Exhibit 10.10
EXECUTION COPY
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
BY AND AMONG
LIBERATE TECHNOLOGIES
LIBERATE ACQUISITION CO.
SOURCESUITE LLC
SOURCESUITE ACQUISITION LLC
SOURCE MEDIA, INC.
INSIGHT INTERACTIVE, LLC
AND
INSIGHT COMMUNICATIONS COMPANY, INC.
Dated as of January 12, 2000
TABLE OF CONTENTS
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ARTICLE 1 THE MERGER...................................................................................................... 2
1.1 The Merger....................................................................................................... 2
1.2 Effective Time................................................................................................... 2
1.3 Effect of the Merger on Constituent Companies.................................................................... 3
1.4 Certificate of Formation, Limited Liability Company Agreement and Management Committee of Surviving Corporation.. 3
1.5 Maximum Number of Shares of Parent Common Stock to be Issued; Effect on Target Units............................. 3
1.6 Exchange Procedures.............................................................................................. 4
1.7 No Further Ownership Rights in Target............................................................................ 5
1.8 Exemption from Registration; California Permit................................................................... 5
1.9 Further Action................................................................................................... 5
1.10 Reduction in Cash Consideration................................................................................. 6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TARGET........................................................................ 6
2.1 Organization and Qualification................................................................................... 6
2.2 Authority Relative to this Agreement............................................................................. 7
2.3 Capitalization................................................................................................... 7
2.4 Subsidiaries..................................................................................................... 8
2.5 No Conflicts..................................................................................................... 8
2.6 Books and Records; Organizational Documents...................................................................... 8
2.7 Target Financials................................................................................................ 9
2.8 Absence of Changes............................................................................................... 9
2.9 No Undisclosed Liabilities....................................................................................... 12
2.10 Taxes........................................................................................................... 12
2.11 Legal Proceedings............................................................................................... 15
2.12 Compliance with Laws and Orders................................................................................. 15
2.13 Employee Benefit Plans.......................................................................................... 15
2.14 Title to Property............................................................................................... 16
2.15 Intellectual Property........................................................................................... 17
2.16 Contracts....................................................................................................... 20
2.17 Insurance....................................................................................................... 21
2.18 Affiliate Transactions.......................................................................................... 21
2.19 Employees; Labor Relations...................................................................................... 22
2.20 Environmental Matters........................................................................................... 23
2.21 Other Negotiations; Brokers; Third Party Expenses............................................................... 24
2.22 Foreign Corrupt Practices Act................................................................................... 24
2.23 Approvals....................................................................................................... 25
2.24 Disclosure...................................................................................................... 25
2.25 Permit Application; Information Statement....................................................................... 25
2.26 Investment Advisors............................................................................................. 26
2.27 Due Diligence................................................................................................... 26
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR...................................................................... 26
3.1 Organization and Qualification................................................................................... 26
3.2 Authority Relative to this Agreement............................................................................. 26
3.3 SEC Documents; Parent Financial Statements....................................................................... 27
3.4 No Conflicts..................................................................................................... 28
3.5 Information to be Supplied by Parent............................................................................. 28
3.6 Ownership of Merger Sub; No Prior Activities..................................................................... 28
3.7 Investment Advisors.............................................................................................. 29
3.8 Third Party Consents............................................................................................. 29
ARTICLE 4 ADDITIONAL AGREEMENTS........................................................................................... 29
4.1 Information Statement; Permit Application........................................................................ 29
4.2 Target Units Holders Approval.................................................................................... 30
4.3 Access to Information............................................................................................ 31
4.4 Confidentiality.................................................................................................. 31
4.5 Expenses......................................................................................................... 31
4.6 Public Disclosure................................................................................................ 32
4.7 Approvals........................................................................................................ 32
4.8 Notification of Certain Matters.................................................................................. 32
4.9 Additional Documents and Further Assurances...................................................................... 32
4.10 NNM Listing..................................................................................................... 33
4.11 Auditors........................................................................................................ 33
4.12 Benefit Arrangements............................................................................................ 33
4.18 Noncompete...................................................................................................... 34
ARTICLE 5 CONDITIONS TO THE MERGER........................................................................................ 34
5.1 Conditions to Obligations of Each Party to Effect the Merger..................................................... 34
5.2 Additional Conditions to Obligations of Target................................................................... 35
5.3 Additional Conditions to the Obligations of Parent and Merger Sub................................................ 36
ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS............................................... 38
6.1 Survival of Representations, Warranties, Covenants and Agreements................................................ 38
6.2 Indemnification by Target and the Holder Indemnitors............................................................. 38
6.3 Market Stand-Off................................................................................................. 39
6.4 Limitation of Liability.......................................................................................... 39
ARTICLE 7 CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................................. 40
7.1 Conduct of Business.............................................................................................. 40
7.2 No Solicitation.................................................................................................. 40
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER............................................................................... 41
8.1 Termination...................................................................................................... 41
8.2 Effect of Termination............................................................................................ 42
8.3 Amendment........................................................................................................ 42
8.4 Extension; Waiver................................................................................................ 43
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ARTICLE 9 MISCELLANEOUS PROVISIONS........................................................................................ 43
9.1 Notices.......................................................................................................... 43
9.2 Entire Agreement................................................................................................. 45
9.3 Further Assurances; Post-Closing Cooperation..................................................................... 45
9.4 Waiver........................................................................................................... 45
9.5 Third Party Beneficiaries........................................................................................ 46
9.6 No Assignment; Binding Effect.................................................................................... 46
9.7 Headings......................................................................................................... 46
9.8 Invalid Provisions............................................................................................... 46
9.9 Governing Law.................................................................................................... 46
9.10 Construction.................................................................................................... 46
9.11 Counterparts.................................................................................................... 46
9.12 Specific Performance............................................................................................ 46
9.13 No Solicitation of Employees.................................................................................... 47
9.14 Exculpation..................................................................................................... 47
ARTICLE 10 DEFINITIONS.................................................................................................... 47
10.1 Definitions..................................................................................................... 47
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EXHIBITS & SCHEDULES
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Exhibit A - Forms of Ancillary Agreements
A.1--Programming Services Agreement
A.2--VirtualModem License Agreement
A.3--Preferred Content Provider Agreement
A.4--Registration Rights Agreement [to come]
Exhibit B - Form of Delaware Certificate of Merger [to come]
Exhibit C - Form of Stockholders Certificate [to come]
Exhibit D - Form of Parent Officer's Certificates [to come]
Exhibit E - Matters to be Covered by Legal Opinion of Xxxxxxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP [to come]
Exhibit F - Form of Target Management Committee's Certificates [to come]
Exhibit G - Matters to be Covered by Legal Opinion of Xxxxxxxxx Xxxxxx Xxxxxxx
Xxxxxx & Xxxxxx, P.C. [to come]
Exhibit H - Form Parent Officer's Tax Certificate
Exhibit 4.2 - Support Agreement
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MERGER AGREEMENT AND
PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is
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made and entered into as of January 12, 2000, by and among LIBERATE
TECHNOLOGIES, a Delaware corporation (the "Parent"), SOURCESUITE LLC, a Delaware
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limited liability company (the "Target"), SOURCE MEDIA, INC., a Delaware
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corporation ("Source Media"), INSIGHT COMMUNICATIONS COMPANY, INC., a Delaware
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corporation ("Insight Communications") and INSIGHT INTERACTIVE, LLC, a Delaware
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limited liability company and wholly owned subsidiary of Insight Communications
("Insight Interactive"). This Agreement shall be entered into by LIBERATE
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ACQUISITION CO., a Delaware limited liability company and a wholly owned
subsidiary of Parent (the "Merger Sub"), and by SOURCESUITE ACQUISITION LLC, a
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Delaware limited liability company (the "Other Assets Company"), on or before
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the Closing. Capitalized terms used and not otherwise defined herein have the
meanings set forth in Article 10.
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RECITALS
A. Source Media and Insight Interactive are the holders (individually
a "Holder," collectively the "Holders") of all of the capital ownership
interests in Target ("Target Units"); the affairs of Target and the conduct of
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its business is as set forth in the Limited Liability Company Agreement between
Source Media and Insight Interactive dated as of November 17, 1999 ("Target LLC
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Agreement"); and a management committee has the final authority with respect to
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the management of the business and affairs of Target ("Target Management
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Committee").
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B. Target and Other Assets Company will enter into agreement(s)
whereby the assets of Target prior to the effectiveness of such agreement(s)
will be separated such that the business, all assets and properties used in
and/or necessary to the conduct of the business, and certain liabilities
associated with the business, each relating to the VirtualModem Products will
remain within Target and all other businesses, assets, properties and
liabilities will be purchased by Other Assets Company at a price equal to their
fair market value as determined by KPMG Peat Marwick in its valuation (the "KPMG
Value").
C. The Board of Directors of Parent and the Management Committees of
each of Merger Sub and Target believe it is in the best interests of Parent,
Merger Sub and Target and their respective stockholders and members that Parent
acquire Target through the merger of Merger Sub with and into Target (the
"Merger") and, in furtherance thereof, have approved the Merger.
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D. The Board of Directors of Parent and the Management Committees of
each of Merger Sub and Target have approved the Merger and this Agreement and
the transactions contemplated hereby.
E. Pursuant to the Merger, among other things, and subject to the
terms and conditions of the Agreement, all of the Target Units which are
outstanding immediately prior to the Effective Time of the Merger shall be
converted into the right to receive shares of Common Stock of Parent ("Parent
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Common Stock").
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F. On the Closing Date, Target and Other Assets Company shall enter
into the Programming Services Agreement; Other Assets Company and Parent shall
enter into the Preferred Content Provider Agreement; Target and Insight
Communications shall enter into the VirtualModem License Agreement; and Parent
and the Holders shall enter into the Registration Rights Agreement, all in the
forms attached hereto as Exhibit A.1 through A.4.
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G. Target and Parent desire to make certain representations,
warranties, covenants and agreements in connection with the Merger.
H. For United States federal income tax purposes, it is intended that
the Merger qualify as a "reorganization" within the meaning of Section 368 of
the Internal Revenue Code.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
the parties), and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms and
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conditions of this Agreement and the applicable provisions of the DLLCA, and, to
the extent applicable, the California Code, Merger Sub shall be merged with and
into Target, the separate existence of Merger Sub shall cease, and Target shall
continue as the surviving company and as a wholly owned subsidiary of Parent
(the "Surviving Company").
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1.2 Effective Time. Unless this Agreement is earlier terminated pursuant to
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Section 8.1, the closing and consummation of the Merger (the "Closing") will
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take place as promptly as practicable, but in no event later than two (2)
Business Days, following satisfaction or waiver of the conditions set forth in
Article 5, at the offices of Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx &
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Xxxxxxxxx, LLP, unless another place or time is agreed to by Parent and Target.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
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to be consummated by filing a certificate of merger in form reasonably
acceptable to the parties, in form and substance to be agreed upon by Parent and
Holders and to be set forth as Exhibit B (the "Delaware Certificate of Merger"),
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in accordance with the relevant provisions of applicable law (the time of
acceptance by the Secretary of State of the State of Delaware of such filing, or
such later time agreed to by the parties and set forth in the Delaware
Certificate of Merger, being referred to herein as the "Effective Time"). The
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Delaware Certificate of Merger shall provide that the Surviving Company shall
change its name, and Parent and the Surviving Company shall take all
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actions reasonably requested by the Related Parties to allow the Other Assets
Company to use the name "SourceSuite."
1.3 Effect of the Merger on Constituent Companies. At the Effective Time, the
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effect of the Merger shall be as provided in the applicable provisions of the
DLLCA. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time, all the property, rights, privileges, powers and
franchises of Merger Sub and Target shall vest in the Surviving Company, and all
debts, liabilities, obligations, restrictions, disabilities and duties of Merger
Sub and Target shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Company.
1.4 Certificate of Formation, Limited Liability Company Agreement and
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Management Committee of Surviving Company.
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(a) At the Effective Time, the Certificate of Formation of Target, as in effect
immediately prior to the Effective Time shall be the Certificate of
Formation of the Surviving Company from and after the Effective Time until
thereafter amended as provided by applicable law and such Certificate of
Formation.
(b) At the Effective Time, the Limited Liability Company Agreement of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the
Limited Liability Company Agreement of the Surviving Company until
thereafter amended as provided by applicable law.
(c) At the Effective Time, the Target Management Committee shall no longer have
any rights, power or authority to manage the business or affairs of Target
or the Surviving Company and Parent shall designate the manager(s) of the
Surviving Company.
1.5 Maximum Number of Shares of Parent Common Stock to be Issued; Effect on
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Target Units. The maximum number of shares of Parent Common Stock to be issued
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in exchange for the acquisition by Parent of all Target Units which are
outstanding immediately prior to the Effective Time shall not exceed the Maximum
Share Number. On the terms and subject to the conditions of this Agreement, as
of the Effective Time, by virtue of the Merger and without any action on the
part of Parent, Merger Sub or Target or any holder of any Target Units, the
following shall occur:
(a) Transfer of Target Units. At the Effective Time, each Target Unit that is
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outstanding immediately prior to the Effective Time will be transferred to
Parent in exchange for the issuance by Parent of that number of shares of
Parent Common Stock equal to the Exchange Ratio, rounded down to the
nearest whole share of Parent Common Stock, subject to adjustment in
accordance with Section 1.8, plus as a working capital adjustment an amount
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of cash equal to the quotient of (X) the excess of (A) the amount of
Target's cash and cash equivalents at the Effective Time over (B) any taxes
payable by Target on the sale of assets to the Other Assets Company which
shall be estimated as of the Closing Date (in calculating taxes payable for
this purpose, any losses incurred by Target prior to the Effective Time
shall offset any gain that would otherwise be recognized on such sale),
divided by (Y) the aggregate number of Target Units that are outstanding
immediately prior to the Effective Time. At the Effective
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Time, the taxes payable in clause (B) above shall be estimated, based on
the sales price of the assets sold to the Other Assets Company. Adjustments
to the taxes payable, if any, shall be made following the preparation of
Target's federal income tax return for the period ending on the Closing
Date; if the estimated taxes payable as determined on the Closing Date are
higher than the taxes reported on such return, Parent shall make a cash
payment to each Holder equal to one half of such difference, and if the
estimated taxes payable are lower than the taxes reported on such return
each Holder shall make a cash payment to Parent equal to one half of such
difference.
(b) Adjustments to Exchange Ratio. The Exchange Ratio shall be equitably
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adjusted to reflect fully the effect of any stock split, reverse split,
stock combination, stock dividend (including any dividend or distribution
of securities convertible into Parent Common Stock), reorganization,
reclassification, recapitalization or other like change with respect to
Parent Common Stock occurring after the date hereof and prior to the
Effective Time.
(c) Fractional Shares. No fraction of a share of Parent Common Stock will be
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issued in the Merger, but in lieu thereof, each holder of a Target Unit who
would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be
received by such holder) shall be entitled to receive from Parent an amount
of cash (rounded to the nearest whole cent) equal to the product of (a)
such fraction, multiplied by (b) the average of the closing prices of
Parent's Common Stock for the ten (10) trading days ended on the second
trading day immediately preceding the Closing Date.
1.6 Exchange Procedures.
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(a) Parent Common Stock. As soon as practicable after the Effective Time, but
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in no event later than two (2) Business Days after the Effective Time,
Parent shall transfer to each Holder a certificate for the aggregate number
of shares of Parent Common Stock issuable in exchange for outstanding
Target Units owned by such Holder pursuant to Section 1.5 and cash in an
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amount sufficient to permit the payment of all cash payable in lieu of
fractional shares pursuant to Section 1.5(c).
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(b) Exchange Procedures. As soon as practicable after the Effective Time, but
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in no event later than two (2) Business Days after the Effective Time, each
Holder shall transfer the Target Units owned by it to the Parent. Until so
transferred, each outstanding Target Unit prior to the Effective Time will
be deemed from and after the Effective Time, for all corporate purposes, to
evidence the ownership of the number of full shares of Parent Common Stock
into which such Target Units shall be so transferable and the right to
receive cash in lieu of fractional shares as provided herein.
(c) Distributions With Respect to Transferred Target Units. No dividends or
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other distributions with respect to Parent Common Stock declared or made
after the Effective Time and with a record date after the Effective Time
will be paid to any Holder of any untransferred Target Units with respect
to the shares of Parent Common Stock represented thereby until the holder
of record of such Target Units shall transfer such Target Units as provided
in this Section 1.6 or as otherwise accepted by Parent. Subject to
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applicable law,
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following surrender of any such Target Units, there shall be paid to the
record holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, at the time of
such transfer, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable (but for the provisions
of this Section 1.5(c)) with respect to such whole shares of Parent Common
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Stock.
1.7 No Further Ownership Rights in Target. All shares of Parent Common Stock
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issued upon the transfer of Target Units in accordance with the terms hereof
(including any cash in lieu of fractional shares) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such Target Units, and
there shall be no further registration of transfers on the records of Target of
Target Units which were outstanding immediately prior to the Effective Time.
