Agreement and Plan of Merger - iPayment Holdings Inc. and Online Data Corp.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of August 9,
2002, is by and among iPAYMENT HOLDINGS, INC., a Tennessee corporation
("iPayment"), ODC ACQUISITION SUB, INC., a Delaware corporation ("iPayment
Merger Sub"), and ONLINE DATA CORP., a Delaware corporation ("ODC").
RECITALS:
WHEREAS, iPayment Merger Sub is a wholly-owned subsidiary of iPayment;
WHEREAS, the respective boards of directors of iPayment, iPayment Merger
Sub and ODC have duly adopted resolutions approving this Agreement, in which
iPayment Merger Sub will merge with and into ODC (the "Merger") and ODC shall
thereby become a wholly-owned subsidiary of iPayment, subject to the terms and
conditions set forth herein, and declaring its advisability;
WHEREAS, iPayment, as the sole stockholder of iPayment Merger Sub, has
approved this Agreement and the Merger with respect to iPayment Merger Sub;
WHEREAS, the parties intend that the Merger be treated as a taxable
transaction under the provisions of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "Code"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, the receipt and sufficiency of which
is hereby acknowledged, and intending to be legally bound hereby, the parties
agree as follows:
AGREEMENT:
ARTICLE I. DEFINED TERMS AND INTERPRETATION
1.1. Defined Terms. Certain terms used in this Agreement have the meanings
ascribed thereto in Article X hereof. Accounting terms used in this Agreement
which are not otherwise defined herein shall have the meaning assigned such
terms under GAAP.
1.2. Interpretation.
(a) When used in this Agreement, the word "including" and words of similar
import shall mean "including, without limitation," and any list of items that
may follow such word shall not be deemed to represent a complete list of, or be
limited to, the contents of the referent of the subject.
<PAGE>
(b) Unless the context otherwise requires, when used in this Agreement,
the singular shall include the plural, the plural shall include the singular,
and all nouns, pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine or neuter, as the identity of the Person or Persons may
require.
(c) The headings contained in this Agreement are for reference purposes
only and do not affect in any way the meaning or interpretation of this
Agreement.
(d) In this Agreement, unless a contrary intention appears, (i) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision, and (ii) references to any Article or Section are to an article or
a section of this Agreement, as applicable, and references to any schedule or
exhibit are to a schedule or exhibit to this Agreement, as applicable.
(e) The parties hereto have each negotiated the terms hereof, reviewed
this Agreement carefully, and discussed it with their respective legal counsel.
It is the intent of the parties that each word, phrase and sentence and other
part hereof shall be given its plain meaning. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision.
(f) References to any document (including this Agreement) are references
to that document as amended, consolidated, supplemented, notated or replaced by
the parties from time to time. References to any party to this Agreement shall
include references to its respective successors and permitted assigns.
References to law are references to that law as amended, consolidated,
supplemented or replaced from time to time prior to the date hereof, and shall
include references to any constitutional provision, treaty, decree, convention,
statute, act, regulation, rule, ordinance, subordinate legislation, rule of
common law and of equity and judgment and shall include the requirements of any
applicable stock exchange. References to a judgment shall include references to
any order, injunction, decree, determination or award of any court or tribunal.
(g) All references to "$" or "dollars" shall be to United States dollars
and all references to "days" shall be to calendar days unless otherwise
specified.
ARTICLE II. THE MERGER
2.1. The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the Delaware General Corporation Law (the "DGCL"), at the
Effective Time, iPayment Merger Sub shall merge with and into ODC. ODC shall be
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall continue its corporate existence under
the laws of the State of Delaware. The name of the Surviving Corporation shall
be "Online Data Corp." Upon consummation of the Merger, the separate corporate
existence of iPayment Merger Sub shall terminate.
2.2. Effective Time. The Merger shall become effective (the "Effective Time")
upon filing of a certificate of merger (the "Certificate of Merger") with
respect to the Merger with the Secretary of State of the State of Delaware (the
"Delaware Secretary") in accordance with the DGCL, or at such later time as
mutually agreed among the parties hereto and set forth in the Certificate of
Merger. The parties hereto shall cause the Certificate of Merger to be filed
with the Delaware
2
<PAGE>
Secretary in accordance with the DGCL simultaneously with or as soon as
practicable after the Closing.
2.3. Effects of the Merger. At and after the Effective Time, the Merger shall
have the effects set forth in Section 259 of the DGCL.
2.4. Conversion of ODC Common Stock; Merger Consideration. At the Effective
Time, the shares of Class A common stock, no par value per share, of ODC and the
shares of Class B common stock, par value $.01 per share, of ODC (collectively,
the "ODC Common Stock"), issued and outstanding immediately prior to the
Effective Time (other than ODC Dissenting Shares and other than shares of ODC
Common Stock held directly or indirectly by iPayment or ODC or any of their
respective Subsidiaries), shall, by virtue of this Agreement and without any
action on the part of the holder thereof, be automatically converted into
1,825,000 shares of common stock, no par value per share, of iPayment ("iPayment
Common Stock"), to be allocated among the ODC Shareholders as set forth in
Section 2.4 of the ODC Disclosure Schedule. Further, the holders of ODC Common
Stock are to receive cash in the aggregate amount of Two Million Dollars
($2,000,000), promissory notes (the "Notes") issued by iPayment for an aggregate
face value of Five Million Dollars ($5,000,000), which shall bear interest at
the rate of six percent (6%) per year, and shall mature on the fifth year (5th)
year anniversary of its issuance, in form and substance as Exhibit A attached
hereto, and a deferred payment of $2,098,751 in the aggregate (the "Gross-Up
Amount"), to be allocated among the ODC Shareholders in such amounts as set
forth opposite each ODC Shareholder's name on Section 2.4 of the ODC Disclosure
Schedule), and to be paid by iPayment fifteen (15) days prior to the six (6)
month anniversary of the date of this Agreement. Section 2.4 of the Disclosure
Schedule shall specify the stockholders of ODC, the number of issued and
outstanding shares owned and by each stockholder of ODC immediately prior to the
Merger, the number of shares of iPayment Common Stock to be received upon
Closing (as hereinafter defined), the amount of cash and Notes each stockholder
shall receive upon Closing (as hereinafter defined) and the amount of the
Gross-Up Amount that will be allocated to each ODC Shareholder. The 1,825,000
shares of iPayment Common Stock, the Two Million Dollars in cash, the Notes and
the Gross-Up Amount may hereinafter be referred to in the aggregate as the
"Merger Consideration."
2.5. Anti-Dilution Adjustments. If, between the date of this Agreement and the
Effective Time, the shares of iPayment Common Stock shall be changed into a
different number or class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment, or
a stock dividend thereon shall be declared with a record date within said period
(any such event or any event with a similar effect, an "Anti-Dilution Event"),
the Exchange Ratio shall be appropriately and proportionately adjusted to
reflect such Anti-Dilution Event, and all references to the Exchange Ratio shall
thereupon and thereafter be to the Exchange Ratio as so adjusted. There shall be
no adjustment in the Exchange Ratio in the event of any change in the price of
iPayment Common Stock or ODC Common Stock or any other matter, other than for
Anti-Dilution Events. All shares of iPayment Common Stock that are issuable in
the Merger shall be deemed for all purposes to have been issued by iPayment at
the Effective Time.
2.6. No Fractional Shares. Notwithstanding anything to the contrary contained
herein, no fractional shares of iPayment Common Stock shall be issued in the
Merger. Instead, all
3
<PAGE>
fractional shares of iPayment Common Stock that a holder of ODC Common Stock
would otherwise be entitled to receive as a result of the Merger shall be
aggregated and if a fractional share results from such aggregation, such
fractional share shall be rounded up to the nearest whole number of shares if
such fractional share is .5 or greater of a share, and shall be rounded down to
the nearest whole number of shares if such fractional share is less than .5 of a
shares.
2.7. Cancellation of Treasury Stock. At the Effective Time, all shares of ODC
Common Stock that are owned directly or indirectly by iPayment or ODC or any of
their respective Subsidiaries, shall be canceled and shall cease to exist.
2.8. Stock Options. (i) At the Effective Time, each outstanding and unexercised
option to purchase shares of ODC's Common Stock (each an "ODC Option") pursuant
to the Online Data Corporation 2000 Incentive Stock Plan shall automatically be
converted into the number of options to purchase shares of iPayment Common Stock
(the "iPayment Options") set forth opposite each holder's name (each an "ODC
Holder") in Section 2.8 of the ODC Disclosure Schedule. Section 2.8 of the ODC
Disclosure Schedule sets forth a complete and accurate list of the ODC Option
Holders and number of ODC Options held by each, the number of iPayment Options
that shall be issued to each ODC Holder, the new exercise price of each iPayment
Option and the vesting periods of each iPayment Option.
(ii) At the Effective Time, the Online Data Corporation 2000 Incentive
Stock Plan shall terminate and each outstanding ODC Option shall terminate.
2.9. Effect on iPayment Common Stock. Except for any shares of iPayment Common
Stock owned by ODC, which shall be converted into treasury stock, the shares of
iPayment Common Stock issued and outstanding immediately prior to the Effective
Time shall be unaffected by the Merger and such shares shall remain issued and
outstanding.
2.10 Conversion of Merger Sub Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of iPayment as the sole stockholder of
iPayment Merger Sub, each issued and outstanding share of common stock, par
value $.01 per share, of iPayment Merger Sub ("iPayment Merger Sub Common
Stock") will convert into one share of common stock, par value $.01 per share,
of the Surviving Corporation.
2.11. Certificate of Incorporation of the Surviving Corporation. At the
Effective Time, the certificate of incorporation of the Surviving Corporation
shall be amended and restated in its entirety such that it shall be identical in
all respects to the certificate of incorporation of iPayment Merger Sub, as in
effect at the Effective Time, except that the name of the Surviving Corporation
shall be as set forth in Section 2.1.
2.12. Bylaws of the Surviving Corporation. At the Effective Time, the bylaws of
the Surviving Corporation shall be amended and restated in their entirety such
that they shall be identical in all respects to the bylaws of iPayment Merger
Sub, as in effect at the Effective Time, except that the name of the Surviving
Corporation shall be as set forth in Section 2.1.
2.13. Directors and Officers of the Surviving Corporation. At the Effective
Time, the directors of iPayment Merger Sub immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each to hold office in
accordance with the certificate of incorporation and
4
<PAGE>
bylaws of the Surviving Corporation until their respective successors are duly
elected or appointed and qualified. At the Effective Time, the officers of the
Surviving Corporation shall be the individuals designated therefor by the board
of directors of the Surviving Corporation in accordance with the bylaws of the
Surviving Corporation. At or prior to the Closing, ODC shall deliver to iPayment
written resignations of each of the directors of ODC, in form and substance
satisfactory to iPayment, with such resignations to be effective as of the
Effective Time.
2.14. Closing. The closing of the transactions contemplated herein (the
"Closing") shall take place at the offices of Waller Lansden Dortch & Davis, A
Professional Limited Liability Company, Nashville, Tennessee at 10:00 a.m.
Nashville time on or before August 21, 2002, or at such other location, and on
such other date and/or time, as the parties hereto may mutually agree (the
"Closing Date"). At the Closing, subject to the satisfaction of the terms and
conditions set forth herein, each of ODC, iPayment and iPayment Merger Sub will
execute and deliver the instruments, certificates and other documents to be
executed and delivered hereunder or as may be reasonably requested by any party
to consummate the transactions contemplated hereby, all in form and substance
reasonably satisfactory to the parties hereto and their respective counsel.
ARTICLE III. EXCHANGE OF CERTIFICATES
3.1. Exchange of Certificates. At the Closing, certificates which represent
shares of stock converted from ODC Common Stock to iPayment Common Stock, or
affidavits of loss or destruction in lieu thereof, may be exchanged for new
certificates reflecting the conversion.
3.2. No Dividends Paid to Holders of Unsurrendered Certificates. No dividends or
other distributions declared after the Effective Time with respect to iPayment
Common Stock and payable to the holders of record thereof shall be paid to the
holder of any unsurrendered certificate until the holder thereof shall surrender
such certificate in accordance with this Article III or provides an affidavit of
loss or destruction in lieu thereof. After the surrender of a certificate in
accordance with this Article III, the record holder thereof shall be entitled to
receive any such dividends or other distributions, without any interest thereon,
which theretofore had become payable with respect to shares of iPayment Common
Stock represented by such certificate.
3.3. Issuance of Certificate in Name Differing From Surrendered Certificate. If
any certificate representing shares of iPayment Common Stock is to be issued in
a name other than that in which the certificate surrendered in exchange therefor
is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed (or accompanied by an
appropriate instrument of transfer) and otherwise in proper form for transfer,
and that the person requesting such exchange shall pay to iPayment in advance
any transfer or other taxes required by reason of the issuance of a certificate
representing shares of iPayment Common Stock in any name other than that of the
registered holder of the certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the iPayment that such tax has
been paid or is not payable.
3.4. Closing of Stock Transfer Books. Upon and after the Effective Time, there
shall be no transfers on the stock transfer books of ODC of the shares of ODC
Common Stock which were issued and outstanding immediately prior to the
Effective Time. If, after the Effective Time,
5
<PAGE>
certificates representing such shares are presented for transfer to iPayment,
they shall be canceled and exchanged for certificates representing shares of
iPayment Common Stock as provided in this Article III.
3.5. Lost, Stolen or Destroyed Certificates. In the event any certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such certificate to be lost, stolen or destroyed,
iPayment will issue in exchange for such lost, stolen or destroyed certificate
the shares of iPayment Common Stock deliverable in respect thereof pursuant to
this Agreement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF
ODC
ODC hereby represents and warrants to iPayment and iPayment Merger Sub
that, except as set forth in the disclosure schedule dated as of the date
hereof, with each such exception included therein specifically identifying the
relevant Section attached hereto which it specifically relates (the "ODC
Disclosure Schedule"):
4.1. Corporate Organization. ODC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and has
the corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is currently being conducted. ODC
is duly qualified and in good standing to transact business as a foreign
corporation in each jurisdiction in which the ownership or use of its assets and
properties and the conduct of its business requires such qualification, except
such jurisdictions, individually or in the aggregate, in which the failure to be
so qualified does not have, and would not be reasonably expected to have, an ODC
Material Adverse Effect. True, accurate and complete copies of ODC's certificate
of incorporation (including any certificates of designation), bylaws, corporate
minute book, board committee documents or similar governing documents, and all
amendments thereto, in each case as in effect on the date hereof, have
heretofore been delivered or made available to iPayment.
