Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") is made as of the 7th
day of March, 2001, by and among ACTV, Inc., a Delaware corporation ("ACTV"),
with its principal place of business at 000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx, Xxx
Xxxx, Xxx Xxxx 00000; and Intellocity, Inc., a corporation formed under the laws
of the British Virgin Islands ("Intellocity") with its principal place of
business at Suite 1201 Leighton Center, 00 Xxxxxxxx Xxxx, Xxxxxxxx Xxx, Xxxx
Kong. ACTV and Intellocity are referred to herein individually as a "Party" and
collectively as the "Parties."
PREAMBLE
WHEREAS, upon the terms and subject to the conditions of this Agreement
and in accordance with the General Corporation Law of the State of Delaware
("Delaware Law") and the International Business Companies Act of the British
Virgin Islands ("BVI Law"), Intellocity will be merged with and into ACTV (the
"Merger"); and
WHEREAS, the Parties intend that the Merger qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the Parties intend this Agreement to
qualify as a "plan of reorganization" within the meaning of Treasury Regulation
Sections 1.368-2(g) and 1.368-3(a). For accounting purposes, it is intended that
the purchase rules of accounting be applied to the Merger.
NOW THEREFORE, in consideration of the mutual promises set forth herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the Parties agree as follows:
ARTICLE 1
THE MERGER
(a) THE MERGER. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with Delaware Law and BVI Law, at the
Effective Time (as herein defined) Intellocity shall be merged with and into
ACTV, the separate existence of Intellocity shall cease and ACTV shall continue
as the surviving corporation of the Merger (the "Surviving Corporation").
(b) CONSUMMATION OF THE MERGER. Subject to the satisfaction of the
conditions set forth in Article 9 herein (the "Closing Conditions"), the closing
of the Merger (the "Closing") will take place as promptly as practicable after
the satisfaction or waiver of the Closing Conditions on a date specified by the
parties, but in any event no later than the second business day following such
satisfaction or waiver. The date on which the Closing occurs is the "Closing
Date." The Closing shall be held at the offices of Xxxxxxx, Xxxxxx & Xxxxxxxxx,
LLP, 000 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000 at 9:00 a.m. on the Closing
Date, unless another time and place is agreed to in writing by the Parties
hereto.
(c) EFFECTIVE TIME. On the Closing Date, the Parties shall cause the
Merger to be consummated by filing, and the Merger shall become effective
immediately upon the filing, of (i) a certificate of merger (the "Delaware
Merger Certificate") with the Secretary of State of the State of Delaware in
substantially the form annexed hereto as EXHIBIT 1, executed in accordance with
the relevant provisions of Delaware Law, and (ii) articles of merger and a plan
of merger (the "BVI Merger Certificate") with the Registrar of Companies of the
British Virgin Islands in substantially the form annexed hereto as EXHIBIT 2,
executed in accordance with the relevant provisions of BVI Law. The Merger shall
become effective at the latest to occur of the time such Delaware Merger
Certificate is filed with the Secretary of State of the State of Delaware and
the BVI Merger Certificate is filed with the Registrar of Companies of the
British Virgin Islands (the "Effective Time"). The date on which the Effective
Time occurs is referred to as the "Effective Date."
(d) EFFECT OF THE MERGER. At and after the Effective Time, the Merger
shall be effective as provided in the applicable provisions of Delaware Law and
BVI Law. The corporate existence of ACTV, as the Surviving Corporation, with all
of its purposes and powers, shall continue unaffected and unimpaired by the
Merger, and, as the Surviving Corporation, it shall be governed by the laws of
the State of Delaware and succeed to all rights, assets, liabilities and
obligations of Intellocity in accordance with Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all the property, rights, privileges, powers and
franchises of ACTV and Intellocity shall vest in the Surviving Corporation, and
all debts, liabilities and duties of ACTV and Intellocity shall become the
debts, liabilities and duties of the Surviving Corporation. The separate
existence and corporate organization of Intellocity shall cease at the Effective
Time and thereafter ACTV and Intellocity shall be a single corporation, to wit,
the Surviving Corporation.
(e) CERTIFICATE OF INCORPORATION; BY-LAWS. At and after the Effective
Time, the Certificate of Incorporation and By-Laws of ACTV, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation and By-Laws of the Surviving Corporation.
(f) DIRECTORS AND OFFICERS. At and after the Effective Time and subject
to Article 10 (c)(iii) and (iv) hereof, the directors and officers of ACTV as in
effect immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation, and the directors and officers of
Intellocity USA, Inc., a Delaware corporation and wholly-owned subsidiary of
Intellocity ("USA") shall be the individuals named in EXHIBIT 3 hereto, in each
case until their respective successors shall have been duly elected or appointed
and qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and By-Laws of ACTV and USA, respectively.
(g) FURTHER ACTIONS. If at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignment
or assurances or any other things that are necessary or desirable to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, the
title to any property or right of Intellocity acquired or to be acquired by
reason of or as a result of the Merger, Intellocity and its officers and
directors in office immediately prior to the Effective Time shall use
commercially reasonable efforts to execute and deliver, or cause to be executed
and delivered, all such proper deeds, assignments and assurances
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and do all things reasonably necessary and proper to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and otherwise
carry out the purpose of this Agreement, and the officers of the Surviving
Corporation are fully authorized in the name of Intellocity or otherwise to take
any and all such action with the same effect as if such persons were officers of
Intellocity.
(h) DISSENTING SHARES. Notwithstanding the provisions of Article 2
below, if the Merger is effectuated pursuant to Section 79 of BVI Law, shares of
Intellocity Common Stock and Intellocity Preferred Stock outstanding immediately
prior to the Effective Time and held by an Intellocity Stockholder (as defined
below) who has demanded appraisal for such shares in accordance with BVI Law
shall not be converted into a right to receive the merger consideration, unless
such Intellocity Stockholder fails to perfect or withdraws or otherwise loses
his or her right to appraisal. If, after the Effective Time, such Intellocity
Stockholder fails to perfect or withdraws or loses his or her right to
appraisal, such shares shall be treated as if they had been converted as of the
Effective Time into a right to receive the merger consideration as provided in
this Agreement. Intellocity shall give ACTV prompt notice of any demands
received by Intellocity for appraisal of shares, and ACTV shall have the right
to participate in all negotiations and proceedings with respect to such demands.
Intellocity shall not, except with the prior written consent of ACTV, make any
payment with respect to, or settle or offer to settle, any such demands. Any
amounts paid to an Intellocity Stockholder pursuant to a right of appraisal will
be paid by Intellocity out of its own funds and will not be reimbursed by ACTV
or any affiliate of ACTV.
ARTICLE 2
CONSIDERATION
(a) SHARES OF ACTV COMMON STOCK TO BE ISSUED. At and as of the
Effective Time, by virtue of the Merger and without any action on the part of
the holder thereof: (i) each outstanding Ordinary Share of Intellocity, $.01 par
value per share (the "Intellocity Common Stock"), and each outstanding Series A
Preference Share of Intellocity, $.01 par value per share (the "Intellocity
Preferred Stock"), shall be converted into the right to receive 0.412943122
shares of common stock of ACTV, $.10 par value per share (the "ACTV Common
Stock"; and the shares of ACTV Common Stock issued upon such conversion, being
five million two hundred sixty thousand three hundred sixty one (5,260,361)
shares in the aggregate, are referred to herein as the "Merger Shares"), and
(ii) each dissenting share shall be converted into the right to receive payment
from Intellocity with respect thereto in accordance BVI Law. As a result of the
foregoing, the Merger Shares shall be allocated among the holders of Intellocity
Common Stock and Intellocity Preferred Stock as set forth in EXHIBIT 4 attached
hereto (which shall be amended by the Parties immediately prior to the Effective
Time in order to give effect to exercises, if any, of Outstanding Options (as
defined below) subsequent to the date hereof).
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The ratio of 0.412943122 shares of ACTV Common Stock to one share of
Intellocity Common Stock or Intellocity Preferred Stock, as the case may be, is
referred to herein as the "Conversion Ratio." The Conversion Ratio equals the
fraction (i) having a numerator equal to $42,000,000, and (ii) having a
denominator equal to the amount determined by multiplying (A) the ACTV Average
Stock Price by (B) the Aggregate Outstanding Shares and Vested Options. For
purposes of this Agreement, the "ACTV Average Stock Price" shall mean the
average of the closing sales prices of ACTV Common Stock as quoted on the Nasdaq
National Market for the ten (10) trading days immediately preceding February 14,
2001 (the date on which a Memorandum of Understanding was executed by the
parties to this Agreement). For purposes of this Agreement, the "Aggregate
Outstanding Shares and Vested Options" shall mean all issued and outstanding
shares of Intellocity Common Stock and Intellocity Preferred Stock together with
all shares of Intellocity Common Stock issuable upon the exercise of vested and
exerciseable Outstanding Options (as defined below), giving effect to all
contractual change of control provisions applicable to such options, in each
case calculated as of February 14, 2001. The Conversion Ratio shall be subject
to equitable adjustment in the event of any stock split, stock dividend, reverse
stock split, or other change in the number of shares of ACTV Common Stock,
Intellocity Common Stock and Intellocity Preferred Stock outstanding (other than
in connection with the exercise of outstanding convertible stock options or
warrants). In no event shall ACTV be required to issue more than six million two
hundred and sixty one thousand three hundred sixty seven (6,261,367) shares of
ACTV Common Stock pursuant to this Agreement.
(b) EXCHANGE OF OUTSTANDING OPTIONS. Subject to the terms and
conditions set forth in this Agreement, at and as of the Effective Time, each of
the outstanding options to acquire Intellocity Common Stock set forth on EXHIBIT
5 attached hereto (which shall, if necessary, be amended by the parties as of
the Effective Date) that remain outstanding as of the Effective Time
(collectively the "Outstanding Options"), shall be converted by ACTV into
non-plan options to acquire such number of shares of ACTV Common Stock based on
the Conversion Ratio as set forth on EXHIBIT 5 attached hereto, at the exercise
price per share of ACTV Common Stock also set forth on EXHIBIT 5 attached
hereto. The options to acquire ACTV Common Stock shall be subject to the vesting
schedules set forth on EXHIBIT 5 attached hereto.
(c) SHARES OF ACTV COMMON STOCK TO BE RESERVED. Subject to the terms
and conditions set forth in this Agreement, at and after the Closing, ACTV shall
reserve such number of shares of ACTV Common Stock as are required for issuance
in connection with the exercise of the Outstanding Options, including any
adjustments by reason of the antidilution provisions contained therein.
