AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 31, 2001 (this
"Agreement"), among Digital Creative Development Corporation, a Utah corporation
("DCDC"), International Microcomputer Software, Inc., a California corporation
("IMSI") and DCDC Merge, Inc., a California corporation and a direct wholly
owned subsidiary of IMSI ("Merger Sub").
W I T N E S S E T H
WHEREAS, the Boards of Directors of DCDC, IMSI and Merger Sub have each
determined that it is advisable and in the best interests of their respective
stockholders for DCDC, IMSI and Merger Sub to enter into a business combination
upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such combination, the Boards of Directors of
DCDC, IMSI and Merger Sub have each approved the merger (the "Merger") of DCDC
with and into Merger Sub in accordance with the applicable provisions of the
Utah Revised Business Corporation Act (the "Utah Revised B.C.A.") and the
applicable provisions of the California Corporations Code (the "California
Code"), and upon the terms and subject to the conditions set forth herein; and
WHEREAS, pursuant to the Merger, each outstanding share of DCDC's
common stock, $.01 par value (the "DCDC Common Stock"), shall be converted into
the right to receive Common Stock, no par value, of IMSI (the "IMSI Common
Stock"), upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained herein, and intending to be legally bound
hereby, IMSI, DCDC and Merger Sub hereby agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. ---------- 1() Effective Time. At the Effective Time (as
defined in Section 1.2), and subject to and upon the terms and conditions of
this Agreement, the Utah Revised B.C.A. and the California Code, DCDC shall
merge with and into Merger Sub, the separate corporate existence of DCDC shall
cease, and Merger Sub shall continue as the surviving corporation. Merger Sub is
hereinafter sometimes referred to as the "Surviving Corporation." 1()
2(0) Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Article
VII and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the consummation of the Merger will take place as promptly as
practicable (and in any event within two business days) after satisfaction or
waiver of the conditions set forth in Article VI, at the offices of Lehman &
Eilen LLP, 50 Charles Lindbergh Boulevard, Suite 505, Uniondale, New York 11553,
unless another date, time or place is agreed to in writing by the parties hereto
(the "Closing"). Section 1.2 Effective Time. As promptly as practicable after
the satisfaction or waiver of the conditions set forth in Article VI, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger as contemplated by the Utah Revised B.C.A. (the "Utah Certificate of
Merger") and by the California Code (the "California Certificate of Merger"),
together with any required related certificates, with the Secretary of State of
the State of Utah and the Secretary of State of the State of California, as the
case may be, in such form as required by, and executed in accordance with the
relevant provisions of the Utah Revised B.C.A. and the California Code, as the
case may be (the time of such filing being the "Effective Time"). Section 1.3
Effect of the Merger. At the Effective Time, the effect of the Merger shall be
as provided in this Agreement, the Utah Certificate of Merger, the California
Certificate of Merger and the applicable provisions of the Utah Revised B.C.A.
and the California Code. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the property, rights, privileges,
powers and franchises of DCDC shall vest in the Surviving Corporation, and all
debts, liabilities and duties of DCDC shall become the debts, liabilities and
duties of the Surviving Corporation.
Section 1.4 Certificate of Incorporation and By-Laws.
1(0) Certificate of Incorporation. The Certificate of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the California Code and such Certificate of
Incorporation. Such Certificate of Incorporation shall provide for the issuance
of a new series of preferred stock having the same rights, preferences and
privileges as the DCDC Series C 10% Cumulative Redeemable Preferred Stock (the
"New Series C Preferred Stock") and the DCDC Series D Preferred Stock (the "New
Series D Preferred Stock"), if not earlier converted.
2() By-Laws. The By-Laws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the By-Laws of the Surviving Corporation until
thereafter amended in accordance with the California Code, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
Section 1.5 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of DCDC, IMSI, the Merger Sub or the
holders of any of the following securities:
Section 1.1
1(0) Conversion of Securities. Each share of DCDC Common Stock issued and
outstanding immediately prior to the Effective Time (excluding any shares of
DCDC Common Stock to be cancelled pursuant to Section 1.5(b)) shall be converted
into the right to receive such number of validly issued, fully paid and
nonassessable shares (the "IMSI Shares") of IMSI Common Stock such that the
stockholders of DCDC immediately preceding the Effective Time shall own in the
aggregate, fifty-one percent (51%) of IMSI's outstanding Common Stock
immediately following the Effective Time. For the purposes hereof, the 400,000
shares of DCDC Common Stock issuable upon conversion of the DCDC Series D
Preferred Stock shall be deemed to be issued and outstanding. 2() Cancellation.
Each share of DCDC Common Stock held in the treasury of DCDC immediately prior
to the Effective Time shall cease to be outstanding, be cancelled and retired
without payment of any consideration therefor and cease to exist. Section 1.6
Exchange of Certificates.
1() Exchange Agent. At or prior to the Effective Time, IMSI shall supply, or
shall cause to be supplied, to or for the account of such bank or trust company
designated by IMSI and reasonably satisfactory to DCDC (the "Exchange Agent"),
in trust for the benefit of the holders of DCDC Common Stock, for exchange in
accordance with this Section 1.6, through the Exchange Agent, certificates
evidencing IMSI Shares issuable pursuant to Section 1.5(a) in exchange for
outstanding shares of DCDC Common Stock.
1()
2(0) Exchange Procedures. As soon as reasonably practicable after the Effective
Time, IMSI will instruct the Exchange Agent to mail to each holder of record of
certificates evidencing DCDC Common Stock ("DCDC Certificates"): (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the DCDC Certificates shall pass, only upon proper delivery of
the DCDC Certificates to the Exchange Agent and shall be in such form and have
such other provisions as IMSI may reasonably specify); and (ii) instructions to
effect the surrender of the DCDC Certificates in exchange for certificates
evidencing IMSI Shares ("IMSI Certificates"). Upon surrender of a DCDC
Certificate for cancellation to the Exchange Agent together with such letter of
transmittal, duly executed and such other customary documents as may be required
pursuant to such instructions, the holder of such DCDC Certificate shall be
entitled to receive in exchange therefor: (A) IMSI Certificates which such
holder has the right to receive in accordance with Section 1.5(a), in respect of
the shares of DCDC Common Stock formerly evidenced by such DCDC Certificate; and
(B) any dividends or other distributions to which such holder is entitled
pursuant to Section 1.6(c) and the DCDC Certificate so surrendered shall
forthwith be cancelled. In the event of a transfer of ownership of shares of
DCDC Common Stock which is not registered in the transfer records of DCDC as of
the Effective Time, the IMSI Shares, dividends and distributions with respect
thereto, may be issued and paid in accordance with this Article I to a
transferee if the DCDC Certificate evidencing such shares of DCDC Common Stock
is presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer pursuant to this Section 1.6(b) and by
evidence that any applicable stock transfer taxes have been paid. Until so
surrendered, each outstanding DCDC Certificate that, prior to the Effective
Time, represented shares of DCDC Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence only the ownership of the number of IMSI Shares into which such
shares of DCDC Common Stock shall have been so converted and no rights in any
shares of DCDC's Common Stock.
3() Distributions with Respect to Unexchanged IMSI Shares. No dividends or other
distributions declared or made with respect to IMSI Shares with a record date
after the Effective Time shall be paid to the holder of any unsurrendered DCDC
Certificate with respect to IMSI Shares such holder is entitled to receive until
such holder shall surrender such DCDC Certificate. There shall be paid, at the
time of such surrender, to the record holder of the IMSI Shares issued in
exchange therefor, without interest, the amount of dividends or other
distributions with respect to such IMSI Shares.
4(0) Transfers of Ownership. If any IMSI Certificate is to be issued in a name
other than that in which the DCDC Certificate surrendered in exchange therefor
is registered, it will be a condition to the issuance thereof that the DCDC
Certificate so surrendered will be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange will have paid to
IMSI or any agent designated by it any transfer or other taxes required by
reason of the issuance of a certificate for IMSI Shares in any name other than
that of the registered holder of the DCDC Certificate so surrendered, or have
established to the satisfaction of IMSI or any agent designated by it that such
tax has been paid or is not payable. 5(0) No liability. At any time following
one year after the Effective Time, IMSI shall be entitled to require the
Exchange Agent to deliver to IMSI any certificates evidencing IMSI Shares, and
any dividends and distributions with respect thereto, which had been made
available to the Exchange Agent by or on behalf of IMSI and which have not been
disbursed to holders of DCDC Certificates, and thereafter such holders shall be
entitled to look to IMSI only as general creditors thereof with respect to such
certificates, dividends and distributions payable upon due surrender of their
DCDC Certificates. Notwithstanding the foregoing, neither IMSI nor DCDC shall be
liable to any holder of shares of DCDC Common Stock for any IMSI Shares, or
dividends or distributions with respect thereto delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law. 6(0)
Withholding Rights. IMSI or the Exchange Agent shall be entitled to deduct and
withhold from any dividends or distributions with respect to IMSI Shares
otherwise payable pursuant to Section 1.6(c) to any holder of shares of DCDC
Common Stock such amounts as IMSI or the Exchange Agent is required to deduct
and withhold with respect to the making of such payment under the Code, or any
provision of state, local or foreign tax law. To the extent that amounts are so
withheld by IMSI or the Exchange Agent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of DCDC Common Stock in respect of which such deduction and withholding
was made by IMSI or the Exchange Agent.
1()
Section 1.7 Stock Transfer Books. At the Effective Time, the stock transfer
books of DCDC shall be closed, and there shall be no further registration of
transfers of shares of DCDC Common Stock thereafter on the records of DCDC.
Section 1.8 No Further Rights in DCDC Common Stock. The IMSI Shares delivered
upon the surrender of shares of DCDC Common Stock in accordance with the terms
hereof shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of DCDC Common Stock. Holders of the shares of DCDC
Common Stock shall have no further ownership rights in DCDC Common Stock after
the Effective Time. At the Effective Time, holders of the shares of the DCDC
Series C 10% Cumulative Redeemable Preferred Stock and the Series D Preferred
Stock, if not earlier converted, shall have their shares exchanged for the New
Series C Preferred Stock and the New Series D Preferred Stock, respectively. If,
after the Effective Time, DCDC Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Article I. Section 1.9 Lost, Stolen or Destroyed Certificates. In the event
any DCDC Certificates shall have been lost, stolen, or destroyed, the Exchange
Agent shall issue and pay in exchange for such lost, stolen or destroyed DCDC
Certificates, upon the making of an affidavit of that fact by the holder thereof
and delivery of bond in such sum as IMSI or the Exchange Agent may reasonably
direct as indemnity against any claim that may be made against IMSI or the
Exchange Agent with respect to the DCDC Certificates alleged to have been lost,
stolen or destroyed, such IMSI Shares, any dividends and distributions with
respect thereto. Section 1.10 Taking of Necessary Action; Further Action. Each
of DCDC, IMSI and Merger Sub will take all such reasonable and lawful action as
may be necessary or appropriate in order to effectuate the Merger in accordance
with this Agreement as promptly as possible. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of DCDC, the officers and directors of DCDC immediately prior to the
Effective Time are fully authorized in the name of DCDC to take, and will take,
all such lawful and necessary action.
Section 1.1
Section 1.11 Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, shares of DCDC Common Stock which immediately prior to the
Effective Time are held by stockholders who have properly exercised dissenters'
rights under Sections 16-10a - 1302 of the Utah Revised B.C.A. (the "Dissenting
Shares") shall not be converted into IMSI Shares as provided in Section 1.5(a)
hereof, but the holders of Dissenting Shares shall be entitled to receive such
consideration as shall be determined pursuant to Section 16-10a - 1321 of the
Utah Revised B.C.A.; provided, however, that, if any such holder shall withdraw
or lose such holder's right to dissent and payment under the Utah Revised
B.C.A., such holder's outstanding shares of DCDC Common Stock shall thereupon be
deemed to have been converted as of the Effective Time into the right to receive
the IMSI Shares, without any form of interest thereon, as provided in Section
1.5(a), and such shares shall no longer be Dissenting Shares. DCDC shall give
IMSI prompt notice of any demands for payment under Section 16-10a - 1322 of the
Utah Revised B.C.A. received by DCDC. Except as required by applicable law,
prior to the Effective Time, DCDC shall not, except with the prior written
consent of IMSI, make any payment with respect to or settle or offer to settle,
any such demands.
