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AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
JUNE 30, 1999
AMONG
IVILLAGE INC.,
ONLINEPSYCH ACQUISITION CORPORATION,
ONLINE PSYCHOLOGICAL SERVICES, INC.
AND
THE STOCKHOLDERS OF ONLINE PSYCHOLOGICAL SERVICES, INC.
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TABLE OF CONTENTS
Page
ARTICLE 1. GENERAL....................................................................................1
1.1. The Merger.....................................................................................1
1.2. The Effective Time of the Merger...............................................................1
1.3. Effect of Merger...............................................................................2
1.4. Charter and By-Laws of the Surviving Corporation...............................................2
1.5. Taking of Necessary Action.....................................................................2
1.6. Tax-Free Reorganization........................................................................2
1.7. Closing........................................................................................2
ARTICLE 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES...................................................................3
2.1. Total Consideration; Effect on Capital Stock...................................................3
(a) Payment of Consideration.....................................................3
(b) Effect on Capital Stock of Acquisition Sub...................................3
(c) Cancellation of Certain Shares of Company Common Stock.......................3
(d) Exchange of Company Common Stock.............................................3
(e) Terms, Etc...................................................................4
(f) Shares for Dissenting Stockholders...........................................4
2.2. Escrow Deposit; Exchange of Certificates.......................................................5
(a) Escrow Agreement.............................................................5
(b) Escrow Deposit...............................................................5
(c) Procedure for Exchange.......................................................5
(d) Fractional Shares............................................................5
(e) No Further Ownership Rights in Company Common Stock..........................5
(f) No Liability.................................................................6
(g) Lost, Stolen or Destroyed Company Certificates...............................6
(h) Authorization of the Merger, this Agreement, the Agreement of Merger,
the Escrow Agreement and the Escrow Agent....................................6
ARTICLE 3. REPRESENTATIONS AND WARRANTIES.............................................................6
3.1. Representations and Warranties of the Company and the Founders.................................6
(a) Organization; Good Standing; Qualification and Power.........................6
(b) Equity Investments...........................................................7
(c) Capital Stock; Securities....................................................7
(d) Authority; No Consents.......................................................8
(e) Financial Information........................................................8
(f) Absence of Undisclosed Liabilities...........................................9
(g) Absence of Changes...........................................................9
(h) Tax Matters.................................................................11
(i) Title to Assets, Properties and Rights and Related Matters..................12
(j) Real Property-Owned or Leased...............................................13
i
(k) Intellectual Property.......................................................13
(l) Company Software............................................................15
(m) Agreements, Etc.............................................................17
(n) No Defaults.................................................................19
(o) Litigation, Etc.............................................................19
(p) Accounts and Notes Receivable...............................................20
(q) Accounts and Notes Payable..................................................20
(r) Compliance; Governmental Authorizations.....................................20
(s) Environmental Matters.......................................................21
(t) Labor Relations; Employees..................................................21
(u) Employee Benefit Plans and Contracts........................................22
(v) Certain Agreements..........................................................24
(w) Insurance...................................................................24
(x) Bank Accounts; Powers of Attorney...........................................24
(y) Brokers.....................................................................24
(z) Related Transactions........................................................24
(aa) Traffic/Usage...............................................................25
(bb) Minute Books................................................................25
(cc) Other Names.................................................................25
(dd) Business Generally..........................................................25
(ee) Vote Required...............................................................25
(ff) Information Supplied........................................................25
(gg) Company Not an Interested Securityholder or an Acquiring Person.............25
(hh) Company Expenses............................................................25
(ii) Officers....................................................................26
(jj) Disclosure..................................................................26
(kk) Knowledge Definition........................................................26
(ll) No Discrimination...........................................................26
3.2. Several Representations and Warranties of the Stockholders....................................26
(a) Title; Absence of Certain Agreements........................................26
(b) Authority - General.........................................................27
(c) Investment Representations..................................................27
(d) Brokers.....................................................................28
(e) Representation by Legal Counsel.............................................29
3.3. Representations and Warranties of Parent and Acquisition Sub..................................29
(a) Organization; Good Standing; Qualification and Power........................29
(b) Capital Stock...............................................................29
(d) Authority...................................................................29
(e) SEC Documents...............................................................30
(f) Brokers.....................................................................31
ARTICLE 4. RELATED AGREEMENTS........................................................................31
4.1. Related Agreements............................................................................31
ii
(a) Employee Confidentiality and Assignment of Inventions Agreements............31
(b) Escrow Agreement............................................................32
(c) Release Agreement...........................................................32
(d) Stockholders' Agreement.....................................................32
(e) Employment Agreements.......................................................32
(f) Registration Rights Agreement...............................................32
(g) Stock Option Agreements.....................................................32
ARTICLE 5. CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL AGREEMENTS...................32
5.1. Access to Records and Properties of Each Party; Confidentiality...............................32
5.2. Operation of Business of the Company..........................................................33
5.3. Negotiations With Others......................................................................33
5.4. Dissenting Stockholders.......................................................................34
5.5. Stockholders' Approval........................................................................34
5.6. Advice of Changes.............................................................................34
5.7. Financial Information Update..................................................................35
5.8. Legal Conditions to Merger....................................................................35
5.9. Consents......................................................................................35
5.10. Efforts to Consummate.........................................................................35
5.11. Notice of Breach..............................................................................36
5.12. Support of Merger by Officers and Directors...................................................36
5.13. Support of Merger by Stockholders.............................................................36
5.14. Appointment of Representative.................................................................36
(a) Powers of Attorney..........................................................36
(b) Not Liable; Indemnification.................................................37
(c) Replacement of the Stockholders' Representative.............................37
(d) Actions of the Stockholders' Representative; Liability of the
Stockholders' Representative................................................38
5.15. Employee Confidentiality Agreements...........................................................38
5.16. Transactions Costs; Line of Credit............................................................38
ARTICLE 6. CONDITIONS PRECEDENT......................................................................38
6.1. Conditions to Each Party's Obligations........................................................38
(a) Stockholder Approval; Agreement of Merger...................................38
(b) Approvals...................................................................38
(c) Legal Action................................................................38
(d) Legislation.................................................................38
6.2. Conditions to Obligations of Parent and Acquisition Sub.......................................39
(a) Representations and Warranties of the Company...............................39
(b) Performance of Obligations of the Company and the Stockholders..............39
(c) Delivery of Certificates....................................................39
(d) Employee Confidentiality Agreements.........................................39
iii
(e) Opinion of the Company's and Stockholders' Counsel..........................39
(f) Consents and Approvals......................................................39
(g) Government Consents, Authorizations, Etc....................................39
(h) Company Expenses............................................................40
(i) Escrow Agreement............................................................40
(j) Release.....................................................................40
(k) Related Agreements..........................................................40
(l) Employment Agreements.......................................................40
(m) Audited Financial Statements................................................40
(n) Satisfaction of Closing Conditions under the Code Stone
Reorganization Agreement....................................................40
6.3. Conditions to Obligations of the Company......................................................41
(a) Representations and Warranties of Parent....................................41
(b) Performance of Obligations of Parent and Acquisition Sub....................41
(c) Government Consents, Authorizations, Etc....................................41
(d) Purchase Price..............................................................41
(e) Escrow Agreement............................................................41
(f) Registration Rights Agreement...............................................41
(g) Stock Option Agreements.....................................................41
ARTICLE 7. ADDITIONAL AGREEMENTS.....................................................................42
7.1. Restrictions on Transfer......................................................................42
7.2. Confidentiality...............................................................................43
ARTICLE 8. INDEMNIFICATION...........................................................................44
8.1. Definitions...................................................................................44
(a) "Affiliate".................................................................44
(b) "Event of Indemnification"..................................................44
(c) "Indemnified Persons".......................................................45
(d) "Indemnifying Persons"......................................................45
(e) "Losses"....................................................................46
8.2. Indemnification Generally.....................................................................46
8.3. Assertion of Claims...........................................................................46
8.4. Notice and Defense of Third Party Claims......................................................46
8.5. Survival of Representations and Warranties....................................................47
8.6. Limitation on Indemnification.................................................................48
ARTICLE 9. TERMINATION; AMENDMENT, MODIFICATION AND WAIVER...........................................49
9.1. Termination...................................................................................49
9.2. Effect of Termination.........................................................................49
ARTICLE 10. MISCELLANEOUS.............................................................................49
10.1. Expenses......................................................................................49
10.2. Entire Agreement..............................................................................50
10.3. Descriptive Headings..........................................................................50
iv
10.4. Public Announcements..........................................................................50
10.5. Notices.......................................................................................50
10.6. Counterparts..................................................................................52
10.7. Governing Law.................................................................................52
10.8. Benefits of Agreement.........................................................................52
10.9. Pronouns......................................................................................52
10.10. Amendment, Modification and Waiver............................................................52
10.11. Severability..................................................................................52
10.12. Further Assurances............................................................................52
10.13. Consent to Jurisdiction; Waivers..............................................................52
10.14. Waiver of Jury Trial..........................................................................53
10.15. Attorneys' Fees; Disputes.....................................................................53
EXHIBIT A FORM OF AGREEMENT OF MERGER...................................A-1
EXHIBIT B FORM OF ESCROW AGREEMENT......................................B-1
EXHIBIT C [INTENTIONALLY OMITTED].......................................C-1
EXHIBIT D FORM OF EMPLOYEE CONFIDENTIALITY AGREEMENT....................D-1
EXHIBIT E FORM OF RELEASE AGREEMENT.....................................E-1
EXHIBIT F FORM OF STOCKHOLDERS' AGREEMENT...............................F-1
EXHIBIT G FORM OF EMPLOYMENT AGREEMENTS.................................G-1
EXHIBIT H FORM OF REGISTRATION RIGHTS AGREEMENT.........................H-1
EXHIBIT I FORM OF OPTION AGREEMENTS.....................................I-1
EXHIBIT J FORM OF OPINION FOR COUNSEL TO THE COMPANY
AND THE STOCKHOLDERS...............................J-1
v
SCHEDULES
---------
Schedule 10.5 Stockholder Addresses
EXHIBITS
--------
Exhibit A Form of Agreement of Merger
Exhibit B Form of Escrow Agreement
Exhibit C [Intentionally Omitted]
Exhibit D Form of Employee Confidentiality Agreement
Exhibit E Form of Release Agreement
Exhibit F Form of Stockholders' Agreement
Exhibit G Form of Employment Agreements
Exhibit H Form of Registration Rights Agreement
Exhibit I Form of Option Agreement
Exhibit J Form of Opinion of Counsel for the Company and the
Stockholders
NOTE: Copies of the above-listed Schedules and Exhibits to this Agreement and
Plan of Reorganization have been intentionally omitted pursuant to Item
601(b)(2) of Regulation S-K. iVillage Inc. agrees to furnish
supplementally a copy of any omitted Schedule or Exhibit to the
Securities and Exchange Commission upon its request.
GLOSSARY
The following terms used in this Agreement are defined in the following
Sections:
Term Section or Other Location
---- -------------------------
Acquisition Sub.............................. Recitals
Acquisition Transaction...................... 5.3
Action....................................... 10.13
Affiliate.................................... 8.1(a)
Aggregate Cash Consideration................. 2.1(a)(i)
Aggregate Purchase Price..................... 2.1(a)(ii)
Agreement of Merger.......................... Recitals
Audited Financial Statements................. 6.2(n)
Authorized Action............................ 5.14(d)
Basket Amount................................ 8.6(a)
Benefit Arrangements......................... 3.1(u)(iv)
best knowledge............................... 3.1(kk)
Business Day................................. 5.7(a)
Charter...................................... 3.1(a)
Closing...................................... 1.7
Closing Date................................. 1.7
Code......................................... 1.6(a)
Code Stone................................... 6.2(o)
Code Stone Reorganization Agreement.......... 6.2(o)
Code Stone Stockholder....................... 6.2(o)
Company...................................... Recitals
Company Common Stock......................... Recitals
Company Disclosure Schedule.................. 3.1
Company Expenses............................. 10.1
Company Unaudited Financial Statements....... 3.1(e)(i)
Company Interim Balance Sheet................ 3.1(e)(i)(1)
Company Interim Financial Statements......... 3.1(e)(i)(1)
Company Returns.............................. 3.1(h)
Company Rights............................... 3.1(k)(i)
Company Stock Fraction....................... 2.1(e)(i)
Confidentiality Agreements................... 3.1(k)(v)
Constituent Corporations..................... 1.1
Current Year-End Balance Sheet............... 3.1(f)
Current Year-End Balance Sheet Date.......... 3.1(f)
Delaware Statute............................. Recitals
Derivative Work.............................. 3.1(k)(vii)
Designated Persons........................... 3.1(o)
Disclosing Party............................. 7.2
2
Dissenting Stockholders...................... 5.4
Effective Time............................... 1.2
Employee..................................... 3.1(u)(i)
Employee Confidentiality Agreement........... 4.1(a)
Employee Plans............................... 3.1(u)(i)
Employment Agreements........................ 4.1(e)
Encumbrances................................. 3.1(i)
Environmental Laws........................... 3.1(s)
Equity Rights................................ 2.1(a)
ERISA........................................ 3.1(u)(i)
ERISA Affiliate.............................. 3.1(u)(i)
Escrow Agent................................. 2.2(a)
Escrow Agreement............................. 2.2(a)
Escrowed Shares.............................. 2.2(b)
Event of Indemnification..................... 8.1(b)
Exchange Act................................. 3.3(d)
Executory Period............................. 5.1
FAS No. 5.................................... 3.1(f)
Final Prospectus............................. 3.3.(e)(i)
Founders..................................... 3.1
Fully Diluted Company Shares................. 2.1(a)
GAAP......................................... 3.1(e)(ii)
Governmental Authority....................... 3.1(o)
Hazardous Materials.......................... 3.1(s)
Indemnified Persons.......................... 8.1(c)
Indemnifying Persons......................... 8.1(d)
Intellectual Property Rights................. 3.1(k)(xi)
Leased Real Property......................... 3.1(j)
Leases....................................... 3.1(j)
Liability.................................... 3.1(f)
Licensed Software............................ 3.1(l)(i)
Losses....................................... 8.1(e)
material..................................... 3.1(m)(xviii)
Material Adverse Effect...................... 3.1(a)
Merger....................................... 1.1
Merger Shares................................ 2.1(d)
Most Recent 10-Q............................. 3.3(b)
Multiemployer Plan........................... 3.1(u)(iii)
New Certificates............................. 2.2(c)
No-Shop Period............................... 5.3
Old Certificate.............................. 2.2(c)
Other Stockholders........................... 5.14(b)
Owned Software............................... 3.1(l)(i)
Parent....................................... Recitals
Parent's Accountants......................... 6.2(n)
3
Parent Common Stock.......................... Recitals
Parent's SEC Documents....................... 3.3(e)(i)
Pension Plans................................ 3.1(u)(i)
Per Share Cash Payment....................... 2.1(e)(ii)
Receiving Party.............................. 7.2
Registration Rights Agreement................ 4.1(f)
Related Agreements........................... 4.1
Release Agreement............................ 4.1(c)
Restricted Securities........................ 7.1(a)
Schedule of Expenses......................... 6.2(i)
Software..................................... 3.1(l)(i)
Stockholder or Stockholders.................. Recitals
Stockholder Action........................... 5.5
Stockholders' Agreement...................... 4.1(d)
Stockholders' Materials...................... 5.5
Stockholders' Meeting........................ 5.5
Stockholders' Representative................. 5.14(a)
Stockholders' Representative Losses.......... 5.14(b)
Stock Option Agreements...................... 4.1(g)
Subsidiary................................... 3.1(b)
Survival Date................................ 8.5
Surviving Corporation........................ 1.1
Tax.......................................... 3.1(h)
Taxes........................................ 3.1(h)
Third Party Claim............................ 8.4
Total Parent Share Amount.................... 2.1(a)(ii)
Transaction Costs............................ 10.1
Transfer..................................... 7.1(a)
Year 2000 Compliant.......................... 3.1(l)(vi)
4
AGREEMENT AND PLAN OF REORGANIZATION
dated as of June 30, 1999 among IVILLAGE
INC., a Delaware corporation ("Parent"),
ONLINEPSYCH ACQUISITION CORPORATION, a
Delaware corporation and a direct,
wholly-owned subsidiary of Parent
("Acquisition Sub"), ONLINE PSYCHOLOGICAL
SERVICES, INC., a Delaware corporation (the
"Company"), and the Stockholders of the
Company listed in Schedule 3.2 hereto (each,
a "Stockholder" and, collectively, the
"Stockholders").
The Boards of Directors of Parent and Acquisition Sub and
the Stockholders of the Company have each duly approved and adopted this
Agreement, the Agreement of Merger, in substantially the form of EXHIBIT A
attached hereto (the "Agreement of Merger"), and the proposed merger of
Acquisition Sub with and into the Company in accordance with this Agreement,
the Agreement of Merger and the Delaware General Corporation Law (the
"Delaware Statute"), whereby, among other things, the issued and outstanding
shares of common stock, $0.00 par value per share, of the Company (the
"Company Common Stock"), will be exchanged and converted into the right to
receive cash and shares of common stock, $.01 par value per share, of Parent
(the "Parent Common Stock") in the manner set forth in Article 2 hereof and in
the Agreement of Merger, upon the terms and subject to the conditions set
forth in this Agreement and the Agreement of Merger.
NOW, THEREFORE, in consideration of the mutual benefits to
be derived from this Agreement and the Agreement of Merger and the
representations, warranties, covenants, agreements, conditions and promises
contained herein and therein, the parties hereto hereby agree as follows:
ARTICLE 1.
GENERAL
.1. THE MERGER. In accordance with the provisions of this Agreement,
the Agreement of Merger and the Delaware Statute, Acquisition Sub shall be
merged with and into the Company (the "Merger"), which at and after the
Effective Time shall be, and is sometimes herein referred to as, the "Surviving
Corporation". Acquisition Sub and the Company are sometimes referred to as the
"Constituent Corporations".
.2. THE EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, the Agreement of Merger shall be executed and delivered to and filed
with the Secretary of State of the State of Delaware by each of the Constituent
Corporations on the Closing Date in the manner provided under Section 251 of the
Delaware Statute. The Merger shall become effective (the "Effective Time") upon
the filing of the Agreement of Merger with the Secretary of State of the State
of Delaware.
.3. EFFECT OF MERGER. At the Effective Time, the separate existence of
Acquisition Sub shall cease and Acquisition Sub shall be merged with and into
the Surviving Corporation, and the Surviving Corporation shall succeed, without
other transfer, to all of the rights, property, privileges, powers and
franchises of each of the Constituent Corporations, and shall be subject to all
of the debts and liabilities of the Constituent Corporations in the same manner
as if the Surviving Corporation had itself incurred them, and be subject to all
of the restrictions, disabilities and duties of each of the Constituent
Corporations as provided in Section 251 of the Delaware Statute.
