EXECUTION
ACQUISITION AGREEMENT
Among
MICROLEAGUE MULTIMEDIA, INC.,
KIDSOFT, L.L.C.,
THE HEARST CORPORATION,
KIDSOFT HOLDINGS, INC.,
AMERITECH CORPORATION,
AMERITECH KIDSOFT HOLDINGS, INC.,
KIDSOFT, INC., XXXXXX X. XXXXX
and XXXXXXXX X. XXXXX
Dated as of
June 6, 1997
TABLE OF CONTENTS
Page No.
RECITALS 1
ARTICLE I - MERGERS 1
Section 1.1 The Mergers 1
Section 1.2 Effective Time of the Mergers 2
Section 1.3 Articles of Incorporation and By-laws 2
Section 1.4 Directors and Officers 2
Section 1.5 Conversion of Shares. 2
ARTICLE II - PURCHASE AND SALE OF KIDSOFT MEMBERSHIP INTERESTS 3
Section 2.1 Purchase and Sale 3
ARTICLE III - THE CLOSINGS 3
Section 3.1 Time and Place of Closings 3
Section 3.2 Deliveries at Hearst Merger Closing 4
Section 3.3 Deliveries at Ameritech Merger Closing 4
Section 3.4 Deliveries at LLC Closing 4
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF KIDSOFT 5
Section 4.1 Organization 5
Section 4.2 Subsidiaries 5
Section 4.3 Authorization 5
Section 4.4 Membership Interests 6
Section 4.5 Financial Statements 6
Section 4.6 No Undisclosed or Contingent Liabilities 6
Section 4.7 Accounts Receivable 6
Section 4.8 Absence of Certain Changes 6
Section 4.9 No Violation 8
Section 4.10 Compliance with Applicable Law 8
Section 4.11 Licenses and Permits 8
Section 4.12 Consents 8
Section 4.13 Taxes 9
Section 4.14 Litigation, Orders 9
Section 4.15 Title to Properties; Encumbrances 10
Section 4.16 Contracts and Commitments 10
Section 4.17 Customers and Suppliers 11
Section 4.18 Equipment 11
Section 4.19 Certain Interests 11
Section 4.20 Intellectual Property 11
Section 4.21 Employees and Employee Benefit Plans 12
Section 4.22 Insurance 13
Section 4.23 Transactions with Affiliates 13
Section 4.24 Labor Matters 13
Section 4.25 Environmental Matters 13
Section 4.26 Investment Banking; Brokerage 14
Section 4.27 Bank Accounts 14
Section 4.28 Disclosure 14
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF HEARST AND
HEARST SUB 14
Section 5.1 Organization 14
Section 5.2 Subsidiaries 15
Section 5.3 Limited Business and Assets, etc. 15
Section 5.4 Authorization 15
Section 5.5 No Violation 15
Section 5.6 Consents 16
Section 5.7 Ownership of Membership Interests and Shares. 16
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF AMERITECH AND
AMERITECH SUB 16
Section 6.1 Organization 16
Section 6.2 Subsidiaries 16
Section 6.3 Limited Business and Assets, etc. 16
Section 6.4 Authorization 17
Section 6.5 No Violation 17
Section 6.6 Consents 17
Section 6.7 Ownership of Membership Interests and Shares. 17
ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF KIDSOFT, INC. 18
Section 7.1 Organization 18
Section 7.2 Authorization 18
Section 7.3 Ownership of Membership Interests 18
Section 7.4 No Violation 18
Section 7.5 Consents 19
Section 7.6 Financial Statements 19
Section 7.7 Employees, etc 19
Section 7.8 Employee Benefit Plans 20
Section 7.9 Compliance with Applicable Law 20
Section 7.10 Labor Matters 21
Section 7.11 Contracts and Commitments 21
Section 7.12 Litigation, Orders 21
ARTICLE VIII - REPRESENTATIONS AND WARRANTIES OF XXXXX AND XXXXX 22
Section 8.1 Authorization 22
Section 8.2 Ownership of Membership Interests 22
Section 8.3 No Violation 22
Section 8.4 Consents 22
ARTICLE IX - REPRESENTATIONS, WARRANTIES AND COVENANTS
