-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QQ16TVfhBHf9j1kxzveU6Evg3kuv0gFV/2BzCMaYTmMD//OhFA9O72qyyMuCjy2I mWcbr6A0TSab2QBJpVquiQ== 0000950124-00-000893.txt : 20000225 0000950124-00-000893.hdr.sgml : 20000225 ACCESSION NUMBER: 0000950124-00-000893 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000209 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000224 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POPMAIL COM INC CENTRAL INDEX KEY: 0001044738 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 311487885 STATE OF INCORPORATION: MN FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23243 FILM NUMBER: 552277 BUSINESS ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 BUSINESS PHONE: 6128379917 MAIL ADDRESS: STREET 1: 4801 WEST 81 STREET STREET 2: SUITE 112 CITY: BLOOMINGTON STATE: MN ZIP: 55437 FORMER COMPANY: FORMER CONFORMED NAME: CAFE ODYSSEY INC DATE OF NAME CHANGE: 19980526 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL DISCOVERY INC DATE OF NAME CHANGE: 19970821 8-K 1 CURRENT REPORT 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Date of Report (Date of earliest event reported): February 9, 2000 PopMail.com, inc. (Exact name of registrant as specified in its charter) Minnesota 0-23243 31-1487885 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 4801 West 81st Street, Suite 112, Bloomington, MN 55437 (Address of principal executive offices)(Zip Code) (Former Name or Former Address, if Changed Since Last Report) Registrant's telephone number, including area code: (612) 837-9917 1 2 Item 2. ACQUISITION OR DISPOSITION OF ASSETS Pursuant to an Agreement and Plan of Reorganization dated as of January 21, 2000 (the "Agreement") by and among the Registrant, IZ Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of the Registrant ("Acquisition Sub"), IZ.com Incorporated, a Delaware corporation ("IZ.com"), and Virtual Group LLC, a Nevada limited liability company, Acquisition Sub merged with and into IZ.com, and IZ.com became a wholly-owned subsidiary of the Registrant. The merger became effective February 9, 2000 (the "Effective Date"). Prior to the date of the Agreement, there was no relationship between IZ.com or its stockholders and the Registrant or its affiliates, officers and directors or any of their respective associates. IZ.com is a convergent media business that uses spiral marketing to promote consumer e-commerce, involving the cross-promotion of products and services through email, online and conventional media, where consumers choose to receive an advertiser's communications. Pursuant to the Agreement, as of the Effective Date, IZ.com's outstanding shares of capital stock were converted into the right to receive shares of the Registrant's Series F Convertible Preferred Stock (the "Preferred Shares"). As an additional condition of the merger, the Registrant assumed all of the outstanding options and warrants of IZ.com, which were converted, as of the Effective Date, into options and warrants to purchase Preferred Shares. The Preferred Shares are currently convertible into approximately 3.7 million shares of Registrant's common stock, but upon approval of the Registrant's shareholders, the Preferred Shares will be convertible into approximately 7.3 million shares of the Registrant's common stock. In satisfaction of certain conditions to the closing of the merger, the Registrant completed a $6.75 million private placement of its common stock at a price of $2.25 per share. With each share of common stock sold in the private placement, the Registrant issued a warrant to purchase a share of common stock at an exercise price of $3.00. In connection with the Agreement and pursuant to a Registration Rights Agreement dated January 21, 2000, the Registrant agreed, upon the request of holders of not less than 40 percent of the outstanding number of Preferred Shares, to register the shares of common stock issuable upon conversion of the Preferred Shares issued in the merger. The foregoing is qualified in its entirety by reference to the Agreement, which is filed as Exhibit 2.1 to this Form 8-K and is hereby incorporated by reference herein. The Certificate of Designation of the Series F Convertible Preferred Stock, the Registration Rights Agreement dated January 21, 2000, and Registrant's Press Release Dated February 9, 2000, are each filed as Exhibits 3.1, 10.1 and 99.1, respectively, to this Form 8-K, and each are incorporated herein by reference. 3 Item 5. OTHER EVENTS Upon the Effective Date, Jesse Berst was elected to the Registrant's Board of Directors to fill the board seat formerly occupied by James L. Anderson. The Registrant's Press Release dated February 9, 2000, which is filed as Exhibit 99.1 to this Form 8-K, is incorporated by reference. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of the Business Acquired. Pursuant to Item 7(a)(4), financial statements required by this item will be filed no later than April 24, 2000. (b) Pro Forma Financial Information. Pursuant to Item 7(b)(2), financial statements required by this item will be filed no later than April 24, 2000. (c) Exhibits. 2.1 Agreement and Plan of Reorganization dated as of January 21, 2000 among PopMail.com, inc., IZ.com Incorporated, IZ Acquisition Corporation, and Virtual Group LLC. 3.1 Certificate of Designation of Series F Convertible Preferred Stock. 10.1 Registration Rights Agreement, dated January 21, 2000 between the Registrant and the stockholders of IZ.com, Incorporated. 99.1 Press Release dated February 9, 2000. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. POPMAIL.COM, INC. Dated: February 23, 2000 By: /s/ Thomas W. Orr ------------------------------ Thomas W. Orr Chief Financial Officer 3 4 EXHIBIT INDEX 2.1 Plan and Agreement of Reorganization dated as of January 21, 2000 among PopMail.com, inc., IZ.com Incorporated, IZ Acquisition Corporation, and Virtual Group LLC. 3.1 Certificate of Designation of Series F Convertible Preferred Stock 10.1 Registration Rights Agreement dated as of January 21, 2000, among PopMail.com, inc. and the stockholders of IZ.com Incorporated. 99.1 Press Release dated February 9, 2000. 4 EX-2.1 2 AGREEMENT AND PLAN REORG. 1 EXHIBIT 2.1 AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG POPMAIL.COM, INC. IZ ACQUISITION CORPORATION IZ.COM INCORPORATED AND VIRTUAL GROUP LLC JANUARY 21, 2000 2 TABLE OF CONTENTS
PAGE ---- 1. Certain Definitions..........................................................................................2 2. The Merger...................................................................................................5 2.1 Merger; Effective Time..............................................................................5 2.2 Closing.............................................................................................5 2.3 Effect of the Merger................................................................................5 3. Effect of Merger on the Capital Stock of the Constituent Corporations; Exchange of Certificates; Additional Payments............................................................................6 3.1 Certain Definitions.................................................................................6 3.2 Exchange of Stock; Rights to Additional Payments....................................................6 3.3 Company Options and Warrants........................................................................6 3.4 Conversion of Sub Common Stock......................................................................7 3.5 Adjustments to Parent Common Stock..................................................................7 3.6 Fractional Shares...................................................................................7 3.7 Exchange of Certificates............................................................................7 3.8 Further Action......................................................................................9 3.9 Dissenters'Rights...................................................................................9 3.10 Dissenting Shares After Payment of Fair Value......................................................10 3.11 Tax Consequences...................................................................................10 4. Securities Act Compliance...................................................................................10 5. Representations and Warranties of the Company...............................................................10 5.1 Organization and Standing..........................................................................10 5.2 Authorization......................................................................................10 5.3 Subsidiaries.......................................................................................11 5.4 Capitalization.....................................................................................11 5.5 Title to Properties and Assets; Liens..............................................................11 5.6 Financial Statements...............................................................................11 5.7 Patents, Trademarks................................................................................12 5.8 Material Contracts and Commitments.................................................................12 5.9 Compliance with Other Instruments, Laws; No Instruments Burdensome.................................12 5.10 Litigation.........................................................................................13 5.11 Employees..........................................................................................13 5.12 Brokers or Finders.................................................................................13 5.13 Permits............................................................................................13 5.14 Employee Benefit Plans.............................................................................13
i 3 TABLE OF CONTENTS (CONTINUED) PAGE ---- 6. Representations and Warranties of Parent and Sub............................................................13 6.1 Organization and Standing..........................................................................13 6.2 Authorization......................................................................................13 6.3 Subsidiaries.......................................................................................14 6.4 Capitalization.....................................................................................14 6.5 SEC Filings........................................................................................15 6.6 Title to Properties and Assets; Liens..............................................................15 6.7 Patents, Trademarks................................................................................16 6.8 Material Contracts and Commitments.................................................................16 6.9 Compliance with Other Instruments, Laws; No Instruments Burdensome.................................16 6.10 Litigation.........................................................................................16 6.11 Employees..........................................................................................16 6.12 Brokers or Finders.................................................................................17 6.13 Permits............................................................................................17 6.14 Employee Benefit Plans.............................................................................17 7. Pre-Closing Covenants.......................................................................................17 7.1 General............................................................................................17 7.2 Notices and Consents...............................................................................17 7.3 Operation of Business..............................................................................17 7.4 Access to Information..............................................................................18 7.5 Notice of Developments.............................................................................18 7.6 Shareholder Approval...............................................................................18 7.7 Confidentiality....................................................................................18 7.8 FIRPTA Compliance..................................................................................19 7.9 Additional Documents and Further Assurances........................................................19 8. Post-Closing Covenants......................................................................................19 8.1 General............................................................................................19 8.2 Litigation Support.................................................................................20 8.3 Tax Free Reorganization............................................................................20 8.4 Employee Benefits..................................................................................20 8.5 Indemnification of Directors and Officers..........................................................21 9. Conditions to Obligations to Close..........................................................................22 9.1 Conditions to Parent's and Sub's Obligation to Close...............................................22 9.2 Conditions to the Company's Obligations............................................................23
-ii- 4 TABLE OF CONTENTS (CONTINUED) PAGE ---- 10. Survival of Representations, Warranties and Covenants; Indemnity............................................25 10.1 Survival of Representations and Warranties.........................................................25 10.2 Indemnity..........................................................................................26 11. Termination.................................................................................................27 11.1 Termination of the Agreement.......................................................................27 11.2 Effect of Termination..............................................................................28 12. Miscellaneous...............................................................................................28 12.1 Press Releases and Public Announcements............................................................28 12.2 No Third-Party Beneficiaries.......................................................................28 12.3 Entire Agreement and Modification..................................................................28 12.4 Succession and Assignment..........................................................................29 12.5 Counterparts.......................................................................................29 12.6 Headings...........................................................................................29 12.7 Notices............................................................................................29 12.8 Governing Law......................................................................................30 12.10 Waivers............................................................................................30 12.11 Severability.......................................................................................31 12.12 Expenses...........................................................................................31 12.13 Construction.......................................................................................31 12.14 Disclosure Letters.................................................................................31 12.15 Attorneys'Fees.....................................................................................31 12.16 Further Assurances.................................................................................32 12.17 Time of Essence....................................................................................32
-iii- 5 EXHIBITS Exhibit A Certificate of Merger Exhibit B Form of Parent Voting Agreement Exhibit C Form of Company Voting Agreement Exhibit D Form of Employment Agreement Exhibit E Opinion of Company Counsel Exhibit F Opinion of Parent Counsel Exhibit G Form of Registration Rights Agreement Exhibit H Certificate of Designation of Series F Preferred Stock -iv- 6 AGREEMENT AND PLAN OF REORGANIZATION This Agreement and Plan of Reorganization (the "AGREEMENT") is entered into as of January 21, 2000, by and among Popmail.com, Inc., a Minnesota corporation ("PARENT"), IZ Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of Parent ("SUB"), and IZ.com Incorporated, a Delaware corporation (the "COMPANY"), and, as to Sections 10.2 and12 only, Virtual Group LLC, a Nevada limited liability company ("VG"). Parent, the Company, Sub and, where applicable, VG, are sometimes referred to herein individually as a "PARTY" and collectively as the "PARTIES." RECITALS A. Pursuant to the Certificate of Merger in the form attached hereto as EXHIBIT A (the "CERTIFICATE OF MERGER") providing for the merger of Sub with and into the Company (the "MERGER") pursuant to the Delaware General Corporation Law, the shares of Company Capital Stock (as defined in SECTION 2.1 hereof) issued and outstanding immediately prior to the Effective Time will be converted into shares of Parent Preferred Stock (as defined in SECTION 2.1 hereof) and all options and warrants to acquire capital stock of the Company will be converted into rights to acquire Common Stock of Parent. B. The Parties desire to enter into this Agreement for the purpose of setting forth certain representations, warranties and covenants made as an inducement to the execution and delivery of this Agreement, and to serve as conditions precedent to the consummation of the Merger. C. The respective Boards of Directors of Parent, Sub and the Company have approved and adopted this Agreement, and this Agreement is intended to be a plan of reorganization under the provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"). D. Concurrent with the execution of this Agreement, as a material inducement to Parent and Sub, certain shareholders of the Company are entering into voting agreements in the form of EXHIBIT B hereto (the "COMPANY VOTING AGREEMENTS"), and employment agreements in the form of EXHIBIT D hereto (the "EMPLOYMENT AGREEMENTS") and as a material inducement to the Company, certain shareholders of Parent are entering into voting agreements in the form of EXHIBIT C hereto (the "PARENT VOTING AGREEMENTS"). NOW, THEREFORE, in consideration of these premises and of the mutual agreements, representations, warranties and covenants herein contained, the Parties do hereby agree as follows: 7 AGREEMENT 1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa). Certain other terms are defined in the text of this Agreement. "AFFILIATE" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with