ARTICLE 2
FURTHER AGREEMENTS
Section 2.1 Resignation and Appointment of Directors.
1() Simultaneous with the execution of this Agreement, all the Directors of IMSI
and its subsidiaries shall appoint the DCDC nominees set forth on Exhibit A to
the Board of Directors of IMSI and its subsidiaries and all the Directors of
IMSI, except for Robert Mayer, shall execute and deliver a letter of resignation
in the form and substance acceptable to DCDC. Robert Mayer, a current Director
of IMSI, shall remain on IMSI's Board and be nominated as a Director at the
first Annual Meeting of Stockholders of the Successor Corporation subsequent to
the Merger. Mr. Mayer shall hold office until such Annual Meeting and until his
successor is duly elected and qualified.
2() Simultaneous with the execution of this Agreement, such executive officers
of IMSI and its subsidiaries identified by DCDC shall execute and deliver a
letter of resignation in the form and substance acceptable to DCDC. 3(0)
Simultaneous with the execution of this Agreement, all the directors of DCDC and
its subsidiaries shall appoint Robert Mayer, a current Director of IMSI, to the
Board of Directors of DCDC to hold office until the next Annual Meeting of
Stockholders of DCDC or the Successor Corporation, as the case may be, and until
his successor is duly elected and qualified. Section 2.2 Irrevocable Proxy. Each
of the shareholders of IMSI listed on Schedule 2.2, constituting in the
aggregate no less than fifty-one percent (51%) of the outstanding shares of IMSI
Common Stock, will execute and deliver, concurrently with the execution of this
Agreement, an Irrevocable Proxy in the form attached as Exhibit B (the
"Irrevocable Proxy"). Each Irrevocable Proxy provides that the signing holder
will vote all of the shares of IMSI Common Stock beneficially owned by such
holder in favor of the Merger.
Section 2.3 Union Bank of California Loan. DCDC agrees to refrain from
exercising its rights under the Union Bank of California loan described in
Section 6.1(c) of this Agreement pending the earlier Closing of the Merger or
termination of this Agreement.
Section 1.1
Section 2.4 Joint Proxy Statement/Prospectus; Registration Statement. As
promptly as practicable after the execution of this Agreement, DCDC and IMSI
shall prepare and file with the SEC preliminary proxy materials which shall
constitute the Joint Proxy Statement/Prospectus and the Registration Statement
with respect to IMSI Common Stock to be issued in connection with the Merger. As
promptly as practicable after comments are received from the SEC thereon and
after the furnishing by DCDC and IMSI of all information required to be
contained therein, DCDC and IMSI shall file with the SEC a Joint Proxy Statement
and Registration Statement on Form S-4 (or on such other form as shall be
appropriate) relating to the adoption of this Agreement and approval of the
transactions contemplated hereby by the stockholders of DCDC and IMSI pursuant
to this Agreement, and shall use all reasonable efforts to cause the
Registration Statement to become effective and to mail the Joint Proxy
Statement/Prospectus to DCDC's and IMSI's respective stockholders, as soon
thereafter as practicable.
Section 2.5 Stockholders Meetings. DCDC and IMSI shall call and hold their
respective Stockholders Meeting as promptly as practicable and in accordance
with applicable laws for the purpose of voting upon the approval of the Merger
and the adoption of the Merger Agreement and DCDC and IMSI shall use their best
efforts to hold their respective Stockholders Meeting as soon as practicable
after the date on which the Registration Statement becomes effective. DCDC and
IMSI shall: (i) recommend approval of the transactions contemplated by this
Agreement by their respective stockholders and include in the Joint Proxy
Statement/Prospectus such recommendation; and (ii) use all reasonable efforts to
solicit from their respective stockholders proxies in favor of adoption of this
Agreement and approval of the transactions contemplated hereby and shall take
all other action necessary or advisable to secure the vote or consent of
stockholders to obtain such approvals.
Section 2.6 Arthur Treacher's Distribution. DCDC currently intends to transfer
all of its assets and liabilities related to its restaurant operations to its
wholly owned subsidiary, Arthur Treacher's, Inc., a Delaware corporation, or an
equivalent entity ("ATI"), and subsequently distribute all of its shares of ATI
to its shareholders (the "ATI Distribution"). DCDC hereby agrees that if the ATI
Distribution is effected prior to the Merger proper provision shall be made to
reserve forty-nine percent (49%) of the ATI shares for the shareholders of IMSI
immediately preceding the Effective Time to be distributed to such IMSI
shareholders following consummation of the Merger and only if the Merger is
consummated. Nothing herein shall obligate DCDC to effect the ATI Distribution
at any time or in any manner whatsoever.
Section 2.7 IMSI Derivative Securities. All outstanding options, warrants,
rights, convertible securities or other agreements or commitments of any
character to purchase IMSI Common Stock (each, an "IMSI Derivative Security"),
whether vested or unvested, not set forth on Schedule 2.7 shall either be
exercised or cancelled on terms acceptable to DCDC prior to the Merger.
Section 1.1
Section 2.8 DCDC Derivative Securities. All the outstanding options, warrants,
rights, convertible securities or other agreements or commitments of any
character to purchase DCDC Common Stock (each, a "DCDC Derivative Security"),
whether vested or unvested, set forth on Schedule 2.8, shall be deemed assumed
by IMSI and deemed to constitute a right to acquire, on terms and conditions no
less favorable than prior to the Effective Time, the number (rounded to the
nearest whole number) of IMSI Shares as the holder of such DCDC Derivative
Security would have been entitled to receive pursuant to the Merger had such
holder exercised such DCDC Derivative Security in full immediately prior to the
Effective Time, at a price per share equal to (x) the aggregate exercise price
for DCDC Common Stock otherwise deemed purchasable pursuant to such DCDC
Derivative Security divided by (y) the number of IMSI Shares deemed purchasable
pursuant to such DCDC Derivative Security. For example, if we assume the
following: (i) the number of DCDC stock options to be exercised is 50,000; (ii)
the exercise price for each DCDC stock option is $1.00 (the aggregate exercise
price is therefore $50,000); and (iii) the number of IMSI Shares issuable for
each share of DCDC Common Stock in the Merger is .333, then the number of shares
issuable upon exercise of the 50,000 DCDC stock options post-merger is 16,665
(50,000 multiplied by .333) and the exercise price per option is $3.00 ($50,000
divided by 16,665). DCDC and IMSI agree not to reprice more than fifty percent
(50%) of all the options that survive the Merger, and that in the event of any
such repricing, the repriced option exercise price will in no event be less than
the closing price of IMSI's Common Stock on such repricing date.
Section 2.9 Employees, Severance and Benefits.
---------------------------------
1(0) DCDC agrees that following the Effective Time, and subject to the
consummation of the transactions set forth herein, it shall pay to those
employees of IMSI that are terminated by the Surviving Corporation within one
year of the Effective Time, if any, fifty percent (50%) of such employee's
compensation, including commissions and bonuses, if any, earned in the year
immediately prior to the Effective Time. Such payment shall be made over 12
months without interest.
2() DCDC agrees that following the Effective Time, and subject to the
consummation of the transactions set forth herein, it shall cause IMSI to
provide to those employees of IMSI who remain employees of IMSI: (i)
compensation programs (including bonus and incentive award programs, if any);
and (ii) employee benefit and welfare programs and plans (including insurance
and pension plans, if any), fringe benefits and vacation programs that are no
less favorable than those which are from time to time generally provided by DCDC
to its employees.
1(0)
Section 2.10 Access to Information; Confidentiality. Upon reasonable notice and
subject to restrictions contained in confidentiality agreements to which such
party is subject (from which such party shall use reasonable efforts to be
released), DCDC and IMSI shall each (and shall cause each of their respective
subsidiaries to) afford to the officers, employees, accountants, counsel and
other representatives of the other, reasonable access, during the period prior
to the Effective Time, to all its properties, books, contracts, commitments and
records and, during such period, DCDC and IMSI each shall (and shall cause each
of their respective subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as such other
party may reasonably request, and each shall make available to the other the
appropriate individuals (including attorneys, accountants and other
professionals) for discussion of the other's business, properties and personnel
as either IMSI or DCDC may reasonably request. Each party shall keep such
information confidential in accordance with the terms of the confidentiality
agreement between IMSI and DCDC (the "Confidentiality Agreement").
Section 2.11 Consents; Approvals. DCDC and IMSI shall each use all reasonable
efforts to obtain all consents (including those referred to in Section 6.1),
waivers, approvals, authorizations or orders (including, without limitation, all
United States and foreign governmental and without limitation, all filings with
United States and foreign governmental or regulatory agencies) required in
connection with the authorization, execution and delivery of this Agreement by
each of them and DCDC and IMSI shall furnish promptly all information required
to be included in the Joint Proxy Statement/Prospectus and the Registration
Statement, or for any application or other filing to be made pursuant to the
rules and regulations of any United States or foreign governmental body in
connection with the transactions contemplated by this Agreement.
Section 2.12 Notification of Certain Matters. IMSI shall give prompt notice to
DCDC, and DCDC shall give prompt notice to IMSI, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
likely to cause any representation or warranty contained in this Agreement to
become materially untrue or inaccurate, or (ii) any failure of IMSI or DCDC, as
the case may be, materially 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 2.13 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice, and provided, further, that failure to give such notice shall not be
treated as a breach of covenant for the purposes of Section 6.2(b) or 6.3(b)
unless the failure to give such notice results in material prejudice to the
other party.
Section 2.13 Further Action/Tax Treatment. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement, to
obtain in a timely manner all necessary waivers, consents and approvals and to
effect all necessary registrations and filings, and otherwise to satisfy or
cause to be satisfied all conditions precedent to its obligations under this
Agreement. Section 2.14 Public Announcements. IMSI and DCDC shall consult with
each other before issuing any press release and shall not issue any press
release or make any public statement with respect to the Merger or this
Agreement without the prior consent of the other party, which shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may upon the advise of outside counsel be required by law.
Section 1.1
Section 2.15 Conveyance Taxes. IMSI and DCDC shall cooperate in the preparation,
execution and filing of all returns, questionnaires, applications or other
documents regarding any real property transfer or gains, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes (collectively, the "Transfer
Taxes") which become payable in connection with the transactions contemplated
hereby that are required or permitted to be filed at or before the Effective
Time. DCDC or the Surviving Corporation shall pay all Transfer Taxes imposed in
connection with the transactions contemplated hereby.
Section 2.16 Accountants' Letters. Upon reasonable notice from the other, IMSI
and DCDC shall use their respective best efforts to cause Grant Thorton LLP or
Goldstein Golub Kessler and Company, P.C., respectively, to deliver to IMSI or
DCDC, as the case may be, a letter, dated within two business days of the
effective date of the Registration Statement covering such matters as are
requested by IMSI or DCDC, as the case may be, and as are customarily addressed
in accountants' "comfort" letters. In connection with DCDC's efforts to obtain
such letter, if requested by Goldstein Golub Kessler and Company, P.C., IMSI
shall provide a representation letter to Goldstein Golub Kessler and Company,
P.C., complying with the statement on Auditing Standards No. 72 ("SAS 72"), if
then required. In connection with IMSI's efforts to obtain such letter, if
requested by Grant Thorton LLP, DCDC shall provide a representation letter to
Grant Thorton LLP complying with SAS 72, if then required.
Section 2.17 DCDC Subsidiaries. DCDC agrees to maintain the separate corporate
existence of Digital Creative Development Corporation, a Delaware company, and
Arthur Treachers, Inc., a Delaware corporation, for one year following the
Effective Time.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF IMSI
IMSI hereby represents and warrants to DCDC as follows:
Section 3.1 Organization and Qualification; Subsidiaries. IMSI and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority and is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being conducted, except where the failure to be so organized, existing
or in good standing or to have such power, authority or Approvals does not have
a Material Adverse Effect (as defined below). Each of IMSI and each of its
subsidiaries is duly qualified or licensed as a foreign corporation, to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing does not have a Material
Adverse Effect. Except as set forth in Schedule 3.1, substantially all of the
business and operations of IMSI and its subsidiaries are conducted through, and
substantially all of the properties and assets of IMSI or any of its
subsidiaries are owned by, IMSI and its subsidiaries.