4.2. Authorization; Binding Agreement. ODC has the corporate power and authority
to enter into this Agreement and the other documents and instruments to be
executed and delivered by ODC pursuant hereto (collectively, the "ODC
Documents"), and, subject to receipt of approval of this Agreement by the
stockholders of ODC, to consummate the Merger and the other transactions
contemplated hereby. The execution and delivery of this Agreement and the ODC
Documents, and the consummation of the transactions contemplated hereby, have
been duly authorized and approved by the Board of Directors of ODC at a meeting
duly called and held and at which a quorum was present and acting throughout, by
the requisite affirmative vote of the directors of ODC or by taking action by
written consent in lieu of such meeting of such Board of Directors, and the
Board of Directors of ODC has declared the advisability of this Agreement to the
ODC stockholders, approved this Agreement and the Merger, and directed that this
Agreement and the transactions contemplated hereby be submitted to the
stockholders of ODC for adoption by such stockholders by taking action by
written consent in lieu of a meeting of such stockholders. No other corporate
proceedings on the part of ODC are necessary to authorize the execution and
delivery of this Agreement or, except for the adoption of this Agreement by the
requisite vote of ODC's stockholders in accordance with the DGCL and the
6
<PAGE>
certificate of incorporation and bylaws of ODC, the consummation by ODC of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by ODC, and, assuming due execution and delivery by
iPayment and iPayment Merger Sub, this Agreement constitutes the valid and
binding agreement and obligation of ODC, enforceable against ODC in accordance
with its terms (except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
now or hereafter in effect affecting creditors' rights generally and general
equitable principles, regardless of whether enforceability is considered in a
proceeding in law or in equity).
4.3. Consents and Approvals. Except for (a) the approval of this Agreement by
the requisite vote of the stockholders of ODC, (b) the filing of the Certificate
of Merger with the Delaware Secretary, (c) any filings required under state
securities or "Blue Sky" laws, (d) any filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the transactions
contemplated in this Agreement, and (e) such other authorizations, consents,
approvals or filings, the failure of which to obtain or make, individually or in
the aggregate, would not be expected to prevent or materially delay the
consummation by ODC of the transactions contemplated hereby, no authorization,
consents or approvals of or filings or registrations with any federal, state,
local or foreign government, court, administrative, regulatory or other
governmental agency or commission or other governmental authority or
instrumentality (each a "Governmental Authority") or with any third party are
necessary in connection with (i) the execution and delivery by ODC of this
Agreement and the ODC Documents and (ii) the consummation by ODC of the Merger.
4.4. No Conflicts. Neither the execution or delivery by ODC of this Agreement
and the other ODC Documents, nor the consummation by ODC of the transactions
contemplated hereby or thereby, nor the compliance by ODC with the provisions
hereof, will: (a) violate or conflict with or result in any breach of any
provision of the certificate of incorporation (including any certificates of
designation), bylaws, or similar governing documents of ODC; (b) materially
violate or conflict with any order, injunction, decree, law, statute, rule,
ordinance or regulation applicable to ODC or by which any of its respective
properties or assets may be bound; or (c) result in a violation or breach of,
constitute a default or give rise to any right of termination, cancellation or
acceleration under, any material loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation or instrument
applicable to ODC, or result in the creation of an Encumbrance upon any property
or asset of ODC or by which any such properties or assets may be bound, or
trigger any right of first refusal or other purchase right applicable to ODC.
4.5. Capitalization.
(a) The authorized capital stock of ODC consists of 1000 shares of Class A
ODC Common Stock and 2,000,000 shares of Class B ODC Common Stock. As of the
date hereof, (i) 1,000 shares of Class A ODC Common Stock are issued and
outstanding, all of which were validly issued and are fully paid, nonassessable
and free of preemptive rights, (ii) 953,500 shares of Class B ODC Common Stock
are issued and outstanding and (iii) no shares of Class A ODC Common Stock and
Class B ODC Common Stock are held in the treasury of ODC.
7
<PAGE>
(b) Except for options outstanding to purchase a total of 48,966 shares of
ODC Common Stock under the Online Data Corporation 2000 Incentive Stock Plan
(the "ODC Stock Plan"), (the options outstanding under the ODC Stock Plan are
collectively referred to as the "ODC Plan Options"), ODC does not have and is
not bound by any outstanding subscriptions, options, warrants, convertible
securities, conversion rights, preemptive or other rights, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of ODC Common Stock, or any other equity security or capital stock of ODC or any
securities representing the right to purchase or otherwise receive any shares of
ODC Common Stock or any other equity security or capital stock of ODC. ODC has
no outstanding stock appreciation rights, phantom stock rights or similar
rights. ODC has no outstanding obligations, contingent or otherwise, to
reacquire any shares of ODC Common Stock. Set forth in Section 4.5 of the ODC
Disclosure Schedule is a complete and correct list, for each of the outstanding
ODC Plan Options, of the names of the optionees or holders thereof, the date of
grant or issuance, the ODC Option Plan to which any such ODC Plan Option
relates, the number of shares of ODC Common Stock subject to the ODC Plan
Option, and the price at which each such ODC Plan Option may be exercised.
(c) The Committee (as defined in the ODC Stock Plan) has elected to
convert the outstanding ODC Options into iPayment Options as set forth in
Section 2.8 of the ODC Disclosure Schedule. Other than the holders of ODC Common
Stock, no person has any right to the merger consideration set forth in Section
2.4 or any other consideration issuable in respect of their ODC Common Stock or
in the Merger pursuant to the DGCL or the ODC Certificate of Incorporation.
(d) The holders of bonds, debentures, notes or other indebtedness of ODC
do not have the right, as such, to vote on this Agreement and the transactions
contemplated herein or other matters with respect to which stockholders of ODC
may vote. There are no voting trusts, proxies or other agreements or
understandings (collectively, "Voting Arrangements") to which ODC or any of its
directors or executive officers is a party or is bound with respect to the
voting of any shares of capital stock of ODC.
4.6. Financial Statements.
Except as set forth in Section 4.6 of the ODC Disclosure Schedule, the
financial statements for the years ended December 31, 2001, 2000 and 1999 and
unaudited interim financial statements of ODC attached as Section 4.6 of the ODC
Disclosure Schedule (collectively, the "ODC Financial Statements") were prepared
in accordance with GAAP consistently applied throughout the periods involved
(except as may be indicated therein or in the notes thereto) and fairly present
in all material respects the consolidated financial position of ODC as of the
dates thereof and the results of their operations and their cash flows for the
periods then ended, subject, in the case of the unaudited interim financial
statements, to normal year-end and audit adjustments (which are not material)
and to the absence of footnote disclosures normally contained in audited
consolidated financial statements.
4.7. Subsidiaries. ODC has no Subsidiaries and does not control, directly or
indirectly, and does not have any direct or indirect equity participation in any
other Person. Further, ODC does
8
<PAGE>
not own directly or indirectly any interest or investment in any corporation,
partnership, joint venture, business, trust or other entity.
4.8. Absence of Undisclosed Liabilities. Except as disclosed in Section 4.8 of
the ODC Disclosure Schedule, ODC has not incurred any material liabilities or
obligations (whether absolute, accrued, contingent or otherwise) of any nature,
except (i) liabilities, obligations or contingencies that are accrued or
reserved against in the ODC Financial Statements or reflected in the notes
thereto, (ii) liabilities, obligations or contingencies under contacts or
agreements described in Section 4.15 of the ODC Disclosure Schedule or under
contracts and agreements which are not required to be disclosed thereon (but not
liabilities, obligations or contingencies for breaches thereof), and (iii)
liabilities, obligations or contingencies which have arisen after December 31,
2001 in the ordinary course of business consistent with past practice or
otherwise in accordance with the terms and conditions of this Agreement.
4.9. Investigations; Litigation.
(a) To the knowledge of ODC, there is no investigation or review being
undertaken or that is pending by any Governmental Authority with respect to ODC,
nor has any Governmental Authority notified ODC of an intention to conduct any
such investigation or review.
(b) Except as disclosed in Section 4.9 of the ODC Disclosure Schedule,
there are no claims, suits, actions, arbitration actions or other proceedings
pending or, to the knowledge of ODC, threatened against, relating to or
affecting ODC, or their respective directors and officers, in their capacities
as such, or their respective assets, businesses or properties, which are, or
would reasonably be expected to be material, either alone or in the aggregate
with all such claims, actions or other proceedings. There are no decrees,
injunctions, writs or orders of any court or governmental department or agency
applicable to ODC, or their assets or businesses, or which prohibits or
restricts the consummation of the transactions contemplated herein.
4.10. Compliance with Law. To the knowledge of ODC, ODC is in compliance, in all
material respects, with all applicable statutes, regulations, judgments,
injunctions, decrees, orders, ordinances and other laws (collectively, "Laws")
of the United States of America and any applicable foreign jurisdictions, all
state and local governments and other Governmental Authorities, and agencies and
courts of any of the foregoing, to which ODC is subject, and if it is decided
that ODC is not in compliance in a non-material respect with such Laws, such
non-compliance will not have a ODC Material Adverse Effect, and to its
knowledge, ODC has not received any notice to the effect that, or otherwise been
advised by counsel that ODC has materially violated or is not in compliance in
all material respects with any of such Laws, and, to the knowledge of ODC, there
are no investigations with respect thereto, nor past or current business conduct
or practices of ODC similar to the conduct or practices of other businesses that
to the knowledge of ODC have been the subject of investigations, proceedings,
claims, actions, suits, demands or notices with respect thereto or have resulted
in any liability arising out of or related to such conduct or practices.
4.11. Absence of Certain Changes or Events. Except as set forth in Section 4.11
of the ODC Disclosure Schedule, since December 31, 2001, ODC (other than actions
taken in connection
9
<PAGE>
with the transactions contemplated by this Agreement or at the request of
iPayment or its Subsidiaries): has not (a) operated other than in the ordinary
course of business consistent in all material respects with past practice; (b)
incurred, experienced or suffered any ODC Material Adverse Effect; (c) acquired
or agreed to acquire any material assets, or entered into any ODC Merchant
Related Agreements, other than Merchant Agreements, or acquisition agreements
(or similar agreements), either directly or indirectly, by purchase, merger,
stock purchase or otherwise; (d) transferred, leased, licensed, sold, mortgaged,
pledged, disposed of or encumbered any material assets; (e) adopted any new, or
amended or otherwise increased, or accelerated the payment or vesting of the
amounts payable or to become payable under any existing, bonus, incentive
compensation, deferred compensation, severance, profit sharing, stock option,
stock purchase, insurance, pension, retirement or other employee benefit plan
agreement or arrangement, entered into any employment, consulting, change in
control, severance or similar agreement with or, except in accordance with the
existing written agreements, granted any severance, change in control or
termination pay to any officer, director, key employee, consultant, agent or
group of employees, or increased the compensation or benefits of any officer,
director, key employee, consultant, agent or group of employees (other than
periodic increases in compensation to employees in the ordinary course of
business and consistent with past practice); (f) modified, amended, canceled or
terminated, or suffered or received notice of the termination or cancellation
of, any ODC Merchant Related Agreements or Merchant Agreements, or any material
leases, contracts or receivables, or waived, released or assigned any material
rights or claims with respect thereto, except in the ordinary course of business
and consistent with past practice; (g) incurred or modified any material
indebtedness or other material liability, except in the ordinary course of
business and consistent with past practice; (h) assumed, guaranteed, endorsed or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for material obligations of any other person, except in the ordinary
course of business and consistent with past practice; (i) made any material
loans, advances or capital contributions to, or investments in, any other person
(other than in the ordinary course of business consistent with past practice);
(j) instituted, settled or agreed to settle, any material litigation, action or
proceeding before any court, arbitrator or governmental body; (k) made any tax
election or settled or compromised any tax liability, or made any change in any
method of accounting for taxes or accounting policy with respect to taxes; (l)
changed in any material respect any of the accounting methods or policies used
by it; (m) paid, discharged or satisfied any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), or material claims, liabilities or obligations reflected or reserved
against in, or contemplated by, the ODC Financial Statements; (n) entered into
any material transaction, contract, agreement or commitment, other than this
Agreement, or other than in the ordinary course of business and consistent with
past practice; (o) delayed or postponed the payment of accounts payable and
other liabilities outside the ordinary course of business; or (p) agreed,
whether in writing or otherwise, to take any action described in this Section
4.11.
4.12. Title to Assets. ODC has good and marketable title to all of its
respective assets, free and clear of all Encumbrances, other than Permitted
Liens, and no financing statement covering all or any portion of ODC 's assets
and naming ODC or a Subsidiary thereof as debtor has been filed in any public
office, and neither ODC nor any Subsidiary thereof has signed any financing
statement or security agreement as debtor or borrower which financing statement
or security agreement covers all or any portion of the assets of ODC.
10
<PAGE>
4.13. Assets. ODC 's equipment, furniture, computers and other tangible personal
property are in good operating condition in all material respects (ordinary wear
and tear excepted), free of any material defects and suitable in all material
respects for the operations of ODC's business, as currently conducted, are not
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. Set forth in Section 4.13 of
the ODC Disclosure Schedule is a complete and accurate description of the
accounts receivable, notes receivable, evidences of indebtedness and other
rights to receive payment and other amounts payable to ODC ("Receivables") as of
December 31, 2001. Such Receivables are valid and enforceable claims and
obligations, have arisen only from bona fide transactions in the ordinary course
of business, and ODC have, to their knowledge, the full legal right to collect
such Receivables in the aggregate amount thereof (except for such Receivables
that have been collected by ODC since December 31, 2001), less any applicable
reserves recorded on ODC 's balance sheet as of December 31, 2001 (and less any
additional reserves established since such date consistent with past practice),
which reserves are adequate and calculated consistent with past practice. Except
as set forth in Section 4.13 of the ODC Disclosure Schedule, to the knowledge of
ODC, there are no asserted contests, refusals to pay or rights of set-off with
respect to any of such Receivables.