such Person. "AVERAGE SHARE PRICE" means the average closing sales prices of the Parent Common Stock as reported by the Nasdaq Small Cap Market for the five (5) business days ending two business days prior to the Closing. "BEST EFFORTS" means the efforts that a prudent Person desirous of achieving a result would use in similar circumstances to ensure that such result is achieved as expeditiously as possible. "BUSINESS" means (i) in the case of the Company, the business of retail e-commerce sales and integrated television and e-mail-based merchandising, and (ii) in the case of Parent, the business of providing outsourced e-mail marketing services. "COMPANY COMMON STOCK" means shares of Common Stock of the Company, $.001 par value. "COMPANY PREFERRED STOCK" means shares of Preferred Stock of the Company, $.001 par value. "BUSINESS CONDITION" means the current business, financial condition, results of operations and assets of a corporate entity. "COMPANY DISCLOSURE LETTER" means the Company Disclosure Letter delivered by the Company to Parent concurrently with the execution and delivery of this Agreement, which specifically references any exceptions to the representations and warranties of the Company set forth in SECTION 5 hereof. "COMPANY INTELLECTUAL PROPERTY" means any Technology and Intellectual Property Rights including the Company Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by or exclusively licensed to the Company. "COMPANY STOCKHOLDERS" means the stockholders of record of the Company immediately prior to the Effective Time (other than the holders of Dissenting Shares, if any). -2- 8 "CONTEMPLATED TRANSACTIONS" means all of the transactions contemplated by this Agreement, including: (a) the merger of Sub with and into the Company, the issuance by Parent of the Parent Common Stock and Parent's acquisition and ownership of the Company and exercise of control over the Company; (b) the execution, delivery, and performance of the Employment Agreements, the Voting Agreements, and the Affiliate Agreements and the Non-Competition Agreement; (c) the performance by Parent, the Company and Sub of their respective covenants and obligations under this Agreement. "GOVERNMENTAL BODY" means any: (a) nation, province, state, county, city, town, village, district, or other jurisdiction of any nature; (b) federal, provincial, state, local, municipal, foreign, or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental agency, branch, department, official, or entity and any court or other tribunal); (d) multi-national organization or body; or (e) body exercising, or entitled to exercise, any administrative, executive, judicial, legislative, police, regulatory, or taxing authority or power of any nature. "KNOWLEDGE" --an individual will be deemed to have "KNOWLEDGE" of a particular fact or other matter if: (a) such individual is actually aware of such fact or other matter; or (b) a prudent officer or director would be expected to discover or otherwise become aware of such fact or other matter in the course of performing or complying with the responsibilities and obligations commonly associated with such person's position. (c) Parent will be deemed to have "KNOWLEDGE" of a particular fact or other matter if an officer or director of Parent has Knowledge of such fact or other matter. The Company will be deemed to have "KNOWLEDGE" of a particular fact or other matter if an officer or director of the Company has knowledge of such fact or other matter. -3- 9 "LEGAL REQUIREMENTS" means any federal, state, local, municipal, foreign or other law, statute, constitution, principle, of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body. "MATERIAL ADVERSE EFFECT" shall mean as to the Company or Parent, a material adverse effect on the current business, financial condition, results of operations and assets of the Company or Parent, as the case may be (other than as a result of (i) general economic or industry conditions or conditions in the Company's or Parent's Business, as the case may be, or (ii) performance by the Company or Parent, a the case may be, of its obligations under, or the taking of any actions contemplated or permitted by, this Agreement, (iii) changes in law or generally accepted accounting principles, or (iv) the announcement or pendency of any of the Contemplated Transactions). "MERGER CONSIDERATION" means a number of 425,000 shares of Parent Preferred Stock; provided however that in the event that, prior to the Closing, Parent acquires for cash 73,171 of the shares of Company Preferred Stock held by Archery Venture Partners, L.P. in accordance with Section 8.8 hereof, then the Merger Consideration shall be reduced to 417,917 shares of Parent Preferred Stock. "ORDINARY COURSE OF BUSINESS": an action taken by either of Parent or the Company will be deemed to have been taken in the "Ordinary Course of Business" only if: (a) such action is consistent with the past practices of such Party and is taken in the ordinary course of the day-to-day operations of such Party; and (b) such action is not required to be authorized by the board of directors of such Party or any committee or delegee thereof. "PARENT DISCLOSURE LETTER" means the Parent Disclosure Letter delivered by Parent to the Company concurrently with the execution and delivery of this Agreement, which specifically references any exceptions to the representations and warranties of Parent and Sub set forth in Section 6 hereof. "PARENT PREFERRED STOCK" means shares of Series F Preferred Stock of Parent, $.01 par value, with the rights, preferences and priviliges set forth in the Certificate of Designation of Series F Preferred Stock of Parent attached hereto as EXHIBIT H. "PARENT SEC REPORTS" has the meaning set forth in SECTION 6.5. -4- 10 "PERSON" means any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, joint venture, estate, trust, association, organization, labor union, or other entity or Governmental Body. "REPRESENTATIVES" means, with respect to a Person, that Person's officers, directors, employees, accountants, counsel, investment bankers, financial advisors, shareholders and other representatives. "SEC" means the United States Securities and Exchange Commission. 2. THE MERGER. 2.1 MERGER; EFFECTIVE TIME. Subject to the terms and conditions of this Agreement and the applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW"), Sub will be merged with and into the Company (the "MERGER"), the separate existence of Sub shall cease and the Company shall continue as the surviving corporation and as a wholly owned subsidiary of Parent. In accordance with the provisions of this Agreement, the Certificate of Merger shall be filed with the Delaware Secretary of State in accordance with Delaware Law and each issued and outstanding share of capital stock of the Company ("COMPANY CAPITAL STOCK"), shall be converted into shares of Parent Preferred Stock in the manner contemplated by SECTION 3. The Merger shall become effective at the time of the acceptance of the Certificate of Merger by the Delaware Secretary of State (the date of such acceptance being hereinafter referred to as the "EFFECTIVE DATE" and the time of such acceptance being hereinafter referred to as the "EFFECTIVE TIME"). 2.2 CLOSING. The closing of the Merger (the "Closing") will take place at the offices of Parent (i) on a date and at a time as mutually agreed to by Parent and the Company as soon as practicable (and in any event within two business days) after the date on which the last condition set forth in Section 9 hereof shall have been satisfied or waived or (ii) at such other time as Parent and the Company may mutually agree (the date on which the Closing occurs being referred to as the "Closing Date"). 2.3 EFFECT OF THE MERGER. At the Effective Time, (i) the separate existence of Sub shall cease and Sub shall be merged with and into the Company (Sub and the Company are sometimes referred to herein as the "CONSTITUENT CORPORATIONS" and the Company after the Merger is sometimes referred to herein as the "SURVIVING CORPORATION"), (ii) the Certificate of Incorporation of Sub in effect immediately prior to the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation; provided, however, that Article I of the Certificate of Incorporation of the Surviving Corporation shall be amended to read as follows: "The name of the corporation is IZ.com Incorporated", (iii) the Bylaws of Sub in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Corporation, (iv) the directors of the Company shall be the directors of the Surviving Corporation until their successors shall have been duly elected -5- 11 and qualified, (v) the officers of the Company shall be the initial officers of the Surviving Corporation until their successors have been duly appointed and qualified, (vi) each share of capital stock of Sub shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of Common Stock of the Surviving Corporation, and (vii) the Merger shall, from and after the Effective Time, have all the effects provided by applicable law. 3. EFFECT OF MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES; ADDITIONAL PAYMENTS. 3.1 Certain Definitions. For purposes of this SECTION 3, the following terms shall be defined as set forth below: "AGGREGATE COMMON NUMBER" means the sum of (A) the total number of shares of Company Common Stock that are issued and outstanding immediately prior to the Effective Time; (B) the total number of shares of Company Common Stock that are issuable upon the conversion of any shares of Company Preferred Stock issued and outstanding immediately prior to the Effective Time; (C) the total number of shares of Company Common Stock that are issuable upon the conversion of any shares of Company Preferred Stock that are issuable upon the exercise in full of all warrants to acquire shares of Company Preferred Stock that are outstanding immediately prior to the Effective Time; and (D) the total number of shares of Company Capital Stock that are issuable upon the conversion or exercise in full of all convertible securities or options (vested and unvested), warrants or other rights to acquire Company Capital Stock that are outstanding immediately prior to the Effective Time other than convertible securities or warrants referred to in clauses "(B)" or "(C)" of this sentence. "EXCHANGE RATIO" means the quotient obtained by dividing (x) the Merger Consideration by (y) the Aggregate Common Number. 3.2 EXCHANGE OF STOCK; RIGHTS TO ADDITIONAL PAYMENTS. As of the Effective Time, each share of Company Capital Stock that is issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares (as defined in SECTION 3.9 hereof) shall, by virtue of the Merger and without any action on the part of the Company Stockholders, be converted into a number of shares of Parent Preferred Stock equal to the Exchange Ratio. 3.3 COMPANY OPTIONS AND WARRANTS. At the Effective Time, Parent shall assume the Company's 1999 Stock Plan (the "COMPANY PLAN"), and each of the then outstanding options and warrants to purchase Company Capital Stock whether vested or unvested (collectively, the "COMPANY OPTIONS") (including all outstanding options granted under the Company Plan, and any individual non-plan options and warrants) will by virtue of the Merger, and without any further action on the part of any holder thereof, be assumed by Parent and converted into an option or warrant, as the case may be, to purchase that whole number of shares of Parent Preferred Stock determined by multiplying the number of shares of Company Capital Stock subject to such Company -6- 12 Option at the Effective Time by the Exchange Ratio, at an exercise price per share of Parent Preferred Stock equal to the exercise price per share of such Company Option immediately prior to the Effective Time divided by the applicable Exchange Ratio, rounded up the nearest cent. If the foregoing calculation results in an assumed Company Option being exercisable for a fraction of a share of Parent Preferred Stock, then the number of shares of Parent Preferred Stock subject to such option will be rounded down to the nearest whole number of shares. The term, exercisability, vesting schedule, vesting commencement date, status as an "incentive stock option" under Section 422 of the Code, if applicable, and all other terms and conditions of the Company Options will otherwise be unchanged (it being understood that the vesting of certain Company Options will be accelerated in connection with the Merger in accordance with the terms of existing agreements between the Company and certain individuals as described in the Company Disclosure Letter). 3.4 CONVERSION OF SUB COMMON STOCK. Each share of common stock of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock, no par value, of the Surviving Corporation. Each stock certificate of Sub evidencing ownership of any such shares shall continue to evidence ownership of such shares of capital stock of the Surviving Corporation. 3.5 ADJUSTMENTS TO PARENT COMMON STOCK. The number of shares of Parent Common Stock issuable hereunder and all other applicable definitions and calculations hereunder (including the definition of Average Share Price) shall be adjusted to reflect fully the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Parent Preferred Stock or Parent Common Stock or Company Capital Stock), reorganization, recapitalization or other like change with respect to Parent Preferred Stock or Parent Common Stock or Company Capital Stock occurring or becoming effective after the date hereof but prior to the Closing. 3.6 FRACTIONAL SHARES. No fractional shares of Parent Preferred Stock shall be issued in the Merger. In lieu thereof, any fractional share shall be rounded up to the nearest whole share of Parent Preferred Stock. 3.7 EXCHANGE OF CERTIFICATES. (a) EXCHANGE AGENT. Prior to the Closing Date, Parent shall appoint Maslon Edelman Borman & Brand, LLP, to act as the exchange agent (the "EXCHANGE AGENT") in the Merger. (b) PARENT TO PROVIDE PARENT PREFERRED STOCK. Promptly after the Effective Date, Parent shall make available for exchange in accordance with this SECTION 3, through such reasonable procedures as Parent may adopt, the shares of Parent Preferred Stock issuable pursuant to SECTIONS 3.1 and 3.2 hereof in exchange for outstanding shares of Company Capital Stock. -7- 13 (c) EXCHANGE PROCEDURES. Within ten (10) days after the Effective Date, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Capital Stock (the "CERTIFICATES") whose shares are being converted into the Merger Consideration pursuant to SECTIONS 3.1 and 3.2 hereof, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent (THE "LETTER OF TRANSMITTAL") and (ii) instructions for use in effecting the surrender of the Certificates in exchange for the Merger Consideration. Upon surrender of a Certificate for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor the number of shares of Parent Preferred Stock to which the holder of Company Capital Stock is entitled pursuant to Sections 3.1 and 3.2 hereof. The Certificates so surrendered shall forthwith be canceled. No interest will accrue or be paid to the holder of any outstanding Company Capital Stock. From and after the Effective Date, until surrendered as contemplated by this SECTION 3.7, each Certificate shall be deemed for all corporate purposes to evidence the number of shares of Parent Preferred Stock into which the shares of Company Capital Stock represented by such Certificate have been converted. (d) NO FURTHER OWNERSHIP RIGHTS IN CAPITAL STOCK OF THE COMPANY. The Merger Consideration delivered upon the surrender for exchange of shares of Company Capital Stock in accordance with the terms hereof shall be deemed to have been delivered in full satisfaction of all rights pertaining to such Company Capital Stock. There shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Company Capital Stock which were outstanding immediately prior to the Effective Date. If, after the Effective Date, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this SECTION 3.7. (e) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or other distributions declared or made after the Effective Time with respect to Parent Preferred Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Preferred Stock represented thereby until the holder of record of such Certificate shall surrender such Certificate. Subject to applicable law, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Preferred Stock issued in exchange therefor, without interest, at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Preferred Stock. (f) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent Preferred Stock is to be issued in a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the issuance thereof that the Certificate so surrendered will be properly endorsed and otherwise in proper form for transfer and that the Person -8- 14 requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of the issuance of a certificate for shares of Parent Preferred Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. (g) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock as may be required pursuant to Sections 3.1 and 3.2 hereof. (h) NO LIABILITY. Notwithstanding anything to the contrary in this Section 3.7, none of the Exchange Agent, the Surviving Corporation or any Party hereto shall be liable to a holder of shares of Parent Preferred Stock or Company Capital Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law. 3.8 FURTHER ACTION. Parent, Sub and the Company shall take all such actions as may be necessary or appropriate in order to effect the Merger as promptly as possible. If, at any time after the Effective Date, any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, the officers and directors of such corporation are fully authorized in the name of the corporation or otherwise to take, and shall take, all such action. 3.9 DISSENTERS' RIGHTS. (a) Notwithstanding any provision of this Agreement to the contrary, any shares of Company Capital Stock held by a holder who has exercised and perfected dissenters' rights for such shares in accordance with Delaware Law and who, as of the Effective Time, has not effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES"), shall not be converted into or represent a right to receive the Merger Consideration, but the holder thereof shall only be entitled to such rights as are granted by Delaware Law. (b) Notwithstanding the provisions of subsection (a), if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) his or her dissenters' rights, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the Merger Consideration, without interest thereon, upon surrender of the Certificate representing such shares. -9- 15 (c) The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to the applicable provisions of Delaware Law and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. 3.10 DISSENTING SHARES AFTER PAYMENT OF FAIR VALUE. Dissenting Shares, if any, after payments of fair value in respect thereto have been made to dissenting shareholders of the Company pursuant to Delaware Law, shall be canceled. 