When used in connection with IMSI or any of its subsidiaries, or DCDC
or any of its subsidiaries, as the case may be, the term "Material Adverse
Effect" means any change, effect or circumstance that, individually or when
taken together with all other such changes, effect or circumstance, that have
occurred prior to the date of termination of the occurrence of such change,
effect or circumstance, (i) is materially adverse to the business, assets
(including intangible assets), financial condition, results of operations or
prospects of IMSI and its subsidiaries or DCDC and its subsidiaries, as the case
may be, in each case taken as a whole, or (ii) delays or prevents the
consummation of the transactions contemplated hereby.
Section 3.2 Certificate of Incorporation and By-Laws. IMSI has heretofore
furnished to DCDC complete and correct copies of IMSI's Certificate of
Incorporation and By-Laws and those of each of its subsidiaries, as most
recently restated and subsequently amended to date.
Section 3.3 Capitalization. The authorized capital stock of IMSI consists of
300,000,000 shares of common stock, no par value, and no shares of preferred
stock. As of August 31, 2001, 9,693,892 shares of IMSI Common Stock were issued
and outstanding, all of which are validly issued, fully paid and nonassessable,
no shares IMSI Common Stock were held in treasury and no shares of preferred
stock are issued or held in treasury. Except as set forth in Schedule 3.3(a),
there are no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
IMSI or any of its subsidiaries or obligating IMSI or any of its subsidiaries to
issue or sell any shares of capital stock of, or other equity interests in, IMSI
or any of its subsidiaries. No holder of shares of IMSI Common Stock having
piggyback or demand registration rights will have the right to include such
shares for registration in the Registration Statement (as defined in Section
4.14 hereof). Except as disclosed in Schedule 3.3(b), there are no obligations,
contingent or otherwise, of IMSI or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of IMSI Common Stock or the capital stock
of any subsidiary or to provide funds to or make any investment (in the form of
a loan, capital contribution, guaranty or otherwise) in any such subsidiary or
any other entity. Except as set forth in Schedule 3.3(c), all of the outstanding
shares of capital stock of each of IMSI's subsidiaries is duly authorized,
validly issued, fully paid and nonassessable, and not issued in violation of any
preemptive rights, and all such shares are owned by IMSI or a subsidiary of IMSI
free and clear of all security interests, liens, claims, pledges, agreements,
limitations in voting rights, charges or other encumbrances of any nature
whatsoever (collectively, "Liens").
Section 3.4 Recommendation of the Board of Directors. The Board of Directors of
IMSI has determined that the Merger is fair to and in the best interests of
IMSI's stockholders and has resolved to recommend acceptance thereof by IMSI's
stockholders. This Agreement and the Merger have been approved by the Board of
Directors of IMSI and the Board of Directors has resolved to recommend approval
thereof by IMSI's stockholders. Prior to approving this Agreement, the Board of
Directors of IMSI considered all alternative transactions available to it.
Section 1.1
Section 3.5 Authority Relative to this Agreement. IMSI has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by IMSI and
the consummation by IMSI of the transactions contemplated hereby have been duly
and validly authorized by the requisite corporate action, and no other corporate
proceedings on the part of IMSI is required (other than the adoption of this
Agreement by the holders of at least a majority of the outstanding shares of
IMSI Common Stock entitled to vote in accordance with the California Code and
IMSI's Certificate of Incorporation and By-Laws). This Agreement has been duly
and validly executed and delivered by IMSI and, assuming the due authorization,
execution and delivery by DCDC, constitutes a legal, valid and binding
obligation of IMSI enforceable against IMSI in accordance with its terms, except
as such enforceability may be limited or affected by (i) bankruptcy, insolvency,
reorganization, moratorium, liquidation, arrangement, fraudulent transfer,
fraudulent conveyance and other similar laws (including, without limitation,
court decisions) now or hereafter in effect and affecting the rights and
remedies of creditors generally or providing for the relief of debtors, (ii) the
refusal of a particular court to grant equitable remedies, including, without
limitation, specific performance and injunctive relief, and (iii) general
principles of equity (regardless of whether such remedies are sought in a
proceeding in equity or at law).
Section 3.6 No Conflict; Required Filings and Consents.
1(0) Schedule 3.6(a) lists each material agreement, contract or other instrument
(including all amendments thereto) to which IMSI or any of its subsidiaries is a
party or by which any of them is bound and which would be required pursuant to
the Securities Exchange act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") to be filed as an exhibit to an Annual Report on
Form 10-K, a Quarterly Report on Form 10-Q or a Current Report on Form 8-K. IMSI
has made available to DCDC on or prior to the date hereof true, correct and
complete copies in all material respects of each such agreement, contract,
instrument and amendment.
2() Except as disclosed in Schedule 3.6(b), (i) neither IMSI nor any of its
subsidiaries has breached, is in default under, or has received written notice
of any breach of or default under, any of the agreements, contracts or other
instruments referred to in Section 3.6(a), (ii) to the knowledge of IMSI, no
other party to any of the agreements, contracts or other instruments referred to
in Section 3.6(a) has breached or is in default of any of its obligations
thereunder, and (iii) each of the agreements, contracts and other instruments
referred to in Section 3.6(a) is in full force and effect, except in each case
for breaches, defaults or failures to be in full force and effect that do not
have a Material Adverse Effect.
1(0)
3() Except as set forth in Schedule 3.6(c), the execution and delivery of this
Agreement by IMSI does not, and the performance of this Agreement by IMSI and
the consummation by IMSI of the transactions contemplated hereby will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws of IMSI,
(ii) conflict with or violate any federal, foreign, state or provincial law,
rule, regulation, order judgment or decree (collectively "Laws") applicable to
IMSI or any of its subsidiaries or by which its or any of their respective
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or impair IMSI's or any of its subsidiaries' rights or alter the
rights or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of IMSI or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which IMSI or any of its subsidiaries is a party or by which IMSI or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, breaches, defaults or other occurrences that do not have a Material
Adverse Effect.
4() The execution and delivery of this Agreement by IMSI does not, and the
performance of this Agreement by IMSI will not, require any consent, approval,
authorization or permit of, of filing with or notification to, any domestic or
foreign governmental or regulatory authority except (i) for applicable
requirements, if any, of the Securities Act, the Exchange Act, state securities
laws ("Blue Sky Laws"), the legal requirements of any foreign jurisdiction
requiring notification in connection with the Merger and the transactions
contemplated hereby and the filing and recordation of appropriate merger or
other documents as required by the California Code and the Utah Revised B.C.A.,
and (ii) where the failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, either (A) would not prevent
or materially delay consummation of the Merger or otherwise prevent or
materially delay IMSI from performing its obligations under this Agreement, or
(B) do not have a Material Adverse Effect.
Section 3.7 Compliance; Permits.
1() Except as disclosed in Schedule 3.7(a), neither IMSI nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any Law
applicable to IMSI or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permits, franchise or other
instrument or obligation to which IMSI or any of its subsidiaries is a party or
by which IMSI or any of its subsidiaries or its or any of their respective
properties is bound or affected, except, in each case, for any such conflicts,
defaults or violations which do not have a Material Adverse Effect.
2() Except as disclosed in Schedule 3.7(b), IMSI and its subsidiaries hold all
permits, licenses, easements, variances, exemptions, consents, certificates,
orders and approvals from governmental authorities which are material to the
operation of the business of IMSI and its subsidiaries taken as a whole as it is
now being conducted (collectively, the "IMSI Permits"). IMSI and its
subsidiaries are in compliance with the terms of IMSI Permits, except where the
failure to so comply does not have a Material Adverse Effect.
1(0)
Section 3.8 SEC Filings; Financial Statements.
1() IMSI has filed all forms, reports and documents required to be filed with
the Securities and Exchange Commission (the "SEC") and has made available to
DCDC copies of: (i) its Annual Report on Form 10-K for the fiscal year ended
June 30, 2000, (ii) all other reports or registration statements filed by IMSI
with the SEC since June 30, 1997, (iii) all proxy statements relating to IMSI's
meetings of stockholders (whether annual or special) since June 30, 1997, and
(iv) all amendments and supplements to all such reports and registration
statements filed by IMSI with the SEC pursuant to the requirements of the
Securities Act or the Exchange Act ((i) - (iv) collectively, the "IMSI SEC
Reports"). Except as disclosed in Schedule 3.8, the IMSI SEC Reports (i) were
prepared as to form in all materials respects in accordance with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not at the time they were filed (or if amended or superseded by the
subsequent filing, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of IMSI's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
2() Each of the consolidated financial statements (including in each case, any
related notes thereto) contained in the IMSI SEC Reports was prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents in all material respects the consolidated
financial position of IMSI and its subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows and
stockholders equity for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal and recurring year-end
adjustments.
1(0)
Section 3.9 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.9, since June 30, 2000, IMSI has conducted its business in the
ordinary course and there has not occurred: (i) any Material Adverse Effect;
(ii) any amendments or changes in the Certificate of Incorporation or By-Laws of
IMSI or similar organizational documents of its subsidiaries; (iii) any damage
to, destruction or loss of any material asset of IMSI or any of its subsidiaries
(whether or not covered by insurance); (iv) any material change by IMSI in its
accounting methods, principles or practices; (v) any material revaluation by
IMSI of any of its or any of its subsidiaries' assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any sale, pledge,
disposition of or encumbrance upon any asset of IMSI or any of its subsidiaries
(except (A) sales of assets in the ordinary course of business, (B) dispositions
of obsolete or worthless assets, and (C) sales of immaterial assets not in
excess of $100,000 in the aggregate; (vii) any dividend or distribution with
respect to or any redemption or repurchase of any capital stock of IMSI; (viii)
cancellation or notice of cancellation or surrender of any policy of insurance
(which has not been cured by payment of the premium, purchase of an equivalent
policy, or otherwise) relating to or affecting IMSI's assets; (ix) any payment,
discharge or satisfaction of any claim, lien, obligation, encumbrance or
liability (whether absolute, unliquidated, other than claims, liens,
encumbrances or liabilities (A) that are reflected or reserved against in the
Financial Statements or (B) that were incurred and paid, discharged or satisfied
since such date in the ordinary course of business consistent with past
practices; (x) any default on any material claim, liability or obligation; (xi)
any prepayment, advance or other deposit made by customers of IMSI with respect
to products or services contracted for but not provided as of the date hereof or
any other unearned income other than prepayments, advances or deposits
consistent with past practices; or (xii) there has been no increase by more than
$10,000 in the compensation of any of IMSI's officers or employees who earn more
than $100,000 annually or loans made by IMSI to any of its stockholders,
directors, officers or employees.
Section 3.10 No Undisclosed Liabilities. Except as disclosed in Schedule 3.10,
neither IMSI nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities: (i) in the aggregate adequately
provided for in the IMSI's balance sheet (including any related notes thereto)
as of March 31, 2001 included in the IMSI's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 2001 (the "IMSI Balance Sheet"), (ii)
incurred in the ordinary course of business and not required under generally
accepted accounting principles to be reflected on the IMSI Balance Sheet, (iii)
incurred since March 31, 2001, in the ordinary course of business, (iv) incurred
in connection with this Agreement, or (v) which do not have a Material Adverse
Effect.
Section 3.11 Absence of Litigation. Set forth in Schedule 3.11 are descriptions
of all claims, actions, suits, proceedings or investigations pending or, to the
knowledge of IMSI or any of its subsidiaries, before or by any court, arbitrator
or administrative, governmental or regulatory authority or body, domestic or
foreign, and, in the case of any such claims for damages, seek damages in excess
of $50,000, other than claims, actions, suits, proceedings or investigations
covered by one or more insurance policies as to which the issuer or issuers have
indicated their intentions in writing to defend and pay in the aggregate damages
up to the amount claimed ("IMSI Litigation"). Except as set forth in Schedule
3.11, no such IMSI Litigation would have a Material Adverse Effect if the
opposing party were to prevail with respect to any of its claims.