OF HEARST, AMERITECH, KIDSOFT, INC., XXXXX and GROSS 23
Section 9.1 Representations and Warranties 23
Section 9.2 Sales of Company Securities 24
Section 9.3 Confidential Information 24
ARTICLE X - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 25
Section 10.1 Organization 25
Section 10.2 Subsidiaries 25
Section 10.3 Authorization 25
Section 10.4 Capitalization 25
Section 10.5 Financial Statements 26
Section 10.6 No Violation 26
Section 10.7 Consents 26
Section 10.8 Litigation, Orders 26
Section 10.9 Securities Laws 27
Section 10.10 Disclosure 27
ARTICLE XI - SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION 27
Section 11.1 Survival of Representations 27
Section 11.2 Indemnification 28
Section 11.3 Conditions of Indemnification 29
Section 11.4 Contribution 30
Section 11.5 Indemnification Under Escrow Agreement. 30
Section 11.6 KidSoft Members' Representatives 30
ARTICLE XII - CONDITIONS TO OBLIGATIONS OF THE COMPANY 31
Section 12.1 Representations and Warranties 31
Section 12.2 No Proceeding or Litigation 31
Section 12.3 No Injunction 31
Section 12.4 Resolutions 31
Section 12.5 Incumbency Certificate 31
Section 12.6 Opinion of Counsel 32
Section 12.7 All Proceedings Satisfactory 32
Section 12.8 Stock Purchase Agreement 32
Section 12.9 Fairness Opinion 32
Section 12.10 KidSoft Cash Account 32
Section 12.11 Assignment and Assumption Agreement 32
Section 12.12 Escrow Agreement 32
ARTICLE XIII - CONDITIONS TO OBLIGATIONS OF HEARST AND HEARST SUB 33
Section 13.1 Representations and Warranties 33
Section 13.2 No Proceeding or Litigation 33
Section 13.3 No Injunction 33
Section 13.4 Resolutions of the Company 33
Section 13.5 Incumbency Certificate 33
Section 13.6 Opinion of Counsel 33
Section 13.7 All Proceedings Satisfactory 33
ARTICLE XIV - CONDITIONS TO OBLIGATIONS OF AMERITECH AND
AMERITECH SUB 34
Section 14.1 Representations and Warranties 34
Section 14.2 No Proceeding or Litigation 34
Section 14.3 No Injunction 34
Section 14.4 Resolutions of the Company 34
Section 14.5 Incumbency Certificate 34
Section 14.6 Opinion of Counsel 34
Section 14.7 All Proceedings Satisfactory 35
ARTICLE XV - CONDITIONS TO OBLIGATIONS OF KIDSOFT, INC.,
XXXXX AND XXXXX 35
Section 15.1 Representations and Warranties 35
Section 15.2 No Proceeding or Litigation 35
Section 15.3 No Injunction 35
Section 15.4 Resolutions of the Company 35
Section 15.5 Incumbency Certificate 35
Section 15.6 Opinion of Counsel 36
Section 15.7 All Proceedings Satisfactory 36
ARTICLE XVI - COMPANY BOARD OF DIRECTORS 36
Section 16.1 Company Board of Directors 36
ARTICLE XVII - REGISTRATION RIGHTS 36
Section 17.1 Piggyback Registration Rights 36
Section 17.2 Withdrawal of Shares. 37
Section 17.3 Information Regarding Investors;
Underwriting Arrangements. 37
Section 17.4 Restrictions on Sales 37
Section 17.5 Indemnification. 37
ARTICLE XVIII - RELATED MATTERS 40
Section 18.1 Use of Name 40
Section 18.2 Employees, Benefit Plans, Etc. 40
ARTICLE XIX - CONSENTS AND WAIVERS OF HEARST SUB, AMERITECH
SUB, KIDSOFT, INC. 40
Section 19.1 Transfer by KidSoft, Inc. 41
Section 19.2 Transfer by Hearst Sub and Ameritech Sub 41
Section 19.3 Transfer by Xxxxx and Gross 41
Section 19.4 Ameritech Sub Right of First Refusal 41
Section 19.5 Hearst Sub Right of First Refusal 41
ARTICLE XX - MISCELLANEOUS 41