3.11 TAX CONSEQUENCES. It is intended by the Parties hereto that the Merger shall constitute a reorganization within the meaning of Section 368 of the Code. Each Party has consulted with its own tax advisors and accountants with respect to the tax consequences, respectively, of the Merger. 4. SECURITIES ACT COMPLIANCE. The shares of Parent Common Stock issued in connection with the Merger will be issued in a transaction exempt from registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"), by reason of Section 4.2 thereof and/or Regulation D promulgated thereunder. All shares of Parent Common Stock issuable upon conversion of the Parent Preferred Stock shall be entitled to be registered subsequent to the Closing pursuant to the Registration Rights Agreement in the form attached hereto as EXHIBIT G to be entered into by the Company and the Company Stockholders prior to the Closing. All shares of Parent Common Stock issuable pursuant to Company Options issued pursuant to the Company Plan shall be registered pursuant to a Registration Statement on Form S-8 in accordance with Section 8.6 hereof. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents and warrants to Parent, except as disclosed in the Company Disclosure Letter, as follows: 5.1 ORGANIZATION AND STANDING. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has all requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it make such qualification necessary, except for jurisdictions in which the failure to so qualify would not have a material adverse effect on the financial condition of the Company as a whole. 5.2 AUTHORIZATION. The Company has full power and authority to execute and deliver this Agreement and all agreements and instruments delivered pursuant hereto (the "ANCILLARY AGREEMENTS") to which it is a party, and, subject to receipt of the requisite approval of its stockholders, to consummate the transactions contemplated hereunder and to perform its obligations hereunder and no other proceedings on the part of the Company are necessary to authorize the -10- 16 execution, delivery and performance of this Agreement and the Ancillary Agreements to which the Company is a party. This Agreement and the Ancillary Agreements to which the Company is a party and the Contemplated Transactions have been approved by the Company's Board of Directors. This Agreement and the Ancillary Agreements to which the Company is a party constitute the valid and legally binding obligations of the Company, enforceable against the Company in accordance with their respective terms and conditions. Other than (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, the Company need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Body in order to consummate the transactions contemplated by this Agreement. 5.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 5.4 CAPITALIZATION. The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock, of which 3,121,700 shares are issued and outstanding as of the date hereof and 10,000,000 shares of Preferred Stock of which 670,000 shares have been designated Series A Preferred Stock, of which 619,500 are issued and outstanding as of the date hereof, 80,000 shares have been designated Series A-1 Preferred Stock, all of which are issued and outstanding as of the date hereof, and 600,000 shares of Series B Preferred Stock of which 493,904 shares are issued and outstanding as of the date hereof. The Company has reserved (a) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred, Series A-1 Preferred, and Series B Preferred, (b) 2,500,000 shares of Common Stock for issuance pursuant to the Company Plan, of which 2,154,500 are subject to outstanding options as of the date hereof, and (c) 502,748 shares of Common Stock for issuance upon exercise of outstanding warrants as of the date hereof. Other than as set forth above, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal, or similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Company of any shares of its capital stock. 5.5 TITLE TO PROPERTIES AND ASSETS; LIENS. The Company has good and marketable title to its properties and assets, and has good title to all its respective leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) liens for current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business. 5.6 FINANCIAL STATEMENTS. The Company has delivered to the Purchaser its audited balance sheet and statement of operations as of and for the period from inception through -11- 17 December 31, 1999 (the "Financial Statements"). The Financial Statements are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles, except that the Financial Statements are subject to year-end adjustments of a recurring and routine nature, not material in amount. To its Knowledge, the Company does not have any indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type in excess of $10,000 whether accrued, absolute, matured or otherwise, which (i) has not been reflected in the Financial Statements, or (ii) has not arisen since December 31, 1999 in the ordinary course of the Company's business. 5.7 PATENTS, TRADEMARKS. The Company owns or has the right to use, free and clear of all liens, charges, claims and restrictions, all trade secrets, trademarks, service marks, trade names, copyrights, licenses, and rights necessary to their business as now conducted and is not infringing upon or otherwise acting adversely to the right or claimed right of, to the Company's knowledge, any person under or with respect to any of the foregoing. The Company has not received any written communications alleging that the Company has violated any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. The Company has no knowledge of any infringement or improper use by any third party of any trademark or copyright held by it, nor has the Company instituted any action, suit or proceeding in which an act constituting an infringement of any such trademark or copyright was alleged to have been committed by a third party. 5.8 MATERIAL CONTRACTS AND COMMITMENTS. The Company, nor, to the Company's knowledge, any third party is in default under any material contract or agreement (contracts or agreements with annual payment obligations of $20,000 or more) to which the Company is a party. All such contracts, agreements and instruments are valid, binding and enforceable except as such enforceability may be limited by equitable considerations, public policy or the laws governing bankruptcy or insolvency, and in full force in effect and the consummation of the transactions contemplated hereby does not require the consent of any party to any such contract, agreement or instrument. 5.9 COMPLIANCE WITH OTHER INSTRUMENTS, LAWS; NO INSTRUMENTS BURDENSOME. The Company is not in violation of any term of its Certificate of Incorporation, or in any material respect of any term or provision of any material mortgage, indenture, contract, indebtedness, lease, agreement, instrument, judgment or decree, and is not in violation of any order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with this Agreement and the consummation of the transactions contemplated hereby shall not result in any violation of, or conflict with, or constitute a default under the Certificate of Incorporation or any of the foregoing agreements, instruments, judgments or decrees, or result in the creation of, any material mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. -12- 18 5.10 LITIGATION. There are no actions, suits, proceedings or investigations pending or threatened in writing against the Company or its properties before any court or governmental agency. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 5.11 EMPLOYEES. To the Company's knowledge, no employee of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with the Company or any other party because of the nature of the business conducted by the Company. The Company does not have any collective bargaining agreements covering any of its employees. 5.12 BROKERS OR FINDERS. The Company has not incurred, and shall not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 5.13 PERMITS. The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of the Company, taken as a whole. The Company is not in default, in any material respect, under any of such franchises, permits, licenses, or other similar authority. 5.14 EMPLOYEE BENEFIT PLANS. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Security Act of 1974. 6. REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB. Parent and Sub represent and warrant to the Company, except as disclosed in the Parent Disclosure Letter, as follows: 6.1 ORGANIZATION AND STANDING. Parent and Sub are corporations duly organized and existing under, and by virtue of, the laws of the State of Minnesota and the State of Delaware, respectively, and are in good standing under such laws. Parent has all requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted. Sub was formed for the purpose of effecting the Merger and has concluded no other business. Parent qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it make such qualification necessary, except for jurisdictions in which the failure to so qualify would not have a Material Adverse Effect on Parent. 6.2 AUTHORIZATION. Parent and Sub have full power and authority to execute and deliver this Agreement and the Ancillary Agreements to which they are parties, and to consummate the Contemplated Transactions and to perform their obligations hereunder and thereunder, and no -13- 19 other proceedings on the part of Parent or Sub are necessary to authorize the execution, delivery and performance of this Agreement and the Ancillary Agreements to which they are parties. This Agreement and the Ancillary Agreements to which they are parties and the Contemplated Transactions have been approved by Parent's and Sub's Board of Directors. The consummation of the Merger does not require the approval or consent of the shareholders of Parent. This Agreement and the Ancillary Agreements to which they are parties constitute the valid and legally binding obligations of Parent and/or Sub, enforceable against Parent and/or Sub in accordance with their respective terms and conditions. Other than (i) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (ii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware, neither Parent nor Sub need give any notice to, make any filing with, or obtain any authorization, consent, or approval of any Governmental Body in order to consummate the Contemplated Transactions. 6.3 SUBSIDIARIES. Parent has no subsidiaries or affiliated companies other than the Subsidiary and does not otherwise own or control, directly or indirectly, any other corporation, association or business entity. 6.4 CAPITALIZATION. The authorized capital stock of Parent consists of 100,000,000 shares of Common Stock, of which 24,741,257 shares are issued and outstanding as of the date hereof, and 761,500 shares of Preferred Stock, of which 2,000 shares have been designated Series A 8% Preferred Stock, none of which are issued and outstanding, 5,000 shares have been designated Series B Preferred Stock, none of which are issued and outstanding, 2,000 shares of Series C Preferred Stock none of which are issued and outstanding, 2,500 shares of Series D Preferred Stock, 1,000 of which are issued and outstanding, and 750,000 of which have been designated Series E Preferred Stock, 350,000 of which are issued and outstanding. The maximum aggregate number of shares of Parent Common Stock issuable upon conversion of all issued and outstanding shares of Preferred Stock of Parent is 1,335,986. The rights preferences and privileges of the Series D Preferred Stock and Series E Preferred Stock of Parent are as set forth in the Certificate of Designation of Series D Preferred Stock and Certificate of Designation of Series E Preferred of Parent, respectively, copies of which have been provided to the Company's counsel. Parent has reserved (a) sufficient shares of Common Stock for issuance upon conversion of the Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred, (b) 1,250,000 shares of Common Stock for issuance pursuant to Parent's 1997 Stock Option and Compensation Plan, of which 1,422,999 are currently subject to outstanding options, and 172,999 of which remain subject to shareholder approval, (c) 250,000 shares of Common Stock for issuance pursuant to Parent's 1998 Director Stock Option Plan, of which 198,333 shares are currently subject to outstanding options, and 48,333 of which shares remain subject to shareholder approval, (d) a total of 2,039,601 shares of Common Stock for issuance upon conversion of 4% Subordinated Convertible Debentures of Parent and certain other convertible debt of Parent, (e) 8,109,223 shares of Common Stock for issuance upon exercise of outstanding warrants, (f) 2,600,000 shares of -14- 20 Common Stock issuable upon the exercise of the Class A Warrants issued as part of the Parent's initial public offering and the partial exercise of the underwriter's over-allotment, (g) 58,334 shares of Common Stock issuable upon the exercise of certain directors' options and (h) as of the Closing will have reserved sufficient shares of Parent Common Stock for issuance upon conversion of the Parent Preferred Stock and exercise of the Company Options. Other than as set forth above, there are no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal or similar rights) or agreements, orally or in writing, for the purchase or acquisition from Parent of any shares of its capital stock. 6.5 SEC FILINGS. Parent has filed all forms, reports and documents required to be filed with the SEC since December 31, 1997, and has heretofore made available to the Company, in the form filed with the SEC, (i) its Annual Report on Form 10-K for the fiscal year ended January 3, 1999, (ii) its Quarterly Report on Form 10-Q for the periods ended March 31, 1999, June 30, 1999 and September 30, 1999, (iii) the proxy statements relating to all meetings of stockholders held since December 31, 1997, (iv) its Current Reports on Form 8-K dated June 22, 1999, September 1, 1999 (as amended September 16, 1999), September 30, 1999 and December 3, 1999, (v) its Registration Statements on Form S-3 dated August 13, 1999, as amended, and December 21, 1999, and the prospectuses filed pursuant to Rule 424(b) relating thereto, and (vi) any other report or registration statements filed by it with the SEC since December 31, 1997 (collectively, the "Parent SEC Reports"). The Parent SEC Reports (i) were prepared in accordance with the requirements of the Securities Act, and the Securities Exchange Act of 1934, as amended, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, 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. The financial statements of Parent, including the notes thereto, included in the SEC Documents (the "Parent Financial Statements") have been prepared in accordance with the published rules and regulations of the SEC applicable thereto, have been prepared in accordance with GAAP consistently applied (except as may be indicated in the notes thereto) and present fairly the consolidated financial position of Parent at the dates thereof and of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to the absence of footnotes and to normal audit adjustments which will not be material in amount). To its knowledge, Parent does not have any indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of any type in excess of $10,000 whether accrued, absolute, matured or otherwise, which (i) has not been reflected in the Parent Financial Statements, or (ii) has not arisen since December 31, 1999 in the ordinary course of Parent's business. 6.6 TITLE TO PROPERTIES AND ASSETS; LIENS. Parent has good and marketable title to its properties and assets, and has good title to all its respective leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) liens for current taxes not yet due and payable, and (ii) possible minor liens and encumbrances which do not in any -15- 21 case materially detract from the value of the property subject thereto or materially impair the operations of Parent, and which have not arisen otherwise than in the ordinary course of business. 6.7 PATENTS, TRADEMARKS. Parent owns or has the right to use, free and clear of all liens, charges, claims and restrictions, all trade secrets, trademarks, service marks, trade names, copyrights, licenses, and rights necessary to its business as now conducted and is not infringing upon or otherwise acting adversely to the right or claimed right of, to Parent's knowledge, any person under or with respect to any of the foregoing. Parent has not received any written communications alleging that Parent has violated any patent, trademark, service mark, trade name, copyright or trade secret or other proprietary right of any other person or entity. Parent has no knowledge of any infringement or improper use by any third party of any trademark or copyright held by it, nor has Parent instituted any action, suit or proceeding in which an act constituting an infringement of any such trademark or copyright was alleged to have been committed by a third party. 6.8 MATERIAL CONTRACTS AND COMMITMENTS. Neither Parent, nor, to Parent's knowledge, any third party is in default under any material contract or agreement (contracts or agreements with annual payment obligations of $20,000 or more) to which Parent is a party. All such contracts, agreements and instruments are valid, binding and enforceable except as such enforceability may be limited by equitable considerations, public policy or the laws governing bankruptcy or insolvency, and in full force in effect and the consummation of the transactions contemplated hereby does not require the consent of any party to any such contract, agreement or instrument. 6.9 COMPLIANCE WITH OTHER INSTRUMENTS, LAWS; NO INSTRUMENTS BURDENSOME. Parent is not in violation of any term of its Articles of Incorporation, or in any material respect of any term or provision of any material mortgage, indenture, contract, indebtedness, lease, agreement, instrument, judgment or decree, and is not in violation of any order, statute, rule or regulation applicable to Parent. The execution, delivery and performance of and compliance with this Agreement and the consummation of the Contemplated Transactions shall not result in any violation of, or conflict with, or constitute a default under the Articles of Incorporation or any of the foregoing agreements, instruments, judgments or decrees, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of Parent. 6.10 LITIGATION. There are no actions, suits, proceedings or investigations pending or threatened in writing against Parent or its properties before any court or governmental agency. Parent is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by Parent currently pending or which Parent intends to initiate. 