1.8 Exemption from Registration; California Permit. The shares of Parent
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Common Stock to be issued pursuant to Section 1.6 in connection with the Merger
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will be issued in a transaction exempt from registration under the Securities
Act, by reason of Section 3(a)(10) thereof, or pursuant to Section 4.1, by
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reason of Section 4(2) of the Securities Act and SEC rules and regulations
promulgated thereunder. Subject to the provisions of Section 4.1, the shares
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of Parent Common Stock to be issued pursuant to Section 1.6 in connection with
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the Merger will be qualified under the California Code, pursuant to Section
25121 thereof, after a fairness hearing has been held pursuant to the authority
granted by Section 25142 of such law. Parent shall use all requisite
commercially reasonable efforts, with the cooperation of Target, (i) to file, as
promptly as practicable following the execution and delivery of this Agreement
and in any event on or before January 21, 2000, an application for issuance of a
permit pursuant to Section 25121 of the California Code to issue such securities
(the "California Permit") and (ii) to obtain the California Permit as promptly
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as practicable and in any event no later than March 10, 2000. If the parties
are unable to obtain the California Permit for whatever reason by March 10,
2000, as required by Section 5.1(c), Source Media shall be entitled to receive
for each Target Unit then held by Source Media an amount of cash equal to $15
million divided by the number of Target Units then held by Source Media (plus
any cash for each such Target Unit payable pursuant to Section 1.5(a) hereof),
and the number of shares of Parent Common Stock to which Source Media shall be
entitled to receive pursuant to Section 1.5 shall be reduced by the number of
shares by which the Maximum Share Number is reduced, provided, however, that if
the cash payable pursuant to this Section 1.8 is reduced in accordance with
Section 1.10, the number of shares of Parent Common Stock to which Source Media
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shall be entitled to receive shall be increased by the increase in the Maximum
Share Number determined in accordance with Section 1.10.
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1.9 Further Action. If, at any time after the Effective Time, any such further
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action is necessary or desirable to carry out the purposes of this Agreement or
to vest the Surviving Company with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of Target, Parent is
fully authorized to take, and will take, all such lawful and necessary action.
1.10 Reduction in Cash Consideration. Anything to the contrary herein
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notwithstanding, the aggregate amount of cash payable pursuant to Section 1.5(a)
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and Section 1.8 shall be reduced such that the sum of (A) the cash payable
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pursuant to Section 1.5(a),
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(B) the cash payable pursuant to Section 1.8, (C) the KPMG Value (as defined in
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the Recitals of this Agreement) and (D) the value of the royalty-free license
granted to Other Assets Company pursuant to the Programming Services Agreement
by Parent or Target as determined by KPMG Peat Marwick, will not exceed 19.9% of
the total aggregate consideration payable to the Holders calculated based on the
fair market value of the Parent Common Stock at the Effective Time. Any such
reduction shall first be made from the amount of cash payable pursuant to
Section 1.8. If the amount of cash payable is reduced in accordance with this
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Section 1.10, the Maximum Share Number shall be increased by a number of shares
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equal to such reduction divided by $232.6875 per share; provided, however, that
in no event shall the Maximum Share Number be increased above 886,000.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TARGET
Target, Target Subsidiary, the Holders and Insight Communications,
jointly and severally, hereby represent and warrant to Parent, subject to such
exceptions and qualifications as specifically disclosed with respect to the
specific numbered and lettered sections and subsections of this Article 2 in the
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Target disclosure schedule and schedule of exceptions of Target (the "Target
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Disclosure Schedule") delivered herewith and which shall become a part hereof,
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dated as of the date hereof, and numbered with corresponding numbered and
lettered sections and subsections, as follows:
2.1 Organization and Qualification. Target is a limited liability company and
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Target Subsidiary is a corporation; each such entity is duly organized, validly
existing and in good standing under the laws of the state or province of its
formation or incorporation, and each of Target and Target Subsidiary has all
requisite power and authority to conduct its business as now conducted and as
currently proposed to be conducted and to own, use, license and lease its Assets
and Properties. Each of Target and Target Subsidiary is duly qualified to do
business and is in good standing as a limited liability company or a foreign
corporation in each jurisdiction in which the ownership, use, licensing or
leasing of its Assets and Properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for such
failures to be so duly qualified, licensed or admitted and in good standing that
could not reasonably be expected to have a Material Adverse Effect on Target.
Section 2.1 of the Target Disclosure Schedule sets forth each jurisdiction where
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each of Target and Target Subsidiary is so qualified to do business and
separately lists each other jurisdiction in which each of Target and Target
Subsidiary owns, uses, licenses or leases any material Assets and Properties,
conducts business, or has employees or engages independent contractors.
2.2 Authority Relative to this Agreement. Subject only to the requisite
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approval of the Merger, this Agreement and the other agreements attached as
Exhibits A.1 to A.4 hereto (the "Ancillary Agreements") by the holders of Target
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Units, each of Target, Other Assets Company, Source Media, Insight
Communications and Insight Interactive (individually, a "Related Party;"
collectively, the "Related Parties") (i) has all requisite power and authority
to execute and deliver this Agreement and each Ancillary Agreement to which it
is a party, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by each Related Party of this Agreement and the Ancillary Agreements to
which it is a party and the consummation by each
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Related Party of the transactions contemplated hereby and thereby, and the
performance by each Related Party of its obligations hereunder and thereunder,
have been duly and validly authorized by all necessary action by each Related
Party; and no other action on the part of such governing bodies is required to
authorize the execution, delivery and performance by each Related Party of this
Agreement and the Ancillary Agreements to which it is a party and the
consummation by each Related Party of the transactions contemplated hereby and
thereby. The consummation by Source Media of the transactions contemplated
hereby shall at Closing have received all requisite approvals of the Source
Media Bondholders. This Agreement and the Ancillary Agreements to which such
Related Party is a party have been duly and validly executed and delivered by
such Related Party and, assuming the due authorization and valid execution and
delivery hereof by Parent and each other party to such agreement, each
constitutes a legal, valid and binding obligation of such Related Party
enforceable against such Related Party in accordance with its respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar Laws relating
to the enforcement of creditors' rights generally and by general principles of
equity.
2.3 Capitalization. The authorized capital ownership interests of Target
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consists only of 1,000,000 Target Units, all of which are outstanding. All of
the outstanding Target Units are validly issued, fully paid and nonassessable
and have been issued in compliance with all applicable federal, state and
foreign securities Laws. Section 2.3 of the Target Disclosure Schedule lists
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the name of each holder of Target Units. Except as set forth in Section 2.3 of
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the Target Disclosure Schedule, Target has not authorized or issued any other
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units or other measures of capital ownership of Target. Except as set forth in
Section 2.3 of the Target Disclosure Schedule, there are no agreements,
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arrangements or understandings to which Target is a party (written or oral) to
issue any other units or other measures of capital ownership of Target, there
are no options or other rights to require such units or other measures of
capital ownership and there are no preemptive rights or agreements, arrangements
or understandings to issue preemptive rights with respect to the issuance or
sale of any units or other measures of capital ownership of Target created by
statute, the Certificate of Formation or the Target LLC Agreement, or any
agreement or other arrangement to which Target is a party or to which it is
bound and there are no agreements, arrangements or understandings to which
Target is a party (written or oral) pursuant to which Target has the right to
elect to satisfy any Liability by issuing any units or other measures of capital
ownership of Target. Other than the Target LLC Agreement, Target is not a party
or subject to any agreement or understanding, and, to Target's knowledge, there
is no agreement, arrangement or understanding between or among any Persons which
affects, restricts or relates to voting, giving of written consents,
distributions, allocation of profits and losses, or transferability of units or
other measures of capital ownership of Target, including any voting trust
agreement or proxy.
2.4 Subsidiaries. SourceSuite Canada Inc., a Canadian federal corporation
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("Target Subsidiary") is a wholly owned subsidiary of Target. Except for Target
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Subsidiary, Target has (and prior to the Closing will have) no Subsidiaries and
does not (and prior to the Closing will not) otherwise hold any equity,
membership, partnership, joint venture or other ownership interest in any
Person.
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2.5 No Conflicts. The execution and delivery by Target of this Agreement does
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not, and the performance by Target of its obligations under this Agreement and
the consummation of the transactions contemplated hereby do not and will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the Certificate of Formation of Target or the
Target LLC Agreement or the Certificate of Incorporation or Bylaws of
Target Subsidiary or the charter documents of the Related Parties (other
than Target);
(b) subject to obtaining the consents, approvals and actions, making the
filings and giving the notices disclosed in Section 2.5 of the Target
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Disclosure Schedule, if any, conflict with or result in a violation or
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breach of any Law or Order applicable to Target or Target Subsidiary, any
of their respective Assets and Properties or any Related Party (other than
Target); or
(c) except as would not have a Material Adverse Effect on Target or as
disclosed in Section 2.5 of the Disclosure Schedule (i) conflict with or
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result in a violation or breach of, (ii) constitute a default (or an event
that, with or without notice or lapse of time or both, would constitute a
default) under, (iii) require Target, Target Subsidiary or any Related
Party (other than Target) to obtain any consent, approval or action of,
make any filing with or give any notice to any Person (other than the
filing of the Delaware Certificate of Merger together with the required
officers' certificates, any filing required under the HSR Act and
regulations promulgated thereunder, and such consents' approvals, orders,
authorizations, registrations, declarations and filings as may be required
under state or federal securities laws) as a result or under the terms of,
(iv) result in or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (v)
result in or give to any Person any additional rights or entitlement to
increased, additional, accelerated or guaranteed payments or performance
under, (vi) result in the creation or imposition of (or the obligation to
create or impose) any material Lien upon Target or Target Subsidiary or any
of their respective material Assets and Properties under or (vii) result in
the loss of a material benefit under, any material Contract or License to
which Target or Target Subsidiary is a party or by which any of Target's or
Target Subsidiary's material Assets and Properties are bound.
2.6 Books and Records; Organizational Documents. The minute books and capital
-------------------------------------------
interests record books and other similar records of Target and Target Subsidiary
have been provided or made available to Parent or its counsel prior to the
execution of this Agreement as set forth in Section 2.6 of the Disclosure
-----------------------------
Schedule, are complete and correct in all material respects and have been
--------
maintained in accordance with customary business practices. Such minute books
contain a true and complete record of all actions taken at all meetings and by
all written consents in lieu of meetings of the members of Target and Target
Management Committee and of the directors, stockholders and committees of the
Board of Directors of Target Subsidiary from the date of Target's and Target
Subsidiary's respective formation or incorporation through the date hereof.
Target has prior to the execution of this Agreement delivered to Parent true and
complete copies of its Certificate of Formation and limited liability company
agreement and of Target Subsidiary's Certificate and Articles of Incorporation
and Bylaws, as amended through the date hereof. Target is not in violation of
any provisions of its
8
Certificate of Formation or Target LLC Agreement, as so amended, nor is Target
Subsidiary in violation of any provisions of its Articles of Incorporation or
Bylaws.
2.7 Target Financials. Section 2.7 of the Target Disclosure Schedule sets
----------------- ---------------------------------------------
forth Target Financials. Target Financials delivered to Parent are correct and
complete in all material respects and have been prepared in accordance with GAAP
applied on a basis consistent throughout the periods (except, with respect to
any Target Financials that are unaudited, for the absence of notes thereto and
the effect of the absence of notes thereto and the effect of the absence of
year-end audit adjustments) indicated and consistent with each other (except as
indicated in the notes thereto, as delivered to Parent prior to the date
hereof). Target Financials present fairly the financial condition and operating
results of Target as of the dates and during the periods indicated therein. The
accounts and notes receivable of Target reflected on Target Financials, and all
accounts and notes receivable arising subsequent to November 30, 1999, (a) arose
from bona fide sales transactions, and are payable on ordinary trade terms net
of applicable reserves, (b) are legal, valid and binding obligations of the
respective debtors enforceable in accordance with their respective terms, (c)
are not subject to any known valid set-off or counterclaim net of applicable
reserves and (d) do not represent obligations for goods sold on consignment, on
approval or on a sale-or-return basis or subject to any other repurchase or
return arrangement (except that software licensed by Target is subject to
acceptance by Target). All inventory of Target reflected on the balance sheet
included in the Target Financials consisted, and all such inventory acquired
since November 30, 1999 consists of a quality and quantity usable and salable in
the ordinary course of business net of applicable reserves. None of the items
included in the inventory of Target have been pledged as collateral, is held by
Target on consignment from others; all of the items included in the inventory of
Target conform in all material respects to all standards applicable to such
inventory or its use or sale imposed by Governmental or Regulatory Authorities.
All intercompany indebtedness of Target and Target Subsidiary to any Holder or
other Related Party shall be cancelled or settled on or before the Closing,
provided that Lucky shall pay up to $50,000 of prepaid expenses for goods and
services to be received by Target or Target Subsidiary after the Closing.
2.8 Absence of Changes. Since the Financial Statement Date, there has not been
------------------
any material adverse change in the Business or Condition of Target or any
occurrence or event which, individually or in the aggregate, is expected to have
Material Adverse Effect on Target. In addition, without limiting the generality
of the foregoing, except as expressly contemplated by this Agreement or as set
forth in Section 2.8 of the Target Disclosure Schedule, since the Financial
---------------------------------------------
Statement Date:
(a) neither Target nor Target Subsidiary has entered into any Contract or other
material commitment or transaction and no other Related Party has entered
into a contract relating to the VirtualModem Business;
(b) Target has not entered into any Contract in connection with any transaction
involving a Business Combination;
(c) there has not been any material amendment or other material modification
(or agreement to do so), or material violation of the terms of, any of the
Contracts set forth or described in Section 2.16 of the Target Disclosure
-------------------------------------
Schedule;
--------
9
(d) neither Target not Target Subsidiary has entered into any transaction with
any member, manager, officer, director, Affiliate or Associate of Target,
other than pursuant to any Contract disclosed to Parent pursuant to (and so
identified in) Section 2.8(d) of the Target Disclosure Schedule.
------------------------------------------------
(e) there has not been any transfer (by way of a License or otherwise) to any
Person (including any Related Party other than Target) of rights to any
material Target Intellectual Property, other than licenses in the ordinary
course of business consistent with past practice;
(f) there has not been any amendment to Target's Certificate of Formation or
Target LLC Agreement or to Target Subsidiary's Articles of Incorporation or
Bylaws;
(g) Target has not declared, set aside or paid any dividends on or made any
other distributions (whether in cash, stock or property) in respect of any
Target Units, or effected or approved any split, combination or
reclassification of any Target Units, or issued or authorized the issuance
of any other securities, in lieu of or in substitution for Target, or
repurchased, redeemed or otherwise acquired, directly or indirectly, any
Target Units;
(h) Target has not issued, granted, delivered, sold or authorized or proposed
to issue, grant, deliver or sell, or purchased or proposed to purchase, any
units or other measures of capital ownership of Target; and there has been
no modification or amendment of the rights of any holder of any units or
other measures of capital ownership of Target;
(i) no Action or Proceeding has been commenced or, to the knowledge of any
Related Party, threatened by or against Target or Target Subsidiary.