4.14. Intellectual Property Rights. Schedule 4.14(a) contains a complete and
accurate list and description of all registered or material unregistered
copyrights, patents, registered or material unregistered trademarks and service
marks, and pending applications for any of the foregoing, other than
"shrink-wrap" or "off-the-shelf" licenses and other similar licenses associated
with software that is commercially available on the mass market (collectively,
the "Intellectual Property"), owned by or licensed to ODC. Except as set forth
in Schedule 4.14(b), ODC, has all right, title and interest in, or a valid and
binding license to use, all such Intellectual Property. Neither ODC nor any
Subsidiary thereof is in default (or with the giving of notice or lapse of time,
or both, would be in default) under any license to use such Intellectual
Property. No opposition, extension of time to oppose, interference, rejection,
or refusal to register has been received in connection with any pending
Intellectual Property application. There are no outstanding and, to the
knowledge of ODC, no threatened disputes or disagreements with respect to any of
the Intellectual Property. No order, holding, decision or judgment has been
rendered by any governmental authority, and no agreement, consent or stipulation
exists, which would limit the right of ODC to use any of the Intellectual
Property. To the knowledge of ODC: (i) none of the Intellectual Property is
being infringed by any third party; and (ii) neither ODC nor any Subsidiary
thereof is infringing any intellectual property of any third party.
4.15. Contracts.
(a) ODC has heretofore delivered to iPayment or its counsel, in the form
of a CD ROM, a list, including parties and dates, of each of the ODC Merchant
Related Agreements. Each of the ODC Merchant Related Agreements is a valid and
binding obligation of ODC, are unmodified, to the knowledge of ODC are in full
force and effect, and to the knowledge of ODC are enforceable against each of
the parties thereto in accordance with their respective terms (except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws now or hereafter in effect
affecting creditors' rights generally and general equitable principles,
regardless of whether enforceability is considered in a proceeding in law or in
equity). To the knowledge of ODC, except as disclosed in Section 4.15(a) of the
ODC
11
<PAGE>
Disclosure Schedule, (i) no event has occurred which, after notice or the
passage of time or both, would constitute a default or breach by any party to
any of the ODC Merchant Related Agreements, (ii) no party to any of the ODC
Merchant Related Agreements has or, to the knowledge of ODC, intends, to
terminate or adversely modify its agreement(s) or obligations with respect
thereto, or cease performing thereunder, and (iii) there are no outstanding
material disputes under any of the ODC Merchant Related Agreements, and there is
no pending or, to the knowledge of ODC, threatened, litigation or other legal
proceeding with respect to any of the ODC Merchant Related Agreements. To the
knowledge of ODC, the ODC Merchant Related Agreements constitute all of the
contracts, agreements and understandings applicable to the provision of credit
card services or equipment leasing and sales by ODC.
(b) Set forth in Section 4.15(b) of the ODC Disclosure Schedule is a list,
including parties and dates, of any contract or agreement (whether written or
oral), other than the ODC Merchant Related Agreements, to which ODC is a party
or is bound (i) with respect to the employment of any employees, independent
contractors, officers, directors or consultants, (ii) which, upon the
consummation of the transactions contemplated by this Agreement, will (either
alone or upon the occurrence of any additional acts or events) result in any
payment or benefits (whether of severance pay or otherwise) becoming due, or the
acceleration or vesting of any rights to any payment or benefits, from iPayment,
ODC, the Surviving Corporation or any of their respective Subsidiaries to any
employee, independent contractor, officer, director or consultant thereof, (iii)
which is a material contract to be performed after the date of this Agreement
("ODC Material Contracts"), (iv) which is not terminable on 90 days or less
notice involving the payment of more than $50,000 per annum, or (v) which
restricts in any material respect the conduct of any line of business by ODC.
Each contract, arrangement, commitment or understanding of the type described in
this Section 4.15(b) is referred to herein as an "ODC Contract." ODC has
heretofore provided to iPayment or its counsel true, correct and complete copies
of each ODC Contract. Each ODC Material Contract is valid and binding and in
full force and effect with respect to the obligations of ODC and, to the
knowledge of ODC, is valid and binding, enforceable and in full force and effect
with respect to the obligations of the counterparties thereto (except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws now or hereafter in effect
affecting creditors' rights generally and general equitable principles,
regardless of whether enforceability is considered in a proceeding in law or in
equity), and ODC has performed in all material respects all obligations required
to be performed by it to date under each such ODC Material Contract, and no
event or condition exists which constitutes or, after notice or lapse of time or
both, would constitute, a material default on the part of ODC under any ODC
Material Contract, or to the knowledge of ODC, any other party thereto.
4.16. Leases. ODC has heretofore delivered to iPayment true, correct and
complete copies of each of the lease agreements, and all amendments and
supplements related thereto, under which ODC leases or subleases real or
personal property (collectively, the "Leases"). Set forth in Section 4.16 of the
ODC Disclosure Schedule is a list, including parties and dates, of any Leases.
To the knowledge of ODC, each Lease is legal, valid, binding, enforceable and in
full force and effect and will continue to be legal, valid, binding, enforceable
and in full force and effect on identical terms following the consummation of
the transactions contemplated hereby (except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws now or hereafter in effect affecting creditors'
rights
12
<PAGE>
generally and general equitable principles, regardless of whether enforceability
is considered in a proceeding in law or in equity). ODC is not in breach or
default under any Lease and no event has occurred which, with notice or lapse of
time, would constitute a breach or default of such Lease by ODC or permit
termination, modification or acceleration thereof by the respective lessor, and
no party to any such Lease has repudiated any provision thereof. There are no
disputes, oral agreements or forbearance programs in effect as to any Lease. All
facilities leased under the Leases are connected to utilities and other services
necessary for the current operation of said facilities.
4.17. Tax Matters.
(a) All Tax Returns for all periods ending on or before the Closing Date
that are or were required to be filed by or with respect to ODC, or any
predecessor of ODC, either separately or as a member of an affiliated group of
corporations, have been filed on a timely basis and in accordance with
applicable laws, regulations and administrative requirements. All such Tax
Returns that have been filed on or before the Closing Date were, when filed, and
continue to be, true, correct and complete in all material respects.
(b) ODC has provided or made available to iPayment all reports of and
communications for all open years from IRS agents and the corresponding agents
of other state, local and foreign Governmental Authorities who have examined the
respective books and records applicable to ODC. Section 4.17(b) of the ODC
Disclosure Schedule describes all adjustments in respect of ODC to Tax Returns
filed by, or on behalf of, ODC, or any affiliated group of corporations of which
ODC thereof is or was a member, for all open taxable years, that have been
proposed by any representative of any Governmental Authority, and Section
4.17(b) of the ODC Disclosure Schedule describes the resulting Taxes, if any,
proposed to be assessed. All deficiencies proposed (plus interest, penalties and
additions to tax that were or are proposed to be assessed thereon, if any) as a
result of such examinations have been paid, reserved against or settled or, as
described in Section 4.17(b) of the ODC Disclosure Schedule, are being contested
in good faith by appropriate proceedings. ODC has not given or been requested to
give waivers or extensions (or is or would be subject to a waiver or extension
given by any other entity) of any statute of limitations relating to the payment
of Taxes for which ODC may be liable.
(c) ODC has paid, or made provision for the payment of, all Taxes that
have or, to the knowledge of ODC, may become due for all periods ending on or
before the Closing Date, including, without limitation, all Taxes reflected on
the Tax Returns referred to in this Section 4.17, or in any assessment, proposed
assessment or notice, received by ODC, except such Taxes, if any, as are set
forth in Section 4.17(c) of the ODC Disclosure Schedule that are being contested
in good faith and as to which adequate reserves (determined in accordance with
GAAP consistently applied) have been provided. The charges, accruals and
reserves with respect to Taxes reflected in the ODC Financial Statements were
determined in accordance with GAAP consistently applied. In all material
respects and to the Knowledge of ODC, all Taxes that ODC is or was required by
law to withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the appropriate Governmental Authority. There
are no liens with respect to Taxes upon any of the properties or assets, real or
personal, tangible or intangible, of ODC (except for Taxes not yet due).
13
<PAGE>
(d) There are no closing agreements, requests for rulings or requests for
technical advice, in respect of any Taxes, pending between ODC and any
Governmental Authority.
(e) No consent to the application of Section 341(f)(2) of the Code has
ever been filed with respect to any property or assets held or acquired or to be
acquired by ODC.
(f) There is no existing tax allocation or sharing agreement that may or
will require that any payment be made by or to ODC on or after the Closing Date.
(g) No property or asset owned by ODC is property that iPayment is or will
be required to treat as being owned by another person pursuant to the provisions
of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in
effect immediately before the enactment of the Tax Reform Act of 1986, or is
"tax-exempt use property" within the meaning of Section 168(h)(1) of the Code.
(h) ODC has not agreed to, or is not required to make, any adjustment
pursuant to Section 481(a) of the Code, nor has the IRS proposed any such
adjustment or change in accounting method with respect to ODC. ODC does not have
any application pending with any Governmental Authority requesting permission
for any change in accounting method.
(i) Except as disclosed in Section 4.17(i) of the ODC Disclosure Schedule,
there is no contract, agreement, plan or arrangement covering any person that,
individually or collectively, as a consequence of this transaction could give
rise to the payment of any amount that would not be deductible by iPayment, the
Surviving Corporation, or ODC by reason of Section 280G of the Code.
(j) ODC does not own an interest in any (i) domestic international sales
corporation, (ii) foreign sales corporation, (iii) controlled foreign
corporation, or (iv) passive foreign investment company.
(k) ODC is not a party to any deferred intercompany transaction that will
be restored (pursuant to the Treasury Regulations under Section 1502 of the
Code) and will result in income or loss to ODC due to this Agreement and the
transactions contemplated hereby.
(l) ODC is not, nor has ever been, a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(m) None of the assets of ODC directly or indirectly secure any debt the
interest on which is tax-exempt under Section 103(a) of the Code.
(n) ODC (and any predecessor of ODC) has been a validly electing S
corporation within the meaning of Sections 1361 and 1362 of the Code at all
times during its existence and ODC will be an S corporation up to and including
the day before the Closing Date.
14
<PAGE>
4.18. Employee Benefit Matters.
(a) Set forth in Section 4.18 of the ODC Disclosure Schedule is a complete
and accurate list of each employee benefit plan including, but not limited to,
pension, profit sharing, 401(k), severance, welfare, disability and deferred
compensation, and all other material employee benefit plans, agreements,
programs, policies or arrangements including, but not limited to, stock
purchase, stock option, employment, change-in-control, fringe benefit, bonus and
incentive, whether or not subject to the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), whether formal or informal, oral or written,
under which any employee, former employee, director, consultant or independent
contractor of ODC or any ERISA Affiliate thereof has any present or future right
to benefits or under which ODC or any ERISA Affiliate thereof has any present or
future liability. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "ODC Benefit Plans" but
shall be separately identified in such Section 4.18 of the ODC Disclosure
Schedule.
(b) With respect to each ODC Benefit Plan, ODC has delivered or made
available to iPayment (i) current, accurate and complete copies of such ODC
Benefit Plan, including all trust agreements, each summary plan description or
other description, insurance or annuity contracts, agreements, participant
records and any other material documents or instruments relating thereto; (ii)
copies of the three most recent Form 5500 Annual Reports and accompanying
schedules; (iii) the three most recent actuarial reports (to the extent
applicable) and; (iv) with respect to each such ODC Benefit Plan which is an
employee pension benefit plan (as such term is defined in section 3(2) of
ERISA), intended to qualify under section 401(a) of the Code, a copy of the most
recent IRS determination letter or opinion letter (including copies of any
outstanding request for determination letters).
(c) Each ODC Benefit Plan has been established and administered in
accordance with its terms, and each such ODC Benefit Plan and ODC are in
material compliance with the applicable provisions of ERISA, the Code and other
federal and state applicable laws, rules and regulations with respect thereto.
(d) Each ODC Benefit Plan that is an "employee pension benefit plan"
(within the meaning of section 3(2) of ERISA) is qualified under section 401(a)
of the Code and its related trust is exempt from federal income tax under
section 501(a) of the Code. To ODC's knowledge, no event has occurred or
circumstance exists that will or could give rise to disqualification or loss of
tax-exempt status of any such ODC Benefit Plan or trust.
(e) To the knowledge of ODC, no event has occurred and no condition exists
that would subject ODC or any ERISA Affiliate thereof to any tax, fine, lien,
penalty or other liability imposed by ERISA (including any breach of fiduciary
responsibility by any director, officer or employee), the Code or other
applicable laws, rules and regulations.
(f) Neither ODC nor any ERISA Affiliate thereof sponsors or maintains, or
has ever sponsored or maintained, or has any actual or contingent liability
under or relating to, any plan that is or was a defined benefit plan, as defined
in section 3(35) of ERISA, or that is a Multiemployer Plan within the meaning of
section 4001(a)(3) of ERISA, or that is otherwise
15
<PAGE>
subject to title IV of ERISA, or is subject to the minimum funding requirements
of Section 412 of the Code.
(g) No ODC Benefit Plan is a "multiple employer welfare arrangement"
within the meaning of section 3(40) of ERISA, except for ODC Benefit Plans that
are fully insured and with respect to which each Form M-1 has been timely filed.
(h) All material reports, returns, notices and similar documents
pertaining to each ODC Benefit Plan that are required to be filed with any
Governmental Authority or distributed to any ODC Benefit Plan participant have
been duly and timely filed or distributed.
(i) To ODC's knowledge, for each ODC Benefit Plan with respect to which a
Form 5500 has been filed, no material change has occurred with respect to the
matters covered by the most recent Form 5500 since the date thereof.