(d) RESTRICTIONS ON RESALE.
(i) Except as otherwise set forth herein, the Merger Shares,
the options to acquire shares of ACTV Common Stock issuable in exchange for the
Outstanding Options, and the shares of ACTV Common Stock issuable upon the
exercise of the options to acquire shares of ACTV Common Stock have not been
registered under the Securities Act of 1933 (the "Securities Act"), or the
securities laws of any state, and absent an exemption from registration
contained in such laws, cannot be transferred, hypothecated, sold or otherwise
disposed of until (A) a registration statement with respect to such securities
is declared effective under the Securities Act, or (B) such shares are saleable
under Rule 144 promulgated under the Securities
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Act or (C) ACTV receives an opinion of counsel for ACTV that an exemption from
the registration requirements of the Securities Act is available.
Notwithstanding the forgoing, if permissible under all applicable law, no
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder (as defined below) which is (W) a partnership to its partners or
former partners in accordance with partnership interests, (X) a corporation to
its shareholders in accordance with their interest in the corporation or to its
subsidiaries in accordance with its percentage interest in such subsidiaries,
(Y) a limited liability company to its members or former members in accordance
with their interest in the limited liability company, or (Z) to the Holder's
family member or trust for the benefit of an individual Holder (each, a
"Permitted Transfer"); provided that in each case the transferee will be subject
to the terms of this Agreement to the same extent as if he were an original
Holder hereunder.
(ii) In addition, except in the case of Permitted Transfers,
the Intellocity Stockholders (as defined below) and the holders of Outstanding
Options (collectively, the "Holders") shall also be subject to the following
restrictions on resale:
(A) The Holders shall be permitted to sell, on a pro
rata basis, one million seven hundred eighty eight thousand nine hundred fifty
six (1,788,956) shares of the ACTV Common Stock issued or issuable upon the
Closing (which number includes the shares of ACTV Common Stock issuable upon the
exercise of the vested options, but not the unvested options, to acquire shares
of ACTV Common Stock) (the "Initial ACTV Common Stock") at any time after the
Closing.
(B) The remaining balance of the shares of ACTV
Common Stock issued or issuable upon the Closing (which number includes the
shares of ACTV Common Stock issuable upon the exercise of the vested, but not
the unvested, options to acquire shares of ACTV Common Stock) (the "Remaining
ACTV Common Stock") shall become saleable by the Holders:
(x) in the case of Holders who are salaried
employees of Intellocity, at the rate of one-third (1/3) per year, upon each of
the first three (3) anniversaries of the Closing Date; and
(y) in the case of all other Holders, at the
rate of seventy-five percent (75%) upon the first (1st) anniversary of the
Closing Date and twenty-five percent (25%) upon the second (2nd) anniversary of
the Closing Date.
Any Escrow Shares (as hereinafter defined) distributed to salaried
employees of Intellocity shall become saleable pro rata in accordance with
Article 2(d)(ii)(B)(x) above. Any Escrow Shares distributed to other Holders
shall become saleable upon the second (2nd) anniversary of the Closing Date.
Notwithstanding the foregoing, ACTV's general counsel, in his sole discretion,
and pursuant to written authorization, may permit the Holders to sell any number
of shares of ACTV Common Stock in excess of the scheduled amounts set forth
above. EXHIBIT 6 attached hereto (which shall, if necessary, be amended by the
Parties immediately prior to the Effective Time) contains a complete list of the
ACTV Common Stock issued or issuable to each Holder as of the Effective Time and
the transfer restriction release schedule with respect to each Holder.
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(iii) The certificates representing the number of shares of
ACTV Common Stock into which the shares of Intellocity Common Stock and
Intellocity Preferred Stock shall have been converted, and the certificates
representing the number of shares of ACTV Common Stock issuable upon the
exercise of the options to acquire shares of ACTV Common Stock, shall contain
legends, substantially as follows:
"THE SECURITIES WHICH ARE REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNTIL A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER
SUCH ACT, OR THE SECURITIES ARE SALEABLE PURSUANT TO RULE 144
PROMULGATED UNDER THE SECURITIES ACT OR THE COMPANY RECEIVES AN OPINION
OF COUNSEL FOR THE COMPANY THAT AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT IS AVAILABLE."
"PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED AS OF MARCH 7,
2001, BY AND BETWEEN THE COMPANY AND INTELLOCITY, INC., THE SECURITIES
WHICH ARE REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH THE
TERMS AND CONDITIONS SET FORTH IN A LOCK-UP AGREEMENT BY AND BETWEEN
THE HOLDER HEREOF AND THE COMPANY"
ARTICLE 3
EXCHANGE OF CERTIFICATES, ETC.
(a) EXCHANGE OF CERTIFICATES. After the Effective Time, each
outstanding certificate or certificates which, prior thereto, represented one
(1) or more shares of Intellocity Common Stock and/or one (1) or more shares of
Intellocity Preferred Stock shall be required to be surrendered to ACTV and each
holder of Intellocity Common Stock and Intellocity Preferred Stock shall be
entitled upon surrender to receive in exchange therefor a certificate or
certificates representing the number of whole shares of ACTV Common Stock into
which the shares of Intellocity Common and Intellocity Preferred Stock
theretofore represented by the certificate or certificates so cancelled shall
have been converted, LESS such holder's portion of the Escrow Shares, which
shall be deposited in an escrow account as more fully described in Article 4.
Until so exchanged, each such outstanding certificate which, prior to the
Effective Time, represented shares of Intellocity Common Stock or Intellocity
Preferred Stock shall be deemed for all corporate purposes, subject to the
further provisions of this Article 3, to evidence the ownership of the number of
whole shares of ACTV Common Stock into which such shares of Intellocity Common
Stock and Intellocity Preferred Stock have been so converted. No dividend
payable to holders of shares of ACTV Common Stock of record as of any date
subsequent to the Effective Time shall be paid to the holder of any certificate
which, prior to the Effective Time, represented shares of Intellocity Common
Stock and Intellocity Preferred Stock, until such certificate or
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certificates are surrendered as provided in this Article 3(a) or pursuant to
letters of transmittal or other instructions with respect to lost certificates
provided by ACTV.
(b) EXCHANGE OF OPTION AGREEMENTS. After the Effective Time, each
holder of an Outstanding Option agreement will receive in exchange therefor, a
non-plan option agreement, in the form of EXHIBIT 7 attached hereto. Each
non-plan option agreement issued by ACTV in exchange for an Outstanding Option
will represent an option to acquire such number of shares of ACTV Common Stock
as set forth on EXHIBIT 5 attached hereto, at the exercise price per share of
ACTV Common Stock also set forth on EXHIBIT 5. The options to acquire ACTV
Common Stock shall be subject to the vesting schedules set forth on EXHIBIT 5
attached hereto. After the Effective Time, each such Outstanding Option
agreement shall be deemed for all corporate purposes, subject to the further
provisions of this Article 3, to evidence the ownership of an option agreement
to acquire the number of whole shares of ACTV Common Stock into which such
Outstanding Option agreement has been so converted. Payment of the exercise
price due under the exchanged Outstanding Options shall be permitted to be made
pursuant to a Regulation T program if otherwise offered to employees of ACTV.
(c) FRACTIONAL SHARES. No certificate or scrip representing fractional
shares of ACTV Common Stock shall be issued upon the surrender of certificates
representing shares of Intellocity Common Stock and Intellocity Preferred Stock
pursuant to this Agreement, and no dividend declaration by the Board of
Directors of ACTV shall relate to any such fractional share. In lieu of such
fractional shares, each holder of shares of Intellocity Common Stock and
Intellocity Preferred Stock who would otherwise be entitled to receive a
fraction of a share of ACTV Common Stock (after aggregating all fractional
shares of ACTV Common Stock that otherwise would be received by such holder)
shall, upon surrender of such holder's certificate(s) receive from ACTV an
amount of cash (rounded to the nearest whole cent), without interest, equal to
the product obtained by multiplying such fraction by $6.7078 (the average of the
closing sales prices of the ACTV Common Stock as quoted on the Nasdaq National
Market for the ten (10) trading days immediately preceding February 14, 2001,
the date on which the Memorandum of Understanding relating to the Merger was
executed by the Parties).
(d) FULL SATISFACTION OF RIGHTS. All shares of ACTV Common Stock into
which the Intellocity Common Stock and Intellocity Preferred Stock shall have
been converted pursuant to the Merger shall be deemed to have been issued in
full satisfaction of all rights pertaining to such converted shares. If any
certificate for such shares of ACTV Common Stock is to be issued in a name other
than that in which the certificate(s) for Intellocity Common Stock and
Intellocity Preferred Stock surrendered for exchange is registered, it shall be
a condition of such exchange that the certificate(s) so surrendered shall be
properly endorsed or otherwise in proper form for transfer and that the holder
of Intellocity Common Stock and/or Intellocity Preferred Stock requesting such
exchange shall pay to ACTV, any transfer or other taxes required by reason of
the issuance of certificate for such shares of ACTV Common Stock in a name other
than that of the registered holder of the certificate surrendered, or establish
to the satisfaction of ACTV that such tax has been paid or is not applicable.
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(e) CANCELLATION OF CERTIFICATES. All certificates representing shares
of Intellocity Common Stock and Intellocity Preferred Stock converted into
shares of ACTV Common Stock pursuant to this Article 3 shall be canceled upon
delivery thereof to ACTV pursuant to this Agreement.
(f) CLOSING OF TRANSFER BOOKS. On the Effective Date, the stock
transfer book of Intellocity shall be deemed to be closed and no transfer of
shares of Intellocity Common Stock and Intellocity Preferred Stock shall
thereafter be recorded thereon.
(g) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event that any
certificates evidencing Intellocity Common Stock or Intellocity Preferred Stock
shall have been lost, stolen or destroyed, ACTV shall issue and pay in exchange
for such lost, stolen or destroyed certificates, upon the making of an affidavit
of that fact by the holder thereof, certificates representing the shares of ACTV
Common Stock into which the shares of Intellocity Common Stock or Intellocity
Preferred Stock represented by such certificates were converted pursuant to
Article 2(a), cash for fractional shares, if any, as may be required pursuant to
Article 3(c) and any dividends or distributions payable pursuant to Article
3(a). Such a holder will be required to indemnify and agree to hold harmless the
exchange agent and ACTV for any and all damages, liabilities, losses, costs or
expenses incurred or sustained by the exchange agent or ACTV in connection with
the issuance of certificates pursuant to this Article 4(g).