Section 3.12 Employment Agreements; Change in Control Payments. Except as set
forth in Schedule 3.12, neither IMSI nor any of its subsidiaries is a party to
any written or oral employment or consulting contract or other contract for
services involving a payment of more than $50,000 annually and that is not
terminable without a cost to IMSI of more than $50,000 or at will. Except as set
forth in Schedule 3.12, neither IMSI nor any of its subsidiaries has any plans,
programs or agreements to which they are parties or to which they are subject,
pursuant to which payments in excess of $50,000 (or acceleration of material
benefits) may be required upon, or may become payable directly or indirectly as
a result of, the transactions contemplated by this Agreement or a change of
control of IMSI.
Section 1.1
Section 3.13 Employee Benefit Plans. Except as set forth in Schedule 3.13, IMSI
has no employee pension plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any material
employee welfare plans (as defined in Section 3(1) of ERISA), or any material
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or similar fringe or employee benefit plans,
programs or arrangements (collectively, the "IMSI Employee Plans"). IMSI has
delivered to DCDC: (i) a copy of each IMSI Employee Plan and each amendment
thereto, (ii) annual reports and actuarial reports filed with respect to each
IMSI Employee Plan since December 31, 1998, (iii) summary plan descriptions and
other communications to employees relating to each IMSI Employee Benefit Plan;
(iv) all trust agreements and other similar documents or agreements relevant to
the organization of any such IMSI Employee Plan and all separate financial
statements of such IMSI Employee Plan and all separate financial statements of
such IMSI Employee Plan; and (v) all letters from the IRS approving or
confirming the tax-exempt status of any such IMSI Employee Plan. Except in each
case as set forth in Schedule 3.13 or where the liability does not have a
Material Adverse Effect, (i) there has been no "prohibited" transaction," as
such term is defined in Section 406 of ERISA and Section 4875 of the Code, with
respect to any IMSI Employee Plans which would result in liability of IMSI or
any of its subsidiaries; (ii) all IMSI Employee Plans are in substantial
compliance with the requirements prescribed by applicable Laws (including ERISA
and the Code), currently in effect with respect thereto (including all
applicable requirements for notification to participants or the Department of
Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and IMSI and each of its
subsidiaries have performed all material obligations required to be performed by
them under, are not in default under or violation of, and have no knowledge of
any material default or violation by any other party to, any of the IMSI
Employee Plans; (iii) each IMSI Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code is the subject of a favorable determination; (iv) all contributions
required to be made to any IMSI Employee Plan pursuant to Section 412 of the
Code or the terms of IMSI Employee Plan or any collective bargaining agreement,
have been made on or before their due dates; (v) with respect to each IMSI
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
excluding any such event for which the 30-day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no withdrawal (including
a partial withdrawal) has occurred with respect to any multiemployer plan within
the meaning set forth in Section 3(37) of ERISA resulting in withdrawal
liability for IMSI or any of its subsidiaries; (vii) neither IMSI nor any of its
subsidiaries has incurred any material liability under Title IV of ERISA (other
than liability for premium payments to the PBGC, and contributions not in
default to the respective plans, arising in the ordinary course); (viii) the
PBGC has not instituted any termination proceedings with respect to any IMSI
Employee Plan, and no material risk of such proceedings being instituted exists;
(ix) each IMSI Employee Plan subject to Title IV of ERISA is adequately funded
to meet accrued benefit obligations; and (x) no immediate vesting or
acceleration of any rights or the payment of any benefits will occur under any
IMSI Employee Plan as a result of the consummation of the transactions
contemplated by this Agreement.
Section 1.1
Section 3.14 Labor Matters. Except as set forth in Schedule 3.14: (i) there are
no claims or proceedings pending or, to the knowledge of IMSI, threatened,
between IMSI or any of its subsidiaries and any of their respective employees,
including, without limitation, charges of unfair labor practices pending before
the National Labor Relations Board; (ii) neither IMSI nor any of its
subsidiaries is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by IMSI or any of its
subsidiaries, and IMSI does not know of any activities or proceedings of any
labor union to organize any such employees; (iii) IMSI has no knowledge of any
strikes, slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees of IMSI or any of its subsidiaries; and (iv) IMSI is in
compliance with all applicable labor laws, rules, regulations and orders, except
where the failure to so comply does not have a Material Adverse Effect.
Section 3.15 Registration Statement; Joint Proxy Statement/Prospectus. The
information supplied by IMSI for inclusion or incorporation by reference in the
Registration Statement (as defined in Section 4.14) shall not, at the time the
Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, 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 statement included therein not misleading. The information
supplied by IMSI for inclusion or incorporation by reference in the joint proxy
statement/prospectus to be sent to the stockholders of IMSI in connection with
the meeting of the stockholders of IMSI to consider the Merger (the "IMSI
Stockholders' Meeting") (such joint proxy statement/prospectus as amended or
supplemented is referred to herein as the "Joint Proxy Statement/Prospectus"),
will not, on the date the Joint Proxy Statement/Prospectus (or any amendment
thereof or supplement thereto) is first mailed to stockholders, at the time of
the IMSI Stockholders' Meeting, or at the Effective Time, contain any statement,
which at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or shall omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for IMSI Stockholders' Meeting which
has become false or misleading. If at any time prior to the Effective Time any
event relating to IMSI or any of its respective affiliates, officers or
directors should be discovered by IMSI which is required to be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, IMSI shall promptly inform DCDC. Notwithstanding the
foregoing, IMSI makes no representation or warranty with respect to any
information supplied by DCDC which is contained or incorporated by reference in
any of the foregoing documents.
Section 1.1
Section 3.16 Title to Property. Except as set forth in Schedule 3.16, IMSI and
each of its subsidiaries have good and defensible title to all of their
properties and assets, free and clear of all Liens, except Liens for taxes not
yet due and payable and such Liens or other imperfections of title, which do not
have a Material Adverse Effect; and all leases pursuant to which IMSI or any of
its subsidiaries lease from other real or personal property are in good
standing, valid, effective and enforceable in accordance with their respective
terms, and there is not under any of such leases any existing default or event
of default (or event which with notice or lapse of time, or both, would
constitute a default) by IMSI or, to the knowledge of IMSI, by other party or
parties to such leases, except where the lack of such good standing, validity,
effectiveness or enforceability or the existence of such default or event of
default does not have a Material Adverse Effect.
Section 3.17 Taxes.
1(0) For purposes of this Agreement, "Tax" or "Taxes" shall mean taxes, fees,
levies, duties, tariffs, imposes, and governmental impositions or charges of any
kind in the nature of (or similar to) taxes, payable to any federal, state,
local or foreign taxing authority, including (without limitation) (i) income,
franchise, profits, gross receipts, ad valorem, net worth, value added, sales,
use, service, real or personal property, special assessments, capital stock,
license, payroll, withholding, employment, social security, workers'
compensation, unemployment compensation, utility, severance, production, excise,
stamp, occupation, premiums, windfall profits, transfer and gains taxes, and
(ii) interest, penalties, additional taxes and additions to tax imposed with
respect thereto; and "Tax Returns" shall mean returns, reports and information
statements with respect to Taxes required to be filed with the IRS or any other
federal, foreign, state or provincial taxing authority, domestic or foreign,
including, without limitation, consolidated, combined, unitary and estimated tax
returns.
1(0)
2(0) Other than as disclosed in Schedule 3.17, (i) IMSI and each of its
subsidiaries have filed all Tax Returns required to be filed by it or requests
for extensions to file such Tax Returns have been timely filed, granted and have
not expired, except to the extent that such failures to file or to have
extensions granted that remain in effect do not have a Material Adverse Effect;
(ii) all Tax Returns filed by IMSI and each of its subsidiaries are complete and
accurate except to the extent that such failure to be complete and accurate
would not have a Material Adverse Effect; (iii) IMSI and each of its
subsidiaries have paid (or IMSI has paid on the subsidiaries' behalf) all Taxes
shown as due on such returns (and all Taxes required to be paid whether or not
shown as due on such returns, except to the extent that the failure to pay
unreported Taxes does not have a Material Adverse Effect), and the most recent
financial statements contained in the IMSI SEC Reports reflect an adequate
reserve, in accordance with GAAP, for all Taxes payable by IMSI and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements; (iv) no deficiencies for any Taxes have been
proposed, asserted or assessed against IMSI or any of its subsidiaries that are
not adequately reserved for, except for deficiencies that do not have a Material
Adverse Effect, and no requests for waivers of the time to assess any such Taxes
have been granted or are pending; (v) IMSI has made adequate provisions in
IMSI's books and records for Taxes with respect to its current taxable year;
(vi) the statute of limitations for the assessment of federal and state income
taxes has expired for taxable years prior to the fiscal year ended June 30, 1997
for all material state and consolidated federal income tax return of IMSI or any
subsidiary of the consolidated group that includes IMSI, and there is no claim
or assessment pending against IMSI or any of its subsidiaries for any alleged
deficiency in Taxes (except for assessments assessed prior to the date payment
is required; (vii) to the knowledge of IMSI, there is no audit or investigation
currently being conducted that could cause IMSI or any of its subsidiaries to be
liable for any taxes and there are no agreements in effect to extend the period
of limitations for the assessment or collection of any tax for which IMSI or any
of its subsidiaries may be liable; and (viii) IMSI is not a party to any
agreement that would require it or DCDC to make any excess parachute payment
pursuant to Section 280G of the Code. Section 3.18 Environmental Matters. Except
as set forth in Schedule 3.18 or as do not have a Material Adverse Effect, IMSI
and its subsidiaries: (i) have obtained all approvals which are required to be
obtained under applicable federal, state, foreign or local laws or any
regulation, code, plan, order, decree, judgment, notice or demand letter issued,
entered, promulgated or approved thereunder relating to pollution or protection
of the environment, including laws relating to materials or wastes into ambient
air, surface water, ground water, or land or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants or hazardous or toxic
materials or wastes ("Environmental Laws") by IMSI or any of its subsidiaries
(or their respective agents); (ii) are in compliance with terms and conditions
of such required Approvals; and (iii) have not received notice of any past or
present violation of Environmental Laws or any event, condition, circumstance,
activity, practice, incident, action or plan which is reasonably likely to
interfere with or prevent continued compliance with Environmental Laws or which
would give rise to any common law or statutory liability, or otherwise from the
basis of any claim, action, suit or proceeding, against IMSI or any of its
subsidiaries based on or resulting from the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge or release into the environment, of any pollutant,
contaminant or hazardous or toxic material or waste.
Section 3.19 Intellectual Property.
1() Set forth on Schedule 3.19(a) are descriptions of all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how and tangible or intangible proprietary information or
material that are material to the business of IMSI and its subsidiaries as
currently conducted by IMSI or any of its subsidiaries (the "IMSI Intellectual
Property Rights"). IMSI, directly or indirectly, owns, or is licensed or
otherwise possesses legally enforceable rights to use, all IMSI Intellectual
Property Rights.
1()
2(0) Either IMSI or one of its subsidiaries is the owner of, or the licensee of,
with all right, title and interest in and to (free and clear of any Liens), IMSI
Intellectual Property Rights; in the case of IMSI Intellectual Property Rights
owned by IMSI or any of its subsidiaries, has the right to the use thereof or
the material covered thereby in connection with the services or products in
respect of which the use thereof or the material covered thereby in connection
with the services or products in respect of which IMSI Intellectual Property
Rights are being used; and in the case of IMSI Intellectual Property Rights
licensed by IMSI, the licenses thereof are valid, binding and enforceable in
accordance with their terms, and no default or event of default (or any event
that, with the giving of notice or passage or time, or both, would result in a
default or event of default) by IMSI or any of its subsidiaries or, to the
knowledge of IMSI, by any other party or parties exists under such licenses.
