UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission file number 000-28063
DELTATHREE.COM, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 13-4006766
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
430 PARK AVENUE, SUITE 500 10022
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (212) 421-2350
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No | |
As of May 15, 2000, the registrant had 9,145,902 shares of Class A Common
Stock, par value $0.001 per share, and 19,569,459 shares of Class B Common
Stock, par value $0.001 per share, outstanding.
DELTATHREE.COM, INC.
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2000 (Unaudited) and December 31, 1999...............1
Condensed Consolidated Statements of Operations for
the Three Month Periods Ended March 31, 2000
(Unaudited) and March 31, 1999 (Unaudited).....................3
Condensed Consolidated Statements of Cash Flows for
the Three Month Periods Ended March 31, 2000
(Unaudited) and March 31, 1999 (Unaudited).....................4
Notes to Condensed Consolidated Financial Statements.............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................7
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................9
Item 2. Change in Securities and Use of Proceeds........................10
Item 4. Submission of Matters to a Vote of Security Holders.............10
Item 5. Other Information...............................................10
Item 6. Exhibits and Reports on Form 8-K................................12
Signatures..................................................................13
Exhibit Index...............................................................14
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTATHREE.COM, INC
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
As of As of
March 31, December 31,
2000 1999
----------- ------------
(unaudited)
Current Assets
Cash and Cash Equivalents........................... $ 55,919 $ 89,957
Accounts Receivable, Net............................ 1,079 903
Due from Affiliates................................. 1,157 1,760
Marketable Securities - Available for Sale.......... 36,183 11,276
Prepaid Expenses and Other Current Assets........... 2,317 3,090
----------- -----------
Total Current Assets............................. 96,655 106,986
Property and Equipment.............................. 12,807 10,565
Less: Accumulated Depreciation...................... (1,450) (1,066)
----------- -----------
Property and Equipment, Net......................... 11,357 9,499
Investment in Unconsolidated Subsidiaries........... 90 90
Goodwill and Other Intangibles, Net................. 18,600 9,457
Deposits and Other Assets........................... 1,193 800
----------- -----------
Total Assets..................................... $ 127,895 $ 126,832
=========== ===========
Liabilities and Stockholder's Equity (Deficit)......
Short-term Debt Due to Affiliates................... 12,145 14,752
Accounts Payable.................................... 2,632 2,580
Due to Affiliates................................... 66 626
Deferred Revenues and Costs......................... 647 538
Other Current Liabilities........................... 5,869 5,548
----------- -----------
Total Current Liabilities 21,359 24,044
----------- -----------
Total Long-term Debt................................ 132 --
Severance Pay Obligations........................... 323 208
----------- -----------
Total Long-term Liabilities...................... 21,814 24,252
----------- -----------
Stockholder's Equity
Class A Common Stock, par value $0.001.............. 9 9
Class B Common Stock, par value $0.001.............. 20 20
Additional Paid-in Capital.......................... 167,256 157,891
Receivable for Capital Stock........................ (681) (1,232)
Deferred Compensation............................... (7,826) (10,670)
Accumulated Deficit................................. (52,697) (43,438)
----------- -----------
Total Stockholder's Equity....................... 106,081 102,580
=========== ===========
Total Liabilities and Stockholder's Equity.... $ 127,895 $ 126,832
=========== ===========
See notes to condensed consolidated financial statements.
DELTATHREE.COM, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except loss per share)
Three Months Ended
March 31,
2000 1999
----------- -----------
Revenues:
Affiliates..................................... 4,758 1,588
Non-affiliates................................. 1,812 486
Total Revenues............................ 6,570 2,074
----------- -----------
Costs and Operating Expenses:
Cost of Revenues................................. 5,689 1,714
Research and Development Expenses................ 1,202 76
Selling and Marketing Expenses................... 4,945 615
General and Administrative Expenses.............. 1,167 511
Non-cash compensation Expense.................... 2,398 232
Depreciation and Amortization.................... 1,353 1,013
----------- -----------
Total Operating Costs and Expenses........ 16,754 4,161
----------- -----------
Loss from Operations................................ (10,184) ( 2,087)
Interest Income (Expense), Net...................... 925 (168)
Minority interest................................... -- (3)
Net Loss............................................ $ (9,259) $ (2,258)
=========== ===========
Net Loss Per Share-Basic and Diluted................ $ (0.32) $ (0.29)
Weighted Average Shares Outstanding-Basic
and Diluted....................................... 28,715,329 7,875,554
See notes to condensed consolidated financial statements.
DELTATHREE.COM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
MARCH 31, MARCH 31,
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $ (9,259) $ (2,258)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 1,353 1,013
Amortization of deferred compensation.......... 2,398 232
Write-down of investment....................... (6) --
Minority interest.............................. -- 3
Increase (decrease) in liability for
severance pay................................ 115 18
Provision for losses on accounts receivable.... (18) 162
Changes in assets and liabilities:
Decrease (increase) in accounts receivable..... (158) (436)
Decrease (increase) in other current assets
and due from affiliates...................... 1,395 108
Increase (decrease) in accounts payable........ 52 (202)
Increase (decrease) in deferred revenues....... 109 (604)
Increase (decrease) in current liabilities
and due to affiliates........................ (239) 557
Increase in other assets....................... -- (2)
----------- -----------
5,001 849
----------- -----------
Net cash used in operating activities............. (4,258) (1,409)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (1,895) (131)
Proceeds from disposal of property and
equipment.................................... 28 --
Increase in deposits........................... (393) --
----------- -----------
Net cash used in investing activities............. (2,260) (131)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term investments............. (24,907) --
Proceeds from issuance of capital stock........ -- --
Proceeds from short-term debt from
affiliates................................... -- --
Payments of short-term debt from affiliates.... (2,607) --
Proceeds from long-term debt from affiliates... -- 2,000
Expenses relating to share issuance in 1999.... (272) --
Proceeds from exercise of employee options..... 134 --
Proceeds (payment) of other long-term debt..... 132 (78)
----------- -----------
Net cash provided by (used in) financing
activities...................................... (27,520) 1,922
----------- -----------
Increase (decrease) in cash and cash
equivalents..................................... (34,038) 382
Cash and cash equivalents at beginning of
period.......................................... 89,957 1,357
----------- -----------
Cash and cash equivalents at end of period........ $ 55,919 $ 1,739
=========== ===========
See notes to condensed consolidated financial statements.
DELTATHREE.COM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2000
1. Basis of Presentation
The unaudited condensed consolidated financial statements of
deltathree.com, Inc. and its subsidiaries (collectively, "the Company"), of
which these notes are a part, have been prepared in accordance with
generally accepted accounting principles for interim financial information
and pursuant to the instructions of Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for annual financial
statements. In the opinion of management of the Company, all adjustments
(consisting only of normal recurring accruals) considered necessary for a
fair presentation of the financial information have been included. The
results for the interim periods presented are not necessarily indicative of
the results that may be expected for any future period. The condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1999.
2. Accounting Policies
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in fiscal years beginning after June 15, 2000.
Management does not anticipate that the adoption of this standard will have
a significant effect on earnings or the financial position of the Company.
3. Net Loss Per Share
The shares issuable upon the exercise of stock options and warrants are
excluded from the calculation of net loss per share as their effect would
be antidilutive.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the Notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999. This quarterly report on Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements involve
risks and uncertainties and actual results could differ materially from
those discussed in the forward-looking statements. All forward-looking
statements and risk factors included in this document are made as of the
date hereof, based on information available to the Company as of the date
thereof, and the Company assumes no obligation to update any
forward-looking statement or risk factors.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Revenues
Affiliates. Revenues from affiliates were $4.8 million for the three
months ended March 31, 2000 compared to $1.6 million for the three months
ended March 31, 1999, an increase of $3.2 million or 200%. The increase in
revenues from affiliates was due to an increase in sales of calling card
products through our affiliate RSL COM USA. Additionally, the increase in
sales to RSL COM was also facilitated by the growth in our network
resulting in our ability to provide additional capacity to RSL COM and an
increase in demand for our services from RSL COM offset by decreases in
prices.
Non-affiliates. Revenues from non-affiliates were $1.8 million for
the three months ended March 31, 2000 compared to $0.5 million for the
three months ended March 31, 1999, an increase of $1.3 million or 260%.
Revenues from carrier transmission services for telecommunications carriers
other than RSL COM were $534,361 for the three months ended March 31, 2000
compared to $146,333 for the three months ended March 31, 1999, an increase
of $388,028 or 265.2 %. The increase was due primarily to an increased
demand from a larger customer base. Revenues from enhanced IP
communications services were $1.2 million for the three months ended March
31, 2000 compared to $264,534 for the three months ended March 31, 1999, an
increase of $953,848 or 360.6%. The increase in revenues from enhanced IP
communications services was due to a greater number of PC-to-phone and
phone-to-phone calls being placed by an increasing user base.
Revenues from carrier transmission services to RSL COM and other
telecommunications carriers accounted for 33.6% and 83.7% of revenues for
the periods ended March 31, 2000 and March 31, 1999, respectively. Other
than RSL COM, no other customer accounted for greater than 5% of our
revenues during these periods. We expect that revenues from carrier
transmission services to RSL COM and other carriers will continue to
account for a majority of our revenues through at least the end of 2000.
Costs and Operating Expenses
Cost of revenues. Cost of revenues were $5.7 million for the three
months ended March 31, 2000 compared to $1.7 million for the three months
ended March 31, 1999. The increase in cost of revenues was due primarily to
an increase in the amount of traffic being terminated.
Research and development expenses. Research and development expenses
were $1.2 million for the three months ended March 31, 2000 compared to
$77,591 for the three months ended March 31, 1999. The increase in research
and development expenses was due to greater costs incurred in hiring
personnel to develop new services and enhancements to our existing
services.
Selling and marketing expenses. Selling and marketing expenses were
$4.9 million for the three months ended March 31, 2000 compared to $614,804
for the three months ended March 31, 1999, an increase of $4.3 million or
704.3%. The increase in selling and marketing expenses was due to a
significant increase in branding costs, promotional activities and
personnel to support the expansion of such marketing and promotional
activities.
General and administrative expenses. General and administrative
expenses (exclusive of non-cash compensation expenses) were $1.2 million
for the three months ended March 31, 2000 compared to $0.5 million for the
three months ended March 31, 1999, an increase of $0.7 million or 140%. The
increase in general and administrative expenses was primarily due to
additional personnel and increased occupancy costs. We expect that general
and administrative expenses will continue to increase as additional
personnel are recruited to support the Company's growth.
Non-cash compensation expenses. Non-cash compensation expenses were
$2.4 million for the three months ended March 31, 2000 compared to $232,264
for the three months ended March 31, 1999, an increase of $2.2 million or
932.4%. The increase in non-cash compensation expenses was due to the
amortization of costs incurred with the 1997, 1998 and 1999 grants of
options and warrants below the then fair market value.
Depreciation and amortization of goodwill. Depreciation and
amortization of goodwill was $968,540 for the three months ended March 31,
2000 compared to $757,879 for the three months ended March 31, 1999, an
increase of $210,661 or 27.8%. The increase in depreciation and
amortization of goodwill was due to the acquisition of YourDay.com, Inc. in
February 2000.
Loss from Operations
Loss from operations was $10.2 million for the three months ended
March 31, 2000 compared to $2.1 million for the three months ended March
31, 1999, an increase of $8.1 million or 385.7%. The increase in loss from
operations was due primarily to the increase in costs and operating
expenses, including non-cash compensation expense, sales and marketing
expenses and a decrease in prices we charged for carrier transmission
services. We expect to continue to incur losses for the foreseeable future.
Interest Income (Expense), Net
Interest income, net was $924,651 for the three months ended March
31, 2000 compared to interest expense of $168,103 for the three months
ended March 31, 1999, an increase of $1.1 million or 650.1%. The increase
in interest income was primarily due to interest earned on the remaining
proceeds from the Company's initial public offering. The Company incurs
interest expense in connection with its borrowings from RSL COM..
Net Loss
Net loss was $9.3 million for the three months ended March 31, 2000
compared to $2.3 million for the three months ended March 31, 1999, an
increase of $7.0 million or 304.3%. The increase in net loss was due to the
foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, the Company had cash and cash equivalents of
approximately $55.9 million, marketable securities-available for sale of
approximately $36.2 million and working capital of approximately $75.3
million. The Company generated negative cash flow from operating activities
of approximately $4.3 million during the three months ended March 31, 2000
compared with negative cash flow from operating activities of $1.4 million
during the three months ended March 31, 1999. Accounts receivable were
approximately $1.0 million and $0.9 million at March 31, 2000 and March 31,
1999, respectively. Accounts receivable and accounts payable have increased
from period to period as the Company's business has grown.
The Company's capital expenditures increased from approximately
$162,337 in the three months ended March 31, 1999 compared to approximately
$2.2 million in the three months ended March 31, 2000, as the Company
expanded its domestic and international network infrastructure.
The Company registered 6,900,000 shares of its Class A common stock
on a Form S-1 registration statement, which became effective on November
22, 1999. The Company received net proceeds, after deducting underwriting
discounts and commissions and offering expenses, of approximately
$96,255,000 from the sale of 6,900,000 shares at the initial public
offering price of $15.00 per share on November 29, 1999.
The Company believes that its available cash and cash equivalents
will be sufficient to meet its working capital requirements, including
operating losses, and capital expenditure requirements for at least the
next 18 months, assuming the Company's business plan is implemented
successfully. Thereafter, the Company will be required to raise additional
funds. Additional financing may not be available when needed or, if
available, such financing may not be on terms favorable to the Company. If
additional funds are raised through the issuance of equity securities, the
Company's existing stockholders may experience significant dilution. In
addition, the indentures governing outstanding indebtedness of RSL COM
restrict the Company's ability to incur indebtedness. The Company also has
agreed with RSL COM not to incur any debt (other than inter-company debt)
without its written consent so long as the Company is a restricted
subsidiary of RSL COM. Those limitations may require the Company to resort
to other sources of funding, such as the issuance of equity, and the
Company may need to rely upon RSL COM to provide any additional capital to
meet its working capital and capital expenditure requirements, and the
Company cannot assure you that RSL COM or any other third party will be
willing or able to provide additional capital on favorable terms or at all.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Securities and Exchange Commission's rule related to market risk
disclosure requires that we describe and quantify our potential losses from
market risk sensitive instruments attributable to reasonably possible
market changes. Market risk sensitive instruments include all financial or
commodity instruments and other financial instruments (such as investments
and debt) that are sensitive to future changes in interest rates, currency
exchange rates, commodity prices or other market factors. We believe our
exposure to market risk is immaterial. We currently do not invest in, or
otherwise hold, for trading or other purposes, any financial instruments
subject to market risk.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 8, 1999, Aerotel, Ltd. and Aerotel U.S.A. commenced a suit
against us, RSL COM and an RSL COM subsidiary in the United States District
Court for the Southern District of New York. Aerotel alleges that we are
infringing on a patent issued to Aerotel in November 1987 by making, using,
selling and offering for sale prepaid telephone card products in the United
States. Aerotel seeks an injunction to stop us from using the technology
covered by this patent, monetary damages in an unspecified amount and
reimbursement of attorneys' fees. We have answered the complaint, and the
parties are currently engaged in pre-trial discovery. As we continue to
evaluate these claims, we believe that we have meritorious defenses to the
claims and we intend to defend the lawsuit vigorously. However, the outcome
of the litigation is inherently unpredictable and an unfavorable result may
have a material adverse effect on our business, financial condition and
results of operations. Regardless of the ultimate outcome, the litigation
could result in substantial expenses to us and significant diversion of
efforts by our managerial and other personnel.