.4. CHARTER AND BY-LAWS OF THE SURVIVING CORPORATION. From and after
the Effective Time and pursuant to the Agreement of Merger: (i) the Charter of
the Surviving Corporation shall be the Charter of Acquisition Sub, unless and
until altered, amended or repealed as provided in the Delaware Statute and such
Charter, (ii) the by-laws of the Surviving Corporation shall be the by-laws of
Acquisition Sub, unless and until altered, amended or repealed as provided in
the Delaware Statute, the Charter or such by-laws, (iii) the directors of the
Surviving Corporation shall be the directors of Acquisition Sub, unless and
until removed, or until their respective terms of office shall have expired, in
accordance with the Delaware Statute, the Charter and the by-laws of the
Surviving Corporation, as applicable and (iv) the officers of the Surviving
Corporation shall be the officers of Acquisition Sub, unless and until removed,
or until their terms of office shall have expired in accordance with the
Delaware Statute, the Charter and the by-laws of the Surviving Corporation, as
applicable.
.5. TAKING OF NECESSARY ACTION. Prior to the Effective Time, the
parties hereto shall do or cause to be done all such acts and things as may be
necessary or appropriate in order to effectuate the Merger as expeditiously as
reasonably practicable, in accordance with this Agreement, the Agreement of
Merger and the Delaware Statute.
.6. TAX-FREE REORGANIZATION. For Federal income tax purposes, the
parties intend that the merger be treated as a tax-free reorganization within
the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of Section 368(a)(2)(E) of the Code and that
this Agreement shall be, and is hereby, adopted as a plan of reorganization for
purposes of Section 368 of the Code. No party shall take a position on any tax
return or reports inconsistent with this Section 1.6 and each party shall use
its reasonable best efforts to maintain such reporting in the context of an
audit. Each party shall take no action which would cause the Merger not to be
treated as a tax free reorganization within the meaning of Section 368(a)(1)(A)
of the Code, by reason of Section 368(a)(2)(E) of the Code. Each party shall
give the other parties prompt notice of any challenges or investigations
undertaken by any taxing agency in connection with such reporting and shall keep
such other parties fully informed of all aspects of such ongoing challenge or
investigation.
.7. CLOSING. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the provisions
of Article 9, and subject to the provisions of Article 6, the closing of the
Merger (the "Closing") will take place at 10:00 a.m. (Eastern Standard Time) on
a date (the "Closing Date") to be mutually agreed upon by the parties, which
date shall be not later than July 30, 1999, unless another date is agreed to in
2
writing by the parties. The Closing shall take place at the offices of Xxxxxx,
Xxxxxxxxxx & Xxxxxxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, unless
another place is agreed to in writing by the parties.
ARTICLE 2.
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
.1. TOTAL CONSIDERATION; EFFECT ON CAPITAL STOCK.
(a) PAYMENT OF CONSIDERATION. The entire consideration payable
by Parent with respect to all outstanding shares of capital stock of the Company
and for all options, warrants, rights, calls, commitments, agreements or
arrangements of any character to which the Company is a party or by which it is
bound calling for the issuance of shares of capital stock of the Company or any
securities convertible into or exercisable or exchangeable for, or representing
the right to purchase or otherwise receive, directly or indirectly, any such
capital stock, or other arrangement to acquire, at any time or under any
circumstance, capital stock of the Company or any such other securities (such
options, warrants, rights, calls, commitments, agreements and arrangements being
sometimes hereinafter collectively referred to as "Equity Rights"; and the
Equity Rights, together with all such outstanding shares of capital stock of the
Company being sometimes hereinafter collectively referred to as the "Fully
Diluted Company Shares"), shall, subject to Section 7.3, be an aggregate
consideration payable as follows:
(i) An aggregate of $1,485,000 in cash (the "Aggregate
Cash Consideration"); and
(ii) A number of shares of Parent Common Stock equal to
$23,265,000 divided by the Average Parent Trading Price (the "Total Parent Share
Amount" and, together with the Aggregate Cash Consideration, the "Aggregate
Purchase Price"). The Aggregate Purchase Price is subject to adjustment prior to
the Closing pursuant to Section 7.3 hereof. For purposes of this Agreement and
the Agreement of Merger, the Average Parent Trading Price shall mean the average
closing price per share of Parent Common Stock on The NASDAQ Stock Market (as
reported in The Wall Street Journal, or, if not reported therein, any other
authoritative source) for the twenty (20) consecutive trading days ending one
(1) trading day preceding the Effective Time.
(b) EFFECT ON CAPITAL STOCK OF ACQUISITION SUB. Each issued
and outstanding share of common stock, par value $.001 per share, of Acquisition
Sub shall remain outstanding as one share of common stock, par value $.001 per
share, of the Surviving Corporation.
(c) CANCELLATION OF CERTAIN SHARES OF COMPANY COMMON STOCK.
Each share of capital stock of the Company that is authorized but unissued shall
cease to exist and no Parent Common Stock or other consideration shall be
delivered in exchange therefor.
3
(d) EXCHANGE OF COMPANY COMMON STOCK. Subject to Section 2.2,
each share of Company Common Stock issued and outstanding at the Effective Time
(other than shares held by Dissenting Stockholders, if any), including all
accrued and unpaid dividends thereon, shall be exchanged and converted into the
right to receive:
(i) the Company Stock Fraction (as hereinafter defined)
of a share of Parent Common Stock, deliverable at the Closing; and
(ii) the Per Share Cash Payment as defined below, which
shall be payable at the Closing.
For convenience of reference, the shares of Parent Common
Stock to be issued upon the exchange and conversion of Company Common Stock in
accordance with this Section 2.1(d) are sometimes hereinafter collectively
referred to as the "Merger Shares".
(e) TERMS, ETC. For purposes of this Agreement,
(i) the term "Company Stock Fraction" shall be equal to
the fraction obtained by dividing (x) the Total Parent Share Amount by (y) the
aggregate number of shares of Company Common Stock held by the Stockholders;
(ii) the term "Per Share Cash Payment" shall mean the
quotient of (x) $1,485,000 divided by (y) the aggregate number of shares of
Company Common Stock held by the Stockholders; and
(iii) All calculations under this Section 2.1 shall be
rounded to the nearest one millionth (.0001).
(f) SHARES FOR DISSENTING STOCKHOLDERS. Each issued and
outstanding share of Company Common Stock held by a Dissenting Stockholder, if
any, shall not be exchanged and converted as described in Section 2.1(d) but
shall be converted into the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the Delaware
Statute; provided, however, that each share of Company Common Stock issued and
outstanding at the Effective Time and held by a Dissenting Stockholder who
shall, after the Effective Time, withdraw his or her demand for appraisal or
lose or fail to perfect his or her right of appraisal as provided in the
Delaware Statute shall be deemed, as of the Effective Time, to be exchanged and
converted into Parent Common Stock and the Per Share Cash Payment as provided in
Section 2.1(d), without interest. After the Effective Time, as provided in
Section 262 of the Delaware Statute, no Dissenting Stockholder will be entitled
to vote the shares of Company Common Stock subject to such Dissenting
Stockholder's demand for appraisal for any purpose or be entitled to the payment
of dividends or other distributions on such shares. The Company shall give
Parent prompt notice of any demands received by the Company for fair value of
such Company Common Stock and Parent shall have the right to participate in all
the negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment (except
to the extent
4
that any such payment is pursuant to a court order) with respect to, or settle
or offer to settle, any such demands.
.2. ESCROW DEPOSIT; EXCHANGE OF CERTIFICATES.
(a) ESCROW AGREEMENT. Reference is hereby made to the Escrow
Agreement to be dated as of the Effective Time among the Stockholders, the Code
Stone Stockholder, the Stockholders' Representative, Parent and a mutually
agreeable escrow agent (the "Escrow Agent") in the form of EXHIBIT B hereto (the
"Escrow Agreement"). The Escrow Agreement is to be entered into for the purpose
of securing the indemnification obligations of the Stockholders under Article 8
hereof and the indemnification obligations of the Code Stone Stockholders under
Article 8 of the Code Stone Reorganization Agreement.
(b) ESCROW DEPOSIT. At the Effective Time, Parent shall cause
to be deposited with the Escrow Agent to be held by the Escrow Agent and
distributed subject to the terms of the Escrow Agreement certificates
evidencing, in the aggregate, ten percent (10.0%) of the total number of Merger
Shares being issued in the Merger to the Stockholders (collectively, the
"Escrowed Shares") with stock powers executed in blank by each such Stockholder
attached thereto and each of the Stockholders, by their execution and delivery
of this Agreement, hereby authorize and direct Parent to make such deposit on
their behalf.
(c) PROCEDURE FOR EXCHANGE. Immediately following the
Effective Time, Parent shall deliver to each holder of record of a certificate
or certificates (each, an "Old Certificate") which immediately prior to the
Effective Time represented issued and outstanding shares of Company Common Stock
certificates ("New Certificates") representing that number of Merger Shares
(other than the Escrowed Shares) which such holder has the right to receive
pursuant to Section 2.1(d)(i) with respect to such Old Certificate against
receipt by Parent of (i) such Old Certificate for cancellation and (ii) an
executed letter of transmittal, and the Old Certificate so surrendered shall
forthwith be cancelled (the certificates representing the Escrowed Shares having
concurrently been deposited on behalf of the Stockholders into escrow as
contemplated by Section 2.2(b) hereof). In the event of a transfer of ownership
of shares of Company Common Stock which is not registered on the transfer
records of the Company, New Certificates representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the Old
Certificate representing such Company Common Stock is presented to Parent,
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock or other transfer taxes have been paid.
Until surrendered as contemplated by this Section 2.2, each Old Certificate
shall be deemed, on and after the Effective Time, to represent only the right to
receive upon such surrender New Certificates representing the Merger Shares
(other than the Escrowed Shares) as contemplated by Section 2.1(d)(i), and such
Stockholders portion of the Per Share Cash Payment, without interest, as
contemplated by Section 2(d)(ii). All Escrowed Shares shall be held by, and
distributed in accordance with, the terms and provisions of the Escrow
Agreement.
(d) FRACTIONAL SHARES. No fractional shares of Parent Common
Stock will be issued in connection with the Merger (with all fractions rounded
to the nearest whole
5
share) and the Stockholders hereby irrevocably waive any right to receive cash
in lieu of fractional shares.
(e) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Common Stock issued upon the surrender or exchange of shares of
Company Common Stock in accordance with the terms of this Article 2 shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. If, after the Effective Time, any Old
Certificate is presented to the Surviving Corporation for any reason, such Old
Certificate shall be cancelled and exchanged as provided in this Article 2.
(f) NO LIABILITY. None of Parent, Acquisition Sub or the
Company shall be liable to any holder of shares of Company Common Stock or
Parent Common Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) of Parent Common Stock to be issued in
exchange for Company Common Stock pursuant to this Section 2.2, if, on or after
the expiration of six (6) months following the Effective Time, such shares are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(g) LOST, STOLEN OR DESTROYED COMPANY CERTIFICATES. In the
event any Old Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit to that effect by the person claiming such Old
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may reasonably direct
as indemnity against any claim that may be made against it with respect to such
Old Certificate, Parent will issue in exchange for such lost, stolen or
destroyed Old Certificate the Merger Shares and the Per Share Cash Payment
deliverable in respect thereof pursuant to Section 2.1(d) of this Agreement.
(h) AUTHORIZATION OF THE MERGER, THIS AGREEMENT, THE AGREEMENT
OF MERGER, THE ESCROW AGREEMENT AND THE ESCROW AGENT. In the event the Merger
shall be approved by the Stockholders, as required by the Delaware Statute and
as contemplated by this Agreement, such approval shall constitute approval and
ratification by the Stockholders of (i) the Merger, as required by the Delaware
Statute, (ii) the provisions of this Agreement and the Agreement of Merger, and
(iii) the designation of the Escrow Agent and the approval and ratification by
the Stockholders of the terms and provisions of the Escrow Agreement.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES
.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS. The
Company and each of X. Xxxxxxxxxx Bond and Xxxxx Xxxx (the "Founders") jointly
and severally represent and warrant to Parent and Acquisition Sub that, except
as disclosed in the disclosure schedule, dated the date hereof, certified by the
Chief Executive Officer of the Company and delivered by the Company to Parent
and Acquisition Sub simultaneously herewith (which disclosure schedule shall
contain specific references to the representations and warranties to which the
disclosures contained therein relate) (the "Company Disclosure Schedule"):
6
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. The
Company (i) is a close corporation (as such term is defined in Section 342(a) of
the Delaware Statute) duly organized, validly existing and in good standing
under the laws of the State of Delaware, (ii) has all requisite corporate power
and authority to (A) own, lease and operate its properties and assets and to
carry on its business as now being conducted and as proposed to be conducted,
(B) to enter into this Agreement and the Agreement of Merger, (C) to perform its
obligations hereunder and thereunder, and (D) to consummate the transactions
contemplated hereby and thereby, and (iii) is duly qualified and in good
standing to do business in those jurisdictions listed in Section 3.1(a) of the
Company Disclosure Schedule and in all other jurisdictions in which the failure
to be so qualified and in good standing could reasonably be expected to have a
material adverse effect on the Company or its business, properties, condition
(financial or otherwise), assets, Liabilities, operations, results of
operations, prospects or affairs (a "Material Adverse Effect"). The Company has
delivered to Parent true and complete copies of the Charter and by-laws of the
Company, in each case as amended to the date hereof. As used herein, "Charter"
shall mean, with respect to any corporation, those instruments that at the time
constitute its corporate charter as filed or recorded under the general
corporation law of the jurisdiction of its incorporation, including the articles
or certificate of incorporation or organization as the same may have been
restated, and any amendments thereto (including any articles or certificates of
merger or consolidation, certificate of correction or certificates of
designation or similar instruments which effect any such amendment) which became
effective after the most recent such restatement.
(b) EQUITY INVESTMENTS. The Company has never had, nor does it
currently have, any subsidiaries, nor has it ever owned, nor does it currently
own, any capital stock or other proprietary interest, directly or indirectly, in
any corporation, association, trust, partnership, joint venture or other entity.
As used herein, a "subsidiary" of any corporation means another corporation an
amount of whose voting securities sufficient to elect at least a majority of its
Board of Directors is owned directly or indirectly by such corporation.
(c) CAPITAL STOCK; SECURITIES. The authorized capital stock of
the Company consists solely of 1,500 shares of Company Common Stock, all of
which are outstanding. There are no outstanding rights, subscriptions, calls,
options, warrants, preemptive rights, conversion rights, commitments or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition (contingent or otherwise) from the Company of any shares of its
capital stock or any other securities or any securities convertible into or
exercisable or exchangeable for, or representing the right to purchase or
otherwise receive, any such capital stock, or other arrangement to acquire, at
any time or under any circumstance, capital stock of the Company or any such
other securities, except in accordance with this Agreement. The Company is not
subject to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any security convertible
into or exchangeable for any shares of its capital stock. All outstanding shares
of Company Common Stock are validly issued and outstanding, fully paid and
non-assessable and not subject to preemptive rights. Section 3.1(c) of the
Company Disclosure Schedule sets forth a true and complete list of the holders
of shares of Company Common Stock and the number of such shares owned of record
and beneficially by each such holder. Except as set forth in Section 3.1(c) of
the Company Disclosure
7
Schedule, there are no voting trusts, voting agreements, proxies, first refusal
rights, first offer rights, co-sale rights, options, transfer restrictions or
other agreements, instruments or understandings (whether written or oral, formal
or informal) with respect to the voting, transfer or disposition of Company
Common Stock to which the Company is a party or by which it is bound, or, to the
best knowledge of the Company and the Founders, among or between any persons
other than the Company. All shares of Company capital stock and all other
securities previously issued by the Company have been issued in compliance with
and pursuant to an exemption from all applicable federal and state securities or
"blue sky" laws.
(d) AUTHORITY; NO CONSENTS. The execution, delivery and
performance by the Company of this Agreement and the Agreement of Merger and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of the
Company; and this Agreement and the Agreement of Merger when executed and
delivered by the Company will be, duly and validly executed and delivered by the
Company; and this Agreement is a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, and the Agreement
of Merger, when executed and delivered by the Company, will be a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms. Except as set forth in Section 3.1(d) of the Company Disclosure
Schedule, neither the execution, delivery and performance of this Agreement or
the Agreement of Merger nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any provision
hereof or thereof will (A) conflict with, (B) result in any violation of, (C)
cause a default under (with or without due notice, lapse of time or both), (D)
give rise to any right of termination, amendment, cancellation or acceleration
of any obligation contained in or the loss of any material benefit under or (E)
result in the creation of any Encumbrance on or against any assets, rights or
property of the Company under any term, condition or provision of (x) any
instrument, contract or agreement to which the Company is a party, or by which
the Company or any of its properties, assets or rights may be bound, (y) any
law, statute, rule, regulation, order, writ, injunction, decree, permit,
concession, license or franchise of any Governmental Authority applicable to the
Company or any of its properties, assets or rights or (z) the Company's Charter
or by-laws. Except as set forth on Section 3.1(d) of the Company Disclosure
Schedule, no permit, authorization, consent or approval of or by, or any
notification of or filing with, any Governmental Authority or other person is
required in connection with the execution, delivery and performance by the
Company of this Agreement or the Agreement of Merger or the consummation by the
Company of the transactions contemplated hereby or thereby, except for (i) the
filing of the Agreement of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, and (ii) such other consents,
waivers, authorizations, filings, approvals and registrations which if not
obtained or made are not reasonably likely to result in a Material Adverse
Effect or impair the ability of the Company and the Stockholders to consummate
the transactions contemplated by this Agreement or the Agreement of Merger,
including, without limitation, the Merger (each of which actions reflected in
clauses (i) and (ii) above is to be taken by the Company on a timely basis).
8
(e) FINANCIAL INFORMATION.
(i) Attached as Section 3.1(e) to the Company Disclosure
Schedule are the following financial statements (collectively, the "Company
Unaudited Financial Statements"):
(1) the unaudited balance sheet of the Company as at
March 31, 1999 (the "Company Interim Balance Sheet") and the related statements
of operations, cash flow and stockholders' equity for the three-month period
then ended, prepared by the Company (the "Company Interim Financial
Statements"); and
(2) the unaudited balance sheets of the Company as
at December 31, 1996, December 31, 1997 and December 31, 1998, as amended to
date, and the related unaudited statements of operations, cash flow and
stockholders' equity for the years then ended, prepared by the Company.