(h) TAX CONSEQUENCES. It is intended by the Parties hereto that the
transactions contemplated by this Agreement shall constitute a "reorganization"
within the meaning of Section 368(a)(2)(C) of the Code. The Parties hereto adopt
this Agreement as a "plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Treasury Regulations.
(i) ACCOUNTING CONSEQUENCES. It is intended by the parties hereto that
the Merger qualify as a purchase for accounting purposes.
ARTICLE 4
ESCROW OF SHARES OF ACTV COMMON STOCK
(a) ESCROW. Upon the Closing Date, ACTV on behalf of each holder of
Intellocity Common Stock and Intellocity Preferred Stock (collectively, the
"Intellocity Stockholders") will deposit each Holder's pro rata share (based on
the number of Merger Shares and vested and exerciseable Outstanding Options held
by such Holder as a percentage of the Aggregate Outstanding Shares and Vested
Options) of one million four hundred ninety thousand eight hundred (1,490,800)
shares of ACTV Common Stock (the "Escrow Shares") as set forth on EXHIBIT 6
attached hereto with Xxxxxxx, Xxxxxx & Xxxxxxxxx, LLP (the "Escrow Agent"),
pursuant to the terms of an Escrow Agreement substantially in the form of
EXHIBIT 8 attached hereto. Each Intellocity Stockholder shall be entitled to
vote such Holder's portion of the issued Escrow Shares during the time period
such Escrow Shares are subject to the Escrow Agreement. As set forth below, the
Escrow Agent shall release the Escrow Shares from escrow and distribute the
Escrow Shares to the Intellocity Stockholders on a pro rata basis in accordance
with the number of Escrow Shares deposited on behalf of each Intellocity
Stockholder or holder of
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Outstanding Options, as the case may be (an "Escrow Payment"), based upon USA's
2001 EBITDA (as defined in EXHIBIT 9 hereto) as set forth below:
DOLLAR AMOUNT OF 2001 EBITDA PERCENTAGE OF ESCROW SHARES TO BE DISTRIBUTED
---------------------------- ---------------------------------------------
Less than $2,700,000.00 0%
$2,700,000.00 to $2,899,999.99 20%
$2,900,000.00 to $3,099,999.99 40%
$3,100,000.00 to $3,299,999.99 60%
$3,300,000.00 to $3,499,999.99 80%
$3,500,000.00 or greater 100%
(b) ESCROW MECHANICS. ACTV and its affiliates, including USA, shall
maintain separate records of account upon which all transactions involving
Intellocity's or USA's products and services will be entered and shall prepare
quarterly and annual financial statements of ACTV and affiliates, including USA.
Within sixty (60) days of the end of calendar year 2001 or as soon as reasonably
practicable thereafter, Xxxx Xxxxxxx (or another Intellocity Stockholder then
employed by USA and designated by a majority in interest of the Intellocity
Stockholders (the "Stockholder Agent")) and Deloitte & Touche LLP shall prepare
and deliver to ACTV a schedule detailing the calculation of USA's 2001 EBITDA
for such calendar year, the calculation of the Escrow Payments in respect
thereof, and a copy of the financial statements of USA for such period (an
"Escrow Statement"). The Escrow Statement and the underlying financial
statements shall be prepared in accordance with GAAP. Notwithstanding anything
contained herein, the targets for USA's 0000 XXXXXX to be used to determine
eligibility for the amount of Escrow Payments as set forth above have been
established, in part, by utilizing forecasts prepared by Intellocity which
contain certain assumptions based on Intellocity's historical expenses and
costs. These forecasts do not anticipate the imposition by ACTV of additional
expenses and costs to USA in the form of intercompany charges which are
materially inconsistent with those historical expenses and costs. The Parties
agree that any such intercompany charges shall be determined by mutual
agreement.
In the event that ACTV agrees with the determination of the Escrow
Payments payable or does not object to the determination set forth in the Escrow
Statement within thirty (30) days after receipt of the Escrow Statement, the
Escrow Agent shall distribute the Escrow Payment as soon as practicable. In the
event ACTV shall disagree in any respect with the determination of the Escrow
Payments payable, ACTV shall notify the Stockholder Agent within thirty (30)
days after receipt of the Escrow Statement specifying the areas of disagreement.
In the event of disagreement, ACTV shall pay out any agreed number of Escrow
Shares as soon as reasonably practicable. If ACTV and the Stockholder Agent are
unable to resolve all such disagreements within thirty (30) days after such
notice by ACTV, then the dispute shall be resolved by a mutually agreed upon
"Big Five" accounting firm which has not been retained in the past five (5)
years by ACTV, Intellocity, USA or any entity that is an Intellocity Stockholder
(the "Independent Accounting Firm"). The determination of the Independent
Accounting Firm shall be in accordance with the provisions hereof and shall be
made as promptly as practicable but in any event within sixty (60) days after
the submission thereto and shall be binding and conclusive on the Parties
hereto. All expenses relating to the engagement of the Independent Accounting
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Firm shall be borne by ACTV. The Escrow Agent shall release any supplemental
Escrow Shares determined to be payable as a result of the audit within ten (10)
business days after such additional Escrow Shares are conclusively determined
pursuant to this Article 4.
In order to give effect to this Article 4, the product and service
lines of USA shall not be integrated with the product and service lines of ACTV
prior to December 31, 2001. If there is a merger of USA with ACTV or an
affiliate of ACTV prior to December 31, 2001, the operations of USA shall be
maintained in a manner sufficiently separate to enable the calculation of
amounts due under this Article 4. In the event that ACTV either (i) merges or
consolidates USA with a corporation other than ACTV or an affiliate of ACTV,
other than a transaction the principal purpose of which is to change USA's state
of incorporation or (ii) sells, transfers or engages in another disposition of
all of the stock of USA or all or substantially all of the assets of USA, ACTV
shall pay to the Intellocity Stockholders the maximum Escrow Payments set forth
above if such merger, consolidation, sale, transfer or other disposition is
effective or closed prior to the last day of the period for which USA's 2001
EBITDA is calculated.
(c) COVENANT OF GOOD FAITH. ACTV agrees to use commercially reasonable
efforts, and to cause its officers and employees to use commercially reasonable
efforts, to provide to USA sufficient authority and autonomy and otherwise act
in good faith toward USA with respect to the escrow targets provided above.
(d) ALTERNATIVE DISPUTE RESOLUTION PROCEDURES; EFFECT OF BREACH. Any
disputes relating to the covenant contained in Article 4(c) shall be settled by
the Parties and the Holders through the alternative dispute resolution
procedures set forth below. If it is determined, based on the agreed upon such
alternative dispute resolution procedures, that ACTV is in breach of the
foregoing covenant, ACTV and the Arbitrator (as defined below) shall cause the
Escrow Agent to immediately distribute all of the Escrow Shares to the Holders.
Any dispute, claim or controversy of whatever nature arising out of or
relating to the covenant contained in Article 4(c), including, without
limitation, any action or claim concerning the interpretation, effect,
termination, validity, performance and/or breach of Article 4(c), shall be
resolved by final and binding arbitration before a single arbitrator
("Arbitrator") selected from and administered by the New York, New York office
of JAMS/Endispute ("JAMS"), in accordance with JAMS's then existing Rules of
Practice and Procedure. The arbitration hearing shall be held in New York, New
York.
The Arbitrator shall, within fifteen (15) calendar days after the
conclusion of the Arbitration hearing, issue a written award and a written
statement of decision describing the reasons for the award. The Arbitrator (i)
shall be required to award specific performance with respect to the release of
the Escrow Shares by the Escrow Agent, (ii) shall have the authority to award
other damages that the Arbitrator deems appropriate in his/her sole discretion,
and (iii) shall not have the authority to reform, modify or materially change
this Agreement or other agreements entered into between the parties. The parties
shall bear equally the costs and fees of JAMS and the Arbitrator; however, the
Arbitrator, in his or her sole discretion, shall be authorized to determine
whether a party is the prevailing party and, if so, to award to that prevailing
party reimbursement for its reasonable attorneys' fees, disbursements
(including, for example, expert witness fees and expenses, photocopy charges,
travel expenses, etc.), and costs
10
arising from the arbitration. The Arbitrator, and not a court, shall also be
authorized to determine whether the provisions of this Article apply to a
dispute, controversy or claim sought to be resolved in accordance with these
arbitration procedures.
ARTICLE 5
DELIVERIES BY THE PARTIES; CERTAIN DEFINITIONS
(a) DELIVERIES BY THE PARTIES. It shall be a condition to the
obligations of ACTV to close that, at the Closing, Intellocity shall have
delivered or caused to be delivered to ACTV the closing documents referenced in
Article 9(b) herein. It shall be a condition to the obligations of Intellocity
to close that, at the Closing, ACTV shall have delivered or caused to be
delivered to Intellocity the closing documents referenced in Article 9(c)
herein.
(b) FURTHER ASSURANCES. At or after the Closing, Intellocity and ACTV
shall prepare, execute, and deliver such further instruments of conveyance,
sale, assignment or transfer, and shall take or cause to be taken such other or
further action, as any Party shall reasonably request of any other Party at any
time or from time to time in order to consummate, in any other manner, the terms
and provisions of this Agreement.
(c) CERTAIN DEFINED TERMS. In this Agreement:
(i) Any reference to any event, change, condition or effect
being "material" with respect to any entity or group of entities means any
event, change, condition or effect that is or would be material to the financial
condition, business or results of operations of such entity or group of entities
taken as a whole. Any agreement, instrument, lease, note, debenture, indenture,
action, proceeding, inquiry or investigation shall be deemed to be material if
disclosure thereof would be required pursuant to the Securities Act.
(ii) Any reference to a "Material Adverse Effect" with respect
to any entity or group of entities shall mean any event, change or effect that
has or would have a materially adverse effect on the financial condition,
business or results of operations of such entity or group of entities, taken as
a whole.
(iii) Any reference to a Party's "knowledge" means the actual
knowledge of such Party's executive officers.
(iv) Any reference to "Tax" (and, with correlative meaning,
"Taxes" and "Taxable") means:
(A) any net income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll employment, excise, severance, stamp,
occupation, property, environmental or windfall profit tax, custom, duty or
other tax, governmental fee or other like assessment or charge of any kind
whatsoever together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental entity (a "Tax Authority")
responsible for the imposition of any such tax (domestic or foreign), and
11
(B) any liability for the payment of any amounts of
the type described in clause (A) of this Article 5(c)(iv) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period, and
(C) any liability for the payment of any amounts of
the type described in clauses (A) or (B) of this Article 5(c)(iv) as a result of
any express or implied obligation to indemnify any other person.