(j) No "prohibited transaction" (as such term is defined in section 406 of
ERISA and section 4975 of the Code) or "accumulated funding deficiency" (as such
term is defined in section 302 of ERISA and section 412 of the Code (whether or
not waived)) has occurred with respect to any ODC Benefit Plan.
(k) To ODC's knowledge, no ODC Benefit Plan or any related trust or
fiduciary thereof is the direct or indirect subject of a material audit,
investigation or examination by any Governmental Authority or quasi-governmental
authority.
(l) The execution of this Agreement and the performance of the
transactions contemplated hereby will not constitute an event under any ODC
Benefit Plan that may reasonably be expected to result in any payment (whether
of severance pay or otherwise), acceleration, vesting or increase in benefits
with respect to any employee, former employee or director of ODC or any
Subsidiary thereof.
(m) All contributions and payments made or accrued with respect to all ODC
Benefit Plans and other benefit obligations are deductible under section 162 of
the Code or section 404 of the Code. No amount or any asset of any ODC Benefit
Plan is subject to tax as unrelated business taxable income.
(n) Except to the extent required under section 601 et seq. of ERISA and
section 4980B of the Code, ODC and its ERISA Affiliates do not provide health or
welfare benefits for any retired or former employee and is not obligated to
provide health or welfare benefits to any active employee following such
employee's retirement or other termination of service.
(o) ODC and its ERISA Affiliates have the right to modify and terminate
each ODC Benefit Plan with respect to both retired and active employees.
(p) ODC and its ERISA Affiliates have complied in all material respects
with the provisions of section 601 et seq. of ERISA and section 4980B of the
Code.
(q) With respect to any ODC Benefit Plan, (i) no actions, suits or claims
(other than claims for benefits made in the ordinary course of the ODC Benefit
Plan's operation) are
16
<PAGE>
pending or, to the knowledge of ODC, threatened; and (ii) no facts or
circumstances exist that reasonably could give rise to any such actions, suits
or claims.
(r) Full payment has been made of all amounts which are due to any of the
ODC Benefit Plans. Furthermore, ODC has made adequate provision for reserves in
accordance with GAAP to meet contributions that have not been made because they
are not yet due under the terms of each of the ODC Benefit Plans.
4.19. Environmental Matters.
(a) Except for noncompliance which, individually or in the aggregate, does
not, and would not reasonably be expected to have an ODC Material Adverse
Effect, ODC is in compliance with all applicable international, federal, state,
local and foreign laws and regulations relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) (collectively,
"Environmental Laws"), which compliance includes, but is not limited to, the
possession by ODC of all permits and other governmental authorizations required
under applicable Environmental Laws, and compliance with the terms and
conditions thereof.
(b) ODC has not received written notice of, or, to the knowledge of ODC,
is the subject of, any actions, causes of action, claims, investigations,
demands or notices by any person asserting an obligation to conduct
investigations or cleanup activities under Environmental Law or alleging
liability under or noncompliance with any Environmental Law (collectively,
"Environmental Claims").
(c) To the knowledge of ODC, there are no past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance, or which may give rise
to any material common law or statutory liability or otherwise form the basis of
any material claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including biohazardous and medical waste)
with respect to or affecting ODC.
4.20. Labor Controversies. There are no disputes pending or, to the knowledge of
ODC, threatened between ODC and any representatives of any of its employees and,
to the knowledge of ODC, there are no organizational efforts being made
involving any unorganized employees of ODC.
4.21. Insurance. ODC maintains insurance coverage reasonably adequate for their
assets and the operation of their businesses based on the past experience of
ODC. ODC is not in default with respect to any policies or binders of indemnity,
liability, directors' and officers', worker's compensation, health and other
forms of insurance policies or binders in force as of the date hereof and
insuring against risks of any of ODC. No notice of cancellation or non-renewal
with respect to, or disallowance of any claim under, any such policy has been
received by ODC.
4.22. Required Stockholder Vote. The affirmative vote of a majority of the
outstanding shares of ODC Common Stock, voting together as a single class, are
the only votes of the holders of any
17
<PAGE>
shares of capital stock of ODC necessary under ODC 's certificate of
incorporation, bylaws and other governing documents and applicable law to
approve and adopt this Agreement and the transactions contemplated hereby.
4.23. Brokers and Finders. ODC has not entered into any contract, arrangement or
understanding with any Person or firm which may result in the obligation of ODC
to pay any finder's fees, brokerage fees, agent commissions or similar fees,
commissions or payments in connection with the transactions contemplated hereby,
and there is no claim for payment of any such fees, commissions or payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
4.24. Equipment Leases and Inventory. Except as set forth in Section 4.16 of the
ODC Disclosure Schedule, ODC has no lease agreements for equipment or inventory
in connection with its business and has otherwise ceased conducting any leasing
operations in connection with its business.
4.25. Cash Flow of Merchant Accounts and Compliance with VISA/MasterCard Rules.
ODC has heretofore delivered to iPayment or its counsel, in the form of a CD ROM
its settlement reports for each of the three (3) full months preceding Closing
setting forth each Merchant's name and address and its current year-to-date
sales (the "Settlement Reports"). These Settlement Reports represent months
during which ODC conducted their respective business in the ordinary course and
consistent with past practices, and are true, accurate and complete as of the
dates set forth thereon. Since the date of the Settlement Report, there has not
been a material change in the aggregate cash flow generated by the Merchant
Accounts. ODC has operated and conducted their business, in all material
respects, in accordance with any and all applicable VISA/MasterCard rules and
regulations. The Settlement Reports list, as of the date of the Settlement
Reports, the Merchant reserve accounts maintained by each Merchant at the
applicable Member Bank and, to ODC 's knowledge, such amounts are in compliance
with the requirements of such Member Banks. Section 4.25 of the ODC Disclosure
Schedule reflects all fines that have been assessed and/or paid, directly or
indirectly through the assessment and/or payment of such fine through a Member
Bank or other party, within the last 12 months. Except as set forth in Section
4.25 of the ODC Disclosure Schedule, ODC has no reasonable basis to believe that
the past operation or conduct of its business will result in such fines after
the Closing.
4.26. Ownership and Portability of Merchant Accounts. Except as disclosed on
Section 4.26 hereto, with respect to all of the Merchant Accounts, (a) ODC is
party to the contracts establishing such Merchant Accounts, (b) to ODC 's
knowledge, such Merchant Accounts are processed under unique BINs and ICAs, and
(c) ODC has the right at any time and from time to time to direct the applicable
Member Bank and third-party processors to, and such banks and third-party
processors are obligated to, (i) assign the Merchant Agreements relating to the
Merchants so identified, including all Merchant files and records (paper and
fiche), related merchant reserve and hold accounts, BINs, ICAs and databases
relating thereto, to one or more other Member Banks and/or third-party
processors designated by ODC and (ii) effect the deconversion of such Merchant
Accounts. The Member Banks and third-party processors are obligated to transfer
the merchant files, merchant agreements, related documents and other items
described herein after receipt of ODC 's request for such assignment and
deconversion and such
18
<PAGE>
assignment and deconversion of the Merchant Accounts shall be at no cost or
expense to ODC other than the cost of copying, shipping, supplies and any
related association fees.
4.27. Conduct of Business. In operating its business, ODC has not (i) withheld
an increased discount rate for electronic transactions without prior
notification, (ii) charged an increased rate for manual or voice authorizations
without prior notification, (iii) applied new charges to bill statements without
prior notification, (iv) charged rates for services in excess of rates stated in
the Merchant Agreement without prior notification, (v) unilaterally modified
Merchant Agreements, (vi) debited Merchant Accounts without authorization, (vii)
failed to disclose the origin and existence of certain fees, or (vii) made
misrepresentations to Merchants about services offered by ODC.
4.28. Prior Sales of Securities. All offers and sales of ODC Common Stock prior
to the date hereof were exempt from the registration requirements of the
Securities Act of 1933, as amended, and were duly registered or the subject of
an available exemption from the registration requirements of the applicable
state securities or Blue Sky laws, or the relevant statues of limitations have
expired, or civil liability thereafter has been eliminated by an offer to
rescind.
4.29. Employees and Independent Contractors.
(a) Set forth on Section 4.29 of the ODC Disclosure Schedule is a true,
complete and correct list setting forth as of the date set forth thereon (i) the
names, location of services and current compensation of all individuals
currently employed by ODC on a salaried or hourly basis, and (ii) the names and
total annual compensation for all independent contractors (other than vendors
and similar professionals) who render services on a regular basis to ODC for
whom ODC prepared an IRS Form 1099 for fiscal year 2001 and whose total annual
compensation was in excess of $20,000.
(b) To ODC's knowledge, all non-employee/independent Persons that solicit
Merchants for or on behalf of ODC have, at all times during their relationship
with ODC, been properly classified as independent contractors and not employees
of ODC for purposes of all applicable law, including, without limitation, for
federal, state and local employment tax purposes.
(c) Set forth in Section 4.29 of the ODC Disclosure Schedule is a true,
complete and correct list setting forth as of the date set forth thereon the
amount of all retention payments, severance payments, change in control payments
or other similar compensation or benefits which are or may become payable in
connection with the consummation of the transactions contemplated by this
Agreement and the names of all such employees, agents and independent
contractors of ODC entitled to receive such payments or benefits. To the
knowledge of ODC, ODC has not incurred liability relating to, or promised or
agreed (whether orally or in writing) to pay retention payments, severance
payments, change in control payments or other similar compensation or benefits
which are or may become payable in connection with the consummation of the
transactions contemplated by this Agreement. ODC has taken no actions prior to
the Closing related to the foregoing that will subject it or iPayment or any of
its Subsidiaries to liability after the Closing other than payment of the
foregoing by ODC.
19
<PAGE>
4.30. Dissenters' Rights. ODC has received no notice from a stockholder that
such stockholder will seek to exercise his or her statutory appraisal rights
under the DGCL.
4.31 Disclosure. No representations or warranties by ODC in this Agreement
contain or will contain any untrue statement of a material fact or omit or will
omit to state any material fact necessary to make the statements herein not
misleading. ODC knows of no fact or development which materially adversely
affects, or which would be reasonably likely to result in an ODC Material
Adverse Effect or an iPayment Material Adverse Effect, which has not been set
forth in this Agreement, the Exhibits or the Schedules attached hereto.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF IPAYMENT AND
IPAYMENT MERGER SUB
iPayment and iPayment Merger Sub jointly and severally hereby represent
and warrant to ODC that, except as set forth in the disclosure schedule dated as
of the date hereof, with each such exception included therein specifically
identifying the relevant Section to which it specifically relates (the "iPayment
Disclosure Schedule"):
5.1. Corporate Organization.
(a) iPayment is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee, and has the corporate power
and authority to own, lease and operate its assets and properties and to carry
on its business as it is currently being conducted. iPayment is duly qualified
and in good standing to transact business as a foreign corporation in each
jurisdiction in which the ownership or use of its assets and properties and the
conduct of its business requires such qualification, except such jurisdictions,
individually or in the aggregate, in which the failure to be so qualified does
not have, and would not be reasonably expected to have, an iPayment Material
Adverse Effect. True, accurate and complete copies of iPayment's charter, bylaws
or other governing documents, and all amendments thereto, in each case as in
effect on the date hereof, have heretofore been delivered or made available to
ODC.
(b) iPayment Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has the
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is currently being conducted.
iPayment Merger Sub was formed solely for the purpose of engaging in the
transactions contemplated in this Agreement and has not engaged in any
activities other than in connection with those transactions. iPayment Merger Sub
has not incurred any material obligations or liabilities or entered into any
material agreements or arrangements with any Person except for this Agreement
and as contemplated hereby. True, accurate and complete copies of iPayment
Merger Sub's certificate of incorporation, bylaws or other governing documents,
and all amendments thereto, in each case as in effect on the date hereof, have
heretofore been delivered or made available to ODC.
5.2. Authorization; Binding Agreement. Each of iPayment and iPayment Merger Sub
has the corporate power and authority to enter into this Agreement and the other
documents and instruments to be executed and delivered by iPayment and iPayment
Merger Sub pursuant hereto (collectively, the "iPayment Documents"), and to
consummate the Merger and the other
20
<PAGE>
transactions contemplated hereby. The execution and delivery of this Agreement
and the iPayment Documents, and the consummation of the transactions
contemplated hereby, have been duly authorized and approved by the Board of
Directors of iPayment at a meeting duly called and held and at which a quorum
was present and acting throughout, by the requisite affirmative vote of the
directors of iPayment, and the Board of Directors of iPayment has determined
that the Merger is in the best interests of iPayment and its stockholders and
approved this Agreement and the Merger. The execution and delivery of this
Agreement and the iPayment Documents, and the consummation of the transactions
contemplated hereby, have been duly authorized and approved by the Board of
Directors of iPayment Merger Sub, and by iPayment as the sole stockholder of
iPayment Merger Sub, and the Board of Directors of iPayment Merger Sub has
determined that the Merger is in the best interests of iPayment Merger Sub and
its stockholders and approved this Agreement and the Merger. No other corporate
proceedings on the part of iPayment or iPayment Merger Sub are necessary to
authorize the execution and delivery of this Agreement or the consummation by
iPayment and iPayment Merger Sub of the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by iPayment and
iPayment Merger Sub, and, assuming due execution and delivery by ODC, this
Agreement constitutes the valid and binding agreement and obligation of iPayment
and iPayment Merger Sub, enforceable against iPayment and iPayment Merger Sub in
accordance with its terms (except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws now or hereafter in effect affecting creditors' rights generally
and general equitable principles, regardless of whether enforceability is
considered in a proceeding in law or in equity).