(j) neither Target nor Target Subsidiary has made any change in accounting
policies, principles, methods, practices or procedures (including for bad
debts, contingent liabilities or otherwise, respecting capitalization or
expense of research and development expenditures, depreciation or
amortization rates or timing of recognition of income and expense);
(k) Target and Target Subsidiary have taken all commercially reasonable action
required to procure, maintain, renew, extend or enforce any material Target
Intellectual Property;
(l) there has been no physical damage, destruction or other casualty loss
(whether or not covered by insurance) affecting any of the real or personal
property or equipment of Target or Target Subsidiary or in an amount
exceeding fifty thousand dollars ($50,000) individually or one hundred
fifty thousand dollars ($150,000) in the aggregate; and
(m) neither Target nor Target Subsidiary has made or agreed to make any
disposition or sale of, waiver of rights to, license or lease of, or
incurrence of any material Lien on, or a material portion of any Assets and
Properties of Target;
10
(n) neither Target nor Target Subsidiary has made or agreed to make any
acquisition of any business, company or corporation, whether through the
purchase of stock, a purchase, lease or License of assets, a merger,
consolidation, tender offer or any other form of business combination;
(o) neither Target nor Target Subsidiary has made or agreed to make any
purchase of any Assets and Properties of any Person (including any Related
Party other than Target) other than (1) acquisitions of inventory, or
licenses of products, in the ordinary course of business of Target
consistent with past practice and (2) other acquisitions in an amount not
exceeding fifty thousand dollars ($50,000) in the case of any individual
item or one hundred fifty thousand dollars ($150,000) in the aggregate;
(p) neither Target nor Target Subsidiary has made or agreed to make any capital
expenditures or commitments for additions to property, plant or equipment
constituting capital assets in an amount exceeding fifty thousand dollars
($50,000) individually or one hundred fifty thousand dollars ($150,000) in
the aggregate;
(q) neither Target nor Target Subsidiary has made or agreed to make any write-
off or write-down, any determination to write-off or write-down, or
revalue, any of its Assets and Properties in excess of applicable reserves,
or change in any reserves or liabilities associated therewith, in an amount
exceeding fifty thousand dollars ($50,000) individually or one hundred
fifty thousand dollars ($150,000) in the aggregate;
(r) neither Target nor Target Subsidiary has made or agreed to make payment,
discharge or satisfaction, in an amount in excess of fifty thousand dollars
($50,000) in any one case or one hundred fifty thousand ($150,000) in the
aggregate, of any claim, Liability or obligation (whether absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business of
Liabilities reflected or reserved against in the Target Financials and
other than Liabilities incurred in the ordinary course of business since
the Financial Statement Date;
(s) neither Target nor Target Subsidiary has failed to pay or otherwise satisfy
any Liabilities presently due and payable except such Liabilities which are
being contested in good faith by appropriate means or proceedings and which
are immaterial in amount;
(t) neither Target nor Target Subsidiary has incurred any Indebtedness or
guaranteed any Indebtedness in any amount exceeding fifty thousand
($50,000) individually or one hundred fifty thousand ($150,000) in the
aggregate or issued or sold any debt securities of Target or guaranteed any
debt securities of others;
(u) neither Target nor Target Subsidiary has granted any severance or
termination pay to any director, officer, employee or consultant, except
payments made pursuant to written Contracts outstanding on the date hereof,
copies of which have been delivered to Parent and the principal terms of
which are disclosed in Section 2.8(u) of the Target Disclosure Schedule;
-------------------------------------------------
11
(v) except pursuant to a Contract or otherwise disclosed to Parent pursuant to
Section 2.8(d) of the Target Disclosure Schedule, neither Target nor Target
------------------------------------------------
Subsidiary has granted or approved any increase of greater than five
percent (5%) in salary, rate of commissions, rate of consulting fees or any
other compensation of any current officer, director, employee, independent
contractor or consultant;
(w) Target and Target Subsidiary have taken all commercially reasonable action
required to procure, maintain, renew, extend or enforce any Target
Intellectual Property, including submission of required documents or fees
during the prosecution of patent, trademark or other applications for
Registered Intellectual Property rights;
(x) neither Target nor Target Subsidiary has entered into or approved any
contract, arrangement or understanding or acquiesced in respect of any
arrangement or understanding, to do, engage in or cause or having the
effect of any of the foregoing.
2.9 No Undisclosed Liabilities. Except as reflected or reserved against in
--------------------------
Target Financials (including the notes thereto), Target does not have, and as of
the Closing will not have, any material Liabilities, other than Liabilities
incurred in the ordinary course of business consistent with past practice since
the Financial Statement Date that are not material.
2.10 Taxes.
-----
(a) All Tax Returns required to be filed prior to the Effective Time by or with
respect to Target or Target Subsidiary or, to the extent such relationship
results in a tax lien on or against the assets of Target or Target
Subsidiary or successor tax liability with respect to Target or Target
Subsidiary, any affiliated, consolidated, combined, unitary or similar
group of which Target is or was a member (a "Relevant Group") with any
--------------
Taxing Authority with respect to any Taxable period ending on or before the
Effective Time, have been or will be completed and filed when due
(including any extensions of such due date). All such Tax Returns are true,
accurate and complete as filed. Target has previously provided or made
available to Parent true and correct copies of all Tax Returns. No claim
has ever been made by a Taxing Authority of any jurisdiction in which
Target does not file Tax Returns that it is or may be subject to taxation
by that jurisdiction. Neither Target nor Target Subsidiary has been
granted any extension or waiver of the limitation period applicable to any
Tax Returns that is still in effect.
(b) The November 30, 1999 balance sheet included in the Target Financials (the
"Target Balance Sheet") (i) fully accrues all Target's actual and
--------------------
contingent liabilities for Taxes with respect to all periods through
November 30, 1999 and Target has not and will not incur any Tax liability
in excess of the amount reflected on such Target Balance Sheet with respect
to such periods (excluding any amount thereof that reflects timing
differences between the recognition of income for purposes of GAAP and for
Tax purposes), and (ii) properly accrues in accordance with GAAP all
material liabilities for Taxes payable after November 30, 1999 with respect
to all transactions and events occurring on or prior to such date. All
information set forth in the notes to the Target Financials relating to Tax
matters is true, complete and accurate in all material respects. Except as
contemplated by this Agreement, no material Tax liability since November
30, 1999 has been or will be incurred by Target other than
12
in the ordinary course of business, and adequate provision has been made by
Target for all Taxes since that date in accordance with GAAP on at least a
quarterly basis.
(c) All Taxes due and payable by Target or Target Subsidiary, whether or not
shown on any Tax Return or claimed to be due by any Taxing Authority, have
been paid or accrued on the balance sheet included in the Target
Financials, except for unpaid accruable Taxes incurred by Target in the
ordinary course of its business since November 30, 1999. Target has
withheld and paid to the applicable Taxing Authority all amounts required
to be withheld and paid except where failure to so withhold or pay would
not be material.
(d) There is no material claim, audit, action, suit, proceeding, or (to the
knowledge of Target, Target Subsidiary, Source Media and/or Insight
Interactive) investigation now pending or (to the knowledge of Target,
Target Subsidiary, Source Media and/or Insight Communications) threatened
against or with respect to Target or Target Subsidiary in respect of any
Tax or assessment. No notice of deficiency or similar document of any
Taxing Authority asserting the Target and/or Target Subsidiary has unpaid
Tax liability has been received by Target or Target Subsidiary, and there
are no liabilities for Taxes (including liabilities for interest, additions
to Tax and penalties thereon and related expenses) with respect to the
issues that have been raised (and are currently pending) by any Taxing
Authority that could, if determined adversely to Target, materially and
adversely affect the liability of Target for Taxes. There are no liens for
Taxes (other than for current Taxes not yet due and payable) upon the
assets of Target or Target Subsidiary. Target has never been a member of
an affiliated group of corporations, within the meaning of Section 1504 of
the Code. Target and Target Subsidiary are in full compliance with all the
terms and conditions of any Tax exemptions or other Tax-sharing agreement
or order of a foreign government and the consummation of the Merger will
not have any adverse effect on the continued validity and effectiveness of
any such Tax exemption or other Tax-sharing agreement or order.
(e) Neither Target nor any person on behalf of Target has entered into or will
enter into any agreement or consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income tax law) or agreed to have Section 341(f)(2)
of the Code (or any corresponding provision of state, local or foreign
income tax law) apply to any disposition of any asset owned by Target.
(f) None of the assets of Target or Target Subsidiary is property that Target
is required to treat as being owned by any other person pursuant to the so-
called "safe harbor lease" provisions of former Section 168(f)(8) of the
Code. None of the assets of Target directly or indirectly secures any debt
the interest on which is tax-exempt under Section 103(a) of the Code. None
of the assets of Target is "tax-exempt use property" within the meaning of
Section 168(h) of the Code. Target has not made and will not make a deemed
dividend election under Treas. Reg. (S)1.1502-32(f)(2) or a consent
dividend election under Section 565 of the Code. Target has never been a
party (either as a distributing corporation or as a corporation that has
been distributed) to any transaction intended to qualify under Section 355
of the Code or any corresponding provision of state law. Neither Target
nor Target Subsidiary has participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code.
Except for Canada, Target does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax
treaty or convention
13
between the United States of America and any such foreign country. Target
has never elected to be treated as an S-corporation under Section 1362 of
the Code or any corresponding provision of federal or state law. Target is
not party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership for federal income tax
purposes. Target is not currently, and never has been, subject to the
reporting requirements of Section 6038A of the Code. There is no agreement,
contract or arrangement to which Target is a party that could, individually
or collectively, result in the payment of any amount that would not be
deductible by reason of Sections 280G (as determined without regard to
Section 280G(b)(4) and (5)), 162(a) (by reason of being unreasonable in
amount), 162 (b) through (p) or 404 of the Code. Target is not a party to
or bound by any Tax indemnity, Tax sharing or Tax allocation agreement
(whether written or unwritten or arising under operation of federal law as
a result of being a member of a group filing consolidated Tax returns,
under operation of certain state laws as a result of being a member of a
unitary group, or under comparable laws of other states or foreign
jurisdictions) which includes a party other than Target nor does Target owe
any amount under any such Agreement. Target is not, and has not been, a
United States real property holding corporation (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code. Other than by reason of the Merger, Target
has not been and will not be required to include any material adjustment in
Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign
Tax laws as a result of transactions, events or accounting methods employed
prior to the Merger.
(g) Except as contemplated by this Agreement, no material election with respect
to Taxes has been or will be made without the prior written consent of
Parent, which consent will not be unreasonably withheld or delayed.
(h) For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means any and all taxes including, without limitation, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales,
use, ad valorem, transfer, franchise, profits, value added, net worth,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, 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 Taxing Authority
responsible for the imposition of any such tax (domestic or foreign), (ii)
any liability for the payment of any amounts of the type described in (i)
as a result of being a member of an affiliated, consolidated, combined or
unitary group for any Taxable period or as the result of being a transferee
or successor thereof and (iii) any liability for the payment of any amounts
of the type described in (i) or (ii) as a result of any express or implied
obligation to indemnify any other person.
(i) Target has validly elected or will elect, prior to the Closing Date,
pursuant to Treas. Reg. (S) 301.7701-3(c)(1), to be classified as a
corporation for United States federal income tax purposes effective as of
the date of its formation.
14
2.11 Legal Proceedings. Except as set forth in Section 2.11 of the Target
----------------- --------------------------
Disclosure Schedule:
-------------------
(i) there are no Actions or Proceedings pending or, to the knowledge of any
Related Party, threatened against Target or Target Subsidiary or in which
Target or Target Subsidiary is a party, any of which relate to or affect
Target or Target Subsidiary or their respective Assets and Properties; to
the extent that Section 2.11 of the Target Disclosure Schedule identifies
----------------------------------------------
any such Actions or Proceedings, Target has fully disclosed in writing to
Parent all material facts and legal analyses necessary to enable Parent to
make an independent evaluation of the merits of each Action or Proceeding;
(ii) neither Target nor Target Subsidiary has received notice, nor does Target,
Target Subsidiary, Source Media and/or Insight Communications otherwise
have knowledge of any Orders outstanding against Target or Target
Subsidiary; and
(iii) there are no facts or circumstances known to any Related Party that is
reasonably expected to give rise to any Action or Proceeding against, relating
to or affecting Target or Target Subsidiary.
2.12 Compliance with Laws and Orders. Neither Target nor Target Subsidiary has
-------------------------------
violated in any material respect, and is not currently in default in any
material respect under, any Law or Order applicable to Target or Target
Subsidiary or any of their respective Assets and Properties.
2.13 Employee Benefit Plans.
----------------------
(a) Neither Target nor Target Subsidiary maintains, sponsors, is a party to, or
contributes to or is obligated to contribute to, and Target's or Target
Subsidiary's employees or former employees and their dependents or
survivors do not receive benefits under, any of the following (whether or
not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted stock, stock
purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent
care, director or employee loan, fringe benefit, sabbatical, severance,
termination pay or similar plan, program, policy, agreement or arrangement
(other than any such item provided solely pursuant to the terms of a
written or oral contract with any individual employee that is disclosed in
Section 2.13 of the Target Disclosure Schedule); or
----------------------------------------------
(iii) Any plan, program, agreement, policy, commitment or other arrangement
relating to the provision of any benefit described in section 3(1) of ERISA to
former employees, managers or directors or to their survivors, other than
procedures intended to comply with COBRA.
15
(b) Neither Target nor any ERISA Affiliate has terminated, suspended,
discontinued contributions to or withdrawn from any employee pension
benefit plan, as defined in section 3(2) of ERISA, including (without
limitation) any multiemployer plan, as defined in section 3(37) of ERISA.
(c) Except as disclosed in Section 2.13 of the Target Disclosure Schedule, the
----------------------------------------------
consummation of the transactions contemplated by this Agreement (excluding
any employment agreement with Parent entered into by any employee or
director of Target in connection with this Agreement) will not result in
(i) any amount becoming payable to any employee, director or independent
contractor of Target or Target Subsidiary, (ii) the acceleration of payment
or vesting of any benefit, option or right to which any employee, director
or independent contractor of Target or Target Subsidiary may be entitled,
(iii) the forgiveness of any indebtedness of any employee, director or
independent contractor of Target or Target Subsidiary or (iv) any cost
becoming due or accruing to Target or Target Subsidiary or Parent with
respect to any employee, director or independent contractor of Target or
Target Subsidiary.
(d) There are no pending, or, to the best knowledge of Target, Target
Subsidiary, Source Media and/or Insight Communications, threatened, Actions
or Proceedings involving any of the plans identified in Section 2.13(a), or
---------------
Target and Target Subsidiary, with any of the IRS, the Department of Labor,
the PBGC, or any other person whomsoever. Target and Target Subsidiary
know of no reasonable basis for any such claim, lawsuit, dispute, action or
controversy.
(e) The Related Parties shall indemnify Target and its Affiliates for any
liability of any employee of VirtualModem Employer who does not become an
employee of Target or its Affiliates on or after the Closing.
2.14 Title to Property. Except for title to Target Intellectual Property,
-----------------
which is covered by Section 2.15 below, Target and Target Subsidiary have good
------------
and valid title to all of their respective material properties, interests in
properties and assets, real and personal, reflected in Target Financials or
acquired after the Financial Statement Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Financial
Statement Date in the ordinary course of business), free and clear of all
material mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) liens for current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected on Target
Financials. The plants, property and equipment of Target and Target Subsidiary
that are used in the operations of its businesses are in good operating
condition and repair, subject to normal wear and tear. All properties used in
the operations of Target and Target Subsidiary are reflected in Target
Financials to the extent generally accepted accounting principles required the
same to be reflected as of the dates of such Target Financials. With respect to
properties and assets leased by Target and Target Subsidiary, Target or Target
Subsidiary, as applicable holds valid leasehold interests in such properties and
assets in accordance with the terms of the agreements governing such leases. The
Assets and Properties of Target and Target Subsidiary that will remain with
Target and Target Subsidiary following the Closing Date are listed in Section
-------
2.14A of the Target Disclosure Schedule and constitute all the
---------------------------------------
16
assets and properties used in and/or necessary to the conduct of the
VirtualModem Business as presently conducted and as proposed to be conducted by
any Related Party. The Assets and Properties that will be purchased by Other
Assets Company are listed in Section 2.14B of the Target Disclosure Schedule,
-----------------------------------------------
and none of such assets or properties are necessary to the conduct of the
VirtualModem Business as presently conducted or as proposed to be conducted by
any Related Party. For purposes of this Section 2.14, the VirtualModem Business
proposed to be conducted by any Related Party shall constitute the VirtualModem
Business proposed to be conducted by Target pursuant to any existing contractual
commitment of Target and pursuant to the rollout schedule for the deployment of
the VirtualModem Business for Insight Communications in the form previously
furnished to Parent.
2.15 Intellectual Property.
---------------------
(a) Section 2.15A of the Target Disclosure Schedule lists all Registered
-----------------------------------------------
Intellectual Property of Target and Target Subsidiary used in and/or
necessary to the conduct of the VirtualModem Business, and lists any
proceeding or actions which to the knowledge of any Related Party are
pending as of the date hereof before any court, tribunal (including the PTO
or equivalent authority anywhere in the world) related to any of the
Registered Intellectual Property of Target and Target Subsidiary used in
and/or necessary to the conduct of the VirtualModem Business. Section
-------
2.15B of the Target Disclosure Schedule lists all Registered Intellectual
---------------------------------------
Property that will be purchased by Other Assets Company and lists any
proceeding or actions which to the knowledge of any Related Party are
pending as of the date hereof before any court, tribunal (including the PTO
or equivalent authority anywhere in the world) related to any of the
Registered Intellectual Property of Other Assets Company. None of
Registered Intellectual Property of Other Assets Company are used in and/or
necessary to the conduct of the VirtualModem Business.
(b) Each item of Intellectual Property of Target and/or Target Subsidiary,
either is owned exclusively by Target or Target Subsidiary, as the case may
be, free and clear of any Liens, or is licensed to Target or Target
Subsidiary under a valid License granting sufficient rights to permit
Target to conduct the VirtualModem Business. Target and Target Subsidiary
own or have the valid right to use all trademarks, service marks and trade
names used by Target and Target Subsidiary in connection with the operation
or conduct of the VirtualModem Business, including the sale of any products
or technology or the provision of any services by Target. Target and Target
Subsidiary own exclusively, and have good title to, all copyrighted works
that are VirtualModem Products or other works of authorship that Target
and/or Target Subsidiary otherwise purport to own; provided, however, that
such works may incorporate copyrighted works or works of authorship,
trademarks or trade names of third parties which are licensed to Target or
Target Subsidiary or are in the public domain.