We are not a party to any other material litigation and are not aware
of any other pending or threatened litigation that could have a material
adverse effect on us or our business taken as a whole.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Pursuant to an Agreement and Plan of Merger dated as of February 3,
2000, YourDay Acquisition Corp., our wholly-owned subsidiary, was merged
with and into YourDay.com, Inc. Pursuant to the merger, we issued 229,443
shares of common stock to stockholders of YourDay.com, Inc., in a
transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof.
On November 22, 1999, we offered 6,900,000 shares of our common stock
in an initial public offering. These shares were registered with the
Securities and Exchange Commission on a registration statement on Form S- 1
(file no. 333-86503), which became effective on November 22, 1999. We
received net proceeds of approximately $96,255,000 from the sale of
6,900,000 shares at the initial public offering price of $15.00 per share
after deducting underwriting commissions and discounts and expenses of
approximately $6,300,000. The managing underwriters for our initial public
offering were Lehman Brothers Inc., Merrill Lynch & Co., U.S. Bancorp Piper
Jaffray, Lazard Freres & Co. LLC and Fidelity Capital Markets.
As of the date of this report, we have used approximately $36 million
of the cash proceeds to purchase marketable securities. We have not
otherwise made any specific allocations with respect to the net proceeds
from our initial public offering. We expect that we will use the net
proceeds to be allocated as follows:
o approximately $20 million to fund marketing and promotional
activities
o approximately $10 million for capital expenditures
o the balance for general corporate purposes
The preceding allocations are only an estimate and the amounts that
we actually expend will depend upon several factors, including our
available cash, the success of our marketing and promotion activities and
the availability of new business opportunities. Pending use of the net
proceeds, we intend to invest the net proceeds in interest-bearing,
investment-grade instruments, certificates of deposit, or direct or
guaranteed obligations of the United States.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Company's security holders
during the first quarter of 2000.
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
Certain matters discussed in this Report under the heading
"Management's Discussion and Analysis of Financial Condition and Results of
Operation - Liquidity and Capital Resources" contain certain
forward-looking statements which involve risks and uncertainties and depend
upon certain assumptions, some of which may be beyond the Company's
control, including, but not limited to, changing market conditions,
competitive and regulatory matters (such as timing and extent of
deregulation of telecommunications market, the size and financial resources
of competitors, etc.), general economic conditions in the markets in which
the Company operates, as well as other risks referenced from time to time
in the Company's filings with the Securities and Exchange Commission, and,
accordingly, there can be no assurance with regard to such statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed herewith or are incorporated by
reference to exhibits previously filed with the Securities and Exchange
Commission.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1** Form of Amended and Restated Certificate of Incorporation of
deltathree.com, Inc.
3.2** Form of Amended and Restated By-laws of deltathree.com, Inc.
4.1** Specimen Certificate of Common Stock.
4.2** Specimen Certificate of Class B Common Stock.
4.3** Registration Rights Agreement dated September 1, 1999, between
RSL Communications, Ltd. and deltathree.com, Inc.
10.1** Amended and Restated Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc., dated
September 3, 1999.
10.2** Credit Facility dated September 1, 1999, between
RSL Communications, Ltd. and deltathree.com, Inc.
10.3** Form of deltathree.com, Inc. 1999 Stock Incentive Plan.
10.4** Form of deltathree.com, Inc. 1999 Employee Stock Purchase Plan.
10.5** Form of deltathree.com, Inc. 1999 Performance Incentive Plan.
10.6** Form of deltathree.com, Inc. 1999 Directors' Plan.
10.7** Employment Agreement effective as of April 1, 1999, between
Amos Sela and deltathree.com, Inc.
10.8** Employment Agreement effective as of April 1, 1999, between
Mark J. Hirschhorn and deltathree.com, Inc.
10.9** Employment Agreement effective as of April 1, 1999, between
Noam Bardin and deltathree.com, Inc.
10.10** Employment Agreement effective as of April 1, 1999, between
Shimmy Zimels and deltathree.com, Inc.
10.11** Employment Agreement effective as of April 1, 1999, between
Elie C. Wurtman and deltathree.com, Inc.
10.12** Employment Agreement effective as of April 1, 1999, between
Jacob A. Davidson and deltathree.com, Inc.
10.13** Investor Rights Agreement dated as of September 29, 1999
between Yahoo! Inc. and deltathree.com, Inc.
10.14** Form of warrant issued to Yahoo! Inc. on October 18, 1999.
10.15** Management Agreement dated as of November 1, 1999 between
deltathree.com, Inc. and RSL Communications, Ltd.
10.16** Amendment to Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc., dated
November 1, 1999.
10.17** Investor Rights Agreement dated as of October 20, 1999 between
CNET Investments, Inc. and deltathree.com, Inc.
10.18** Form of warrant issued to CNET Investments, Inc. on
October 20, 1999.
10.19** Intercompany Compliance Agreement dated as of November 1, 1999,
between RSL Communications, Ltd., RSL Communications PLC and
deltathree.com, Inc.
10.20** Development and Promotion Agreement effective as of
September 22, 1999 between CNET, Inc. and deltathree.com, Inc.
10.21** Form of Proposed Release and Indemnification Agreement between
RSL Communications, Ltd. and deltathree.com, Inc.
10.22 Agreement and Plan of Merger dated as of February 3, 2000 between
deltathree.com, Inc., YourDay Acquisition Corp., YourDay.com,
Inc. and SenseNet Inc.
- -----------
** Incorporated by reference to our registration statement on Form S-1
(Registration No. 333-86503).
(b) Reports on Form 8-K.
During the first quarter of 2000, the Company did not file any
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Quarterly Report on Form 10-Q to be
signed on its behalf by the undersigned thereunto duly authorized.
DELTATHREE.COM, INC.
Date: May 15, 2000 By /s/ Mark Hirschhorn
------------------------------
Name: Mark Hirschhorn
Title: Vice President and
Chief Financial Officer
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1** Form of Amended and Restated Certificate of Incorporation of
deltathree.com, Inc.
3.2** Form of Amended and Restated By-laws of deltathree.com, Inc.
4.1** Specimen Certificate of Common Stock.
4.2** Specimen Certificate of Class B Common Stock.
4.3** Registration Rights Agreement dated September 1, 1999, between
RSL Communications, Ltd. and deltathree.com, Inc.
10.1** Amended and Restated Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc., dated
September 3, 1999.
10.2** Credit Facility dated September 1, 1999, between
RSL Communications, Ltd. and deltathree.com, Inc.
10.3** Form of deltathree.com, Inc. 1999 Stock Incentive Plan.
10.4** Form of deltathree.com, Inc. 1999 Employee Stock Purchase Plan.
10.5** Form of deltathree.com, Inc. 1999 Performance Incentive Plan.
10.6** Form of deltathree.com, Inc. 1999 Directors' Plan.
10.7** Employment Agreement effective as of April 1, 1999, between
Amos Sela and deltathree.com, Inc.
10.8** Employment Agreement effective as of April 1, 1999, between
Mark J. Hirschhorn and deltathree.com, Inc.
10.9** Employment Agreement effective as of April 1, 1999, between
Noam Bardin and deltathree.com, Inc.
10.10** Employment Agreement effective as of April 1, 1999, between
Shimmy Zimels and deltathree.com, Inc.
10.11** Employment Agreement effective as of April 1, 1999, between
Elie C. Wurtman and deltathree.com, Inc.
10.12** Employment Agreement effective as of April 1, 1999, between
Jacob A. Davidson and deltathree.com, Inc.
10.13** Investor Rights Agreement dated as of September 29, 1999 between
Yahoo! Inc. and deltathree.com, Inc.
10.14** Form of warrant issued to Yahoo! Inc. on October 18, 1999.
10.15** Management Agreement dated as of November 1, 1999 between
deltathree.com, Inc. and RSL Communications, Ltd.
10.16** Amendment to Services Agreement by and between
RSL Communications, Ltd. and deltathree.com, Inc., dated
November 1, 1999.
10.17** Investor Rights Agreement dated as of October 20, 1999 between
CNET Investments, Inc. and deltathree.com, Inc.
10.18** Form of warrant issued to CNET Investments, Inc. on
October 20, 1999.
10.19** Intercompany Compliance Agreement dated as of November 1, 1999,
between RSL Communications, Ltd., RSL Communications PLC and
deltathree.com, Inc.
10.20** Development and Promotion Agreement effective as of
September 22, 1999 between CNET, Inc. and deltathree.com, Inc.
10.21** Form of Proposed Release and Indemnification Agreement between
RSL Communications, Ltd. and deltathree.com, Inc.
10.22 Agreement and Plan of Merger dated as of February 3, 2000 between
deltathree.com, Inc., YourDay Acquisition Corp., YourDay.com,
Inc. and SenseNet Inc.
- -----------
** Incorporated by reference to our registration statement on Form S-1
(Registration No. 333-86503).
Exhibit 10.22
AGREEMENT AND PLAN
OF
MERGER
BY AND AMONG
DELTATHREE.COM INC.,
YOURDAY ACQUISITION
CORP.,
YOURDAY.COM, INC.
AND
SENSENET INC.
TABLE OF CONTENTS
ARTICLE I
THE MERGER.............................................................2
Section 1.1 The Merger.........................................2
Section 1.2 Closing............................................2
Section 1.3 Effective Time of the Merger.......................2
ARTICLE II
EFFECTS OF THE MERGER..................................................2
Section 2.1 Certificate of Incorporation.......................2
Section 2.2 By-laws............................................2
Section 2.3 Effect of the Merger...............................2
Section 2.4 Directors..........................................3
Section 2.5 Officers...........................................3
ARTICLE III
CONVERSION OF SHARES...................................................3
Section 3.1 Conversion of Company Shares in the Merger.........3
Section 3.2 Consideration......................................4
Section 3.3 Exchange of Certificates...........................5
Section 3.4 No Fractional Securities...........................7
Section 3.5 Dissenters' Rights.................................7
Section 3.6 Closing of the Company's Transfer Books............8
Section 3.7 Tax Consequences...................................8
Section 3.8 Taking of Necessary Action; Further Action.........8
ARTICLE IV
REPRESENTATION AND WARRANTIES OF PARENT AND ACQUISITION SUB............8
Section 4.1 Organization and Qualifications....................8
Section 4.2 Capitalization.....................................9
Section 4.3 Authority; Non-Contravention; Approvals............9
Section 4.4 Securities Reports and Financial Statements.......10
Section 4.5 Absence of Undisclosed Liabilities................11
Section 4.6 Information Statement.............................11
Section 4.7 Brokers and Finders...............................11
Section 4.8 Tax Matters.......................................11
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................11
Section 5.1 Organization and Qualification....................12
Section 5.2 Capitalization....................................12
Section 5.3 Subsidiaries......................................13
Section 5.4 Authority; Non-Contravention; Approvals...........13
Section 5.5 Financial Statements..............................14
Section 5.6 Absence of Certain Changes........................15
Section 5.7 Absence of Undisclosed Liabilities................16
Section 5.8 Absence of Litigation.............................16
Section 5.9 Information Statement.............................17
Section 5.10 No Violation of Law...............................17
Section 5.11 Material Contracts................................17
Section 5.12 No Breach of Material Contracts...................18
Section 5.13 Taxes.............................................18
Section 5.14 Employee Benefits Plans; ERISA....................19
Section 5.15 Labor Controversies...............................20
Section 5.16 Environmental Matters.............................20
Section 5.17 Title to Assets...................................22
Section 5.18 Company Stockholder Approval......................22
Section 5.19 Intellectual Property.............................22
Section 5.20 Insurance.........................................25
Section 5.21 Brokers and Finders...............................25
Section 5.22 Interested Party Transactions.....................25
Section 5.23 Minute Books......................................25
Section 5.24 Complete Copies of Materials......................25
Section 5.25 Board Approval....................................26
Section 5.26 Third Party Consents..............................26
Section 5.27 Inventory.........................................26
Section 5.28 Accounts Receivable...............................26
Section 5.29 Tax Matters.......................................26
Section 5.30 Representations Complete..........................26
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SENSENET............................26
Section 6.1 Organization and Qualifications...................27
Section 6.2 Authority; Non-Contravention; Approvals...........27
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER................................28
Section 7.1 Conduct of Business by the Company Pending
the Merger.....................................28
Section 7.2 Control of the Company's Operations...............30
Section 7.3 Acquisition Transactions..........................30
ARTICLE VIII
ADDITIONAL AGREEMENTS.................................................31
Section 8.1 Access to Information.............................31
Section 8.2 Majority Stockholder Approval.....................32
Section 8.3 Registration Rights...............................32
Section 8.4 Expenses and Fees.................................33
Section 8.5 Agreement to Cooperate............................33
Section 8.6 Public Statements.................................34
Section 8.7 Warrants..........................................34
Section 8.8 Benefit Plans.....................................34
Section 8.9 Notification of Certain Matters...................34
Section 8.10 Directors' and Officers' Indemnification..........35
Section 8.11 Information Statement.............................35
Section 8.12 Tax-Free Treatment of Merger......................35
Section 8.13 Blue Sky Laws.....................................36
Section 8.14 FIRPTA Certificate................................36
Section 8.15 Transfers of Title................................36
Section 8.16 Noncompetition; Nonsolicitation...................36
ARTICLE IX
CONDITIONS............................................................37
Section 9.1 Conditions to Each Party's Obligation to
Effect the Merger.................................37
Section 9.2 Additional Conditions to Obligation of the
Company to Effect the Merger......................38
Section 9.3 Additional Conditions to Obligations of Parent
and Acquisition Sub to Effect the Merger..........38
Section 9.4 Frustration of Conditions.........................40
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER.....................................40
Section 10.1 Termination.......................................40
Section 10.2 Effect of Termination.............................41
Section 10.3 Amendment.........................................41
Section 10.4 Waiver............................................41
ARTICLE XI
INDEMNIFICATION AND ESCROW............................................42
Section 11.1 Indemnification by SenseNet.......................42
Section 11.2 Procedure for Third Party Claims..................42
Section 11.3 Indemnity Period..................................43
ARTICLE XII
GENERAL PROVISIONS....................................................43
Section 12.1 Non-Survival of Representations and Warranties....43
Section 12.2 Notices...........................................43
Section 12.3 Interpretation....................................44
Section 12.4 Miscellaneous.....................................44
Section 12.5 Counterparts......................................44
Section 12.6 Parties In Interest...............................44
Section 12.7 Exhibits and Schedules............................45
Section 12.8 Severability......................................45
Section 12.9 Definition of Knowledge...........................45
Section 12.10 Transfer Taxes....................................45
Section 12.11 Arbitration.......................................45
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A: Form of Voting Agreement
Exhibit B: Form of Escrow Fund Agreement
Exhibit C: Form of FIRPTA Certificate and Notice to the IRS under
Treasury Regulation 1.897-2(h)(2)
Exhibit D: Form of Tax Opinion of Carter, Ledyard & Milburn and
Certificates in Support Thereof
Exhibit E: Form of Investment Letter
Exhibit F: Form of Services Agreement
Exhibit G: Terms of Sublease
Schedule 5.2(b): Outstanding Company Warrants
Schedule 5.2(d): List of Beneficial Owners of Company Securities
Schedule 5.6: Absence of Certain Changes
Schedule 5.11: Material Contracts
Schedule 5.13: Contested Taxes
Schedule 5.15: Labor Controversies
Schedule 5.19(b): Intellectual Property
Schedule 5.19(c): Agreements Concerning Intellectual Property
Schedule 5.19(d): Applications & Registrations Concerning Intellectual
Property
Schedule 5.22 Interested Party Transactions
Schedule 5.26 Third Party Consents
Schedule 7.1: List of Expenditures
Schedule 9.3(l): List of Employees
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, entered into as of February 3, 2000
(the "Agreement"), by and among DELTATHREE.COM, INC., a Delaware
corporation ("Parent"), YOURDAY ACQUISITION CORP., a Delaware corporation
and a direct, wholly- owned subsidiary of Parent ("Acquisition Sub"),
YOURDAY.COM, INC., a Delaware corporation (the "Company") and SENSENET
INC., a Delaware corporation ("SenseNet").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Acquisition
Sub, the Company and SenseNet have each determined that the merger of
Acquisition Sub with and into the Company (the "Merger") is consistent with
and in furtherance of the long-term business strategy of Parent and the
Company and is in the best interests of Parent, the Company and their
respective stockholders;
WHEREAS, the respective Boards of Directors of Parent, Acquisition
Sub and the Company have each approved the Merger upon the terms and
subject to the conditions set forth herein, in accordance with the
provisions of Delaware law;
WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and incur the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent and SenseNet have entered
into a Voting Agreement in the form of Exhibit A attached hereto (the
"Voting Agreement"), pursuant to which, among other things, SenseNet has
agreed to vote all shares of Company Common Stock (as defined in Section
3.1) held by it in favor of approval and adoption of this Agreement and the
Merger; and
WHEREAS, as a condition and inducement to Parent to enter into this
Agreement and incur the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, Parent, Acquisition Sub and
SenseNet are entering into an escrow fund agreement in the form of Exhibit
B attached hereto (the "Escrow Fund Agreement"), pursuant to which certain
shares of Parent Common Stock (as defined in Section 3.2) issuable to
SenseNet are to be placed in an escrow account to secure certain
indemnification obligations of SenseNet to Parent; and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"),
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, the parties hereto, intending to
be legally bound, agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined in Section
1.3) in accordance with the Delaware General Corporation Law (the "DGCL"),
Acquisition Sub shall be merged with and into the Company and the separate
corporate existence of Acquisition Sub shall thereupon cease. The Company
shall be the surviving corporation in the Merger and is hereinafter
sometimes referred to as the "Surviving Corporation." The Surviving
Corporation will be governed by the laws of the State of Delaware as a
direct, wholly-owned subsidiary of Parent.