Except as set forth in Schedule 3.19(b) or as do not have a Material Adverse
Effect, no claims with respect to IMSI Intellectual Property Rights have been
asserted or, to the knowledge of IMSI, are threatened by any person (i) to the
effect that the manufacture, sale, license, or use of any product of IMSI or any
of its subsidiaries as now manufactured, used, sold or licensed or proposed for
manufacture, use, sale or license by IMSI or any of its subsidiaries infringes
on any copyright, patent, trademark, service mark or trade secret, (ii) against
the use by IMSI or any of its subsidiaries of any trademarks, service marks,
trade names, trade secrets, copyrights, patents, technology, know-how or
computer software programs and applications used in the business of IMSI and its
subsidiaries as currently conducted, or (iii) challenging the ownership by IMSI
or any of its subsidiaries or the validity of any of IMSI Intellectual Property
Rights. All registered trademarks, service marks and copyrights held by IMSI or
any of its subsidiaries are valid and subsisting, except to the extent that any
such failure to be valid and subsisting do not have a Material Adverse Effect.
Except as set forth in Schedule 3.19(b), to the knowledge of IMSI, there is no
currently unauthorized use, infringement or misappropriation of any of IMSI
Intellectual Property Rights by any third party, including any employee or
former employee of IMSI or any of its subsidiaries. No IMSI Intellectual
Property Right or product of IMSI or any of its subsidiaries is subject to any
outstanding decree, order judgment, or stipulation restricting in any manner the
licensing thereof by IMSI or any of its subsidiaries, except to the extent that
any such restrictions do not have a Material Adverse Effect.
Section 3.20 Certain Distribution Agreements. Except as set forth in Schedule
3.20, neither IMSI nor any of its subsidiaries is a party to any material
agreement (other than distribution agreements) under which IMSI or any of its
subsidiaries is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. For purposes of this Section
3.20, a material agreement shall mean any agreement required to be filed with
the SEC pursuant to Item 601 of Regulation S-K promulgated under the Exchange
Act. Section 3.21 Interested Party Transactions. Except as set forth in Schedule
3.21, no event has occurred, since the date of IMSI's proxy statement dated
December 30, 1998, that would be required to be reported as a Certain
Relationship or Related Transaction, pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
Section 3.22 Insurance. IMSI maintains fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies with reputable insurance carriers, which are in character and
amount substantially similar to that carried by entities engaged in a similar
business and subject to the same or similar perils or hazards, except as would
not reasonably be expected to have a Material Adverse Effect.
Section 1.1
Section 3.23 Brokers. Except as set forth in Schedule 3.23, no broker, finder or
investment banker or other party is entitled to any brokerage, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of IMSI or any of
its subsidiaries or affiliates. The fees and expenses of the entities listed on
Schedule 3.23 will be paid by IMSI.
Section 3.24 Customers and Suppliers. Schedule 3.24 sets forth IMSI's ten
largest customers and suppliers by amounts paid to or by IMSI, as the case may
be, in IMSI's fiscal year ended June 30, 2001.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF DCDC
DCDC hereby represents and warrants to IMSI as follows:
Section 4.1 Organization and Qualification; Subsidiaries. DCDC is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has the requisite corporate power and
authority and is in possession of all Approvals necessary to own, lease and
operate the properties it purports to own, operate or lease and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power, authority or
Approvals does not have a Material Adverse Effect. DCDC is duly qualified or
licensed as a foreign entity to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except where the failure to be so duly qualified or licensed and in
good standing does not have a Material Adverse Effect. DCDC owns all the issued
and outstanding shares of common stock of Digital Creative Development
Corporation, a Delaware corporation ("DCDC - Del"), and DCDC-Del owns all the
issued and outstanding shares of common stock of Keynomics, Inc., a California
corporation, and all the issued and outstanding shares of common stock of Tune
In Movies, a California corporation. Except as set forth in Schedule 4.1,
substantially all of the business and operations of DCDC and its subsidiaries
are conducted through, and substantially all of the properties and assets of
DCDC and its subsidiaries are owned by, DCDC and its subsidiaries.
Section 4.2 Certificate of Incorporation and By-Laws. DCDC has heretofore
furnished to IMSI complete and correct copies of DCDC's Certificate of
Incorporation and By-Laws, as most recently restated and subsequently amend to
date.
Section 1.1
Section 4.3 Capitalization. The authorized capital stock of DCDC consists of:
(i) 75,000,000 shares of common stock and (ii) 2,000,000 shares of preferred
stock, of which 16,100 shares are issued and outstanding. As of August 14, 2001,
32,505,924 shares of DCDC Common Stock were issued and outstanding, all of which
are validly issued, fully paid and nonassessable, and no shares were held in
treasury. Except as set forth in Schedule 4.3(a), there are no options, warrants
or other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of DCDC or any of its
subsidiaries or obligating DCDC or any of its subsidiaries to issue or sell any
shares of capital stock of, or other equity interests in, DCDC or any of its
subsidiaries. Except as disclosed in Schedule 4.3(b), there are no obligations,
contingent or otherwise, of DCDC or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares of DCDC Common Stock or the capital stock
of any subsidiary or to provide funds to or make any investment (in the form of
a loan, capital contribution, guaranty or otherwise) in any such subsidiary or
any other entity. Except as set forth in Schedule 4.3(c), all of the outstanding
shares of capital stock of each of DCDC's subsidiaries are duly authorized,
validly issued, fully paid and nonassessable, and all such shares are owned by
DCDC or a subsidiary of DCDC free and clear of all liens.
Section 4.4 Recommendation of the Board of Directors. The Board of Directors of
DCDC has determined that the Merger is fair to and in the best interests of
DCDC's stockholders and has resolved to recommend acceptance thereof by DCDC's
stockholders. This Agreement and the Merger have been approved by the Board of
Directors of DCDC and the Board of Directors has resolved to recommend approval
thereof by DCDC's stockholders. Prior to approving this Agreement, the Board of
Directors of DCDC considered all alternative transactions available to it.
Section 4.5 Authority Relative to this Agreement. DCDC has the requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by DCDC and
the consummation by DCDC of the transactions contemplated hereby have been duly
and validly authorized by the requisite corporate action on the part of DCDC and
no other corporate proceedings on the part of DCDC is necessary to authorize
this Agreement or to consummate the transactions contemplated thereby. This
Agreement has been duly and validly executed and delivered by DCDC and assuming
the due authorization, execution and delivery by DCDC, constitutes a legal,
valid and binding obligation of DCDC enforceable against it in accordance with
its terms, except as such enforceability may be limited or affected by (i)
bankruptcy, insolvency, reorganization, moratorium, liquidation, arrangement,
fraudulent transfer, fraudulent conveyance and other similar laws (including,
without limitation, court decisions) now or hereafter in effect and affecting
the rights and remedies of creditors generally or providing for the relief of
debtors, (ii) the refusal of a particular court to grant equitable remedies,
including, without limitation, specific performance and injunctive relief, and
(iii) general principles of equity (regardless of whether such remedies are
sought in a proceeding in equity or at law).
Section 4.6 No Conflict; Required Filings and Consents.
Section 1.1
1(0) Schedule 4.6(a) lists each material agreement, contract or other instrument
(including all amendments thereto) to which DCDC or any of its subsidiaries is a
party or by which any of them is bound and which would be required pursuant to
the Exchange Act and the rules and regulations thereunder to be filed as an
exhibit to an Annual Report on Form 10-KSB, a Quarterly Report on Form 10-QSB or
a Current Report on Form 8-K. DCDC has made available to IMSI, on or prior to
the date hereof true, correct and complete copies in all material respects of
each such agreement, contract, instrument and amendment. 2() Except as disclosed
in Schedule 4.6(b), (i) neither DCDC nor any of its subsidiaries has breached,
is in default under, or has received written notice of any breach of or default
under, any of the agreements, contracts or other instruments referred to in
Section 4.6(a), (ii) to the knowledge of DCDC, no other party to any of the
agreements, contracts or other instruments referred to in Section 4.6(a) has
breached or is in default of any of its obligations thereunder, and (iii) each
of the agreements, contracts and other instruments referred to in Section 4.6(a)
is in full force and effect, except in each case for breaches, defaults or
failures to be in full force and effect that do not have a Material Adverse
Effect.
3(0) Except as set forth in Schedule 4.6(c), the execution and delivery of this
Agreement by DCDC does not, and the performance of this Agreement by DCDC and
the consummation by DCDC of the transactions contemplated hereby will not: (i)
conflict with or violate the Certificate of Incorporation or By-Laws of DCDC,
(ii) conflict with or violate any Laws applicable to DCDC or any of its
subsidiaries or by which its or any of their respective properties are bound or
affected, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
impair DCDC's or any of its subsidiaries' rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of DCDC or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which DCDC or any of its subsidiaries is a party or by which DCDC or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except in the case of clauses (ii) and (iii) for any such conflicts,
violations, breaches, defaults or other occurrences that do not have a Material
Adverse Effect. 4(0) The execution and delivery of this Agreement by DCDC does
not, and the performance of this Agreement by DCDC will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any governmental or regulatory authority, domestic or foreign, except (i)
for applicable requirements, if any, of the Securities Act, the Exchange Act,
the Blue Sky Laws, the legal requirements of any foreign jurisdiction requiring
notification in connection with the Merger and the transactions contemplated
hereby and the filing and recordation of appropriate merger or other documents
as required by the Utah Revised B.C.A. and the California Code, and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, either (A) would not prevent or materially
delay consummation of the Merger or otherwise prevent or materially delay DCDC
from performing its obligations under this Agreement, or (B) do not have a
Material Adverse Effect. Section 4.7 Compliance; Permits.
Section 1.1
1(0) Except as disclosed in Schedule 4.7(a), neither DCDC nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any Law
applicable to DCDC or any of its subsidiaries or by which its or any of their
respective properties is bound or affected or (ii) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which DCDC or any of its subsidiaries is a party or
by which DCDC or any of its subsidiaries or its or any of their respective
properties is bound or affected, except, in each case, for any such conflicts,
defaults or violations which do not have a Material Adverse Effect.
2() Except as disclosed in Schedule 4.7(b), DCDC and its subsidiaries hold all
permits, licenses, easements, variances, exemptions, consents, certificates,
orders and approvals from governmental authorities which are material to the
operation of the business of DCDC and its subsidiaries taken as a whole as it is
now being conducted (collectively, the "DCDC Permits"). DCDC and its
subsidiaries are in compliance with the terms of the DCDC Permits, except where
the failure to so comply does not have a Material Adverse Effect.
Section 4.8 SEC Filings; Financial Statements.
1() DCDC has filed all forms, reports and documents required to be filed with
the SEC and has made available to IMSI copies of: (i) its Annual Report on Form
10-KSB for the fiscal year ended June 30, 2000, (ii) its Quarterly Report on
Form 10-QSB for the period ended March 31, 2001, (iii) all proxy statements
relating to DCDC's meetings of stockholders (whether annual or special) since
January 1, 1998, and (iv) all other reports or registration statements filed by
DCDC with the SEC since January 1, 1998, and (v) all amendments and supplements
to all such reports and registration statements filed by DCDC with the SEC
pursuant to the requirements of the Securities Act or the Exchange Act ((i) -
(iv) collectively, the "DCDC SEC Reports"). Except as disclosed in Schedule 4.8,
the DCDC SEC Reports (i) were prepared as to form in all material respects in
accordance with the requirements of the Securities Act or the Exchange Act, as
the case may be and (ii) did not at the time they were filed (or if amended or
superseded by a subsequent filing, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
DCDC's subsidiaries is required to file any forms, reports or other documents
with the SEC. 2() Each of the consolidated financial statements (including in
each case, any related notes thereto) contained in the DCDC SEC Reports was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes thereto), and each fairly presents in all material respects the
consolidated financial position of DCDC and its subsidiaries as at the
respective dates thereof and the consolidated results of its operations and cash
flows and stockholders equity for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments.
