to make, amend and repeal the By-laws of the
Corporation.
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation
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Law, as so amended. Any repeal or modification of this provision shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.
ARTICLE VII
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, County of New Castle, Delaware. The
Corporation's registered agent at such address is The Corporation Trust Company.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the state of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such matter as the said court
directs. If a majority in number representing 3/4 in value of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of the Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of the Corporation, as the case may be,
and also on the Corporation.
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