Section 20.1 Expenses; Taxes, Etc. 41
Section 20.2 Further Assurances 41
Section 20.3 Parties in Interest 42
Section 20.4 Entire Agreement, Amendments and Waiver 42
Section 20.5 Headings 42
Section 20.6 Notices 42
Section 20.7 Governing Law 43
Section 20.8 Third Parties 43
Section 20.9 Counterparts 43
ARTICLE XXI - DEFINED TERMS 44
Section 21.1 Location of Certain Defined Terms 44
ACQUISITION AGREEMENT
Acquisition Agreement, dated as of June 6, 1997, among
MicroLeague Multimedia, Inc., a Pennsylvania corporation
(the "Company"), KidSoft, L.L.C., a Delaware limited
liability company ("KidSoft"), The Hearst Corporation, a
Delaware corporation ("Hearst"), Ameritech Corporation, a
Delaware corporation ("Ameritech"), KidSoft Holdings, Inc.,
a Delaware corporation ("Hearst Sub"), Ameritech KidSoft
Holdings, Inc., a Delaware corporation ("Ameritech Sub"),
KidSoft, Inc., a California corporation ("KidSoft, Inc."),
Xxxxxx X. Xxxxx ("Xxxxx") and Xxxxxxxx X. Xxxxx ("Xxxxx").
RECITALS
A. The Board of Directors of the Company has approved
the acquisition of KidSoft.
X. Xxxxxx Sub, Ameritech Sub, KidSoft, Inc., Xxxxx
and Xxxxx (collectively, the "Members") constitute all of
the members of KidSoft and have agreed, subject to the terms
and conditions set forth herein, to sell, transfer and
assign their membership interests (the "Membership
Interests") to the Company in exchange for an aggregate of
1,450,000 shares of common stock, $.01 par value per share,
of the Company ("Company Common Stock") and warrants to
purchase 100,000 shares of Company Common Stock in
substantially the form of Exhibit A hereto (the "Warrants").
C. In furtherance thereof, the Board of Directors of
the Company, the respective Boards of Directors or other
governing body of Hearst Sub and Ameritech Sub, and Hearst,
the sole stockholder of Hearst Sub, and Ameritech, the sole
stockholder of Ameritech Sub, subject to the terms and
conditions set forth herein, have approved the merger of
Hearst Sub with and into the Company and the merger of
Ameritech Sub with and into the Company, respectively.
D. The Board of Directors of the Company, subject to
the terms and conditions set forth herein, has further
approved the purchase of all of the membership interests in
KidSoft held by KidSoft, Inc., Xxxxx and Gross.
Accordingly, the parties hereto, intending to be
legally bound, hereby agree as follows:
ARTICLE I
MERGERS
Section 1.1 The Mergers.
(a) Subject to the terms and conditions set
forth herein, and in accordance with the Pennsylvania
Business Corporation Law (the "PBCL") and the Delaware
General Corporation Law (the "DGCL"), at the Hearst
Effective Time (as defined herein), Hearst Sub shall be
merged with and into the Company (the "Hearst Sub Merger").
(b) Subject to the terms and conditions set
forth herein, and in accordance with the PBCL and the DGCL,
at the Ameritech Effective Time (as defined herein),
Ameritech Sub shall be merged with and into the Company (the
"Ameritech Sub Merger" and, together with the Hearst Sub
Merger, the "Mergers").
Following each Merger, the separate corporate existence of
Hearst Sub and Ameritech Sub, respectively, shall cease and
the Company shall continue as the surviving corporation of
each such merger (the "Surviving Corporation").
Section 1.2 Effective Time of the Mergers.