Section 1.2 CLOSING. The closing of the Merger (the "Closing")
shall take place at 10:00 a.m., New York time, on a date to be specified by
the parties, which shall be no later than the third business day after
satisfaction or waiver of all of the conditions set forth in Article IX of
this Agreement (the "Closing Date"), at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, Four Times Square, New York, NY 10036, unless
another time, date or place is agreed to in writing by the parties hereto.
Section 1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall
become effective at such time (the "Effective Time") as shall be stated in
a Certificate of Merger, consistent with the terms of this Agreement, to be
filed with the Secretary of State of the State of Delaware in accordance
with the relevant provisions of the DGCL (the "Merger Filing").
ARTICLE II
EFFECTS OF THE MERGER
Section 2.1 CERTIFICATE OF INCORPORATION. From and after the
Effective Time, the Certificate of Incorporation of the Acquisition Sub
shall be the Certificate of Incorporation of the Surviving Corporation
until amended and changed pursuant to the provisions of the DGCL, except
that Article I of the Certificate of Incorporation of the Acquisition Sub
shall be amended to read as follows: "The name of the Corporation shall be
Yourday.com, Inc.".
Section 2.2 BY-LAWS. From and after the Effective Time, the
present By- Laws of the Acquisition Sub shall be the By-Laws of the
Surviving Corporation and shall continue in full force and effect until
changed, altered or amended as therein provided and in the manner
prescribed by the provisions of the DGCL.
Section 2.3 EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in this Agreement and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and
franchises of Acquisition Sub and the Company shall vest in the Surviving
Corporation; all debts, liabilities and duties of Acquisition Sub and the
Company shall become the debts, liabilities and duties of the Surviving
Corporation in the same manner as if the Surviving Corporation had itself
incurred them; and the separate corporate existence of the Company with all
its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, except as set forth herein.
Section 2.4 DIRECTORS. From and after the Effective Time, the
directors of Acquisition Sub shall be the directors of the Surviving
Corporation to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, until their
successors are duly elected or appointed. In furtherance thereof, the
Company shall secure, effective at the Effective Time of the Merger, such
resignations of its incumbent directors as is necessary to enable the
designees of Parent to be elected or appointed to the Board of Directors of
the Company, and the Company shall take all actions available to the
Company to cause such designees of Parent to be so elected or appointed at
the Effective Time. Concurrently, the Company shall, if requested by
Parent, also take all action necessary to cause persons designated by
Parent to constitute each committee of the Board of Directors of the
Company.
Section 2.5 OFFICERS. From and after the Effective Time, the
officers of Acquisition Sub shall be the officers of the Surviving
Corporation, in each case until their respective successors are duly
elected or appointed. In furtherance thereof, the Company shall secure,
effective at the Effective Time of the Merger, such resignations of its
incumbent officers as is necessary to enable the officers of Acquisition
Sub to be elected or appointed as officers of the Company, and the Company
shall take all actions available to the Company to cause such designees of
Parent to be so elected or appointed at the Effective Time.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. Subject
to Section 3.4 regarding fractional shares, at the Effective Time, by
virtue of the Merger and without any action on the part of (A) any holder
of any shares of the Company's common stock, par value $0.01 per share
("Company Common Stock") and (B) any holder of any shares of the Company's
Series A Preferred Stock, par value $0.01 per share ("Company Preferred
Stock"):
(a) Each share of Company Common Stock and Company
Preferred Stock issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares, as defined in Section 3.5), shall be
converted in accordance with Section 3.3 into the right to receive the Per
Share Merger Consideration (as defined in Section 3.2); provided, however,
that a number of shares of Parent Common Stock (as defined below) equal to
twelve and one-half percent (12.5%) of the number of shares of Parent
Common Stock that would otherwise be issuable to SenseNet pursuant to this
Section 3.1 shall be held back, deposited into the escrow fund established
pursuant to the Escrow Fund Agreement (the "Escrow Fund") and be subject to
the terms of the Escrow Fund Agreement.
(b) Each share of common stock, par value $0.001 per
share, of Acquisition Sub issued and outstanding immediately prior to the
Effective Time ("Acquisition Sub Common Stock") shall be converted into and
exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Each stock certificate of
Acquisition Sub evidencing ownership of any such shares shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
Section 3.2 CONSIDERATION.
(a) The consideration to be issued in respect of each
share of Company Common Stock and Company Preferred Stock in the Merger
(the "Per Share Merger Consideration") will be that number of shares of
Class A common stock of Parent, par value $0.001 per share ("Parent Common
Stock"), which is determined by dividing $10,500,000 by the number of
shares of Company Common Stock and Company Preferred Stock outstanding
immediately prior to the Effective Time, calculated on a fully diluted
basis, assuming the exercise of any warrants or options to acquire Company
Common Stock outstanding immediately prior to the Effective Time ("Company
Warrants"); and further dividing the resulting amount by the Parent Average
Trading Price (as defined below).
(b) For purposes hereof, the "Parent Average Trading
Price" shall mean the average of the closing sales prices of a share of
Parent Common Stock, as quoted on the Nasdaq National Stock Market for the
seven (7) days on which the New York Stock Exchange is open for business
("Trading Days") immediately prior to February 4, 2000.
(c) No fractional shares of Parent Common Stock shall be
issued in the Merger, and, in lieu thereof, a Fractional Share Payment (as
defined in Section 3.4) shall be made.
(d) No adjustment in the number of shares of Parent
Common Stock issuable in the Merger shall be made as a result of any
increase or decrease in the market price of Parent Common Stock prior to
the Effective Time. The Per Share Merger Consideration shall be subject to
equitable adjustment in the event of any stock split, stock dividend,
reverse stock split or other change in the number of shares of Parent
Common Stock or Company Common Stock outstanding occurring after the date
hereof and prior to Closing.
(e) The Company will use commercially reasonable efforts
to ensure that security holders who hold Company Warrants shall take all
necessary action such that each holder of a Company Warrant shall have the
right to receive, in lieu of the shares of Company Common Stock or Company
Preferred Stock theretofore issuable upon the exercise of such Company
Warrant, the aggregate number of shares of Parent Common Stock that the
holder of such Company Warrant would have been entitled to receive pursuant
to this Section 3.2 had such holder exercised the Company Warrant in full
immediately prior to the Effective Time, minus the number of shares of
Parent Common Stock (or fraction of a share of Parent Common Stock) equal
to the quotient of the aggregate exercise price of such Company Warrant
divided by the Parent Average Trading Price. Any Company Warrant which,
nonetheless, remains outstanding at the Effective Time shall become
exercisable for Parent Common Stock in accordance with the terms of such
Company Warrant.
Section 3.3 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, all outstanding
Company Common Stock and Company Preferred Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing shares of Company
Common Stock or Company Preferred Stock (a "Company Certificate") shall
cease to have any rights with respect thereto, except the right to receive
in exchange therefor, upon surrender thereof to an exchange agent appointed
by Parent (the "Exchange Agent"), a certificate or certificates
representing the number of whole shares of Parent Common Stock to which
such holder is entitled pursuant to Section 3.1 plus the Fractional Share
Payment (as defined in Section 3.4). Notwithstanding any other provision of
this Agreement, until holders or transferees of Company Certificates have
surrendered them for exchange as provided herein, no dividends or other
distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time shall be
paid with respect to any Parent Common Stock represented by such
certificates, and no Fractional Share Payment shall be made. Upon surrender
of a Company Certificate to the Exchange Agent, together with a letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, there shall be paid to the holder of such certificate
by Parent, without interest, (i) promptly, the amount of (A) any Fractional
Share Payment with respect to a fractional share of Parent Common Stock to
which such holder is entitled, and (B) except as provided in (ii) below,
dividends or other distributions with a record date after the Effective
Time which theretofore became payable with respect to whole shares of
Parent Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions, with a record date after the Effective
Time but prior to surrender and a payment date occurring after surrender,
payable with respect to such whole shares of Parent Common Stock.
(b) If any certificate for shares of Parent Common Stock
is to be issued in a name other than that in which the Company Certificate
surrendered in exchange therefor is registered, it shall be a condition of
such exchange that the Company Certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall have paid to Parent or the Exchange Agent
any applicable transfer or other taxes required by reason of such issuance.
(c) Promptly after the Effective Time, Parent shall
deposit, or cause to be deposited, with the Exchange Agent certificates
representing the number of shares of Parent Common Stock required to effect
the exchanges referred to in paragraph (a) above (other than shares of
Parent Common Stock to be deposited with the Escrow Agent pursuant to the
Escrow Fund Agreement) and cash, for purposes of the Fractional Share
Payment. Parent shall thereafter from time to time deposit, or cause to be
deposited, with the Exchange Agent cash, for payment of any dividend or
distributions in respect of such shares of Parent Common Stock with a
record date after the Effective Time.
(d) As soon as reasonably practicable after the Effective
Time, the Parent or the Surviving Corporation shall cause the Exchange
Agent to mail to each holder of record as of the Effective Time of a
Company Certificate, whose shares were converted into the right to receive
shares of Parent Common Stock, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Company Certificates shall pass, only upon delivery of the Company
Certificates to the Exchange Agent) and shall be in such form and have such
other provisions as Parent shall specify, and (ii) instructions for use in
effecting the surrender of the Company Certificates in exchange for
certificates representing shares of Parent Common Stock and the Fractional
Share Payment. Upon surrender of a Company Certificate for cancellation to
the Exchange Agent, together with a duly executed and completed letter of
transmittal, the holder of such Company Certificate shall be entitled to
receive in exchange therefor a certificate representing that number of
whole shares of Parent Common Stock into which the shares of Company Common
Stock theretofore represented by the Company Certificates so surrendered
shall have been converted pursuant to the provisions of Section 3.1, and
the Company Certificates so surrendered shall be canceled. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be
liable to a holder of shares of Company Common Stock for any shares of
Parent Common Stock or dividends or distributions thereon delivered to a
public official pursuant to applicable abandoned property, escheat or
similar laws.
(e) Promptly following the date which is six (6) months
after the Effective Time, the Parent or the Surviving Corporation shall
cause the Exchange Agent to deliver to Parent all certificates (including
certificates representing shares of Parent Common Stock), property and
other documents in its possession relating to the transactions described in
this Agreement. Thereafter, each holder of a Company Certificate may
surrender such Company Certificate to the Parent and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor
the shares of Parent Common Stock and any dividends or distributions with
respect to shares of Parent Common Stock and any Fractional Share Payment,
in each case without any interest thereon to which such person is entitled
pursuant to this Agreement.
(f) In the event any Company Certificate shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Company Certificate to be lost, stolen or
destroyed, and the posting of a bond by such person in such amount as
Parent may direct as indemnity against any claim that may be made against
it or the Exchange Agent with respect to such Company Certificate, the
Exchange Agent, Parent or the Surviving Corporation, as the case may be,
shall issue in exchange for such lost, stolen or destroyed Company
Certificate, certificates representing the proper number of shares of
Parent Common Stock deliverable in respect thereof determined in accordance
with this Section 3.3, and cash, for the Fractional Share Payment and any
other dividends or distributions in respect of shares of Parent Common
Stock with a record date after the Effective Time.
Section 3.4 NO FRACTIONAL SECURITIES. No certificates
representing fractional shares of Parent Common Stock shall be issued in
the Merger, and no stock dividend, stock split or interest shall relate to
any fractional security, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a security
holder. In lieu of any such fractional shares, each holder of Company
Common Stock or Company Preferred Stock, who would otherwise have been
entitled to receive a fractional share of Parent Common Stock upon
surrender of Company Certificates for exchange pursuant to this Article
III, after aggregating all fractional shares of Parent Common Stock which
would have been received by such Holder, shall be entitled to receive from
the Exchange Agent a cash payment (the "Fractional Share Payment") equal to
the product of (i) the fractional share interest to which such holder would
otherwise be entitled multiplied by (ii) the Parent Average Trading Price.
Section 3.5 DISSENTERS' RIGHTS. For purposes of this Section,
"Dissenting Shares" shall mean any shares of Company Common Stock or
Company Preferred Stock outstanding immediately prior to the Effective Time
and held by a holder who has not voted in favor of the Merger or consented
thereto in writing, and who has demanded appraisal for such shares of
Company Common Stock or Company Preferred Stock in accordance with Section
262 of the DGCL.
(a) Subject to (b) below, notwithstanding any provision
of this Agreement to the contrary, Dissenting Shares shall not be converted
into or represent a right to receive the Per Share Merger Consideration or
cash in lieu of fractional shares of Parent Common Stock pursuant to this
Article III, but the holder thereof shall be entitled to only such rights
as are granted by the DGCL.
(b) Notwithstanding the provisions of Section 3.5(a), if
any holder of shares of Company Common Stock or Company Preferred Stock who
demands appraisal of such holder's shares of Company Common Stock or
Company Preferred Stock under the DGCL effectively withdraws or loses
(through failure to perfect or otherwise) his right to appraisal, then as
of the Effective Time or the occurrence of such event, whichever occurs
later, such holder's shares of Company Common Stock or Company Preferred
Stock shall automatically be converted into and represent only the right to
receive the Per Share Merger Consideration and cash in lieu of fractional
shares of Parent Common Stock as provided in this Article III, without
interest, upon surrender of the Company Certificates representing such
shares of Company Common Stock or Company Preferred Stock pursuant to
Section 3.3.
(c) The Company shall give Parent (i) prompt notice of
any written demands for appraisal or payment of the fair value of any
shares of Company Common Stock or Company Preferred Stock, withdrawals of
such demands, and any other instruments served on the Company pursuant to
the DGCL received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under
the DGCL. Except with the prior written consent of Parent, the Company
shall not voluntarily make any payment with respect to any demands for
appraisal or settle, or offer to settle, any such demands.