(D) "Tax Return" shall mean any return, statement,
report or form, including, without limitation, estimated Tax Returns and
reports, withholding Tax Returns and reports and information reports and returns
required to be filed with respect to Taxes.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF INTELLOCITY
Except as set forth in the Schedules to this Agreement, disclosure in
any one of which shall apply to any and all representations and warranties made
in this Agreement, and except as otherwise disclosed in writing to ACTV,
Intellocity hereby represents and warrants to ACTV as follows:
(a) ORGANIZATION, STANDING, AND POWER. Intellocity is a company duly
incorporated, validly existing and in good standing under the laws of the
British Virgin Islands and has corporate power and authority to conduct its
business as presently conducted by it and to enter into and perform this
Agreement and to carry out the transactions contemplated by this Agreement.
Intellocity is duly qualified to do business as a foreign corporation doing
business in each state in which it owns or leases real property and where the
failure to be so qualified and in good standing would have a Material Adverse
Effect on Intellocity or its business. Other than Intellocity's ownership of one
hundred percent (100%) of the issued and outstanding common stock of USA,
Intellocity does not have any ownership interest in any corporation, partnership
(general or limited), limited liability company or other entity, whether foreign
or domestic (collectively such ownership interests including capital stock). USA
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has corporate power and authority to conduct
its business as presently conducted by it. USA is duly qualified to do business
as a foreign corporation doing business in the each state in which it owns or
leases real property and where the failure to be so qualified and in good
standing would have a Material Adverse Effect.
(b) CAPITALIZATION. The authorized capital stock of Intellocity
consists of one hundred million (100,000,000) shares of Intellocity Common Stock
and one million eight hundred seventy five thousand (1,875,000) shares of
Intellocity Preferred Stock. As of the date of this Agreement, there were nine
million nine hundred seventy thousand (9,970,000) issued and outstanding shares
of Intellocity Common Stock, no shares of Intellocity Common Stock held as
treasury shares and one million eight hundred seventy five thousand (1,875,000)
issued and outstanding shares of Intellocity Preferred Stock. Except for (i)
four million three hundred thousand (4,300,000) shares of Intellocity Common
Stock reserved for issuance upon exercise of options available for grant under
Intellocity's and USA's stock options plans and non-plan stock option agreements
(of which options to purchase an aggregate of four million ninety-six
12
thousand (4,096,000) shares of Intellocity Common Stock have been granted and
are outstanding as of the date of this Agreement), and (ii) one million eight
hundred seventy five thousand (1,875,000) shares of Intellocity Common Stock
reserved for issuance upon the conversion of the Intellocity Preferred Stock, no
shares of capital stock have been reserved for issuance to any person, and there
are no other outstanding rights, warrants, options or agreements for the
purchase of capital stock from Intellocity except as provided in this Agreement.
Except as provided in Intellocity's Memorandum and Articles of Association and
the Amended and Restated Stockholders Agreement dated as of June 29, 2000 (the
"Intellocity Stockholders Agreement"), which agreement shall be terminated in
connection with the consummation of the Merger, no person is entitled to any
rights with respect to the issuance or transfer of the capital stock of
Intellocity. The outstanding shares of Intellocity Common Stock are validly
issued, fully paid, non-assessable, and have been issued in compliance with all
state and Federal securities laws or other applicable law.
The authorized capital stock of USA consists of one thousand (1,000)
shares of common stock, $.01 par value per share ("USA Common Stock"), one
hundred (100) of which are issued and outstanding and owned by Intellocity.
There are no shares of capital stock reserved for issuance to any person, and
there are no other outstanding rights, warrants, options or agreements for the
purchase of capital stock from USA except as provided in this Agreement. The
outstanding shares of USA Common Stock are validly issued, fully paid,
non-assessable, and have been issued in compliance with all state and Federal
securities laws.
(c) AUTHORITY FOR AGREEMENT. The execution, delivery, and performance
of this Agreement by Intellocity has been duly authorized by all necessary
corporate action, except for the approval of Intellocity's stockholders, and
this Agreement, upon its execution by the Parties, will constitute the valid and
binding obligation of Intellocity enforceable against it in accordance with and
subject to its terms, except as enforceability may be affected by bankruptcy,
insolvency or other laws of general application affecting the enforcement of
creditors' rights. Except as set forth above or in SCHEDULE 6(c) attached
hereto, the execution and consummation of the transactions contemplated by this
Agreement and compliance with its provisions by Intellocity will not violate any
provision of law and will not conflict with or result in any breach of any of
the terms, conditions, or provisions of, or constitute a default under,
Intellocity's and USA's Memorandum and Articles of Association, Certificate of
Incorporation, or By-Laws, as the case may be and in each case as amended, or,
in any material respect, any indenture, lease, loan agreement or other agreement
or instrument to which Intellocity or USA is a party or by which they or any of
their properties are bound, or any decree, judgment, order, statute, rule or
regulation applicable to Intellocity or USA except to the extent that any breach
or violation of any of the foregoing would not constitute or result in a
Material Adverse Effect on Intellocity and USA taken as a whole.
(d) GOVERNMENTAL CONSENT. Except as may be required by the Securities
Act and state securities commissions or as otherwise expressly provided in this
Agreement, no material consent, approval, order or authorization of, or
registration, qualification, designation, declaration or filing with, any
governmental authority is required on the part of Intellocity in connection with
the execution and delivery of this Agreement, or the consummation of the
transactions contemplated by this Agreement.
13
(e) FINANCIAL STATEMENTS.
(i) Intellocity has furnished to ACTV a true, correct and
complete copy of Intellocity's and USA's unaudited balance sheet and
accompanying income statement and statement of cash flow (on a consolidated
basis) prepared on a monthly basis for January 2001 and Intellocity's and USA's
unaudited balance sheets and the accompanying income statements and statements
of cash flow (on a consolidated basis) for the fiscal years ended December 31,
2000 and December 31, 1999 respectively (collectively the "Intellocity Unaudited
Financial Statements"). Except as set forth in SCHEDULE 6(e) attached hereto
and/or as otherwise disclosed in writing to ACTV, the Intellocity Unaudited
Financial Statements fairly present, in all material respects, the financial
condition of Intellocity and the results of its operations and cash flows as of
the dates thereof, and have been prepared in accordance with GAAP consistently
applied, except such unaudited statements do not include footnotes in substance
or form required by GAAP and except that the unaudited interim statements were
or are subject to normal adjustments which were not or are not expected to be
material in amount.
(ii) To the knowledge of Intellocity, except as disclosed in
the Intellocity Unaudited Financial Statements, there has been no event which
would have a Material Adverse Effect on the financial condition, operations or
business of Intellocity or USA since December 31, 2000.
(iii) Except as set forth in SCHEDULE 6(e) attached hereto or
as otherwise disclosed in the Intellocity Unaudited Financial Statements,
Intellocity and USA (on a consolidated basis) do not have any material
liabilities, contingent or otherwise, material liability for taxes, or material
commitments extending for over five (5) years and requiring the material
expenditure of more than the amount of liabilities set forth in the Intellocity
Unaudited Financial Statements.
(f) LITIGATION. Except as set forth in SCHEDULE 6(f) attached hereto
and/or as otherwise disclosed in writing to ACTV, Intellocity has not received
notice of any material action, suit or proceeding, or governmental inquiry or
investigation, pending or threatened against Intellocity or USA, which, if
adversely determined, would have a Material Adverse Effect upon Intellocity and
USA taken as a whole.
(g) INTERESTED PARTY TRANSACTIONS. Except as set forth in SCHEDULE
6(g) attached hereto and/or as otherwise disclosed in writing to ACTV,
neither Intellocity nor USA is indebted to any officer or director of
Intellocity or USA (except for compensation and reimbursement of expenses
incurred in the ordinary course of business), and no such person is indebted
to Intellocity or USA, except in each case as disclosed or reflected in the
Intellocity Unaudited Financial Statements.
(h) TITLE TO PROPERTIES; LIENS. Neither Intellocity nor USA owns any
real property. To the knowledge of Intellocity and USA, all of the assets of
Intellocity and USA, except those disposed of or licensed in the ordinary course
of business, are free and clear of all liens (for the purposes of this section,
"liens" do not include licenses granted by Intellocity and USA to third parties
relating to the intellectual property owned or used by Intellocity and USA),
security interests, charges and encumbrances, except (i) as disclosed on the
Intellocity Unaudited
14
Financial Statements, (ii) liens for current taxes not yet due and payable,
(iii) liens in favor of any lessor with respect to material capital lease
obligations disclosed in SCHEDULE 6(h) attached hereto, (iv) such imperfections
of title or zoning restrictions, easements or encumbrances, if any, as do not
materially interfere with the present use of such property or assets, (vi) liens
which arise by operation of law; (vii) liens relating to USA's line of credit
with FirstBank of Denver (the "Bank Line"); and (viii) liens granted to ACTV
relating to intellectual property owned by Intellocity and USA.
(i) MATERIAL CONTRACTS. Except for: (i) contracts with clients and
other contracts executed by Intellocity and/or USA in the ordinary course of
business; (ii) employment agreements with officers; and (iii) other material
contracts which are listed on SCHEDULE 6(i)(a) attached hereto, neither
Intellocity nor USA is a party to or bound by any material indenture, lease,
license, loan agreement, other agreement or other instrument (collectively, the
"Material Contracts"). Except as disclosed on SCHEDULE 6(i)(b) all of
Intellocity's and USA's Material Contracts are, to Intellocity's knowledge,
enforceable in accordance with their respective terms, and to the knowledge of
Intellocity, neither Intellocity nor USA is in violation of, and nor has either
has received notice of being in violation of, such Material Contracts.
(j) COMPLIANCE. Neither Intellocity nor USA is in violation of any
material term or provision of their Memorandum and Articles of Association,
Certificate of Incorporation or By-Laws, as the case may be and in each case as
amended, or any material term of any instrument, indenture, loan agreement,
judgment, decree, order, statute, rule or regulation applicable to either of
them where, to the knowledge of Intellocity, the failure of compliance would
have a Material Adverse Effect upon Intellocity and USA taken as a whole. To the
knowledge of Intellocity, Intellocity and USA has complied in all material
respects with all laws and regulations applicable to their businesses, except as
otherwise disclosed in writing to ACTV.
(k) LABOR RELATIONS. Neither Intellocity nor USA is a party to any
collective bargaining agreement and, to Intellocity's knowledge, no
organizational efforts are presently being made with respect to any of their
employees. To the knowledge of Intellocity, Intellocity and USA have complied in
all material respects with all applicable laws (including, but not limited to,
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), and
regulations relating to employment matters including, but not limited to, those
relating to wages, hours, discrimination and payment of social security and
similar taxes. Neither Intellocity nor USA has any unfunded liabilities relating
to an Intellocity or USA 401(k) program.