(ii) The Company Unaudited Financial Statements (A) are
in accordance with the books and records of the Company and (B) fairly present
the financial condition of the Company as at the respective dates indicated and
the results of operations of the Company for the respective periods indicated.
The Company's Audited Financial Statements (as defined in Section 6.2(n)), when
delivered to Parent pursuant to Section 7.3, (A) shall be in accordance with the
books and records of the Company, (B) shall fairly present the financial
condition of the Company as at the respective dates indicated and the results of
operations of the Company for the respective periods indicated and (C) shall be
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except as indicated therein.
(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Section 3.1(f) of the Company Disclosure Schedule, at December 31, 1998, with
respect to the Company's Balance Sheet as of such date (the "Current Year-End
Balance Sheet"; and the date thereof being the "Current Year-End Balance Sheet
Date"), and at March 31, 1999, with respect to the Company Interim Balance
Sheet, respectively, (i) the Company had no liability or obligation of any
nature (whether known or unknown, matured or unmatured, fixed or contingent,
secured or unsecured, accrued, absolute or otherwise ("Liability")) required to
be set forth on the Current Year-End Balance Sheet or the Company Interim
Balance Sheet, respectively, in order for the Current Year-End Balance Sheet and
the Company Interim Balance Sheet, respectively, to fairly present the financial
condition of the Company at the respective dates thereof, which was not provided
for or disclosed thereon, and (ii) all liability reserves established by the
Company and set forth thereon were adequate for all such Liabilities at the
respective dates thereof. There were no material loss contingencies (as such
term is used in Statement of Financial Accounting Standards No. 5 issued by the
Financial Accounting Standards Board in March 1975 ("FAS No. 5")) which were not
adequately provided for on the Current Year-End Balance Sheet and the Company
Interim Balance Sheet, respectively, as required by FAS No. 5.
9
(g) ABSENCE OF CHANGES. Except as set forth in Section 3.1(g)
of the Company Disclosure Schedule, since the Company Current Year-End Balance
Sheet Date, the Company has been operated in the ordinary course, consistent
with past practice, and there has not been:
(i) any adverse change in the business, assets,
properties, Liabilities, operations, results of operations, condition (financial
or otherwise), prospects or affairs of the Company;
(ii) any damage, destruction or loss, whether or not
covered by insurance, having or which are reasonably likely to result in a
Material Adverse Effect;
(iii) any Liability in excess of $10,000 created,
assumed, guaranteed or incurred, or any material transaction, contract or
commitment entered into, by the Company, other than the license, sale or
transfer of the Company's products to customers in the ordinary course of
business;
(iv) any payment, discharge or satisfaction of any
material Encumbrance or Liability by the Company or any cancellation by the
Company of any material debts or claims or any amendment, termination or waiver
of any rights of material value to the Company;
(v) any declaration, setting aside or payment of any
dividend or other distribution of any assets of any kind whatsoever with respect
to any shares of the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition of any such shares of the capital
stock of the Company;
(vi) any stock split, reverse stock split, combination,
reclassification or recapitalization of any Company Common Stock, or any
issuance of any other security in respect of or in exchange for any shares of
Company Common Stock;
(vii) any issuance by the Company of any shares of its
capital stock or any debt security or any Equity Rights;
(viii) any license, sale, transfer, pledge, mortgage or
other disposition of any material tangible or intangible asset (including any
Intellectual Property Rights) of the Company, other than in the ordinary course
of business;
(ix) any termination of, or written indication of an
intention to terminate or not renew, any material contract, license, commitment
or other agreement between the Company and any other person;
(x) any material write-down or write-up of the value of
any asset of the Company, or any material write-off of any accounts receivable
or notes receivable of the Company or any portion thereof;
10
(xi) any increase in or modification of compensation
payable or to become payable to any officer, employee, consultant or agent of
the Company, or the entering into of any employment contract with any officer or
employee;
(xii) any increase in or modification or acceleration of
any benefits payable or to become payable under any bonus, pension, severance,
insurance or other benefit plan, payment or arrangement (including, but not
limited to, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any officer, employee, consultant or
agent of the Company;
(xiii) any loan, advance or capital contribution to or
investment in any person or the engagement in any transaction with any employee,
officer or securityholder of the Company, other than advances to employees in
the ordinary course of business for travel and similar business expenses;
(xiv) any change in the accounting methods or practices
followed by the Company or any change in depreciation or amortization policies
or rates theretofore adopted;
(xv) any change in the manner in which the Company
extends discounts or credit to customers or otherwise deals with customers;
(xvi) any termination of employment of any officer or key
employee of the Company or any expression of intention by any officer or key
employee of the Company to resign from such office or employment with the
Company;
(xvii) any amendments or changes in the Company's Charter
or by-laws;
(xviii) any labor dispute or any union organizing
campaign;
(xix) the commencement of any litigation or other action
by or against the Company or any threat of commencement of any litigation or
other action against the Company; or
(xx) any agreement, understanding, authorization or
proposal, whether in writing or otherwise, for the Company to take any of the
actions specified in items (i) through (xix) above.
(h) TAX MATTERS. Except as set forth in Section 3.1(h) of the
Company Disclosure Schedule, the Company and each other corporation (if any)
included in any consolidated or combined tax return in which the Company has
been included (i) have filed and will file, in a timely and proper manner,
consistent with applicable laws, all Federal, state and local Tax returns and
Tax reports required to be filed by them through the Closing Date (the "Company
Returns") with the appropriate governmental agencies in all jurisdictions in
which Company Returns are required to be filed and have timely paid or will
timely pay all amounts
11
shown thereon to be due; (ii) have paid and shall timely pay all Taxes of the
Company (or such other corporation) required to have been paid by the Company
(or such other corporation) on or before the Closing Date; and (iii) currently
are not the beneficiary of an extension of time within which to file any Tax
return or Tax report. Except as set forth in Section 3.1(h) of the Company
Disclosure Schedule, all such Company Returns were and will be correct and
complete at the time of filing. Except as set forth in Section 3.1(h) of the
Company Disclosure Schedule, all Taxes of the Company attributable to all
taxable periods ending on or before the Closing Date, to the extent not required
to have been previously paid, have been adequately provided for on the Current
Year-End Balance Sheet and the Company Interim Balance Sheet (as appropriate)
and the Company will not accrue a Tax Liability from the date of the Current
Year-End Balance Sheet up to and including the Closing Date, other than a Tax
Liability accrued in the ordinary course of business. The Company has not been
notified by the Internal Revenue Service or any state, local or foreign taxing
authority that any issues have been raised (and are currently pending) in
connection with any Company Return, and no waivers of statutes of limitations
have been given with respect to the Company that are still in effect. Except as
contested in good faith and disclosed in Section 3.1(h) of the Company
Disclosure Schedule, any deficiencies asserted or assessments (including
interest and penalties) made as a result of any examination by the Internal
Revenue Service or by any other taxing authorities of any Company Return have
been fully paid or are adequately provided for on the Current Year-End Balance
Sheet and the Company Interim Balance Sheet (as appropriate) and the Company has
received no notification that any proposed additional Taxes have been asserted
or proposed. The Company is, has always been, and immediately prior to the
Closing will be, an S corporation within the meaning of Section 1361 of the
Code. The Company has not made an election to be treated as a "consenting
corporation" under Section 341(f) of the Code. The Company has not agreed to,
nor is it required to, make any adjustment under Section 481(a) of the Code by
reason of a change in accounting method or otherwise. The Company will not incur
a Tax Liability resulting from the Company ceasing to be a member of a
consolidated or combined group that had previously filed consolidated, combined
or unitary Tax returns. The Company is not a party to any agreement or contract
with any "disqualified individual" (as defined in Section 280G(c) of the Code)
that, by reason of the transactions contemplated hereby and occurring on or
prior to the Closing Date or taking into account any other agreements or
contracts currently in effect between the Company and such disqualified
individual, will result in the disallowance of any deduction for any payment
under such agreement or contract as an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code). The Company is not, and has not been during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a United
States real property holding corporation within the meaning of Section 897(c) of
the Code. Each Stockholder is a citizen of the United States.
As used in this Agreement, "Tax" means any of the Taxes and "Taxes"
means, with respect to any entity, (A) all income taxes (including any tax on
or based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property
or windfall profits taxes, alternative or add-on minimum taxes, customs duties
and other taxes, fees, assessments or charges of any kind whatsoever, together
with all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on
12
such entity and (B) any liability for the payment of any amount of the type
described in the immediately preceding clause (A) as a result of being a
"transferee" (within the meaning of Section 6901 of the Code or any other
applicable law) of another entity or a member of an affiliated or combined
group.
(i) TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED
MATTERS. The Company has good and valid title to all assets, properties and
interests in properties, real, personal or mixed, reflected, respectively, on
the Current Year-End Balance Sheet and/or the Company Interim Balance Sheet or
acquired after the Company Current Year-End Balance Sheet Date (except (A)
inventory or other property sold or otherwise disposed of since the Company
Current Year-End Balance Sheet Date, or March 31, 1999, as the case may be, in
the ordinary course of business and (B) accounts receivable and notes receivable
paid in full subsequent to the Company Current Year-End Balance Sheet Date, or
March 31, 1999, as the case may be, or not so reflected therein but used or
useful in the conduct or operation of the Company's business, free and clear of
all Encumbrances, of any kind or character, except for (i) those Encumbrances
set forth in Section 3.1(i) of the Company Disclosure Schedule, and (ii) liens
for current taxes not yet due and payable. The assets, properties and interests
in properties of the Company are in good operating condition and repair in all
material respects (ordinary wear and tear excepted). The assets, properties and
interests in properties of the Company to be owned, leased or licensed by the
Surviving Corporation at the Effective Time shall include all assets, properties
and interests in properties (real, personal and mixed, tangible and intangible)
and all rights, leases, licenses and other agreements necessary to enable the
Surviving Corporation to carry on the business of the Company as presently
conducted by the Company or as proposed to be conducted. As used herein, the
term "Encumbrances" shall mean and include security interests, mortgages, liens,
pledges, guarantees, charges, easements, reservations, restrictions, clouds,
equities, rights of way, options, rights of first refusal and all other
encumbrances, whether or not relating to the extension of credit or the
borrowing of money.
(j) REAL PROPERTY-OWNED OR LEASED. The Company does not
currently own, nor has it or any of its predecessors ever owned, any real
property. Section 3.1(j) of the Company Disclosure Schedule contains a list and
brief description of (i) all real property leased by the Company, together with
all buildings and other structures and material improvements located on such
real property (the "Leased Real Property"), and (ii) with respect to each lease
covering the Leased Real Property (collectively, the "Leases"), (A) the name of
the lessor, (B) any requirement of consent of the lessor to assignment
(including assignment by way of merger or change of control), (C) the
termination date of the Lease, (D) the notice requirements with respect to
termination, (E) the annual rental thereunder, and (F) any renewal or purchase
terms thereof. The Company is the owner and holder of all the leasehold estates
purported to be granted by each Lease and all Leases are in full force and
effect and constitute valid and binding obligations of the Company. The Company
has made available to Parent true and complete copies of all Leases. Except as
set forth in Section 3.1(j) of the Company Disclosure Schedule, all improvements
included in the Leased Real Property are in good operating condition and repair
in all material respects (ordinary wear and tear excepted) and there does not
exist any condition which interferes with the economic value or use of such
property and improvements.
13
(k) INTELLECTUAL PROPERTY.
(i) The Company has good and valid title to, and (except
with respect to Licensed Software) owns free and clear of all Encumbrances, has
the exclusive right to use, sell, transfer, license (or sublicense), transmit,
broadcast, deliver (electronically or otherwise) and dispose of, and has the
right to bring actions for the infringement of, all Intellectual Property Rights
necessary or required for the conduct of its business as currently conducted and
as proposed to be conducted (collectively, the "Company Rights").
(ii) Except as disclosed in Section 3.1(k)(ii) of the
Company Disclosure Schedule, the execution, delivery and performance of this
Agreement and the consummation of the Merger and the consummation of the other
transactions contemplated hereby will not breach, violate or conflict with any
instrument or agreement governing any Company Rights, will not cause the
forfeiture or termination or give rise to a right of forfeiture or termination
of any Company Right or in any way impair the right of the Company or the
Surviving Corporation to use, sell, license (or sublicense), transmit,
broadcast, deliver (electronically or otherwise) or dispose of, or to bring any
action for the infringement of, any Company Right or portion thereof.
(iii) There are no royalties, honoraria, fees or other
payments payable by the Company to any person by reason of the ownership, use,
license (or sublicense), transmission, broadcast, delivery (electronically or
otherwise), sale, or disposition of the Company Rights, other than sales
commissions paid in the ordinary course of business.
(iv) Neither the manufacture, marketing, license (or
sublicense), sale, transmission, delivery (electronically or otherwise), or use
of any product or service currently or proposed to be licensed, sold, marketed,
transmitted, broadcast, delivered (electronically or otherwise) or used by the
Company or currently under development by the Company, violates any license (or
sublicense) or agreement of the Company with any third party or, to the best
knowledge of the Company and the Founders, infringes any common law or statutory
rights of any other party, including, without limitation, rights relating to
defamation, contractual rights, Intellectual Property Rights and rights of
privacy or publicity; nor, to the best knowledge of the Company and the
Founders, is any third party infringing upon, or violating any license (or
sublicense), transmission, broadcast, delivery (electronically or otherwise) or
agreement with the Company relating to any Company Right; and there is no
pending or, to the best knowledge of the Company and the Founders, threatened
claim or litigation contesting the validity, ownership or right to use,
manufacture, sell, license (or sublicense), transmit, broadcast, deliver
(electronically or otherwise) or dispose of any Company Right, nor is there any
basis for any such claim, nor has the Company received any notice asserting that
any Company Right or the proposed use, manufacture, sale, license (or
sublicense), transmission, broadcast, delivery (electronically or otherwise) or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, is there any basis for any such assertion.
(v) All current and past officers, employees and
consultants of or to the Company have executed and delivered to and in favor of
the Company an agreement
14
regarding the protection of confidential and proprietary information and the
assignment to the Company of all Intellectual Property Rights arising from the
services performed for the Company by such persons (collectively, the
"Confidentiality Agreements", the form of which is attached to Section 3.1(k)(v)
of the Company Disclosure Schedule). The Company has taken and will continue
through the Effective Time to take all steps necessary, appropriate or desirable
to safeguard and maintain the secrecy and confidentiality of, and its
proprietary rights in, all Company Rights.
(vi) Except as set forth in Section 3.1(k)(vi) of the
Company Disclosure Schedule, all works that were created, prepared or delivered
by consultants, independent contractors or other third parties for or on behalf
of Company (including any materials and elements created, prepared or delivered
by such parties in connection therewith) (A) are and shall constitute "works
made for hire" specially ordered or commissioned by the Company within the
meaning of United States' copyright law, or (B) all right, title and interest
therein (including any materials and elements created, prepared or delivered by
such parties in connection therewith) have been assigned to the Company.
(vii) No licenses or rights have been granted by the
Company, or by any employee, consultant, officer, agent or affiliate of the
Company or by anyone other than the foregoing, to distribute the source code of,
or to use source code to create Derivative Works of, any product currently
marketed by, commercially available from or under development by the Company for
which the Company possesses the source code. As used herein, "Derivative Work"
shall mean a work that is based upon one or more preexisting works, such as a
revision, enhancement, modification, abridgment, condensation, expansion or any
other form in which such preexisting works may be recast, transformed or adapted
and which, if prepared without authorization of the owner of the copyright in
such preexisting work, would constitute a copyright infringement. For purposes
herein, a "Derivative Work" shall also include any compilation that incorporates
such a preexisting work as well as translations from one type of code to
another.
(viii) Except as disclosed in Section 3.1(k)(viii) of the
Company Disclosure Schedule, no person has any marketing rights to any of the
Intellectual Property Rights of the Company (excluding Intellectual Property
Rights licensed to the Company by third parties).
(ix) Section 3.1(k)(ix) of the Company Disclosure
Schedule contains a true and complete list of all (A) of the Company's patents,
patent applications, trademarks, trademark applications, trade names, service
marks, service xxxx applications, copyrights, copyright registrations and
copyright applications and Internet domain names and applications therefor and
(B) other filings and formal actions made or taken pursuant to Federal, state,
local and foreign laws by the Company to perfect or protect its interest
therein.
(x) Section 3.1(k)(x) of the Company Disclosure Schedule
contains a true and complete list of all options, licenses or other agreements
of any kind by which Intellectual Property Rights have been granted to the
Company from, or granted by the Company
15
to, any other person (except for those licenses identified in Section 3.1(l)(i)
of the Company Disclosure Schedule).
(xi) As used herein, the term "Intellectual Property
Rights" shall mean all industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights, trademarks,
trademark applications, trade names, service marks, service xxxx applications,
copyrights, copyright registrations, copyright applications, franchises,
licenses, databases, "URL's" and Internet domain names and applications therefor
(and all interest therein), computer programs and other computer software
(including, but not limited to, the Software), user interfaces, know-how, trade
secrets, customer lists, proprietary technology, processes and formulae, source
code, object code, algorithms, architecture, structure, display screens,
layouts, development tools, instructions, templates, marketing materials,
inventions, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing.
(l) COMPANY SOFTWARE.
(i) Section 3.1(l)(i) of the Company Disclosure Schedule
sets forth a true and complete list and description of all software programs,
systems and applications (A) designed or developed or under development by
employees of the Company or by consultants on the Company's behalf including all
documentation therefor (the "Owned Software") or (B) licensed by the Company
from any third party, other than software constituting "off-the-shelf" software
(the "Licensed Software"), in each case that is manufactured or used by the
Company in the operation of its business or marketed, licensed or sold or
proposed to be marketed, licensed or sold by the Company to third parties
(collectively, the "Software") and, in the case of Licensed Software, Section
3.1(l)(i) of the Company Disclosure Schedule identifies each license agreement
with respect thereto.
(ii) All of the Owned Software are original works of
authorship and are protected by the copyright laws of the United States. The
Company owns all right, title and interest in and to the Owned Software, and all
copyrights thereto, free and clear of any Encumbrance and has not sold,
assigned, licensed, distributed or in any other way disposed of or subjected the
Owned Software to any Encumbrance.
(iii) The Licensed Software is validly held and used by
the Company and is fully utilizable by the Company pursuant to the applicable
license agreement with respect thereto without the consent of or notice to any
third party and is fully and freely utilizable by the Surviving Corporation or
Parent without the consent of or notice to any third party. All of the Company's
computer hardware has validly licensed software installed therein and the
Company's use thereof does not conflict with or violate any such license.
(iv) The Owned Software and, to the best knowledge of the
Company and the Founders, the Licensed Software, is free from any significant
software defect or programming or documentation error, operates and runs in a
reasonable and efficient business manner, substantially conforms to the
specifications thereof, and, with respect to the Owned
16
Software, the applications can be compiled from their associated source code
without undue burden.