Section 3.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the
Effective Time, the stock transfer books of the Company shall be closed and
no transfer of shares of Company Common Stock or Company Preferred Stock
which were outstanding immediately prior to the Effective Time shall
thereafter be made. From and after the Effective Time, the holders of
Company Certificates evidencing ownership of shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights as stockholders of the Company, except as otherwise provided herein
or by law. If, after the Effective Time, Company Certificates are presented
to Parent or the Surviving Corporation for any reason, they shall be
canceled and exchanged as provided in this Article III.
Section 3.7 TAX CONSEQUENCES. It is intended by the parties
hereto that the transactions contemplated hereby shall constitute a
reorganization within the meaning of Section 368(a) of the Code. Each party
and its affiliates shall use commercially reasonable efforts (i) to cause
such transactions to so qualify and (ii) to not take any action that would
cause such transactions not to qualify as a reorganization under such
Section. The parties will take the position for all purposes that the
transactions qualify as a reorganization under such Section. The shares of
Parent Common Stock to be issued in the Merger are being delivered solely
in exchange for Company Common Stock, Company Preferred Stock or Company
Warrants, and no portion thereof is to be allocated for tax purposes to any
of the covenants or undertakings of any party hereto.
Section 3.8 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at
any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company, the
officers and directors of Parent, Acquisition Sub and the Surviving
Corporation are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and
necessary action, so long as such action is not inconsistent with this
Agreement.
ARTICLE IV
REPRESENTATION AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub each represent and warrant to the Company,
as of the date hereof, as follows:
Section 4.1 ORGANIZATION AND QUALIFICATIONS. Parent and
Acquisition Sub are corporations duly organized, validly existing and in
good standing under the laws of the State of Delaware and each has the
requisite corporate power and authority to own, lease and operate its
assets and properties and to carry on its business as it is now being
conducted. Each of Parent and Acquisition Sub is qualified to do business
and is in good standing in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations
of Parent, Acquisition Sub and Parent's other subsidiaries, taken as a
whole (a "Parent Material Adverse Effect"). Neither Parent nor Acquisition
Sub is in violation of any of the provisions of their respective
Certificate of Incorporation or By-Laws.
Section 4.2 CAPITALIZATION.
(a) The authorized capital stock of Parent consists of
200,000,000 shares of Parent Common Stock, par value $0.001 per share,
200,000,000 shares of Class B common stock, par value $0.001 per share, and
25,000,000 shares of preferred stock, par value $0.001 per share. As of the
date hereof, 8,918,132 shares of Parent Common Stock and 19,569,459 shares
of Class B common stock were outstanding. All shares of Parent Common Stock
to be issued in connection with the Merger shall be, when issued, duly
authorized and validly issued, nonassessable and free of preemptive rights
granted by Parent or by applicable law.
(b) The authorized capital stock of Acquisition Sub
consists of 100 shares of Subsidiary Common Stock, $0.001 par value, of
which 100 shares are issued and outstanding and owned beneficially and of
record by Parent.
Section 4.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Parent and Acquisition Sub each have full corporate
power and authority to enter into this Agreement and, subject to the Parent
Required Statutory Approval (as defined in Section 4.3(c)), to consummate
the transactions contemplated hereby. This Agreement has been approved by
the Boards of Directors of Parent and Acquisition Sub and by the sole
stockholder of Acquisition Sub, and no other corporate proceedings on the
part of Parent or Acquisition Sub are necessary to authorize the execution
and delivery of this Agreement or the consummation by Parent and
Acquisition Sub of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Parent and Acquisition Sub,
and, assuming the due authorization, execution and delivery hereof by the
Company and SenseNet, constitutes a valid and legally binding agreement of
each of Parent and Acquisition Sub, enforceable against each of them in
accordance with its terms, except that such enforcement may be subject to
(i) bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting or relating to enforcement of creditors' rights generally,
and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each
of Parent and Acquisition Sub does not, and the performance of this
Agreement and the transactions contemplated hereby by Parent and
Acquisition Sub shall not, violate, conflict with or result in a breach of
any provision of, or constitute a default (or an event which, with notice
or lapse of time or both, would constitute a default) under, or result in
the termination of, or accelerate the performance required by, or result in
a right of termination or acceleration under, any of the terms, conditions
or provisions of (i) the respective Certificate of Incorporation or By-Laws
and/or other organizational documents of Parent or Acquisition Sub, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority,
domestic or foreign, applicable to Parent or Acquisition Sub or any of
their respective properties or assets, or (iii) any note, bond, mortgage,
indenture, deed of trust, license, franchise, permit, concession, contract,
lease or other instrument, obligation or agreement of any kind to which
Parent or Acquisition Sub is now a party or by which Parent, Acquisition
Sub or any of their respective properties or assets may be bound, subject
in the case of the terms, conditions or provisions described in clause (ii)
above, to obtaining (prior to the Effective Time) the Parent Required
Statutory Approval (as defined below). Excluded from the foregoing
sentences of this paragraph (b) are such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate,
materially impair the ability of Parent or Acquisition Sub to consummate
the transactions contemplated by this Agreement.
(c) Except for the making of the Merger Filing with the
Secretary of State of the State of Delaware in connection with the Merger
(the "Parent Required Statutory Approval"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority, domestic or foreign, is
necessary for the execution and delivery of this Agreement by Parent or
Acquisition Sub or the consummation by Parent or Acquisition Sub of the
transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not
made or obtained, as the case may be, would not, in the aggregate,
materially impair the ability of Parent or Acquisition Sub to consummate
the transactions contemplated by this Agreement.
Section 4.4 SECURITIES REPORTS AND FINANCIAL STATEMENTS. Parent
has filed with the Securities and Exchange Commission (the "SEC") all
forms, statements (including proxy statements), reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it prior to the date hereof under each of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act of 1933,
as amended (the "Securities Act"), and the respective rules and regulations
thereunder, all of which, as amended if applicable, complied in all
material respects with all applicable requirements of the appropriate act
and the rules and regulations thereunder (collectively, the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements of Parent included in such
reports (collectively, the "Parent Financial Statements") have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of Parent and its
subsidiaries as of the dates thereof and the results of their operations
and changes in financial position for the periods then ended, subject, in
the case of the unaudited interim financial statements, to normal year-end
and audit adjustments and any other adjustments described therein.
Section 4.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Parent SEC Reports, neither Parent nor any of its
subsidiaries has any material liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature, except: (a) liabilities,
obligations or contingencies which are accrued or reserved against in the
Parent Financial Statements or reflected in the notes thereto, (b)
liabilities, obligations or contingencies which (i) would not, in the
aggregate, have a Parent Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof; and (c) liabilities
and obligations which are of a nature not required to be reflected in the
consolidated financial statements of Parent and its subsidiaries prepared
in accordance with generally accepted accounting principles consistently
applied.
Section 4.6 INFORMATION STATEMENT. None of the information
supplied or to be supplied by Parent or Acquisition Sub for inclusion in
the information statement to be distributed to holders of Company
Certificates (the "Information Statement") will, at the time of the mailing
of the Information Statement and any amendments or supplements thereto, and
at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation
is made by Parent or Acquisition Sub with respect to information supplied
by the Company for inclusion therein.
Section 4.7 BROKERS AND FINDERS. Neither the Parent nor any of
its officers, directors or employees has employed any investment banker,
broker or finder or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby.
Section 4.8 TAX MATTERS. None of Parent, Acquisition Sub or any
affiliate of either has taken or agreed to take any action, nor do any of
the foregoing have any knowledge of any fact or circumstance that would
prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Acquisition Sub, as
of the date hereof, as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted and as proposed to be
conducted. The Company is qualified to do business and is in good standing,
where applicable, in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so
qualified and in good standing will not, when taken together with all other
such failures, have a material adverse effect on the business, operations,
properties, prospects, assets, condition (financial or other) or results of
operations of the Company, taken as a whole (a "Company Material Adverse
Effect"). True, accurate and complete copies of the Company's Certificate
of Incorporation and By-Laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been delivered to Parent.
The Company is not in violation of any of the provisions of its Certificate
of Incorporation or By-Laws.
Section 5.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists
of 10,000,000 shares of Company Common Stock and 2,000,000 shares of
Company Preferred Stock. As of the date hereof, 4,015,350 shares of Company
Common Stock and 881,250 shares of Company Preferred Stock were issued and
outstanding, and no shares of Company Common Stock or Company Preferred
Stock are issued and held in the treasury of the Company. All of the issued
and outstanding shares of the Company's capital stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights granted by the Company or by applicable law. The rights,
preferences and privileges of the Company Preferred Stock are as set forth
in the Company's Certificate of Incorporation. Since the date of the filing
of the Certificate of Designation of the Company Preferred Stock, there
have not occurred any events that would cause any adjustment or
readjustment in the applicable conversion prices of such Company Preferred
Stock. Each share of Company Preferred Stock is convertible into one share
of Company Common Stock
(b) Except as set forth in the Company's Certificate of
Incorporation or on Schedule 5.2(b), as of the date hereof, there are (i)
no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, indebtedness having general voting rights or debt
convertible into securities having such rights ("Voting Debt"), obligating
the Company or any subsidiary of the Company to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of the capital
stock of, or Voting Debt of, the Company or securities convertible into or
exchangeable for such shares or obligating the Company or any subsidiary of
the Company to grant, extend or enter into any such subscription, option,
call, contract, commitment, understanding, arrangement, right or warrant,
(ii) no voting trusts, proxies or other agreements or understandings to
which the Company or any subsidiary of the Company is a party or is bound
with respect to the voting of any shares of capital stock of the Company
and, to the knowledge of the Company, there are no such trusts, proxies,
agreements or understandings by, between or among any of the Company's
stockholders with respect to Company Common Stock, and (iii) there are no
outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any Company Common Stock, or other capital stock of the
Company or to provide funds to make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity.
(c) No Indebtedness (as defined below) of the Company
contains any restriction upon (i) the prepayment of any of such
Indebtedness, (ii) the incurrence of Indebtedness by the Company, or (iii)
the ability of the Company to grant any lien on its properties or assets.
For purposes of this Agreement, "Indebtedness" shall mean (i) all
indebtedness for borrowed money or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (ii) any other indebtedness that is evidenced by a note, bond,
debenture or similar instrument, (iii) all obligations under financing
leases, (iv) all obligations in respect of acceptances issued or created,
(v) all liabilities secured by any lien on any property and (vi) all
guarantee obligations.
(d) Schedule 5.2(d) sets forth a true, complete and
correct list of each legal and beneficial owner of Company securities and
the number and class of such securities owned by each such holder.
Section 5.3 SUBSIDIARIES. The Company does not directly or
indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity.
Section 5.4 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to
enter into this Agreement and, subject to the Company Stockholder Approval
(as defined in Section 8.2 and the Company Required Statutory Approval (as
defined in Section 5.4(c)), to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors of the
Company, and no other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or,
except for the Company Stockholder Approval, the consummation by the
Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Parent, Acquisition Sub and
SenseNet, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement and the
transactions contemplated hereby by the Company shall not, violate,
conflict with or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate
the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company under any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or By-Laws of the Company, (ii) any statute,
law, ordinance, rule, regulation, judgment, decree, order, injunction,
writ, permit or license of any court or governmental authority applicable
to the Company or any of its respective properties or assets, or (iii) any
note, bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of
any kind to which the Company is now a party or by which the Company or any
of its respective properties or assets may be bound, subject (x) in the
case of the terms, conditions or provisions described in clause (ii) above,
to obtaining (prior to the Effective Time) the Company Required Statutory
Approval and the Company Stockholder Approval, and (y) in the case of the
terms, conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from lenders,
lessors or other third parties. Excluded from the foregoing sentences of
this paragraph (b), insofar as they apply to the terms, conditions or
provisions described in clauses (ii) and (iii) of the first sentence of
this paragraph (b), are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not individually or in the aggregate,
have a Company Material Adverse Effect.
(c) Except for the making of the Merger Filing with the
Secretary of State of the State of Delaware in connection with the Merger
(the "Company Required Statutory Approval"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation
by the Company of the transactions contemplated hereby.
Section 5.5 FINANCIAL STATEMENTS. The Company has previously
provided Parent with its unaudited balance sheet as of December 31, 1999
(the "Balance Sheet"), and the related statements of results of operations
(collectively, the "Financial Statements"). The Financial Statements fairly
present, in all material respects, in accordance with United States
generally accepted accounting principles ("U.S. GAAP") consistently
applied, the financial position of the Company as of such dates and its
results of operations and cash flows for such fiscal periods except, for
normal recurring year end adjustments which adjustments will not be
material, either individually or in the aggregate, and the absence of
footnotes.
Section 5.6 ABSENCE OF CERTAIN CHANGES.
Except as and to the extent set forth in the Financial Statements or
in Schedule 5.7 from December 31, 1999 (the "Balance Sheet Date") to the
date of this Agreement, the Company and its subsidiaries have not:
(a) suffered any Material Adverse Effect;
(b) incurred any liabilities or obligations (absolute,
accrued, contingent or otherwise), except non-material items incurred in
the ordinary course of business and consistent with past practice, which
exceed $25,000 in the aggregate;
(c) paid, discharged or satisfied any claims, liabilities
or obligations (absolute, accrued, contingent or otherwise) other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date;
(d) permitted or allowed any of their properties or
assets (real, personal or mixed, tangible or intangible) to be subjected to
any liens, except for liens for current Taxes not yet due or liens the
incurrence of which would not have a Material Adverse Effect on the
Company;
(e) cancelled any debts or waived any claims or rights of
substantial value;
(f) sold, transferred, or otherwise disposed of any of
their material properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business, consistent with
past practice;
(g) granted any increase in the compensation or benefits
of any director, officer, employee or consultant of the Company or its
subsidiaries (including any such increase pursuant to any bonus, pension,
profit sharing or other plan or commitment) or any increase in the
compensation or benefits payable or to become payable to any director,
officer, employee or consultant of the Company or its subsidiaries, except
in the case of employees other than officers of the Company or its
subsidiaries for such increases in compensation or benefits made in the
ordinary course of business, consistent with past practice;
(h) made any change in severance policy or practices;
(i) made any capital expenditure or acquired any property,
plant and equipment for a cost in excess of $25,000 per fiscal quarter in
the aggregate;
(j) declared, paid or set aside for payment any dividend
or other distribution in respect of their respective capital stock or
redeemed, purchased or otherwise acquired, directly or indirectly, any
shares of capital stock or other securities of the Company or its
subsidiaries;
(k) made any change in any method of Tax or financial
accounting or accounting practice or made or changed any election for
Federal, state, local or foreign Tax purposes;
(l) made any Tax election, settled or compromised any
Federal, state, local or foreign income Tax liability, or waived or
extended the statute of limitations in respect of any such Taxes;
(m) paid, loaned or advanced any amount to, or sold,
transferred or leased any material properties or assets (real, personal or
mixed, tangible or intangible) to, or entered into any agreement or
arrangement with, any of their respective officers, directors or
shareholders or any affiliate or associate of any of their officers,
directors or shareholders except for directors' fees, and compensation to
officers at rates not inconsistent with the Company or its subsidiaries'
past practice; or
(n) agreed, whether in writing or otherwise, to take any
action described in this Section 5.6.