(l) TAX RETURNS AND PAYMENT. Except as set forth on SCHEDULE 6(l),
Intellocity and USA have filed all material Tax Returns required to be filed by
them and have paid all Taxes shown thereon to be due, except as reflected in the
Intellocity Unaudited Financial Statements and except for Taxes being contested
in good faith. Except as disclosed in the Intellocity Unaudited Financial
Statements, there is no material claim for Taxes that is a lien against the
property of Intellocity or USA other than liens for taxes not yet due and
payable. Except as set forth on SCHEDULE 6(l), neither Intellocity nor USA has
received written notification of any audit of any Tax Return of Intellocity or
USA being conducted or pending by a Tax Authority where an adverse determination
would have a Material Adverse Effect on Intellocity and USA taken as a whole, no
extension or waiver of the statute of limitations on the assessment of any taxes
has been granted by Intellocity or USA which is currently in effect, and neither
Intellocity nor USA
15
is a party to any written agreement with any Tax Authority, which to
Intellocity's knowledge, may result in the payment of any material amount in
excess of the accrual and reserve for taxes reflected on the Intellocity
Unaudited Financial Statements.
(m) INTELLECTUAL PROPERTY. To the knowledge of Intellocity and USA,
Intellocity and USA have title to all material patents, trademarks or trade
secrets, or adequate licenses and rights to use all material patents,
trademarks, copyrights, trade names and trade secrets of others, necessary to
the conduct of their businesses. Except as set forth in SCHEDULE 6(f), the
businesses of Intellocity and USA are being carried on without knowledge of any
material conflicts with patents, licenses, trademarks, copyrights, trade names
and trade secrets of others and, except as set forth on SCHEDULE 6(f), to
Intellocity's knowledge, no other persons are conducting their businesses in
conflict with the material patents, licenses, trademarks, domain names,
copyrights, trade names and trade secrets used by Intellocity or USA.
(n) ENVIRONMENTAL MATTERS. To the knowledge of Intellocity: (i)
Intellocity and USA have obtained all material permits and licenses which are
required in connection with their businesses under all applicable laws and
regulations relating to pollution or protection of the environment (the
"Environmental Laws") and are in material compliance therewith; (ii) Intellocity
and USA have at all times conducted their businesses in material compliance with
all Environmental Laws and neither Intellocity nor USA have received any written
notice of any past, present or future events, conditions or circumstances, which
would interfere with or prevent material compliance or continued material
compliance with any Environmental Laws or which form the basis of any material
claim, demand or investigation, based on or related to Intellocity's and USA
businesses or other activities; (iii) there is no civil, criminal or
administrative action or proceeding pending or threatened against Intellocity or
USA, arising under any Environmental Laws; and (iv) there does not exist, and at
no time since Intellocity and/or USA acquired any premises leased or used by
them, has there existed any conditions that Intellocity believes would require
remediation by Intellocity or USA under any Environmental Laws.
(o) OPERATION SINCE THE BALANCE SHEET DATE. Since December 31, 2000,
except as contemplated by this Agreement or in the Intellocity Unaudited
Financial Statements, Intellocity and USA:
(i) have operated their businesses substantially as they were
operated prior to that date and only in the ordinary course;
(ii) have not declared or otherwise become liable with respect
to any dividend or distribution of cash, assets or capital stock, except for the
issuance of shares of Intellocity Common Stock upon exercise of stock options;
(iii) have maintained or kept current their books, accounts,
records, payroll, and filings in the usual and ordinary course of business,
consistent in all material respects with past practice; and
(iv) have not made any capital expenditure, commitment or
investment other than in the ordinary course of business.
16
(p) EMPLOYMENT AGREEMENTS. SCHEDULE 6(p) attached hereto lists each
employment agreement between Intellocity and/or USA and any director, officer or
employee of Intellocity and/or USA and copies of all such agreements have been
provided to ACTV prior to the date hereof. Except as provided in such employment
agreements, all other employees of Intellocity or USA are terminable at will
without expense or liability to Intellocity or USA other than as may be set
forth in said SCHEDULE 6(p) attached hereto or as otherwise provided by law.
(q) WARRANTY CLAIMS. To Intellocity's knowledge and except as set forth
in SCHEDULE 6(q) attached hereto, there are no pending or threatened material
claims against Intellocity or USA for any work performed by Intellocity or USA
for any client, including but not limited to, any services rendered under any
warranties.
(r) BROKERS' AND FINDERS' FEES. Intellocity has not incurred, nor will
it incur, directly or indirectly, any liability for brokerage or finders' fees
or agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby, except
pursuant to: (i) that certain engagement letter by and between Intellocity and
Xxxxx & Company Incorporated ("Xxxxx") dated October 31, 2000, and (ii) that
certain Commission Agreement by and between Intellocity and Xxxxx Xxxxxxx, dated
as of February 29, 2000 and amended as of June 12, 2000.
(s) BOARD APPROVAL. The Board of Directors of Intellocity has approved
this Agreement and the transactions contemplated hereby.
(t) FULL DISCLOSURE. The Intellocity Unaudited Financial Statements and
the representations and warranties of Intellocity contained in Article 6 of this
Agreement, taken together, do not contain any untrue statement of a material
fact, or omit to state a material fact required to be stated herein or therein
or necessary to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading.
ARTICLE 7
REPRESENTATIONS AND WARRANTIES OF ACTV
Except as set forth in the Schedules to this Agreement, disclosure in
any one of which shall apply to any and all representations and warranties made
in this Agreement, and except as otherwise disclosed in writing to Intellocity,
ACTV hereby represents and warrants to Intellocity as follows:
(a) ORGANIZATION, STANDING, AND POWER. ACTV is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and ACTV has full corporate power and authority to conduct its
business as presently conducted by it and to enter into and perform this
Agreement and to carry out the transactions contemplated by this Agreement. ACTV
is duly qualified to do business as a foreign corporation doing business in each
state in which it owns or leases real property and where the failure to be so
qualified and in good standing would have a Material Adverse Effect. ACTV is
duly organized, validly existing and in good standing under the laws of the
State of Delaware. ACTV has the corporate power to own its properties and to
carry on its business as now being conducted and is duly qualified to conduct
business and is in good standing in each jurisdiction in which it owns or leases
real
17
property and where the failure to be so qualified and in good standing would
have a Material Adverse Effect.
(b) CAPITALIZATION. The authorized capital stock of ACTV consists of
two hundred million (200,000,000) shares of ACTV Common Stock and one million
(1,000,000) shares of blank-check preferred stock, $.10 par value per share
("ACTV Preferred Stock"). As of February 26, 2001, there were fifty one million
two hundred twenty eight thousand one hundred and fifty four (51,228,154) issued
and outstanding shares of ACTV Common Stock and no issued and outstanding shares
of ACTV Preferred Stock. Except for nineteen million five hundred twenty seven
thousand four hundred and sixty eight (19,527,468) shares of ACTV Common Stock
reserved for issuance, consisting of six million two hundred ninety four
thousand four hundred and eighty nine (6,294,489) shares of ACTV Common Stock
reserved for issuance upon exercise of options available for grant under stock
option plans, and thirteen million two hundred thirty two thousand nine hundred
and seventy nine (13,232,979) shares of ACTV Common Stock reserved for issuance
upon exercise of non-plan options, no shares of capital stock of ACTV have been
reserved for issuance to any person, and as of February 26, 2001, there are no
other outstanding rights, warrants, options or agreements for the purchase of
capital stock from ACTV except as provided in this Agreement. No person is
entitled to any preemptive or similar right with respect to the issuance of any
capital stock of ACTV. The outstanding shares of ACTV Common Stock are validly
issued, fully paid, non-assessable, and have been issued in compliance with all
state and Federal securities laws.
(c) AUTHORITY FOR AGREEMENT. The execution, delivery and performance of
this Agreement by ACTV has been duly authorized by all necessary corporate
action, and this Agreement constitutes a valid and binding obligation of ACTV
enforceable against it in accordance with its terms, except as enforceability
may be affected by bankruptcy, insolvency or other laws of general application
affecting the enforcement of creditors' rights. The execution and consummation
of the transactions contemplated by this Agreement and compliance with its
provisions by ACTV will not violate any provision of law and will not conflict
with or result in any breach of any of the terms, conditions, or provisions of,
or constitute a default under, its Certificate of Incorporation or By-Laws or,
in any material respect, any indenture, lease, loan agreement or other agreement
instrument to which ACTV is a party or by which it or any of its properties are
bound, or any decree, judgment, order, statute, rule or regulation applicable to
ACTV except to the extent that any breach or violation of any of the foregoing
would not constitute or result in a Material Adverse Effect.
(d) ISSUANCE OF ACTV COMMON STOCK. The shares of ACTV Common Stock
issuable to (i) the holders of the issued and outstanding shares of Intellocity
Common Stock, (ii) the holders of the issued and outstanding shares of
Intellocity Preferred Stock, and (iii) the holders of the Outstanding Options,
upon the proper exercise of such Outstanding Options, have been duly authorized
and reserved for issuance, and, when issued pursuant to this Agreement, or as
applicable, upon the exercise of an Outstanding Option, will be duly and validly
authorized and issued, fully paid and non-assessable.
(e) GOVERNMENTAL CONSENT. Except as required by the Securities Act and
state securities commissions or as otherwise expressly provided in this
Agreement, no material consent, approval, order or authorization of, or
registration, qualification, designation,
18
declaration or filing with, any governmental authority is required on the part
of ACTV in connection with the execution and delivery of this Agreement, or the
consummation of the transactions contemplated hereby.
(f) COMPLIANCE. ACTV is not in violation of any material term or
provision of its Certificate of Incorporation or By-Laws, or of any material
term of any instrument, indenture, loan agreement, other agreement, judgment,
decree, order, statute, rule or regulation applicable to ACTV where, to the
knowledge of ACTV, the failure of compliance would have a Material Adverse
Effect. To the knowledge of ACTV, ACTV has complied in all material respects
with all laws and regulations applicable to its business, except as otherwise
disclosed in writing to Intellocity.
(g) BROKERS' AND FINDERS' FEES. ACTV has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement.
(h) BOARD APPROVAL. The Board of Directors of ACTV has approved this
Agreement and the transactions contemplated hereby.
(i) STOCKHOLDER APPROVAL. No approval of ACTV's stockholders is
required under applicable law, rule or regulation, including, without
limitation, the rules and regulations of the NASD and the Nasdaq National
Market.