(v) The Software does not contain any bugs or viruses not
consistent with commercially reasonable industry standards acceptable for bugs.
The Company has furnished Parent with all documentation relating to the use,
maintenance and operation of the Software listed on Section 3.1(l)(v) of the
Company Disclosure Schedule, all of which is true and accurate.
(vi) Except as set forth on Section 3.1(l)(vi) of the
Company Disclosure Schedule, the Company's products, hardware, databases,
firmware, embedded control systems, Owned Software and Licensed Software
(including existing products Software and technology and Software and technology
currently under development) used in the operation of the business as presently
conducted and as proposed to be conducted have been designed, written and tested
to, and will at all times (i) record, store, process, calculate, manage,
manipulate and present calendar dates falling before, on and after (and if
applicable, spans of time including) December 31, 1999, including, without
limitation, single-century formulas and multi-century formulas and (ii) create,
calculate, recognize, accept, display, store, retrieve, accent, compare, sort,
manipulate, or process any information dependent on or relating to such dates or
otherwise provide use of dates or date-dependent or date-related data,
including, but not limited to, century recognition, day-of-the week recognition,
leap years, date values and interfaces of date functionalities, without loss of
accuracy, functionality, data integrity and performance and will provide that
all date-related data and user interface functionalities and data fields include
the indication of century (collectively, "Year 2000 Compliant"). Section
3.1(l)(vi) of the Company Disclosure Schedule describes all software, hardware,
databases or embedded control systems not owned or developed by the Company that
is or are licensed for or otherwise used by the Company in the operation of its
business as presently conducted and as proposed to be conducted and the nature
and extent of the Company's knowledge and inquiry regarding the degree to which
all such hardware, software, databases or embedded control systems are Year 2000
Compliant.
(vii) Since the inception of the Company, the Company has
not, to any material extent, (A) defaulted under any software or development
contract, (B) failed to meet any product specifications or characteristics or
software or development milestones and standards thereunder, (C) failed to
properly interface any computer software program with the intended operating
system software or related hardware designs applicable thereto, or (D) had any
party to any software or development contract terminate said contract or notify
the Company that such party intends to terminate any such contract.
(m) AGREEMENTS, ETC. Section 3.1(m) of the Company Disclosure
Schedule sets forth a true and complete list of all written or oral contracts,
agreements and other instruments not made in the ordinary course of business to
which the Company is a party, or made in the ordinary course of business and
referred to in clauses (i) through (xvii) of this Section 3.1(m). Except as set
forth in Section 3.1(m), the Company is not a party to any
17
agreement, arrangement or understanding, whether written or oral, formal or
informal, relating to:
(i) agreements for the development, modification or
enhancement of computer software or multimedia products;
(ii) any material distributorship, dealer, sales,
advertising, agency, manufacturer's representative, franchise or similar
contract or relationship or any other contract relating to the payment of a
commission or other fee calculated as or by reference to a percentage of the
profits or revenues of the Company or of any business segment of the Company;
(iii) any joint venture, partnership or other agreement
or arrangement for the sharing of profits;
(iv) any collective bargaining contract or other contract
with or commitment to any labor union;
(v) the future purchase, sale or license of products,
material, supplies, equipment or services requiring payments to or from the
Company in an amount in excess of $10,000 per annum, which agreement,
arrangement or understanding is not terminable on thirty (30) days' notice
without cost or other liability at or at any time after the Effective Time, or
in which the Company has granted or received manufacturing rights, most favored
nations pricing provisions or exclusive marketing or other rights relating to
any product, group of products, services, technology, assets or territory;
(vi) any license (whether as licensor or licensee), or
sublicense, royalty, permit, or franchise agreement, including, without
limitation, any agreement pursuant to which the Company licenses any Company
Rights to any third party (other than ordinary course licenses to end-users);
(vii) the content or delivery of its computer software or
multimedia products and services (including the transmission or other
performance (electronically or otherwise));
(viii) the employment of any officer, employee,
consultant or agent or any other type of contract, commitment or understanding
with any officer, employee, consultant or agent which (except as otherwise
generally provided by applicable law) is not immediately terminable without cost
or other liability at or at any time after the Effective Time;
(ix) profit-sharing, bonus, stock option, stock
appreciation right, pension, retirement, disability, stock purchase,
hospitalization, insurance or similar plan or agreement, formal or informal,
providing benefits to any current or former officer, employee, agent or
consultant;
(x) indenture, mortgage, promissory note, loan agreement,
guarantee or other agreement or commitment for the borrowing of money, for a
line of credit or
18
for a leasing transaction of a type required to be capitalized in accordance
with Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board;
(xi) any agreement, instrument or other arrangement
granting or permitting any Encumbrance on any of the properties, assets or
rights of the Company;
(xii) any lease for real property (whether as lessor or
lessee) or any other lease or agreement under which the Company is lessee of or
holds or operates any items of tangible personal property owned by any third
party;
(xiii) contract or commitment for charitable
contributions;
(xiv) contract or commitment for capital expenditures
individually or in the aggregate in excess of $10,000;
(xv) any agreement or contract with a "disqualified
individual" (as defined in Section 280G(c) of the Code), which could result in a
disallowance of the deduction for any "excess parachute payment" (as defined in
Section 280G(b)(i) of the Code) under Section 280G of the Code as a result of
the transactions contemplated hereby;
(xvi) agreement or arrangement for the sale of any
assets, properties or rights having a value in excess of $10,000;
(xvii) agreement which restricts the Company from
engaging in any aspect of its business or competing in any line of business in
any geographic area; or
(xviii) any other agreement, contract or commitment which
is material to the Company.
For purposes of this Section 3.1(m), the term "material" shall mean and refer
to those agreements, contracts, instruments or arrangements (as applicable)
that involve payments or expenditures by or to the Company, or otherwise have
an aggregate value, of at least $10,000. The Company has furnished to Parent
true and complete copies of all such agreements listed in Section 3.1(m) of
the Company Disclosure Schedule and (x) each such agreement (A) is the legal,
valid and binding obligation of the Company and, to the best knowledge of the
Company and the Founders, the legal, valid and binding obligation of each
other party thereto, in each case enforceable in accordance with its terms,
(B) is in full force and effect and (y) to the best knowledge of the Company
and the Founders, except as set forth in Section 3.1(m) of the Company
Disclosure Schedule, the other party or parties thereto is or are not in
material default thereunder.
(n) NO DEFAULTS. The Company has in all material respects
performed all the obligations required to be performed by it to date and is not
in default or alleged to be in default under (i) its Charter or by-laws or (ii)
any material agreement, lease, license, contract, commitment, instrument or
obligation to which the Company is a party or by which any of its properties,
assets or rights are or may be bound or affected and, to the best knowledge of
the
19
Company and the Founders, there exists no event, condition or occurrence which,
with or without due notice or lapse of time, or both, would constitute such a
default by it of any of the foregoing.
(o) LITIGATION, ETC. There are no (i) actions, suits, claims,
investigations or legal or administrative or arbitration proceedings pending, or
to the best knowledge of the Company and the Founders, threatened against the
Company nor, to the best knowledge of the Company and the Founders, except as
set forth on Section 3.1(o) of the Company Disclosure Schedule, any basis
therefor, whether at law or in equity, or before or by any Federal, state,
local, municipal, foreign or other governmental court, department, commission,
board, bureau, agency or instrumentality ("Governmental Authority"), (ii)
judgments, decrees, injunctions or orders of any Governmental Authority or
arbitrator against the Company or (iii) disputes with customers or vendors.
There are no Actions pending or, to the best knowledge of the Company and the
Founders, threatened, nor, to the best knowledge of the Company and the
Founders, any basis therefor, with respect to (A) the current employment by, or
association with, the Company, or future employment by, or association with,
Parent or the Surviving Corporation, of any of the present officers or employees
of, or consultants to, the Company (collectively, the "Designated Persons") or
(B) the use, in connection with any business presently conducted or proposed to
be conducted by the Company or the Surviving Corporation, of any information,
techniques or processes presently utilized or proposed to be utilized by the
Company, Parent, the Surviving Corporation or any of the Designated Persons,
that the Company, Parent, the Surviving Corporation or any of the Designated
Persons are or would be prohibited from using as the result of a violation or
breach of, or conflict with any agreements or arrangements between any
Designated Person and any other person, or any legal considerations applicable
to unfair competition, trade secrets or confidential or proprietary information.
The Company has delivered to Parent all material documents and correspondence
relating to such matters referred to in Section 3.1(o) of the Company Disclosure
Schedule (including, in the case of clause (iii) of the first sentence of this
Section 3.1(o), any correspondence evidencing material customer dissatisfaction
with the Company or its products or services).
(p) ACCOUNTS AND NOTES RECEIVABLE. All the accounts receivable
and notes receivable owing to the Company as of the date hereof constitute, and
as of the Effective Time will constitute, valid and enforceable claims arising
from bona fide transactions in the ordinary course of business, and there are no
known or asserted claims, refusals to pay or other rights of set-off against any
thereof. There is (i) no account debtor or note debtor delinquent in its payment
by more than thirty (30) days, (ii) no account debtor or note debtor that has
refused (or, to the best knowledge of the Company and the Founders, threatened
to refuse) to pay its obligations for any reason, (iii) to the best knowledge of
the Company and the Founders, no account debtor or note debtor that is insolvent
or bankrupt and (iv) no account receivable or note receivable which is pledged
to any third party by the Company. Except to the extent of a reserve which the
Company has established specifically for doubtful accounts receivable and notes
receivable (which reserve is set forth on the Current Year-End Balance Sheet and
Company Interim Balance Sheet, is reasonable under the circumstances and is
consistent with past practice), all of the accounts receivable of the Company
existing at the Effective Time shall be
20
paid in full by not later than the ninetieth (90th) day after the Effective Time
and all of the notes receivable shall be paid in accordance with the terms
thereof.
(q) ACCOUNTS AND NOTES PAYABLE. Except as set forth in Section
3.1(q) of the Company Disclosure Schedule, all accounts payable and notes
payable by the Company to third parties as of the date hereof arose, and as of
the Closing will have arisen, in the ordinary course of business, and, except as
set forth in Section 3.1(q) of the Company Disclosure Schedule, there is no such
account payable or note payable delinquent in its payment, except those
contested in good faith and already disclosed in Section 3.1(q) of the Company
Disclosure Schedule.
(r) COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. The Company has
complied and is presently in compliance in all material respects with all
Federal, state, local or foreign laws, ordinances, regulations and orders
applicable to it or its business (including, without limitation, laws,
ordinances, regulations and orders applicable to labor, employment and
employment practices, terms and conditions of employment and wages and hours).
Except as set forth in Section 3.1(r) of the Company Disclosure Schedule, the
Company has all Federal, state, local and foreign governmental authorizations,
consents, approvals, licenses and permits necessary in the conduct of its
business as presently conducted or as proposed to be conducted, such
authorizations, consents, approvals, licenses and permits are in full force and
effect, no violations are or have been recorded in respect of any thereof and no
proceeding is pending or, to the best knowledge of the Company and the Founders,
threatened to revoke or limit any thereof. Section 3.1(r) of the Company
Disclosure Schedule contains a true and complete list of all such governmental
licenses, authorizations, consents, approvals, permits, orders, decrees and
other compliance agreements under which the Company is operating or bound, the
Company is not in default or alleged to be in default under any thereof and the
Company has furnished to Parent true and complete copies thereof. Except as set
forth in Section 3.1(r) of the Company Disclosure Schedule, none of such
authorizations, consents, approvals, licenses and permits shall be affected in
any material respect by the Merger or the transactions contemplated hereby.
(s) ENVIRONMENTAL MATTERS. The Company is in compliance with
all federal, state, local and foreign laws, common law, rules, codes,
administrative orders and regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") and, to the best knowledge of the Company and the
Founders, there are no events or circumstances that could form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by any
private party or governmental body or agency, against or affecting the Company
relating to any Hazardous Materials or the violation of any Environmental Law.
21
(t) LABOR RELATIONS; EMPLOYEES.
(i) Section 3.1(t) of the Company Disclosure Schedule
sets forth the name, title, department, start date, salary for 1998 and 1999,
option grant, any special benefits and termination dates, if applicable, for
each employee of the Company since its inception. The Company employs a total of
five (5) employees. Except as set forth in Section 3.1(t) of the Company
Disclosure Schedule, (A) the Company is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to date or amounts required to
be reimbursed to such employees, (B) upon termination of the employment of any
such employees, neither the Company, Parent, Acquisition Sub nor the Surviving
Corporation will by reason of anything done prior to the Closing be liable to
any of such employees for so-called "severance pay" or any other payments, (C)
there is no unfair labor practice complaint against the Company pending before
the National Labor Relations Board or any comparable Governmental Authority, (D)
there is no labor strike, dispute, slowdown or stoppage actually pending or, to
the best knowledge of the Company and the Founders, threatened against or
involving the Company, (E) no labor union has taken any action with respect to
organizing the employees of the Company, (F) neither any grievance nor any
arbitration proceeding arising out of or under collective bargaining agreements
is pending and no claim therefor has been asserted against the Company and (G)
no employee has informed any officer of the Company that such employee will
terminate his or her employment or engagement with the Company or the Surviving
Corporation and the Company has no reason to believe that the key employees that
accept employment with the Surviving Corporation will not remain employees of
the Surviving Corporation for at least ninety (90) days after the Closing. No
employee of the Company is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of such employee with the Company or any other party because of the
nature of the business conducted or proposed to be conducted by the Company or
the execution and delivery of the Confidentiality Agreement by such employee.
(u) EMPLOYEE BENEFIT PLANS AND CONTRACTS.
(i) Section 3.1(u) of the Company Disclosure Schedule
identifies each "employee benefit plan", as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and all
other written or formal plans or agreements involving direct or indirect
compensation (including any employment agreements entered into between the
Company and any Employee, but excluding workers' compensation, unemployment
compensation, other government-mandated programs and the Company's salary and
wage arrangements) currently or previously maintained, contributed to or entered
into by the Company or any ERISA Affiliate thereof for the benefit of any
Employee or former Employee under which the Company or any ERISA Affiliate
thereof has any present or future material obligation or liability (the
"Employee Plans"). The Company has made available to Parent true and complete
copies of all Employee Plans (and, if applicable, related trust agreements) and
all amendments thereto and written interpretations thereof. For purposes of the
preceding sentence, "ERISA Affiliate" shall mean any entity which is a member of
(A) a "controlled group of corporations", as defined in Section 414(b) of the
Code, (B) a group of entities under "common
22
control", as defined in Section 414(c) of the Code or (C) an "affiliated service
group", as defined in Section 414(m) of the Code or treasury regulations
promulgated under Section 414(o) of the Code, any of which includes the Company.
Any Employee Plans that individually or collectively would constitute an
"employee pension benefit plan", as defined in Section 3(2) of ERISA, but which
are not Multiemployer Plans (collectively, the "Pension Plans"), are identified
as such in the Company Disclosure Schedule. For purposes of Section 3.1(u),
"Employee" means any common law employee, consultant or officer of the Company.
(ii) Each Employee Plan that is intended to be qualified
under Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to the date hereof, and each trust forming a
part thereof is exempt from tax pursuant to Section 501(a) of the Code. The
Company has made available to Parent copies of the most recently filed Internal
Revenue Service Form 5500, the most recent annual or periodic accounting of plan
assets and provided Parent with copies of the most recent Internal Revenue
Service determination letters with respect to any such Employee Plan. Each
Employee Plan has been maintained substantially in compliance with its terms and
with the requirements prescribed by any and all statutes, orders, rules and
regulations, including, without limitation, ERISA and the Code, which are
applicable to such Employee Plans.
(iii) Except as set forth in Section 3.1(u) of the
Company Disclosure Schedule, no Employee Plan constitutes or since the enactment
of ERISA has constituted a "multiemployer plan", as defined in Section 3(37) of
ERISA (a "Multiemployer Plan"), (B) a plan covered under Title IV of ERISA, or
(C) a "multiple employer plan," as defined in Section 413(c) of the Code. The
Company has not within the past five years incurred any material liability under
Title IV of ERISA arising in connection with the termination of any Pension Plan
or the complete or partial withdrawal from any Multiemployer Plan. Except as
disclosed in Schedule 3.1 (u) of the Company Disclosure Schedule, if a "complete
withdrawal" by the Company were to occur as of the Closing with respect to all
Multiemployer Plans, the Company would not incur any withdrawal liability under
Title IV of ERISA.
(iv) Section 3.1(u) of the Company Disclosure Schedule
lists each employment, severance or other similar contract, arrangement or
policy and each plan or arrangement (written or oral) providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (A) is not an Employee
Plan, (B) is entered into, maintained or contributed to, as the case may be, by
the Company on behalf of any Employee, (C) covers any Employee or former
Employee, and (D) under which the Company or any ERISA Affiliate has any present
or future obligation or liability (excluding workers' compensation, unemployment
compensation or other government-mandated programs and the Company's salary and
wage arrangements). Such contracts, plans and arrangements as are described
above, are hereinafter referred to collectively as the "Benefit Arrangements".
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all material laws,
statutes, rules, regulations, orders and judgments which are applicable to such
Benefit Arrangements.
23
(v) Each Employee Plan which is a "group health plan" (as
defined in Section 5000 of the Code) has to the extent applicable been
maintained in compliance with Section 4980B of the Code and Title I, Subtitle B,
Part 6 of ERISA, and no tax payable on account of Section 4980B of the Code has
been or is expected to be incurred with respect to any current or former
Employees of the Company.
(vi) All contributions due and payable on or before the
Closing Date in respect of any Employee Plan or Benefit Arrangement have been
made in full and proper form, or adequate accruals have been provided for in the
Company Financial Statements for all other contributions or amounts in respect
of the Employee Plans or Benefit Arrangements for periods ending on the Closing
Date.
(vii) Except as required by Section 4980B of the Code and
Section 601 of ERISA, no Employee Plan or Benefit Arrangement currently or
previously maintained by the Company or its ERISA Affiliates provides any
post-retirement health or life insurance benefits, and neither the Company nor
its ERISA Affiliates maintains any obligations to provide any post-retirement
benefits in the future.
(viii) The consummation of the transactions contemplated
by this Agreement will not (A) entitle any individual to severance or separation
pay, or (B) except as set forth in the Section 3.1(u)(viii) of the Company
Disclosure Schedule, accelerate the time of payment or vesting, or increase the
amount, of compensation due to any individual. No payment made or contemplated
under any Employee Plan or Benefit Arrangement constitutes an "excess parachute
payment" within the meaning of Section 280G of the Code.