(c) Except as otherwise provided in Section 2.15A of the Target Disclosure
--------------------------------------
Schedule, to the extent that any Intellectual Property of Target or Target
--------
Subsidiary that is used in or necessary to the VirtualModem Business has
been developed or created by any Person other than Target, Target and/or
Target Subsidiary has a written agreement with such Person with respect
thereto and Target and/or Subsidiary has either (i) obtained ownership of,
and is the exclusive owner of, all such Intellectual Property by operation
of law or by valid assignment of any such rights or (ii) obtained a License
under or to such Intellectual Property. In
17
each case in which Target or Target Subsidiary has acquired ownership of
any such Intellectual Property rights from any Person, such party has
obtained a valid and enforceable assignment sufficient to irrevocably
transfer all rights in such Intellectual Property (including the right to
seek past and future damages with respect to such Intellectual Property) to
Target and/or Target Subsidiary, as the case may be, and, to the maximum
extent provided for by, and in accordance with, applicable Laws, Target
and/or Target Subsidiary has recorded each such assignment of Registered
Intellectual Property with the relevant Governmental or Regulatory
Authority, including the PTO, the U.S. Copyright Office, or their
respective equivalents in any relevant foreign jurisdiction, as the case
may be.
(d) Neither Target nor Target Subsidiary has transferred ownership of any
Intellectual Property of Target or Target Subsidiary used in or necessary
to the VirtualModem Business, to any other Person. Except pursuant to
agreements described in Section 2.15A of the Target Disclosure Schedule,
-----------------------------------------------
neither Target nor Target Subsidiary has granted any License of or other
right to use or authorized the retention of any rights to use any
Intellectual Property used in or necessary to the VirtualModem Business
that is or was Intellectual Property of Target or Target Subsidiary to any
Person. Section 2.15A of the Target Disclosure Schedule lists all
-----------------------------------------------
Contracts by which Target or Target Subsidiary have been granted any
License of or other right to use any Intellectual Property of any other
Person used in or necessary to the VirtualModem Business.
(e) The Intellectual Property of Target and Target Subsidiary listed on Section
-------
2.15A of the Target Disclosure Schedule constitutes all the Intellectual
---------------------------------------
Property used in and/or necessary to the conduct of the VirtualModem
Business and all Intellectual Property required for the VirtualModem
Products under development by Target as of the date hereof. None of the
Intellectual Property that will be purchased by Other Assets Company listed
on Section 2.15B of the Target Disclosure Schedule or the Intellectual
-----------------------------------------------
Property of any Holder constitutes Intellectual Property used in and/or
necessary to the conduct of the VirtualModem Business or Intellectual
Property required for the VirtualModem Products under development by Target
as of the date hereof.
(f) On or before the Effective Time, the operation of the VirtualModem
Business, including Target's design, development, use, import, manufacture
and sale of the products, technology or services (including products,
technology or services currently under development) in the VirtualModem
Business, as they exist on the date hereof and at the Effective Time: (i)
does not infringe the patent, copyright or trademark rights of any Person;
(ii) does not misappropriate the trade secrets rights of any Person; (iii)
does not violate in any material respect the rights of any Person
(including rights to privacy or publicity other than patent rights or
trademark rights described above); or (iv) does not constitute unfair
competition or an unfair trade practice under any Law. Neither Target nor
Target Subsidiary has received notice from any Person claiming that such
operation or any act, product, technology or service (including products,
technology or services currently under development) of Target infringes or
misappropriates the Intellectual Property of any Person or constitutes
unfair competition or trade practices under any Law. Except as set forth
in Section 2.11 of the Target Disclosure Schedule, there is no Order
----------------------------------------------
outstanding and no Action or Proceeding pending, finding or alleging, and
none of Target, Target Subsidiary, Source Media or Insight Communications
has any reason to believe, that any (i) product, technology, service or
publication of Target, (ii) material published
18
or distributed by Target or Target Subsidiary, or (iii) conduct or
statements of Target or Target Subsidiary, constitute material, false
advertising or otherwise violates any Law.
(g) Each item of Registered Intellectual Property of Target and Target
Subsidiary used in or necessary to the conduct of the VirtualModem Business
and/or the development, license, use, marketing and distribution of the
VirtualModem Products is valid and subsisting, and all necessary
registration, maintenance, renewal fees, annuity fees and taxes in
connection with such Registered Intellectual Property have been paid and
all necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign
jurisdictions in which such Registered Intellectual Property is registered,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property. Section 2.15A of the Target Disclosure Schedule
-----------------------------------------------
lists all actions that must be taken by the Surviving Company within one
hundred eighty (180) days from the date hereof, including the payment of
any registration, maintenance, renewal fees, annuity fees and taxes or the
filing of any documents, applications or certificates for the purposes of
maintaining , perfecting or preserving or renewing any Registered
Intellectual Property of Target and Target Subsidiary used in or necessary
to the conduct of the VirtualModem Business and/or the development,
license, use, marketing and distribution of the VirtualModem Products.
(h) There are no Contracts or Licenses between Target and any other Person with
respect to Intellectual Property of Target or Target Subsidiary under which
there is any dispute known to any Related Party regarding the scope of such
Contract or License, or performance under such Contract or License,
including any dispute with respect to any payments to be made or received
by Target or Target Subsidiary thereunder.
(i) Except as set forth on Section 2.15(i) of the Target Disclosure Schedule,
-------------------------------------------------
to the knowledge of the Related Parties, no Person is infringing or
misappropriating any Intellectual Property of Target or Target Subsidiary.
(j) Target has taken all requisite commercially reasonable steps to maintain
and preserve the confidentiality of the confidential information and trade
secrets of Target and Target Subsidiary or any similar information provided
by any other Person to Target subject to a duty of confidentiality.
Without limiting the generality of the foregoing, each Related Party has,
and enforces, a policy requiring each employee, consultant and independent
contractor to execute proprietary information, confidentiality and
invention assignment agreements. All current and former employees,
consultants and independent contractors of each Related Party have executed
such agreements. Copies of all such agreements have been provided to
Parent or made available to Parent for review.
(k) Target has taken all commercially reasonable actions necessary and
appropriate to assure that there shall be no material adverse change to its
business or electronic systems or material interruptions in the delivery of
Target's products and services by reason of computer software errors or
miscalculations associated with the advent of the year 2000, including that
all of its products (including products currently under development) will,
without interruption or manual intervention, continue to consistently,
predictably and accurately record, store, process, calculate and present
calendar dates falling on and after (and if applicable,
19
spans of time including) January 1, 2000, and will consistently,
predictably and accurately calculate any information dependent on or
relating to such dates in substantially the same manner, and with the same
functionality, data integrity and performance, as such products record,
store, process, calculate and present calendar dates on or before December
31, 1999, or calculate any information dependent on or relating to such
dates.
2.16 Contracts.
---------
(a) Section 2.16A of the Target Disclosure Schedule contains a true and
-----------------------------------------------
complete list of each of Target's and Target Subsidiary's Contracts that
are material to Target's business, operations or financial condition (true
and complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto
and all waivers of any terms thereof, have been made available to Parent
prior to the execution of this Agreement) and that are used in or necessary
to VirtualModem Business. Such Contracts shall include any license of any
patent, copyright, trade secret or other proprietary right to or from
Target or Target Subsidiary, and Contract for or affecting the development,
manufacture or distribution of Target's products and services and any
Contract relating to a joint venture, strategic alliance or similar
arrangement. Section 2.16C of the Target Disclosure Schedule contains a
-----------------------------------------------
true and complete list of each Contract to which a Related Party (other
than Target) is a party that is used in or necessary to the VirtualModem
Business. The Holders (A) if reasonably requested by Target, shall use
their commercially reasonable best efforts to assign each such Contract to
Target or, (B), if the Holders are unable to assign any such Contract to
Target after using such commercially reasonable best efforts, shall use
their commercially reasonable best efforts to provide Target with the
benefit of such Contract. Section 2.16B of the Target Disclosure Schedule
-----------------------------------------------
contains a true and complete list of each of Target's and Target
Subsidiary's Contracts that are not used in or necessary to the
VirtualModem Business, which will be assigned to Other Assets Company on or
before the Closing. Section 2.16D of the Target Disclosure Schedule
-----------------------------------------------
contains a true and complete list of each Contract to which Source Media or
any of its subsidiaries is a party that are not used in or necessary to the
Virtual Modem Business. Section 2.16 of the Target Disclosure Schedule
----------------------------------------------
contains a true and complete list of each Contract of Target and Target
Subsidiary not terminable by Target or Target Subsidiary upon 30 days (or
less) notice by Target or Target Subsidiary without penalty or obligation
to make payments based on such termination.
(b) Except as otherwise disclosed in Section 2.16 of the Target Disclosure
-------------------------------------
Schedule, each Contract required to be disclosed in Section 2.16 of the
-------- -------------------
Target Disclosure Schedule is in full force and effect and constitutes a
--------------------------
legal, valid and binding agreement of Target or Target Subsidiary,
enforceable against Target or Target Subsidiary in accordance with its
terms (subject to the effect of bankruptcy and other laws affecting the
rights of creditors generally and limitations on the enforcement of
contracts under principles of equity), and, to the knowledge of Target,
Target Subsidiary, Source Media and/or Insight Communications, each other
party thereto (subject to the effect of bankruptcy and other laws affecting
the rights of creditors generally and limitations on the enforcement of
contracts under principles of equity), and, to the knowledge of Target,
Target Subsidiary, Source Media and/or Insight Communications, no other
party to such Contract is, nor has received notice that it is, in material
violation or breach of or default under any such Contract (or with notice
or lapse of time or both, would be in material violation or breach of or
default under any such Contract).
20
(c) Neither Target nor Target Subsidiary is a party to or bound by any Contract
that (i) is material to Target's business and automatically terminates or
allows termination by the other party thereto upon consummation of the
transactions contemplated by this Agreement or (ii) contains any covenant
or other provision which limits Target's or Target Subsidiary's ability to
compete with any Person in any line of business or in any area or
territory.
2.17 Insurance. Target and Target Subsidiary have policies of insurance and
---------
bonds of the type and in amounts customarily carried by companies conducting
businesses or owning assets similar to those of Target and Target Subsidiary.
There is no material claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds. All premiums due and payable under all such policies
and bonds have been paid and Target and Target Subsidiary are otherwise in
compliance with the terms of such policies and bonds. Neither Target nor Target
Subsidiary have knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.18 Affiliate Transactions. Except as disclosed in Section 2.8(f) or 2.18(a)
---------------------- -------------------------
of the Target Disclosure Schedule, and except invention assignment or
---------------------------------
confidentiality agreements in favor of Target or Target Subsidiary, (i) there
are no Contracts or Liabilities between Target or Target Subsidiary, on the one
hand, and (A) any current or former officer, director, stockholder, or to the
knowledge of Target, Target Subsidiary, Source Media and Insight Communications,
any Affiliate or Associate of Target (including any other Related Party) or (B)
any Person who, to the knowledge of any Related Party, is an Associate of any
such officer, director, stockholder or Affiliate, on the other hand, (ii)
neither Target nor Target Subsidiary provides or causes to be provided any
assets, services or facilities to any such current or former officer, director,
stockholder, Affiliate or Associate, (iii) except pursuant to the Target LLC
Agreement, none of any Related Party or any current or former officer, director,
stockholder, Affiliate or Associate of any Related Party provides or causes to
be provided any assets, services or facilities to Target or Target Subsidiary
and (iv) neither Target nor Target Subsidiary beneficially owns, directly or
indirectly, any Investment Assets of any such current or former officer,
director, stockholder, Affiliate or Associate.
2.19 Employees; Labor Relations.
--------------------------
(a) Neither Target nor Target Subsidiary employs any Persons or has any
employees. Except as set forth on Section 2.19(a) of the Target Disclosure
----------------------------------------
Schedule, all employees of the VirtualModem Business are employed by
--------
Interactive Channel Technologies Inc. (the "VirtualModem Employer").
(b) The VirtualModem Employer is not party to any collective bargaining
agreement and there is no unfair labor practice or labor arbitration
proceedings pending with respect to Target or Target Subsidiary, or, to the
knowledge of any Related Party, threatened, and there are no facts or
circumstances known to Target, Target Subsidiary, Source Media and/or
Insight Communications that could reasonably be expected to give rise to
such complaint or claim. To the knowledge of Target, Target Subsidiary,
Source Media and/or Insight Communications, there are no organizational
efforts presently underway or threatened involving any employees of the
VirtualModem Employer or any of the employees performing work for
21
Target or Target Subsidiary but provided by an outside employment agency,
if any. There has been no work stoppage, strike or other concerted action
by employees of the VirtualModem Employer.
(c) Except as set forth on Section 2.19(c) of the Target Disclosure Schedule,
all employees of the VirtualModem Employer providing services to Target and
Target Subsidiary are employed at will. Section 2.19(c) of the Target
-----------------------------
Disclosure Schedule sets forth, individually and by category, the name of
-------------------
each officer, employee and consultant, together with such person's position
or function. The annual base salary or wage and any incentive, severance
or bonus arrangements with respect to each person set forth in Section 2.19
------------
of the Target Disclosure Schedule has been provided to Parent. To the
---------------------------------
knowledge of any Related Party, no employee of the VirtualModem Employer
providing services to or on behalf of Target or Target Subsidiary has made
any threat, or otherwise revealed an intent, to terminate such employee's
relationship with the VirtualModem Employer, for any reason, including
because of the consummation of the transactions contemplated by this
Agreement. Neither Target nor Target Subsidiary is a party to any
agreement for the provision of labor from any outside agency. To the
knowledge of any Related Party, there have been no claims by employees of
such outside agencies, if any, with regard to employees assigned to work
for Target or Target Subsidiary, and no claims by any governmental agency
with regard to such employees except as set forth in Section 2.19(c) of the
----------------------
Target Disclosure Schedule.
--------------------------
(d) There have been no federal or state claims based on sex, sexual or other
harassment, age, disability, race or other discrimination or common law
claims, including claims of wrongful termination, by any employees
providing services to or on behalf of Target or Target Subsidiary or by any
of the employees performing work for the VirtualModem Employer but provided
by an outside employment agency, and there are no facts or circumstances
known to any Related Party that could reasonably be expected to give rise
to such complaint or claim. Target, Target Subsidiary and the VirtualModem
Employer have complied in all material respects with all laws related to
the employment of employees and, except as set forth in Section 2.19(d) of
------------------
the Target Disclosure Schedule, none of Target, Target Subsidiary or the
------------------------------
VirtualModem Employer has received any notice of any claim that it has not
complied in any material respect with any Laws relating to the employment
of employees, including any provisions thereof relating to wages, hours,
collective bargaining, the payment of Social Security and similar taxes,
equal employment opportunity, employment discrimination, the WARN Act,
employee safety, or that it is liable for any arrearages of wages or any
taxes or penalties for failure to comply with any of the foregoing.
(e) None of Target, Target Subsidiary or the VirtualModem Employer has written
policies and/or employee handbooks or manuals except as described in
Section 2.19(e) of the Target Disclosure Schedule.
-------------------------------------------------
(f) To the knowledge of any Related Party, no officer, employee or consultant
of or providing service to or on behalf of Target or Target Subsidiary is
obligated under any Contract or other agreement or subject to any Order or
Law that would interfere with Target's or Target Subsidiary's business as
currently conducted. To the knowledge of any Related Party, none of the
execution, delivery or performance by any Related Party of this Agreement
or any Ancillary Agreement to which it is a party, nor the carrying on of
Target's or
22
Target Subsidiary's business as presently conducted nor any activity of
such officers, employees or consultants in connection with the carrying on
of Target's or Target Subsidiary's business as presently conducted, will
conflict with or result in a breach of the terms, conditions or provisions
of, constitute a default under, or trigger a condition precedent to any
rights under, any Contract or other agreement under which any of such
officers, employees or consultants is now bound.
(g) Target, Target Subsidiary and the VirtualModem Employer have complied in
all material respects with the verification requirements and the record-
keeping requirements of the Immigration Reform and Control Act of 1986
("IRCA"); to the best knowledge of Target, Target Subsidiary, Source Media
and Insight Communications, the information and documents on which Target
and Target Subsidiary relied to comply with IRCA are true and correct; and
there have not been any discrimination complaints filed against Target,
Target Subsidiary or the VirtualModem Employer pursuant to IRCA, and to the
best knowledge of Target, Target Subsidiary, Source Media and Insight
Communications, there is no basis for the filing of such a complaint.
2.20 Environmental Matters.
---------------------
(a) Target and Target Subsidiary possess all Environmental Permits required for
the operation of their business. Target will obtain, prior to the Closing,
all Environmental Permits that must be obtained as of or immediately after
the Closing in order for Merger Sub, the Surviving Company and/or Target to
conduct the business of Target as it was conducted prior to the Closing.
(b) Target and Target Subsidiary are in compliance in all material respects
with (i) all terms, conditions and provisions of its Environmental Permits;
and (ii) all Environmental Laws.
(c) None of Target or Target Subsidiary or, to the knowledge of any Related
Party, any predecessor of Target or Target Subsidiary nor any entity
previously owned by Target or Target Subsidiary has any obligation or
liability with respect to any Hazardous Material, including any Release or
threatened or suspected Release of any Hazardous Material, and there have
been no events, facts or circumstances since the date of formation of
Target or incorporation of Target Subsidiary, which could reasonably be
expected to form the basis of any such obligation or liability. Neither
Target or Target Subsidiary nor, to the knowledge of any Related Party, any
predecessor of Target nor any entity previously owned by Target has
received any notice of alleged, actual or potential responsibility for, or
any inquiry regarding, (i) any Release or threatened or suspected Release
of any Hazardous Material, or (ii) any violation of Environmental Law.