6.11 EMPLOYEES. To Parent's knowledge, no employee of Parent is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such employee with Parent or any other party because -16- 22 of the nature of the business conducted by Parent. Parent does not have any collective bargaining agreements covering any of its employees. 6.12 BROKERS OR FINDERS. Parent has not incurred, and shall not incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby. 6.13 PERMITS. Parent has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could materially and adversely affect the business, properties, prospects, or financial condition of Parent, taken as a whole. Parent is not in default, in any material respect, under any of such franchises, permits, licenses, or other similar authority. 6.14 EMPLOYEE BENEFIT PLANS. Parent does not have any Employee Benefit Plan as defined in the Employee Retirement Security Act of 1974. 6.15 NO TAXABLE INCOME. Parent has never had any taxable income and does not expect any taxable income during its current taxable year, which year is expected to include the date on which the shareholders of Parent approve the Merger. 7. PRE-CLOSING COVENANTS. With respect to the period between the execution of this Agreement and the earlier of the termination of this Agreement and the Effective Time: 7.1 GENERAL. Each of the Parties will use reasonable efforts to take all actions and to do all things necessary, proper, or advisable in order to consummate and make effective the transactions contemplated by this Agreement as soon as reasonably practicable (including satisfaction, but not waiver, of the closing conditions set forth in SECTION 9 below). 7.2 NOTICES AND CONSENTS. Each of the Parties will give any notices to third parties and will use reasonable efforts to obtain any material third party consents that are required in connection with the Merger. Each of the Parties will give any notices to, make any filings with, and use its reasonable efforts to obtain any authorizations, consents, and approvals of Governmental Bodies required in connection with the Merger. 7.3 OPERATION OF BUSINESS. Each of the Parties will (a) conduct its business only in the Ordinary Course of Business, (b) use reasonable efforts to (i) preserve intact its current business organization, (ii) keep available the services of the current officers, and employees of the Company, and (iii) maintain the relations and good will with suppliers, customers, landlords, creditors, agents, and others having business relationships with such Party, and (c) confer with each other concerning operational matters of a material nature. Prior to the earlier of the Effective Time or the termination of this Agreement, without the prior written consent of Parent, the Company will not (i) issue more than 200,000 shares of Company Common Stock or Company Preferred Stock or -17- 23 options or warrants to purchase more than than such number of shares of Common Stock or Preferred Stock (other than shares issued upon exercise of outstanding options or warrants), (ii) issue any stock options with an exercise price per share which is less than the then-current market price of the Parent Common Stock, after giving effect to the Exchange Ratio and the conversion ratio of the Parent Preferred Stock into Parent Common Stock (assuming approval of the Merger and related matters by the shareholders of Parent), (iii) obtain additional debt financing with a principal amount in excess of $500,000 in the aggregate, (iv) make or declare any dividend or distribution with respect to shares of Company Common Stock or Company Preferred Stock, or (v) pay any bonus to, or increase the base salary of, any officer of the Company, other than merit increases and performance bonuses each in the ordinary course of business. 7.4 ACCESS TO INFORMATION. Each of the Company and Parent will permit the other Party and its Representatives to have access at all reasonable times, and in a manner so as not to interfere with its normal business operations, to its business and operations (subject, in the case of Parent, to compliance with applicable securities laws). Neither such access, nor any investigation by any Party and its Representatives, shall in any way diminish or otherwise affect such Party's right to rely on any representation or warranty made by the other Parties hereunder. 7.5 NOTICE OF DEVELOPMENTS. Each of the Company and Parent will use reasonable efforts to give prompt written notice to the other Party of any material development causing a breach of any of its own representations and warranties in SECTION 5 or SECTION 6 above, as the case may be. No disclosure pursuant to this SECTION 7.5, however, shall be deemed to amend or supplement the Company Disclosure Letter or the Parent Disclosure Letter, as the case may be, or to prevent or cure any misrepresentation, breach of warranty, or breach of covenant. 7.6 SHAREHOLDER APPROVAL. As promptly as practicable after the date hereof, the Company shall take all actions necessary in accordance with Delaware Law and its Amended and Restated Certificate of Incorporation and bylaws to institute an action by written consent of the Shareholders of the Company to approve the principal terms of the Merger. Unless so doing will cause the Board of Directors to violate its fiduciary duties under applicable law, the Board of Directors will unanimously recommend approval of the proposal to approve the principal terms of the Merger by the Company Stockholders. 7.7 CONFIDENTIALITY. Each of the Parties hereto hereby agrees to keep such information or Knowledge obtained in any due diligence or other investigation pursuant to the negotiation and execution of this Agreement or the effectuation of the transactions contemplated hereby, confidential. In this regard, the Company acknowledges, and will instruct its and its employees and agents with access to confidential information of Parent, that Parent's Common Stock is publicly traded and that any information obtained during the course of its due diligence could be considered to be material non-public information within the meaning of federal and state securities laws. Accordingly, the Company acknowledges and agrees not to, and will instruct its -18- 24 employees and agents with access to Parent's confidential information not to, engage in any transactions in Parent's Common Stock in violation of applicable insider trading laws. 7.8 FIRPTA COMPLIANCE. On the Closing Date, the Company shall deliver to Parent a properly executed statement in a form reasonably acceptable to Parent for purposes of satisfying Parent's obligations under U.S. Treasury Regulation Section 1.1445-2(c)(3). 7.9 ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each Party hereto, at the request of another Party hereto, shall execute and deliver such other instruments and do and perform such other reasonable acts and things as may be necessary or desirable for effecting completely the consummation of the Contemplated Transactions. 8. POST-CLOSING COVENANTS. With respect to the period following the Effective Time: 8.1 GENERAL. In case at any time after the Effective Time any further action is necessary to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party reasonably may request, all at the sole cost and expense of the requesting Party (unless the requesting Party is entitled to indemnification therefor under SECTION 10.2 below). 8.2 SHAREHOLDER APPROVAL. As promptly as practicable after the date hereof, Parent shall take all actions necessary in accordance with the Minnesota Business Corporation Act and its Articles of Incorporation and bylaws to duly call, give notice of, convene and hold a meeting of its shareholders to consider and vote upon (i) a proposal to approve the principal terms of the Merger, (ii) a proposal to approve the issuance of the Parent Preferred Stock and the shares of Common Stock of Parent issuable upon conversion thereof, and (iii) the election of a Board of Directors composed of the following persons: Jesse Berst, Daniel Conner, Prof. David Farber, Stephen King, Jerry Runyan, Gary Schneider, Scott Schwartz, Lee Stein and Frank Wood. Parent shall set the record date for such special meeting as soon as practicable following the date hereof. Parent shall use reasonable efforts to solicit and obtain at or in advance of such meeting the voting proxies from its shareholders sufficient to approve the proposals set forth above. Parent will cause a Proxy Statement to be prepared, filed with the SEC and submitted to the Parent Shareholders in accordance in all material respects with all applicable laws and regulations. The Proxy Statement will contain the unanimous recommendation of the Board of Directors of the Company regarding each of the proposals set forth above. Parent has delivered to the Company, concurrently with the execution of this Agreement, executed Voting Agreements in the form attached hereto as Exhibit B from holders with beneficial ownership of 90% of the number of outstanding shares of Parent Common Stock and Parent Preferred Stock required to approve the proposals set forth above. Parent shall provide the Proxy Statement to the Company and its counsel for review and comment (and shall make such changes thereto as are reasonably requested by the Company or its counsel), prior to providing the Proxy Statement to the SEC or the Parent Shareholders. -19- 25 8.3 LITIGATION SUPPORT. In the event and for so long as any Party actively is contesting or defending against any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction (A) on or prior to the Effective Time involving the Company or (B) arising out of Parent's operation of the business of the Surviving Corporation following the Effective Time in the manner in which it is presently conducted and planned to be conducted, each of the other Parties will cooperate with the Party and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be reasonably necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party. 8.4 TAX TREATMENT. (a) It is the intent of the parties to this Agreement that the Merger qualify as a tax-free reorganization under Section 368(a) of the Code, and each of Parent, Sub, the Company and the Surviving Corporation covenants and agrees not to take any actions inconsistent with such intent and agrees to use best efforts to cause the Merger to qualify as a tax-free reorganization under Section 368(a) of the Code. Each of Parent, Sub, the Company and the Surviving Corporation agrees not to take any action from and after the Effective Time that could reasonably be expected to cause the Merger not to be treated as a "reorganization" under Section 368(a) of the Code. (b) It is the intent of the parties to this Agreement that the reduction in the Liquidation Value of the Parent Preferred Stock pursuant to Section 4 of the Certificate of Designation attached hereto as Exhibit H upon approval of the Merger and related matters by the shareholders of Parent, and the increase in the Conversion Ratio of the Parent Preferred Stock pursuant to Section 5(a) of such Certificate of Designation concurrently therewith, qualify as a recapitalization within the meaning of Section 368(a)(1)(E) of the Code for federal income tax purposes. Each of Parent, Sub, the Company and the Surviving Corporation agree not to take any action that could reasonably be expected to be inconsistent with such recapitalization qualification. 8.5 EMPLOYEE BENEFITS. Subject to any applicable legal, regulatory or contractual limitations, Parent shall take all actions as are necessary to allow employees of the Company who continue their employment with the Surviving Corporation or who become employees of Parent or any subsidiary of Parent to participate in the benefit programs of Parent to the same extent as similarly situated employees of Parent, without undue delay after the Effective Time. Without limiting the generality of the foregoing, (i) subject to any applicable legal, regulatory or contractual limitations, to the extent that any employee of the Company becomes eligible to participate in any employee benefit plan of Parent after the Effective Time, Parent, the Surviving Corporation and their subsidiaries shall credit such employee's service with the Company, to the same extent as such service was credited under the similar employee benefit plans of the Company immediately prior to -20- 26 the Effective Time, for purposes of determining eligibility to participate in and vesting under, and for purposes of calculating the benefits under, such employee benefit plan of Parent, and (ii) to the extent permitted by such employee benefit plan of Parent and applicable law, Parent, the Surviving Corporation and their subsidiaries shall waive any pre-existing condition limitations, waiting periods or similar limitations under such employee benefit plan of Parent and shall provide each such employee with credit for any co-payments previously made and any deductibles previously satisfied. 8.6 INDEMNIFICATION OF DIRECTORS AND OFFICERS. (a) For a period of five years from the Closing Date, Parent shall, and shall cause the Surviving Corporation to, fulfill and honor all rights to indemnification existing in favor of the current directors and officers of the Company, as provided in the Company's Certificate of Incorporation and Bylaws (as in effect as of the date of this Agreement) and as provided in the indemnification agreements between the Company and such directors and officers listed in SECTION 8.6 of the Company Disclosure Letter, complete and correct copies of which have been provided to Parent. (b) For five years after the Effective Time, Parent shall maintain in effect directors' and officers' liability insurance covering those persons who are currently covered by the Company's directors' and officers' liability insurance policy with scope and coverage similar to Parent's existing directors' and officers' liability insurance coverage. (c) All expenses, including attorneys' fees, which may be incurred by any Party in connection with any action to enforce the indemnity and other obligations provided for in this SECTION 8.6 shall be paid by the prevailing party in such action. (d) This SECTION 8.6 shall survive the consummation of the transactions contemplated hereby, is intended to benefit and may be enforced by the directors and officers of the Company, and shall be binding on all successors and assigns of Parent and the Company. 8.7 REGISTRATION STATEMENT ON FORM S-8. As soon as practicable after the Closing, and in any event within ten (10) business days thereafter, Parent shall file with the SEC a registration statement on Form S-8, which registration will register all shares of Parent Common Stock issued or issuable up exercise of stock options issued under the Company's 1999 Stock Plan or upon conversion of shares of Parent Preferred Stock issued or issuable up exercise of stock options issued under the Company's 1999 Stock Plan. 8.8 PURCHASE OF COMPANY PREFERRED STOCK. As soon as practicable after the date hereof, and in any event prior to the Closing, Parent shall purchase from Archery Venture Partners, L.P. ("Archery") all shares of Company Preferred Stock held by Archery for cash, at the original issuance price thereof ($4.10), unless Archery declines to accept the Parent's offer to purchase such shares of Company Preferred Stock. -21- 27 9. CONDITIONS TO OBLIGATIONS TO CLOSE. 9.1 CONDITIONS TO PARENT'S AND SUB'S OBLIGATION TO CLOSE. The obligations of Parent and Sub to consummate the transactions to be consummated by them in connection with the Closing is subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in SECTION 5 above shall be accurate as of the date of this Agreement and on and as of the Closing Date (it being understood that, for purposes of determining the accuracy of such representations and warranties, (A) any inaccuracies in such representations and warranties that do not and are not reasonably expected to, in the aggregate, result in a Material Adverse Effect, and (B) any update of or modification to the Company Disclosure Schedule made or purported to have been made after the execution of this Agreement shall be disregarded). (b) COVENANTS. The Company shall have performed and complied with all of its covenants hereunder in all material respects through the Closing. (c) NO ACTIONS. No action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect) and no law, statute, ordinance, rule, regulation or order shall have been enacted, enforced or entered which has caused, or would reasonably be expected to cause, any of the effects under clause (A) or (B) of this SECTION 9.1(C) to occur. (d) CERTIFICATES. The Company shall have delivered to Parent a certificate executed on behalf of the Company by its President and Secretary to the effect that each of the conditions specified above in SECTION 9.1(A) to 9.1(C) (inclusive) is satisfied in all respects. (e) GOVERNMENTAL AUTHORIZATIONS. The Parties shall have received all authorizations, consents and approvals of governments and governmental agencies referred to in SECTION 5.4 OR SECTION 7.2 above or disclosed in a corresponding section in the Company Disclosure Letter, the lack of which would have a Material Adverse Effect on the Company or Parent, or render the Merger or the Contemplated Transactions unlawful. (f) LEGAL OPINION. Parent shall have received from Wilson, Sonsini, Goodrich & Rosati, P.C., counsel to the Company, an opinion in form and substance substantially as set forth in EXHIBIT E attached hereto, addressed to Parent, and dated as of the Closing Date. -22- 28 (g) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any event having a Material Adverse Effect on the Company since the date hereof. (h) VOTING AGREEMENTS. The Voting Agreements executed and delivered to Parent by each of the Affiliates of the Company shall remain in full force and effect. (i) DISSENTERS' RIGHTS. As of the Effective Time, no more than 3.5% of the outstanding shares of Company Capital Stock shall be Dissenting Shares. (j) COMPLETION OF FINANCING. Parent shall have completed a sale of shares of Parent Common Stock with proceeds to Parent of no less than $3.55 million (a "FINANCING"); provided however that Parent shall not be entitled to assert the foregoing as a condition to closing unless Parent shall have used its best efforts to complete the Financing without delay. For avoidance of doubt, the foregoing obligation of Parent to use its best efforts to complete the Financing may include sale of shares of Parent Common Stock and/or warrants at a significant discount to the market price of the Parent Common Stock, provided that Parent shall not be obligated to issue shares of Parent Common Stock at a purchase price of less than $1.66 per share. Parent may waive any condition (in whole or in part) specified in this SECTION 9.1 if it executes a writing so stating at or prior to the Closing. 