Section 5.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as
disclosed in the Balance Sheet, the Company did not have, as of the Balance
Sheet Date, any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except: (a) liabilities,
obligations or contingencies (i) which are accrued or reserved against in
the Company Financial Statements or reflected in the notes thereto, or (ii)
which were incurred in the ordinary course of business and consistent with
past practices; (b) liabilities, obligations or contingencies which (i)
would not, in the aggregate, have a Company Material Adverse Effect, or
(ii) have been discharged or paid in full prior to the date hereof; and (c)
liabilities and obligations which are of a nature not required to be
reflected in the of the Company Financial Statements and which were
incurred in the normal course of business.
Section 5.8 ABSENCE OF LITIGATION. Except as disclosed in the
Financial Statements, (a) there is no claim of any kind, suit, action,
proceeding, litigation, arbitration, investigation or controversy affecting
the Company pending or, to the knowledge of the Company, threatened; and
(b) the Company is not subject to any continuing order of, or written
agreement or memorandum of understanding with, or continuing material
investigation by, any governmental entity or authority, or any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator, except
as which, individually or in the aggregate, would not have a Company
Material Adverse Effect.
Section 5.9 INFORMATION STATEMENT. None of the information
supplied or to be supplied by the Company for inclusion in the Information
Statement will, at the time of the mailing of the Information Statement and
any amendments or supplements thereto, and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 5.10NO VIOLATION OF LAW. Except as disclosed in the
Financial Statements, the Company is not in violation of or has been given
notice or been charged with any violation of, any law, statute, order,
rule, regulation, ordinance or judgment including, without limitation, any
applicable environmental law, ordinance or regulation of any governmental
or regulatory body or authority, except for violations which, individually
or in the aggregate, would not reasonably be expected to have a Company
Material Adverse Effect. The Company has all permits, licenses, franchises,
variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct its business as presently
conducted or proposed to be conducted (collectively, the "Company
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, authorizations, consents and approvals the absence of which,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company is not in violation of the terms of any Company Permit,
except for delays in filing reports or violations which, individually or in
the aggregate, would not have a Company Material Adverse Effect.
Section 5.11MATERIAL CONTRACTS. Except for the contracts and
agreements described in Schedule 5.11 (collectively, the "Material
Contracts"), neither the Company nor any of its subsidiaries is a party to
or bound by any contract, including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of
materials, supplies, equipment or services involving in the case of any
such contact more than $25,000 over the life of the contract;
(c) any contract that expires or may be renewed at the
option of any person other than the Company so as to expire more than one
(1) year after the date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency
exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with U.S.
GAAP;
(e) any contract for capital expenditures in excess of
$25,000 in the aggregate;
(f) any contract limiting the freedom of the Company to
engage in any line of business or to compete with any other "person" as
that term is defined in the Exchange Act, or, other than those entered into
in the ordinary course of business, consistent with past practice, any
confidentiality, secrecy or non-disclosure contract;
(g) any material contract pursuant to which the Company
is a lessor of any machinery, equipment, motor vehicles, office furniture,
fixtures or other personal property;
(h) any contract with any affiliate of the Company; or
(i) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to,
the obligations, liabilities (whether accrued, absolute, contingent or
otherwise) or indebtedness of any other person.
Section 5.12NO BREACH OF MATERIAL CONTRACTS. All Material
Contracts are in written form. Each of the Company and its subsidiaries has
in all material respects performed the obligations required to be performed
by it and is entitled to all benefits under, and to its knowledge, is not
alleged to be in default in respect of, any Material Contract. Each of the
Material Contracts is in full force and effect, and there exists no default
or event of default or event, occurrence, condition or act, with respect to
the Company or any of it subsidiaries or, to the knowledge of the Company,
with respect to the other contracting party, which, with the giving of
notice, the lapse of time or the happening of any other event or
conditions, would reasonably be expected to become a default or event of
default under the terms of any Material Contract. True, correct and
complete copies of all Material Contracts have been delivered or made
available to the Parent or its representatives.
Section 5.13TAXES. (a)The Company has (i) properly completed
and timely filed with the appropriate Tax Authority all Tax Returns
required to be filed by it for all periods and such Tax Returns are true,
correct and complete in all material respects, and (ii) duly paid in
full all Taxes due (or where payment is not yet due, has provided adequate
accruals in the Financial Statements in accordance with U.S. GAAP) except
such as are set forth in Schedule 5.13 and are being contested in good
faith by appropriate government proceedings and with respect to which the
Company is maintaining reserves adequate for their payment. The Company has
no material liability for Taxes accruing after the date of the Financial
Statements. Neither the IRS nor any other Tax Authority (as hereinafter
defined) is now asserting, either through audits, administrative
proceedings, court proceedings or otherwise, or, to the best of the
Company's knowledge, threatening to assert against the Company any
deficiency or claim for additional Taxes. No audit of any Tax Return of the
Company is being conducted by any Tax Authority. No agreement, contract, or
arrangement to which the Company is a party may result in the payment of
any amount that would not be deductible by reason of Section 280G or 404 of
the Code (or any comparable provision under state, local or foreign Tax
laws). The Company is not a party to any Tax sharing or Tax allocation
agreements, and the Company has no liability or potential liability under
any such agreements or under Treas.Reg. Section 1.1502-6 (or any comparable
provision under state, local or foreign Tax laws) or otherwise. The Company
has never been a "United States real property holding corporation" within
the meaning of Section 897 of the Code. The Company has not been granted
any waiver of any statute of limitations with respect to, or any extension
of a period for the assessment of, any Tax. There are no Tax liens on any
assets of the Company. The Company has not received any rulings from or
entered into any agreements with the IRS or any other governmental entity
or Tax Authority or agency. The accruals and reserves for Taxes reflected
in the Financial Statements are adequate to cover all Taxes accruable
through the date thereof (including Taxes being contested). The Company is
not required to include in income either (i) any material amount in respect
of any adjustment under Section 481 of the Code, or (ii) any material
installment sale gain. The Company has not made an election under Section
341(f) of the Code.
(b) For purposes of this Agreement, the term "Tax" or
"Taxes" shall mean (i) all taxes, charges, fees, levies or other like
assessments imposed by the United States, or any state, local or foreign
government or subdivision or agency thereof (a "Tax Authority") whether
computed on a separate, consolidated, unitary, combined or any other basis
(including, without limitation, net or gross income, gross receipts,
alternative or add-on minimum, profits, stamps, premium, environmental
stamp, duty, property, value-added, excise, sales, withholding, social
security, occupation, use, service, service use, license, payroll,
franchise, transfer and recording taxes, fees and charges, windfall
profits, severance, customs, import, export, employment or similar taxes)
and such terms shall include any interest, fines, penalties and additional
amounts imposed or with respect to any such taxes, charges, fees, levies or
other like assessments, (ii) any liability for the payment of any amounts
of the type described in (i) as a result of being or having been a member
of an affiliated, consolidated, combined, or unitary group for any taxable
period, and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of being a transferee of or a
successor to any person, or as a result of any express or implied
obligation to indemnify any other person.
(c) For purposes of this Agreement, the term "Tax Return"
shall mean any return, statement, report, form (including, without
limitation, any estimated, withholding, or information tax returns or
reports) or other document or information required to be supplied or
actually provided to a Tax Authority in connection with Taxes.
Section 5.14 EMPLOYEE BENEFITS PLANS; ERISA.
(a) Neither the Company nor any trade or business,
whether or not incorporated (an "ERISA Affiliate"), that together with the
Company would be deemed a "single employer" within the meaning of section
4001(b) of ERISA currently maintains, contributes to or has any obligation
or liability to or under, or has within the five-year period immediately
preceding the date hereof maintained, contributed to or had any obligation
or liability to or under, any "pension" plan, fund or program (within the
meaning of section 3(2) of ERISA). The Company does not maintain or
contribute to or have any other obligation or liability to or under any
other material employee benefit plans, programs, arrangements and
practices, including employee benefit plans within the meaning set forth in
Section 3(3) of ERISA, or other similar material arrangements for the
provision of benefits. The Company has no obligation to create any
additional such plan or to amend any such plan so as to increase benefits
thereunder, other than under existing collective bargaining agreements or
to comply with applicable law.
(b) The Company is not a party to any employment,
severance, consulting or other similar contracts with any employees,
consultants, officers or directors of the Company other than such contracts
that are disclosed in the Company Financial Statements. The Company is not
a party to any collective bargaining agreements.
Section 5.15 LABOR CONTROVERSIES. Except as set forth in
Schedule 5.15, (a) there are no material controversies pending or, to the
knowledge of the Company, threatened between the Company and any of its
employees or former employees or employees or former employees of SenseNet,
and the Company is not aware of any facts or circumstances which could give
rise to any such controversy; (b) to the knowledge of the Company, there
are no material organizational efforts presently being made or threatened
involving any of the employees of the Company or employees of SenseNet who
devote a material portion of their time to the operations of the Company;
(c) the Company has complied in all material respects with all laws
relating to the employment of employees, including, without limitation, any
provisions thereof relating to wages, hours, occupational health and
safety, collective bargaining, civil rights, unfair labor practices,
administration of leave and rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985; (d) no person has, to the knowledge of the
Company, asserted that the Company is liable in any material amount for any
arrears of wages or any taxes or penalties for failure to comply with any
of the foregoing; (e) the Company has in all material respects withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries, and other payments to employees, and is not liable for any
material arrears of wages or any taxes or any penalty for failure to comply
with any of the foregoing; (f) the Company is not liable for any material
payment to any trust or other fund or to any governmental or administrative
authority, with respect to unemployment compensation benefits, social
security or other benefits or obligations for employees (other than routine
payments to be made in the normal course of business and consistent with
past practice); and (g) there are no pending claims against the Company
under any workers compensation plan or policy or for long term disability.
To the Company's knowledge, no employees of the Company or any SenseNet
employee who devotes a material portion of his or her time to the
operations of the Company are in violation of any term of any employment
contract, patent disclosure agreement, non-competition agreement, or any
restrictive covenant to a former employer relating to the right of any such
employee to be employed by the Company or any of its subsidiaries because
of the nature of the business conducted by the Company or to the use of
trade secrets or proprietary information of others. No key employees or
officers of the Company or any SenseNet employee who devotes a material
portion of his time to the operations of the Company have given notice to
the Company, nor is the Company otherwise aware, that any such key employee
or officer intends to terminate his or her employment with the Company or
SenseNet.
Section 5.16 ENVIRONMENTAL MATTERS. For purposes of this
Agreement, "Environmental Law" means any federal, state, local or foreign
law, statute, ordinance, rule, regulation, code, license, permit,
authorization, approval, consent, order, judgment, decree, injunction,
requirement or agreement with any governmental entity relating to (i) the
protection, preservation or restoration of the environment (including,
without limitation, air, water vapor, surface water, groundwater, drinking
water supply, surface land, subsurface land, plant and animal life or any
other natural resource) or to human health or safety, or (ii) the exposure
to, or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of
Hazardous Substances, in each case as amended and as in effect as of the
date hereof. The term Environmental Law includes, without limitation, (x)
the Federal Comprehensive Environmental Response Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act, the Federal
Water Pollution Control Act of 1972, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970, each as amended and as in
effect as of the date hereof, or any state counterpart thereof (and
including any state, local or foreign law relating to the subjects set
forth in the foregoing clauses (i) and (ii)), and (y) any common law or
equitable doctrine (including, without limitation, injunctive relief and
tort doctrines such as negligence, nuisance, trespass and strict liability)
that may impose liability or obligations for injuries, damages or penalties
due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
For purposes of this Agreement, "Hazardous Substance" means any
substance presently listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, or otherwise regulated under any
Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
Except as set forth in the Company Financial Statements, (i)
the Company has conducted its business in compliance with all applicable
Environmental Laws, including, without limitation, having all permits,
licenses and other approvals and authorizations necessary for the operation
of business as presently conducted, (ii) none of the properties owned or
leased by the Company contain any Hazardous Substance as a result of any
activity of the Company or otherwise in amounts exceeding the levels
permitted by all applicable Environmental Laws, (iii) the Company has not
received any formal or informal notices, demand letters or requests for
information from any federal, state, local or foreign governmental entity
or third party indicating that the Company may be in violation of, or
liable under, any Environmental Law in connection with the ownership or
operation of its business, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened against the Company relating to any
violation, or alleged violation, of any Environmental Law, (v) no reports
or notices have been submitted to or filed, or are required to be submitted
or filed, by the Company concerning the release of any Hazardous Substance
or the threatened or actual violation of any Environmental Law, (vi) no
Hazardous Substance has been disposed of, released or transported in
violation of any applicable Environmental Law on or from any properties
owned by the Company, or as a result of any activity of the Company during
the time such properties were owned, leased or operated by the Company, or
as a result of any other cause, (vii) there have been no environmental
investigations, studies, audits, tests, reviews or other analyses regarding
compliance or noncompliance with any applicable Environmental Law arranged
for, conducted by or which are or were in possession of or the existence of
which is known to the Company relating to the activities of the Company, or
conditions on any property owned, leased or operated by the Company, (viii)
there are no underground storage tanks on, in or under any properties owned
by the Company and no underground storage tanks have been closed or removed
from any of such properties during the time such properties were owned,
leased or operated by the Company, (ix) there is no asbestos or asbestos
containing material present in any of the properties owned by the Company
and no asbestos has been removed from any of such properties during the
time such properties were owned, leased or operated by the Company, and (x)
neither the Company, nor any of its respective properties, is subject to
any material liabilities or expenditures (fixed or contingent) relating to
any suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any Environmental
Law, except for violations of the foregoing clauses (i) through (x) that,
individually, or in the aggregate, would not have a Company Material
Adverse Effect.
Section 5.17 TITLE TO ASSETS. The Company has good and
marketable title to all its respective properties and assets, real and
personal, free and clear of all mortgages, liens, pledges, charges or
encumbrances of any nature whatsoever, except (a) liens for Taxes not yet
due and payable; (b) such imperfections in title and easements and
encumbrances, if any, as are not material in character, amount or extent
and do not materially and adversely affect the value or interfere with the
present use of the property subject thereto or affected thereby, or
otherwise materially impair the Company's present or proposed business
operations; (c) as disclosed in the Company Financial Statements; or (d)
mortgages incurred in the ordinary course of business. The property and
equipment of the Company and each of its subsidiaries that are used in the
operations of business are in good operating condition and repair, subject
to normal wear and tear. All leases under which the Company leases any
material real or personal property (copies of which have been made
available to Parent) are in good standing, valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event which with notice or lapse of time or
both would become a default other than defaults under such leases which
individually or in the aggregate will not have a Company Material Adverse
Effect.
Section 5.18 COMPANY STOCKHOLDER APPROVAL. The affirmative vote
of the holders of a majority of the outstanding shares of Company Common
Stock and Company Preferred Stock, voting together as a single class is the
only stockholder vote necessary to approve the transactions contemplated by
this Agreement.
Section 5.19 INTELLECTUAL PROPERTY. (a) For purposes hereof (A)
"Intellectual Property" shall mean trademarks, service marks, trade names,
Internet domain names (including, without limitation, YourDay.com),
designs, logos, slogans, and general intangibles of like nature, together
with all goodwill, registrations and applications related to the foregoing
(collectively, "Trademarks"); patents and industrial designs (including any
continuations, divisionals, continuations-in-part, renewals, reissues, and
applications for any of the foregoing); copyrights (including any
registrations and applications for any of the foregoing); Software (as
defined below); "mask works" (as defined under 17 USC ss. 901) and any
registrations and applications for "mask works"; technology, trade secrets
and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies (collectively, "Trade
Secrets"); rights of publicity and privacy relating to the use of the
names, likenesses, voices, signatures and biographical information of real
persons (including, without limitation, Laetitia Casta); in each case used
in or necessary for the conduct of the Company's business as currently
conducted or contemplated to be conducted and (B) "Software" means any and
all (a) computer programs, including any and all software implementation of
algorithms, models and methodologies, whether in source code or object code
form, (b) databases and compilations, including any and all data and
collections of data, and (c) all documentation, including user manuals and
training materials, relating to any of the foregoing.