5.3. Consents and Approvals. Except for (a) the filing of the Certificate of
Merger with the Delaware Secretary, (b) any filings required under state
securities or "Blue Sky" laws, (c) any filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to any
notification, disclosure or required approval necessitated by the transactions
contemplated in this Agreement, (d) those consents set forth in Section 5.3 of
the iPayment Disclosure Schedule which are required to consummate the Merger,
and (e) such other authorizations, consents, approvals or filings, the failure
of which to obtain or make, individually or in the aggregate, does not have, and
would not reasonably be expected to have, an iPayment Material Adverse Effect or
materially impair or delay the consummation by iPayment or iPayment Merger Sub
of the transactions contemplated hereby, no consents or approvals of or filings
or registrations with any Governmental Authority or with any third party are
necessary in connection with (i) the execution and delivery by iPayment and
iPayment Merger Sub of this Agreement and the iPayment Documents and (ii) the
consummation by iPayment and iPayment Merger Sub of the Merger.
5.4. No Conflicts. Except as set forth in Section 5.4(c) of the iPayment
Disclosure Schedule, neither the execution or delivery by iPayment and iPayment
Merger Sub of this Agreement and the other iPayment Documents, nor the
consummation by iPayment and iPayment Merger Sub of the transactions
contemplated hereby or thereby, nor the compliance by iPayment and iPayment
Merger Sub with the provisions hereof, will: (a) violate or conflict with or
result in any breach of any provision of the certificate of incorporation,
bylaws or other governing documents of iPayment and its Subsidiaries; (b)
violate or conflict with any order, injunction, decree, law, statute, rule,
ordinance or regulation applicable to iPayment or its Subsidiaries or by which
any of their respective properties or assets may be bound; (c) result in a
violation or breach of,
21
<PAGE>
constitute a default or give rise to any right of termination, cancellation or
acceleration under, any loan or credit agreement, note, mortgage, bond,
indenture, lease, benefit plan or other agreement, obligation or instrument
applicable to iPayment or its Subsidiaries, or result in the creation of an
Encumbrance upon any property or asset of iPayment or its Subsidiaries or by
which any such properties or assets may be bound, or trigger any right of first
refusal or other purchase right applicable to iPayment or its Subsidiaries; or
(d) result in the loss of any license, franchise or permit applicable to
iPayment or its Subsidiaries; except in each case, where such violation,
conflict, breach, default, loss or other event, individually or in the
aggregate, does not have, and would not reasonably be expected to have, an
iPayment Material Adverse Effect.
5.5. Capitalization.
(a) The authorized capital stock of iPayment consists of 40,000,000 shares
of iPayment Common Stock, and 10,000,000 shares of preferred stock, no par value
per share ("iPayment Preferred Stock"). As of the date hereof, (i) 9,683,190
shares of iPayment Common Stock were issued and outstanding, all of which were
validly issued and are fully paid, nonassessable and free of preemptive rights,
(ii) 2,577,200 shares of iPayment Preferred Stock were issued and outstanding,
all of which were validly issued and are fully paid, nonassessable and free of
preemptive rights, and (iii) no shares of iPayment Common Stock and no shares of
iPayment Preferred Stock were held in the treasury of iPayment or any of its
Subsidiaries.
(b) Except for options, commitments and agreements under iPayment's stock
option programs and warrants to purchase a total of 4,803,850 shares of iPayment
Common Stock, and except as disclosed in Section 5.5 of the iPayment Disclosure
Schedule, iPayment does not have and is not bound by any outstanding
subscriptions, options, warrants, convertible securities, conversion rights,
preemptive or other rights, calls, commitments or agreements of any character
calling for the purchase or issuance of any shares of iPayment Common Stock or
iPayment Preferred Stock or any other equity security or capital stock of
iPayment or any securities representing the right to purchase or otherwise
receive any shares of iPayment Common Stock or any other equity security or
capital stock of iPayment. iPayment has no outstanding stock appreciation
rights, phantom stock rights or similar rights. iPayment has no outstanding
obligations, contingent or otherwise, to reacquire any shares of iPayment Common
Stock. Further, neither the execution or delivery by iPayment and iPayment
Merger Sub of this Agreement and the other iPayment Documents, nor the
consummation by iPayment and iPayment Merger Sub of the transactions
contemplated hereby or thereby, shall trigger an adjustment to the Conversion
Price of the outstanding Series A Convertible Preferred Stock of iPayment.
Section 5.5 of the iPayment Disclosure Schedule shall also set forth a complete
list of the holders and amount held of iPayment Common Stock, iPayment Preferred
Stock, iPayment warrants and options, commitments and agreements under
iPayment's stock option programs as of the date hereof.
(c) The authorized capital stock of iPayment Merger Sub consists of 1,000
shares of iPayment Merger Sub Common Stock. iPayment owns beneficially and of
record all the issued and outstanding shares of iPayment Merger Sub Common
Stock.
(d) Section 5.5 of the iPayment Disclosure Schedule sets forth all
indebtedness of iPayment.
22
<PAGE>
5.6. Financial Statements.
The audited consolidated financial statements for the years ended December
31, 2001, 2000 and 1999 and unaudited interim consolidated financial statements
of iPayment for the six month period ended June 30, 2002 attached as Section 5.6
of the iPayment Disclosure Schedule (collectively, the "iPayment Financial
Statements") were prepared in accordance with GAAP consistently applied
throughout the periods involved (except as may be indicated therein or in the
notes thereto) and fairly present in all material respects the consolidated
financial position of iPayment and its Subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods then ended,
subject to normal year-end and audit adjustments (which are not material), any
non-cash adjustments regarding amortization of goodwill related to acquisitions
which shall be evident from footnotes to the financials and, in the case of the
unaudited interim consolidated financial statements, to the absence of footnote
disclosures normally contained in the audited consolidation financial
statements. The unaudited interim consolidated financial statements of iPayment
for the six month period ended June 30, 2002 may be adjusted as set forth in
Section 5.6 of the iPayment Disclosure Schedule.
5.7. Valid Issuance of Stock. The iPayment Common Stock issuable upon the
effectiveness of the Merger as provided in Article II have been duly and validly
reserved for issuance and, when issued upon the effectiveness of the Merger,
shall be duly authorized and validly issued, fully paid and nonassessable.
5.8. Brokers and Finders. iPayment and its Subsidiaries have not entered into
any contract, arrangement or understanding with any Person or firm which may
result in the obligation of ODC or any of its Subsidiaries to pay any finder's
fees, brokerage fees, agent commissions or similar fees, commissions or payments
in connection with the transactions contemplated hereby, and there is no claim
for payment of any such fees, commissions or payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
5.9 Compliance with Law. To the knowledge of iPayment, iPayment and each of its
Subsidiaries is in compliance, in all material respects, with all applicable
statutes, regulations, judgments, injunctions, decrees, orders, ordinances and
other laws (collectively, "Laws") of the United States of America and any
applicable foreign jurisdictions, all state and local governments and other
Governmental Authorities, and agencies and courts of any of the foregoing, to
which any of iPayment or its Subsidiaries is subject, and if it is decided that
iPayment or its Subsidiaries is not in compliance in a non-material respect with
such Laws, such non-compliance will not have a iPayment Material Adverse Effect,
and to the knowledge of iPayment, none of iPayment or its Subsidiaries has
received any notice to the effect that, or otherwise been advised by counsel
that, any of iPayment or its Subsidiaries has materially violated or is not in
compliance in all material respects with any of such Laws, and, to the knowledge
of iPayment, there are no investigations with respect thereto, nor past or
current business conduct or practices of iPayment or its Subsidiaries similar to
the conduct or practices of other businesses that to the knowledge of iPayment
have been the subject of investigations, proceedings, claims, actions, suits,
demands or notices with respect thereto or have resulted in any liability
arising out of or related to such conduct or practices.
23
<PAGE>
5.10 Absence of Certain Changes or Events. Except as set forth in Section 5.10
of the iPayment Disclosure Schedule, since June 30, 2002, none of iPayment or
its Subsidiaries has (other than actions taken in connection with the
transactions contemplated by this Agreement or at the request of ODC or its
Subsidiaries): (a) operated other than in the ordinary course of business
consistent in all material respects with past practice; and (b) incurred,
experienced or suffered any iPayment Material Adverse Effect.
5.11 Absence of Undisclosed Liabilities. Except as disclosed in Section 5.11 of
the iPayment Disclosure Schedule, none of iPayment or its Subsidiaries has
incurred any material liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of any nature, except (i) liabilities, obligations or
contingencies that are accrued or reserved against in the iPayment Financial
Statements or reflected in the notes thereto, (ii) liabilities, obligations or
contingencies under contracts or agreements entered into in the ordinary course
of business (but not liabilities, obligations or contingencies for breaches
thereof), and (iii) liabilities, obligations or contingencies which have arisen
after June 30, 2002 in the ordinary course of business consistent with past
practice or otherwise in accordance with the terms and conditions of this
Agreement.
5.12 Investigations; Litigation.
(a) To the knowledge of iPayment, there is no investigation or review
being undertaken or that is pending by any Governmental Authority with respect
to iPayment or any of its Subsidiaries, nor has any Governmental Authority
notified iPayment or any of its Subsidiaries of an intention to conduct any such
investigation or review.
(b) Except as disclosed in Section 5.12 of the iPayment Disclosure
Schedule, there are no claims, suits, actions, arbitration actions or other
proceedings pending or, to the knowledge of iPayment, threatened against,
relating to or affecting any of iPayment or its Subsidiaries, or their
respective directors and officers, in their capacities as such, or their
respective assets, businesses or properties, which are, or would reasonably be
expected to be material, either alone or in the aggregate with all such claims,
actions or other proceedings. There are no decrees, injunctions, writs or orders
of any court or governmental department or agency applicable to any of iPayment
or its Subsidiaries, or their assets or businesses, or which prohibits or
restricts the consummation of the transactions contemplated herein.
5.13 Title to Assets. Except as disclosed in Section 5.13 of the iPayment
Disclosure Schedule, iPayment and its Subsidiaries have good and marketable
title to all of their respective assets, free and clear of all Encumbrances,
other than Permitted Liens, and no financing statement covering all or any
portion of iPayment 's and its Subsidiaries' assets and naming iPayment or a
Subsidiary thereof as debtor has been filed in any public office, and neither
iPayment nor any Subsidiary thereof has signed any financing statement or
security agreement as debtor or borrower which financing statement or security
agreement covers all or any portion of the assets of iPayment or its
Subsidiaries.
5.14 Environmental Matters.
(a) Except for noncompliance which, individually or in the aggregate, does
not, and would not reasonably be expected to have an iPayment Material Adverse
Effect, iPayment and
24
<PAGE>
each of its Subsidiaries are in compliance with all Environmental Laws, which
compliance includes, but is not limited to, the possession by iPayment and its
Subsidiaries of all permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof.
(b) Neither iPayment nor any of its Subsidiaries has received written
notice of, or, to the knowledge of iPayment, is the subject of, any
Environmental Claims.
(c) To the knowledge of iPayment, there are no past or present events,
conditions, circumstances, activities, practices, incidents, actions or plans
which may interfere with or prevent continued compliance, or which may give rise
to any material common law or statutory liability or otherwise form the basis of
any material claim, action, suit, proceeding, hearing or investigation, based on
or related to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling, or the emission, discharge, release
or threatened release into the environment, or any pollutant, contaminant, or
hazardous or toxic material or waste (including biohazardous and medical waste)
with respect to or affecting iPayment or any of its Subsidiaries.
5.15 Contracts. Except as would not result in an iPayment Material Adverse
Effect, all contracts to which iPayment or its Subsidiaries is a party are
enforceable against each of the parties thereto in accordance with their
respective terms (except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or similar laws
now or hereafter in effect affecting creditors' rights generally and general
equitable principles, regardless of whether enforceability is considered in a
proceeding in law or in equity).
5.16 Sufficiency of Funds. As of the Closing, iPayment shall have sufficient
cash or available credit facilities to pay the cash component of the Merger
Consideration payable to ODC hereunder.
5.17 Tax Matters.
(a) All Tax Returns for all periods ending on or before the Closing Date
that are or were required to be filed by or with respect to iPayment and any of
its Subsidiaries, or any predecessor of any of them, either separately or as a
member of an affiliated group of corporations, have been filed on a timely basis
and in accordance with applicable laws, regulations and administrative
requirements. All such Tax Returns that have been filed on or before the Closing
Date were, when filed, and continue to be, true, correct and complete in all
material respects.
(b) Neither iPayment nor any of its Subsidiaries has given or been
requested to give waivers or extensions (or is or would be subject to a waiver
or extension given by any other entity) of any statute of limitations relating
to the payment of Taxes for which iPayment or iPayment Merger Sub or any of its
Subsidiaries may be liable.
(c) iPayment and its Subsidiaries have paid, or made provision for the
payment of, all Taxes that have or, to the Knowledge of iPayment and its
Subsidiaries, may become due for all periods ending on or before the Closing
Date, including, without limitation, all Taxes reflected on the Tax Returns
referred to in this Section 5.17, or in any assessment, proposed assessment or
25
<PAGE>
notice, received by iPayment or any Subsidiary of iPayment, except such Taxes,
if any, as are set forth in Section 5.17(c) of the iPayment Disclosure Schedule
that are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP consistently applied) have been provided.
The charges, accruals and reserves with respect to Taxes reflected in the
iPayment Financial Statements were determined in accordance with GAAP
consistently applied. In all material respects and to the Knowledge of iPayment
and its Subsidiaries, all Taxes that iPayment and its Subsidiaries are or were
required by law to withhold or collect have been duly withheld or collected and,
to the extent required, have been paid to the appropriate Governmental
Authority. There are no liens with respect to Taxes upon any of the properties
or assets, real or personal, tangible or intangible, of iPayment or any of its
Subsidiaries (except for Taxes not yet due).
(d) There are no closing agreements, requests for rulings or requests for
technical advice, in respect of any Taxes, pending between iPayment or any of
its Subsidiaries and any Governmental Authority.
(e) There is no existing tax allocation or sharing agreement that may or
will require that any payment be made by or to iPayment or any of its
Subsidiaries on or after the Closing Date.
(f) Neither iPayment nor any of its Subsidiaries has agreed to, or is
required to make, any adjustment pursuant to Section 481(a) of the Code, nor has
the IRS proposed any such adjustment or change in accounting method with respect
to iPayment or any of its Subsidiaries. iPayment and its Subsidiaries do not
have any application pending with any Governmental Authority requesting
permission for any change in accounting method.