9.2 CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligation of the Company to consummated the transactions to be performed by it in connection with the Closing is subject to satisfaction or waiver of the following conditions: (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in SECTION 6 above shall be accurate as of the date of this Agreement, and on and as of the Closing Date (it being understood that, for purposes of determining the accuracy of such representations and warranties, (A) any inaccuracies in such representations and warranties that do not and are not reasonably expected to in the aggregate, result in a Material Adverse Effect shall be disregarded, and (B) any update or modification to the Parent Disclosure Schedule made or purported to have been made after execution of this Agreement shall be disregarded). (b) COVENANTS. Parent and Sub shall have performed and complied with all of their covenants hereunder in all material respects through the Closing. (c) NO ACTIONS. No action, suit, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such injunction, judgment, order, decree, ruling, or charge shall be in effect) -23- 29 and no law, statute, ordinance, rule, regulation or order shall have been enacted, enforced or entered which has caused, or is reasonably expected to cause, any of the effects under clause (A) or (B) of this Section 9.2(c) to occur. (d) CERTIFICATE. Parent shall have delivered to the Company a certificate executed on behalf of Parent by its President or other duly authorized officer to the effect that each of the conditions specified above in Section 9.2(a) to 9.2(C) (inclusive) is satisfied in all respects. (e) LEGAL OPINION. The Company shall have received from Maslon Edelman Borman & Brand, LLP, counsel to Parent an opinion in form and substance substantially as set forth in EXHIBIT F attached hereto, addressed to the Company Stockholders, and dated as of the Closing Date. (f) SHAREHOLDER VOTE. The principal terms of the Merger shall have been approved by the vote of Persons holding a majority of the outstanding shares of Company Common Stock and a majority of the outstanding shares of Company Preferred Stock (all series of which shall vote together as a single class) as of the record date for Persons entitled to vote with respect to the Merger; (g) NO MATERIAL ADVERSE EFFECT. There shall not have occurred any event having a Material Adverse Effect on Parent since the date hereof. (h) AVERAGE CLOSING PRICE. The Average Closing Price of the Parent Common Stock as of the Closing Date shall be not less than $2.75 per share (as adjusted for stock splits, stock dividends and similar events). (i) NASDAQ STATUS. As of the Closing Date, the Parent Common Stock shall continue to be listed on the Nasdaq Small Cap Market, and Parent shall not have received any notice from Nasdaq or otherwise have Knowledge of any circumstances which would reasonably be expected to lead to a de-listing of the Parent Common Stock, other than such circumstances which can be corrected without causing any of the other conditions in this Section 9.1(b) to be violated, or which may result from voluntary actions which Parent may choose to undertake following the Closing. (j) VOTING AGREEMENTS. The Voting Agreements executed and delivered to the Company by each of the Affiliates of Parent shall remain in full force and effect. (k) NASDAQ LISTING. The shares of Parent Common Stock issuable upon conversion of the Parent Preferred Stock issuable in connection with the Merger shall have been authorized for listing on the Nasdaq Small Cap Market upon official notice of issuance. -24- 30 (l) REGISTRATION RIGHTS AGREEMENT. Parent shall have executed and delivered the Registration Rights Agreement in the form attached hereto as EXHIBIT G and such Agreement shall be in full force and effect. (m) EMPLOYMENT AGREEMENTS. Parent shall have executed and delivered Employment Agreements in the form attached hereto as EXHIBIT D with each of the following persons: Jesse Berst, Robert Kenneally and Scott Sternberg, and such agreements shall remain in full force and effect. (n) PURCHASE OF SHARES. Parent shall have completed the purchase of all shares of Series B Preferred Stock of Parent held by Archery Venture Partners, at the original issuance price of such shares, unless otherwise agreed by Archery Venture Partners. (o) ADDITIONAL VOTING AGREEMENTS. Either (i) holders of at least 52.5% of the outstanding shares of Common Stock and Preferred Stock of Parent (on an as-converted basis) (which number of shares is sufficient to ensure ratification of the Merger and approval of the issuance of the Parent Preferred Stock and the shares of Common Stock of Parent issuable upon conversion thereof) shall have executed and delivered Parent Voting Agreements to the Company; provided however holder of up to 7.5% of the outstanding shares of Common Stock and Preferred Stock of Parent (on an as-converted basis) may have execute modified versions of the Parent Voting Agreement which do not contain the provisions thereof prohibiting sale of transfer of the shares held by such holders, or (ii) holders of at least 50.1% of the outstanding shares of Common Stock and Preferred Stock of Parent (on an as-conerted basis) (which number of shares is sufficient to ensure ratification of the Merger and approval of the issuance of the Parent Preferred Stock and the shares of Common Stock of Parent issuable upon conversion thereof) shall have executed and delivered Parent Voting Agreements to the Company all of which contain provisions prohibiting the sale or transfer of shares held by such holders. (p) COMPLETION OF FINANCING. Parent shall have completed a sale of shares of Parent Common Stock with proceeds to Parent of no less than $3.55 million. (q) CERTIFICATE OF DESIGNATION. The Certificate of Designation of the Parent Preferred Stock shall have been duly approved and filed with the Secretary of State of the State of Minnesota. The Company may waive any condition (in whole or in part) specified in this SECTION 9.2 if it executes a writing so stating at or prior to the Closing. 10. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNITY. 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants of Parent and the Company contained in this Agreement to be performed prior to the Effective Time, and all -25- 31 representations and warranties of Parent and the Company contained in this Agreement or in any instrument delivered by Parent or the Company pursuant to this Agreement, shall survive the Merger for a period ending one (1) year from the Effective Time. 10.2 INDEMNITY. (a) From and after the Closing Date, VC agrees to indemnify and hold Parent and its Representatives and Affiliates (including the Company) (collectively, the "PARENT INDEMNIFIED PERSONS") from and harmless against all claims, losses, liabilities, damages, deficiencies, costs, expenses (including reasonable attorneys' fees and expenses of investigation) and diminution in value (hereinafter individually a "LOSS" and collectively "LOSSES") incurred by the Parent Indemnified Persons as a result of (A) any inaccuracy or breach of a representation or warranty of the Company contained in this Agreement (as modified by the Company Disclosure Letter) or in any instrument delivered by the Company pursuant to this Agreement, or (B) any failure by the Company to perform or comply with any covenant contained in this Agreement that is required to be performed or complied with by the Company prior to the Closing. From and after the Closing Date, Parent and Sub, jointly and severally agree to indemnify and hold the Company Stockholders and their respective Representatives and Affiliates (collectively, the "COMPANY INDEMNIFIED PERSONS") from and harmless against all Losses incurred by the Company Indemnified Persons as a result of (A) any inaccuracy or breach of a representation or warranty of Parent or Sub contained in this Agreement (as modified by the Parent Disclosure Letter) or in any instrument delivered by Parent or Sub pursuant to this Agreement, or (B) any failure by Parent or Sub to perform or comply with any covenant contained in this Agreement that is required to be performed or complied with by it prior to the Closing. (b) Notwithstanding anything contained herein to the contrary, other than as set forth in the last sentence of this paragraph, VC shall not have any liability or obligation to indemnify or hold harmless any Parent Indemnified Person for any Losses unless and until Losses are incurred which would be indemnifiable under SECTION 10.2(A) above but for the provisions of this SECTION 10.2(B) in an amount equal to or exceeding $500,000 in the aggregate (the "BASKET AMOUNT"). At such time as Losses which meet the foregoing threshold have been incurred and would be indemnifiable under SECTION 10.2(A) above but for the provisions of this SECTION 10.2(B), Parent and Sub shall be entitled to indemnification for all Losses in excess such threshold. Losses resulting from fraudulent misrepresentations by the Company shall be indemnifiable without regard to the Basket Amount. (c) Notwithstanding, anything herein to the contrary, Parent's aggregate liability under this Agreement for Losses incurred by the Company Stockholders shall in no event exceed $20.5 million. Any such liability of Parent may be satisfied by delivery of additional shares of Parent Common Stock, based on the Average Closing Price as of the date of such delivery, but only if such Average Closing Price is in excess of $2.00. Notwithstanding anything herein to the -26- 32 contrary, VG's liability under this Agreement for Losses incurred by Parent shall in no event exceed 50% of the value of the Merger Consideration received by VG, valued based on the Average Closing Price as of the Closing Date. Any such liability of VG may be satisfied by delivery of shares of Parent Preferred Stock received in the Merger or shares of Parent Common Stock received upon conversion thereof, based on the aforementioned Average Closing Price. VG agrees that a certificates representing 50% the shares of Parent Preferred Stock issued to VG, and the shares of Parent Common Stock issuable upon conversion thereof, may bear a legend referring to VG's obligations under this Section 10.2 (the "LEGEND"). All obligations of VG under this Agreement shall terminate on August 31, 2000. As promptly as practicable after such date, Parent shall cancel all stock certificates submitted by VG bearing the Legend and issue to VG stock certificates with like designations not bearing the Legend. (d) None of the Parent Indemnified Persons will have recourse against any of the Company Shareholders or any officer, director or affiliate of the Company, or any of their respective officers, directors, shareholders or affiliates, with respect to Losses incurred, except as specifically set forth in this Section 10.2 with respect to VG. Any rights, remedies or claims the Parent Indemnified Persons may now or hereinafter possess against any such persons or their properties, whether direct or indirect, known or unknown, matured or unmatured, whether under contract or by law, are hereby irrevocably waived and will not be asserted. 11. TERMINATION. 11.1 TERMINATION OF THE AGREEMENT. The Parties may terminate this Agreement as provided below: (a) Parent and the Company may terminate this Agreement by mutual written consent at any time prior to the Closing; (b) Parent or the Company may terminate this Agreement by written notice to the other Parties if: (i) the Closing has not occurred by (A) March 31, 2000, provided, however, that the right to terminate this Agreement under this SECTION 11.1(B)(I) shall not be available to any Party whose action or failure to act has been a principal cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement; (ii) there shall be a final nonappealable order of a court of competent jurisdiction in effect preventing consummation of the Merger or (iii) there shall be any statute, rule, regulation or order enacted, promulgated or issued or deemed applicable to the Merger by any Governmental Body that would make consummation of the Merger illegal; (c) Parent may terminate this Agreement by written notice to the Company if neither it nor Sub is in breach of any representation, warranty, covenant or agreement under this Agreement in a manner which would cause the conditions to Closing set forth in SECTION 9.2(A) or 9.2(B) not to be satisfied, and there has been a breach of any representation, -27- 33 warranty, covenant or agreement contained in this Agreement on the part of the Company which would cause the conditions to Closing set forth in SECTION 9.1(A) or 9.1(B) not to be satisfied, and such breach has not been cured within thirty (30) calendar days after written notice to the Company; provided, however, that, no cure period shall be required for a breach which by its nature cannot be cured; (d) the Company may terminate this Agreement by written notice to Parent if it is not in breach of any representation, warranty, covenant or agreement under this Agreement in a manner which would cause the conditions to Closing set froth in SECTION 9.1(A) or 9.1(B) of this Agreement not to be satisfied, and there has been a breach of any representation, warranty, covenant or agreement contained in this Agreement on the part of Parent or Sub which would cause the conditions to Closing set forth in SECTION 9.2(A) or 9.2(B) not to be satisfied and such breach has not been cured within thirty (30) calendar days after written notice to Parent; provided, however, that no cure period shall be required for a breach which by its nature cannot be cured. 11.2 EFFECT OF TERMINATION. If any Party terminates this Agreement pursuant to SECTION 11.1 above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party; provided that each Party shall remain liable for any willful breaches of this Agreement prior to its termination; and provided further that Section 7.7 hereof shall survive any termination of this Agreement. 12. MISCELLANEOUS. 12.1 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the other Party, which will not be unreasonably withheld or delayed; provided, however, that Parent may make any public disclosure which counsel advises is required by applicable law or exchange requirements or any listing or trading agreement concerning its publicly-traded securities (in which case Parent will use its Best Efforts to advise the Company prior to making the disclosure and provide the Company with an opportunity to review and comment on such disclosure in advance of public release). 12.2 NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties, the Company Stockholders and those Persons referred to in Sections 8.4, 8.5, 8.6 and 10.2, and their respective successors and permitted assigns. 12.3 ENTIRE AGREEMENT AND MODIFICATION. This Agreement (including the exhibits hereto) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersede any prior understandings, agreements, or representations by or among the Parties, written or oral, to the extent they related in any way to the subject matter hereof. This Agreement may not be amended prior to the Effective Time except by a written agreement executed by all -28- 34 Parties and after the Effective Time except by a written agreement signed by Parent and a majority in interest of the Company Stockholders. 12.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Parties. 12.5 COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 12.6 HEADINGS. The Section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 12.7 NOTICES. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with receipt of transmission confirmation and with copy by first class mail, postage prepaid, and shall be addressed to the intended recipient as set forth below: If to Parent: Popmail.com, Inc. 4801 West 81st Street, Suite 112 Bloomington, MN 55437 Attention: Stephen D. King, Chief Executive Officer Facsimile: 612-837-9916 Copy to: Maston Edelman Borman & Brand LLP 3300 Norwest Center Minneapolis, MN 55402 Attention: William Mower Facsimile: 612-672-8397 -29- 35 If to the Company: IZ.com Incorporated 1041 N. Formosa Blvd., Suite 210, Santa Monica Bldg. West Hollywood, CA 90069 Attention: Lee H. Stein, Chairman & Chief Executive Officer Facsimile: 310-___-___ Copy to: Wilson Sonsini Goodrich & Rosati Professional Corporation 650 Page Mill Rd. Palo Alto, CA 94304 Attention: Barry Taylor/Ramsey Hanna Facsimile: 650-845-5000 If to VC: Virtual Capital LLC P.O. Box 526 Zephyr Cove, NV 89448 Attention: Lee H. Stein Facsimile: 775-588-0832 Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties five (5) days' advance written notice to the other Parties pursuant to the provisions above. 12.8 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 12.9 WAIVERS. The rights and remedies of the Parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any Party in exercising any right, power or privilege under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right, power or privilege, and no single or partial exercise of such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one Party, in whole or in part, by a waiver or renunciation of the -30- 36 claim or right unless in writing signed by the other Party; (b) no waiver that may be given by a Party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one Party will be deemed to be a waiver of any obligation of such Party or of the right of the Party giving such notice or demand to take further action without notice or demand as provided in this Agreement or the documents referred to in this Agreement. 12.10 SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 12.11 EXPENSES. Each Party will bear its own costs and expenses (including legal and accounting fees and expenses) incurred in connection with this Agreement and the Contemplated Transactions. In the event the Merger is consummated, Parent will bear the costs and expenses (including accounting and legal fees and expenses) of the Company incurred in connection with this Agreement and the Contemplated Transactions. 12.12 CONSTRUCTION. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation. 12.13 DISCLOSURE LETTERS. (a) The disclosures in the Parent Disclosure Letter and the Company Disclosure Letter, and those in any supplement thereto, will be deemed to relate only to (i) the representations and warranties in the correspondingly numbered Section of this Agreement or (ii) any other Section of this Agreement to which such disclosures clearly relate, from the perspective of a reasonable person without prior familiarity with Parent or the Company, as the case may be, or the matters addressed in such representation and warranty. (b) In the event of any inconsistency between the statements in the body of this Agreement and those in the Parent Disclosure Letter or the Company Disclosure Letter (other than an exception expressly set forth in the Company Disclosure Letter the Parent Disclosure Letter or the which is deemed to relate to such representation or warranty pursuant to Section 12.14(a) above), the statements in the body of this Agreement will control. 12.14 ATTORNEYS' FEES. If any legal proceeding or other action relating to this Agreement is brought or otherwise initiated, the prevailing party shall be entitled to recover -31- 37 reasonable attorneys fees, costs and disbursements (in addition to any other relief to which the prevailing party may be entitled). 