(d) No Releases of Hazardous Material(s) have occurred at, from, in, to, on, or
under any Site while Target has occupied the Site and, to Target's
knowledge, no Hazardous Material is present in, on, about or migrating to
or from any Site. There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by or for Target or
Target Subsidiary or, to the knowledge of Target, Target Subsidiary, Source
Media and/or Insight Communications, by or for any Other Person with
respect to any Site while Target or Target Subsidiary has occupied the
Site, which have not been delivered to Parent prior to
23
execution of this Agreement. The Site has not been listed or proposed to be
listed as an Environmental Clean-up Site.
2.21 Other Negotiations; Brokers; Third Party Expenses. No Related Party nor,
-------------------------------------------------
to the knowledge of any Related Party, any of their Affiliates (nor any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of Target or at Target's direction) (a)
has entered into any Contract that conflicts with any of the transactions
contemplated by this Agreement or the Ancillary Agreements or (b) has entered
into any Contract or had any discussions with any Person regarding any
transaction involving Target which could reasonably be expected to result in any
Related Party in or any general partner, limited partner, manager, officer,
director, employee, agent or Affiliate of any of them being subject to any claim
for liability to said Person as a result of entering into this Agreement or
consummating the transactions contemplated hereby. There is no Contract with
respect to Third Party Expenses expected to be incurred by Target in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement, the Ancillary Agreements and the transactions contemplated hereby and
thereby, including any fee or commission payable to any broker, investment
broker, finder or financial advisor in connection with this Agreement and the
transactions contemplated hereby.
2.22 Foreign Corrupt Practices Act. Neither Target, Target Subsidiary, nor to
-----------------------------
the knowledge of any Related Party, any agent, employee or other Person acting
on behalf of Target or Target Subsidiary has, directly or indirectly, used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity, made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds, violated any provision of
the Foreign Corrupt Practices Act of 1977, as amended, or made any bribe,
rebate, payoff, influence payment, kickback or other similar unlawful payment.
2.23 Approvals.
---------
(a) Section 2.23(a) of the Target Disclosure Schedule contains a list of all
-------------------------------------------------
material Approvals of Governmental or Regulatory Authorities relating to
the business conducted by Target (including the VirtualModem Business)
which are required to be given to or obtained by Target prior to the
Closing from any and all Governmental or Regulatory Authorities in
connection with the consummation of the transactions contemplated by this
Agreement.
(b) Section 2.23(b) of the Target Disclosure Schedule contains a list of all
-------------------------------------------------
material Approvals which are required to be given to or obtained by Target
prior to Closing from any and all third parties other than Governmental or
Regulatory Authorities in connection with the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
(c) Target has obtained all material Approvals from Governmental or Regulatory
Authorities necessary to conduct the business conducted by Target
(including the VirtualModem Business) in the manner as it is currently
being conducted and there has been no written notice received by Target of
any material violation or material non-compliance with any such Approvals.
All material Approvals from Governmental or Regulatory Authorities
24
necessary to conduct the business conducted by Target as it is currently
being conducted are set forth in Section 2.23(c) of the Target Disclosure
----------------------------------------
Schedule.
--------
(d) The affirmative vote or consent of the holders of the Target Units
outstanding as of the applicable record date is the only vote of the
holders of any of Target capital ownership interests necessary to approve
this Agreement and the Merger and the transactions contemplated hereby.
2.24 Disclosure. No representation or warranty contained in Article 2 of this
---------- ---------
Agreement, and no statement contained in the Target Disclosure Schedule or in
any certificate, list or other writing furnished to Parent pursuant to any
provision of this Agreement (including Target Financials and the notes thereto)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the representations and warranties of Target and Target
Subsidiary in Article 2 (as modified by the Target Disclosure Schedule), in the
---------
light of the circumstances under which they were made, not misleading.
2.25 Permit Application; Information Statement. The information supplied in
-----------------------------------------
writing to Parent, or its counsel or auditors, by Target and Holders for
inclusion in the application for issuance of a California Permit pursuant to
which the shares of Parent Common Stock to be issued in the Merger under the
California Code (the "Permit Application") shall not, at the time the fairness
------------------
hearing is held pursuant to Section 25142 of the California Code and the time
the qualification of such securities is effective under Section 25122 of the
California Code contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The information supplied by Target and Holders for
inclusion in any information statement to be sent to the holders of Target Units
in connection with such holders' consideration of the Merger (the "Target Units
------------
Holders Action") (such information statement as amended or supplemented is
--------------
referred to herein as the "Information Statement") shall not, on the date the
---------------------
Information Statement is first mailed to holders of Target Units, at the time of
the Target Units Holders Action and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they are made, not false
or misleading; or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the Target Units Holders
Action which has become false or misleading. Notwithstanding the foregoing,
Target makes no representation, warranty or covenant with respect to any
information supplied by Parent or Merger Sub that is contained in the Permit
Application or the Information Statement.
2.26 Investment Advisors. Except as set forth in Section 2.26 of the Target
------------------- --------------------------
Disclosure Schedule, no broker, investment banker, financial advisor or other
-------------------
Person is entitled to any broker's, finder's, financial advisor's or similar fee
or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of Target.
25
2.27 Due Diligence. The Company has delivered or made available true and
-------------
complete copies of each material document (to the extent such documents exist),
or true and complete summaries thereof, requested by Parent in writing prior to
the date of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally hereby represent and
warrant to Related Parties, subject to such exceptions as specifically disclosed
with respect to specific sections of this Article 3 in the Parent disclosure
---------
schedule (the "Parent Disclosure Schedule") delivered herewith and which shall
--------------------------
become a part hereof, dated as of the date hereof, and numbered with
corresponding numbered and lettered sections and subsections, as follows
3.1 Organization and Qualification. Parent is a corporation and Merger Sub is
------------------------------
a limited liability company, each duly organized, validly existing and in good
standing under the Laws of the State of Delaware. Each of Parent and Merger Sub
has all requisite corporate power and authority to conduct its business as now
conducted and as currently proposed to be conducted and to own, use and lease
its Assets and Properties. Each of Parent and Merger Sub is duly qualified,
licensed or admitted to do business and is in good standing in each jurisdiction
in which the ownership, use, licensing or leasing of its Assets and Properties,
or the conduct or nature of its business, makes such qualification, licensing or
admission necessary, except for such failures to be so duly qualified, licensed
or admitted and in good standing that could not reasonably be expected to have a
Material Adverse Effect on Parent.
3.2 Authority Relative to this Agreement. Each of Parent and Merger Sub has
------------------------------------
full corporate power and authority to execute and deliver this Agreement and the
Ancillary Agreements, to perform its respective obligations hereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery by Parent and Merger Sub of this Agreement and the Ancillary Agreements
to which Parent or Merger Sub is a party and the consummation by Parent and
Merger Sub of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action of Parent and Merger
Sub, and no other corporate action on the part of either Parent or Merger Sub is
required to authorize the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which Parent or Merger Sub is a party and the
consummation by Parent and Merger Sub of the transactions contemplated hereby
and thereby. This Agreement and the Ancillary Agreements to which Parent or
Merger Sub is a party has been duly and validly executed and delivered by Parent
and, assuming the due authorization and the valid execution and delivery hereof
by Target, constitutes a legal, valid and binding obligation of Parent and
Merger Sub enforceable against Parent and Merger Sub in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity. The Parent Common Stock issued to the
Holders pursuant to Section 1.5 hereof, when issued to the Holders subject to
the terms and conditions of this Agreement, shall be duly and validly
authorized, validly issued and fully paid and nonassessable.
26
3.3 SEC Documents; Parent Financial Statements. Parent has furnished or made
------------------------------------------
available to Target true and complete copies of all SEC Documents filed by it
with the SEC since July 28, 1999, all in the form so filed. Parent has timely
filed all SEC Documents required to be filed by it since such date. As of the
respective filing dates, such SEC Documents filed by Parent and all SEC
Documents filed after the date hereof but before the Closing complied or will
comply in all material respects with the requirements of the Securities Act and
the Exchange Act and the rules and regulations of the SEC thereunder, as the
case may be, and none of the SEC Documents contained or will contain any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent such
SEC Documents have been corrected, updated or superseded by a document
subsequently filed with the SEC. The financial statements of Parent, including
the notes thereto, included in the SEC Documents (the "Parent Financial
----------------
Statements") comply as to form in all material respects with the published rules
----------
and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP consistently applied (except as may be indicated in the
notes thereto, or in the case of unaudited statements, as permitted by Form 10-Q
under the Exchange Act) and present fairly the consolidated financial position
of Parent at the dates thereof and the consolidated results of its operations
and cash flows for the period then ended (subject, in the case of unaudited
financial statements, to normal year-end adjustments). There has been no change
in Parent's accounting policies except as described in the notes to the Parent
Financial Statements. Except as reflected or reserved against in the Parent
Financial Statements, Parent has no material Liabilities, except for Liabilities
and obligations (i) incurred in the ordinary course of business consistent with
past practice since the date of the most recent Parent Financial Statements or
(ii) that would not be required to be reflected or reserved against in the
balance sheet of Parent prepared in accordance with GAAP.
3.4 No Conflicts. The execution and delivery by Parent and Merger Sub of this
------------
Agreement does not, and the performance by Parent of its obligations under this
Agreement and the consummation of the transactions contemplated hereby do not
and will not:
(a) conflict with or result in a violation or breach of any of the terms,
conditions or provisions of the Certificate of Incorporation or Bylaws of
Parent or the Certificate of Formation of Merger Sub;
(b) conflict with or result in a violation or breach of any Law or Order
applicable to Parent or Merger Sub or their respective Assets or
Properties;
(c) except as would not have a Material Adverse Effect on Parent, (i) conflict
with or result in a violation or breach of, (ii) constitute a default (or
an event that, with or without notice or lapse of time or both, would
constitute a default) under, (iii) require Parent to obtain any consent,
approval or action of, make any filing with or give any notice to any
Person as a result of the terms of, (iv) result in or give to any Person
any right of termination, cancellation, acceleration or modification in or
with respect to, (v) result in or give to any person any additional rights
or entitlement to increased, additional, accelerated or guaranteed payments
or performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any material Lien upon Parent or any of
their respective material Assets or Properties, or (vii) result in the loss
of a material benefit under, any of the terms, conditions or provisions of
27
any Contract or License to which Parent is a party or by which any of their
material Assets and Properties are bound.
3.5 Information to be Supplied by Parent. The information supplied by Parent
------------------------------------
and Merger Sub for inclusion in the Permit Application shall not, at the time
the fairness hearing is held pursuant to Section 25142 of the California Code
and the time the qualification of such securities is effective under Section
25122 of the California Code, contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were mad, not
misleading. The information supplied by Parent for inclusion in the Information
Statement shall not, on the date the Information Statement is first mailed to
holders of Target Units, at the time of the Target Units Holders Action and at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the Target Units Holders Action which has become
false or misleading. Notwithstanding the foregoing, Parent and Merger Sub make
no representation, warranty or covenant with respect to any information supplied
by Target that is contained any of the foregoing documents.
3.6 Ownership of Merger Sub; No Prior Activities. As of the date hereof and
--------------------------------------------
the Effective Time, except for obligations or Liabilities incurred in connection
with its incorporation or organization and the transactions contemplated by this
Agreement and except for this Agreement and any other agreements or arrangements
contemplated by this Agreement, Merger Sub has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any obligations or
liabilities or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any Person other than in
connection with the Merger.
3.7 Investment Advisors. Except as set forth in Section 3.7 of the Disclosure
------------------- -----------------------------
Schedule, no broker, investment banker, financial advisor or other Person is
--------
entitled to any broker's, finder's, financial advisor's or similar fee or
commission in connection with this Agreement and the transactions contemplated
hereby based on arrangements made by or on behalf of Parent.
3.8 Third Party Consents. Neither Parent nor Merger Sub is required to obtain
--------------------
from any third party any consent, waiver or approval for the consummation of the
Merger (other than consents which will be obtained at or prior to the Closing
and consents, the absence of which could not reasonably be expected to have a
Material Adverse Effect on Parent or to prevent the consummation of the
transactions contemplated by this Agreement).
28
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Information Statement; Permit Application.
-----------------------------------------
(a) As soon as practicable after the execution of this Agreement, Target shall
prepare, with the cooperation of Parent, the Information Statement for the
holders of Target Units to approve this Agreement and the transactions
contemplated hereby. The Information Statement shall constitute a
disclosure document for the offer and issuance of the shares of Parent
Common Stock to be received by the holders of Target Units in the Merger.
Parent and Target shall each use reasonable commercial efforts to cause the
Information Statement to comply with applicable federal and state
securities laws requirements. Each of Parent and Target agrees to provide
promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for
inclusion in the Information Statement, or in any amendments or supplements
thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Information
Statement. Target will promptly advise Parent, and Parent will promptly
advise Target, in writing if at any time prior to the Effective Time either
Target or Parent shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Information Statement
in order to make the statements contained or incorporated by reference
therein not misleading or to comply with applicable law. The Information
Statement shall contain the recommendation of the Target Management
Committee that the holders of the Target Units approve the Merger and this
Agreement and the conclusion of the Target Management Committee Board that
the terms and conditions of the Merger are advisable and fair and
reasonable to the holders of the Target Units. Anything to the contrary
contained herein notwithstanding, Target shall not include in the
Information Statement any information with respect to Parent or its
affiliates or associates, the form and content of which information shall
not have been approved by Parent prior to such inclusion.
(b) As soon as practicable after the execution of this Agreement, and subject
to Section 4.1(a), Parent shall prepare, with the cooperation of Target,
the Permit Application. Parent and Target shall each use commercially
reasonable efforts to cause the Permit Application to comply with the
requirements of applicable federal and state laws. Each of Parent and
Target agrees to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable
judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the Permit Application, or in any amendments
or supplements thereto, and to cause its counsel and auditors to cooperate
with the other's counsel and auditors in the preparation of the Permit
Application. Target will promptly advise Parent, and Parent will promptly
advise Target, in writing if at any time prior to the Effective Time either
Target or Parent shall obtain knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Permit Application in
order to make the statements contained or incorporated by reference therein
not misleading or to comply with applicable law. Anything to the contrary
contained herein notwithstanding, Parent shall not include in the Permit
Application any information with respect to Target or its affiliates or
associates, the form and content of which information shall not have been
approved by Target prior to such inclusion.
29
(c) In the event that the California Permit cannot be obtained by March 10,
2000, Parent shall effect the issuance of the shares of Parent Common Stock
to be issued pursuant to Section 1.6 in a private placement pursuant to
-----------
Section 4(2) of the Securities Act. The parties hereto acknowledge and
agree that in such event: (i) in accordance with Section 1.8, Parent will
------------
at Closing deliver to Source Media Fifteen Million Dollars ($15,000,000) in
cash and the Maximum Share Number shall be adjusted accordingly; (ii) as a
condition to effecting such issuance as a private placement pursuant to
Section 4(2) of the Securities Act, Parent shall be entitled to obtain from
each Holder of Target Units a Certificate in form and substance to be
agreed upon by Parent and Holders and to be set forth as Exhibit C (or such
----------
other form as shall be reasonably satisfactory to Parent) and that Parent
will be relying upon the representations made by each Holder of Target
Units in the applicable Certificate in connection with the issuance of
Parent Common Stock to such Holder; (iii) at the Closing, Parent and the
Holders shall execute and deliver the Registration Rights Agreement in form
and substance to be agreed upon by Parent and Holders, providing that the
Holders shall be granted a demand registration right on a Form S-3
registration statement under the Securities Act exercisable by the Holders
at any time on and after July 28, 2000 and before eighteen (18) months
following the Closing Date, and to be set forth as Exhibit A-4; (iv) the
-----------
shares of Parent Common Stock so issued pursuant to Section 1.6 will not
-----------
upon issuance be registered under the Securities Act and will constitute
"restricted securities" within the meaning of the Securities Act; and (v)
the certificates representing shares of Parent Common Stock shall bear
appropriate legends to identify such privately placed shares as being
restricted under the Securities Act, to comply with applicable state
securities laws and, if applicable, to notice the restrictions on transfer
of such shares.
4.2 Target Units Holders Approval. As soon as practicable following the
-----------------------------
execution and delivery of this Agreement, Target shall give written notice of
this Agreement to all holders of Target Units and shall use commercially
reasonable efforts to take all other action necessary in accordance with
Delaware Law (and, if applicable, the California Code) and its Certificate of
Formation and Target LLC Agreement to secure the written consent of holders of
Target Units. Subject to Section 4.1, Target shall take all lawful action
necessary or advisable to secure the vote or consent of holders of Target Units
required to effect the Merger. The materials submitted to the holders of Target
Units in respect of the Merger shall have been subject to prior review and
comment by Parent and shall include information regarding Target, the terms of
the Merger and this Agreement, the unanimous recommendation of the Target
Management Committee in favor of the Merger, this Agreement and the transactions
contemplated hereby and such other documents (including the Stockholder
Certificate) in order to satisfy the applicable requirements of the Securities
Act in connection with the issuance and sale of Parent Common Stock in the
Merger. Each Holder agrees to enter into a Support Agreement in the form
attached hereto as Exhibit 4.2 immediately upon request by Parent.