(j) SEC FILINGS; FINANCIAL STATEMENTS.
(i) ACTV has made available to Company (through reference to
documents filed with the Securities Exchange Commission ("SEC") by XXXXX or
otherwise) a correct and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by ACTV with the SEC since
December 31, 1997 (the "ACTV SEC Reports"), which are all the forms, reports and
documents (other than preliminary material) required to be filed by ACTV with
the SEC since December 31, 1997. With the exception of any Forms 3, 4, and 5 and
any Schedule 13D filed by ACTV on behalf of ACTV's stockholders, ACTV's SEC
Reports (A) were prepared in compliance with the requirements of the Securities
Act or the Exchange Act, as the case may be, and (B) did not at the time they
were filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. None of ACTV's subsidiaries is
required to file any reports or other documents with the SEC.
(ii) Each set of consolidated financial statements (including,
in each case, any related notes thereto) contained in the ACTV SEC Reports was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto and except
that unaudited statements do not contain footnotes in substance or form required
by GAAP, as is permitted by Form 10-Q of the Exchange Act) and each fairly
presents the consolidated financial position of ACTV and its subsidiaries at the
respective dates thereof and the consolidated results of their operations and
cash flows for the periods indicated,
19
except that the unaudited interim financial statements were or are subject to
normal adjustments which were not or are not expected to be material in amount.
(k) NO UNDISCLOSED LIABILITIES. Neither ACTV nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of ACTV and its subsidiaries taken as a whole,
except (i) liabilities disclosed or provided for in ACTV's unaudited financial
statements and related notes thereto as of and for the nine-month period ended
September 30, 2000 as set forth in the ACTV SEC Reports or in the related notes
or (ii) liabilities incurred since September 30, 2000 in the ordinary course of
business.
(l) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since September 30, 2000,
there has not been any: (i) Material Adverse Effect on ACTV, (ii) declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of ACTV's or any of its
subsidiaries' capital stock, or any purchase, redemption or other acquisition by
ACTV of any of ACTV's capital stock or any other securities of ACTV or its
subsidiaries or any options, warrants, calls or rights to acquire any such
shares or other securities except for repurchases from employees following their
termination pursuant to the terms of their pre-existing stock option or purchase
agreements, (iii) split, combination or reclassification of any of ACTV's or any
of its subsidiaries' capital stock, (iv) material change by ACTV in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, (v) material revaluation by ACTV of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable, or (vi) any sale of assets of ACTV
other than in the ordinary course of business.
(m) ABSENCE OF LITIGATION. As of the date hereof, there are no claims,
suits, actions or proceedings that have a reasonable likelihood of success on
the merits pending or, to the knowledge of ACTV, threatened against, relating to
or affecting ACTV or any of its subsidiaries, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seek to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or that could otherwise reasonably be expected to
have a Material Adverse Effect on ACTV.
(n) TAXES. Each of ACTV and its subsidiaries has filed all Tax returns
required to be filed by each of them (except such Tax returns that are not,
individually or in the aggregate, material to them, taken as a whole) and has
paid (or ACTV has paid on behalf of its subsidiaries), or has established an
adequate reserve for the payment of, all Taxes required to be paid with respect
to such Tax Returns, whether or not shown to be due thereon.
(o) FULL DISCLOSURE. The representations and warranties of ACTV
contained in this Article 7, taken together, do not contain any untrue statement
of a material fact, or omit to state a material fact required to be stated
herein or therein or necessary to make the statements herein or therein, in the
light of the circumstances under which they were made, not misleading.
20
ARTICLE 8
REGISTRATION STATEMENTS
FILING OF REGISTRATION STATEMENTS. As soon as practicable after the
Closing Date, ACTV will use commercially reasonable efforts to cause to be
prepared, and filed with and declared effective by, the SEC a registration
statement, in accordance with the terms of the Registration Rights Agreement
which is attached hereto as EXHIBIT 10 (the "Registration Statement"), covering
the shares of Initial ACTV Common Stock, the shares of ACTV Common Stock to be
issued in connection with the exercise of options into which the Outstanding
Options shall have been converted (except those to be registered on Form S-8 as
set forth below), and the shares of Remaining ACTV Common Stock and Escrowed
Shares issued to each of the Intellocity Stockholders who after the consummation
of the Merger is deemed to be an "Affiliate" of ACTV, as such term is defined in
Rule 144 of the Securities Act. ACTV agrees to bear all reasonable costs of the
preparation, filing and maintenance of the effectiveness of the Registration
Statement. In addition to and notwithstanding the forgoing, within thirty (30)
calendar days after the Closing, ACTV shall file a registration statement on
Form S-8 with respect to shares of ACTV Common Stock subject to options into
which the Outstanding Options shall have been converted (provided that such
registration statement shall not cover those options for which such form is
unavailable) and shall use commercially reasonable efforts to maintain the
effectiveness of such registration statement (and maintain the current status of
the prospectus contained therein) for so long as such options remain
outstanding.
ARTICLE 9
CONDITIONS TO CLOSING
(a) CONDITIONS PRECEDENT TO INTELLOCITY'S AND ACTV'S OBLIGATIONS. The
obligations of Intellocity and ACTV as provided herein shall be subject to each
of the following conditions precedent, unless waived by both Intellocity and
ACTV:
(i) STOCKHOLDER APPROVAL. This Agreement and the Merger shall
have received the approval of the Intellocity Stockholders.
(ii) ABSENCE OF CERTAIN LITIGATION. No action or proceeding
shall be threatened or pending before any governmental entity or authority
which, in the reasonable opinion of counsel for Intellocity or ACTV, is likely
to result in a court order restraining or prohibiting the consummation of the
Merger.
(iii) REGULATORY APPROVALS. All regulatory approvals or
filings necessary to consummate the Merger shall have been made as of the
Closing Date.
(b) CONDITIONS PRECEDENT TO ACTV'S OBLIGATIONS. The obligations of ACTV
as provided herein shall be subject to each of the following conditions
precedent, unless waived by ACTV:
(i) CONSENTS AND APPROVALS. Intellocity shall have obtained
all material consents, including any material consents and waivers by
Intellocity's and USA's respective lenders and other third-parties, if
necessary, to the consummation of the transactions contemplated by this
Agreement.
21
(ii) REPRESENTATIONS AND WARRANTIES. The representations and
warranties by Intellocity in Article 6 herein shall be true and accurate in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made at and as of the
Closing Date, except to the extent that any changes therein are specifically
contemplated by this Agreement.
(iii) PERFORMANCE. Intellocity shall have performed and
complied in all material respects with all agreements to be performed or
complied with by it pursuant to this Agreement prior to or at the Closing.
(iv) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to ACTV and its counsel, and ACTV
and its counsel shall have received all such counterpart originals (or certified
or other copies) of such documents as they may reasonably request.
(v) OPINION OF INTELLOCITY'S COUNSEL. ACTV shall have received
from counsel of Intellocity, an opinion, dated the Closing Date, in the form as
forth in EXHIBIT 11 to this Agreement
(vi) ASSIGNMENTS. Intellocity shall have obtained all required
written consents to assignment of the licenses, contracts, patents and patent
applications listed on SCHEDULE 9(B)(VI) attached hereto assigning such
licenses, contracts, patents and patent applications to ACTV in connection with
the Merger.
(vii) TERMINATION OF INTELLOCITY STOCKHOLDERS' AGREEMENT. The
Intellocity Stockholders Agreement shall have been terminated on or prior to the
Closing Date.
(viii) EMPLOYMENT AGREEMENTS. ACTV and/or USA shall have
entered into employment agreements with those individuals listed on SCHEDULE
9(B)(VIII) attached hereto, on terms and in a form which will be reasonably
satisfactory to ACTV, which employment agreements shall specifically include the
terms and conditions on EXHIBIT 12 attached hereto.
(ix) CERTIFICATES OF GOOD STANDING. Intellocity shall have
delivered to ACTV a certificate as to the good standing of Intellocity in the
British Virgin Islands certified by the Registrar of Companies on or within two
(2) business days of the Closing Date. In addition, Intellocity shall have
delivered to ACTV a certificate as to the good standing of USA in the State of
Delaware certified by the Secretary of State of the State of Delaware on or
within two (2) business days of the Closing Date.
(x) MATERIAL CHANGES. Except as contemplated by this
Agreement, since the date hereof, Intellocity and USA, taken as a whole, shall
not have suffered a Material Adverse Effect.
(xi) COMPLIANCE CERTIFICATE. Intellocity shall have delivered
to ACTV the certificate of its President, Chief Executive Officer or Chief
Financial Officer as to the matters set forth in Articles 6(a), (b) and (c) of
this Agreement.
22
(xii) TAX OPINION. ACTV shall have obtained an opinion of
Xxxxxxx, Savage & Xxxxxxxxx, LLP, or another national law firm or accounting
firm mutually acceptable to the Parties, in the form and in the substance
substantially identical to the opinion of Xxxxxx Godward LLP that the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code.
(c) CONDITIONS PRECEDENT TO INTELLOCITY'S OBLIGATIONS. The obligation
of Intellocity on the Closing Date as provided herein shall be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions
precedent, unless waived by Intellocity:
(i) CONSENTS AND APPROVALS. ACTV shall have obtained the
consent and approval of its Board of Directors and, if required, stockholders,
and all material consents, including any material consents and waivers by the
Parties' respective lenders and other third-parties, if necessary, to the
consummation of the transactions contemplated by this Agreement.
(ii) REPRESENTATIONS AND WARRANTIES. The representations and
warranties by ACTV in Article 7 herein shall be true and accurate in all
material respects on and as of the Closing Date with the same force and effect
as though such representations and warranties had been made at and as of the
Closing Date, except to the extent that any changes therein are specifically
contemplated by this Agreement.
(iii) PERFORMANCE. ACTV shall have performed and complied in
all material respects with all agreements to be performed or complied with by
them pursuant to this Agreement prior to or at the Closing.
(iv) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Intellocity and its counsel,
and Intellocity and its counsel shall have received all such counterpart
originals (or certified or other copies) of such documents as they may
reasonably request.
(v) OPINION OF ACTV'S COUNSEL. Intellocity shall have received
from counsel of ACTV, an opinion, dated the Closing Date, in the form as set
forth in EXHIBIT 13 to this Agreement.
(vi) CERTIFICATE OF GOOD STANDING. ACTV shall have delivered
to Intellocity a certificate as to the good standing of ACTV in the Sate of
Delaware certified by the Secretary of State of the State of Delaware on or
within two (2) business days of the Closing Date.