(ix) Except as set forth in Section 3.1(u)(ix) of the
Company Disclosure Schedule, with respect to each Employee Plan and Benefit
Arrangement: (A) no breach of fiduciary duty has occurred with respect to which
the Company or any such plan or arrangement may be liable or otherwise
materially damaged; (B) no disputes are pending or, to the best knowledge of the
Company and the Founders, threatened; (C) no prohibited transaction has occurred
with respect to which the Company or any such plan or arrangement may be liable
or otherwise materially damaged; (D) the Company has expressly reserved in
itself the right to amend, modify or terminate any such written plan or
arrangement, or any portion of it; and (E) the Company has satisfied any bond
coverage requirement of ERISA.
(v) CERTAIN AGREEMENTS. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any officer or employee of the Company from the Company, under any Employee
Plan, Benefit Arrangement or otherwise, (ii) with respect to any current or
former officer or key employee of the Company materially increase any benefits
otherwise payable under any Employee Plan or the Benefit Arrangement or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
(w) INSURANCE. Section 3.1(w) of the Company Disclosure
Schedule contains a list of all policies of liability, theft, fidelity, fire,
product liability, errors and
24
omissions, workmen's compensation, indemnification of officers and other forms
of insurance held by the Company (specifying the insurer, the amount of
coverage, the type of insurance, the policy number and any pending claims
thereunder) and a history of all claims made by the Company thereunder and the
status thereof. All such policies of insurance are in full force and effect and
all premiums with respect thereto are currently paid and, to the best knowledge
of the Company and the Founders, no basis exists for termination of any thereof
on the part of the insurer. The Company has not, since its inception, been
denied or had revoked or rescinded any policy of insurance.
(x) BANK ACCOUNTS; POWERS OF ATTORNEY. Section 3.1(x) of the
Company Disclosure Schedule sets forth a true and complete list of (i) all bank
accounts and safe deposit boxes of the Company and all persons who are
signatories thereunder or who have access thereto and (ii) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney from the Company and a summary of the
terms thereof.
(y) BROKERS. The Company has not, nor have any of its
officers, securityholders or employees, employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby.
(z) RELATED TRANSACTIONS. Except as disclosed in Section
3.1(z) of the Company Disclosure Schedule, no current or former officer or
securityholder of the Company that is an affiliate of the Company or any
associate (as defined in the rules promulgated under the Exchange Act) thereof,
is now, or has been since the inception of the Company, a party to any
transaction with the Company (including, but not limited to, any contract,
agreement or other arrangement providing for the furnishing of services by, or
rental of real or personal property from, or borrowing money from, or otherwise
requiring payments to, any such officer or affiliated stockholder of the Company
or associate thereof), or the direct or indirect owner of an interest in any
corporation, firm, association or business organization which is a present or
potential competitor, supplier or customer of the Company (other than
non-affiliated holdings in publicly-held companies), nor does any such person
receive income from any source other than the Company which relates to the
business of, or should properly accrue to, the Company.
(aa) TRAFFIC/USAGE. Xxxxxxxxxxx.xxx, Xxxxxxxx.xxx and
Xxxxxxxx.xxx are owned by the Company and, to the best knowledge of the Company
and the Founders, (a) have approximately 397,820 unique users as of May 31, 1999
(each, a "Unique User"), as evidenced by that certain America Online, Inc.
report dated May 31, 1999, (b) received approximately 63,947,303 advertising
views during the period beginning June 1, 1998 and ending May 31, 1999, as
evidenced by the information set forth in Section 3.1(aa) of the Company
Disclosure Schedule, and (c) received on average approximately 163,391 hours of
usage per month, as evidenced by the information set forth in Section 3.1(aa) of
the Company Disclosure Schedule.
25
(bb) MINUTE BOOKS. The minute books of the Company
provided to Parent for review contain a complete summary of all meetings of and
actions by Stockholders from the time of its incorporation to the date of such
review and reflect all actions referred to in such minutes accurately in all
material respects.
(cc) OTHER NAMES. Except as set forth on Section 3.1(cc)
of the Company Disclosure Schedule, the business conducted by the Company prior
to the date hereof has not been conducted under any corporate, trade or
fictitious name.
(dd) BUSINESS GENERALLY. There have been no events or
transactions, or information which has come to the attention of the Company or
any officer, or key employee thereof that is reasonably likely to result in a
Material Adverse Effect, and the Company is not obligated under any contractor
agreement or subject to any Charter or other corporate restriction which is
reasonably likely to result in a Material Adverse Effect.
(ee) VOTE REQUIRED. The affirmative vote of at least a
majority of the outstanding shares of Company Common Stock approving this
Agreement, the Merger and the Agreement of Merger is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the Agreement of Merger and the
transactions contemplated hereby and thereby.
(ff) INFORMATION SUPPLIED. None of the information
supplied or to be supplied by the Company or any Stockholder for inclusion or
incorporation by reference in the Stockholders' Materials will, at the dates
delivered to the Stockholders and at the effective date of the Stockholder
Action, contain any untrue statement of a material fact. The Stockholders'
Materials will comply as to form in all material respects with the provisions of
all applicable laws, rules and regulations of all Governmental Authorities.
(gg) COMPANY NOT AN INTERESTED SECURITYHOLDER OR AN
ACQUIRING PERSON. As of the date of this Agreement, neither the Company nor, to
the best knowledge of the Company and the Founders, any of its Affiliates is an
"Interested Securityholder" of Parent as such term is defined in Section 203 of
the Delaware Statute.
(hh) COMPANY EXPENSES. The Schedule of Expenses being
delivered at the Closing sets forth a true, correct and complete schedule of all
Company Expenses that have been incurred or paid by or on behalf of the Company
(whether or not theretofore billed) through the Effective Time and there are no
Company Expenses other than as set forth therein.
(ii) OFFICERS. Set forth on Section 3.1(ii) of the
Company Disclosure Schedule is a list of the current officers of the Company.
(jj) DISCLOSURE. Neither Section 3.1 of this Agreement
(including the Company Disclosure Schedule) nor any document, written
information, statement, financial statement, certificate or exhibit furnished or
to be furnished to Parent or Acquisition Sub by or on behalf of the Company or
any securityholder pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact
26
or omits or will omit to state a material fact necessary in order to make the
statements or facts contained herein and therein not misleading in light of the
circumstances under which they were made. There is no fact internal to the
business of the Company known to the Company or any Stockholder that has not
been disclosed to Parent in writing that (i) is reasonably likely to result in a
Material Adverse Effect or (ii) adversely affects or could adversely affect the
ability of the Company or the Stockholders to perform its or their respective
obligations under this Agreement or the Related Agreements.
(kk) KNOWLEDGE DEFINITION. As used in this Article 3, the
term "best knowledge" and like phrases shall mean and include (i) actual
knowledge and (ii) that knowledge which the Stockholders and the officers and
key employees of the Company could have obtained in the management of his or her
business affairs after making due inquiry and exercising due diligence with
respect thereto. In connection therewith, the knowledge (both actual and
constructive) of the Stockholders or any officer or key employee of the Company
shall be imputed to be the knowledge of the Company.
(ll) NO DISCRIMINATION. The Company has not and does not
in any manner or form discriminate, xxxxxx discrimination or permit
discrimination against any person, whether as to race, sex, religion, or other
legally protected classes of persons.
.2. SEVERAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each of
the Stockholders, severally (and not jointly) represents and warrants to Parent
and Acquisition Sub with respect to himself or herself as follows:
(a) TITLE; ABSCENCE OF CERTAIN AGREEMENTS. Such Stockholder
is the lawful and record and beneficial owner of, and has good and marketable
title to, the shares of Company Common Stock set forth opposite the name of such
Stockholder on Section 3.2(a) of the Company Disclosure Schedule, with the full
power and authority to vote such Company Common Stock and transfer and otherwise
dispose of such Company Common Stock, and any and all rights and benefits
incident to the ownership thereof free and clear of all Encumbrances, and there
are no agreements or understandings between such Stockholder and the Company
and/or any other Stockholder or any other person with respect to the voting,
sale or other disposition of Company Common Stock or any other matter relating
to Company Common Stock.
(b) AUTHORITY - GENERAL. Such Stockholder has full and
absolute power and authority to enter into this Agreement and each Related
Agreement to which such Stockholder is a party and this Agreement and each
Related Agreement to which such Stockholder is a party have been duly executed
and delivered by such Stockholder, and are valid and binding obligations of such
Stockholder, enforceable against such Stockholder in accordance with their
respective terms. Neither the execution, delivery and performance of this
Agreement and each Related Agreement to which such Stockholder is a party, nor
the consummation of the transactions contemplated hereby or thereby nor
compliance by such Stockholder with any of the provisions hereof or thereof will
(i) (A) conflict with, (B) result in any violations of, (C) cause a default
under (with or without due notice, lapse of time or both), (D) give rise to any
right of
27
termination, amendment, cancellation or acceleration of any obligation contained
in or the loss of any material benefit under or (E) result in the creation of
any Encumbrance upon or against any assets, rights or property of the Company
(or against any Company Common Stock, Parent capital stock or common stock of
the Surviving Corporation), under any term, condition or provision of (x) any
agreement or instrument to which such Stockholder is a party, or by which such
Stockholder or any of his or her properties, assets or rights may be bound, or
(y) any law, statute, rule, regulation, order, writ, injunction, decree, permit,
concession, license or franchise of any Governmental Authority applicable to
such Stockholder or any of his or her properties, assets or rights, which
conflict, breach, default or violation or other event would prevent the
consummation of the transactions contemplated by this Agreement, the Agreement
of Merger or any Related Agreement to which such Stockholder is a party. Except
as set forth in Section 3.2(b) of the Company Disclosure Schedule (which, if so
disclosed shall have been effectively made or obtained (as the case may be) on
or prior to the Closing, unless otherwise waived by Parent) no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any Governmental Authority or other person is required in connection with
the execution, delivery and performance by such Stockholder of this Agreement
and each Related Agreement to which such Stockholder is a party or the
consummation by such Stockholder of the transactions contemplated hereby or
thereby.
(c) INVESTMENT REPRESENTATIONS. Such Stockholder:
(i) is acquiring the Merger Shares being issued to such
Stockholder for investment and for such Stockholder's own account and not as a
nominee or agent for any other person and with no present intention of
distributing or reselling such shares or any part thereof in any transactions
that would be in violation of the Securities Act or any state securities or
"blue-sky" laws;
(ii) understands (A) that the Merger Shares to be issued
to him or her have not been registered for sale under the Securities Act or any
state securities or "blue-sky" laws in reliance upon exemptions therefrom, which
exemptions depend upon, among other things, the bona fide nature of the
investment intent of such Stockholder as expressed herein, (B) that such Merger
Shares must be held indefinitely and not sold until such shares are registered
under the Securities Act and any applicable state securities or "blue-sky" laws,
unless an exemption from such registration is available, (C) that, except as
provided in the Registration Rights Agreement, Parent is under no obligation to
so register such Merger Shares and (D) that the certificates evidencing such
Merger Shares will be imprinted with a legend in the form set forth in Section
7.2(b) that prohibits the transfer of such shares, except as provided in Section
7.2;
(iii) has been furnished with, and has read and reviewed,
the Parent's SEC Documents;
(iv) has had an opportunity to ask questions of and has
received satisfactory answers from the officers of Parent or persons acting on
Parent's behalf concerning Parent and the terms and conditions of an investment
in Parent Common Stock;
28
(v) is aware of Parent's business affairs and financial
condition and has acquired sufficient information about Parent to reach an
informed and knowledgeable decision to acquire the Merger Shares to be issued to
such Stockholder;
(vi) can afford to suffer a complete loss of his or her
investment in such Merger Shares;
(vii) is familiar with the provisions of Rule 144
promulgated under the Securities Act which, in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
requirements, including, among other things: (A) the availability of certain
public information about the issuer, (B) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable and (C) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a "market maker" (as such term is defined under the
Exchange Act);
(viii) understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 is
not exclusive, the staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial burden
of proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk;
(ix) has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks of
acquiring and holding shares of Parent Common Stock; and
(x) Such Stockholder is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act.
(d) BROKERS. No Stockholder has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
(e) REPRESENTATION BY LEGAL COUNSEL. Such Stockholder has been
advised by legal counsel in connection with the negotiation, execution and
delivery of this Agreement and the Related Agreements and the performance of the
transactions contemplated hereby and thereby.
.3. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.
Parent and Acquisition Sub represent and warrant to the Company and the
Stockholders as follows:
29
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each
of Parent and Acquisition Sub (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (ii)
has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted, to
enter into this Agreement and each of the Related Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. Parent has delivered to the
Company true and complete copies of the Charter and by-laws of each of Parent
and Acquisition Sub.
(b) CAPITAL STOCK. Parent's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999 filed with the SEC (the "Most Recent 10-Q")
sets forth a true and complete description of the authorized and outstanding
shares of capital stock of Parent as of May 13, 1999. Since May 13, 1999, Parent
has not (a) increased the number of shares of Parent capital stock reserved
under its stock option plans, or (b) issued in excess of 50,000 shares of
capital stock except pursuant to the exercise of options to purchase Parent
capital stock. All outstanding shares of capital stock of Parent are validly
issued, fully paid and non-assessable and not subject to preemptive rights and
Encumbrances created by Parent (other than Encumbrances created by or resulting
from the Escrow Agreement or the Stockholders' Agreement). All such shares of
capital stock have been issued in compliance with and pursuant to an exemption
from all applicable federal and state securities or "blue sky" laws. Parent has
filed an application to approve the Merger Shares for listing on NASDAQ.
(c) Parent has duly authorized and reserved for issuance the
Merger Shares and, when issued in accordance with the terms of Article 2, the
Merger Shares will be validly issued, fully paid and nonassessable and free of
preemptive rights and Encumbrances created by Parent. Parent owns all the
outstanding shares of capital stock of Acquisition Sub and all of such shares
are validly issued, fully paid and nonassessable and not subject to preemptive
rights and Encumbrances created by Parent.
(d) AUTHORITY. The execution, delivery and performance by
Parent of this Agreement and each of the Related Agreements to which it is a
party and the execution, delivery and performance of this Agreement and the
Agreement of Merger by Acquisition Sub and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Acquisition Sub, respectively. This
Agreement and each of the Related Agreements to which Parent is a party are
valid and binding obligations of Parent, enforceable against Parent in
accordance with their respective terms; and this Agreement is a valid and
binding obligation of Acquisition Sub, enforceable against Acquisition Sub in
accordance with its terms; and the Agreement of Merger, when executed and
delivered by Acquisition Sub, will be a valid and binding obligation of
Acquisition Sub, enforceable against Acquisition Sub in accordance with its
terms. Neither the execution, delivery and performance by Parent of this
Agreement and the Related Agreements to which Parent is a party, the execution,
delivery and performance of this Agreement and the Agreement of Merger by
Acquisition Sub, nor the consummation of the transactions contemplated hereby or
thereby, will in any material respect (A) conflict with, (B) result in any
material violation of, (C) cause a material default under (with or without due
notice, lapse of time or both), (D) give rise to any
30
material right of termination, amendment, cancellation or acceleration of any
obligation contained in or the loss of any material benefit under, (E) result in
the creation of any material Encumbrance on or against any assets, rights or
property of Parent or Acquisition Sub, as the case may be, under any term,
condition or provision of (x) any material instrument or agreement to which
Parent or Acquisition Sub is a party, or by which Parent or Acquisition Sub or
any of their respective properties, assets or rights may be bound, (y) any
material law, statute, rule, regulation, order, writ, injunction, decree,
permit, concession, license or franchise of any Governmental Authority
applicable to Parent or Acquisition Sub or any of their respective properties,
assets or rights or (z) Parent's or Acquisition Sub's Charter or by-laws, as
amended through the date hereof, respectively, in each case, which conflict,
breach, default or violation or other event would prevent the consummation of
the transactions contemplated by this Agreement, the Agreement of Merger or any
Related Agreement to which Parent or Acquisition Sub is a party. Except as
contemplated by this Agreement, no permit, authorization, consent or approval of
or by, or any notification of or filing with, any Governmental Authority or
other person is required in connection with the execution, delivery and
performance by Parent or Acquisition Sub of this Agreement, the Agreement of
Merger (in the case of Acquisition Sub) or the Related Agreements to which they
are a party or the consummation of the transactions contemplated hereby or
thereby, other than (i) the filing with the SEC of such reports and information
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated by the SEC thereunder, as may be required
in connection with this Agreement and the transactions contemplated hereby, (ii)
the filing of such documents with, and the obtaining of such orders from,
various state securities and blue-sky authorities as are required in connection
with the transactions contemplated hereby, (iii) the filing of the Agreement of
Merger with the Secretary of State of the State of Delaware and (iv) such other
consents, waivers, authorizations, filings, approvals and registrations which if
not obtained or made would materially impair the ability of Parent or
Acquisition Sub to consummate the transactions contemplated by this Agreement,
including, without limitation, the Merger (each of the filings set forth in
clauses (i), (ii) and (iii) have been or will be made by Parent when due).
(e) SEC DOCUMENTS.
(i) Parent has furnished or made available to the Company
and the Stockholders a correct and complete copy of the Final Prospectus filed
with the SEC on March 19, 1999 pursuant to Rule 424(b)(1) of the Securities Act
(the "Final Prospectus"), the Most Recent 10-Q, and each other report, schedule,
registration statement and definitive proxy statement filed by Parent with the
SEC on or after the date of filing of the Final Prospectus which are all the
documents (other than preliminary material) that Parent was required to file (or
otherwise did file) with the SEC in accordance with Sections 13, 14 and 15(d) of
the Exchange Act on or after the date of filing with the SEC of the Final
Prospectus (collectively, the "Parent's SEC Documents"). As of their respective
filing dates, or in the case of registration statements, their respective
effective dates, the Parent's SEC Documents complied when filed, or in the case
of registration statements, as of their respective effective dates, in all
material respects with the then applicable requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations promulgated
by the SEC thereunder.
31
(ii) As of their respective filing dates, or in the case
of registration statements, their respective effective dates, none of the
Parent's SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(iii) The financial statements (including the notes
thereto) of Parent included in the Most Recent 10-Q complied as to form in all
material respects with the then applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with GAAP during the periods involved (except as may have been
indicated in the notes thereto), are in accordance with the books and records of
Parent, and fairly present the financial position of Parent as at the dates
thereof and the results of its operations, stockholders' equity and cash flows
for the period then ended.
(iv) Since the date of the Most Recent 10-Q, no event has
occurred as of the date hereof which is required to be reported by Parent by
filing a Current Report on Form 8-K under the Exchange Act.
(f) BROKERS. Neither Parent, Acquisition Sub, nor any of their
respective officers, directors or employees have employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
ARTICLE 4.