-----------
4.3 Access to Information. Between the date of this Agreement and the earlier
---------------------
of the Effective Time or the termination of this Agreement, upon reasonable
notice Target shall (i) provide Parent, Merger Sub and their respective
officers, managers, employees, accountants and counsel full access during normal
business hours to all buildings, offices, and other facilities and to all its
Books and Records of Target and Target Subsidiary, whether located on its
premises or at another location; (ii) permit Parent and Merger Sub to make such
inspections as they may reasonably require; (iii) cause its officers to furnish
Parent and Merger
30
Sub such financial, operating, technical and product data and other information
with respect to its business and Assets and Properties of Target and Target
Subsidiary as Parent and Merger Sub from time to time may reasonably request,
including financial statements and schedules; (iv) allow Parent and Merger Sub
the opportunity to interview such employees and other personnel and Affiliates
Target and Target Subsidiary with Target's prior written consent, which consent
shall not be unreasonably withheld or delayed; and (v) assist and cooperate with
Parent and Merger Sub in the development of integration plans for implementation
by Parent and the Surviving Company following the Effective Time; provided,
however, that no investigation pursuant to this Section 4.3 shall affect or be
-----------
deemed to modify any representation or warranty made by such party herein.
4.4 Confidentiality. The parties acknowledge that Parent and Target have
---------------
previously executed a Confidentiality Agreement dated October 7, 1999 (the
"Confidentiality Agreement"), which Confidentiality Agreement shall continue in
--------------------------
full force and effect in accordance with its terms. Without limiting the
foregoing, all information furnished to Parent and its officers, employees,
accountants and counsel by Target, and all information furnished to Target by
Parent and its respective officers, employees, accountants and counsel, shall be
covered by the Confidentiality Agreement. Each of Parent and Target shall be
fully liable and responsible under the Confidentiality Agreement for any breach
of the terms and conditions thereof by their respective subsidiaries, officers,
employees, accountants and counsel.
4.5 Expenses. Whether or not the Merger is consummated, all fees and expenses
--------
incurred in connection with the Merger including all legal, accounting,
financial advisory, consulting and all other fees and expenses of third parties
("Third Party Expenses") incurred by a party in connection with the negotiation
--------------------
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such Third Party Expenses, provided, however, that Parent shall
be responsible for all filing fees associated with SEC and other regulatory
issues, as applicable, provided that filing fees will be covered for only one
filing party other than Parent in connection with a HSR filing, if any.
4.6 Public Disclosure. Unless otherwise required by Law (including federal and
-----------------
state securities laws) or, as to Parent, by the rules and regulations of the
NASD, prior to the Effective Time, no public disclosure (whether or not in
response to any inquiry) of the existence of any subject matter of, or the terms
and conditions of, this Agreement shall be made by any party hereto unless
approved by Parent and Target prior to release; provided, however, that such
approval shall not be unreasonably withheld or delayed; and provided further,
that if any such public disclosure is required by law or, as to Parent, by the
rules and regulations of the NASD, the disclosing party will give the other
party reasonable advance notice of such disclosure and, if such disclosure is
pursuant to a court order or subpoena or similar process, the disclosing party
will cooperate with the other party's efforts to seek injunctive or other relief
preventing or limiting such disclosure.
4.7 Approvals. Parent and Target shall use all commercially reasonable efforts
---------
required to obtain all Approvals from Governmental or Regulatory Authorities or
under any of the Contracts or other agreements as may be required in connection
with the Merger (all of which Approvals are set forth in either the Target
Disclosure Schedule or the Parent
31
Disclosure Schedule) so as to preserve all rights of and benefits to Target
thereunder and Parent and Target shall provide each other with such assistance
and information as is reasonably required to obtain such Approvals.
4.8 Notification of Certain Matters. Target shall give prompt notice to
-------------------------------
Parent, and Parent shall give prompt notice to Target, of (i) the occurrence or
non-occurrence of any event that is likely to cause any representation or
warranty of Target or Parent, respectively, contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Closing Date and
(ii) any failure of Target or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 4.8 shall not limit or otherwise affect any remedies available to
-----------
the party receiving such notice.
4.9 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
request of the other party hereto, shall use all requisite commercially
reasonable efforts to execute and deliver such other instruments prior to
Closing and do and perform such other acts and things (including all action
reasonably necessary to seek and obtain any and all consents and approvals of
any Government or Regulatory Authority or Person required in connection with the
Merger; provided, however, that neither party shall not be obligated to consent
to any material divestitures or operational limitations or activities in
connection therewith and no party shall be obligated to make a payment of money
as a condition to obtaining any such condition or approval) as may be necessary
or desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
4.10 NNM Listing. Parent shall cause to be authorized for listing on the NNM,
-----------
effective as of the Effective Time, all shares of Parent Common Stock to be
issued, upon official notice of issuance.
4.11 Auditors. Each party will use commercially reasonable efforts to cause
--------
its respective management and independent auditors to facilitate on a timely
basis (i) the preparation of financial statements (including pro forma financial
statements if required) to comply with applicable SEC regulations, (ii) the
review of any audit or review work papers including the examination of selected
audited financial statements and data, and (iii) the delivery of such
representations from each party's independent accountants as may be reasonably
requested by the other party or its accountants.
4.12 Benefit Arrangements. Parent and Target agree that, following the
--------------------
Effective Time, Parent will provide (or will cause Target to provide) benefits
to Target's employees as of the Effective Time that are at least as favorable,
taken as a whole, as the benefits currently provided to employees of Parent
performing functions similar to those to be performed by such Target employees
after the Effective Time.
4.13 Neither Parent nor Target shall, nor shall they permit their Subsidiaries
to, take any action or fail to take any action before or after the Effective
Time which action or failure to act would prevent, or would be reasonably likely
to prevent, the Merger from qualifying as a reorganization within the meaning of
Section 368 of the Internal Revenue Code.
32
4.14 Merger Sub was formed solely to facilitate the Merger.
4.15 Parent agrees to report the Merger, and agrees to cause Target to report
the Merger, as a reorganization within the meaning of Section 368 of the
Internal Revenue Code and to take no position inconsistent therewith and further
agrees that it will, and that it will cause Target to, report to sale of assets
by Target to the Other Assets Company as a sale of assets at the purchase price
paid for such assets by the Other Assets Company.
4.16 Merger Sub has elected, or will elect, pursuant to Treasury Regulation
Section 301.7701-3(c)(1), to be classified as a corporation for United States
federal income tax purposes effective as of the date of its formation.
4.17 All Tax Returns with respect to taxable periods ending on or before the
Effective Time required to be filed by or with respect to Target or Target
Subsidiary with any Taxing Authority after the Effective Time will be completed
and filed when due (including extensions). All such Tax Returns will be true
and complete when filed. Not later than 30 days prior to the due date
(including extensions) of each such Tax Return, Parent shall deliver a copy of
such Tax Return to the Holders. The Holders shall have an opportunity to review
and comment upon each such Tax Return and Parent will make any changes to such
Tax Return as reasonably requested by the Holders.
4.18 Noncompete.
----------
(a) In order to maximize the value of the assets acquired by Parent under this
Agreement, none of Other Assets Company, Source Media and its Affiliates
will enter into or continue the business of making, having made, using and
directly selling Generic Middleware (as defined in the Programming Services
Agreement).
(b) If all or substantially all of the assets of Other Assets Company are
acquired by, or Other Assets Company is merged into, a third party, such
third party may sell and market Generic Middleware if:
(i) the third party is selling and marketing independently developed Generic
Middleware prior to and at the time of the acquisition or merger; and
(ii) Other Assets Company provides Parent with written notice sixty (60) days
prior to such acquisition or merger to the extent practicable.
(c) This Section 4.18 shall terminate when Section 2.1(c) of the Preferred
Content Provider Agreement is no longer in effect.
ARTICLE 5
CONDITIONS TO THE MERGER
5.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
33
(a) Governmental and Regulatory Approvals. Approvals from any Governmental or
-------------------------------------
Regulatory Authority (if any) necessary for consummation of the
transactions contemplated by this Agreement shall have been timely
obtained, unless the failure to obtain such Approval could not be
reasonably expected to have a Material Adverse Effect on Parent, Target or
the Holders, and any waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(b) No Injunctions or Regulatory Restraints; Illegality. No temporary
---------------------------------------------------
restraining order, preliminary or permanent injunction or other Order
issued by any court of competent jurisdiction or Governmental or Regulatory
Authority or other legal or regulatory restraint or prohibition preventing
the consummation of the Merger shall be in effect; nor shall there be any
action taken, or any Law or Order enacted, entered, enforced or deemed
applicable to the Merger or the other transactions contemplated by the
terms of this Agreement that would prohibit the consummation of the Merger
or which would permit consummation of the Merger only if certain material
divestitures were made or if Parent were to agree to material limitations
on its business activities or operations.
(c) Target Units Holder Action. The Merger shall have been approved by the
--------------------------
requisite votes of the holders of Target Units of Target in accordance with
the DLLCA and, if applicable, the California Code.
(d) Legal Proceedings. No Governmental or Regulatory Authority shall have
-----------------
notified either party to this Agreement that such Governmental or
Regulatory Authority intends to commence proceedings to restrain or
prohibit the transactions contemplated hereby or force rescission, unless
such Governmental or Regulatory Authority shall have withdrawn such notice
and abandoned any such proceedings prior to the time which otherwise would
have been the Closing Date.
(e) Fairness Hearing and California Permit; Private Placement Alternative. The
---------------------------------------------------------------------
fairness hearing shall have been held by the Commissioner of Corporations
of the State of California and the California Permit shall have been issued
by the State of California. In the alternative, if for whatever reason the
California Permit shall not have been issued by March 10, 2000, or if a
determination shall have been made by such Commission not to issue the
California Permit, Parent shall have executed and delivered to Holders the
Registration Rights Agreement (and such Registration Rights Agreement shall
be in full force and effect upon delivery).
5.2 Additional Conditions to Obligations of Target. The obligations of Target
----------------------------------------------
to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Target:
(a) Representations and Warranties. Each of the representations and warranties
------------------------------
made by Parent and Merger Sub in this Agreement (as qualified by the Parent
Disclosure Schedule, as such may be updated at the Closing Date and prior
to the Effective Time, as provided below) shall be true and correct when
made and (other than representations and warranties which by their express
terms are made solely as of a specified earlier date) shall
34
be true and correct on and as of the Closing Date so as to not have any
Material Adverse Effect on Parent as though such representation or warranty
was made on and as of the Closing Date, and any representation or warranty
made as of a specified date earlier than the Closing Date shall be true and
correct on and as of such earlier date, provided, however, that Parent
shall have the opportunity to update its Disclosure Schedule as of the
Closing Date as necessary for their representations and warranties (other
than representations and warranties which by their express terms were made
solely as of a specified earlier date) to be true and correct in all
material respects as of the Closing Date.
(b) Performance. Parent and Merger Sub shall have performed and complied in
-----------
all material respects with each agreement, covenant and obligation required
by this Agreement to be so performed or complied with by Parent or Merger
Sub at or before the Closing.
(c) Officers' Certificates. Parent shall have delivered to Target (i) a
----------------------
certificate, dated the Closing Date and executed by the President and Chief
Executive Officer of Parent and (ii) a certificate, dated the Closing Date
and executed by the Secretary of Parent, both in form and substance to be
agreed upon by Parent and Holders and to be set forth as Exhibit D hereto.
---------
Parent shall have delivered to special tax counsel for Target a
certificate, dated as of the Closing Date and executed by an authorized
officer of Parent, in substantially the form set forth in Exhibit H hereto.
---------
(d) No Material Adverse Change. There shall have occurred no material adverse
--------------------------
change in the Business or Condition of Target or Parent since the date
hereof; provided that for purposes of this Section 5.2(d) and Sections 2.8
-------------- ------------
and 5.2(a), changes which are attributable to or result from (i) the public
----------
announcement or pendency of the transactions contemplated hereby on
customers of each party, (ii) changes in general economic conditions or
changes affecting the industry generally in which such party operates,
(iii) changes resulting from the acts or omissions of a party to this
Agreement (other than the party asserting that such changes constitutes a
material adverse change in its Business or Condition); provided, that a
reduction in the market price of a party's capital stock shall not, in and
of itself, constitute a material adverse change in the Business or
Condition of such party; (it being understood that in any controversy
concerning the applicability of this clause (d) the party claiming the
benefit of this clause (d) shall have the burden of proof with respect to
the elements of such clause).
(e) Legal Opinion. Target shall have received a legal opinion from Xxxxxxxxx
-------------
Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP, counsel to Parent, in
form and substance to be agreed upon by Parent and Holders and to be set
forth on Exhibit E hereto.
---------
(f) NNM Listing. Parent shall have caused to be authorized for listing on the
-----------
NNM, effective as of the Effective Time, all shares of Parent Common Stock
to be issued, upon official notice of issuance.
(g) Ancillary Agreements. Parent and Merger Sub shall have executed and
--------------------
delivered each Ancillary Agreement to which it is a party.
35
5.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
-----------------------------------------------------------------
obligations of Parent and Merger Sub to consummate the Merger and the other
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. Each of the representations and warranties
------------------------------
made by Target in this Agreement (as qualified by the Target Disclosure
Schedule, as such may be updated at the Closing Date and prior to the
Effective Time, as provided below) shall be true and correct when made and
(other than representations and warranties which by their express terms are
made solely as of a specified earlier date) shall be true and correct on
and as of the Closing Date so as to not have any Material Adverse Effect on
Target and Target Sub, taken as a whole, as though such representation or
warranty was made on and as of the Closing Date, and any representation or
warranty made as of a specified date earlier than the Closing Date shall be
true and correct on and as of such earlier date, provided, however, that
Target shall have the opportunity to update its Disclosure Schedule as of
the Closing Date as necessary for its representations and warranties (other
than representations and warranties which by their express terms were made
solely as of a specified earlier date) to be true and correct in all
respects as of the Closing Date.
(b) Performance. Target shall have performed and complied in all material
-----------
respects with each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by Target on or before the
Closing Date. Target shall have obtained all necessary approvals of the
Source Media Bondholders and preferred shareholders to the transactions
contemplated by this Agreement and the Ancillary Agreements.
(c) Certificates. Target shall have delivered to Parent (i) a certificate,
------------
dated the Closing Date and executed by the Target Management Committee and
(ii) a certificate, dated the Closing Date and executed by the manager of
Target, both substantially in the forms set forth in Exhibit F hereto.
---------
(d) No Material Adverse Change. There shall have occurred no material adverse
--------------------------
change in the Business or Condition of Parent since the date hereof;
provided that for purposes of this Section 5.3(d) and Section 5.3(a),
-------------- --------------
changes which are attributable to or result from (i) the public
announcement or pendency of the transactions contemplated hereby on
customers of each party, (ii) changes in general economic conditions or
changes affecting the industry generally in which such party operates,
(iii) changes resulting from the acts or omissions of a party to this
Agreement (other than the party asserting that such changes constitutes a
material adverse change in its Business or Condition); provided, that a
reduction in the market price of a party's capital stock shall not, in and
of itself, constitute a material adverse change in the Business or
Condition of such party; (it being understood that in any controversy
concerning the applicability of this clause (d) the party claiming the
benefit of this clause (d) shall have the burden of proof with respect to
the elements of such clause).
(e) Third Party Consents. Parent shall have been furnished with evidence
--------------------
satisfactory to it that Target has obtained the consents, approvals and
waivers listed in Section 2.5 of the Target Disclosure Schedule (except for
---------------------------------------------
such consents, approvals and waivers
36
the failure of which to receive could not reasonably be expected to have a
Material Adverse Effect on the Surviving Company).
(f) Legal Opinion. Parent shall have received a legal opinion from Xxxxxxxxx
-------------
Xxxxxx Xxxxxxxx Xxxxxx & Xxxxxx, P.C., legal counsel to Target, in form and
substance to be agreed upon by Parent and Holders and to be set forth on
Exhibit G hereto.
---------
(g) Ancillary Agreements. Each Related Party shall have executed and delivered
--------------------
each Ancillary Agreement to which it is a party.
(h) Employees. At least eighty percent (80%) of the employees of the
---------
VirtualModem Employer, which employees are identified on Schedule 2.19(c),
----------------
(A) shall continue to be employed by the VirtualModem Employer immediately
prior to the Closing, (B) shall have accepted employment with Parent by
executing and delivering to Parent its standard form offer letter and (C)
shall not have given any notice or other indication that they are not
willing to be employed by Parent or a Subsidiary of Parent (as Parent shall
designate), following the Merger.