1(0)
Section 4.9 Absence of Certain Changes or Events. Except as set forth in
Schedule 4.9, since June 30, 2000, DCDC has conducted its business in the
ordinary course and there has not occurred: (i) any Material Adverse Effect;
(ii) any amendments or changes in the Certificate of Incorporation or By-Laws of
DCDC or similar organizational documents of its subsidiaries; (iii) any damage
to, destruction or loss of any material asset of DCDC or any of its subsidiaries
(whether or not covered by insurance); (iv) any material change by DCDC in its
accounting methods, principles or practices; (v) any material revaluation by
DCDC of any of its or any of its subsidiaries' assets, including, without
limitation, writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any sale, pledge,
disposition of or encumbrance upon any asset of DCDC or any of its subsidiaries
(except (A) sales of assets in the ordinary course of business, (B) dispositions
of obsolete or worthless assets, and (C) sales of immaterial assets not in
excess of $150,000 in the aggregate; (vii) any dividend or distribution with
respect to any capital stock of DCDC; (viii) cancellation or notice of
cancellation or surrender of any policy of insurance (which has not been cured
by payment of the premium, purchase of an equivalent policy, or otherwise)
relating to or affecting DCDC's assets; (ix) any payment, discharge or
satisfaction of any claim, lien, obligation, encumbrance or liability (whether
absolute, unliquidated, other than claims, liens, encumbrances or liabilities
(A) that are reflected or reserved against in the Financial Statements or (B)
that were incurred and paid, discharged or satisfied since such date in the
ordinary course of business consistent with past practices; (x) any default on
any material claim, liability or obligation; (xi) any prepayment, advance or
other deposit made by customers of DCDC with respect to products or services
contracted for but not provided as of the date hereof or any other unearned
income other than prepayments, advances or deposits consistent with past
practices; or (xii) there has been no increase by more than $10,000 in the
compensation of any of DCDC's officers or employees who earn more than $100,000
annually or loans made by DCDC to any of its stockholder, directors, officers or
employees.
Section 4.10 No Undisclosed Liabilities. Except as disclosed in Schedule 4.10,
neither DCDC nor any of its subsidiaries has any liabilities (absolute, accrued,
contingent or otherwise), except liabilities (i) in the aggregate adequately
provided for in DCDC's balance sheet (including any related notes thereto) as of
March 31, 2001 including in DCDC's Quarterly Report on Form 10-QSB for the
fiscal quarter ended March 31, 2001 (the "DCDC Balance Sheet"), (ii) incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected on the DCDC Balance Sheet, (iii) incurred
since March 31, 2001, in the ordinary course of business, (iv) incurred in
connection with this Agreement, or (v) which do not have a Material Adverse
Effect.
Section 1.1
Section 4.11 Absence of Litigation. Set forth in Schedule 4.11 are descriptions
of all claims, actions, suits, proceedings or investigations pending or, to the
knowledge of DCDC or any of its subsidiaries, or any properties or rights of
DCDC or any of its subsidiaries, before or by any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, and, in the case of any such claims for damages, seek damages in excess
of $50,000, other than claims, actions, suits, proceedings or investigations
covered by one or more insurance policies as to which the issuer or issuers have
indicated their intentions in writing to defend and pay in the aggregate damages
up to the amount claimed ("DCDC Litigation"). Except as set forth in Schedule
4.11, no such DCDC Litigation would have a Material Adverse Effect if the
opposing party were to prevail with respect to any of its claims.
Section 4.12 Employment Agreements; Change in Control Payments. Except as set
forth in Schedule 4.12, neither DCDC nor any of its subsidiaries is a party to
any written or oral employment or consulting contract or other contract for
services involving a payment of more than $50,000 annually and that is not
terminable without a cost to DCDC of more than $50,000 or at will. Except as set
forth in Schedule 4.12, neither DCDC nor any of its subsidiaries has any plans,
programs or agreements to which they are parties or to which they are subject,
pursuant to which payments in excess of $50,000 (or acceleration of material
benefits) may be required upon, or may become payable directly or indirectly as
a result of, the transactions contemplated by this Agreement or a change of
control of DCDC.
Section 1.1
Section 4.13 Employee Benefit Plans. Except as set forth in Schedule 4.13, DCDC
has no employee pension plans (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), any material
employee welfare plans (as defined in Section 3(1) of ERISA), or any material
bonus, stock option, stock purchase, incentive, deferred compensation,
supplemental retirement, severance or similar fringe or employee benefit plans,
programs or arrangements (collectively, the "DCDC Employee Plans"). DCDC has
delivered to IMSI: (i) a copy of each DCDC Employee Plan and each amendment
thereto, (ii) annual reports and actuarial reports filed with respect to each
DCDC Employee Plan since December 31, 1998, (iii) summary plan descriptions and
other communications to employees relating to each DCDC Employee Benefit Plan;
(iv) all trust agreements and other similar documents or agreements relevant to
the organization of any such DCDC Employee Plan and all separate financial
statements of such DCDC Employee Plan and all separate financial statements of
such DCDC Employee Plan; and (v) all letters from the IRS approving or
confirming the tax-exempt status of any such DCDC Employee Plan. Except in each
case as set forth in Schedule 4.13 or where the liability does not have a
Material Adverse Effect, (i) there has been no "prohibited" transaction," as
such term is defined in Section 406 of ERISA and Section 4875 of the Code, with
respect to any DCDC Employee Plans which would result in liability of DCDC or
any of its subsidiaries; (ii) all DCDC Employee Plans are in substantial
compliance with the requirements prescribed by applicable Laws (including ERISA
and the Code), currently in effect with respect thereto (including all
applicable requirements for notification to participants or the Department of
Labor, Pension Benefit Guaranty Corporation (the "PBGC"), Internal Revenue
Service (the "IRS") or Secretary of the Treasury), and DCDC and each of its
subsidiaries have performed all material obligations required to be performed by
them under, are not in default under or violation of, and have no knowledge of
any material default or violation by any other party to, any of the DCDC
Employee Plans; (iii) each DCDC Employee Plan intended to qualify under Section
401(a) of the Code and each trust intended to qualify under Section 501(a) of
the Code is the subject of a favorable determination; (iv) all contributions
required to be made to any DCDC Employee Plan pursuant to Section 412 of the
Code or the terms of DCDC Employee Plan or any collective bargaining agreement,
have been made on or before their due dates; (v) with respect to each DCDC
Employee Plan, no "reportable event" within the meaning of Section 4043 of ERISA
excluding any such event for which the 30-day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; (vi) no withdrawal (including
a partial withdrawal) has occurred with respect to any multiemployer plan within
the meaning set forth in Section 3(37) of ERISA resulting in withdrawal
liability for DCDC or any of its subsidiaries; (vii) neither DCDC nor any of its
subsidiaries has incurred any material liability under Title IV of ERISA (other
than liability for premium payments to the PBGC, and contributions not in
default to the respective plans, arising in the ordinary course); (viii) the
PBGC has not instituted any termination proceedings with respect to any DCDC
Employee Plan, and no material risk of such proceedings being instituted exists;
(ix) each DCDC Employee Plan subject to Title IV of ERISA is adequately funded
to meet accrued benefit obligations; and (x) no immediate vesting or
acceleration of any rights or the payment of any benefits will occur under any
DCDC Employee Plan as a result of the consummation of the transactions
contemplated by this Agreement.
Section 4.14 Labor Matters. Except as set forth in Schedule 4.14: (i) there are
no claims or proceedings pending or, to the knowledge of DCDC, threatened,
between DCDC or any of its subsidiaries and any of their respective employees,
which claims or proceedings would have a Material Adverse Effect; (ii) neither
DCDC nor any of its subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by DCDC
or any of its subsidiaries, and DCDC does not know of any activities or
proceedings of any labor union to organize any such employees; (iii) DCDC has no
knowledge of any strikes, slowdowns, work stoppages, lockouts, or threats
thereof, by or with respect to any employees of DCDC or any of its subsidiaries;
and (iv) DCDC is in compliance with all applicable labor laws, rules,
regulations and orders, except where the failure to so comply does not have a
Material Adverse Effect.
Section 1.1
Section 4.15 Registration Statement; Joint Proxy Statement/Prospectus. Subject
to the accuracy of IMSI's representations in Section 3.15, the registration
statement (the "Registration Statement") pursuant to which IMSI Common Stock to
be issued in the Merger will be registered with the SEC shall not, at the time
the Registration Statement (including any amendments or supplements thereto) is
declared effective by the SEC, 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 included therein not misleading. The information
supplied by DCDC for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus will not, on the date the Joint Proxy Statement/Prospectus
(or any amendment thereof or supplement thereto) is first mailed to
stockholders, at the time of DCDC's and IMSI's respective Stockholders Meetings,
or at the Effective Time, contain any statement, which at such time and in light
of the circumstances under which it shall be made, is false or misleading with
respect to any material fact, or shall omit to state any material fact required
to be stated therein or necessary in order to make the statements made therein
not false or misleading, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for DCDC's and IMSI's respective Stockholders' Meetings which has become
false or misleading. If at any time prior to the Effective Time any event
relating to DCDC or any of its respective affiliates, officers or directors
should be discovered by DCDC which is required to be set forth in an amendment
to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, DCDC shall promptly inform IMSI. Notwithstanding the
foregoing, DCDC makes no representation or warranty with respect to any
information supplied by IMSI which is contained or incorporated by reference in
any of the foregoing documents. Section 4.16 Title to Property. Except as set
forth in Schedule 4.16, DCDC and each of its subsidiaries have good and
defensible title to all of their properties and assets, free and clear of all
liens, charges and encumbrances, except liens for taxes not yet due and payable
and such liens or other imperfections of title, which do not have a Material
Adverse Effect; and all leases pursuant to which DCDC or any of its subsidiaries
lease from other real or personal property are in good standing, valid,
effective and enforceable in accordance with their respective terms, and there
is not under any of such leases any existing default or event of default (or
event which with notice or lapse of time, or both, would constitute a default)
by DCDC or, to the knowledge of DCDC, by other party or parties to such leases,
except where the lack of such good standing, validity, effectiveness or
enforceability or the existence of such default or event of default does not
have a Material Adverse Effect.
Section 1.1
Section 4.17 Taxes. Other than as disclosed in Schedule 4.17, (i) DCDC and each
of its subsidiaries have filed all Tax Returns required to be filed by it or
requests for extensions to file such Tax Returns have been timely filed, granted
and have not expired, except to the extent that such failures to file or to have
extensions granted that remain in effect do not have a Material Adverse Effect;
(ii) all Tax Returns filed by DCDC and each of its subsidiaries are complete and
accurate except to the extent that such failure to be complete and accurate
would not have a Material Adverse Effect; (iii) DCDC and each of its
subsidiaries have paid (or DCDC has paid on the subsidiaries' behalf) all Taxes
shown as due on such returns (and all Taxes required to be paid whether or not
shown as due on such returns, except to the extent that the failure to pay
unreported Taxes does not have a Material Adverse Effect), and the most recent
financial statements contained in the DCDC SEC Reports reflect an adequate
reserve, in accordance with GAAP, for all Taxes payable by DCDC and its
subsidiaries for all taxable periods and portions thereof accrued through the
date of such financial statements; (iv) no deficiencies for any Taxes have been
proposed, asserted or assessed against DCDC or any of its subsidiaries that are
not adequately reserved for, except for deficiencies that do not have a Material
Adverse Effect, and no requests for waivers of the time to assess any such Taxes
have been granted or are pending; (v) DCDC has made adequate provisions in its
books and records for Taxes with respect to its current taxable year; (vi) the
statute of limitations for the assessment of federal and state income taxes has
expired for taxable years prior to January 1, 1996 for all material state and
consolidated federal income tax returns of DCDC or any subsidiary of the
consolidated group that includes DCDC, and there is no claim or assessment
pending against DCDC or any of its subsidiaries for any alleged deficiency in
Taxes (except for assessments assessed prior to the date payment is required);
(vii) to the knowledge of DCDC, there is no audit or investigation currently
being conducted that could cause DCDC or any of its subsidiaries to be liable
for any Taxes and there are no agreements in effect to extend the period of
limitations for the assessment or collection of any tax for which DCDC or any of
its subsidiaries may be liable; and (viii) DCDC is not a party to any agreement
that would require it to make any excess parachute payment pursuant to Section
280G of the Code. Section 4.18 Environmental Matters. Except as set forth in
Schedule 4.18 or as do not have a Material Adverse Effect, DCDC and its
subsidiaries: (i) have obtained all Approvals which are required to be obtained
under applicable Environmental Laws by DCDC or any of its subsidiaries (or their
respective agents); (ii) are in compliance with terms and conditions of such
required Approvals; and (iii) have not received notice of any past or present
violation of Environmental Laws or any event, condition, circumstance, activity,
practice, incident, action or plan which is reasonably likely to interfere with
or prevent continued compliance with Environmental Laws or which would give rise
to any common law or statutory liability, or otherwise form the basis of any
claim, action, suit or proceeding, against DCDC or any of its subsidiaries based
on or resulting from the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling, or the emission, discharge or release
into the environment, of any pollutant, contaminant or hazardous or toxic
material or waste.