(a) At the time of the Closings (as defined
herein), subject to the satisfaction of the conditions
contained in this Agreement,
(i) articles of merger with respect to
the Hearst Sub Merger and the Ameritech Sub Merger (the
"Articles of Merger") shall be filed with the Department of
State of the Commonwealth of Pennsylvania; and
(ii) a certificate of merger with
respect to the Hearst Sub Merger and the Ameritech Sub
Merger (the "Certificate of Merger") shall be filed with the
Secretary of State of Delaware.
All such filings shall occur as nearly simultaneously as
possible.
(b) The Hearst Sub Merger and the Ameritech
Sub Merger shall become effective upon the filing of the
Articles of Merger with the Department of State of the
Commonwealth of Pennsylvania and the Certificate of Merger
with the Secretary of State of Delaware. The date and time
when the Hearst Sub Merger and the Ameritech Sub Merger
become effective are referred to herein as the "Effective
Time."
Section 1.3 Articles of Incorporation and By-laws.
The articles of incorporation and by-laws of the Company,
each as in effect immediately prior to the Effective Time,
shall be the articles of incorporation and by-laws,
respectively, of the Surviving Corporation until thereafter
amended as provided therein or by law.
Section 1.4 Directors and Officers. The directors
and officers of the Company immediately prior to the
Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation and shall
continue to hold office after the Effective Time until their
respective successors are duly elected or appointed and
qualified or until their earlier death, resignation or
removal.
Section 1.5 Conversion of Shares.
(a) At the Effective Time, by virtue of the
Hearst Sub Merger and without any action on the part of the
holder thereof, all shares of common stock, $1.00 par value,
of Hearst Sub outstanding immediately prior to the Effective
Time (other than shares held by Hearst Sub (which shall be
canceled)), shall be converted into and represent the right
to receive (subject to Section 3.2), in the aggregate, upon
surrender of the certificate formerly representing such
shares, (i) 723,995 shares of Company Common Stock and (ii)
100,000 Warrants (the "Hearst Merger Consideration").
(b) At the Effective Time, by virtue of the
Ameritech Sub Merger and without any action on the part of
the holder thereof, all shares of common stock, $1.00 par
value, of Ameritech Sub outstanding immediately prior to the
Effective Time (other than shares held by Ameritech Sub
(which shall be canceled)), shall be converted into and
represent the right to receive (subject to Section 3.3), in
the aggregate, upon surrender of the certificate formerly
representing such shares, 496,883 shares of Company Common
Stock (the "Ameritech Merger Consideration").
ARTICLE II
PURCHASE AND SALE OF KIDSOFT MEMBERSHIP INTERESTS
Section 2.1 Purchase and Sale. Subject to the terms
and conditions set forth herein, and in reliance on the
representations, warranties and covenants set forth herein,
at the LLC Closing (as defined herein), the Company shall
purchase from KidSoft, Inc., Xxxxx and Xxxxx, and each such
Member shall sell, transfer and assign to the Company, the
entire Membership Interest held by such Member as follows:
(a) the Company shall purchase from KidSoft,
Inc. the entire Membership Interest held by KidSoft, Inc.
for consideration consisting of 217,500 shares of Company
Common Stock;
(b) the Company shall purchase from Xxxxx
the entire Membership Interest held by Xxxxx for
consideration consisting of 5,811 shares of Company Common
Stock; and
(c) the Company shall purchase from Gross
the entire Membership Interest held by Gross for
consideration consisting of 5,811 shares of Company Common
Stock.
ARTICLE III
THE CLOSINGS
Section 3.1 Time and Place of Closings. The closing
of the Hearst Sub Merger (the "Hearst Merger Closing"), the
Ameritech Sub Merger (the "Ameritech Merger Closing") and
the purchase of the Membership Interests (the "LLC Closing"
and, together with the Hearst Merger Closing and the
Ameritech Merger Closing, the "Closings") shall take place
at the offices of Klehr, Harrison, Xxxxxx, Xxxxxxxxx &
Xxxxxx, 0000 Xxxxxx Xxxxxx, Xxxxxxxxxxxx, Pennsylvania, at
10:00 a.m., local time, on June 6, 1997, or at such other
place and time, or on such other date, as the parties hereto
may agree. The date on which the Closings occur is herein
called the "Closing Date."