ARTICLE 6
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS
6.1 Survival of Representations, Warranties, Covenants and Agreements.
-----------------------------------------------------------------
Notwithstanding any right of Parent, Merger Sub or Target (whether or not
exercised) to investigate the affairs of Parent, Merger Sub or Target or a
waiver by Parent or Target of any condition to Closing set forth in Article 5,
---------
each party shall have the right to rely fully upon the representations,
warranties, covenants and agreements of the other party contained in this
Agreement or in any instrument delivered pursuant to this Agreement. The
representations and warranties of Target relating to the ownership of Target
Intellectual Property shall survive the Merger for a period of two (2) years.
All other representations and warranties of Target and all of the
representations and warranties of Parent shall survive the Merger for a period
of one (1) year. None of the other covenants and agreements of Target and
Parent, which by their terms are to be performed on or prior to the Closing
Date, shall survive after the Merger.
6.2 Indemnification by the Holder Indemnitors. Each of Source Media, Insight
-----------------------------------------
Interactive and Insight Communications (the "Holder Indemnitors") shall
------------------
indemnify Parent, Merger Sub and the Surviving Company and any employee,
director, officer or agent (the "Indemnified Parties") of each of them against,
-------------------
hold each of them harmless from, and reimburse each of them for any claim,
costs, loss, liability or expense (including reasonable attorneys' fees and
expenses) or other damage (including, without limitation, expectation, actual,
punitive and consequential damages) (collectively, "Damages") arising, directly
-------
or indirectly, from or in connection with: (a) any inaccuracy in or breach of
any of the representations or warranties of Target, Target Subsidiary or the
Holders in this Agreement, (b) any failure by Target, Target Subsidiary or the
Holders to perform or comply with any covenant or obligation in this Agreement,
(c) any Third Party Claim relating to an inaccuracy or failure referred to in
clause (a) or (b) above, (d) except as provided in Section 2.11 of the Target
--------------------------
Disclosure Schedule with respect to the Worldgate Litigation, any liability
-------------------
incurred by Parent or any of its Affiliates
37
relating to the Litigation and (e) any assets, including contract rights,
transferred from Target to Other Assets Company prior to the Closing and any
liabilities of Target assumed by the Other Assets Company prior to the Closing.
In addition, to the extent that any representation or warranty of Target, Target
Subsidiary, or the Holders is qualified, limited or subject to a materiality or
other standard or threshold, such as "to the knowledge of", "the best of the
knowledge of" or by the condition that such representation, warranty, covenant
or agreement would not, or is not or are not expected to "have a Material
Adverse Effect" or by any other similar qualification or limitation (whether
such qualification or limitation, standard or threshold is set forth therein or
under applicable law pertaining to another document to which reference is made
herein), then for all purposes of this Section 6.2 and the indemnification
-----------
obligation imposed hereunder, such disclosure, representation or warranty shall
be deemed to have been made without such limitation, qualification, material
adverse effect standard or other similar standard or threshold, with it being
the intent of the parties that the Indemnified Parties be fully indemnified
hereunder for any Damages incurred by such party without regard to the
qualification, limitation, standard or threshold set forth in the disclosure,
representation or warranty. No claim for Damages shall be made until the
cumulative amount of the Damages exceeds One Hundred Thousand Dollars
($100,000), at which point claim may be made for the entire amount of the
incurred Damages.
6.3 Market Stand-Off. Each Holder hereby agrees that it will not during the
----------------
period commencing on the Effective Time and ending on July 31, 2000, (i) lend,
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, eighty
percent (80%) of the shares of Parent Common Stock acquired by Holder pursuant
to the Merger or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
eighty percent (80%) of the shares of Parent Common Stock acquired by Source
Media or Insight Interactive pursuant to the Merger, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Parent Common Stock or such other securities, in cash or otherwise, provided
that Source Media may grant a security interest and pledge in respect of such
Parent Common Stock for the benefit of the Source Media Bondholders, provided
further that such pledge(s) shall be subject to the restrictions of this Section
6.3.
6.4 Limitation of Liability. The aggregate liability of each of Source Media,
-----------------------
Insight Interactive and Insight Communications in respect of their obligations
under this Agreement and the Ancillary Agreements shall be limited to an amount
equal to the sum of (i) the amount of proceeds (net of sales commissions,
---
discounts and brokerage fees) from any sale of Parent Common Stock by such party
(or its Affiliates) issued pursuant to Section 1.5 hereof that occurs prior to
the close of business on the date such liability is determined (the
"Determination Date"), without regard to any use or application of such
proceeds, and (ii) in the case of Parent Common Stock held by such party or its
Affiliates issued pursuant to Section 1.5 hereof and held at the close of
business on the Determination Date, the lesser of (A) the fair market value of
such stock, based on the closing sale price of such stock on the Determination
Date, or (B) the net proceeds from the sale of such stock during the thirty (30)
days following the Determination Date when such stock is both publicly traded
and traded on the Nasdaq National Market or on established trading exchange,
minus the amount of any liability of such party (or its Affiliate) for any such
-----
obligations that have already been paid by such party (or its Affiliate).
38
Except for obligations arising under the Programming Services Agreement, any
such obligations shall terminate on the second anniversary of the Closing Date.
Except as provided in the following sentence, any such obligations arising under
the Programming Services Agreement shall terminate in accordance with the
Programming Services Agreement. Notwithstanding any other provision hereof,
this Section 6.4 shall not apply to the obligations of Source Media arising
under the Programming Services Agreement.
ARTICLE 7
CONDUCT PRIOR TO THE EFFECTIVE TIME
7.1 Conduct of Business.
-------------------
(a) During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement and the Effective Time, Target
and Parent each agree (unless such party receives prior consent in writing
from the other party, which consent shall not be unreasonably withheld) to
carry on its business in the ordinary and usual course and consistent with
its past practices, to pay its Liabilities and Taxes consistent with its
past practices (and in any event when due), to pay or perform other
obligations when due consistent with its past practices (other than
Liabilities, Taxes and other obligations, if any, contested in good faith
through appropriate proceedings), and, to the extent consistent with such
business, to use commercially reasonable efforts to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees, independent contractors and
other Persons having business dealings with it, all with the express
purpose and intent of preserving unimpaired its goodwill and ongoing
businesses at the Effective Time.
(b) Without limiting Section 7.1(a), and except as otherwise specifically
provided in this Agreement, Target shall not, without the prior written
consent of Parent, which consent shall not be unreasonably withheld, take,
or agree in writing or otherwise to take, any of the actions described in
Section 2.8 of this Agreement, or any other action that would make any of
-----------
its representations or warranties contained in this Agreement untrue or
incorrect in any material respect or prevent Target from performing or
cause Target not to perform its agreements and covenants hereunder.
7.2 No Solicitation.
---------------
(a) Until the earlier of the Effective Time and the date of termination of this
Agreement pursuant to the provisions of Section 8.1 hereof, Target will not
-----------
take (and since December 1, 1999, inclusive, neither Target nor Target
Subsidiary has taken), nor will Target permit (and since December 1, 1999
inclusive has not permitted) any of its members, managers, agents,
employees, affiliates, attorneys, accountants, financial advisers or other
representatives (collectively, "Representatives") to (directly or
---------------
indirectly): (i) solicit, encourage, initiate, entertain, review or
participate in any negotiations or discussions with respect to an offer or
proposal, oral, written, or otherwise, formal or informal to acquire all or
any part of the VirtualModem Business or the VirtualModem Products, whether
by purchase of assets, exclusive license, joint venture formation, purchase
of stock, business combination or otherwise, (ii) disclose any information
not customarily disclosed to any Person concerning Target as such
39
information relates to the VirtualModem Business and which Target believes
would be used for the purposes of formulating any such offer or proposal,
(iii) assist, cooperate with, facilitate or encourage any Person to make
any offer or proposal to acquire all or any substantial portion of the
VirtualModem Business or the VirtualModem Products (directly or
indirectly), (iv) agree to, enter into a contract regarding, approve,
recommend or endorse any transaction involving the acquisition of all or
any part of Target (a "Acquisition Proposal"), or (v) authorize or permit
--------------------
any of Target's Representatives to take any such action. Target shall
notify Parent as promptly as practical if any proposal or offer (formal or
informal, oral, written or otherwise), or any inquiry or contact with any
Person with respect thereto, regarding a Acquisition Proposal is made, such
notice to include the identity of the Person proposing such Acquisition
Proposal and the terms thereof, and shall keep Parent apprised, on a
current basis of the status of any such Acquisition Proposal and of any
modifications to the terms thereof. Target immediately shall cease and
cause to be terminated all existing discussions or negotiations with any
parties other than Parent conducted heretofore with respect to any
Acquisition Proposal.
(b) Except as set forth below in this subsection (b), neither the Target
Management Committee nor any committee thereof shall: (i) fail to include,
withdraw or modify, or propose to withdraw or modify, in a manner adverse
to Parent, the approval or recommendation by such management committee or
any such committee of this Agreement or the Merger, (ii) approve or
recommend or propose to approve or recommend, any Acquisition Proposal, or
(iii) enter into any agreement with respect to any Acquisition Proposal.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement may
----------- -----------
be terminated and the Merger abandoned at any time prior to the Effective Time:
(a) by mutual written consent of Target and Parent;
(b) by Parent or Target if:
(i) the Effective Time has not occurred before 5 p.m. (Pacific Time) on April
15, 2000 (provided however, that the right to terminate this Agreement
under this Section 8.1(b)(i) shall not be available to any party whose
-----------------
willful failure to fulfill any obligation hereunder has been the cause of
or resulted in, the failure of the Effective Time to occur on or before
such date);
(ii) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any
Governmental or Regulatory Authority that would make consummation of the
Merger illegal or there shall be a final nonappealable order of a federal
or state court in effect preventing consummation of the Merger;
(iii) there shall be any action taken, or any Law or Order enacted,
promulgated or issued or deemed applicable to the Merger, by any Governmental or
Regulatory Authority, which would (A) prohibit Parent's or the Merger Sub's
ownership or operation of all or any portion of the business of Target or (B)
compel Parent or Merger Sub to
40
dispose of or hold separate all or a portion of the Assets and Properties of
Target as a result of the Merger; or
(iv) the Merger is not approved and adopted by the affirmative vote of the
Holders as required by the DLLCA, the California Code (if applicable), and
Target's LLC Agreement.
(c) by Target if:
(i) prior to the Effective Time, Parent Board shall have withdrawn, modified
or changed in a manner adverse to Target its approval or recommendation of this
Agreement or the Merger; or
(ii) (Target is not in breach in any material respect of any of its
representations, warranties, covenants or agreements in this Agreement) if
there has been a material breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of Parent or Merger
Sub and (A) Parent is not using its reasonable efforts to cure such breach,
or has not cured such breach within thirty (30) days, after notice of such
breach to Parent (provided, however, that no cure period shall be required
for a breach which by its nature cannot be cured) and (B) as a result of
such breach and assuming such breach is not cured, the conditions set forth
in Section 5.1 or Section 5.2, as the case may be, would not at Closing be
----------- -----------
satisfied.
(d) by Parent if:
(i) prior to the Effective Time, Target Board shall have withdrawn, modified
or changed in a manner adverse to Parent its approval or recommendation of this
Agreement or the Merger; or
(ii) Parent is not in breach in any material respect of any of its
representations, warranties, covenants or agreements in this Agreement) if there
has been a material breach of any representation, warranty, covenant or
agreement contained in this Agreement on the Target and (A) Target is not using
its reasonable efforts to cure such breach, or has not cured such breach within
thirty (30) days, after notice of such breach to Target (provided, however, that
no cure period shall be required for a breach which by its nature cannot be
cured) and (B) as a result of such breach and assuming such breach is not cured,
the conditions set forth in Section 5.1 or Section 5.3, as the case may be,
----------- -----------
would not at Closing be satisfied.
8.2 Effect of Termination. In the event of a valid termination of this
---------------------
Agreement as provided in Section 8.1, this Agreement shall forthwith become void
-----------
and there shall be no liability or obligation on the part of Parent or Target,
or their respective officers, directors or stockholders or Affiliates or
Associates; provided, however, that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided further that,
the provisions of Sections 4.4, 4.5, 4.6, 8.2, 9.6, 9.9, 9.10 and 9.11 of this
----------------------------------------------------
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
41
8.3 Amendment. Except as is otherwise required by applicable law, this
---------
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
-----------------
Target may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations of the other party hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (iii) waive compliance
with any of the agreements, covenants or conditions for the benefit of such
party contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Notices. All notices, requests and other communications hereunder must be
-------
in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation or mailed by prepaid first class certified mail, return
receipt requested, or mailed by overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:
If to Parent or Merger Sub to:
Liberate Technologies
0 Xxxxxx Xxxx Xxx
Xxx Xxxxxx, XX 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: General Counsel
with a copy to:
Xxxxxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxx Xxxxxxxx & Xxxxxxxxx, LLP
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxx Xxxxxx
If to Target to:
SourceSuite LLC
c/o Source Media, Inc.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Chief Executive Officer
42
with a copy to:
Xxxxxxxxx Xxxxxx Xxxxxxxx Xxxxxx & Xxxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxx X. Xxxxxxxx, Esq.
If to SourceSuite Acquisition LLC:
c/o Source Media, Inc.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxxx X. Xxxxxx, Chief Executive Officer
with a copy to:
Xxxxxxxxx Xxxxxx Xxxxxxxx Xxxxxx & Xxxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxx X. Xxxxxxxx, Esq.
If to Source Media:
Source Media, Inc.
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxxx X. Xxxxxx, Chief Executive Officer
with a copy to:
Xxxxxxxxx Xxxxxx Xxxxxxxx Xxxxxx & Xxxxxx, P.C.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: Xxxxxx X. Xxxxxxxx, Esq.
43
If to Insight Interactive, LLC or Insight Communications Company,
Inc.:
Insight Communications Company, Inc.
000 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000 Phone
(000) 000-0000 Facsimile
Attention: General Counsel
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 9.1, be deemed given upon
-----------
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided for in this Section 9.1, be deemed given upon facsimile confirmation,
-----------
(iii) if delivered by mail in the manner described above to the address as
provided for in this Section 9.1, be deemed given on the earlier of the third
-----------
Business Day following mailing or upon receipt and (iv) if delivered by
overnight courier to the address as provided in this Section 9.1, be deemed
-----------
given on the earlier of the first Business Day following the date sent by such
overnight courier or upon receipt (in each case regardless of whether such
notice, request or other communication is received by any other Person to whom a
copy of such notice is to be delivered pursuant to this Section 9.1). Any party
-----------
from time to time may change its address, facsimile number or other information
for the purpose of notices to that party by giving notice specifying such change
to the other party hereto.
9.2 Entire Agreement. This Agreement and the Exhibits and Schedules hereto,
----------------
including Target Disclosure Schedule and the Parent Disclosure Schedule, and all
agreements required to be executed and delivered pursuant hereto, constitute the
entire agreement and understanding among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
except for the Confidentiality Agreement, which shall continue in full force and
effect and shall survive any termination of this Agreement or the Closing in
accordance with its terms.
9.3 Further Assurances; Post-Closing Cooperation. At any time or from time to
--------------------------------------------
time after the Closing, the parties shall execute and deliver to the other party
such other documents and instruments, provide such materials and information and
take such other actions as the other party may reasonably request to consummate
the transactions contemplated by this Agreement and otherwise to cause the other
party to fulfill its obligations under this Agreement and the transactions
contemplated hereby. Each party agrees to use diligent efforts to cause the
conditions to its obligations to consummate the Merger to be satisfied.
9.4 Waiver. Any term or condition of this Agreement may be waived at any time
------
by the party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
44
9.5 Third Party Beneficiaries. The terms and provisions of this Agreement are
-------------------------
intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights, and this Agreement does not confer any
such rights, upon any other Person.
9.6 No Assignment; Binding Effect. Neither this Agreement nor any right,
-----------------------------
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns and any third party
that shall acquire all or substantially all of the assets hereto or at least
fifty percent (50%) of the outstanding equity of a party hereto.
9.7 Headings. The headings and table of contents used in this Agreement have
--------
been inserted for convenience of reference only and do not define or limit the
provisions hereof.
9.8 Invalid Provisions. If any provision of this Agreement is held to be
------------------
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or unenforceable provision or by
its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable
provision, there will be added automatically as a part of this Agreement a
legal, valid and enforceable provision as similar in terms to such illegal,
invalid or unenforceable provision as may be possible.
9.9 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Delaware, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of California or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Delaware.
9.10 Construction. Ambiguities in this Agreement, if any, shall not be
------------
construed strictly or in favor of or against any party hereto but rather shall
be given a fair and reasonable construction.
9.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.12 Specific Performance. The parties hereto agree that irreparable damage
--------------------
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
Except where this Agreement specifically provides for arbitration, it is agreed
that the parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
45
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.13 No Solicitation of Employees. Following the Closing, neither Source Media
----------------------------
nor Insight Communications shall directly or indirectly solicit any employee of
the Surviving Company, Parent or Merger Sub to leave or terminate their
employment with that party.