Section 4.19 Intellectual Property, Domestic.
1(0) Set forth on Schedule 4.19(a) are descriptions of all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how and tangible or intangible proprietary information or
material that are material to the business of DCDC and its subsidiaries as
currently conducted by DCDC or any of its subsidiaries (the "DCDC Intellectual
Property Rights"). DCDC or its subsidiaries, directly or indirectly, owns, or is
licensed or otherwise possesses legally enforceable rights to use, all the DCDC
Intellectual Property Rights.
1()
2(0) Except as set forth on Schedule 4.19(b), either DCDC or one of its
subsidiaries is the owner of, or the licensee of, with all right, title and
interest in and to (free and clear of any Liens), the DCDC Intellectual Property
Rights; in the case of the DCDC Intellectual Property Rights owned by DCDC or
any of its subsidiaries, has the right to the use thereof or the material
covered thereby in connection with the services or products in respect of which
the use thereof or the material covered thereby in connection with the services
or products in respect of which the DCDC Intellectual Property Rights are being
used; and in the case of the DCDC Intellectual Property Rights licensed by DCDC
or any subsidiary, the licenses thereof are valid, binding and enforceable in
accordance with their terms, and no default or event of default (or any event
that, with the giving of notice or passage or time, or both, would result in a
default or event of default) by DCDC or any of its subsidiaries or, to the
knowledge of DCDC, by any other party or parties exists under such licenses.
Except as set forth in Schedule 4.19(b) or as do not have a Material Adverse
Effect, no claims with respect to the DCDC Intellectual Property Rights have
been asserted or, to the knowledge of DCDC, are threatened by any person (i) to
the effect that the manufacture, sale, license, or use of any product of DCDC or
any of its subsidiaries as now manufactured, used, sold or licensed or proposed
for manufacture, use, sale or license by DCDC or any of its subsidiaries
infringes on any copyright, patent, trademark, service mark or trade secret,
(ii) against the use by DCDC or any of its subsidiaries of any trademarks,
service marks, trade names, trade secrets, copyrights, patents, technology,
know-how or computer software programs and applications used in the business of
DCDC and its subsidiaries as currently conducted, or (iii) challenging the
ownership by DCDC or any of its subsidiaries or the validity of any of the DCDC
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by DCDC or any of its subsidiaries are valid and subsisting,
except to the extent that any such failure to be valid and subsisting do not
have a Material Adverse Effect. Except as set forth in Schedule 4.19(b), to the
knowledge of DCDC, there is no currently unauthorized use, infringement or
misappropriation of any of the DCDC Intellectual Property Rights by any third
party, including any employee or former employee of DCDC or any of its
subsidiaries. No DCDC Intellectual Property Right or product of DCDC or any of
its subsidiaries is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by DCDC or any of
its subsidiaries, except to the extent that any such restrictions do not have a
Material Adverse Effect.
Section 4.20 Certain Distribution Agreements. Except as set forth in Schedule
4.20, neither DCDC nor any of its subsidiaries is a party to any material
agreement (other than distribution agreements) under which DCDC or any of its
subsidiaries is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market. For purposes of this Section
4.20, a material agreement shall mean any agreement required to be filed with
the SEC pursuant to Item 601 of Regulation S-K promulgated under the Exchange
Act. Section 4.21 Interested Party Transactions. Except as set forth in Schedule
4.21, no event has occurred, since the date of DCDC's latest proxy statement,
that would be required to be reported as a Certain Relationship or Related
Transaction, pursuant to Item 404 of Regulation S-B promulgated by the SEC.
Section 4.22 Insurance. DCDC maintains fire and casualty, general liability,
business interruption, product liability and sprinkler and water damage
insurance policies with reputable insurance carriers, which are in character and
amount substantially similar to that carried by entities engaged in a similar
business and subject to the same or similar perils or hazards, except as would
not reasonably be expected to have a Material Adverse Effect.
Section 4.23 Brokers. Except as set forth in Schedule 4.23, no broker, finder or
investment banker or other party is entitled to any brokerage, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of DCDC or any of
its subsidiaries or affiliates. The fees and expenses of the entities listed on
Schedule 4.23 will be paid by DCDC.
Section 4.24 Customers and Suppliers. Schedule 4.24 sets forth DCDC's ten
largest customers and suppliers by amounts paid to or by DCDC, as the case may
be, in DCDC's fiscal year ended June 30, 2001.
ARTICLE 5
ARTICLE 1
CONDUCT OF BUSINESS PENDING THE MERGER
Section 5.1 Conduct of Business by IMSI Pending the Merger. IMSI covenants and
agrees that, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Effective Time,
unless DCDC shall otherwise agree in writing and except as set forth in Schedule
5.1 or as contemplated by this Agreement, IMSI shall conduct its business, and
shall cause the businesses of its subsidiaries to be conducted, only in the
ordinary course of business; and IMSI shall use all reasonable efforts to
preserve substantially the business organization of IMSI and its subsidiaries,
to keep available the services of the present officers, employees and
consultants of IMSI and its subsidiaries and to preserve the present
relationships of IMSI and its subsidiaries with customers, suppliers and other
persons with which IMSI or any of its subsidiaries has significant business
relations. By way of amplification and not limitation, neither IMSI nor any of
its subsidiaries shall, during the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or the
Effective Time, directly or indirectly do, or propose to do, any of the
following without the prior written consent of DCDC: 1() amend or otherwise
change the Certificate of Incorporation or By-Laws of IMSI or similar
organizational documents of any of its subsidiaries; 2() issue, sell, pledge,
dispose or encumber, or authorize the issuance, sale, pledge, disposition or
encumbrance of, any shares of capital stock of any, class, or any options,
warrants, convertible securities or other weights of any kind to acquire any
shares of capital stock, or any other ownership interest (including, without
limitation, any phantom interest) in IMSI or any of its subsidiaries. 3(0) (i)
declare, set aside, make or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of any of its
capital stock, except that a wholly owned subsidiary of IMSI may declare and pay
a dividend to its parent, (ii) split, combine or reclassify any of its capital
stock, or (iii) amend the terms or change the period of exercisability of,
purchase, repurchase, redeem or otherwise require, or permit any subsidiary to
purchase, repurchase, redeem or otherwise acquire, any of its securities or any
securities of any of its subsidiaries, including, without limitation, shares of
IMSI Common Stock or any option, warrant or right, directly or indirectly, to
acquire shares of IMSI Common Stock, or provide that upon the exercise or
conversion of any such option, warrant or right the holder thereof shall receive
cash; 4(0) sell, pledge, dispose of or encumber any assets of IMSI or any of its
subsidiaries (except for (i) sales of assets in the ordinary course of business;
and (ii) dispositions of obsolete or worthless assets); 1(0)
5(0) (i) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership or other business organization or division thereof;
(ii) except in the ordinary course of business, incur or assume any debt not
currently outstanding; (iii) except in the ordinary course of business, assume,
guarantee or endorse or otherwise as an accommodation become responsible for the
obligations of any person (other than IMSI or any of its wholly owned
subsidiaries); (iv) except in the ordinary course of business, make any loans or
advances to any person (other than IMSI or its wholly owned subsidiaries); (v)
enter into or amend any material contract or agreement; (vi) authorize any
capital expenditures or purchases of fixed assets in excess of $50,000 in the
aggregate for IMSI and its subsidiaries taken as a whole; or (vii) enter into or
amend any contract, agreement, commitment or arrangement to effect any of the
matters prohibited by this Section 5.1(e); or 6() (i) increase the compensation
payable or to become payable to its officers or employees, except for increases
in salary or wages of employees of IMSI or any of its subsidiaries who are not
officers of IMSI in the ordinary course of business; (ii) grant any severance or
termination pay to, or enter into any employment or severance agreement with any
director, officer or other employee of IMSI or any of its subsidiaries; or (iii)
establish, adopt, enter into or amend any collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, agreement, trust, fund, policy or arrangement for the benefit of any
current or former directors, officers or employees, except, in each case, as may
be required by law.
Section 5.2 No Solicitation.
1() IMSI shall not, directly or indirectly, through any officer, director,
employee representative or agent of IMSI or any of its subsidiaries, (i)
solicit, initiate or encourage any inquiries or proposals regarding any mergers,
sale of substantial assets, sale of any of the outstanding shares of capital
stock (including without limitation by way of a tender offer) or similar
transactions involving IMSI other than the Merger (any of the foregoing
inquiries or proposals being referred to herein as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any nonpublic
information to any person relating to, any Acquisition Proposal, or (iii) agree
to, approve or recommend any Acquisition Proposal. 2() IMSI shall promptly
notify DCDC after receipt of any Acquisition Proposal, or any material
modification of or amendment to any Acquisition Proposal. Such notice to DCDC
shall indicate the name of the person making such Acquisition Proposal and the
terms and conditions of such Acquisition Proposal.
ARTICLE 6
CONDITIONS TO THE MERGER
Section 6.1 Conditions to Obligation of Each Party to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Effective Time of the following conditions:
Section 1.1
1(0) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose and no similar proceeding
in respect to the Joint Proxy Statement/Prospectus shall have been initiated or
threatened by the SEC.
2() Stockholder Approval. The Merger shall have been approved and this Agreement
shall have been adopted by the requisite vote of the stockholders of DCDC, the
stockholders of IMSI and the stockholders of Merger Sub.
3(0) Union Bank of California Loan. DCDC shall have purchased the loan owned by
IMSI to Union Bank of California.
4(0) Consents; Approvals. All consents, waivers, approvals, or authorizations of
third parties to the consummation of the Merger and the other transactions
contemplated hereby shall have been obtained, other than those which, if not
obtained, do not have a Material Adverse Effect. 5(0) No Injunctions or
Restraints; Illegality. No statute, rule, regulation, executive order, decree,
ruling, temporary restraining order, preliminary or permanent injunction or
other order shall have been enacted, entered, promulgated, enforced or issued by
any court or governmental authority of competent jurisdiction or shall otherwise
be in effect which prohibits, restrains, enjoins or restricts the consummation
of the Merger. 6(0) Blue Sky Laws. All material permits and other authorizations
necessary under the Blue Sky Laws to issue IMSI Common Stock pursuant to the
Merger shall have been obtained. Section 6.2 Additional Conditions to
Obligations of DCDC. The obligation of DCDC to effect the Merger is also subject
to the following conditions: 1() Representations and Warranties. The
representations and warranties of IMSI contained in this Agreement shall be true
and correct in all material respects at and as of the Effective Time as if made
at and as of such time, except for: (i) changes contemplated by this Agreement,
and (ii) those representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date), with
the same force and effect as if made at and as of the Effective Time, and DCDC
shall have received a certificate to such effect signed by the Chief Executive
Officer and the President of IMSI. 2() Agreements and Covenants. IMSI shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or prior to
the Effective Time, and DCDC shall have received a certificate to such effect
signed by the Chief Executive Officer and the President of IMSI. 1(0)
Section 6.3 Additional Conditions to Obligation of IMSI. The obligation of IMSI
to effect the Merger is also subject to the following conditions: 1()
Representations and Warranties. The representations and warranties of DCDC
contained in this Agreement shall be true and correct in all materials respects
on and as of the Effective Time, except for (i) changes contemplated by this
Agreement, and (ii) those representations and warranties which address matters
only as of a particular date (which shall have been true and correct as of such
date), with the same force and effect as if made on and as of the Effective
Time, and IMSI shall have received a certificate to such effect signed by the
Chief Executive Officer and President of DCDC.