12.15 FURTHER ASSURANCES. The Parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents, and (c) to do such other acts and things, all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement and the documents referred to in this Agreement. 12.16 TIME OF ESSENCE. With regard to all dates and time periods set forth or referred to in this Agreement, time is of the essence. -32- 38 IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on of the date first above written. PARENT: POPMAIL.COM, INC. By: /s/ Stephen D. King -------------------------------- Name: Stephen D. King ------------------------------ Title: Chief Executive Officer ----------------------------- COMPANY: IZ.COM INCORPORATED By: /s/ Lee H. Stein -------------------------------- Name: Lee H. Stein ------------------------------ Title: Chief Executive Officer ----------------------------- SUB: IZ ACQUISITION CORPORATION By: /s/ Stephen D. King -------------------------------- Name: Stephen D. King ------------------------------ Title: Chief Executive Officer ----------------------------- VG: VIRTUAL GROUP LLC By: /s/ Lee H. Stein -------------------------------- Name: Lee H. Stein ------------------------------ Title: President ----------------------------- [AGREEMENT AND PLAN OF REORGANIZATION SIGNATURE PAGE] EX-3.1 3 CERT. OF DESIGNATION OF SERIES F OF PREF. STOCK 1 EXHIBIT 3.1 POPMAIL.COM, INC. CERTIFICATE OF DESIGNATION OF SERIES F CONVERTIBLE PREFERRED STOCK Pursuant to Section 401(3)(b) of the Minnesota Business Corporation Act (the "MBCA"), PopMail.com, inc. (the "Company"), a corporation organized and existing under the MBCA, does hereby certify that pursuant to the authority conferred upon the Board of Directors of the Company by the Articles of Incorporation of the Company, and in accordance with the provisions of Section 401(3)(a) of the MBCA, the Board of Directors of the Company, as of January 19, 2000, adopted the following resolution creating a series of preferred stock designated as Series F Convertible Preferred Stock: RESOLVED: That pursuant to the authority vested in the Board of Directors of the Company in accordance with the provisions of its Articles of Incorporation, as amended, a series of preferred stock, $.01 par value, to be titled the "Series F Convertible Preferred Stock" (the "Preferred Shares") of the Company is hereby created and designated. The number of shares of Preferred Shares shall be 425,000 shares. The voting powers, preferences and relative, participating, optional and other special rights of the Preferred Shares, and the qualifications, limitations and restrictions thereof, are as follows: 1. Designation. The series of preferred stock established hereby shall be designated the "Series F Convertible Preferred Stock" (and shall be referred to herein as the "Preferred Shares") and the authorized number of Preferred Shares shall be 425,000. 2. Voting Rights. Along with the holders of common stock, each holder of Preferred Shares shall have one vote on all matters submitted to the holders of common stock for each share of common stock into which such Preferred Shares would be converted if converted as of the date of such vote. In addition, without the affirmative vote of the holders (acting together as a class) of at least a majority of Preferred Shares at the time outstanding given in person or by proxy at any annual or special meeting, or, if permitted by law, in writing without a meeting, the Company shall not (i) alter, change or amend the preferences or rights of the Preferred Shares, (ii) alter, change or amend its Articles of Incorporation or Bylaws, or (iii) authorize or issue shares of any class or series of stock having any preference or priority over the Preferred Shares with respect to dividends or upon liquidation or change of control. 3. Dividends. In the event that the Company declares or pays any dividends upon the common stock (whether payable in cash, securities or other property), other than dividends payable solely in shares of common stock, the Company shall also declare and pay to the holders of the Preferred Shares at the same time that it declares and pays such dividends to the holders of the common stock, the dividends which would have been declared and paid with respect to the common stock issuable upon conversion of the Preferred Shares had all of the outstanding Preferred Shares been converted immediately prior to the record date for such dividend or, if no record date is fixed, the date as of which the record holders of common stock entitled to such dividends are to be determined. 4. Liquidation Right and Preference. In the event of the liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Preferred Shares shall be entitled to receive in cash, out of the assets of the Company, an amount per share for each outstanding Preferred Share equal to $125.26 (herein, "Liquidation Value"), before any payments shall be made or any assets distributed to the holders of common stock or any other class of shares of the Company. In the event the shareholders of the Company approve the Merger and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Shares, the Liquidation Value shall be reduced to an amount per Preferred Share equal to $69.59. If, upon any liquidation, dissolution or winding up of the Company, 2 the assets of the Company are insufficient to pay the Liquidation Value, the holders of such Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following payment of the Liquidation Value to the holders of Preferred Shares upon such liquidation, dissolution or a winding up of the Company, the holders of common stock and Preferred Shares shall then share ratably in all the assets of the Company thereafter remaining. For purposes of this joint distribution of assets to the holders of common stock and the holders of Preferred Shares, each holder of Preferred Shares should be regarded as owning that number of common stock into which such Preferred Shares would then be convertible. A merger or consolidation of the Company which results in a change of control or a sale of substantially all of the assets of the Company (other than a sale of the Company's assets relating to its restaurant operations) shall be treated as a liquidation event for purposes of this Section 4. 5. Conversion Rights. (a) Conversion Ratio and Optional Conversion. A holder of Preferred Shares shall initially be entitled to convert at any time any or all of such Preferred Shares into common stock at the rate of 12.977 shares of common stock per Preferred Share (the "Conversion Ratio"). The Conversion Ratio shall be adjusted to 25.66 shares of Popmail Common Stock for each Preferred Share at such time as the Company's shareholders approve the Merger and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Shares. The Conversion Ratio shall be subject to adjustment pursuant to Sections 9(a) and (b). (b) Automatic Conversion. The Preferred Shares shall automatically be converted into shares of common stock of the Company at the then applicable Conversion Ratio (i) at such time as (1) the Company's shareholders have approved the Merger and the issuance of the shares of Common Stock issuable upon conversion of the Preferred Shares, (2) the Company shall have closed a private Common Stock equity financing with proceeds to the Company of at least $6.0 million, and (3) the closing sales price of the Common Stock as reported by the Nasdaq Small Cap Market for the five consecutive trading days preceding the date of automatic conversion shall result in a valuation of the Company of no less than $100 million (which valuation shall be calculated by multiplying the price per share of Common Stock on each such trading day by the total number of shares of Common Stock outstanding or issuable upon conversion of all outstanding Preferred Shares (at the adjusted Conversion Ratio)) or (ii) upon the exercise of the conversion privilege of at least 50 percent of the outstanding Preferred Shares. The Conversion Ratio shall be subject to adjustment pursuant to Sections 9(a) and (b). (c) Conversion Mechanics. In order to exercise the conversion privilege, a holder of Preferred Shares shall (1) notify the Company in writing of such holder's intent to convert a specified portion of such shares (the "Conversion Notice" and the date of such notice which shall be the same or later than the date notice is given, the "Conversion Notice Date") and (2) provide, on or prior to the Conversion Notice Date, to the Company at its principal office the certificate evidencing the Preferred Shares being converted, duly endorsed to the Company and accompanied by written notice to the Company that the holder elects to convert a specified portion or all of such Shares. Preferred Shares converted at the option of the Holder shall be deemed to have been converted on the day of receipt by the Company of the certificate representing such shares for conversion in accordance with the foregoing provisions (the "Conversion Date"), and at such time the rights of the holder of such Preferred Shares other than the right to receive shares of common stock upon conversion of the Preferred Shares pursuant to the terms hereof, as such holder, shall cease and such holder shall be treated for all purposes as the record holder of common stock issuable upon conversion. Preferred Shares converted automatically in connection with an underwritten public offering or private placement of securities shall be conditioned upon the closing of such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such transaction. As promptly as practicable on or after the Conversion Date, the Company shall issue and mail or deliver to such holder a 3 certificate or certificates for the number of shares of common stock issuable upon conversion, computed to the nearest full share, and a certificate or certificates for the balance of Preferred Shares surrendered, if any, not so converted into common stock. 6. Registration Rights. Holders of the Preferred Shares shall have the rights with respect to registration of such shares pursuant to the Securities Act of 1933, as amended, and related state and Exchange registrations, as set forth in a Registration Rights Agreement to be entered into by and between the Company and such holders. 7. Preemptive Rights. Holders of Preferred Shares shall have no preemptive rights with respect to any future issuances of securities by the Company. 8. Tax Treatment. It is intended that a reduction in the Liquidation Value pursuant to Section 4 hereof, and a concurrent increase in the Conversion Ratio pursuant to Section 5(a) hereof, when taken together, qualify as a recapitalization within the meaning of Internal Revenue Code Section 368(a)(1)(E) for federal income tax purposes. 9. Other Terms of Series F Convertible Preferred Shares. (a) Stock Split, Stock Dividend, Recapitalization, etc. If the Company, at any time while any Preferred Shares are outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions payable in shares of its capital stock (whether payable in shares of its common stock or of capital stock of any class), (b) subdivide outstanding shares of common stock into a larger number of shares, (c) combine outstanding shares of common stock into a smaller number of shares, or (d) issue by reclassification of shares of common stock any shares of capital stock of the Company, the Conversion Ratio in effect immediately prior thereto shall be adjusted so that the holder of any Preferred Shares thereafter surrendered for conversion shall be entitled to receive the number of shares of common stock which such holder would have owned or have been entitled to receive after the happening of any of the events described above had such Preferred Shares been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of shareholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. (b) No Impairment. Unless approved in accordance with paragraph (2) hereof the Company will not, by amendment of its Articles of Incorporation or this Certificate of Designation or through any reorganization, transfer of assets, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all the provisions of this paragraph 9(a) and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Preferred Shares against impairment. (c) Notices of Record Date. In the event that this Company shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus (for avoidance of doubt, the foregoing phrase does not include any stock split or reverse stock split which results in an automatic adjustment of the Conversion Ratio purchase to Section 9(a) above); (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; 4 (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge with or into any other corporation (other than a merger in which the holders of the outstanding voting equity securities of the Company immediately prior to such merger hold more than fifty percent (50%) of the voting power of the surviving entity immediately following such merger), or sell, lease or convey all or substantially all its property or business, or to liquidate, dissolve or wind up; then, in connection with each such event, this Company shall send to the holders of the Preferred Stock: (1) at least ten (10) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least ten (10) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). Each such written notice shall be given by first class mail, postage prepaid, addressed to the holders of Preferred Shares at the address for each such holder as shown on the books of this Company and shall be deemed given when so mailed. (d) Reservation of Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Shares, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Preferred Shares; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding Preferred Shares, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. (e) Status of Converted Stock. In the event any Preferred Shares shall be converted pursuant to paragraph 5 hereof, the shares so converted shall be canceled and shall not be issuable by the Company. IN WITNESS WHEREOF, PopMail.com, inc. has caused this Certificate to be duly executed in its corporate name on this 7th day of February, 2000. POPMAIL.COM, INC. By: /s/ Stephen D. King ------------------- Its: Chief Executive Officer ----------------------- EX-10.1 4 REGISTRATION RIGHTS AGREEMENT. 1 EXHIBIT 10.1 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 21, 2000 (this "AGREEMENT"), between Popmail.com, a Minnesota corporation, with principal executive offices located at 4801 West 81st Street, Suite 112, Bloomington, Minnesota 55437 (the "COMPANY"), and the stockholders of IZ.com Incorporated, a Delaware corporation ("IZ.COM"). WHEREAS, upon the terms and subject to the conditions of the Agreement and Plan of Reorganization dated as of January 21, 2000, between IZ.com and the Company (the "REORGANIZATION AGREEMENT"), IZ.com is to be merged with and into a wholly-owned subsidiary of the Company (the "MERGER"), all outstanding shares of capital stock of IZ.com are to be converted into shares of Series F Preferred Stock of the Company (the "PREFERRED SHARES") and all options, warrants and other rights to purchase shares of capital stock of IZ.com will be converted into equivalent options, warrants or other rights to purchase Preferred Shares; and WHEREAS, to induce IZ.com to execute and deliver the Reorganization Agreement, the Company has agreed to provide with respect to the Common Stock issuable upon conversion of the Preferred Shares and exercise of the options and warrants assumed by the Company certain registration rights under the Securities Act; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. DEFINITIONS (a) As used in this Agreement, the following terms shall have the meanings: (i) "AFFILIATE," of any specified Person means any other Person who directly, or indirectly through one or more intermediaries, is in control of, is controlled by, or is under common control with, such specified Person. For purposes of this definition, control of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract, securities, ownership or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have the respective meanings correlative to the foregoing. (ii) "CLOSING DATE" means the date and time of closing of the Merger. (iii) "COMMISSION" means the Securities and Exchange Commission. (iv) "CURRENT MARKET PRICE" on any date of determination means the closing bid price of a share of the Common Stock on such day as reported on the Nasdaq SmallCap Market ("NASDAQ"); provided, if such security bid is not listed or admitted to trading on the Nasdaq, as reported on the principal national security exchange or quotation system on which such security is quoted or listed or admitted to trading, or, if not quoted or listed or admitted to 2 trading on any national securities exchange or quotation system, the closing bid price of such security on the over-the-counter market on the day in question as reported by Bloomberg LP, or a similar generally accepted reporting service, as the case may be. (v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (vi) "PERSON" means any individual, partnership, corporation, limited liability company, joint stock company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. (vii) "PROSPECTUS" means the prospectus (including, without limitation, any preliminary prospectus and any final prospectus filed pursuant to Rule 424(b) under the Securities Act, including any prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance on Rule 430A under the Securities Act) included in the Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement and by all other amendments and supplements to such prospectus, including all material incorporated by reference in such prospectus and all documents filed after the date of such prospectus by the Company under the Exchange Act and incorporated by reference therein. (viii) "PUBLIC OFFERING" means an offer registered with the Commission and the appropriate state securities commissions by the Company of its Common Stock and made pursuant to the Securities Act. (ix) "REGISTRABLE SECURITIES" means the Common Stock issued or issuable (i) upon conversion of the Preferred Shares and (ii) upon exercise of options and warrants assumed by the Company pursuant to the Reorganization Agreement, other than shares registered pursuant to a registration statement on Form S-8 filed by the Company immediately after the Closing Date; provided, however, a share of Common Stock shall cease to be a Registrable Security for purposes of this Agreement when it no longer is a Restricted Security. (x) "REGISTRATION STATEMENT" means a registration statement of the Company filed on an appropriate form under the Securities Act providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities pursuant to Rule 415 under the Securities Act, including the Prospectus contained therein and forming a part thereof, any amendments to such registration statement and supplements to such Prospectus, and all exhibits and other material incorporated by reference in such registration statement and Prospectus. (xi) "RESTRICTED SECURITY" means any share of Common Stock issued or issuable upon conversion of the Preferred Shares except any such share that (i) has been registered pursuant to an effective registration statement under the Securities Act and sold in a manner contemplated by the prospectus included in such registration statement, (ii) has been -2- 3 transferred in compliance with the resale provisions of Rule 144 under the Securities Act (or any successor provision thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision thereto), or (iii) otherwise has been transferred and a new share of Common Stock not subject to transfer restrictions under the Securities Act has been delivered by or on behalf of the Company. (xii) "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute. (xiii) "STOCKHOLDERS" means the Shareholders who are signatories to this Agreement and any transferee or assignee of Registrable Securities who agrees to become bound by all of the terms and provisions of this Agreement in accordance with Section 8 hereof. (b) All capitalized terms used and not defined herein have the respective meaning assigned to them in the Reorganization Agreement. 