9.14 Exculpation. Notwithstanding the foregoing or any other provision of this
-----------
Agreement or any other document related to the Merger that refers to the
treatment of the Merger as a reorganization, including without limitation the
application and information statement relating to California Permit, Source
Media and Insight Interactive each (i) acknowledge and agree that none of
Parent, Merger Sub or Target has made pursuant to this Agreement or otherwise in
connection with the Merger any representation regarding, or shall Parent, Merger
Sub nor Target be held liable with respect to, the tax consequences of the
receipt of the Merger consideration, and (ii) represent that they have consulted
with their respective tax advisors regarding the tax consequences of the Merger
and understand that any tax disclosure provided in connection with the
California Permit has been prepared by such tax advisors.
9.15 Adjustments. Anything to the contrary herein notwithstanding, Target
-----------
shall have the right, at Target's option, anytime prior to Effective Time to
contribute to the Other Assets Company any or all of the cash and cash
equivalents held by Target (other than the proceeds from the sale of assets to
Other Assets LLC).
ARTICLE 10
DEFINITIONS
10.1 Definitions.
-----------
(a) As used in this Agreement, the following defined terms shall have the
meanings indicated below:
"Acquisition Proposal" has the meaning ascribed to it in Section 7.3.
-----------
"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation or Governmental or Regulatory
Authority investigation, audit or other proceeding, whether civil or criminal,
in law or in equity, or before any arbitrator or Governmental Regulatory
Authority.
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, or (b) any other Person that owns or controls (i) twenty percent
(20%) or more of any class of voting ownership interests of that Person or any
of its Affiliates or (ii) twenty percent (20%) or more of any class of voting
ownership interests (including any ownership interests issuable upon the
exercise of any option or convertible security) of that Person or any of its
Affiliates. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by", and "under
common control with") as applied to any Person, means the possession, directly
46
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through ownership of voting ownership
interests or by contract or otherwise.
"Agreement" means this Merger Agreement and Plan of Reorganization,
including (unless the context otherwise requires) the Exhibits and Schedules
hereto and the certificates and instruments delivered in connection herewith, or
incorporated by reference, as the same may be amended or supplemented from time
to time in accordance with the terms hereof.
"Agreement Date" means the date first written above.
"Ancillary Agreements" has the meaning ascribed to it in Section 2.2.
-----------
"Approval" means any approval, authorization, consent, permit,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from or made with, or any notice, statement or other
communication required to be filed with or delivered to, any Governmental or
Regulatory Authority or any other Person.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned, licensed or leased by such Person, including cash,
cash equivalents, Investment Assets, accounts and notes receivable, chattel
paper, documents, instruments, general intangibles, real estate, equipment,
inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of twenty percent (20%) or more of
any class of voting ownership interests, any trust or estate in which such
Person has a substantial beneficial interest or as to which such Person serves
as a trustee or in a similar capacity and any relative or spouse of such Person,
or any relative of such spouse, who has the same home as such Person.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of such party, including
financial statements, internal reports, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds,
title policies, minute books, stock certificates and books, stock transfer
ledgers, Contracts, Licenses, customer lists, computer files and programs
(including data processing files and records), retrieval programs, operating
data and plans and environmental studies and plans.
"Business Combination" means, with respect to any Person, (i) any
merger, consolidation or other business combination to which such Person is a
party, (ii) any sale, dividend, split or other disposition or any capital stock
or other equity interests of such Person, (iii) any tender offer (including a
self tender), exchange offer, recapitalization, restructuring, liquidation,
dissolution or similar or extraordinary transaction, (iv) any sale, dividend or
other disposition of all or a material portion of the Assets and Properties of
such Person, or (v) the
47
entering into of any agreement or understanding, the granting of any rights or
options, or the acquiescence of such Person, with respect to any of the
foregoing.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or obligated to
close.
"Business or Condition" means, with respect to Parent, the business,
condition (financial or otherwise), results of operations or Assets and
Properties of Parent and each of its Subsidiaries, taking Parent together with
such Subsidiaries as a whole, and, with respect to Target, the business
(including the VirtualModem Business), condition (financial or otherwise),
results of operations or Assets and Properties of Target and Target Subsidiary,
taking Target together with Target Subsidiary as a whole.
"California Code" means the California Corporations Code and all
amendments and additions thereto.
"California Permit" has the meaning ascribed to it in Section 1.8.
------------
"Closing" means the closing of the transactions contemplated by
Section 1.2.
-----------
"Closing Date" has the meaning ascribed to it in Section 1.2.
-----------
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended.
"Confidentiality Agreement" has the meaning ascribed to it in Section
-------
4.4.
---
"Contract" means any material contract, including:
(a) any distributor, sales, advertising, agency or manufacturer's representative
contract;
(b) any continuing contract for the purchase of materials, supplies, equipment
or services involving in the case of any such contact more than two hundred
thousand dollars ($200,000) over the life of the contract;
(c) any trust indenture, mortgage, promissory note, loan agreement or other
contract for the borrowing of money, any currency exchange, commodities or
other hedging arrangement or any leasing transaction of the type required
to be capitalized in accordance with generally accepted accounting
principles;
(d) any contract for unexpended capital expenditures in excess of two hundred
thousand dollars ($200,000) in the aggregate;
(e) any contract limiting the freedom of such party to engage in any line of
business or to compete with any other Person as that term is defined in the
Exchange Act, as defined herein, or any confidentiality, secrecy or non-
disclosure contract;
48
(f) any contract pursuant to which such party is a lessor of any machinery,
equipment, motor vehicles, office furniture, fixtures or other personal
property;
(g) any contract with any person with whom such party does not deal at arm's
length; or
(h) any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the obligations,
liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person.
"DLLCA" means the Limited Liability Company Act of the State of
Delaware.
"Delaware Certificate of Merger" has the meaning set forth in Section
-------
1.2.
---
"Effective Time" has the meaning ascribed to it in Section 1.2.
-----------
"Environment" means air, surface water, ground water, or land,
including land surface or subsurface, and any receptors such as persons,
wildlife, fish, biota or other natural resources.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and Liability Information System, or on any
similar state list of sites relating to investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding, or
investigation related to or arising from any location at which there has been a
Release or threatened or suspected Release of a Hazardous Material.
"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to of Hazardous
Materials, including the Comprehensive, Environmental Response Compensation and
Liability Act, the Clean Air Act, the Federal Water Pollution Control Act, the
Solid Waste Disposal Act, the Federal Insecticide, Fungicide and Rodenticide
Act, and the California Safe Drinking Water and Toxic Enforcement Act.
"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law and
includes without limitation any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means each person (as defined in section 3(9) of
ERISA) that, together with Target, would be treated as a single employer under
section 4001(b) of ERISA or that would be deemed to be a member of the same
"controlled group" within the meaning of section 414(b) or (c) of the Internal
Revenue Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
49
"Exchange Ratio" means the quotient obtained by dividing (x) the
Maximum Share Number (without regard to any adjustment thereof) by (y) the
aggregate number of Target Units that are outstanding immediately prior to the
Effective Time.
"Expiration Date" shall mean the date 180 days after the Effective
Date.
"Financial Statement Date" means November 30, 1999.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, any foreign country or any
domestic or foreign state, county, city or other political subdivision, and
shall include any stock exchange, quotation service and the National Association
of Securities Dealers.
"Hazardous Material" means (a) any chemical, material, substance or
waste including, containing or constituting petroleum or petroleum products,
solvents (including chlorinated solvents), nuclear or radioactive materials,
asbestos in any form that is or could become friable, radon, lead-based paint,
urea formaldehyde foam insulation or polychlorinated biphenyls, (b) any
chemicals, materials, substances or wastes which are now defined as or included
in the definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "extremely hazardous wastes," "restricted hazardous wastes," "toxic
substances," "toxic pollutants" or words of similar import under any
Environmental Law; or (c) any other chemical, material, substance or waste which
is regulated by any Governmental or Regulatory Authority or which could
constitute a nuisance.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder.
"Indebtedness" of any Person means all obligations of such Person (a)
for borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services (other
than trade payables or accruals incurred in the ordinary course of business),
(d) under capital leases and (e) in the nature of guarantees of the obligations
described in clauses (a) through (d) above of any other Person.
"Information Statement" has the meaning ascribed to it in Section
-------
2.25.
"Intellectual Property" means all trademarks and trademark rights,
trade names and trade name rights, service marks and service xxxx rights,
service names and service name rights, patents and patent rights, utility models
and utility model rights, copyrights, moral rights, mask work rights, brand
names, trade dress, product designs, product packaging, business and product
names, logos, slogans, rights of publicity, trade secrets, inventions (whether
patentable or not), invention disclosures, improvements, processes, formulae,
industrial models, processes, designs, specifications, technology,
methodologies, computer software (including all source code and object code),
firmware, development tools, flow charts, annotations, all Web addresses, sites
and domain names, all data bases and data collections and all rights therein,
any other
50
confidential and proprietary right or information, whether or not subject to
statutory registration, and all related technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, utility models, trademarks, service marks and
copyrights, and the right to xxx for past infringement, if any, in connection
with any of the foregoing, and all documents, disks, records, files and other
media on which any of the foregoing is stored.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures and general and limited partnerships, mortgage loans and other
investment or portfolio assets owned of record or beneficially by Target or
Target Subsidiary.
"IRS" means the United States Internal Revenue Service or any
successor entity.
"Law" or "Laws" means any law, statute, order, decree, consent decree,
judgment, rule, regulation, ordinance or other pronouncement having the effect
of law whether in the United States, any foreign country, or any domestic or
foreign state, county, city or other political subdivision or of any
Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based upon
any contingency), known or unknown, fixed or otherwise, or whether due or to
become due.
"License" means any Contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including any
covenants not to xxx with respect to any Intellectual Property).
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, easement, license, covenant, condition, restriction, adverse claim,
levy, charge, option, equity, adverse claim or restriction or other encumbrance
of any kind, or any conditional sale Contract, title retention Contract or other
Contract to give any of the foregoing, except for any restrictions on transfer
generally arising under any applicable federal or state securities law.
"Loss(es)" means any and all damages, payments, fines, fees, Taxes,
penalties, deficiencies, losses (including lost profits or diminution in value),
expenses, reasonable expenses of investigation, court costs, reasonable fees and
expenses of attorneys, accountants and other experts or other expenses of
litigation or other proceedings or of any claim, default or assessment (such
fees and expenses to include all fees and expenses, including fees and expenses
of attorneys).
"Material Adverse Effect" when used with reference to any entity or
group of related entities, means any event, change or effect that is (or will
with the passage of time be) materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or results of
operations of such entity and its subsidiaries, taken as a whole.
51
"Maximum Share Number" means 886,000 shares of Parent Common Stock,
provided, however, that if the parties are unable to obtain the California
Permit for whatever reason, the Maximum Share Number shall be reduced to 821,536
shares of Parent Common Stock.
"Merger" has the meaning ascribed to it in the recitals to this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NNM" means the distinct tier of The Nasdaq Stock Market referred to
as the Nasdaq National Market.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Parent Affiliate" has the meaning ascribed to it in Section 5.11.
------------
"Parent Common Stock" has the meaning ascribed to it in the recitals
of this Agreement.
"Parent Financial Statements" has the meaning ascribed to it in
Section 3.3.
-----------
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
"Permit" means any license, permit, franchise or authorization.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability Target or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Preferred Content Provider Agreement" means the Contract to be
entered into on the Closing Date by and between Other Assets Company and Parent,
substantially in the form of Exhibit A-3 attached hereto, whereby Other Assets
-----------
Company shall be a preferred content provider of Parent.
"Programming Services Agreement" means the Contract between Other
Assets Company and Target, substantially in the form of Exhibit A-1 attached
-----------
hereto, whereby Target will continue development of the Server IPG application
(as defined therein).
"PTO" means the United States Patent and Trademark Office.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks and servicemarks,
applications to register trademarks and servicemarks, intent-to-use
applications, other registrations or applications to trademarks or servicemarks,
or trademarks or servicemarks in which common law rights are owned or otherwise
controlled; (iii) registered copyrights and applications for copyright
registration; (iv) any mask work registrations and
52
applications to register mask works; and (v) any other Intellectual Property
that is the subject of an application, certificate, filing, registration or
other document issued by, filed with, or recorded by, any state, government or
other public legal authority.
"Related Party" has the meaning subscribed to it in Section 2.2.
-----------
"Registration Rights Agreement" means the Contract among Parent and
the holders of Target Units, substantially in the form of Exhibit A-4 attached
-----------
hereto, whereby Parent grants such holders one demand registration right which
can be exercised by such holders only during a certain period and only in
certain events.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing of a
Hazardous Material into the Environment.
"SEC" means the Securities and Exchange Commission or any successor
entity.
"SEC Documents" means, with respect to any Person, each report,
schedule, form, statement or other document filed with the SEC by such Person
pursuant to Section 13(a) and 15(d) of the Exchange Act and all final and
effective registration statements and prospectuses filed by such Person with the
SEC pursuant to the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by Target or Target Subsidiary, any
predecessors of Target or Target Subsidiary, or any entities previously owned by
Target or Target Subsidiary, including all soil, subsoil, surface waters and
groundwater.
"Source Media Bondholders" means the holders of Source Media's 12%
Senior Secured Notes due 2004.
"Subsidiary" means, in addition to Target Subsidiary, any Person in
which Target or Parent, as the context requires, directly or indirectly through
Subsidiaries or otherwise, beneficially owns at least 50% of either the equity
interest in, or the voting control of, such Person, whether or not existing on
the date hereof.
"Surviving Company" has the meaning ascribed to it in Section 1.1.
-----------
"Target" has the meaning ascribed to it in the forepart of this
Agreement.
"Target Affiliates" has the meaning ascribed to it in Section 5.10.
------------
"Target Financials" means the unaudited consolidated balance sheets of
Target and Target Subsidiary as of November 30, 1999 and the related audited
consolidated statements of operations, stockholders' equity and cash flows for
the fiscal year then ended, including the notes thereto.
53
"Target 401(k) Plan" means Target's 401(k) Plan.
"Target Intellectual Property" shall mean any Intellectual Property
that is (i) owned by; (ii) licensed to; or (iii) was developed or created by or
for Target or Target Subsidiary, that is used in or necessary for the conduct of
the present or anticipated business of Target or Target Subsidiary.
"Target LLC Agreement" has the meaning ascribed to it in the recitals
of this Agreement.
"Target Management Committee" has the meaning ascribed to it in the
recitals of this Agreement.
"Target Registered Intellectual Property" means all Registered
Intellectual Property owned by, or filed in the name of, Target or Target
Subsidiary.
"Target Subsidiary" means Source Media Canada, Inc.
"Target Units" has the meaning ascribed to it in the recitals.
"Tax" or "Taxes" has the meaning ascribed to it in Section 2.10(h).
"Tax Returns" means any return, statement, report, declaration,
information return, schedule, certificate, statement or other document
(including any related or supporting information) filed or required to be filed
a Taxing Authority.
"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having jurisdiction with respect to
any Tax.
"Third Party Expenses" has the meaning ascribed to it in Section 5.5.
-----------
"VirtualModem Business" means Target's business relating to the
VirtualModem Products and associated businesses as it currently is conducted or
proposed to be conducted
"VirtualModem Products" means the server-based software platform that
is designed to enable cable and satellite signal transmitted television viewers,
among others, to enjoy interactive connectivity using a VirtualModem enabled
digital set top box, allowing viewers to browse the Internet, send and receive
email, facilitate e-commerce and access a wide variety of interactive television
applications.
"VirtualModem License Agreement" means the License between Target and
Insight Communications, substantially in the form of Exhibit A-2 attached
-----------
hereto, whereby Insight Communications will obtain a license to Target's
Intellectual Property for certain purposes.
(i) Unless the context of this Agreement otherwise requires, (i) words of any
gender include each other gender, (ii) words using the singular or plural number
54
also include the plural or singular number, respectively, (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement as a whole and not to any particular Article, Section or other
subdivision, (iv) the terms "Article" or "Section" or other subdivision refer to
the specified Article, Section or other subdivision of the body of this
Agreement, (v) the phrases "ordinary course of business" and "ordinary course of
business consistent with past practice" refer to the business and practice of
Target, (vi) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation," and (vii) when a reference is
made in this Agreement to Exhibits, such reference shall be to an Exhibit to
this Agreement unless otherwise indicated. All accounting terms used herein and
not expressly defined herein shall have the meanings given to them under GAAP.
The term "party" or "parties" when used herein refer to Parent, on the one hand,
and Target, on the other.
(j) When used herein, the phrase "to the knowledge of" any Person, "to the best
knowledge of" any Person, "known to" any Person or any similar phrase, means (i)
with respect to any Person who is an individual, the actual knowledge of such
Person, and (ii) with respect to any other Person, the actual knowledge of the
directors and officers of such Person and other individuals that have a similar
position or have similar powers and duties as the officers and directors of such
Person.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their duly authorized representatives, all as of the date first
written above.
LIBERATE TECHNOLOGIES SOURCESUITE LLC
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
SOURCE MEDIA, INC INSIGHT INTERACTIVE, LLC
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
INSIGHT COMMUNICATIONS COMPANY, INC.
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
To be entered into before Closing by:
------------------------------------
LIBERATE ACQUISITION CO. SOURCESUITE ACQUISITION LLC
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
56