(vii) REGISTRATION RIGHTS AGREEMENT. ACTV, the Intellocity
Stockholders and holders of options to acquire Intellocity Common Stock who are
not salaried employees of Intellocity shall have executed a Registration Rights
Agreement, in the form as set forth in EXHIBIT 10 to this Agreement.
(viii) ESCROW AGREEMENT. The Parties shall have executed an
Escrow Agreement, in the form as set forth in EXHIBIT 8 to this Agreement.
23
(ix) MATERIAL CHANGES. Except as contemplated by this
Agreement, since the date hereof, ACTV shall not have suffered a Material
Adverse Effect.
(x) TAX OPINION. Intellocity shall have obtained an opinion of
Xxxxxx Godward LLP in form and substance substantially identical to the opinion
of Xxxxxxx, Savage & Xxxxxxxxx, LLP, or another national law firm or accounting
firm mutually acceptable to the Parties, that the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Code.
ARTICLE 10
COVENANTS
(a) COVENANTS OF INTELLOCITY. Except as set forth on SCHEDULE 10(a),
Intellocity covenants and agrees that, except as contemplated by this Agreement,
during the period from the date of this Agreement until the Closing Date, that
for purposes of this Article 10(a), Intellocity and USA shall conduct their
businesses as presently operated and solely in the ordinary course, and
consistent with such operation, and, in connection therewith, without the
written consent of ACTV, which consent shall not be unreasonably withheld:
(i) shall not amend their Memorandum and Articles of
Association or similar documents (other than to terminate the Intellocity
Preferred Stock participating liquidation preference);
(ii) shall not pay or agree to pay to any employee, officer or
director compensation that is in excess of the current compensation level of
such employee, officer or director other than salary increases or payments made
in the ordinary course of business or as otherwise provided in any contracts or
agreements with any such employees;
(iii) shall not merge or consolidate with any other entity or
acquire or agree to acquire any other entity;
(iv) shall not sell, transfer, or otherwise dispose of any
assets required for the operations of Intellocity's and USA's businesses, except
in the ordinary course of business consistent with past practices;
(v) shall not create, incur, assume, or guarantee any
indebtedness for money borrowed except in the ordinary course of business, or
create or suffer to exist any mortgage, lien or other encumbrance on any of its
assets, except those in existence on the date hereof or those granted pursuant
to agreements in effect on the date of this Agreement;
(vi) shall not make any capital expenditure or series of
capital expenditures except in the ordinary course of business;
(vii) shall not declare or pay any dividends on or make any
distribution of any kind with respect to Intellocity's or USA's capital stock;
24
(viii) shall maintain their facilities, assets and properties
in reasonable repair, order and condition, reasonable wear and tear excepted,
and to notify ACTV immediately in the event of any material loss or damage to
any of Intellocity's or USA's material assets;
(ix) shall maintain in full force and effect all present
insurance coverage of the types and in the amounts as are in effect as of the
date of this Agreement;
(x) shall seek to preserve the present employees, reputation
and business organization of Intellocity and USA and Intellocity's and USA
relationship with its clients and others having business dealings with them;
(xi) shall not issue any additional shares of the capital
stock or take any action affecting the capitalization of Intellocity or USA,
except that this covenant shall not preclude the issuance of shares of
Intellocity Common Stock upon exercise of options or warrants which are
currently exercisable or exercisable on or before the Closing Date;
(xii) shall use commercially reasonable efforts to comply with
and not be in default or violation under any law, regulation, decree or order
applicable to Intellocity's or USA's businesses, operations or assets where such
violation would have a Material Adverse Effect;
(xiii) shall not grant any severance or termination pay to any
director, officer or any other employees of Intellocity or USA, other than
pursuant to agreements in effect on the date of this Agreement or as otherwise
disclosed in the documents delivered pursuant to this Agreement;
(xiv) shall use commercially reasonable efforts to secure the
requisite Intellocity shareholder consents to approve this Agreement and the
transaction contemplated hereby;
(xv) shall not, other than in the ordinary course of business,
make or change any material election in respect of Taxes, or adopt or change any
accounting method in respect of Taxes;
(xvi) shall not terminate or waive any right of substantial
value other than in the ordinary course of business;
(xvii) shall not enter into any material contract or
commitment other than in the ordinary course of business; and
(xviii) shall pay any amounts required to be paid to
Intellocity Stockholders pursuant to the appraisal rights set forth in BVI Law,
as described in Article 1(h).
(b) COVENANTS OF ACTV. ACTV covenants and agrees that:
(i) ACTV and/or USA shall seek, in good faith, to enter into
employment agreements with those individuals listed on SCHEDULE 9(b)(viii)
attached hereto, on terms and in a form which will be reasonably satisfactory to
ACTV;
25
(ii) From and after the Effective Time, ACTV and USA will
provide each individual who served as a director or officer of Intellocity or
USA at any time prior to the Effective Time with liability insurance for a
period of thirty-six (36) months after the Effective Time no less favorable in
coverage and amount than any applicable insurance in effect immediately prior to
the Effective Time;
(iii) From and after the Effective Time, ACTV and USA will
observe any indemnification provisions now existing in the organization
documents of Intellocity or USA, to the extent permissible under BVI or Delaware
law as applicable, for the benefit of any individual who served as a director or
officer of Intellocity or USA at any time prior to the Effective Time;
(iv) ACTV will make all required filings under the Securities
Act, the Securities Exchange Act of 1934, and applicable state blue-sky
securities regulations in connection with the transactions contemplated by this
Agreement;
(v) From and after the Effective Time, ACTV agrees to use
reasonable commercial efforts to cause the listing on Nasdaq of shares of ACTV
Common Stock issuable, and those required to be reserved for issuance, in
connection with the transactions contemplated by this Agreement, subject to the
registration of such shares as required by this Agreement;
(vi) From and after the Effective Time:
(A) ACTV will cause the USA to provide the benefits
(including health benefits, severance policies and general employment policies
and procedures) which are substantially comparable in the aggregate to benefits
that are available to similarly situated employees of ACTV and its subsidiaries
as of the date hereof, provided, however, that such insurance carriers, outsider
providers or the like are able to provide such benefits on terms reasonably
acceptable to ACTV, and provided, further, that nothing in this Section shall
prevent ACTV or USA from making any change required by applicable law, and
provided, further, that it shall not result in any duplication of benefits.
(B) To the extent permitted under applicable law,
each employee of Intellocity or its subsidiaries shall be given credit for all
service with Intellocity or its subsidiaries (or service credited by Intellocity
or its subsidiaries) under all employee benefit plans, programs, policies and
arrangements maintained by ACTV or USA in which they participate or in which
they become participants for purposes of eligibility, vesting and benefit
accrual including, without limitation, for purposes of determining (i)
short-term and long-term disability benefits, (ii) severance benefits, (iii)
vacation benefits and (iv) benefits under any retirement plan; provided,
however, that no service credit for benefit accrual purposes shall be provided
under any defined benefit pension plan or in any other circumstance that would
result in duplicative accrual of benefits, and provided, further, that such
insurance carriers, outsider providers or the like are able to honor such
commitments on terms reasonably acceptable to ACTV.
(vii) ACTV will use reasonable commercial efforts to actively
consummate the transactions contemplated by this Agreement and the Merger and
will not take any action which
26
would delay the consummation of the transactions contemplated by this Agreement
and the Merger;
(viii) Upon the consummation of the Merger, Xxxx Xxxxxxx shall
become an advisor to ACTV's Board of Directors and shall be invited to attend
and participate in (but note vote at) all ACTV Board of Directors' meetings
(whether held in person or telephonically) during the year 2001, and shall
receive all notices, consents, documents, communications and other information
provided to members of the Board of Directors during such year;
(ix) Upon the consummation of the Merger, ACTV and USA will
use commercially reasonable efforts to extend credit support and cause the
release of all outstanding personal guarantees relating to Intellocity or USA
equipment lease financing arrangements; and
(x) From and after the consummation of the Merger, ACTV will
grant options to purchase shares of ACTV Common Stock to newly hired employees
of USA (i.e., employees hired by USA subsequent to the consummation of the
Merger), which grants will be in a manner that is consistent with ACTV's then
current policies with respect to its employees generally.
(xi) From and after the consummation of the Merger, ACTV will
use commercially reasonable efforts to issue, and to cause its transfer agent to
issue, certificates representing the ACTV Common Stock issuable in connection
with the Merger pursuant to Article 3 hereof, as soon as reasonably practicable.
(xii) From and after the consummation of the Merger, ACTV will
use commercially reasonable efforts to issue the non-plan option agreements
pursuant to Article 3 hereof, as soon as reasonably practicable.
(xiii) From and after the consummation of the Merger, ACTV
will use commercially reasonable efforts to assign the Master Service Agreement
between Intellocity and Tomen Mediacom, Inc. dated December 28, 2000, as soon as
reasonably practicable.
(c) COVENANTS OF THE PARTIES. The Parties covenant and agree:
(i) that they will not engage in any action, or fail to take
any action and will cause their respective subsidiaries not to engage in any
action, or fail to take any action, which action or failure to take action would
reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code, whether or not otherwise
permitted by the provisions of this Agreement. Each of ACTV and Intellocity
agree to provide to Xxxxxxx, Xxxxxx & Xxxxxxxxx, LLP and Xxxxxx Godward LLP any
information and materials required in support of their tax opinions referred to
in Sections 9(b)(xi) and 9(c)(v), as mutually agreed upon by the Parties'
counsel.
(ii) that they will cause to be prepared an information
statement in a form acceptable to each Party setting forth a description of the
material terms of the Merger and a material description of ACTV and ACTV's
financial condition and business operations, which information statement will be
circulated to all Intellocity Stockholders and holders of Outstanding Options at
least five (5) days prior to the Closing Date;
27
(iii) that the Board of Directors of USA after the
consummation of the Merger, for the year 2001, shall consist of Xxxx Xxxxxxx as
Chairman, Xxxxx Xxxxxxxx, Xxxxxx Xxxxxxx, Xxxxx X. Liga and Xxxxxxx X. Xxxxxxx;
and
(iv) from the date of this Agreement until December 31, 2004,
unless he has been appointed to the Board of Directors of ACTV and as long as he
remains in the employ of the ACTV or USA, Xxxx Xxxxxxx will serve as Chairman of
USA's Board of Directors and he will have the right to designate three (3) of
the five (5) directors of USA. ACTV agrees to vote all shares of USA's equity
securities that it holds (directly or indirectly through an affiliate) in
accordance with the forgoing.