2. REGISTRATION (a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The Company shall prepare and file with the Commission not later than 30 days after receipt of a request therefore executed by a majority-in-interest of the Stockholders (the "STOCKHOLDER NOTICE"), a Registration Statement relating to the offer and resale of the Registrable Securities by the holders thereof and shall use its best efforts to cause the Commission to declare such Registration Statement effective under the Securities Act as promptly as practicable but not later than 150 days after the date of the Stockholder Notice. The Company shall notify the Stockholders by written notice that such Registration Statement has been declared effective by the Commission within 24 hours of such declaration by the Commission. (b) REGISTRATION DEFAULT. If the Registration Statement covering the Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof is not (i) filed with the Commission within 30 days after the date of the Stockholder Notice or (ii) declared effective by the Commission within 150 days after the date of the Stockholder Notice (either of which, without duplication, an "INITIAL DATE"), then the Company shall make the payments to the Stockholders as provided in the next sentence as liquidated damages and not as a penalty. The amount to be paid by the Company to the Stockholders shall be determined as of each Computation Date (as defined below), and such amount shall be equal to 1% (the "LIQUIDATED DAMAGE RATE") of the Current Market Price of the Registrable Securities held by each such Shareholder from the Initial Date to the first Computation Date and for each Computation Date thereafter, calculated on a pro rata basis to the date on which the Registration Statement is filed with (in the event of an Initial Date pursuant to clause (i) above) or declared effective by (in the event of an Initial Date pursuant to clause (ii) above) the Commission (the "PERIODIC AMOUNT"). The full Periodic Amount shall be paid by the Company to the each Stockholder by wire transfer of immediately available funds within three days after each Computation Date. As used in this Section 2(b), "COMPUTATION DATE" means the date which is 30 days after the Initial Date and, if the Registration Statement required to be filed by the Company -3- 4 pursuant to Section 2(a) has not theretofore been declared effective by the Commission, each date which is 30 days after the previous Computation Date until such Registration Statement is so declared effective. Notwithstanding the above, if the Registration Statement covering the Registrable Securities or the Additional Registrable Securities required to be filed by the Company pursuant to Section 2(a) hereof, is not filed with the Commission by the 30th day after the date of the Stockholder Notice, the Company shall be in default of this Registration Rights Agreement. (c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that it shall continue to file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain eligibility for the use of Form S-3 under the Securities Act. (d) (i) If the Company proposes to register any of its warrants, Common Stock or any other shares of common stock of the Company under the Securities Act in connection with an underwritten public offering, whether or not for sale for its own account, it will each such time, give prompt written notice at least 20 days prior to the anticipated filing date of the registration statement relating to such registration to each Stockholder, which notice shall set forth such Stockholder's rights under this Section 2(d) and shall offer the Stockholder the opportunity to include in such registration statement such number of Registrable Securities as the Stockholder may request. Upon the written request of a Stockholder made within 10 days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by such Stockholder), the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by the Stockholder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered; provided, however, that (A) the Stockholder must sell their Registrable Securities to the underwriters selected as provided in Section 3(b) hereof on the same terms and conditions as apply to the Company and (B) if, at any time after giving written notice of its intention to register any Registrable Securities pursuant to this Section 3 and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such Registrable Securities, the Company shall give written notice to the Stockholder and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration. The Company's obligations under this Section 2(d) shall terminate on the date that the registration statement to be filed in accordance with Section 2(a) is declared effective by the Commission provided that such registration statement remains current. (ii) If in connection with a registration pursuant to this Section 2(d), the managing underwriter thereof advises the Company that, in its view, the number of shares of Common Stock, Warrants or other shares of Common Stock that the Company and the Stockholders and any other holders of similar registration rights intend to include in such registration exceeds the largest number of shares of Common Stock or Warrants (including any other shares of Common Stock or Warrants of the Company) that can be sold without having an adverse effect on such Public Offering (the "MAXIMUM OFFERING SIZE"), the Company will include in such registration, only that number of shares of Common Stock or Warrants, as applicable, such that the number of shares of Registrable Securities registered does not exceed the Maximum Offering Size, with the difference -4- 5 between the number of shares in the Maximum Offering Size and the number of shares to be issued by the Company to be allocated (after including all shares to be issued and sold by the Company) among the Stockholders and any other holders of similar registration rights pro rata on the basis of the relative number of shares of Common Stock or Warrants offered for sale under such registration by each of the Company and the Stockholders and any other holders of similar registration rights. If as a result of the proration provisions of this Section 2(d)(ii), any Stockholder is not entitled to include all such Registrable Securities in such registration, such Stockholder may elect to withdraw its request to include any Registrable Securities in such registration. With respect to registrations pursuant to this Section 2(d), the number of securities required to satisfy any underwriters' over-allotment option shall be allocated pro rata among the Company and the Stockholders and any other holders of similar registration rights on the basis of the relative number of shares of Common Stock or Warrants otherwise to be included by each of them in the registration with respect to which such over-allotment option relates. 3. OBLIGATIONS OF THE COMPANY In connection with the registration of the Registrable Securities, the Company shall: (a) Promptly (i) prepare and file with the Commission such amendments (including post-effective amendments) to the Registration Statement and supplements to the Prospectus as may be necessary to keep the Registration Statement continuously effective and in compliance with the provisions of the Securities Act applicable thereto so as to permit the Prospectus forming part thereof to be current and useable by Stockholders for resales of the Registrable Securities for a period of two years from the date on which the Registration Statement is first declared effective by the Commission (the "EFFECTIVE TIME") or such shorter period that will terminate when all the Registrable Securities covered by the Registration Statement have been sold pursuant thereto in accordance with the plan of distribution provided in the Prospectus, transferred pursuant to Rule 144 under the Securities Act or otherwise transferred in a manner that results in the delivery of new securities not subject to transfer restrictions under the Securities Act (the "REGISTRATION PERIOD") and (ii) take all lawful action such that each of (A) the Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (B) the Prospectus forming part of the Registration Statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing provisions of this Section 3(a), the Company may, during the Registration Period, suspend the use of the Prospectus for a period not to exceed 60 days (whether or not consecutive) in any 12-month period if the Board of Directors of the Company determines in good faith that because of valid business reasons, including pending mergers or other business combination transactions, the planned acquisition or divestiture of assets, pending material corporate developments and similar events, it is in the best interests of the Company to suspend such use, and prior to or contemporaneously with suspending such use the Company provides the Stockholders with written notice of such suspension, which notice need not specify the nature of the event giving rise to such suspension. At the end of -5- 6 any such suspension period, the Company shall provide the Stockholders with written notice of the termination of such suspension; (b) During the Registration Period, comply with the provisions of the Securities Act with respect to the Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the Stockholders as set forth in the Prospectus forming part of the Registration Statement; (c) (i) Prior to the filing with the Commission of any Registration Statement (including any amendments thereto) and the distribution or delivery of any Prospectus (including any supplements thereto), provide (A) draft copies thereof to a representative designated by the Stockholders and reflect in such documents all such comments as such representative (and its counsel) reasonably may propose and (B) to the Stockholder representative a copy of the accountant's consent letter to be included in the filing and (ii) furnish to each Stockholder whose Registrable Securities are included in the Registration Statement and its legal counsel identified to the Company, (A) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one copy of the Registration Statement, each Prospectus, and each amendment or supplement thereto, and (B) such number of copies of the Prospectus and all amendments and supplements thereto and such other documents, as such Stockholder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Stockholder; (d) (i) Register or qualify the Registrable Securities covered by the Registration Statement under such securities or "blue sky" laws of such jurisdictions as the Stockholders who hold a majority-in-interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction; (e) As promptly as practicable after becoming aware of such event, notify each Stockholder of the occurrence of any event, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the Registration Statement and supplement to the Prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Stockholder as such Stockholder may reasonably request; -6- 7 (f) As promptly as practicable after becoming aware of such event, notify each Stockholder who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission of any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time and take all lawful action to effect the withdrawal, recession or removal of such stop order or other suspension; (g) Cause all the Registrable Securities covered by the Registration Statement to be listed on the principal national securities exchange, and included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included; (h) Maintain a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement; (i) Cooperate with the Stockholders who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the registration statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Stockholders reasonably may request and registered in such names as the Stockholder may request; and, within three business days after a registration statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Stockholders whose Registrable Securities are included in such registration statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel; (j) Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Stockholders of their Registrable Securities in accordance with the intended methods therefor provided in the Prospectus which are customary under the circumstances; (k) Make generally available to its security holders as soon as practicable, but in any event not later than three (3) months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement, and (ii) the effective date of each post-effective amendment to the Registration Statement, as the case may be, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder (including, at the option of the Company, Rule 158); (l) In the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such Prospectus supplement or post-effective amendment; (m) (i) Make reasonably available for inspection by Stockholders, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by such Stockholders or any such underwriter all relevant financial and other -7- 8 records, pertinent corporate documents and properties of the Company and its subsidiaries, and (ii) cause the Company's officers, directors and employees to supply all information reasonably requested by such Stockholders or any such underwriter, attorney, accountant or agent in connection with the Registration Statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material nonpublic information shall be kept confidential by such Stockholders and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided, further, that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Stockholders and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of Stockholders and other parties; (n) In connection with any underwritten offering, make such representations and warranties to the Stockholders participating in such underwritten offering and to the managers, in form, substance and scope as are customarily made by the Company to underwriters in secondary underwritten offerings; (o) In connection with any underwritten offering, obtain opinions of counsel to the Company (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managers) addressed to the underwriters, covering such matters as are customarily covered in opinions requested in secondary underwritten offerings (it being agreed that the matters to be covered by such opinions shall include, without limitation, as of the date of the opinion and as of the Effective Time of the Registration Statement or most recent post-effective amendment thereto, as the case may be, the absence from the Registration Statement and the Prospectus, including any documents incorporated by reference therein, of an untrue statement of a material fact or the omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of the Prospectus, in light of the circumstances under which they were made) not misleading, subject to customary limitations); (p) In connection with any underwritten offering, obtain "cold comfort" letters and updates thereof from the independent public accountants of the Company (and, if necessary, from the independent public accountants of any subsidiary of the Company or of any business acquired by the Company, in each case for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each underwriter participating in such underwritten offering (if such underwriter has provided such letter, representations or documentation, if any, required for such cold comfort letter to be so addressed), in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with secondary underwritten offerings; -8- 9 (q) In connection with any underwritten offering, deliver such documents and certificates as may be reasonably required by the managers, if any; and (r) In the event that any broker-dealer registered under the Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD RULES") (or any successor provision thereto)) of the Company or has a "CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such broker-dealer shall underwrite, participate as a member of an underwriting syndicate or selling group or assist in the distribution of any Registrable Securities covered by the Registration Statement, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker-dealer in complying with the requirements of the NASD Rules, including, without limitation, by (A) engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to participate in the preparation of the Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereof and to recommend the public offering price of such Registrable Securities, (B) indemnifying such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 5 hereof, and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the NASD Rules. 4. OBLIGATIONS OF THE STOCKHOLDERS In connection with the registration of the Registrable Securities, the Shareholders shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Shareholder that such Shareholder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. As least seven days prior to the first anticipated filing date of the Registration Statement, the Company shall notify each Shareholder of the information the Company requires from each such Shareholder (the "REQUESTED INFORMATION") if such Shareholder elects to have any of its Registrable Securities included in the Registration Statement. If at least two business days prior to the anticipated filing date the Company has not received the Requested Information from in Shareholder (a "NON-RESPONSIVE STOCKHOLDER"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Stockholder and have no further obligations to the Non-Responsive Stockholder with respect to such registration; (b) Each Shareholder by its acceptance of the Registrable Securities agrees to cooperate with the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Stockholder has notified the Company in writing of its election to exclude all of its Registrable Securities from the Registration Statement; and -9- 10 (c) Each Shareholder agrees that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in Section 3(e) or 3(f), it shall immediately discontinue its disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Shareholder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3(e) and, if so directed by the Company, such Shareholder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Shareholder's possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. 