(g) Neither iPayment nor any of its Subsidiaries owns an interest in any
(i) domestic international sales corporation, (ii) foreign sales corporation,
(iii) controlled foreign corporation, or (iv) passive foreign investment
company.
(h) Neither iPayment nor any of its Subsidiaries is a party to any
deferred intercompany transaction that will be restored (pursuant to the
Treasury Regulations under Section 1502 of the Code) and will result in income
or loss to iPayment or any of its Subsidiaries due to this Agreement and the
transactions contemplated hereby.
(i) Neither iPayment nor any of its Subsidiaries is, nor has ever been, a
United States real property holding corporation within the meaning of Section
897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
(j) No consent to the application of Section 341(f)(2) of the Code has
ever been filed with respect to any property or assets held or acquired or to be
acquired by iPayment or any of its Subsidiaries.
(k) No property or asset owned by iPayment or any of its Subsidiaries is
property that iPayment is or will be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of the
Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
26
<PAGE>
(l) None of the assets of iPayment or any of its Subsidiaries directly or
indirectly secure any debt the interest on which is tax-exempt under Section
103(a) of the Code.
5.18 Disclosure. No representations or warranties by iPayment or any of its
Subsidiaries in this Agreement contain or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary to make
the statements herein not misleading. iPayment and its Subsidiaries know of no
fact or development which materially adversely affects, or which would be
reasonably likely to result in an ODC Material Adverse Effect or an iPayment
Material Adverse Effect, which has not been set forth in this Agreement, the
Exhibits or the Schedules attached hereto.
ARTICLE VI. CERTAIN COVENANTS AND AGREEMENTS
6.1. Access to Information.
(a) Upon reasonable notice and subject to applicable Laws relating to the
exchange of information, each of iPayment and ODC shall, and shall cause each of
its respective Subsidiaries to, afford to the officers, employees, accountants,
attorneys, financial advisors and other representatives (each, a
"Representative") of the other party, access during normal business hours during
the period prior to the Effective Time to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, it shall, and shall cause its
Subsidiaries to, make available to the other party all information concerning
its business, properties and personnel as the other party may reasonably request
in connection herewith. The rights of iPayment and ODC hereunder shall not be
exercised in such a manner as to interfere unreasonably with the conduct of the
business of the other party and its Subsidiaries.
(b) All information furnished pursuant to Section 6.1(a) shall be subject
to, and the parties shall hold all such information in confidence in accordance
with, the provisions of the Nondisclosure and Confidentiality Agreement, dated
as of May 16, 2002 (the "Confidentiality Agreement"), between iPayment and ODC.
(c) Notwithstanding anything in the Confidentiality Agreement or any other
agreement to the contrary, no provision of the Confidentiality Agreement or
investigation by either of the parties or their respective Representatives shall
affect the representations, warranties, covenants or agreements of the other set
forth herein and the parties shall remain responsible to the extent provided
herein.
6.2. No Solicitation.
(a) ODC shall not, nor shall it authorize or permit any officer, director,
employee, any investment banker, attorney, accountant or other advisor or
representative of ODC to, directly or indirectly, solicit, initiate or encourage
the submission of any Acquisition Proposal (as defined below) or participate in
any discussions or negotiations regarding, or furnish to any person any
information with respect to, or agree to or endorse, or take any other action to
facilitate any Acquisition Proposal or any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that nothing contained in this Section
6.2 shall prohibit ODC from furnishing
27
<PAGE>
information to, or entering into discussions or negotiations with, any person or
entity that makes an unsolicited bona fide Acquisition Proposal if: (i) the
Board of Directors of ODC determines in good faith that such action is
reasonably likely to lead to a Superior Proposal; and (ii) prior to taking such
action, ODC (x) provides reasonable notice to iPayment to the effect that it is
taking such action and (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form. Notwithstanding anything
in this Agreement to the contrary, ODC shall as promptly as practicable advise
iPayment orally and in writing of the receipt by it (or any of the other
entities or persons referred to above) after the date hereof of any Acquisition
Proposal, or any inquiry that could reasonably be expected to lead to any
Acquisition Proposal, the material terms and conditions of such Acquisition
Proposal or inquiry, and the identity of the person making any such Acquisition
Proposal or inquiry. ODC will keep iPayment fully informed of the status and
details of any such Acquisition Proposal or inquiry. The term "Acquisition
Proposal" as used in this Agreement means any proposal for a merger,
consolidation or other business combination involving ODC, any proposal or offer
to acquire in any manner a substantial equity interest in or a substantial
portion of the business or assets of ODC, any proposal or offer with respect to
any recapitalization or restructuring of ODC, or any proposal or offer with
respect to any other transaction similar to any of the foregoing with respect to
ODC, other than the Merger. Immediately after the execution and delivery of this
Agreement, ODC will cease and terminate any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any possible
Acquisition Proposal.
(b) The Board of Directors of ODC shall not (i) withdraw or modify, or
propose to withdraw or modify, in a manner adverse to IPayment, the approval or
recommendation by such Board of Directors of this Agreement, (ii) approve or
recommend, or propose to approve or recommend, any Acquisition Proposal or (iii)
enter into any agreement with respect to any Acquisition Proposal, unless ODC
receives an Acquisition Proposal and the Board of Directors of ODC determines in
good faith that such Acquisition Proposal is a Superior Proposal (as defined
below). Notwithstanding anything contained in this Agreement to the contrary,
any action by the Board of Directors permitted by this Section 6.2 shall not
constitute a breach of this Agreement by ODC. The term "Superior Proposal" as
used in this Agreement means any bona fide Acquisition Proposal made by any
third party that ODC's Board of Directors determines in good faith (after
consultation and taking into account the advice of its financial advisor) is
more favorable to ODC (including consideration of its constituencies) than the
Merger and for which any necessary financing is then committed or which, in the
good faith judgment of ODC's Board of Directors, is reasonably capable of being
obtained by such third party.
6.3. Stockholders' Approval. ODC shall take all steps in accordance with
applicable law necessary to provide for the opportunity for the adoption of this
Agreement by its stockholders. ODC will, through its Board of Directors,
recommend to its stockholders adoption of this Agreement and the Merger and
other transactions contemplated hereby.
6.4. Press Releases. iPayment and ODC shall consult with each other and will
mutually agree on any press releases pertaining to this Agreement or the
transactions contemplated hereby and will not issue any such press releases
prior to such consultation and agreement, except as may be required by
applicable securities or other laws, in which case the party proposing to issue
such press release will use its best efforts to consult in good faith with the
other party before issuing any such press releases. Notwithstanding anything
herein to the contrary, the parties hereto
28
<PAGE>
acknowledge and agree that iPayment may upon the advice of counsel and
provisions of notice to the other parties, file a copy of this Agreement or
disclose terms of this Agreement in filings with applicable Governmental
Authorities if this Agreement is deemed material to iPayment.
6.5. Expenses and Fees. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including legal, accounting
and financial advisory fees and expenses, will be paid by the party incurring
such costs and expenses. No costs and expenses incurred by ODC in connection
with this Agreement and the transactions contemplated thereby shall be assumed
by iPayment. Such costs and expenses shall be paid by ODC immediately prior to
Closing. The foregoing shall not affect the legal right, if any, that any party
hereto may have to recover expenses from any other party that breaches its
obligations hereunder.
6.6. Notification. Each of ODC and iPayment agree to (a) give prompt notice to
the other party, and to use their respective reasonable best efforts to prevent
or promptly remedy, (i) upon such party obtaining knowledge thereof, the
occurrence or failure to occur, or the impending or threatened occurrence or
failure to occur, of any event whose occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder and (b) give prompt notice to the other party of any fact which, if
known by it on the date hereof, would have been required to be set forth or
disclosed by it pursuant to this Agreement.
6.7. Additional Agreements. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or to vest the Surviving Corporation with full title to all
properties, assets, rights, approvals, immunities and franchises of any of the
parties to the Merger, the proper officers and directors of each party to this
Agreement and their respective Subsidiaries shall take all such necessary action
as may be reasonably requested by iPayment.
6.8. Reasonable Best Efforts, Cooperation. Subject to the terms and conditions
of this Agreement, each of iPayment and ODC agrees to use its respective
reasonable best efforts in good faith to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and otherwise to enable consummation of
the transactions contemplated hereby and shall cooperate fully with the other
party hereto to that end.
6.9 Preparation of Audit Report. ODC shall cooperate with the preparation by
iPayment and its independent auditors of an audit report (the "ODC Audit") on
ODC 's financial statements and records and will provide access to such
information as is reasonably necessary in connection therewith. The independent
auditors preparing the ODC Audit shall be of iPayment's choosing, and at its
sole expense.
6.10 Issuance of Stock Options. iPayment shall reserve for future issuance under
the iPayment Holdings, Inc. Stock Incentive Plan approximately 56,378 stock
options, which shall have rights
29
<PAGE>
consistent with options granted to other iPayment employees in the past, and
which may be issued upon the joint recommendation of John Rante and Greg Daily
upon final approval by the iPayment Compensation Committee.
6.11 Tax Matters.
(a) The ODC Shareholders shall prepare or cause to be prepared and file or
cause to be filed the Tax Returns for ODC's S corporation short year as a result
of the Merger which are filed after the Closing Date. The ODC Shareholders shall
permit iPayment to review and comment on such Tax Returns described in the
preceding sentence prior to filing and shall consider such revisions to such Tax
Returns as are reasonably requested by iPayment.
(b) iPayment, ODC and the ODC Shareholders shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns and any audit, litigation or other proceeding with respect
to Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are reasonably
relevant to any such audit, litigation or other proceeding.
(c) iPayment, ODC and the ODC Shareholders further agree, upon request, to
use commercially reasonable to obtain any certificate or other document from any
Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed.
ARTICLE VII. CONDITIONS TO CLOSING
7.1. Conditions to Each Party's Obligation To Effect the Merger. The respective
obligation of each of the parties hereto to effect the Merger shall be subject
to the satisfaction, or the waiver by such party, at or prior to the Effective
Time, of the following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved and
adopted by the requisite vote of the stockholders of ODC under applicable law.
(b) Approvals. All consents, approvals, orders or authorizations of or
registrations, declarations or filings with any Governmental Authority, which
the failure to obtain, make or occur has or would reasonably be expected to have
the effect of making the Merger or any of the transactions contemplated hereby
illegal or to have an iPayment Material Adverse Effect, as the case may be,
shall have been obtained, shall have been made or shall have occurred, and shall
be in full force and effect.
(c) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be in
effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Authority
which prohibits, restricts or makes illegal consummation of the Merger.
7.2. Conditions to Obligations of iPayment. The obligation of iPayment to effect
the Merger is also subject to the satisfaction, or waiver by iPayment, at or
prior to the Effective Time, of the following conditions:
30
<PAGE>
(a) Representations and Warranties of ODC. Each of the representations
and warranties of ODC contained in this Agreement (i) that are qualified by
materiality, including the terms "material," "in any material respects" and "in
all material respects" and "ODC Material Adverse Effect" or words of similar
effect, shall be true and correct in all respects when made and as of the
Closing, with the same effect as though such representations and warranties had
been made on and as of the Closing, and (ii) that are not so qualified by
materiality, shall be true and correct in all material respects when made and as
of the Closing, with the same effect as though such representations and
warranties had been made on and as of the Closing. iPayment shall have received
a certificate signed on behalf of ODC by the Chief Executive Officer and the
Chief Financial Officer of ODC to the foregoing effect.
(b) Performance of Obligations of ODC. ODC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and iPayment shall have received a
certificate signed on behalf of ODC by the Chief Executive Officer and the Chief
Financial Officer of ODC to such effect.
(c) No Material Adverse Change. Since the date of this Agreement, there
shall not have occurred any ODC Material Adverse Effect. iPayment shall have
received a certificate signed on behalf of ODC by the Chief Executive Officer
and the Chief Financial Officer of ODC to that effect.
(d) Consents. Prior to Closing, ODC shall have (i) provided all requisite
notices to and (ii) obtained all requisite consents, waivers and approvals from
any third party in order for ODC to consummate the Merger, including, but not
limited to consents provided in Section 4.3 of the ODC Disclosure Schedule,
except that ODC shall not be required to obtain any consent where the failure to
obtain such consent would not cause an ODC Material Adverse Effect.
(e) Resignations. At Closing, iPayment shall have received written
resignations from each of the directors and officers of ODC.
(f) Delivery of Certificates. The holders of the ODC Common Stock shall
deliver all certificates representing outstanding shares of ODC Common Stock, or
an affidavit of loss or destruction in lieu thereof, other than certificates
representing shares of ODC Common Stock for which their holders have exercised
their appraisal rights under the DGCL.
(g) No Dissenting Stockholders. No holders of ODC Common Stock shall have
perfected their rights to dissent to the Merger.
(h) Releases. John Rante shall execute and deliver a release, the form of
which is set forth as Exhibit B to this Agreement.
7.3. Conditions to Obligations of ODC. The obligation of ODC to effect the
Merger is also subject to the satisfaction, or waiver by ODC, at or prior to the
Effective Time, of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of iPayment and iPayment Merger Sub contained in this Agreement (i)
that are qualified by materiality, including the terms "material," "in any
material respects," "in all material respects"
31
<PAGE>
and "iPayment Material Adverse Effect" or words of similar effect, shall be true
and correct in all respects when made and as of the Closing, with the same
effect as though such representations and warranties had been made on and as of
the Closing, and (ii) that are not so qualified by materiality, shall be true
and correct in all material respects when made and as of the Closing, with the
same effect as though such representations and warranties had been made on and
as of the Closing. ODC shall have received a certificate signed on behalf of
iPayment by the Chief Executive Officer and the Chief Financial Officer of
iPayment to the foregoing effect.
(b) Performance of Obligations of iPayment and iPayment Merger Sub.
iPayment and iPayment Merger Sub shall have performed in all material respects
all obligations required to be performed by it under this Agreement at or prior
to the Closing Date, and ODC shall have received a certificate signed on behalf
of iPayment by the Chief Executive Officer and the Chief Financial Officer of
iPayment to such effect.