(b) Schedule 5.19(b) sets forth, for the Intellectual
Property owned by the Company, a complete and accurate list of all United
States and foreign (a) patents and patent applications; (b) trademark
registrations (including Internet domain registrations), trademark
applications, and material unregistered trademarks; (c) copyright
registrations and mask work, copyright and mask work applications, and
material unregistered copyrights. Schedule 5.19(b) lists all Software
(other than readily available commercial software programs having an
acquisition price of less than $5,000) which are owned, licensed or leased,
by the Company, and identifies which Software is owned, licensed or leased,
as the case may be.
(c) Schedule 5.19(c) sets forth a complete and accurate
list of all agreements (whether oral or written, and whether between the
Company and third parties or inter-corporate) to which the Company is a
party or otherwise bound: (i) granting or obtaining any right to use or
practice any rights under any Intellectual Property, or (ii) restricting
the Company's rights to use any Intellectual Property, including license
agreements, development agreements, distribution agreements, settlement
agreements, consent to use agreements, and covenants not to sue
(collectively, the "License Agreements"). The License Agreements are valid
and binding obligations of all parties thereto, enforceable in accordance
with their terms, and there exists no event or condition which will result
in a violation or breach of, or constitute (with or without due notice of
lapse of time or both) a default by any party under any such License
Agreement. The Company has not licensed or sublicensed its rights in any
Intellectual Property other than pursuant to the License Agreements. No
royalties or other fees are payable by the Company to any third parties for
the use of or right to use any Intellectual Property except pursuant to the
License Agreements.
(d) Except as set forth on Schedule 5.19(d):
(i) The Company owns, or has a valid right to use, free
and clear of all liens, all of the Intellectual
Property. The Company is listed in the records of
the appropriate United States, state, or foreign
registry as the sole current owner of record for
each application and registration listed on
Schedule 5.19(d).
(ii) The Intellectual Property owned by the Company and
any Intellectual Property used by the Company is
subsisting, in full force and effect, and has not
been cancelled, expired, or abandoned, and is valid
and enforceable.
(iii) There is no pending or threatened claim, suit,
arbitration or other adversarial proceeding before
any court, agency, arbitral tribunal, or
registration authority in any jurisdiction
involving the Intellectual Property owned by the
Company or the Intellectual Property licensed to
the Company alleging that the activities or the
conduct of the Company's business infringes upon,
violates or constitutes the unauthorized use of the
intellectual property rights of any third party or
challenging the Company's ownership, use, validity,
enforceability or registrability of any
Intellectual Property. There are no settlements,
forebearances to sue, consents, judgments, or
orders or similar obligations other than the
License Agreements which (a) restrict the Company's
rights to use any Intellectual Property, (b)
restrict the Company's business in order to
accommodate a third party's intellectual property
rights or (c) permit third parties to use any
Intellectual Property owned or controlled by the
Company.
(iv) The conduct of the Company's business as currently
conducted or planned to be conducted does not
infringe upon (either directly or indirectly such
as through contributory infringement or inducement
to infringe) any intellectual property rights owned
or controlled by any third party. To the knowledge
of the Company, no third party is misappropriating,
infringing, diluting or violating any Intellectual
Property owned or used by the Company and no such
claims, suits, arbitrations or other adversarial
proceedings have been brought against any third
party by the Company.
(v) The Company has taken reasonable measures to
protect the confidentiality of Trade Secrets,
including requiring its employees and other parties
having access thereto to execute written non-
disclosure agreements. No Trade Secret has been
disclosed or authorized to be disclosed to any
third party other than pursuant to a non-disclosure
agreement. No party to any non-disclosure agreement
relating to its Trade Secrets is in breach or default
thereof.
(vi) No current or former partner, director, officer, or
employee of the Company (or any of its respective
predecessors in interest) or SenseNet will, after
giving effect to the transactions contemplated
herein, own or retain any rights to use any of the
Intellectual Property owned or used by the Company.
Section 5.20 INSURANCE. Except as would not have a Company
Material Adverse Effect, all of the Company's liability, theft, life,
health, fire, title, worker's compensation and other forms of insurance,
surety bonds and umbrella policies, insuring the Company and its directors,
officers, employees, independent contractors, properties, assets and
businesses, are valid and in full force and effect (without any premium
past due or pending notice of cancellation) and are adequate for the
business of the Company as now conducted and as proposed to be conducted,
and there are no claims, singly or in the aggregate, in excess of the
limitations of coverage set forth in such policies. The Company has no
knowledge of any fact indicating that such policies will not continue to be
available to the Surviving Corporation upon substantially similar terms
subsequent to the Effective Time. The provision and/or reserves in the
Company Financial Statements are adequate for any and all self-insurance
programs maintained by the Company.
Section 5.21 BROKERS AND FINDERS. Neither the Company nor any of
its officers, directors or employees has employed any investment banker,
broker or finder or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees, commissions or finder's fees in
connection with the transactions contemplated hereby.
Section 5.22 INTERESTED PARTY TRANSACTIONS. Neither the Company
nor any of its subsidiaries is indebted to any director, officer, employee
or agent of the Company or any such subsidiaries (except for amounts due as
normal salaries and bonuses and in reimbursement of ordinary expenses), and
except as set forth in Schedule 5.22 no such person is indebted to the
Company or any of its subsidiaries.
Section 5.23 MINUTE BOOKS. The minute books of the Company and
its subsidiaries made available to Parent or its representatives contain a
complete and accurate summary in all material respects of all meetings of
directors and shareholders or actions by written consent since the time of
incorporation of the Company and its subsidiaries through the date of this
Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
Section 5.24 COMPLETE COPIES OF MATERIALS. The Company has
delivered or made available true and complete copies of each document which
has been requested by Parent or its counsel in connection with their due
diligence review of the Company to the extent such documents exist.
Section 5.25 BOARD APPROVAL. The Board of Directors of the
Company has unanimously (i) approved this Agreement and the Merger, (ii)
determined that the transactions contemplated herein and therein are
advisable and in the best interests of the shareholders of the Company and
on terms that are fair to such shareholders and (iii) recommended that the
shareholders of the Company approve the Merger.
Section 5.26 THIRD PARTY CONSENTS. Schedule 5.26 lists all
contracts that require a consent to the transactions contemplated hereby,
as the case may be, prior to the Effective Time, so that Parent shall be
made a party in place of the Company (or any of its subsidiaries) or an
assignee.
Section 5.27 INVENTORY. The Company has no inventory.
Section 5.28 ACCOUNTS RECEIVABLE. Subject to any reserves set
forth in the Financial Statements, the accounts receivable shown on the
Financial Statements represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to accounts and
allowances disclosed in the Financial Statements is sufficient to provide
for any losses which may be sustained on realization of the receivables.
Section 5.29 TAX MATTERS. None of SenseNet, the Company, or any
affiliate of either has taken or agreed to take any action, nor do any of
the foregoing have any knowledge of any fact or circumstance that would
prevent the Merger from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
Section 5.30 REPRESENTATIONS COMPLETE. None of the
representations or warranties made by the Company herein or in any schedule
hereto, or certificate furnished by the Company pursuant to this Agreement,
when all such documents are read together in their entirety, contains or
will contain at the Closing Date any untrue statement of a material fact,
or omits or will omit at the Closing Date to state any material fact
necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SENSENET
SenseNet represents and warrants to Parent and Acquisition Sub, as of
the date hereof, as follows:
Section 6.1 ORGANIZATION AND QUALIFICATIONS. SenseNet is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry
on its business as it is now being conducted. SenseNet is qualified to do
business and is in good standing in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing will not, when taken
together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or
other) or results of operations of SenseNet, taken as a whole. SenseNet is
in not violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
Section 6.2 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) SenseNet has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. This Agreement has been approved by the Board of Directors of
SenseNet, and no other corporate proceedings on the part of SenseNet are
necessary to authorize the execution and delivery of this Agreement or the
consummation by SenseNet of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by SenseNet, and, assuming
the due authorization, execution and delivery hereof by the Company, Parent
and Acquisition Sub, constitutes a valid and legally binding agreement of
SenseNet, enforceable against it in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally, and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by
SenseNet does not, and the performance of this Agreement and the
transactions contemplated hereby by SenseNet shall not, violate, conflict
with or result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration under, any of the terms, conditions or provisions of (i) the
Certificate of Incorporation or By-Laws and/or other organizational
documents of SenseNet, (ii) any statute, law, ordinance, rule, regulation,
judgment, decree, order, injunction, writ, permit or license of any court
or governmental authority, domestic or foreign, applicable to SenseNet or
any of its respective properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which SenseNet is now a party or by which SenseNet or any of its respective
properties or assets may be bound. Excluded from the foregoing sentences of
this paragraph (b) are such violations, conflicts, breaches, defaults,
terminations, accelerations or creations of liens, security interests,
charges or encumbrances that would not, in the aggregate, materially impair
the ability of SenseNet to consummate the transactions contemplated by this
Agreement.
(c) No declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority, domestic or foreign, is necessary for the
execution and delivery of this Agreement by SenseNet or the consummation by
SenseNet of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in
the aggregate, materially impair the ability of SenseNet to consummate the
transactions contemplated by this Agreement.
ARTICLE VII
CONDUCT OF BUSINESS PENDING THE MERGER
Section 7.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Effective Time or earlier termination of this
Agreement, unless Parent shall otherwise agree in writing, the Company
shall:
(a) conduct its business in the ordinary and usual course
of business and consistent with past practice;
(b) not (i) amend or propose to amend its Certificate of
Incorporation or By-Laws, (ii) split, combine, subdivide or reclassify any
class of its outstanding capital stock, or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property or otherwise
in respect of any class of its capital stock;
(c) not issue, sell, pledge, dispose of or encumber,
agree to issue, sell, pledge, dispose of or encumber or otherwise cause to
become outstanding, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock or amend any of the terms of any such securities
outstanding on the date hereof;
(d) not (i) incur, assume or prepay or become
contingently liable with respect to any indebtedness for borrowed money
other than in accordance with the Company's current borrowing arrangements,
if any (ii) redeem, purchase, acquire or offer to purchase or acquire any
shares of its capital stock or any options, warrants or rights to acquire
any of its capital stock or any security convertible into or exchangeable
for its capital stock, (iii) take or fail to take any action which action
or failure would cause the Company or its stockholders (except to the
extent that any stockholders receive cash in lieu of fractional shares) to
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (iv) make any acquisition of any assets or
businesses or expenditures for fixed or capital assets other than
expenditures set forth on attached Schedule 7.1 or expenditures in the
ordinary course of business which, in such cases of $25,000 or more, shall
be on terms reasonably acceptable to Parent, (vi) sell, pledge, dispose of
or encumber any assets or businesses other than sales in the ordinary
course of business which, in such cases involving $25,000 or more, shall be
on terms reasonably acceptable to Parent, (vii) assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any third party, (viii) make any
loans, advances or capital contributions to, or investments in, any third
party, or (ix) mortgage or pledge any of its material properties or assets,
tangible or intangible, or create or suffer to exist any lien thereupon;
(e) use all commercially reasonable efforts to preserve
intact its business organizations and goodwill, keep available the services
of their respective present officers and employees and consultants, and
preserve the goodwill and business relationships with customers, vendors
and others having business relationships with them and not engage in any
action, directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or
more representatives of Parent to report operational matters of materiality
and the general status of ongoing operations;
(g) not enter into or amend any employment, severance,
special pay arrangement with respect to termination of employment or other
similar arrangements or agreements with any directors, officers or key
employees, except in the ordinary course and consistent with past practice
which, in cases involving $25,000 or more, shall be on terms reasonably
acceptable to Parent;
(h) not organize any new subsidiary, acquire any capital
stock or equity securities of any corporation or acquire any equity or
ownership interest (financial or otherwise) in any business;
(i) make any change in the compensation payable or to
become payable to any of its officers, directors, employees, agents or
consultants (other than normal recurring increases in wages to employees
who are not executives in the ordinary course of business consistent with
past practice);
(j) not adopt, enter into or amend any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree except as required to comply with changes in applicable
law or increases in wages in the ordinary course and consistent with past
practice for non- executive employees;
(k) maintain with adequately capitalized insurance
companies insurance coverage for its assets and its businesses in such
amounts and against such risks and losses as are consistent with past
practice;
(l) license (except in the ordinary course of business)
or otherwise transfer, dispose of, permit to lapse or otherwise fail to
preserve any of the Company's Intellectual Property, or dispose of or
disclose to any person any trade secret, formula, process or know-how not
theretofore a matter of public knowledge;
(m) cancel any debts or waive, release or relinquish any
contract rights or other rights of substantial value other than in the
ordinary course of business, consistent with past practices;
(n) authorize, recommend, propose or enter into or
announce an intention to authorize, recommend, propose or enter into a term
sheet, letter of intent, agreement in principle or a definitive agreement
with respect to any merger, consolidation, liquidation, dissolution, or
business combination, any acquisition of a material amount of property or
assets or securities, or any disposition of a material amount of property
or assets or securities;
(o) make any change with respect to accounting policies or
procedures;
(p) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise) other than the payment, discharge or satisfaction
in the ordinary course of business, consistent with past practices, of
liabilities reflected or reserved against in the Financial Statements or
incurred in the ordinary course of business consistent with past practices
since the date thereof;
(q) commit or agree (in writing or otherwise) to take any
of the foregoing actions or any action, or fail to take any action, that
would cause the failure of any condition set forth in Section 9.2; or
(r) not make any election relating to Taxes, change any
election relating to Taxes already made, adopt or change any accounting
method relating to Taxes, enter into any closing agreement relating to
Taxes, settle any claim or assessment relating to Taxes, consent to any
claim or assessment relating to Taxes or any extension or waiver of the
statute of limitations for any such claim or assessment.
(s) pay all Taxes and file all Tax Returns when due.
Section 7.2 CONTROL OF THE COMPANY'S OPERATIONS. Nothing
contained in this Agreement shall give to Parent, directly or indirectly,
rights to control or direct the Company's operations prior to the Effective
Time. Prior to the Effective Time, the Company shall exercise, consistent
with and subject to the terms and conditions of this Agreement, complete
control and supervision of its operations.
Section 7.3 ACQUISITION TRANSACTIONS. After the date hereof and
prior to the Effective Time or earlier termination of this Agreement in
accordance with its terms, the Company shall not, and shall cause its
officers, directors, employees, stockholders representatives and agents not
to, directly or indirectly, (i) initiate, solicit, engage or seek any
inquiries or the making or implementation of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders)
to acquire all or any significant portion of the business, asserts or
properties of the Company or more than twenty percent (20%) of the capital
stock of the Company, whether by merger, purchase of assets, tender offer
or otherwise, whether for cash, securities or any other consideration or
combination thereof except for the transaction contemplated herein (any
such transactions being referred to herein as "Acquisition Proposals"),
(ii) engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating
to an Acquisition Proposal, or (iii) otherwise cooperate in any effort or
attempt to make, implement or accept an Acquisition Proposal. Upon
execution of this Agreement, the Company will immediately cease any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company will promptly
notify Parent after receipt of any Acquisition Proposal or any notice that
any person is considering making a Acquisition Proposal or any request for
nonpublic information relating to the Company or for access to the
properties, books or records of the Company by any person that has advised
the Company that it may be considering making, or that has made, a
Acquisition Proposal and will keep Parent timely informed of the status and
details of any such Acquisition Proposal notice, request or any
correspondence or communications related thereto and shall provide Parent
with a true and complete copy of such Acquisition Proposal notice or
request or correspondence or communications related thereto, if it is in
writing, or a written summary thereof, if it is not in writing. Neither the
Company's Board of Directors nor any committee thereof shall (i) withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent
or Acquisition Sub, the approval or recommendation by the Company's Board
of Directors or any such committee of this Agreement or the Merger, or (ii)
approve or recommend or propose to approve or recommend, any Acquisition
Proposal or (iii) enter into any agreement with respect to any Acquisition
Proposal.