RELATED AGREEMENTS
.1. RELATED AGREEMENTS. At the Closing, the following agreements (such
agreements being herein collectively referred to as the "Related Agreements")
will be executed and delivered by the respective parties thereto:
(a) EMPLOYEE CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS
AGREEMENTS. Each (i) equityholder of the Company who is expected to be an
employee of Parent or the Surviving Corporation upon the Closing and (ii)
employee of the Company who is expected to accept employment with Parent or the
Surviving Corporation subsequent to the Closing, is entering into a
non-competition, confidentiality and assignment of inventions agreement with
Parent, effective as of the Effective Time, in the form of EXHIBIT D attached
hereto (the "Employee Confidentiality Agreement"), providing for, among other
things, restrictions upon such person from competing with the business of Parent
and the Surviving Corporation, non-disclosure of confidential information and
ownership of proprietary information and rights.
(b) ESCROW AGREEMENT. Parent, each Stockholder, the Code Stone
Stockholder, the Stockholders' Representative and the Escrow Agent are entering
into the Escrow Agreement.
32
(c) RELEASE AGREEMENT. The Stockholders are entering into a
Release Agreement, effective as of the Effective Time, in the form of EXHIBIT E
attached hereto (the "Release Agreement"), providing for, among other things,
release of the Company, Parent, the Surviving Corporation and Parent's
affiliates from any and all claims, known and unknown, that such Stockholder may
have against the Company through the Effective Time.
(d) STOCKHOLDERS' AGREEMENT. Each of the Stockholders is
entering into the Stockholders' Agreement with Parent and the Code Stone
Stockholder, effective as of the closing date, in the form of EXHIBIT F attached
hereto (the "Stockholders' Agreement"), pursuant to which, among other things,
the Stockholders shall agree not to transfer their shares of Parent Common Stock
except in accordance with the Stockholders' Agreement.
(e) EMPLOYMENT AGREEMENTS. The Company is entering into
Employment Agreements with X. Xxxxxxxxxx Bond and Xxxxx Xxxx, substantially in
the forms attached hereto as EXHIBIT G (the "Employment Agreements"), pursuant
to which, among other things, X. Xxxxxxxxxx Bond and Xxxxx Xxxx will become
employees of Parent or the Surviving Corporation.
(f) REGISTRATION RIGHTS AGREEMENT. Parent and the Code Stone
Stockholder and each of the Stockholders are entering into a registration rights
agreement, substantially in the form attached hereto as EXHIBIT H (the
"Registration Rights Agreement").
(g) STOCK OPTION AGREEMENTS. Each of the Stockholders are
entering into a Stock Option Agreement with Parent substantially in the form
attached hereto as of EXHIBIT I (the "Stock Option Agreements").
ARTICLE 5.
CONDUCT AND TRANSACTIONS PRIOR
TO EFFECTIVE TIME; ADDITIONAL AGREEMENTS
.1. ACCESS TO RECORDS AND PROPERTIES OF EACH PARTY; CONFIDENTIALITY.
From and after the date hereof until the Effective Time or the earlier
termination of this Agreement pursuant to Section 9.1 hereof (the "Executory
Period"), the Company shall afford: (i) to the officers, independent certified
public accountants, counsel and other representatives of Parent and Acquisition
Sub, free and full access at all reasonable times upon reasonable notice to all
properties, books and records (including tax returns filed and those in
preparation) of the Company, in order that Parent and Acquisition Sub may have a
full opportunity to make such investigations as they shall reasonably desire to
make of the business and affairs of the Company; and (ii) to the independent
certified public accountants of Parent or Acquisition Sub, free and full access
at all reasonable times upon reasonable notice to the work papers of the
independent certified public accountants of the Company. Additionally, the
Company will permit Parent and Acquisition Sub to make such reasonable
inspections of the Company and its operations during normal business hours upon
reasonable notice as Parent or Acquisition Sub may reasonably require and the
Company will cause its officers to furnish to Parent and Acquisition Sub such
additional financial and operating data and other information relating to the
33
business and properties of the Company as Parent or Acquisition Sub shall from
time to time reasonably request. No investigation pursuant to this Section 5.1,
or made prior to the date hereof, shall affect or otherwise diminish or obviate
in any respect any of the representations and warranties of the Company or the
Stockholders.
.2. OPERATION OF BUSINESS OF THE COMPANY. During the Executory Period,
the Company will operate its business as now operated and only in the normal and
ordinary course and, consistent with such operation, will use its best efforts
to preserve intact its present business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with licensors, franchisees, licensees, suppliers, contractors,
distributors, customers and other persons having business dealings with it.
Without limiting the generality of the foregoing, during the Executory Period
the Company shall not, without the prior written consent of Parent, (a) take any
action that would result in any of the representations and warranties of the
Company herein becoming untrue or in any of the conditions to the Merger not
being satisfied, or (b) take or cause to occur any of the actions or
transactions described in Section 3.1(g) hereof, in each case other than in the
ordinary course of business consistent with past practice.
.3. NEGOTIATIONS WITH OTHERS. Until the Effective Time or the earlier
termination of this Agreement pursuant to Section 9.1 hereof (the time period
beginning on the date hereof and ending on such date being hereinafter referred
to as the "No-Shop Period"), neither the Company or any Stockholder shall, nor
shall the Company authorize any of its employees, officers, stockholders or
agents to, directly or indirectly, solicit, initiate or engage in discussions or
negotiations with, or provide any information to, or take any other action to
facilitate the efforts of, any third party with respect to a financing of, or
investment in, the Company (including by way of the purchase of any capital
stock or other securities from the Company or any Stockholder) or the
acquisition of the Company (including by way of merger, purchase of capital
stock or purchase of assets) or any of its assets by such third party, or that
would otherwise be inconsistent with the terms of this Agreement, or that would
prohibit the performance of the Company's obligations hereunder or that could be
expected to diminish the likelihood of or render impracticable the consummation
of the transactions contemplated hereby (each as described above (other than the
Merger and the transactions contemplated herein), an "Acquisition Transaction"),
or enter into any agreement or arrangement with respect to, or authorize or
consummate, an Acquisition Transaction. If the Company or any employee, officer,
stockholder or agent of the Company receives an unsolicited offer or proposal to
enter negotiations relating to an Acquisition Transaction, such party shall
immediately notify Parent of such offer or proposal and shall immediately reject
such offer. Upon the execution and delivery of this Agreement, the Company and
the Stockholders shall terminate any and all discussions, if any, it or they may
be having with respect to an Acquisition Transaction. During the No-Shop Period,
neither the Company or any Stockholder shall, nor shall the Company authorize
any of its employees, officers, stockholders or agents to, directly or
indirectly, negotiate or discuss with any person or entity that provides or
proposes to provide online services, the provision of financing to the Company
by such person or entity or any merger, consolidation, business combination or
similar transaction with any such person or entity, directly or indirectly.
34
.4. DISSENTING STOCKHOLDERS. Prior to the Closing, the Company shall
give Parent (a) prompt notice of any demand by any stockholder of the Company
(the "Dissenting Stockholders") for purchase of their shares of Company Common
Stock at fair value in the manner provided by Section 1301(b) and (c) of the
Delaware Statute and (b) the opportunity to participate in all negotiations and
proceedings with respect to any such demands. Prior to the Closing, the Company
shall not, except with the prior written consent of Parent, voluntarily make any
payment with respect to, or settle or offer to settle, any such demands for
payment.
.5. STOCKHOLDERS' APPROVAL. The Company shall (a) obtain in compliance
with applicable law and the Company's Charter and By-laws the requisite approval
of the Stockholders either pursuant to a unanimous written consent of the
Stockholders or at a special meeting of the Stockholders (the "Stockholders'
Meeting") within ten (10) days (or such other period as may be required by
applicable law and the Company's Charter and By-laws) after the mailing of the
Stockholders' Materials, in either case for the purpose of obtaining the
approval of the Merger, this Agreement and the transactions contemplated hereby
(in either case, the "Stockholder Action"), (b) take or cause to be taken all
such other action as may be required by the Delaware Statute and any other
applicable law and the Company's Charter and By-laws in connection with the
Merger and this Agreement, in each case as promptly as possible and (c)
reasonably cooperate with and assist Parent and its representatives in taking
any such actions as may reasonably be required to consummate the Merger,
including obtaining the consent and approval of any third parties or
governmental agencies. Unless the Company obtains the written consent of the
Stockholders, the Stockholders' Meeting shall be called, held and conducted, and
any proxies therefor shall be solicited, in compliance with applicable law and
the Company's Charter and By-laws. The Company shall not change the date of the
Stockholder Meeting (if it holds a Stockholder Meeting) without the prior
written consent of Parent, nor shall the Company adjourn the Stockholder Meeting
prior to obtaining such Stockholder approval of the transactions contemplated
hereby without the prior written consent of Parent, unless such adjournment is
due to the lack of a quorum, in which case the chairman of the meeting shall
announce at such Stockholder Meeting the time and place of the adjourned
meeting. The Company shall prepare and distribute any written notice and other
materials relating to the Stockholders' Action, the Merger or any other
transaction relating to or contemplated by this Agreement (collectively, the
"Stockholders' Materials") in accordance with the Charter and By-laws of the
Company, the Delaware Statute and any other Federal and state laws; provided,
however, that Parent and its counsel shall have the opportunity to review all
Stockholders' Materials prior to delivery to the Stockholders, and all
Stockholders' Materials shall be in form and substance reasonably satisfactory
to Parent and its counsel; provided, further, that if any event occurs that
should be set forth in an amendment or supplement to any Stockholders'
Materials, the Company shall promptly inform Parent thereof (or, if such event
relates solely to Parent, Parent shall promptly inform the Company thereof), and
the Company shall promptly prepare an amendment or supplement in form and
substance satisfactory to Parent in accordance with the Charter and By-laws of
the Company, the Delaware Statute and any other Federal or state laws.
.6. ADVICE OF CHANGES. The Company shall confer on a regular and
frequent basis with Parent, report on operational matters and promptly advise
Parent orally and in writing of any change, event or circumstance having or
which is reasonably likely to result in a Material
35
Adverse Effect or which could impair (negatively or positively) its financial
projections, forecasts or prospects.
.7. FINANCIAL INFORMATION UPDATE. During the Executory Period, the
Company shall:
(a) prepare and deliver to Parent, within ten (10) Business
Days after the end of each calendar month during the Executory Period, its
unaudited balance sheet as at the end of such calendar month and the related
statements of operations, cash flow and stockholders' equity for the period then
ended, which shall (i) be in accordance with the books and records of the
Company, and (ii) fairly present in all material respects the financial
condition of the Company as at the respective dates indicated and the results of
operations of the Company for the respective periods indicated. As used herein,
the term "Business Day" shall mean any day other than a Saturday, Sunday or day
on which banks are permitted to close in the State of New York;
(b) prepare and deliver on a weekly basis a summary of the
material developments (if any) in the business or prospects of the Company
occurring during such period; and
(c) furnish such other financial information as is available
to management of the Company.
.8. LEGAL CONDITIONS TO MERGER. Each party hereto shall take all
reasonable actions necessary to comply promptly with all legal requirements that
may be imposed on such party with respect to the Merger and will take all
reasonable action necessary to cooperate with and furnish information to the
other party in connection with any such requirements imposed upon such other
party in connection with the Merger. Each party hereto shall take all reasonable
actions necessary (a) to obtain (and will take all reasonable actions necessary
to promptly cooperate with the other party in obtaining) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Authority, or other third party, required to be obtained or made by such party
(or by the other parties) in connection with the Merger or the taking of any
action contemplated by this Agreement, (b) to defend, lift, rescind or mitigate
the effect of any lawsuit, order, injunction or other action adversely affecting
the ability of such party to consummate the transactions contemplated hereby and
(c) to fulfill all conditions precedent applicable to such party pursuant to
this Agreement.
.9. CONSENTS. Each party hereto shall use its best efforts, and the
other parties shall cooperate with such efforts, to obtain any consents and
approvals of, or effect the notification of or filing with, each person or
authority, whether private or governmental, whose consent or approval is
required in order to permit the consummation of the Merger and the transactions
contemplated hereby and to enable the Surviving Corporation to conduct and
operate the business of the Company as presently conducted and as proposed to be
conducted.
.10. EFFORTS TO CONSUMMATE. Subject to the terms and conditions herein
provided, the parties hereto shall use their best efforts to do or cause to be
done all such acts and things as may be necessary, proper or advisable,
consistent with all applicable laws and regulations, to consummate and make
effective the transactions contemplated hereby and to satisfy or cause to be
36
satisfied all conditions precedent that are set forth in Article 6 as soon as
reasonably practicable. Without limiting the generality of the foregoing, the
Company agrees to cooperate with, and to take all actions reasonably requested
by, Parent's Accountants in connection with the audit of the Audited Financial
Statements.
.11. NOTICE OF BREACH. Within a reasonable time period following such
event, each party hereto shall notify the other parties in writing upon the
occurrence of any act, event, circumstance or thing that would cause or result
in a representation or warranty hereunder being untrue at the Closing, the
failure of a closing condition to be achieved at the Closing, or any other
breach or violation hereof or default hereunder.
.12. SUPPORT OF MERGER BY OFFICERS AND DIRECTORS. Each party hereto
shall use its best efforts to cause all of its officers and directors to support
the Merger and to take all actions and execute all documents reasonably
requested by the other parties hereto to carry out the intent of the parties
with respect to the transactions contemplated hereby.
.13. SUPPORT OF MERGER BY STOCKHOLDERS. The Stockholders shall use all
reasonable efforts to cause the Company to duly observe and perform its
obligations under this Agreement.
.14. APPOINTMENT OF REPRESENTATIVE.
(a) POWERS OF ATTORNEY. Each Stockholder irrevocably
constitutes and appoints X. Xxxxxxxxxx Bond (the "Stockholders' Representative")
as such Stockholder's true and lawful agent, proxy, and attorney-in-fact and
agent and authorizes the Stockholders' Representative to act for such
Stockholder and in such Stockholder's name, place and stead, in any and all
capacities to do and perform every act and thing required or permitted to be
done in connection with the transactions contemplated by this Agreement and the
Related Agreements, as fully to all intents and purposes as such person might or
could do in person, including, without limitation, the power to:
(i) receive all notices required to be delivered to such
Stockholder under this Agreement, including, without limitation, any notice of a
claim for which indemnification is sought under Article 8 hereof below;
(ii) take any and all action on behalf of such
Stockholder from time to time as the Stockholders' Representative may deem
necessary or desirable to defend, pursue, resolve, and/or settle claims under
this Agreement, including, without limitation, claims for indemnification under
Article 8 hereof; and
(iii) engage and employ agents and representatives
(including accountants, legal counsel, and other professionals) and incur such
other expenses as he deems necessary or prudent in connection with the
administration of the foregoing.
Each Stockholder grants unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in connection with the transactions contemplated by this
Agreement and the Related Agreements, as fully to all intents
37
and purposes as such Stockholder might or could do in person, hereby ratifying
and confirming all that the Stockholders' Representative may lawfully do or
cause to be done by virtue hereof. Each Stockholder, by executing this
Agreement, agrees that such agency, proxy and power of attorney are coupled with
an interest, and are therefore irrevocable without the consent of the
Stockholders' Representative and shall survive the death, incapacity, or
bankruptcy of such Stockholder to the extent permitted by applicable law. Each
Stockholder acknowledges and agrees that upon execution of this Agreement, any
delivery by the Stockholders' Representative of any waiver, amendment,
agreement, opinion, certificate, or other documents executed by the
Stockholders' Representative or any decisions made by the Stockholders'
Representative pursuant to this Section 5.14 shall bind such Stockholder with
respect to such documents or decision as fully as if such Stockholder had
executed and delivered such documents or made such decisions.
(b) NOT LIABLE; INDEMNIFICATION. The Stockholders'
Representative shall not have, by reason of this Agreement, a fiduciary
relationship in respect of any Stockholder, except in respect of amounts
received on behalf of such Stockholder. The Stockholders' Representative shall
not be liable to any Stockholder ("Other Stockholders") for any action taken or
omitted by him or any agent employed by him hereunder or under any Related
Agreement, or in connection therewith, except that the Stockholders'
Representative shall not be relieved of any liability imposed by law for gross
negligence or willful misconduct. The Other Stockholders shall indemnify, defend
and hold the Stockholders' Representative harmless from and against any and all
losses, claims, shortages, damages, liabilities, expenses (including reasonable
attorneys', accountants' and experts' fees), assessments or Taxes (including
penalties thereon) sustained, suffered or incurred in connection with the
performance of his responsibilities as the Stockholders' Representative
(collectively, "Stockholders' Representative Losses"), unless such Stockholders'
Representative Losses are incurred because of the gross negligence or willful
misconduct of the Stockholders' Representative. The Stockholders shall bear the
Stockholders' Representative Losses pro rata based on the ratio that the Company
Common Stock owned by such Stockholder on the date hereof bears to all of the
issued Company Common Stock. The Stockholders' Representative shall not be
liable to the Stockholders for any apportionment or distribution of payments
made by him in good faith, and if any such apportionment or distribution is
subsequently determined to have been made in error the sole recourse of any
Stockholder to whom payment was due, but not made, shall be to recover from the
other Stockholders any payment in excess of the amount to which they are
determined to have been entitled. The Stockholders' Representative, in such
capacity, shall not be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions, or conditions of this
Agreement or any Related Agreement.
(c) REPLACEMENT OF THE STOCKHOLDERS' REPRESENTATIVE. Upon the
death, disability, or incapacity of the initial Stockholders' Representative
appointed pursuant to Section 5.14(a) above, each Stockholder acknowledges and
agrees that such Stockholders' Representative's executor, guardian, or legal
representative, as the case may be, shall (in consultation with the
Stockholders) appoint a replacement reasonably believed by such person as
capable of carrying out the duties and performing the obligations of the
Stockholders' Representative hereunder within thirty (30) days. In the event
that the Stockholders'
38
Representative resigns for any reason, the Stockholders' Representative shall
(in consultation with the Stockholders) select another representative to fill
such vacancy. Any substituted representative shall be deemed the Stockholders'
Representative for all purposes of this Agreement and the Related Agreements.
(d) ACTIONS OF THE STOCKHOLDERS' REPRESENTATIVE; LIABILITY OF
THE STOCKHOLDERS' REPRESENTATIVE. Each Stockholder agrees that Parent shall be
entitled to rely on any action taken by the Stockholders' Representative, on
behalf of the Stockholders, pursuant to Section 5.14(a) above (each, an
"Authorized Action"), and that each Authorized Action shall be binding on each
Stockholder as fully as if such Stockholder had taken such Authorized Action.