(c) Consents. Prior to Closing, iPayment and its subsidiaries shall have
(i) provided all requisite notices to and (ii) obtained all requisite consents,
waivers and approvals from any third party in order for iPayment to consummate
the Merger, including, but not limited to, those consents from the parties set
forth in Section 5.3 of the iPayment Disclosure Schedule, such consents having
been provided to ODC prior to Closing.
(d) Releases. The Surviving Corporation shall execute and deliver a
release for the benefit of the former directors and officers of ODC, the form of
which is set forth as Exhibit C to this Agreement.
(e) Piggyback Rights Agreement and Amendment No. 2 to Co-Sale Agreement.
iPayment and the ODC Shareholders shall have entered into a Piggy-Back Rights
Agreement and iPayment, the ODC Shareholders and the parties to the Co-Sale and
Right of First Refusal Agreement shall have entered into an amendment to that
agreement.
(f) Merger Consideration. iPayment shall pay the Merger Consideration as
set forth on Section 2.4.
(g) Employment Agreements. iPayment shall have entered into employment
agreements with each of John Rante, Nicole Mondia, Allen Caviles and Kristin
Graminga in the form attached hereto as Exhibit D.
ARTICLE VIII. INDEMNIFICATION
8.1 Indemnification by John Rante. John Rante shall indemnify, save and hold
harmless iPayment (including iPayment and its Subsidiaries following the Merger)
and its affiliates, successors and permitted assigns, and each officer,
director, employee or agent thereof, their respective controlling persons, and
their respective estates, successors, and assigns (collectively, the "iPayment
Indemnified Parties" and each an "Indemnified Party"), harmless against and from
any direct or actual (but not consequential, incidental or remote) liability,
demands, claims, actions or causes of action, assessments, losses, fines,
penalties, costs, damages and expenses, including reasonable attorneys' fees,
disbursements and expenses (collectively, "Damages"), sustained or incurred by
any of the iPayment Indemnified Parties after the Closing Date as a result of,
arising out of or by virtue of any misrepresentation, breach of any warranty or
32
<PAGE>
representation, or non-fulfillment of any agreement or covenant that was to be
fulfilled prior to the Closing Date, in each case on the part of ODC, whether
contained in this Agreement or any Exhibit or Schedule hereto or thereto or any
written statement or certificate furnished or to be furnished to iPayment
pursuant hereto or in any closing document or ancillary document executed and
delivered in connection with, or contemplated by, this Agreement executed and
delivered by ODC to iPayment in connection herewith; provided, however, that
none of the iPayment Indemnified Parties shall be entitled to recover from John
Rante for any claims for indemnity or damages with respect to any inaccuracy or
breach of any representations or warranties, unless and until the total of all
such claims exceeds $10,000, in which case all such damages, including the
initial $10,000, shall be included in the calculation of damages under, and
indemnifiable pursuant to, this Section 8.01. Except as set forth in the below,
in no event shall: (i) John Rante's liability under this Section 6.01 with
respect to the inaccuracy or breach of representations and warranties exceed
$1,000,000 in the aggregate (the "Cap"), or (ii) the iPayment Indemnified
Parties, taken collectively, recover more than the aggregate Damages sustained
or incurred for any inaccuracy or breach of the same or similar representations
and warranties in this Agreement with regard to the same event, circumstance or
occurrence. The Cap shall not apply to any liability arising out of litigation
disclosed on Section 4.9 of the ODC Disclosure Schedule or any liability
actually known to John Rante at the time of the Closing but not disclosed on the
ODC Disclosure Schedules.
8.2. Indemnification by iPayment. iPayment shall indemnify, save and hold
harmless the shareholders of ODC set forth in Section 2.4 of the ODC Disclosure
Schedule and their respective estates, successors, and assigns (the "ODC
Indemnified Parties"), harmless against and from any liability, demands, claims,
actions or causes of action, assessments, losses, fines, penalties, costs,
damages and expenses, including reasonable attorneys' fees, disbursements and
expenses (collectively, "Damages"), sustained or incurred by the ODC Indemnified
Parties after the Closing Date as a result of, arising out of or by virtue of
any misrepresentation, breach of any warranty or representation, or
non-fulfillment of any agreement or covenant that was to be fulfilled prior to
the Closing Date, in each case on the part of iPayment or iPayment Merger Sub,
whether contained in this Agreement or any Exhibit or Schedule hereto or thereto
or any written statement or certificate furnished or to be furnished to ODC
pursuant hereto or in any closing document or ancillary document executed and
delivered in connection with, or contemplated by, this Agreement executed and
delivered by iPayment or iPayment Merger Sub in connection herewith; provided,
however, that the ODC Indemnified Parties shall not be entitled to recover from
iPayment or any of its affiliates for any claims for indemnity or damages with
respect to any inaccuracy or breach of any representations or warranties, unless
and until the total of all such claims exceeds $10,000, in which case all such
damages, including the initial $10,000, shall be included in the calculation of
damages under, and indemnifiable pursuant to, this Section 8.02. In no event
shall: (i) iPayment's liability under this Section 6.02 with respect to the
inaccuracy or breach of representations and warranties exceed $1,000,000 in the
aggregate; or (ii) the ODC Indemnified Parties, taken collectively, recover more
than the aggregate Damages sustained or incurred for any inaccuracy or breach of
the same or similar representation and warranties in this agreement with regard
to the same event, circumstance or occurrence.
8.3 Procedure for Indemnification - Non Third Party Claims. Whenever any claim
shall arise for indemnification hereunder not involving a Proceeding (as
hereinafter defined), the
33
<PAGE>
Indemnified Party shall notify the indemnifying party promptly after such
Indemnified Party has actual knowledge of the facts constituting the basis for
such claim.
8.4 Procedure for Indemnification - Third Party Claims.
(a) Promptly following the receipt by any Indemnified Party of written
notice of a demand, claim, action, assessment or proceeding made or brought by a
third party, including a governmental agency (a "Third Party Claim") for which
such person seeks indemnification, the Indemnified Party receiving such notice
of the Third Party Claim shall promptly notify the ODC Indemnified Party or
iPayment, as applicable, (the "Indemnifying Party"), of its existence, setting
forth the facts and circumstances of which such Indemnified Party has received
notice, but the failure to notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability that it may have to the Indemnified Party,
except to the extent that the Indemnifying Party demonstrates that the defense
of such action is prejudiced by the Indemnified Party's failure to give such
notice.
(b) The Indemnified Party shall tender the defense of a Third Party Claim
to the Indemnifying Party. If the Indemnifying Party accepts responsibility for
the defense of a Third Party Claim, then the Indemnifying Party shall have the
exclusive right to contest, defend and litigate the Third Party Claim and shall
have the exclusive right, in its discretion exercised in good faith and upon the
advice of counsel, to settle any such matter, either before or after the
initiation of litigation, at such time and upon such terms as it deems fair and
reasonable, provided that at least ten days prior to any such settlement, it
shall give written notice of its intention to settle to the Indemnified Party.
The Indemnified Party shall have the right to be represented by counsel at its
own expense in any defense conducted by the Indemnifying Party (but the
Indemnifying Party will control the defense of the Third Party Claim (if it has
elected to do so)).
(c) If, in accordance with the foregoing provisions of this Section 8.04,
an Indemnified Party shall be entitled to indemnification against a Third Party
Claim, and if the Indemnifying Party shall fail to accept the defense of a Third
Party Claim that has been tendered in accordance with this Section 8.04, the
Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair
and reasonable, provided at least ten days prior to any such settlement, written
notice of its intention to settle is given to the Indemnifying Party. If,
pursuant to this Section 8.04 the Indemnified Party so defends or settles a
Third Party Claim for which it is entitled to indemnification hereunder, as
hereinabove provided, the Indemnified Party shall be reimbursed or otherwise
indemnified by the Indemnifying Party for the reasonable attorneys' fees and
other expenses of defending the Third Party Claim that are incurred from time to
time. No failure by the Indemnifying Party to acknowledge in writing its
indemnification obligations under this Article VIII shall relieve it of such
obligations to the extent they exist.
(d) Notwithstanding the foregoing, in connection with any settlement
negotiated by the Indemnifying Party, no Indemnified Party shall be required to
(i) enter into any settlement (A) that does not include the delivery by the
claimant or plaintiff to the Indemnified Party of a release from all liability
in respect of such claim or litigation, or (B) if the Indemnified Party
34
<PAGE>
shall, in writing to the Indemnifying Party within the ten day period prior to
such proposed settlement, disapprove of such settlement proposal (which
settlement proposal will not be unreasonably disapproved) and desire to have the
Indemnifying Party tender the defense of such matter back to the Indemnified
Party, or (ii) consent to the entry of any judgment that does not include a full
dismissal of the litigation or proceeding against the Indemnified Party with
prejudice; provided, however, that should the Indemnified Party disapprove of a
settlement proposal pursuant to clause (B) above, the Indemnified Party shall
thereafter have all of the responsibility for defending, contesting and settling
such Third Party Claim but shall not be entitled to indemnification by the
Indemnifying Party to the extent that, upon final resolution of such Third Party
Claim, the Indemnifying Party's liability to the Indemnified Party but for this
proviso exceeds what the Indemnifying Party's liability to the Indemnified Party
would have been if the Indemnifying Party were permitted to settle such Third
Party Claim in the absence of the Indemnified Party exercising its right under
clause (B) above.
(e) Notwithstanding the foregoing, if an Indemnified Party determines in
good faith that there is a reasonable probability that a Third Party Claim may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Party may, by notice to the Indemnifying Party, assume the exclusive
right to defend, compromise or settle the Third Party Claim without the
Indemnifying Party's consent (which may not be unreasonably withheld.) If the
Indemnifying Party does not assume the defense of any claim or litigation, any
Indemnified Party may defend against such claim or litigation in such manner as
it may deem appropriate, including, but not limited to, settling such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate. The Indemnifying Party will
promptly reimburse the Indemnified Party in accordance with the provisions
hereof.
8.5. Recoupment under Note. From and after the Closing (but subject to the
provisions of this Article VIII and Section 9.9), any indemnification to which
the iPayment Indemnitees are entitled under this Agreement as a result of any
damages determined by a court of law upon a final entry of judgement (the
"Damages") may be satisfied, at their option, by recouping all or any portion of
such Damages (subject to the other provisions of this Article VIII), by iPayment
notifying the holders of the Notes that it is reducing the principal amount
outstanding under the Notes. Any such recoupment shall affect the timing and
amounts of payments required under the Notes in the same manner as if iPayment
had made a permitted prepayment (without premium or penalty) thereunder. The
Notes shall bear a legend referencing iPayment's ability to recoup Damages
pursuant to this Agreement.
8.6. Survival. All of the terms and conditions of this Agreement, together with
the representations, warranties and covenants of ODC contained herein or in any
instrument or document delivered or to be delivered pursuant to this Agreement,
shall survive Closing (even if the Indemnified Party knew or had reason to know
of any misrepresentation or breach of warranty at the time of Closing) and
continue in full force for a period of eighteen months following the Effective
Time (subject to any applicable statutes of limitations.) No party shall be
entitled to recover for any Damages pursuant to Sections 8.1 or 8.2 unless
written notice of a claim thereof is delivered to the other party prior to the
eighteenth month anniversary of the date hereof, notwithstanding any
investigation heretofore or hereafter made by or on behalf of any party hereto.
35
<PAGE>
8.7 Payment. Except as set forth in Section 8.5 above, all indemnification
hereunder shall be effected by payment of cash or delivery of a certified or
official bank check in the amount of the indemnification liability. All
indemnification payments under this Article VIII shall be deemed adjustments to
the Merger Consideration, unless iPayment chooses to exercise its rights under
Section 8.5 above.
ARTICLE IX. GENERAL
9.1. Amendment. This Agreement may be amended at any time only by a written
instrument signed on behalf of each of ODC and iPayment.
9.2. Notices. All notices, claims, demands and other communications hereunder
shall be in writing and shall be deemed given upon (i) confirmation of receipt
of a facsimile transmission, (ii) confirmed delivery by a standard overnight
carrier or when delivered by hand, or (iii) the expiration of three Business
Days after the day when mailed by registered or certified mail (postage prepaid,
return receipt requested), in each case addressed to the respective parties at
the following addresses (or such other address for a party as shall be specified
by like notice):
(a) If to iPayment iPayment Holdings, Inc.
or iPayment 30 Burton Hills, Suite 520
Merger Sub, to: Nashville, Tennessee 37215
Telecopy No.: (615) 665-8434
Attention: Afshin Yazdian
With a copy Waller Lansden Dortch & Davis, PLLC
(which shall 511 Union Street, Suite 2100
not constitute Nashville, Tennessee 37219
notice) to: Telecopy No.: (615) 244-6804
Attention: Benjamin C. Huddleston, Esq.
(b) If to ODC or Two Westbrook Corporate Center
ODC Suite 200
Indemnities, to: Westchester, Illinois 60154
Telecopy No.: (800) 787-4751
Attention: Mr. John Rante
With a copy Lord, Bissell & Brook
(which shall 115 South LaSalle Street
not constitute Chicago, Illinois 60603
notice) to: Telecopy No: (314) 443-0336
Attention: Louis E. Rosen, Esq.
9.3. Entire Agreement. This Agreement (including the schedules and exhibits
thereto, and the other documents and instruments referred to herein, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them, with
respect to the subject matter hereof, including any transaction
36
<PAGE>
between or among the parties hereto. No representation, promise, inducement or
statement of intention has been made by ODC, iPayment or iPayment Merger Sub
that is not embodied in this Agreement or the other agreements referred to
herein and entered into in connection herewith, the schedules or exhibits
hereto, or the written statements, certificates or other documents delivered
pursuant hereto.
9.4. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws thereof or of any other jurisdiction. If legal
action is commenced to enforce this Agreement, the prevailing party in such
action shall be entitled to recover its costs and reasonable attorneys' fees in
addition to any other relief granted.
9.5. Counterparts; Effectiveness. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement. This Agreement shall become
effective when each party hereto shall have received counterparts thereof signed
by all the other parties hereto.