ARTICLE VIII
ADDITIONAL AGREEMENTS
Section 8.1 ACCESS TO INFORMATION. The Company shall afford
Parent and its accountants, counsel and other representatives, reasonable
access during normal business hours during the period prior to the
Effective Time to (i) all of the Company's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of the
Company and its subsidiaries as Parent may reasonably request. SenseNet
shall provide Parent will reasonable access during normal business hours to
the employees of SenseNet listed on Schedule 9.3(l) for the purpose of
discussing their employment by Parent or the Company after the Effective
Time. The Company agrees to provide to Parent and its accountants, counsel
and other representatives copies of internal financial statements promptly
upon request. Parent shall afford counsel to the Company information or
copies of documentation and reasonable access to its senior management to
complete the opinion referred to in Section 9.2(b) below. Parent and
Acquisition Sub shall hold and shall use their commercially reasonable
efforts to cause the Parent's representatives to hold, and the Company
shall hold and shall use its commercially reasonable efforts to cause the
Company's representatives to hold, in strict confidence all non-public
documents and information furnished to Parent and Acquisition Sub or to the
Company, as the case may be, in connection with the transactions
contemplated by this Agreement. Notwithstanding the foregoing (i) Parent
and the Company may disclose such information as may be necessary in
connection with seeking the Parent Required Statutory Approval, the Company
Required Statutory Approval and the Company Stockholder Approval (as
defined in Section 8.2 below), and (ii) each of Parent, Acquisition Sub and
the Company may disclose any information that it is required by law or
judicial or administrative order to disclose.
Section 8.2 MAJORITY STOCKHOLDER APPROVAL. The Company shall,
as promptly as practicable, submit the transactions contemplated hereby for
the approval of its majority stockholder and shall use its commercially
reasonable efforts to obtain stockholder approval and adoption (the
"Company Stockholder Approval") of this Agreement and the transactions
contemplated hereby. The Company shall, through its Board of Directors,
recommend to its majority stockholder approval of the transactions
contemplated by this Agreement.
Section 8.3 REGISTRATION RIGHTS. (a) If, after the Effective
Time but prior to the expiration of one year after the Effective Time,
Parent shall decide to register any of its securities either for its own
account or the account of any holders of its Common Stock, other than a
registration relating solely to employee benefit plans, or a registration
relating to a corporate reorganization or other transaction on Form S-4 (or
any successor or similar form), or a registration on any registration form
that does not permit secondary sales, Parent will promptly give to each
holder of Parent Common Stock written notice thereof; and use its best
efforts to include in such registration (and any related qualification
under blue sky laws or other compliance), except as set forth in Section
8.3(b) below, and in any underwriting involved therein, all the shares of
Parent Common Stock ("Registrable Securities") specified in a written
request or requests, made by any holder thereof and received by the Company
within twenty (20) business days after the written notice from Parent
described above is mailed or delivered by Parent. Such written request may
specify all or a part of a holder's Registrable Securities. Parent shall
bear all expenses in connection with any such registration.
(b) If the registration of which Parent gives notice is
for a registered public offering involving an underwriting, Parent shall so
advise the holders of Parent Common Stock as a part of the written notice
given pursuant to Section 8.3(a). In such event, the right of any holder of
Parent Common Stock to registration pursuant to this Section 8.3(a) shall
be conditioned upon such holder's participation in such underwriting and
the inclusion of such holder's Registrable Securities in the underwriting
to the extent provided herein. All holders proposing to distribute their
securities through such underwriting shall (together with Parent and the
other holders of securities of Parent with registration rights to
participate therein distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected by Parent.
Notwithstanding any other provision of this Section 8.3, if the
representative of the underwriters advises Parent in writing that marketing
factors make a limitation on the number of shares to be underwritten
appropriate, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and
underwriting. Parent shall so advise all holders of Registrable Securities
requesting registration.. If any holder of Registrable Securities does not
agree to the terms of any such underwriting, it shall be excluded therefrom
by written notice from Parent or the underwriter. Any Registrable
Securities or other securities excluded or withdrawn from such underwriting
shall be withdrawn from such registration.
(c) Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC that may permit
the sale of the Registrable Securities to the public without registration,
Parent agrees to use its best efforts to:
(i) Make and keep public information regarding
Parent available as those terms are understood and defined in
Rule 144 under the Securities Act, at all times from and after
ninety (90) days following the effective date of the first
registration under the Securities Act filed by Parent for an
offering of its securities to the general public;
(ii) File with the SEC in a timely manner all
reports and other documents required of Parent under the
Securities Act and the Exchange Act at any time after it has
become subject to such reporting requirements;
(iii) So long as a holder owns any Registrable
Securities, furnish to the holder forthwith upon written
request a written statement by Parent as to its compliance with
the reporting requirements of Rule 144, and of the Securities
Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most
recent annual or quarterly report of Parent, and such other
reports and documents so filed as a holder may reasonably
request in availing itself of any rule or regulation of the SEC
allowing a holder to sell any such securities without
registration.
(d) Termination of Registration Rights. The right of any
holder of Registrable Securities to request registration or inclusion in
any registration shall terminate if all shares of Registrable Securities
held by such holder may immediately be sold under Rule 144 during any
ninety (90) day period.
Section 8.4 EXPENSES AND FEES. Each party hereto agrees to bear
its own expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement, except Parent shall pay and be
responsible for all fees and expenses incurred in connection with the
printing, filing and mailing of the Information Statement.
Section 8.5 AGREEMENT TO COOPERATE. Subject to the terms and
conditions herein provided, each of the parties hereto shall use all
commercially reasonable efforts to take, or cause to be taken, all action
and to do, or cause to be done, all things necessary, proper or advisable
pursuant to all agreements, contracts, indentures or other instruments to
which the parties hereto are a party, or under any applicable laws and
regulations to consummate and make effective the transactions contemplated
by this Agreement, including using its commercially reasonable efforts to
(i) obtain all necessary or appropriate waivers, consents and approvals
from lenders, landlords, security holders or other parties whose waiver,
consent or approval is required to consummate the Merger and (ii) effect
all necessary registrations, filings and submissions with any governmental
or regulatory authority.
Section 8.6 PUBLIC STATEMENTS. The parties (i) shall consult
with each other prior to issuing any press release or any written public
statement with respect to this Agreement or the transactions contemplated
hereby, and (ii) shall not issue any such press release or written public
statement prior to such consultation, except as may be required by law and
applicable listing requirements.
Section 8.7 WARRANTS. The Company shall use its reasonable best
efforts to ensure that all outstanding warrants to purchase capital stock
of the Company, including all Company Warrants, are exercised prior to
Closing. Notwithstanding the foregoing, any Company Warrant which remains
outstanding at the Effective Time shall be exercisable for Parent Common
Stock in accordance with the terms of such Company Warrant and this
Agreement.
Section 8.8 BENEFIT PLANS. Parent agrees to provide benefit
plans of general applicability which will be made available to employees of
the Company and employees of SenseNet who will become employees of the
Company at the Effective Time and for at least the initial term of the
Employment Agreements, the terms of which shall be at least as favorable as
those found in the benefit plans of Parent in effect for the benefit of
similarly situated employees prior to the Effective Time; provided,
however, that the terms of the plans so provided may be modified at any
time during such period to the extent Parent determines that such
modifications are necessary in order for such plans to maintain their
tax-qualified or tax-exempt status under the Code, or to comply with the
requirements of ERISA or any other applicable law. Parent also agrees to
give such employees credit for all eligibility and vesting they have
accrued during their respective terms of employment with the Company.
Section 8.9 NOTIFICATION OF CERTAIN MATTERS. Each of the
Company, Parent, Acquisition Sub and SenseNet agrees to give prompt notice
to each other of, and to use their respective commercially reasonable
efforts to prevent or promptly remedy (i) the occurrence or failure to
occur or the impending or threatened occurrence or failure to occur, of any
event which occurrence or failure to occur would be likely to cause any of
its representations or warranties in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or
satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 8.9 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
Section 8.10 DIRECTORS' AND OFFICERS' INDEMNIFICATION. The
provisions of this Section 8.10 are intended to be for the benefit of, and
will be enforceable by, each director and officer of the Company entitled
to indemnification from the Company. Parent will not permit the Company to
merge or consolidate with any other entity, dissolve, or otherwise cease
its corporate existence unless Parent makes adequate provisions for the
assumption of the obligations imposed by this Section 8.10. Any amendment,
repeal, or modification of the provisions with respect to indemnification
that are set forth in the Company's Certificate of Incorporation and the
Company's By-laws shall not in any manner affect adversely the rights
thereunder of individuals who at, or at any time prior to, the Effective
Time, were directors or officers of the Company. From and after the
Effective Time, Parent will, for a period of three (3) years after the
Closing, to the fullest extent permitted by law, cause the Company to
fulfill and honor in all respects the obligations of the Company pursuant
to any indemnification agreements between the Company and its directors and
officers and any indemnification provisions under the Company's Certificate
of Incorporation or By-laws as in effect immediately prior to the Effective
Time.
Section 8.11 INFORMATION STATEMENT. As soon as practicable after
the execution of this Agreement, the Company shall prepare, with the
cooperation of Parent, an Information Statement (the "Information
Statement") for the stockholders of the Company to approve the Merger and
the transactions contemplated by this Agreement. The Information Statement
shall constitute a disclosure document for the offer and issuance of the
shares of Parent Common Stock to be received by the holders of Company
Capital Stock in the Merger. Parent and the Company shall each use its
reasonable best efforts to cause the Information Statement to comply with
applicable federal and state securities laws requirements. Each of Parent
and the Company agrees to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required
or appropriate for inclusion in the Information Statement, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Information Statement. The Company will promptly advise Parent, and Parent
will promptly advise the Company, in writing if at any time prior to the
Effective Time either the Company or Parent shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement
the Information Statement in order to make the statements contained or
incorporated by reference therein not misleading or to comply with
applicable law. The Information Statement shall include the recommendation
of the Company Board in favor of this Agreement and the Merger and the
conclusion of the Board of Directors that the terms and conditions of the
Merger are fair and reasonable to the stockholders of the Company. Anything
to the contrary contained herein notwithstanding, the Company shall not
include in the Information Statement any information with respect to Parent
or its affiliates or associates, the form and content of which information
shall not have been approved by Parent prior to such inclusion.
Section 8.12 TAX-FREE TREATMENT OF MERGER. Parent and the
Company shall each use its commercially reasonable efforts to cause the
Merger to be treated as a tax-free reorganization for federal and state
income tax purposes and agree that this Agreement shall serve as the Plan
of Reorganization therefor.
Section 8.13 BLUE SKY LAWS. Parent shall take such steps as may
be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Parent Common
Stock in connection with the Merger. The Company shall use its reasonable
best efforts to assist Parent as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock in connection with the
Merger.
Section 8.14 FIRPTA CERTIFICATE. The Company shall, prior to the
Closing Date, provide Parent with a properly executed certificate and a
notice to the IRS provided for under Treasury Regulations Sections
1.897-2(h)(2) and 1.1445-2(c) (together, the "FIRPTA Certificate"),
substantially in the form of Exhibit C attached hereto, together with
written authorization for the Parent to deliver such notice to the IRS on
behalf of the Company on or after the Closing Date.
Section 8.15 TRANSFERS OF TITLE. SenseNet shall execute and
deliver in a form reasonably satisfactory to Parent any and all
documentation reasonably requested by Parent to effect the transfer to the
Company of any and all Intellectual Property or tangible assets owned by
the Company or used by the Company in the operation of its business.
Section 8.16 NONCOMPETITION; NONSOLICITATION. Except as otherwise
agreed to in writing by SenseNet and Parent or the Surviving Corporation,
for the period commencing on the Closing Date and ending thirty-six (36)
months after the Closing Date, SenseNet shall not, and shall cause its
subsidiaries not to, directly or indirectly, in any capacity, do any of the
following (the "Competing Activities"):
(a) engage in any business which develops, manufactures,
markets or sells products or services which offer substantially
free-standing functionality which is similar to the products and services
of the Surviving Corporation (or its subsidiaries which directly engage in
providing such products or services) as such products or services are
constituted as of the Effective Time (the "Business"); provided, however,
that SenseNet shall not be precluded from the ownership of securities of
corporations that are listed on a national securities exchange or traded in
the national over-the-counter market in an amount that shall not exceed one
percent (1%) of the issued and outstanding voting securities of such
corporations; and provided, further, that, for purposes of clarity,
SenseNet and Parent agree that the development, manufacture, sale or
marketing of the SenseNet II Office suite or any successor, so long as
SenseNet does not disproportionately market or promote the calendaring
module contained within SenseNet II office suite or any successor, shall
not violate this Agreement;
(b) enter into any joint venture or other business
relationship with any individual, partnership, corporation, limited
liability company, association, business trust, joint venture, or other
entity of any kind or nature (a "Person") with the primary purpose of
engaging in the Business, notwithstanding that such Person may, as of the
effective date of such relationship, engage, directly or indirectly, in the
Business,
(c) call upon any Person who is, at that time or was
within two (2) years prior to that time, an employee of Parent, the
Surviving Corporation or their respective subsidiaries or affiliates for
the purpose or with the intent of soliciting or enticing such employee away
from or out of the employ the Parent or the Surviving Corporation;
(d) enter into (i) any acquisition of SenseNet by any
Person (whether by means of merger or other form of corporate
reorganization in which outstanding shares of SenseNet are exchanged for
securities or other consideration issued or caused to be issued by the
acquiring Person) or (ii) any sale of all or substantially all of its
assets to, any Person which derives more than 10% of its revenue from the
Business; or
(e) publish any statement or make any statement (under
any circumstances reasonably likely to become public) critical of the
Surviving Corporation.
ARTICLE IX
CONDITIONS
Section 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. Unless waived by each of the parties, the respective obligations of
each party to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated
hereby, as appropriate, shall have been approved and adopted by the
requisite vote of the stockholders of the Company under applicable law;
(b) No preliminary or permanent injunction or other order
or decree by any court of competent jurisdiction which prevents the
consummation of the Merger shall have been issued and remain in effect
(each party agreeing to use its commercially reasonable efforts to have any
such injunction, order or decree lifted);
(c) No action shall have been taken, and no statute,
rule, order or regulation shall have been enacted, entered or enforced by
any state, federal or foreign government or governmental agency which would
prevent the consummation of the Merger or make the consummation of the
Merger illegal; and
(d) All governmental waivers, consents, orders,
authorizations and approvals of any governmental or regulatory authority,
domestic or foreign, legally required for the consummation of the Merger
and the transactions contemplated hereby, shall have been obtained and be
in effect at the Effective Time.