5. EXPENSES OF REGISTRATION The Company shall pay all expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Section 3, including, without limitation, all registration, listing, and qualifications fees, printing and engraving fees, accounting fees, and the fees and disbursements of counsel for the Company. The expenses paid by the Company will not include any advisory fees incurred by the Stockholders, other than the reasonable fees and expenses of a single counsel for the Stockholders, up to a maximum of $15,000. 6. INDEMNIFICATION AND CONTRIBUTION (a) The Company shall indemnify and hold harmless each Shareholder and each underwriter, if any, which facilitates the disposition of Registrable Securities, and each of their respective officers and directors and each person who controls such Shareholder or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from and against any losses, claims, damages or liabilities, joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, or arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Prospectus or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and the Company hereby agrees to reimburse such Indemnified Person for all reasonable legal and other expenses incurred by them in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, however, that the Company shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (i) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such Registration Statement or Prospectus in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 3(e), the use by the Indemnified Person of an outdated or defective Prospectus after the Company has provided to such Indemnified Person an updated Prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability. -10- 11 (b) INDEMNIFICATION BY THE STOCKHOLDERS AND UNDERWRITERS. Each Stockholder agrees, as a consequence of the inclusion of any of its Registrable Securities in a Registration Statement, and each underwriter, if any, which facilitates the disposition of Registrable Securities shall agree, as a consequence of facilitating such disposition of Registrable Securities, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors (including any person who, with his or her consent, is named in the Registration Statement as a director nominee of the Company), its officers who sign any Registration Statement and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any losses, claims, damages or liabilities to which the Company or such other persons may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such Registration Statement or Prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of the Prospectus), not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter expressly for use therein; provided, however, that no Stockholder or underwriter shall be liable under this Section 6(b) for any amount in excess of the net proceeds paid to such Stockholder or underwriter in respect of shares sold by it, and (ii) reimburse the Company for any legal or other expenses incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "CLAIM"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and forfeits substantive rights and defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs and expenses, (y) the Indemnified Party and the Indemnifying Party shall reasonably have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the -11- 12 commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with appropriate local counsel). The Indemnified Party shall not, without the prior written consent of the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment. (d) CONTRIBUTION. If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an Indemnified Person under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(d) were determined by pro rata allocation (even if the Stockholders or any underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Stockholders and any underwriters in this Section 6(d) to contribute shall be several in proportion to the percentage of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) Notwithstanding any other provision of this Section 6, in no event shall any (i) Stockholder be required to undertake liability to any person under this Section 6 for any amounts in excess of the dollar amount of the proceeds to be received by such Stockholder from the sale of such Stockholder's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) pursuant to any Registration Statement under which such Registrable Securities are to be registered under the Securities Act and (ii) underwriter be required to undertake liability to any Person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it and distributed pursuant to the Registration Statement. -12- 13 (f) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 6 shall be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in this Section 6 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. 7. RULE 144 With a view to making available to the Shareholders the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Stockholders to sell securities of the Company to the public without registration ("RULE 144"), the Company agrees to use its best efforts to: (a) comply with the provisions of paragraph (c) (1) of Rule 144; and (b) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Stockholder, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144. 8. LOCK-UP Each Stockholder may not sell, make any short sale of, pledge, grant any option to purchase, or otherwise transfer or dispose of any of the Registerable Securities held by such Holder at any time prior to August 31, 2000; provided however that the Stockholders of the Company are agreeing to the foregoing restriction in reliance on the Company's representation that holders of a majority of the outstanding restricted shares of capital stock of the Company (as defined below) are subject to similar restrictions; to the extent that and at such time as a majority of the outstanding shares of capital stock of the Company which have not been resold on the public market are no longer subject to similar restrictions, the Company shall notify the Stockholders as soon as practicable and the foregoing restriction shall no longer apply to the Stockholders it. For purposes of the foregoing, "restricted" shares means all shares of capital stock which have not been sold to the public pursuant to a registration statement under the Act or pursuant to Rule 144 or Rule 701 under the Act. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of the application of such restriction. Transfers to immediate family members of a Stockholder, or to beneficial trusts or other estate planning vehicles shall be exempt from the foregoing restriction. 9. ASSIGNMENT The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Shareholders to any transferee of all or any portion of the Registrable Securities, but only if: (a) the Shareholder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a -13- 14 reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the securities so transferred or assigned to the transferee or assignee constitute Restricted Securities, and (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. 10. AMENDMENT AND WAIVER Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Stockholders who hold a majority-in-interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 9 shall be binding upon each Stockholder and the Company. 11. MISCELLANEOUS (a) A person or entity shall be deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall be in writing and shall be delivered personally or sent by certified mail, postage prepaid, or by a nationally recognized overnight courier service, and shall be deemed given when so delivered personally or by overnight courier service, or, if mailed, three days after the date of deposit in the United States mails, as follows: (i) to the Company, to: Popmail.com, Inc. 4801 West 81st Street, Suite 112 Bloomington, MN 55437 Attention: Stephen D. King (612) 837-9917 (612) 837-9916 (Fax) with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Norwest Center 90 South Seventh Street Minneapolis, MN 55402 Attention: William M. Mower, Esq. -14- 15 (612) 672-8358 (612) 672-8397 (Fax) (ii) if to a Stockholder, at such Stockholder's address as set forth on the signature page hereof, or such other address as the Stockholder shall have supplied to the Company. The Company, or any Stockholder may change the foregoing address by notice given pursuant to this Section 10(c). (c) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. (e) The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (f) The Company shall not enter into any agreement with respect to its securities that is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof or adversely affects the rights of the Stockholders under Section 2(d) hereof. The Company is not currently a party to any agreement granting any registration rights with respect to any of its securities to any person which conflicts with the Company's obligations hereunder or gives any other party the right to include any securities in any Registration Statement filed pursuant hereto, other than pursuant to certain agreements Parent has provided to counsel for the Company, except for such rights and conflicts as have been irrevocably waived. Without limiting the generality of the foregoing, without the written consent of the holders of a majority in interest of the Registrable Securities, the Company shall not grant to any person the right to request it to register any of its securities under the Securities Act unless the rights so granted are subject in all respect to the prior rights of the holders of Registrable Securities set forth herein, and are not otherwise in conflict or inconsistent with the provisions of this Agreement. The restrictions on the Company's rights to grant registration rights under this paragraph shall terminate on the date the Registration Statement to be filed pursuant to Section 2(a) is declared effective by the Commission. -15- 16 (g) This Agreement and the Reorganization Agreement, constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement and the Reorganization Agreement, supersede all prior agreements and undertakings among the parties hereto with respect to the subject matter hereof. (h) Subject to the requirements of Section 8 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (i) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (j) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning thereof. (k) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. A facsimile transmission of this signed Agreement shall be legal and binding on all parties hereto. -16- 17 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. COMPANY: POPMAIL.COM, INC. By: /s/ Stephen D. King ---------------------------------- Name: Stephen D. King Title: Chief Executive Officer STOCKHOLDERS: Name:/s/[Each stockholder of IZ.com Incorporated] -------------------------------- By: ---------------------------------- Title: ------------------------------- Address: ----------------------------- ----------------------------- Facsimile: --------------------------- -17- EX-99.1 5 PRESS RELEASE. 1 EXHIBIT 99.1 Wednesday February 9, 4:08 pm Eastern Time Company Press Release SOURCE: PopMail.com, inc PopMail.com, inc. Completes Merger with Iz.com * Jesse Berst named Chief Operating Officer of PopMail.com, inc. * Content focus added to distribution DALLAS, Feb. 9 /PRNewswire/ -- PopMail.com, inc. (Nasdaq: POPM - news), a leading permission- and affinity-based email marketing company for the broadcast, media, sports, and entertainment industries, today announced it has completed the merger of online convergent media company Iz.com. In conjunction with the closing of the acquisition, the Company completed a $6.75 million private placement of common stock. In addition to each share of common stock sold, a warrant was attached. This financing will be used for working capital, sales, marketing, and further development of member lists. Stephen D. King, CEO of PopMail.com, inc, stated, "We are pleased to announce the merger with Iz.com. We now have additional tools to help clients monetize email. PopMail.com's approach drives traffic to their Web sites and to their real-world operations, such as TV stations and sports teams. Our affinity marketing builds loyal subscribers that are more inclined to open the email and more inclined to buy." By combining PopMail's permission-based email and Iz.com's management and resources, PopMail.com is positioned to expand its member base and grow revenues. The acquisition of Iz.com also adds extensive entertainment management experience. This will enhance the Company's ability to acquire a larger client base in the entertainment sector, as well as attract and retain new affinity members. As of February 8, 2000, PopMail.com had signed contracts with 750 companies in the broadcast, media, sports and entertainment industries. Board and Management Additions Internet email pioneer Jesse Berst has officially joined the Board of PopMail.com, inc. In addition to his strategic role as Board member, Berst will join the Company on a full-time basis as Chief Operating Officer of PopMail.com, inc. Prior to joining PopMail.com, Mr. Berst was a Vice President at ZDNet. Berst will occupy the Board seat recently vacated by Mr. Anderson who has resigned from the Board to pursue other business interests. Jesse Berst, in the office of Chief Operating Officer, will be directly responsible for strategy and policy regarding monetization of PopMail.com's email database. In addition, Mr. Berst will head content development, as well as Internet and email strategic initiatives. 1 2 Commenting on Mr. Berst's role as Chief Operating Officer, Mr. King continued, "We are fortunate to attract a senior executive of Jesse's experience and caliber who has not only been successful in acquiring knowledge of the technology sector over the past two decades, but who also possesses the ability to pass his knowledge on to an audience of eager listeners. Jesse's background in the Internet and publishing industry will allow us to more rapidly grow our four main verticals, while his proven, hands on experience in the email messaging arena will assist in revenue and member growth. His ability to provide valuable content to drive revenue and monetize PopMail's current and growing member base will prove valuable going forward." Jesse Berst is editorial director of ZDNet's popular AnchorDesk website. His "Berst Alerts" go out via email to millions of subscribers every week. AnchorDesk will continue to be published through its contract with Iz.com. Jesse Berst is one of the world's most widely known technology commentators. Named "Most Prominent Cyber Journalist" by the 1999 PRESStige awards and one of the world's most influential tech journalists by Marketing Computers Magazine, he is the originator and editorial director of ZDNet AnchorDesk, the Internet's most popular site for technology news analysis. AnchorDesk was named one of eight "Web Sites We Can't Live Without" by Fast Company Magazine and chosen "Best Overall Web Site" by the Society of Professional Journalists. Mr. Berst's columns have appeared in many of the leading computer magazines in the US, Europe and Asia, including PC Computing and PC World (Japan). He is a popular keynote speaker and moderator at computer conferences and expositions and has appeared at dozens of international, national and regional events including Comdex, Seybold Seminars, Windows World, Windows Solutions, and many more. Jesse is widely quoted for his industry expertise in publications such as The Wall Street Journal, Time, Newsweek, Business Week, The New York Times, and dozens more. For several years, he was the anchor of CyberNews, a technology news segment for NorthWest CableNews. He has appeared on Good Morning America, ABC World News Tonight, CNBC, CNN, CBS Radio News and numerous other television and radio programs. Mr. Berst has also authored or co-authored numerous computer books. His most recent effort is The Magnet Effect: What comes next in the Internet and how to know in time to cash in, due this summer from McGraw-Hill. Iz.com is rich in personnel and possesses strengths in media, Internet, and television production. Because of this, the Company expects to make further announcements regarding increased management responsibilities and future Board additions. This focused media Internet strategy, combining content and distribution will allow the Company to continue to grow its member base and revenues. About PopMail.com, inc. PopMail.com, inc. is a "permission marketing" and "affinity-based" email marketing company, serving the needs of individual businesses in a one-on-one relationship with their customers. The 2 3 Company targets four main vertical markets for its network services: Broadcast, Media, Sports and Entertainment industries. Companies in these vertical markets typically have customers who have a strong affinity towards their products and services, such as a favorite sports team, radio station or upcoming broadcast or publication. Combining these email services allows companies to cut through the clutter and inefficiencies of traditional marketing and begin promoting and branding more effectively and efficiently to their viewers, listeners, fans and customers on the topics and items that are of interest to them. The Private Securities Litigation Reform Act of 1995 provides a "safe- harbor" for forward-looking statements. Certain information included in this press release (as well as information included in oral statements or other written statements made by or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future expansion. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future; and accordingly, such results may differ from those expressed in any forward-looking statement made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, completion of definitive purchase agreements, ability to obtain needed capital, ability to attract and retain key and other personnel, those relating to development activities, dependence on existing management, leverage and debt service, domestic or global economic conditions, and changes in customer preferences and attitudes. For more information, review the Company's filings with the Securities and Exchange Commission. SOURCE: PopMail.com, inc 3 -----END PRIVACY-ENHANCED MESSAGE-----