9.6. Assignment; Successors and Assigns; Parties In Interest. No party hereto
shall assign this Agreement, or its right or duties hereunder, by operation of
law or otherwise, without first obtaining the written consent of the other
parties hereto, except that iPayment Merger Sub may assign this Agreement and
its rights and obligations hereunder to another wholly-owned Subsidiary of
iPayment. Subject to the foregoing provisions, all of the rights, benefits,
duties, liabilities and obligations of the parties hereto shall inure to the
benefit of and be binding upon the parties and their respective successors and
assigns. There are no third party beneficiaries to this Agreement, provided that
the iPayment Indemnitees and the ODC Indemnitees and their heirs, executors and
personal representatives shall be third party beneficiaries of the covenants of
Parent set forth in Article VIII above.
9.7. Severability. Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
9.8. Enforcement of Agreement. The parties hereto agree that irreparable damage
would occur in the event that the provisions contained in this Agreement were
not performed in accordance with its specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to seek an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions thereof in any court of the United States
or any state having jurisdiction, without having to post bond therefor or prove
actual damages, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.9. Exclusive Remedy. The parties hereto agree that the indemnification
provisions of Article VIII shall constitute the sole and exclusive remedy for
damages arising from a violation or breach of this Agreement.
37
<PAGE>
9.10 Schedules. Any item disclosed in the Online Disclosure Schedule or the
iPayment Disclosure Schedule shall be deemed disclosed with respect to all
representations and warranties contained herein and shall not be limited to the
specific section identified in the relevant schedule.
ARTICLE X. DEFINITIONS
As used herein, the following terms shall have the following meanings
ascribed thereto (with terms defined in the plural having comparable meaning
when used in the singular, and likewise with respect to terms defined in the
singular):
"Acquisition Proposal" shall mean any tender or exchange offer, proposal for a
merger, consolidation or other business combination involving ODC or any
Subsidiary of ODC or any proposal, inquiry or offer to acquire in any manner, in
a single transaction or a series of related transactions, all or 15% or greater
equity interest in, or all or a substantial portion of the assets of, ODC or any
Subsidiary of ODC, other than the transactions contemplated or permitted by this
Agreement.
"Affiliate" means, with respect to any Person, any other Person which, directly
or indirectly, through one or more intermediaries, controls, or is controlled
by, or is under common control with, such Person.
"Agreement" means this Agreement and Plan of Merger.
"Articles of Dissolution" means any such documents issued by a Secretary of
State's office, or its equivalent, to commemorate and reflect the dissolution of
a Person.
"BINs" shall mean a unique Bank Identification Number assigned by VISA and
licensed to a Member Bank for its use in entering or receiving transactions into
(or from) VISA's settlement authorization systems and participating in the VISA
card program. An "ICA" is the corresponding number assigned by MasterCard for
the same purpose.
"Blue Sky laws" means the securities laws of a particular state.
"Business Day" means a day of the year on which banks are not authorized to be
closed in the City of Nashville, Tennessee or Chicago, Illinois.
"Cap" shall have the meaning set forth in Section 8.2.
"Certificate of Merger" shall have the meaning set forth in Section 2.2.
"Closing" shall have the meaning set forth in Section 2.12.
"Closing Date" shall have the meaning set forth in Section 2.12.
"Code" shall have the meaning set forth in the fourth recital to this Agreement.
"Confidentiality Agreement" shall have the meaning set forth in Section 6.1.
38
<PAGE>
"Control" of a Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract, as trustee or executor
or otherwise.
"Conversion Price" shall have the meaning set forth in Section 5(a)(i) of
iPayment's Articles of Amendment to the Charter of iPayment. As of the date
hereof, the Conversion Price is $2.01.
"Damages" shall have the meaning set forth in Section 8.1.
"Delaware Secretary" shall have the meaning set forth in Section 2.2.
"DGCL" shall have the meaning set forth in Section 2.1.
"Gross-Up Amount" shall have the meaning set forth in Section 2.4.
"ODC " shall have the meaning set forth in the preamble to this Agreement.
"ODC Benefit Plans" shall have the meaning set forth in Section 4.18.
"ODC Common Stock" shall have the meaning set forth in Section 2.4.
"ODC Contracts" shall have the meaning set forth in Section 4.15.
"ODC Disclosure Schedule" shall have the meaning set forth in preamble of
Article IV.
"ODC Dissenting Shares" shall have the meaning set forth in Section 2.6.
"ODC Documents" shall have the meaning set forth in Section 4.2.
"ODC Financial Statements" shall have the meaning set forth in Section 4.6.
"ODC Holder" shall have the meaning set forth in Section 2.8.
"ODC Material Adverse Effect" means a material adverse effect on the business,
assets, liabilities, results of operations or financial condition of ODC, or a
material adverse effect on the ability of ODC to consummate the Merger, other
than an effect caused by or arising out of: (a) any change in any law,
regulation, order, ordinance, judgment or decree of any governmental authority;
(b) any change in GAAP or any interpretations thereof that apply to ODC; (c) any
condition affecting the electronic payment industry generally; or (e) the
execution or public announcement of this Agreement (including, without
limitation, loss of employees, suppliers or customers).
"ODC Material Contracts" shall have the meaning set forth in Section 4.15.
"ODC Merchant Related Agreements" means all material contracts and other
agreements to which ODC is a party relating to the provision of credit card
services or equipment leasing and sales, including, but not limited to the
following agreements:
39
<PAGE>
(a) any Independent Service Organization ("ISO") Agreements and
Independent Training Organization ("ITO") Agreements or any other
agreements with non-employee/independent Persons that solicit Merchants for
or on behalf of ODC (collectively referred to as "ISO/ITO Agreements");
(b) any agreements with authorization network vendors and backend
processors ("Vender Agreements");
(c) all agreements with Member Banks;
(d) any agreements that limit the right of ODC prior to the Closing Date,
or iPayment or its Subsidiaries after the Closing Date, to engage in or to
compete with any Person in any business, including the method by which any
business may be conducted by ODC prior to the Closing Date, or by iPayment
or its Subsidiaries after the Closing Date;
(e) all equipment leasing related agreements, including factoring
arrangements;
(f) any marketing agreement not listed above; or
(g) all Merchant Agreements.
"ODC Option" shall have the meaning set forth in Section 2.8.
"ODC Plan Options" shall have the meaning set forth in Section 4.5.
"ODC Shareholders" shall mean those Shareholders set forth on Section 2.4 of the
ODC Disclosure Schedules.
"ODC Stock Plan" shall have the meaning set forth in Section 4.5.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Encumbrance" shall mean any liens, claims, charges, encumbrances, mortgages,
pledges, security interests and other interests.
"Environmental Claims" shall have the meaning set forth in Section 4.19.
"Environmental Laws" shall have the meaning set forth in Section 4.19.
"ERISA" has the meaning set forth in Section 4.18.
"ERISA Affiliate" means (i) any related company or trade or business that is
required to be aggregated with ODC under Code Sections 414(b), (c), (m) or (o);
(ii) any other company, entity or trade or business that has adopted or has ever
participated in any ODC Benefit Plan; and (iii) any predecessor or successor
company or trade or business of ODC or any company or trade or business defined
by (i) or (ii).
"GAAP" means generally accepted accounting principles in effect in the United
States consistently applied.
40
<PAGE>
"Governmental Authority" shall have the meaning set forth in Section 4.3.
"Indemnified Party" shall have the meaning set forth in Section 8.4(a).
"Indemnifying Party" shall have the meaning set forth in Section 8.4(a).
"iPayment" shall have the meaning set forth in the preamble to this Agreement.
"iPayment Common Stock" shall have the meaning set forth in Section 5.5.
"iPayment Credit Agreement" shall mean the Loan Agreement between Bank of
America and iPayment.
"iPayment Disclosure Schedule" shall have the meaning set forth in preamble of
Article V.
"iPayment Documents" shall have the meaning set forth in Section 5.2.
"iPayment Financial Statements" shall have the meaning set forth in Section 5.6.
"iPayment Indemnitees" shall have the meaning set forth in Section 8.1.
"iPayment Material Adverse Effect" means a material adverse effect on the
business, assets, liabilities, results of operations or financial condition of
iPayment or its Subsidiaries, or a material adverse effect on the ability of
iPayment or iPayment Merger Sub to consummate the Merger, other than an effect
caused by or arising out of: (a) any change in any law, regulation, order,
ordinance, judgment or decree of any governmental authority; (b) any change in
GAAP or any interpretations thereof that apply to iPayment; (c) any condition
affecting the electronic payment industry generally; or (e) the execution or
public announcement of this Agreement (including, without limitation, loss of
employees, suppliers or customers).
"iPayment Merger Sub" shall have the meaning set forth in the preamble to this
Agreement.
"iPayment Merger Sub Common Stock" shall have the meaning set forth in Section
2.8.
"iPayment Options" shall have the meaning set forth in Section 2.8.
"iPayment Preferred Stock" shall have the meaning set forth in Section 5.5.
"IRS" means the United States Internal Revenue Service.
"Knowledge" means with respect to an individual, except as otherwise provided,
such individual is actually aware of the particular fact, matter, circumstance
or other item, or a prudent individual could be expected to discover or
otherwise become aware of such fact, matter, circumstance or other item in the
course of performing his or her customary duties as historically performed; and,
with respect to any other Person (other than an individual), any individual who
is serving as a director, officer, partner, executor or trustee of such Person
(or in any similar capacity) has knowledge (as defined above) of such fact,
matter, circumstance or other item.
"Laws" shall have the meaning set forth in Section 4.10.
41
<PAGE>
"Leases" shall have the meaning set forth in Section 4.16.
"MasterCard" means MasterCard International, Inc.
"Member Bank" means a member of VISA and/or MasterCard which is authorized by
such association(s) to enter or receive transactions into (or from) such
association(s) settlement and authorization systems, and to participate in such
association(s) charge card program.
"Merchant" means any customer who enters into a Merchant Agreement for the
purpose of participating in the Merchant Program.
"Merchant Accounts" means the written contractual relationship between a
Merchant, on the one hand, and/or a Member Bank and ODC on the other for the
acquisition and processing of transactions.
"Merchant Agreements" means the written contractual agreement between a Member
Bank, a Merchant and/or ODC, pursuant to which ODC provides processing services
and allows the Merchant to participate in the Merchant Program.
"Merchant Program" means the package of services offered by ODC and a Member
Bank to a customer which enables a Merchant to make sales to a credit card
holder and which permits the Merchant to present sales records to a processor
for payment and processing.
"Merger" shall have the meaning set forth in the second recital to this
Agreement.
"Mezzanine Debt" shall mean the Subordinated Secured Promissory Note issued by
iPayment, iPayment Technologies, Inc. and First Acquisition Company to Harbinger
Mezzanine Partners, L.P. on April 12, 2001.
"Notes" shall have the meaning set forth in Section 2.4.
"Ordinary course of business" means, with respect to any particular Person: (a)
an action is consistent with the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person; (b) such
action is not required to be specifically authorized by the board of directors
of such Person (or by any Person or group of Persons exercising similar
authority) and is not required to be specifically authorized by the parent
company (if any) of such Person; or (c) such action is similar in nature and
magnitude to actions customarily taken, without any authorization by the board
of directors (or by any Person or group of Persons exercising similar
authority), in the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"Permitted Liens" means (i) Encumbrances identified in Section 10 of the ODC
Disclosure Schedule or Section 10 of the iPayment Disclosure Schedule, as
applicable; (ii) mechanics', carriers', workers', repairers', materialmen's,
warehousemen's and other similar Encumbrances arising out of operation of law
with respect to a liability incurred in the ordinary course of business and
consistent with past practice that is not delinquent or in default; (iii)
Encumbrances arising under conditional sales contracts and equipment leases with
third parties under which
42
<PAGE>
ODC or iPayment is not delinquent or in default; and (iv) Encumbrances for Taxes
not yet due and payable.
"Person(s)" means any individual, corporation, partnership, firm, joint venture,
association, joint-stock company, trust, unincorporated organization,
governmental or regulatory body or other entity.
"Receivables" shall have the meaning set forth in Section 4.13.
"Representative" shall have the meaning set forth in Section 6.3.
"Settlement Report" shall have the meaning set forth in Section 4.25.
"Subsidiary" of any Person means any other Person of which such Person (either
alone or through or together with any other Subsidiary): (i) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such other Person, (ii) is a general partner, trustee
or other entity performing similar functions or (iii) has control.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
"Taxes" means all taxes, assessments, charges, duties, fees, levies or other
governmental charges including, without limitation, all Federal, state, local,
foreign and other income, franchise, profits, capital gains, capital stock,
transfer, sales, use, occupation, property, excise, severance, windfall profits,
stamp, license, payroll, employment, social security (or similar), unemployment,
withholding and other taxes, assessments, charges, duties, fees, levies or other
governmental charges of any kind whatsoever (whether payable directly or by
withholding and whether or not requiring the filing of a Tax Return), all
estimated taxes, deficiency assessments, additions to tax, penalties and
interest and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group or of a
contractual obligation to indemnify any person or other entity.
"Tax Returns" means any return, report, declaration, claim for refund or other
document or information required to be supplied to a taxing authority in
connection with the Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Third Party Claim" shall have the meaning set forth in Section 8.3(a).
"VISA" means Visa USA, Inc.
"Voting Amendment" shall have the meaning set forth in Section 7.3(g).
"Voting Arrangements" shall have the meaning set forth in Section 4.5(g).
[SIGNATURE PAGE IS THE NEXT PAGE]
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.
IPAYMENT HOLDINGS, INC.
By: /s/ Gregory S. Daily
----------------------------------
Gregory S. Daily
Chairman, Chief Executive Officer
and Secretary
IPAYMENT ACQUISITION SUB, INC.
By: /s/ Gregory S. Daily
----------------------------------
Gregory S. Daily
Chief Executive Officer and
President
ONLINE DATA CORP.
By: /s/ John R. Rante
----------------------------------
John R. Rante
President
John Rante for purposes of Article VIII
/s/ John Rante
---------------------------------------