Section 9.2 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COMPANY
TO EFFECT THE MERGER. Unless waived by the Company, the obligation of the
Company to effect the Merger shall be subject to the fulfillment at or
prior to the Closing of the following additional conditions:
(a) Parent and Acquisition Sub shall have performed in
all material respects their agreements contained in this Agreement required
to be performed on or prior to the Effective Time, and the representations
and warranties of Parent and Acquisition Sub contained in this Agreement
shall be true and correct in all material respects (except that where any
statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct in all respects) on
and as of the date made and on and as of the Closing Date, except for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), as
if made at and as of such date, and the Company shall have received a
certificate of an officer of each of Parent and Acquisition Sub to that
effect;
(b) The Company shall have received an opinion of Carter,
Ledyard & Milburn, independent counsel to the Company, in form and
substance reasonably satisfactory to the Company, effective as of the
Closing Date and based on the representations of the Company and Parent
substantially as set forth in Exhibit D hereto, to the effect that (i) the
Merger of Acquisition Sub with and into the Company pursuant to this
Agreement and applicable state law will be treated for United States
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, (ii) Parent, Acquisition Sub and the Company
will each be a party to the reorganization within the meaning of Section
368(b) of the Code, and (iii) the stockholders of the Company will not
recognize gain or loss as a result of the Merger, except to the extent such
stockholders receive any Fractional Share Payment;
(c) The Company shall have received an opinion from
Skadden, Arps, Slate, Meagher & Flom LLP, independent counsel to Parent and
Acquisition Sub, dated the Closing Date, reasonably satisfactory to the
Company; and
(d) All waivers, consents, orders, authorizations, and
approvals required to be obtained, and all filings required to be made by
Parent and Acquisition Sub for the authorization, execution and delivery of
this Agreement and the consummation by Parent and Acquisition Sub of the
transactions contemplated hereby shall have been obtained and made by
Parent and Acquisition Sub, except where the failure to obtain the waivers,
consents, orders, authorization or approvals required to be obtained or any
filings required to be made would not have a Parent Material Adverse
Effect, taken as a whole.
Section 9.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND
ACQUISITION SUB TO EFFECT THE MERGER. Unless waived by Parent and
Acquisition Sub, the obligations of Parent and Acquisition Sub to effect
the Merger shall be subject to the fulfillment at or prior to the Effective
Time of the following additional conditions:
(a) The Company shall have performed in all material
respects its agreements contained in this Agreement required to be
performed on or prior to the Effective Time and the representations and
warranties of the Company contained in this Agreement shall be true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality,
such statement shall be true and correct in all respects) on and as of the
date made and on and as of the Closing Date, except for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), as
if made at and as of such date, and Parent shall have received a
Certificate of the President of the Company, in form and substance
reasonably satisfactory to Parent, to that effect and certifying to the
fulfillment of the conditions set forth in Sections 9.3(c), 9.3(d) and
9.3(f).
(b) Parent shall have received an opinion from the law
firm of Carter, Ledyard & Milburn, independent counsel to the Company,
effective as of the Closing Date, reasonably satisfactory to Parent as to
such matters as are customarily the subject of an opinion to the acquiring
company by counsel for the acquired company in similar transactions.
(c) Since the date hereof, there shall have been no
changes that constitute, and no event or events shall have occurred which
have resulted in or constitute, a Company Material Adverse Effect.
(d) The Company Warrants, prior to or at the Effective
Time, shall either have been exercised or will be convertible into warrants
to purchase Parent Common Stock, pursuant to the terms of such Company
Warrants and this Agreement.
(e) [Intentionally omitted]
(f) All outstanding shares of Company Preferred Stock
shall have been converted into Company Common Stock in accordance with the
Company's Certificate of Incorporation or the terms of such Company
Preferred Stock shall permit their exchange in the Merger for shares of
Parent Common Stock.
(g) Parent shall have received an executed investment
representation letter in the form attached hereto as Exhibit E from each
holder of Company Common Stock, Company Preferred Stock or Company
Warrants.
(h) SenseNet shall have executed and delivered to Parent
a Services Agreement in the form attached hereto as Exhibit F.
(i) SenseNet shall have executed and delivered to Parent
a Sublease Agreement containing the terms set forth on Exhibit G hereto,
and any required consent of a third party to such sublease shall have been
obtained and delivered to Parent.
(j) Parent shall have received the FIRPTA Certificate as
required by Section 8.14.
(k) Parent shall have received any documentation requested
pursuant to section 8.15.
(l) SenseNet shall have delivered a written notice to
each of the employees listed on Schedule 9.3(l), terminating their
employment with SenseNet effective as of the Effective Time.
(m) The directors and officers of the Company shall have
delivered to Parent written resignations as contemplated by Sections 2.4
and 2.5 hereof.
Section 9.4 FRUSTRATION OF CONDITIONS. Neither Parent nor the
Company may rely on the failure of any condition set forth in this Article
IX to be satisfied if such failure was caused by such party's failure to
comply with or perform any of its covenants or obligations set forth in
this Agreement.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION. This Agreement may be terminated by
the mutual consent of the parties, or at any time prior to the Closing
Date, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company, as follows:
(a) The Company shall have the right to terminate this
Agreement,
(i) if the Merger is not completed by March 15,
2000 except if the failure of the Merger to occur on or before
such date has been caused by or resulted from the action or
failure to act of the Company;
(ii) if the Merger is enjoined by a final,
unappealable order of a court of competent jurisdiction having
jurisdiction not entered at the request or with the support of
the Company or any of its affiliates or associates; or
(iii) if Parent (A) has breached any
representation, warranty or covenant in any material respect,
and (B) does not cure such default in all material respects
within twenty (20) days after written notice of such default is
given to Parent by the Company.
(b) Parent shall have the right to terminate this
Agreement,
(i) if the Merger is not completed by March 15,
2000 except if the failure of the Merger to occur on or before
such date has been caused by or resulted from the action or
failure to act of Parent;
(ii) if the Merger is enjoined by a final,
unappealable order of a court of competent jurisdiction having
jurisdiction not entered at the request or with the support of
Parent or any of its affiliates or associates; or
(iii) if the Company (A) has breached any
representation, warranty or covenant in any material respect,
and (B) does not cure such default in all material respects
within twenty (20) days after written notice of such default is
given to the Company by Parent.
Section 10.2 EFFECT OF TERMINATION. In the event of termination
of this Agreement by either Parent or the Company as provided in Section
10.1, this Agreement shall forthwith become void and there shall be no
further obligation on the part of the Company, Parent, Acquisition Sub, or
their respective officers or directors (except as set forth in this Section
10.2 and in Sections 8.1 and 8.6, all of which shall survive the
termination), provided, however, that nothing in this Section 10.2 shall
relieve any party from liability for any breach of this Agreement.
Section 10.3 AMENDMENT. This Agreement may not be amended except
by action taken by the parties' respective Boards of Directors or duly
authorized committees thereof and then only by an instrument in writing
signed on behalf of each of the parties hereto and in compliance with
applicable law, provided, that an amendment made subsequent to adoption of
this Agreement by the stockholders of the Company shall not (i) alter or
change the amount or kind of consideration to be received on conversion of
the Company Common Stock or Company Preferred Stock, or (ii) alter or
change any of the terms and conditions of the Agreement if such alteration
or change would materially adversely affect the holders of Company Common
Stock or Company Preferred Stock.
Section 10.4 WAIVER. At any time prior to the Effective Time,
any party hereto may (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 thereto, and (c) waive compliance
with any of the agreements or conditions contained herein. Any such
extension or waiver shall not be deemed to be continuing or to apply to any
future obligation or requirement of any part hereto provided herein. Any
agreement on the part of a party hereto to any such extension or waiver
shall be valid if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE XI
INDEMNIFICATION AND ESCROW
Section 11.1 INDEMNIFICATION BY SENSENET. SenseNet shall
indemnify Parent and the Surviving Corporation and any employee, director,
officer or agent of each of them (the "Indemnified Parties") against, hold
each of them harmless from, and reimburse each of them for any claim,
costs, loss, liability or expense (including reasonable attorneys' fees and
expenses) or other damage (including, without limitation, expectation,
actual, punitive and consequential damages) (collectively, "Damages")
arising, directly or indirectly, from or in connection with: (a) any
inaccuracy in any of the warranties or representations of the Company or
SenseNet in this Agreement, (b) any failure by the Company or SenseNet to
perform or comply with any covenant or obligation in this Agreement, or (c)
any Third Party Claim (as defined below) relating to an inaccuracy or
failure referred to in clause (a) or (b) above.
Section 11.2 PROCEDURE FOR THIRD PARTY CLAIMS. Promptly after
receipt by an Indemnified Party under Section 11.1 of notice of the
commencement of any action or demand or claim by a third party (a "Third
Party Claim") which gives rise to Damages, such Indemnified Party shall, if
a claim in respect thereof is to be made against an indemnifying party
under such Section, give notice to SenseNet of its assertion of such claim
for indemnification and of the commencement of the action of its assertion
of such claim for indemnification and of the commencement of the action or
assertion of the Third Party Claim with respect to which the claim for
indemnification pertains. Failure so to notify SenseNet shall not relieve
SenseNet of any liability that it may have to any Indemnified Party except
to the extent that the defense of such action or Third Party Claim is
materially prejudiced thereby. If any such action (other than any action
with respect to Taxes) shall be brought or a Third Party Claim shall be
asserted against an Indemnified Party and it shall give notice to SenseNet
of the commencement or assertion thereof, SenseNet shall, be entitled, at
its own expense and not with recourse to the Escrow Fund (other than in the
case of a final disposition or settlement of such action or Third Party
Claim), to participate therein and, to the extent that it shall wish, to
assume the defense thereof with counsel reasonably satisfactory to such
Indemnified Party and, after notice from SenseNet to such Indemnified Party
of its election to assume the defense thereof, SenseNet shall not be liable
to such Indemnified Party under this Article XI for any fees of other
counsel or any other expense (unless such fees or expenses are incurred at
the request of SenseNet), in each case subsequently incurred by such
Indemnified Party in connection with the defense thereof. If SenseNet
receives notice of any action or Third Party Claim, it shall promptly
notify the Indemnified Party as to whether, at its expense and not with
recourse to the Escrow Fund, it intends to control the defense thereof. If
SenseNet defends an action, it shall have full control over the litigation,
including settlement and compromise thereof, subject only to the following:
no compromise or settlement thereof may be effected by SenseNet without the
Indemnified Party's consent (which shall not be unreasonably withheld)
unless (i) there is no finding or admission of any violation of law and no
effect on any other claims that may be made against the Indemnified Party
and (ii) the sole relief provided is monetary damages that are paid in full
by SenseNet. If notice is given to SenseNet of the commencement of any
action and it does not, within twenty (20) days after the Indemnified
Party's notice is given, give notice to the Indemnified Party of its
election to assume the defense thereof, the Indemnified Party shall have
full control over the litigation, including settlement and compromise
thereof.
Section 11.3 INDEMNITY PERIOD. No claim for indemnification
under Section 11.1(a) of this Agreement may be made unless notice is given
by the party seeking such indemnification to the party from whom
indemnification is sought on or prior to the date that is eighteen months
following the Effective Time, except with respect to breaches of
representations or warranties relating to Tax matters, as to which notice
must be given prior to the expiration of the applicable statute of
limitations.
ARTICLE XII
GENERAL PROVISIONS
Section 12.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Articles IV and V of this
Agreement shall survive the Merger for a period of eighteen (18) months,
except that the representations set forth in Section 5.13 shall survive
until the expiration of the applicable statute of limitations. The
covenants and agreements set forth in this Agreement shall survive in
accordance with their terms.
Section 12.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, deposited with a nationally recognized overnight courier
(return receipt requested) or sent via facsimile 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 Parent or Acquisition Sub, to:
deltathree.com, Inc.
430 Park Avenue, Suite 500
New York, New York 10022
Attention: Mark Hirschhorn
Facsimile Number: 212-588-3674
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: David J. Goldschmidt, Esq.
Facsimile Number: 212-735-2000
(b) If to the Company, to:
YourDay.com, Inc.
304 Hudson Street
New York, New York 10013
Attention: Dane Atkinson
Facsimile Number: 212-824-5009
with a copy to:
Carter, Ledyard & Milburn
2 Wall Street
New York, New York 10005
Attention: Thomas Davis, Esq.
Facsimile Number: 212-732-3232
Section 12.3 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. In this Agreement, unless
a contrary intention appears (i) the words "herein," "hereof" and
"hereunder" and other words of similar impact refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision, and
(ii) reference to any Article or Section means such Article or Section
hereof. No provision of this Agreement shall be interpreted or construed
against any party hereto solely because such party or its legal
representative drafted such provision.
Section 12.4 MISCELLANEOUS. This Agreement (including the
documents and instruments referred to herein) (a) constitutes the entire
agreement and supersedes all other prior agreements and understandings,
both written and oral, among the parties, or any of them, with respect to
the subject matter hereof, (b) is not intended to confer upon any other
person any rights or remedies hereunder except for rights of indemnified
parties under Article XI, and (c) shall not be assigned by operation of law
or otherwise. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING
VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE, without regard to the conflicts of law, principles thereof.
Section 12.5 COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. Each of the
parties agrees to accept and be bound by facsimile signatures hereto.
Section 12.6 PARTIES IN INTEREST. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to confer upon
any other person any rights or remedies of any nature whatsoever under or
by reason of this Agreement.
Section 12.7 EXHIBITS AND SCHEDULES. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated
by reference herein.
Section 12.8 SEVERABILITY. If any term or other provision of
this Agreement in invalid, illegal or incapable of being enforced by any
rule of law or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the extent possible.
Section 12.9 DEFINITION OF KNOWLEDGE. For those warranties and
representations set forth in Article V which are subject to the
qualification "to the Company's knowledge," the Company will be deemed to
have knowledge of a matter if (a) Dane Atkinson or Bernar Bekirov have
knowledge of the matter, or (b) such matter has come, or should reasonably
be expected to have come, to the attention of any of such individuals if
such individual had conducted a reasonable due diligence review of the
Company's operations and business, including, without limitation,
reasonable inquiries to key personnel of the Company regarding the business
and operations of the Company and a review of, and discussion with key
personnel regarding, pertinent books and records of the Company.
Section 12.10 TRANSFER TAXES. All excise, sales, use, transfer
(including real property transfer or gains), stamp, documentary, filing,
recordation and other similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such
additions or penalties, resulting directly from the transactions
contemplated by this Agreement (the "Transfer Taxes"), shall be borne by
the stockholders of the Company (determined without giving effect to the
Merger). Any Tax Returns that must be filed in connection with Transfer
Taxes shall be prepared and filed when due by the party primarily or
customarily responsible under the applicable local law for filing such Tax
Returns, and such party will use its reasonable efforts to provide such Tax
Returns to the other party at least ten (10) days prior to the due date for
such Tax Returns.
Section 12.11 ARBITRATION. Any dispute, controversy or claim
arising between the parties relating to this Agreement (whether such
dispute arises under any federal, state or local statute or regulation, or
at common law), shall be resolved by final and binding arbitration before a
single arbitrator; provided, however, that the foregoing provision shall
not apply to Third Party Claims or to other claims made under Article XI
hereof, which shall be controlled by the terms of Article XI and the Escrow
Fund Agreement. The arbitrator shall be selected, the arbitrator shall
comply with, and the arbitration shall be conducted in New York City in
accordance with, the commercial arbitration rules of the American
Arbitration Association in effect at the time the dispute arises. In such
arbitration proceedings, the arbitrator shall have the discretion, to be
exercised in accordance with applicable law, to allocate among the parties
the arbitrator's fees, tribunal and other administrative and litigation
costs and, to the prevailing party, attorneys' fees. The award of the
arbitrator may be confirmed before and entered as a judgment of any court
having jurisdiction of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
DELTATHREE.COM, INC.
-------------------------------------
By: Mark J. Hirschhorn
Its: Vice President & Chief Financial
Officer
YOURDAY ACQUISITION CORP.
-------------------------------------
By: Mark J. Hirschhorn
Its: Chief Financial Officer
YOURDAY.COM, INC.
-------------------------------------
By: Dane Atkinson
Its: President
SENSENET INC.
-------------------------------------
By: Dane Atkinson
Its: President