Parent agrees that the Stockholders' Representative shall have no liability to
Parent for any Authorized Action, except to the extent that such Authorized
Action is found by a final order of a court of competent jurisdiction to have
constituted fraud or willful misconduct. The Stockholders hereby release and
discharge Parent from and against any liability arising out of or in connection
with the Stockholders' Representative's failure to distribute any amounts
received by the Stockholders' Representative on Stockholders' behalf to the
Stockholders.
.15. EMPLOYEE CONFIDENTIALITY AGREEMENTS. Within five (5) business days
after the Closing Date, the Stockholders' Representative shall deliver to Parent
an Employee Confidentiality Agreement, effective as of the Effective Time, in
the form of EXHIBIT D attached hereto, executed by each of the employees of the
Company.
.16. TRANSACTIONS COSTS; LINE OF CREDIT. Within one (1) business day
after the Closing Date, the Stockholders' Representative shall deliver evidence
satisfactory to Parent and Acquisition Sub that, except as provided in Section
10.1, the Company has paid the amount of the Company Expenses.
ARTICLE 6.
CONDITIONS PRECEDENT
.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS. The obligations of each
party hereto to perform this Agreement and to effect the Merger are subject to
the satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by all parties hereto:
(a) STOCKHOLDER APPROVAL; AGREEMENT OF MERGER. This Agreement
and the Merger shall have been duly and validly approved and adopted by the
Stockholders in accordance with the Delaware Statute and the Company's Charter
and By-laws, and the Agreement of Merger shall have been executed and delivered
by Acquisition Sub and the Company and filed with and accepted by the Secretary
of State of the State of Delaware.
(b) APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with or expiration of waiting periods
imposed by, any Governmental Authority necessary for the consummation of the
transactions contemplated hereby shall have been obtained or made or shall have
occurred.
39
(c) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any Federal or state court or other
Governmental Authority and remain in effect.
(d) LEGISLATION. No Federal, state, local or foreign statute,
rule or regulation shall have been enacted which prohibits, restricts or delays
the consummation of the transactions contemplated by this Agreement or any of
the conditions to the consummation of such transactions.
.2. CONDITIONS TO OBLIGATIONS OF PARENT AND ACQUISITION SUB. The
obligations of Parent to perform this Agreement and of Acquisition Sub to
perform this Agreement and the Agreement of Merger are subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by Parent and Acquisition Sub at the Closing:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
representations and warranties of the Company and the Stockholders set forth in
Sections 3.1 and 3.2 hereof shall have been true and correct in all material
respects on the date of this Agreement (except for any representation or
warranty that by its terms is qualified by materiality, in which case it shall
be true and correct in all respects) and shall, individually and in the
aggregate, be true and correct in all material respects as of the Closing Date
as though made at and as of such dates, respectively, and Parent and Acquisition
Sub shall have received a certificate signed by the President of the Company to
that effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS. The Company and the Stockholders shall have performed in all
material respects the obligations required to be performed by it and them under
this Agreement prior to or as of the Closing Date, and Parent and Acquisition
Sub shall have received a certificate signed by the President of the Company to
that effect.
(c) DELIVERY OF CERTIFICATES. The Old Certificates shall have
been delivered to Parent in the manner and otherwise in accordance with Section
2.2 hereof.
(d) EMPLOYEE CONFIDENTIALITY AGREEMENTS. Each of the
Stockholders shall have executed and delivered to Parent an Employee
Confidentiality Agreement, effective as of the Effective Time, in the form of
EXHIBIT D attached hereto, providing for, among other things, non-disclosure of
confidential information and restrictions upon such person from competing with
the Surviving Corporation and Parent as provided therein.
(e) OPINION OF THE COMPANY'S AND STOCKHOLDERS' COUNSEL. A
favorable opinion dated the Closing Date shall have been delivered by Xxxx
Xxxxxxx Xxxxx & Xxxxxxxxxx, counsel to the Company and the Stockholders, in
favor of Parent and Acquisition Sub, in the form attached hereto as EXHIBIT J.
(f) CONSENTS AND APPROVALS. Duly executed copies of all
consents and approvals contemplated by this Agreement or the Company Disclosure
Schedule, in form and substance satisfactory to Parent and Acquisition Sub,
shall have been delivered by the Company.
40
(g) GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. Copies of all
consents, authorizations, orders or approvals of, and filings or registrations
with, any Governmental Authority which are required for or in connection with
the execution and delivery by the Company and the Stockholders of this
Agreement, the Agreement of Merger and the Related Agreements and the
consummation by the Company and the Stockholders of the transactions
contemplated hereby, shall have been delivered by the Company.
(h) COMPANY EXPENSES. A true, correct and complete schedule
(the "Schedule of Expenses") of all Company Expenses paid or incurred by or on
behalf of the Company or the Stockholders through the Closing Date, accompanied
by a certificate signed by the Chief Executive Officer of the Company certifying
the accuracy and completeness thereof, shall have been delivered by the Company.
(i) ESCROW AGREEMENT. Each of the Stockholders and the
Stockholders' Representative shall have executed and delivered the Escrow
Agreement and the Escrowed Shares shall have been delivered by Parent to the
Escrow Agent.
(j) RELEASE. A written instrument in the form of EXHIBIT E
attached hereto shall have been delivered by the Stockholders pursuant to which
each such Stockholder shall have released the Company, Parent, the Surviving
Corporation and their respective Affiliates and successors and assigns thereof
from and against any and all claims, known or unknown, that he or she may have
against the Company through the Effective Time.
(k) RELATED AGREEMENTS. Each of the Related Agreements shall
be in full force and effect as of the Effective Time and become effective in
accordance with the respective terms thereof and the actions required to be
taken thereunder by the parties thereto immediately prior to the Effective Time
shall have been taken, and each person or entity who or which is required or
contemplated by the parties hereto to be a party to any Related Agreement who or
which did not theretofore enter into such Related Agreement shall execute and
deliver such Related Agreement.
(l) EMPLOYMENT AGREEMENTS. Xxxxx Xxxx and X. Xxxxxxxxxx Bond
shall have executed and delivered the Employment Agreements.
(m) AUDITED FINANCIAL STATEMENTS. Parent shall have received
the audited balance sheet of the Company as at December 31, 1998 and the related
statements of operations, cash flow and stockholders' equity for the year then
ended (including complete footnotes thereto), certified by Parent's independent
certified public accountants ("Parent's Accountants"), and accompanied by a copy
of such auditor's report (collectively, the "Audited Financial Statements").
(n) SATISFACTION OF CLOSING CONDITIONS UNDER THE CODE STONE
REORGANIZATION AGREEMENT. Code Stone Technologies, Inc., a Delaware corporation
("Code Stone"), and Xxxxx Xxxx, the holder of all of the issued and outstanding
capital stock of Code Stone (the "Code Stone Stockholder"), shall have (i)
performed in all material respects the obligations required to be performed by
them on or prior to the Closing Date under that certain
41
Agreement and Plan of Reorganization, dated as of the date hereof (the "Code
Stone Reorganization Agreement"), by and among Code Stone, Code Stone
Acquisition Corporation, a Delaware corporation, and the Code Stone Stockholder,
and (ii) delivered to Parent a certificate signed by the President of Code Stone
to that effect.
.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company and the Stockholders to perform this Agreement, the Agreement of Merger
and the Related Agreements to which they are a party are subject to the
satisfaction of the following conditions unless waived (to the extent such
conditions can be waived) by the Company:
(a) REPRESENTATIONS AND WARRANTIES OF PARENT. The
representations and warranties of Parent and Acquisition Sub set forth in
Section 3.3 hereof shall be true and correct in all material respects (except
for any representation or warranty that by its terms is qualified by
materiality, in which case it shall be true and correct in all respects) as of
the date of this Agreement, and as of the Closing Date as though made at and as
of such dates, respectively, and the Company shall have received a certificate
signed by the Chief Executive Officer of Parent and the President of Acquisition
Sub to that effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND ACQUISITION SUB.
Parent and Acquisition Sub shall have performed in all material respects their
respective obligations required to be performed by them under this Agreement and
the Agreement of Merger prior to or as of the Closing Date and the Company shall
have received a certificate signed by the Chief Executive Officer of Parent and
the President of Acquisition Sub to that effect.
(c) GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. Copies of all
consents, authorizations, orders or approvals of, and filings or registrations
with, any Governmental Authority which are required for or in connection with
the execution and delivery by Parent and Acquisition Sub of this Agreement, the
Agreement of Merger and the Related Agreements and the consummation by Parent
and Acquisition Sub of the transactions contemplated hereby or thereby, shall
have been delivered by Parent.
(d) PURCHASE PRICE. The delivery of the New Certificates
(representing the Merger Shares (other than the Escrowed Shares)) and the cash
consideration deliverable at the Effective Time in the manner and otherwise in
accordance with Article 2 hereof (and concurrent delivery of the Escrowed Shares
to the Escrow Agent in accordance with Section 2.2 hereof), shall have been made
by Parent.
(e) ESCROW AGREEMENT. Parent shall have executed and delivered
the Escrow Agreement and delivered, on behalf of the Stockholders, the Escrowed
Shares to the Escrow Agent as provided in Section 2.2 hereof.
(f) REGISTRATION RIGHTS AGREEMENT. Parent shall have executed
and delivered the Registration Rights Agreement.
(g) STOCK OPTION AGREEMENTS. Parent shall have executed and
delivered the Stock Option Agreements.
-
42
ARTICLE 7.
ADDITIONAL AGREEMENTS
.1. RESTRICTIONS ON TRANSFER.
(a) The shares of Parent Common Stock to be issued to each
Stockholder at the Effective Time pursuant to the Merger and any shares of
capital stock or other securities received with respect thereto (collectively,
the "Restricted Securities") shall not be sold, transferred, assigned, pledged,
encumbered or otherwise disposed of (each, a "Transfer") except upon the
conditions specified in this Section 7.1, which conditions are intended to
insure compliance with the provisions of the Securities Act. Each Stockholder
shall observe and comply with the Securities Act and the rules and regulations
promulgated by the SEC thereunder as now in effect or hereafter enacted or
promulgated, and as from time to time amended, in connection with any Transfer
of Restricted Securities beneficially owned by the Stockholder.
(b) Each certificate representing the Restricted Securities
issued to a Stockholder and each certificate for such securities issued to
subsequent transferees of any such certificate shall (unless otherwise permitted
by the provisions of Sections 7.1(c) and 7.1(d) hereof) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF
THESE SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION
7.1 OF THE AGREEMENT AND PLAN OF REORGANIZATION DATED AS OF JUNE 30,
1999 AMONG IVILLAGE INC., ONLINEPSYCH ACQUISITION CORPORATION AND
ONLINE PSYCHOLOGICAL SERVICES, INC. AND THE OTHER SIGNATORIES THERETO
AND NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL
SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF CERTAIN
OF SUCH CONDITIONS, IVILLAGE INC. HAS AGREED TO DELIVER TO THE HOLDER
HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES
REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF IVILLAGE INC."
43
(c) Each Stockholder agrees, prior to any Transfer of
Restricted Securities, to give written notice to Parent of such Stockholder's
intention to effect such Transfer and to comply in all other respects with the
provisions of this Section 7.1. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by the written
opinion, addressed to Parent, of counsel for the holder of such Restricted
Securities, stating that in the opinion of such counsel (which opinion and
counsel shall be reasonably satisfactory to Parent) such proposed transfer does
not involve a transaction requiring registration or qualification of such
Restricted Securities under the Securities Act or the securities or "blue-sky"
laws of any relevant state of the United States. The holder thereof shall
thereupon, with the written consent of Parent, be entitled to Transfer such
Restricted Securities in accordance with the terms of the notice delivered by it
to Parent. Each certificate or other instrument evidencing the securities issued
upon the Transfer of any such Restricted Securities (and each certificate or
other instrument evidencing any untransferred balance of such Restricted
Securities) shall bear the legend set forth in Section 7.1(b) unless (x) in such
opinion of counsel of Parent registration of any future Transfer is not required
by the applicable provisions of the Securities Act or (y) Parent shall have
waived the requirement of such legends. No Stockholder shall Transfer any
Restricted Securities until such opinion of counsel has been given (unless
waived by Parent or unless such opinion is not required in accordance with the
provisions of this Section 7.1(c)).
(d) Notwithstanding the foregoing provisions of this Section
7.1, the restrictions imposed by this Section 7.1 upon the transferability of
Restricted Securities shall cease and terminate when (i) any such shares are
sold or otherwise disposed of pursuant to an effective registration statement
under the Securities Act or as otherwise contemplated by Section 7.1(c) and,
pursuant to Section 7.1(c), the securities so transferred are not required to
bear the legend set forth in Section 7.1(b) or (ii) the holder of such
Restricted Securities has met the requirements for Transfer of such Restricted
Securities pursuant to Rule 144. Whenever the restrictions imposed by this
Section 7.1 shall terminate, as herein provided, the holder of Restricted
Securities as to which such restrictions have terminated shall be entitled to
receive from Parent, without expense, a new certificate not bearing the
restrictive legend set forth in Section 7.1(b) and not containing any other
reference to the restrictions imposed by this Section 7.1.
(e) Each Stockholder understands and agrees that Parent, at
its discretion, may cause stop transfer orders to be placed with its transfer
agent with respect to certificates for Restricted Securities owned by such
Stockholder but not as to certificates for such shares of Parent Common Stock as
to which the legend set forth in Section 7.1(b) is no longer required because
one or more of the conditions set forth in Section 7.2(d) shall have been
satisfied.
.2. CONFIDENTIALITY. Each party hereto agrees that any information
obtained by such party (the "Receiving Party") pursuant to or in connection with
this Agreement, the Related Agreements and the transactions contemplated hereby
and thereby which may be proprietary or otherwise confidential to any other
party hereto (the "Disclosing Party") will not be disclosed by the Receiving
Party without the prior written consent of the Disclosing Party. Each party
further acknowledges and understands that any information obtained which may be
considered "inside" non-public information will not be utilized by such party in
connection with purchases and/or
44
sales of the Parent Common Stock except in compliance with applicable state and
federal anti-fraud statutes. The provisions of this Section 7.2 shall not be in
limitation of any rights which the Parent may have with respect to the books and
records of the Company, or to inspect its properties or discuss its affairs,
finances and accounts, under the laws of the jurisdiction in which it is
incorporated.
ARTICLE 8.
INDEMNIFICATION
.1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "AFFILIATE" as to any person means any entity, directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such person.
(b) "EVENT OF INDEMNIFICATION" shall mean the following:
(i) the untruth, inaccuracy or breach of any
representation or warranty of the Company or the Founders (including the fact
and circumstances underlying such untruth, inaccuracy or breach) contained in
Section 3.1 of this Agreement, or in the Company Disclosure Schedule, any
Exhibit or Schedule hereto or any other document delivered in connection
herewith or therewith (without giving effect to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty);
(ii) the untruth, inaccuracy or breach of any
representation or warranty of a Stockholder (including the fact and
circumstances underlying such untruth, inaccuracy or breach) contained in
Section 3.2 of this Agreement, or in the Company Disclosure Schedule, any
Exhibit or Schedule hereto or any other document delivered in connection
herewith or therewith (without giving effect to any "Material Adverse Effect" or
other materiality qualification or any similar qualification contained or
incorporated directly or indirectly in such representation or warranty);
(iii) the breach of any agreement or covenant of the
Company or the Stockholders contained in this Agreement, the Related Agreements
(except the Employment Agreements or the Stockholders' Agreement) or in the
Company Disclosure Schedule, any Exhibit hereto or any other document delivered
in connection herewith or therewith;
(iv) other than liabilities or obligations of the Company
arising after the Closing Date under contracts and agreements entered into prior
to the Closing Date that are disclosed on the Company Disclosure Schedule, any
claim, demand, liability or obligation of any nature whatsoever, which arose or
was incurred on or before the Closing Date, or which was based on events
occurring on or before the Closing Date, or which was based on products sold or
services performed by the Company or the Stockholders on or before the Closing
Date,
45
notwithstanding that the date on which the claim, demand, liability or
obligation may arise or become manifest is after the Closing Date; including,
without limitation, and notwithstanding the fact that such matters are disclosed
on the Company Disclosure Schedule, (i) any claim, demand, liability or
obligation of any nature whatsoever, (A) by or to employees, independent
contractors or volunteers of the Company for unpaid compensation or other
employment related benefits, and (B) arising from or in connection with the
matters disclosed in Section 3.1(a) of the Company Disclosure Schedule, and (ii)
any Tax and the fees and expenses of Xxxxxx, Updegove & Xxxxx, P.L.C., and
Xxxxxxxxx Financial Advisors, LLC paid or payable by the Company in connection
with the matters disclosed in Section 3.1(f) of the Company Disclosure Schedule
in excess of $10,000, individually or in the aggregate,
(v) any claim, demand, liability or obligation sustained
or suffered by the Company, Parent or the Surviving Corporation, or any of them,
arising from or in connection with (A) the action of the Stockholders required
to approve the transactions contemplated by this Agreement, the Agreement of
Merger and the Related Agreements, or (B) any assertion of impropriety by any
Stockholder against the Company, Parent or the Surviving Corporation, or any of
them, with respect to any actions or transactions of or involving the Company
prior to or at the Effective Time (including, without limitation, the actions
and transactions contemplated by this Agreement, the Agreement of Merger and the
Related Agreements);
(vi) the untruth, inaccuracy or breach of any
representation or warranty of Parent and Acquisition Sub (including the fact and
circumstances underlying such untruth, inaccuracy or breach) contained in
Section 3.3 of this Agreement, or in the Parent Disclosure Schedule, any Exhibit
or Schedule hereto or any other document delivered in connection herewith
(without giving effect to any "Material Adverse Effect" or other materiality
qualification or any similar qualification contained or incorporated directly or
indirectly in such representation or warranty, other than the representation and
warranty set forth in Section 3.3 (e) (ii)); or
(vii) the breach of any agreement or covenant of Parent
or Acquisition Sub contained in this Agreement, the Related Agreements (except
the Employment Agreements) or in the Parent Disclosure Schedule, any Exhibit
hereto or any document delivered in connection herewith.
(c) "INDEMNIFIED PERSONS" shall mean and include (A) with
respect to an Indemnification Event described in subsections 8.1(b)(i) through
8.1(b)(v) hereof, Parent, Acquisition Sub and the Surviving Corporation and
their respective Affiliates, successors and assigns, and the respective
officers, directors and agents of each of the foregoing, or (B) with respect to
an Indemnification Event described in subsections 8.1(b)(vi) and 8.1(b)(vii)
hereof, the Stockholders and the Company and the Affiliates, successors and
assigns, and the respective officers, directors and agents of each of the
foregoing.