2() Agreements and Covenants. DCDC shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it at or prior to the Effective Time, and
IMSI shall have received a certificate to such effect signed by the Chief
Executive Officer and the President of DCDC.
ARTICLE 7
TERMINATION
Section 7.1 Termination. This Agreement may be terminated and abandoned at any
time prior to the Effective Time, notwithstanding approval thereof by the
stockholders of DCDC, the stockholders of IMSI or the stockholders of Merger
Sub, solely as follows:
1() by mutual written consent duly authorized by the Boards of Directors of DCDC
and IMSI;
2() by DCDC or IMSI if a court of competent jurisdiction, or a governmental,
regulatory or administrative agency or commission shall have issued a
nonappealable final order, decree or ruling or taken any other action having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; 1(0)
3(0) by DCDC if: (i) the Board of Directors of IMSI shall fail to recommend the
Merger or shall withdraw, modify or change its recommendation of the Merger in
any manner adverse to DCDC or shall have resolved to do any of the foregoing;
(ii) after the receipt by IMSI of an offer or proposal involving an Alternative
Transaction, as defined below, DCDC requests in writing that the Board of
Directors of IMSI reconfirm its recommendation of this Agreement to the
stockholders of IMSI and the Board of Directors of IMSI fails to do so within 10
days after its receipt of DCDC's request; (iii) the Board of Directors of IMSI
shall have recommended to the stockholders of IMSI an Alternative Transaction,
as defined below; (iv) a tender offer or exchange offer constituting an
Alternative Transaction, as defined below, is commenced and the Board of
Directors of IMSI recommends that the stockholders of IMSI tender their shares
in such tender or exchange offer; or (v) for any reason IMSI fails to use its
best efforts to call and hold the IMSI Stockholders Meeting; 4() by DCDC, if
there has been (i) a material misrepresentation or breach of warranty in the
representations and warranties made herein by IMSI, or (ii) a material default
in the performance of an agreement made by IMSI contained in Article V or
Article VI; 5(0) by IMSI if: (i) the Board of Directors of DCDC shall fail to
recommend the Merger or shall withdraw, modify or change its recommendation of
the Merger in any manner adverse to IMSI or shall have resolved to do any of the
foregoing; (ii) after the receipt by DCDC of an offer or proposal involving an
Alternative Transaction, as defined below, IMSI requests in writing that the
Board of Directors of DCDC reconfirm its recommendation of this Agreement to the
stockholders of DCDC and the Board of Directors of DCDC fails to do so within 10
days after its receipt of IMSI's request; (iii) the Board of Directors of DCDC
shall have recommended to the stockholders of DCDC an Alternative Transaction,
as defined below; or (iv) for any reason DCDC fails to use its best efforts to
call and hold the DCDC Stockholders Meeting; or 6(0) by IMSI, if there has been
(i) a material misrepresentation or breach of warranty in the representations
and warranties made herein by DCDC, or (ii) a material default in the
performance of an agreement made by DCDC contained in Article VI.
As used herein, "Alternative Transaction" means any of (i) a
transaction or series of transactions pursuant to which any person (or group of
persons) other than the parties hereto or any of their subsidiaries or any
affiliate of any thereof (a "Third Party") acquires or would acquire more than
fifty percent (50%) of the outstanding IMSI Shares, whether from the parties
hereto or pursuant to a tender offer or exchange offer or otherwise, (ii) any
acquisition or proposed acquisition of the parties hereto or any of their
subsidiaries by a merger or other business combination (including any so-called
"merger of equals" and whether or not the parties hereto or any of their
subsidiaries is the entity surviving any such merger or business combination) or
(iii) any other transaction pursuant to which any Third Party acquires or would
acquire control of assets (including for this purpose the outstanding equity
securities of subsidiaries of the parties hereto and any entity surviving any
merger or business combination including any of them) of the parties hereto or
any of their subsidiaries having a fair market value equal to more than fifty
percent (50%) of the fair market value of all the assets of the parties and
their subsidiaries, taken as a whole, immediately prior to such transaction.
Section 7.2 Effect of Termination.
1() In the event of the termination of this Agreement pursuant to Section 7.1,
this Agreement shall forthwith become void and there shall be no liability on
the part of any party hereto or any of its affiliates, directors, officers or
stockholders except as set forth in Section 7.3 hereof. Nothing herein shall
relieve any party from liability for any breach of this Agreement occurring
prior to termination.
1()
2(0) The Confidentiality Agreement shall survive termination as set forth
therein.
Section 7.3 Fees and Expenses.
1() Except as set forth in this Section 7.3, all fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses, whether or not the Merger is
consummated. 2() IMSI shall pay DCDC a fee of $500,000, if DCDC terminates this
Agreement pursuant to Section 7.1(c) or (d). 3(0) DCDC shall pay IMSI a fee of
$500,000, if IMSI terminates this Agreement pursuant to Section 7.1(e) or (f).
4(0) The fee payable pursuant to Section 7.3(b) or (c) shall be payable
immediately upon demand of DCDC or IMSI, as the case may be, and if not paid
immediately upon demand, shall accrue interest at the rate of twelve percent
(12%) per annum until paid.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Effectiveness of Representations, Warranties and Agreements, Etc.
1() Except as otherwise provided in this Section 8.1, the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, as the case may be, except that the representations set
forth in Sections 3.10 and 3.17 shall survive the Effective Time indefinitely
and those set forth in Section 7.3 shall survive such termination (whether at
the Effective Time or pursuant to Section 7.1) indefinitely. Nothing in this
Section 8.1(a) shall relieve any party for any breach of any representation,
warranty or agreement in this Agreement occurring prior to termination.
2() Any disclosure made with reference to one or more Sections of the IMSI
Disclosure Schedule or the DCDC Disclosure Schedule shall be deemed disclosed
only with respect to such Section unless such disclosure is made in such a way
as to make its relevance to the information called for by another Section of
such schedule readily apparent in which case such disclosure shall be deemed to
have been included in such other Section, notwithstanding the omission of a
cross reference thereto.
1(0)
Section 8.2 Notices. All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
if and when delivered personally or by overnight courier to the parties at the
following addresses or sent by electronic transmission, with confirmation of
receipt, to the telecopy numbers specified below (or at such other address or
telecopy number for a party as shall be specified by like notice):
1() If to DCDC:
Digital Creative Development Corporation
67 Irving Place North, Fourth Floor
New York, NY 10003
Attention: Martin Wade
Telephone No. (212) 387-7700
Telecopier No. (212) 388-9897
with a copy to:
Lehman & Eilen, LLP
50 Charles Lindbergh Boulevard, Suite 505
Uniondale, New York 11553
Attention: Hank Gracin, Esq.
Telephone No. (516) 222-0888
Telecopier No. (516) 222-0948
2() If to IMSI:
International Microcomputer Software, Inc.
75 Rowland Way
Novato, California 94945
Attention: Geoffrey B. Koblick
Telephone No. (415) 878-4000
Telecopier No. (415) 897-2544
with a copy to:
David M. Greenberg, P.C.
60 East Sir Francis Drake Boulevard
Larkspur, California 94939
Attention: David M. Greenberg, Esq.
Telephone No. (415) 925-8870
Telecopier No. (415) 925-8875
3() If to Merger Sub:
Digital Creative Development Corporation
67 Irving Place North, Fourth Floor
New York, NY 10003
Attention: Martin Wade
Telephone No. (212) 387-7700
Telecopier No. (212) 388-9897
with a copy to:
Lehman & Eilen, LLP
50 Charles Lindbergh Boulevard, Suite 505
Uniondale, New York 11553
Attention: Hank Gracin, Esq.
Telephone No. (516) 222-0888
Telecopier No. (516) 222-0948
Section 8.3 Certain Definitions. For purposes of this Agreement, the term:
(0)i "affiliate" means a person that, directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the first mentioned person; 1/2i? "beneficial owner" with respect to any
shares of the IMSI Common Stock means a person who shall be deemed to be the
beneficial owner of such shares (i) which such person or any of its affiliates
or associates (as such term is defined in Rule 12b-2 of the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of its
affiliates or associates has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding, or (iii) which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares; 1/4i(a)? "business day" means any
day other than the day on which banks in the State of New York are required or
authorized to be closed; (cent)i(a)? "control" (including the terms "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock, as trustee or executor, by contract or credit arrangement or
otherwise; 1(0)
(2)i "GAAP" shall mean United States generally accepted accounting principles;
^ni? "knowledge" of IMSI or DCDC, as the case may be, shall mean the actual
knowledge of the executive officers of IMSI or the executive officers of DCDC,
respectively, as such knowledge has been or reasonably should have been obtained
in the normal conduct of business; (R)i(a)? "person" means an individual,
corporation, partnership, association, trust, unincorporated organization, other
entity or group (as defined in Section 13(d) (3) of the Exchange Act); and
(C)i(a)? "subsidiary" or "subsidiaries" of IMSI or DCDC or any other person
means a corporation, partnership, joint venture or other legal entity of which
IMSI, the Surviving Corporation, DCDC or such other person, as the case may be
(either alone or through or together with any other subsidiary), owns, directly
or indirectly, more than fifty percent (50%) of the stock or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
Section 8.4 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger by the stockholders of IMSI and/or DCDC, no amendment may be made which
by law requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed by the parties hereto. Section 8.5 Waiver. At any time prior to the
Effective Time, any party hereto may with respect to any other party hereto: (a)
extend the time for the performance of any of the obligations or other acts; (b)
waive any inaccuracies in the representations in the representations and
warranties contained herein or in any document delivered pursuant hereto; or (c)
waive compliance with any of the agreements or conditions contained herein. Any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
Section 8.6 Headings. 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. Section 1.1
Section 8.7 Severability. If any term or other provision of this Agreement is
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, the 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 the
transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 8.8 Entire Agreement. This Agreement constitutes the entire agreement
and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement), both written and oral, among the parties, or any of
them, with respect to the subject matter hereof.
Section 8.9 Assignment. This Agreement shall not be assigned by operation of law
or otherwise, except that DCDC may assign all or any of its rights hereunder to
any direct wholly owned subsidiary of DCDC provided that no such assignment
shall relieve the assigning party of its obligations hereunder.
Section 8.10 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 or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation, other than
Section 5.7 (which is intended to be for the benefit of the Indemnified Parties
and may be enforced by such Indemnified Parties) and Section 5.8 (which is
intended to be for the benefit of the Surviving Corporation and may be enforced
by such employees). Section 8.11 Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any party hereto in the exercise
of any right hereunder shall impair such right or be construed to be a waiver
of, or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
Section 8.12 Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York (other than any conflicts
of law rules which might result in the application of the laws of any other
jurisdiction). Section 8.13 Counterparts. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
Section 8.14 Consent to Jurisdiction. Each of the parties hereto:
1(0) Consents to submit itself to the personal jurisdiction of (i) the United
States District Court, Southern District, in the event any dispute arises out of
this Agreement or any of the transactions contemplated by this Agreement; 2()
Agrees that it will not attempt to deny or defeat such personal jurisdiction or
venue by motion or other request for leave from any such court; 1(0)
3(0) Agrees that it will not bring any action relating to this Agreement or any
of the transactions contemplated by this Agreement in any Court other than such
court; 4() Agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to a part at its address
set forth in Section 8.2 or at such other address of which a party shall have
been notified pursuant thereto; and 5(0) Agrees that nothing herein shall affect
the right to effect service of process in any other manner permitted by law.
IN WITNESS WHEREOF, DCDC, IMSI and Merger Sub have caused this
Agreement and Plan of Merger to be executed as of the date first written above
by their respective officers hereunder duly authorized.
DIGITAL CREATIVE
DEVELOPMENT CORPORATION
By: ______________________
Name: Martin Wade
Title: Chairman and
Chief Executive Officer
INTERNATIONAL MICROCOMPUTER SOFTWARE, INC.
By: _____________________________
Name: Geoffrey B. Koblick
Title: President and Chief
Executive Officer
DCDC MERGE, INC.
By: _____________________________
Name: Geoffrey B. Koblick
Title: President and Chief
Executive Officer