ARTICLE 11
TERMINATION
(a) TERMINATION DUE TO CONDITIONS PRECEDENT.
(i) If the Closing Date has not occurred by July 31, 2001,
ACTV may terminate this Agreement upon written notice to Intellocity in the
event that any of the conditions to closing set forth in Articles 9(a) and (b)
to this Agreement shall not have been satisfied or waived on or before such
date, unless the failure to satisfy such conditions results primarily from ACTV
breaching any representation, warranty, or covenant contained in this Agreement.
(ii) If the Closing Date has not occurred by July 31, 2001,
Intellocity may terminate this Agreement upon written notice to ACTV in the
event that any of the conditions to closing set forth in Articles 9(a) and (c)
to this Agreement shall not have been satisfied or waived on or before such
date, unless the failure to satisfy such conditions results primarily from
Intellocity breaching any representation, warranty, or covenant contained in
this Agreement.
(b) TERMINATION BY MUTUAL CONSENT. At any time prior to the Closing,
this Agreement may be terminated by the written consent of both ACTV and
Intellocity.
(c) TERMINATION UPON DEFAULT.
(i) ACTV may terminate this Agreement at any time prior to the
Closing Date by delivery of written notice to Intellocity in the event of a
material breach by Intellocity or a failure by Intellocity to perform any
material obligation on its part to be performed or a material breach by
Intellocity of its representations and warranties contained in Article 6 of this
Agreement, and such breach or failure continues for a period of five (5)
business days following the giving of notice, unless such failure results
primarily from ACTV breaching any representation, warranty, or covenant
contained in this Agreement.
(ii) Intellocity may terminate this Agreement at any time
prior to the Closing Date by delivery of written notice to ACTV in the event of
a material breach by ACTV or a failure by ACTV to perform any material
obligation on their part to be performed or a material breach by ACTV of its
representations and warranties contained in Article 7 of this Agreement, and
such breach or failure continues for a period of five (5) business days
following the giving of notice, unless such failure results primarily from
Intellocity breaching any representation, warranty, or covenant contained in
this Agreement.
28
(d) EFFECT OF TERMINATION. If any Party terminates this Agreement
pursuant to this Article 11, all rights and obligations of the Parties hereunder
shall terminate without any liability of any party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 12(a) shall survive any such
termination.
ARTICLE 12
CONFIDENTIALITY; NON-SOLICITATION
(a) CONFIDENTIALITY. ACTV, on the one hand, and Intellocity, on the
other hand, in the course of discussions and negotiations, have disclosed to the
other certain proprietary, confidential or other non-public information
(collectively, the "Information") relating to its business. Except as herein set
forth, neither arty shall (i) reveal or make known to any person, firm,
corporation or entity, other than its own management and advisors, including its
attorneys, accountants and investment bankers, or (ii) utilize in its own
business or (iii) make any other usage of, any Information disclosed to it by
the other in connection with the discussions and negotiations above mentioned.
Notwithstanding the foregoing, (x) each party may disclose any Information
received from the other party to any governmental or regulatory authority in
connection with obtaining approval of the transactions contemplated hereby or as
otherwise may be required by applicable law, and (y) if required, ACTV may
disclose any Information received from Intellocity, to its lenders in connection
with obtaining their approval of the transactions contemplated hereby. A party's
obligations with respect to any item of Information disclosed to it shall
terminate if that item of Information becomes disclosed in published literature
or otherwise becomes generally available to the public; provided, however, that
such public disclosure did not result, directly or indirectly, from any act,
omission, or fault of such party with respect to that item of Information.
Further, this Article 12 (a) shall not apply to any item of Information which at
the time of disclosure was already generally available to the public or which at
the time of disclosure was already in the possession of the party intending to
utilize the item of Information and was not acquired by such party, directly or
indirectly, from the disclosing party as protected information under a
confidentiality agreement. Both parties agree that the Information either party
has received or may receive from the other has been and will be used by the
receiving party solely for the limited purpose of its investigation and
evaluation of the other party in connection with the transaction contemplated
hereby.
(b) NON-SOLICITATION. During to period from the date of this Agreement
until the consummation or termination of this Agreement or the Merger and, in
the event of the termination of this Agreement or the Merger for any reason,
during the one (1) year period following the date of such termination, neither
Party shall, without the consent of the other Party, directly or indirectly
solicit the employment or engagement, as an employee or consultant, any
restricted employee or encourage any restricted employee to leave the employment
of the other Party or any subsidiary of the other Party. A restricted employee
shall mean any person who is employed by a Party or any of its subsidiaries on
the date of this Agreement or at any time during the six (6) months prior
thereto.
29
ARTICLE 13
EXCLUSIVITY
Prior to July 31, 2001 (or such earlier date on which ACTV has ended
its active efforts to consummate the Merger or this Agreement has been
terminated by any Party pursuant to the terms of Article 11), neither
Intellocity, USA, nor any of their respective affiliates, investment bankers or
brokers, shall, directly or indirectly, enter into any agreement, commitment or
understanding with respect to, or engage in any discussions or negotiations
with, or encourage or respond to any solicitations from, any other party with
respect to the sale, lease or management of any material portion of the assets,
or in respect of the sale of any shares of capital stock in Intellocity or USA,
Intellocity shall promptly advise ACTV of any unsolicited offer or inquiry
received by any one of them, including the terms thereof.
ARTICLE 14
MISCELLANEOUS
(a) EXPENSES. Upon the consummation of the Merger, ACTV shall pay the
reasonable legal fees of counsel to Intellocity, which reimbursement obligation
of ACTV shall not exceed one hundred twenty five thousand dollars ($125,000).
ACTV shall also pay all reasonable expenses of counsel to Intellocity.
In addition, upon the consummation of the Merger, ACTV shall pay the
reasonable fees of Xxxxx, which fees are not to exceed four hundred twenty
thousand dollars ($420,000), for financial advisory services rendered. ACTV
shall also pay all reasonable expenses of Xxxxx.
The payment of any fees and expenses by ACTV shall be subject to the
presentment of supporting documentation and shall be paid directly to counsel to
Intellocity and Xxxxx.
(b) SURVIVAL OF COVENANTS, REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein or made in connection with the
transactions contemplated hereby shall terminate at and as of fifteen months
from the Effective Time. Each covenant contained herein or made in connection
with the transactions contemplated hereby shall survive until such time as it
has been fully performed or otherwise terminated by written agreement of the
Parties.
(c) NOTICES. All notices, requests, consents and other communications
herein shall be in writing and shall be mailed by first class or certified mail,
postage prepaid, or personally delivered or sent by overnight courier service,
facsimile or email, provided that the sender obtains reasonable evidence of
delivery to the Party and its counsel as follows:
If to ACTV: ACTV, Inc.
000 Xxxx Xxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Day X. Xxxxxxxxx
Executive Vice President and General Counsel
with a copy to: Xxxxxxx, Xxxxxx & Xxxxxxxxx, LLP
000 Xxxx 00xx Xxxxxx, 0xx Xxxxx
30
New York, New York 10022
Attention: Xxx X. Xxxxxxxxx, Esq.
If to Intellocity: Intellocity, Inc.
c/o Intellocity USA, Inc.
0000 Xxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxx Xxxxxxx
Chairman and Chief Executive Officer
with a copy to: Xxxxxx Godward LLP
One Xxxxx Center
0000 Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
(d) THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) (A) the provisions
contained in this Agreement concerning the issuance of the Merger Shares, the
Escrow Shares and option agreement in exchange for the Outstanding Options, (B)
the provisions contained in Articles 7, 8, 10(b), 10(c) and 14(l) of this
Agreement, and (C) the provisions contained in this Agreement concerning
requirements for a tax-free reorganization, are intended for the benefit of the
Intellocity Stockholders and the holders of Outstanding Options, and (ii) the
provisions in this Agreement concerning insurance and indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
(e) ENTIRE AGREEMENT; MODIFICATIONS; WAIVER. This Agreement and the
documents and other agreements specifically referred to herein constitute the
final, exclusive and complete understanding of the Parties with respect to the
subject matter hereof and supersede any and all prior agreements,
understandings, discussions and agreements with respect thereto, including,
without limitation, the Memorandum of Understanding by and between ACTV,
Intellocity and USA dated February 14, 2001. No amendment or modification of
this Agreement and no waiver of any provision or condition hereof or granting of
any consent contemplated hereby, shall be valid unless it is in writing,
expressly refers to this Agreement and states that it is an amendment,
modification or waiver and signed by all Parties, in the case of an amendment or
modification, or the Party granting the waiver, in the case of a waiver. No
waiver by any Party of any term or condition of this Agreement, in any one or
more instances, shall be deemed or construed as a waiver of the same term or
condition or any other term or condition of this Agreement on any future
occasion.
(f) SUCCESSORS AND ASSIGNS. All of the terms of this Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successor and assigns of the Parties hereto; provided, that no Party may assign
this Agreement or any of its rights under this Agreement without the written
consent of the other Party.
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(g) EXECUTION AND COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
(h) GOVERNING LAW AND SEVERABILITY. Except to the extent that Delaware
Law is mandatorily applicable to the Merger and with respect to matters of
corporate law (which shall be governed by Delaware law), this Agreement shall be
governed by the laws of the State of New York as applied to agreements entered
into and to be performed such state. If any provision of this Agreement or any
application thereof is held to be unenforceable, the remainder of the Agreement
and any application of such provision shall not be affected thereby and to the
extent permitted by law, there shall be substituted for the provisions held
unenforceable, provisions which shall, as nearly as possible, have the same
economic effect as the provisions held unenforceable.
(i) PUBLICITY. Except for disclosure required by law, the timing and
content of any announcements and press releases made prior to the Closing
concerning the transactions contemplated by this Agreement shall be subject to
prior written approval of the Parties.
(j) CAPTIONS. The captions in this Agreement are for convenience only
and shall not be considered a part of or affect the construction or
interpretation of any provisions of this Agreement.
(k) SCHEDULES AND EXHIBITS. All of the schedules and exhibits to this
Agreement are hereby incorporated in this Agreement and shall be deemed and
construed to be a part of this Agreement for all purposes.
(SIGNATURES ON THE FOLLOWING PAGE)
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IN WITNESS WHEREOF, each Party executed this Agreement as of the date
first above written.
ACTV, INC.
By: /s/ DAY X. XXXXXXXXX
--------------------
Name: Day X. Xxxxxxxxx
Title: Executive Vice President and
General Counsel
INTELLOCITY, INC.
By: /s/ XXXX XXXXXXX
----------------
Name: Xxxx Xxxxxxx
Title: President and
Chief Executive Officer
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