(d) "INDEMNIFYING PERSONS" shall mean and include (A) with
respect to an Indemnification Event described in subsections 8.1(b)(i),
8.1(b)(iii), 8.1(b)(iv) and 8.1(b)(v)
46
hereof (1) prior to Closing, the Company and each of the Stockholders and the
respective successors, assigns, heirs and legal representatives and estates of
the Company and each Stockholder, as the case may be, (2) on and after the
Closing, each of the Stockholders and his or her respective successors, assigns,
heirs and legal representatives and estates, as the case may be, (B) with
respect to an Indemnification Event described in Section 8.1(b)(ii) hereof, each
Stockholder who breached a representation or warranty contained in Section 3.2
hereof or provided inaccurate or untrue information in connection with the
representations set forth in Section 3.2 hereof, and (C) with respect to an
Indemnification Event described in subsections 8.1(b)(vi) and 8.1(b)(vii)
hereof, Parent and Acquisition Sub and the respective successors and assigns of
Parent and Acquisition Sub, as the case may be.
(e) "LOSSES" shall mean any and all losses, claims, shortages,
damages, liabilities, expenses (including reasonable attorneys', accountants'
and experts' fees), assessments, or Taxes (including interest or penalties
thereon) sustained, suffered or incurred by any Indemnified Person arising from
or in connection with any such matter that is the subject of indemnification
under Section 8.2 hereof. With respect to any Indemnification Event, "Losses"
shall also include the amount necessary to ensure that the amount payable in
connection with such Indemnification Event (the "Indemnity Payment"), less an
amount equal to all Taxes payable by the Indemnified Persons as a result of the
receipt of the Indemnity Payment, equals the amount of the loss suffered by the
Indemnified Persons.
.2. INDEMNIFICATION GENERALLY. Subject to Section 8.6 hereof, the
Indemnifying Persons shall jointly and severally indemnify the Indemnified
Persons for, and hold each of them harmless from and against, any and all Losses
arising from or in connection with any Event of Indemnification. The
indemnification obligations set forth herein of the Stockholders shall be
secured pursuant to and in accordance with the Escrow Agreement. Any claims for
Losses hereunder may be satisfied pursuant to and in accordance with the terms
of the Escrow Agreement, notwithstanding the foregoing allocations of
responsibilities.
.3. ASSERTION OF CLAIMS. No claim shall be brought under Section 8.2
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give the Stockholders' Representative (a) written
notice of the existence of any such claim, specifying the nature and basis of
such claim and the amount thereof, to the extent known, or (b) written notice
pursuant to Section 8.4 of any third party claim, the existence of which might
give rise to such a claim but the failure so to provide such notice to the
Stockholders' Representative will not relieve the Indemnifying Persons from any
liability that they may have to the Indemnified Persons under this Agreement or
otherwise (unless and only to the extent that such failure results in the loss
or compromise of any rights or defenses of the Indemnifying Persons and they
were not otherwise aware of such action or claim). Upon the giving of such
written notice as aforesaid, the Indemnified Persons, or any of them, shall have
the right to commence legal proceedings prior or subsequent to the Survival Date
for the enforcement of their rights under Section 8.2 hereof.
47
.4. NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice
to the Stockholders' Representative of any Third Party Claim that might give
rise to any Loss by the Indemnified Persons, or any of them, stating the nature
and basis of such Third Party Claim, and the amount thereof, to the extent
known. Such notice shall be accompanied by copies of all relevant documentation
with respect to such Third Party Claim, including, without limitation, any
summons, complaint or other pleading that may have been served, any written
demand or any other document or instrument. Notwithstanding the foregoing, the
failure to provide notice as aforesaid to the Stockholders' Representative will
not relieve the Indemnifying Persons from any liability which they may have to
the Indemnified Persons under this Agreement or otherwise (unless and only to
the extent that such failure results in the loss or compromise of any rights or
defenses of the Indemnifying Person and they were not otherwise aware of such
action or claim).
(b) If the Indemnifying Person acknowledges in writing its
obligation to indemnify the Indemnified Persons hereunder against any Losses
that may result from such Third Party Claims, then the Indemnifying Person shall
be entitled, at its option, to assume and control the defense of such Third
Party Claim at its expense and through counsel of its reasonable choice if it
gives notice to the Indemnified Persons within twenty (20) calendar days of the
receipt of notice of such Third Party Claim from the Indemnified Persons of its
intention to do so. If the Indemnifying Person elects to assume and control the
defense of any such Third Party Claim, the Indemnified Persons shall have the
right to employ separate counsel and to participate in (but not control) the
defense, compromise or settlement of the Third Party Claim, but the fees and
expenses of such counsel will be at the expense of the Indemnified Persons,
unless (i) the Indemnifying Person has agreed to pay such fees and expenses, or
(ii) the Indemnified Persons has been advised by its counsel that there may be
one or more defenses reasonably available to it which are different from or
additional to those available to the Indemnifying Person, and in any such case
that portion of the fees and expenses of such separate counsel that are
reasonably related to matters covered by the indemnification provided by this
Article 8 will be paid by the Indemnifying Person. Expenses of counsel to the
Indemnified Persons shall be reimbursed on a current basis by the Indemnifying
Person if there is no dispute as to the obligation of the Indemnifying Person to
pay such amounts pursuant to this Article 8. In the event the Indemnifying
Person exercises its right to undertake the defense against any such Third Party
Claim as provided above, the Indemnified Persons shall cooperate with the
Indemnifying Person in such defense and make available to the Indemnifying
Person, at the Indemnifying Person's expense, all witnesses, pertinent records,
materials and information in its possession or under its control relating
thereto as is reasonably required by the Indemnifying Person. Similarly, in the
event the Indemnified Persons is, directly or indirectly, conducting the defense
against any such Third Party Claim, the Indemnifying Person shall cooperate with
the Indemnified Persons in such defense and make available to it, at the
Indemnifying Person's expense, all such witnesses, records, materials and
information in its possession or under its control relating thereto as is
reasonably required by the Indemnified Persons. No such Third Party Claim,
except the settlement thereof which involves the payment of money only (by a
party or parties other than
48
the Indemnified Persons) and for which the Indemnified Persons is released by
the third party claimant and is totally indemnified by the Indemnifying Person,
may be settled by the Indemnifying Person without the written consent of the
Indemnified Persons. No Third Party Claim which is being defended in good faith
by the Indemnifying Person shall be settled by the Indemnified Persons without
the written consent of the Indemnifying Person.
.5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the further
provisions of this Section 8.5, the respective representations and warranties of
(a) each of the Stockholders set forth in Sections 3.1 and 3.2 shall survive the
Effective Time until fourteen (14) months following the Closing Date, except
that the representations and warranties contained in (i) Section 3.2(a) (Title;
Absence of Certain Agreements) shall not so terminate but shall survive the
Closing indefinitely and (ii) Section 3.1(h) (Tax Matters) shall not so
terminate but shall survive the Closing until sixty (60) days after the
applicable statute of limitations shall have expired with respect to all matters
referenced therein and (b) the Company, Acquisition Sub and Parent shall survive
the Effective Time until fourteen (14) months following the Closing Date. For
convenience of reference, the date upon which any representation or warranty
contained herein shall terminate is referred to herein as the "Survival Date."
All covenants and agreements of Parent or the Stockholders contained herein
shall survive the Closing in accordance with their respective terms. Anything
contained herein to the contrary notwithstanding, the representations and
warranties of the Company contained in this Agreement (including, without
limitation, the Company Disclosure Schedule) (i) are being given by the Company
on behalf of the Stockholders and for the purpose of binding the Stockholders to
the terms and provisions of this Article 8 and the Escrow Agreement, and as an
inducement to Parent and Acquisition Sub to enter into this Agreement and to
approve the Merger (and the Company and the Stockholders acknowledge that Parent
and Acquisition Sub have expressly relied thereon) and (ii) are solely for the
benefit of the Indemnified Persons and each of them. Accordingly, no third party
(including, without limitation, the Stockholders or anyone acting on behalf of
any thereof) other than the Indemnified Persons, and each of them, shall be a
third party or other beneficiary of such representations and warranties and no
such third party shall have any rights of contribution against the Company or
the Surviving Corporation with respect to such representations or warranties or
any matter subject to or resulting in indemnification under this Article 8 or
otherwise.
.6. LIMITATION ON INDEMNIFICATION.
(a) Anything to the contrary contained in this Article 8
notwithstanding, the Indemnifying Persons shall not be obligated to indemnify
the Indemnified Persons pursuant to this Article 8 with respect to any Losses
pursuant to Section 8.2 until the aggregate amount of such Losses exceeds three
hundred thousand dollars ($300,000) (the "Basket Amount"), whereupon the
Indemnifying Persons shall be obligated to indemnify the Indemnified Persons for
all Losses in excess of the Basket Amount; provided, however, that the
Indemnifying Persons shall be obligated to indemnify the Indemnified Persons for
the first dollar of all Losses arising out of or related to a breach of the
representations and warranties contained in Sections 3.1(c), 3.1(y), 3.1(hh),
and 3.2(a); provided, further, that the aggregate maximum indemnification
liability of the Indemnifying Persons pursuant to this Article 8 with respect to
any Losses
49
pursuant to an Event of Indemnification under Section 8.2, together
with any losses pursuant to an "Event of Indemnification" under Section 8.2 of
the Code Stone Reorganization Agreement, shall not exceed $15,000,000.
(b) For purposes of satisfying an indemnification obligation
of the Stockholders under this Article 8, each share of Parent Common Stock
tendered by or on behalf of a Stockholder in satisfaction of any indemnification
of such Stockholder under this Article 8 shall have a value determined as set
forth in the Escrow Agreement.
ARTICLE 9.
TERMINATION; AMENDMENT, MODIFICATION AND WAIVER
.1. TERMINATION. This Agreement may be terminated, and the Merger
abandoned, notwithstanding the approval by Parent, Acquisition Sub and the
Company of this Agreement, at any time prior to the Effective Time, by:
(a) the mutual consent of Parent, Acquisition Sub and the
Company; or
(b) Parent and Acquisition Sub if the conditions set forth in
Sections 6.1 or 6.2 hereof shall not have been met by July 30, 1999, except if
such conditions have not been met solely as a result of the action or inaction
of Parent or Acquisition Sub; or
(c) the Company if the conditions set forth in Sections 6.1 or
6.3 hereof shall not have been met by July 30, 1999, except if such conditions
have not been met solely as a result of the action or inaction of the Company or
the Stockholders; or
(d) Parent, Acquisition Sub or the Company if such party shall
have determined in its sole discretion, exercised in good faith, that the Merger
contemplated by this Agreement has become impracticable by reason of the
institution of any litigation, proceeding or investigation to restrain or
prohibit the consummation of the Merger, or which questions the validity or
legality of the transactions contemplated by this Agreement; or
(e) Parent and Acquisition Sub if any statute, rule,
regulation or other legislation shall have been enacted which, in the sole
discretion of Parent and Acquisition Sub, exercised in good faith, is reasonably
likely to result in a Material Adverse Effect.
Any termination pursuant to this Section 9.1 (other than a termination
pursuant to Section 9.1(a) hereof) shall be effected by written notice from
the party or parties so terminating to the other parties hereto.
.2. EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall be of no further
force or effect, except for Section 7.2, Article 8, this Section 9.2, and
Article 10, each of which shall survive the termination of this Agreement;
provided, however, that (a) the liability of any party for any breach by such
party of the representations, warranties, covenants or agreements of such party
set forth in this Agreement
50
occurring prior to the termination of this Agreement shall survive the
termination of this Agreement, and (b) in the event that Parent shall terminate
this Agreement for any reason other than pursuant to subsections (b) of Section
9.1, Parent shall pay the Company $50,000.
ARTICLE 10.
MISCELLANEOUS
.1. EXPENSES. As used in this Agreement, "Transaction Costs" shall mean
(a) with respect to Parent or Acquisition Sub, all actual, out-of-pocket
expenses incurred by such party to third parties, in connection with this
Agreement, the Merger Agreement, the Related Agreements, the Merger and all
other transactions provided for herein and therein, and (b) with respect to the
Company, Code Stone, the Stockholders or the Code Stone Stockholder, all actual,
out-of-pocket expenses incurred by such party to third parties, in connection
with (i) this Agreement, the Merger Agreement, the Related Agreements, the
Merger and all other transactions provided for herein and therein or (ii) the
Code Stone Reorganization Agreement, the ancillary agreements executed in
connection therewith and the transactions contemplated thereby; but shall not in
any event include general overhead; the time spent by employees of such party
internally; postage, telephone, telecopy, photocopy and delivery expenses of
such party; permit and filing fees; and other non-material expenses that are
incidental to the ordinary course of business. Each party hereto shall bear its
own fees and expenses in connection with the transactions contemplated hereby;
provided, however, that in the event the Merger shall be consummated, Parent and
Acquisition Sub shall bear (a) all Transaction Costs of Parent and Acquisition
Sub and (b) $30,000 of the Transaction Costs of the Company, Code Stone, the
Stockholders or the Code Stone Stockholder, whether or not such fees and
expenses have been paid by the Company on or before the Closing Date and whether
or not such fees and expenses are reflected in the Company Disclosure Schedule
or the Schedule of Expenses (such Transaction Costs of the Company and the
Stockholders being herein collectively referred to as the "Company Expenses").
.2. ENTIRE AGREEMENT. This Agreement (including the Company Disclosure
Schedule and the Exhibits attached hereto), the Agreement of Merger, the Related
Agreements and the other writings referred to herein contain the entire
agreement among the parties hereto with respect to the transactions contemplated
hereby and supersede all prior or contemporaneous agreements or understandings,
written or oral, among the parties with respect thereto, including, but not
limited to, the letter of intent, dated May 12, 1999, by and among Parent, Code
Stone and the Company.
.3. DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
.4. PUBLIC ANNOUNCEMENTS. The parties hereto agree that, to the maximum
extent feasible, but subject, in the case of Parent, to its public disclosure
and, as to all parties, other legal and regulatory obligations, they shall
advise and confer with each other prior to the
51
issuance (and provide copies to the other party prior to issuance) of any public
announcements, reports, statements or releases pertaining to the Merger.
.5. NOTICES.
All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally-recognized overnight courier or by registered or certified
mail, postage prepaid, return receipt requested, or by facsimile, with
confirmation as provided above addressed as follows:
(a) if to Parent or Acquisition Sub, to:
iVillage Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000;
with a copy (not constituting notice) to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx X. Xxxxxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000;
(b) if to the Company, to:
Online Psychological Services, Inc.
00 Xxxxxx Xxxxxx
Xxxxx Xxxxxxx, Xxxxxxxxxxxxx 00000
Attention: X. Xxxxxxxxxx Bond
Telephone: (000) 000-0000
Telecopier: (000) 000-0000;
with a copy (not constituting notice) to:
Xxxx Xxxxxxx Xxxxx & Xxxxxxxxxx
0000 Xxxxxxxxxxxxx Xxxxx
XxXxxx, Xxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000; and
52
(c) if to the Stockholders, at their respective addresses set
forth on SCHEDULE 10.5 attached hereto;
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such
notices or communications shall be deemed to be received (i) in the case of
personal delivery or facsimile, on the date of such delivery, (ii) in the case
of nationally-recognized overnight courier, on the next Business Day after the
date when sent and (iii) in the case of mailing, on the third Business Day
following the date on which the piece of mail containing such communication
was posted.
.6. COUNTERPARTS. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
.7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein (without regard to principles of conflicts of
laws).
.8. BENEFITS OF AGREEMENT. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
.9. PRONOUNS. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
.10. AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by (i) Parent, (ii) the Company and (iii) the Stockholders; provided, however,
that any party to this Agreement may waive any obligation owed to it by any
other party under this Agreement. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach.
.11. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the greatest extent possible.
.12. FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the
53
transactions described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
.13. CONSENT TO JURISDICTION; WAIVERS. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of
the State of New York, New York County, and (b) the United States District Court
for the Southern District of New York, for the purposes of any Action (as
defined below) arising out of this Agreement, the Agreement of Merger or any
Related Agreement or any transaction contemplated hereby or thereby. Each of the
parties hereto agrees to commence any Action relating hereto either in the
United States District Court for the Southern District of New York or if such
Action may not be brought in such court for jurisdictional reasons, in the
Supreme Court of the State of New York, New York County. Each of the parties
hereto further agrees that service of any process, summons, notice or document
by U.S. registered mail to such party's respective address set forth in Section
10.5 shall be effective service of process for any Action in New York with
respect to any matters to which it has submitted to jurisdiction in this Section
10.13. Each of the parties hereto irrevocably and unconditionally waives any
objection to the laying of venue of any Action arising out of this Agreement,
the Agreement of Merger or any Related Agreement or any transaction contemplated
hereby or thereby in (i) the Supreme Court of the State of New York, New York
County, or (ii) the United States District Court for the Southern District of
New York, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such Action brought in any such
court has been brought in an inconvenient forum. For purposes of this Agreement,
"Action" means any claim, action, suit or arbitration, or any other proceeding,
in each instance by or before any Governmental Authority or any nongovernmental
arbitration, mediation or other nonjudicial dispute resolution body.
.14. WAIVER OF JURY TRIAL. Each of the parties hereto irrevocably and
unconditionally waives trial by jury in any Action relating to this Agreement,
the Related Agreements, the Agreement of Merger or any transaction contemplated
hereby or thereby, and for any counterclaim with respect thereto.
.15. ATTORNEY'S FEES; DISPUTES. If any party to this Agreement or any
of the agreements contemplated hereby brings an Action against another party
hereto or thereto, the prevailing party shall be entitled to reasonable
attorneys' fees and costs incurred in such Action.
54
IN WITNESS WHEREOF, each of the parties hereto has caused
this Agreement and Plan of Reorganization to be executed on its behalf as of
the day and year first above written.
IVILLAGE INC.
By: /s/ Xxxxxx X. Xxxxx
-----------------------
Name: Xxxxxx X. Xxxxx
Title: Senior Vice President and
Assistant Secretary
ONLINEPSYCH ACQUISITION CORPORATION
By: /s/ Xxxxxxx Xxxxxxx
-----------------------
Name: Xxxxxxx Xxxxxxx
Title: President
ONLINE PSYCHOLOGICAL SERVICES, INC.
By: /s/ Xxxxx Xxxx
-----------------------
Name: Xxxxx Xxxx
Title: Chief Executive Officer
STOCKHOLDERS:
/s/ X. Xxxxxxxxxx Bond
-------------------------------
X. Xxxxxxxxxx Bond
/s/ Xxxxx Xxxx
-------------------------------
Xxxxx Xxxx
/s/ Xxxxx Xxxxxxxx
-------------------------------
Xxxxx Xxxxxxxx
[SIGNATURE PAGE TO ONLINE PSYCH AGREEMENT AND
PLAN OF REORGANIZATION]