Section 3.2 Deliveries at Hearst Merger Closing.
Subject to Articles XII and XIII, at the Hearst Merger
Closing:
(a) the Company shall deliver to Hearst or
its designee the Hearst Merger Consideration; provided,
however that 66,185 shares of Company Common Stock
constituting a portion of the Hearst Merger Consideration
shall be delivered by the Company to Summit Bank, as escrow
agent (the "Escrow Agent"), to be held in escrow pursuant to
an escrow agreement among Xxxx Xxxxxxx (as representative of
Hearst, Ameritech, KidSoft, Inc., Xxxxx and Xxxxx), the
Escrow Agent and the Company in the form of Exhibit B hereto
(the "Escrow Agreement") to secure to the Company the right
to indemnification under Article XI;
(b) the parties responsible therefor shall
deliver the opinions, certificates, documents and other
instruments referred to in Articles XII and XIII; and
(c) the Company and Hearst Sub shall cause
the Articles of Merger to be filed in accordance with the
provisions of the PBCL and the Certificate of Merger to be
filed in accordance with the provisions of the DGCL and
shall take all other action necessary to effect the Hearst
Sub Merger.
Section 3.3 Deliveries at Ameritech Merger Closing.
Subject to Articles XII and XIV, at the Ameritech Merger
Closing:
(a) the Company shall deliver to Ameritech
or its designee the Ameritech Merger Consideration;
provided, however, that 60,113 shares of Company Common
Stock constituting a portion of the Ameritech Merger
Consideration shall be delivered by the Company to the
Escrow Agent to be held in escrow pursuant to the Escrow
Agreement to secure to the Company the right to
indemnification under Article XI.;
(b) the parties responsible therefor shall
deliver the opinions, certificates, documents and other
instruments referred to in Articles XII and XIV; and
(c) the Company and Ameritech Sub shall
cause the Articles of Merger to be filed in accordance with
the provisions of the PBCL and the Certificate of Merger to
be filed with the Secretary of State of Delaware and shall
take all other action necessary to effect the Ameritech Sub
Merger.
Section 3.4 Deliveries at LLC Closing. Subject to
Articles XII and XV, at the LLC Closing:
(a) the Company shall deliver to KidSoft,
Inc., Xxxxx and Gross the number of shares of Company Common
Stock set forth in Sections 2.1(a), 2.1(b) and 2.1(c),
respectively; provided, however, that 22,500, 601 and 601
shares of Company Common Stock constituting a portion of the
Company Common Stock to be delivered by the Company to
KidSoft, Inc., Xxxxx and Xxxxx pursuant to Sections 2.1(a),
2.1(b) and 2.1(c), respectively, shall be delivered to the
Escrow Agent to be held in escrow pursuant to the Escrow
Agreement to secure to the Company the right to
indemnification under Article XI;
(b) each of KidSoft, Inc., Xxxxx and Gross
shall deliver to the Company an executed Assignment of
Membership Interest in the form of Exhibit C attached
hereto;
(c) the parties responsible therefor shall
deliver the opinions, certificates, documents and other
instruments referred to in Articles XII and XV; and
(d) the Company, KidSoft, Inc., Xxxxx and
Xxxxx shall take all other action necessary to effect the
LLC Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF KIDSOFT
Subject to Schedule IV attached hereto, KidSoft
represents and warrants to the Company as follows:
Section 4.1 Organization. KidSoft is a limited
liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware.
KidSoft has all requisite power and authority to own,
operate and lease its properties and to conduct its business
as currently conducted. KidSoft is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property
or the conduct of its business requires such licensing or
qualification, except to the extent that the failure to be
so qualified or licensed would not have a Material Adverse
Effect. KidSoft has delivered to the Company a complete and
correct copy of its Amended and Restated Limited Liability
Company Agreement ( the "LLC Agreement") as in effect on the
date hereof. As used in this Agreement, "Material Adverse
Effect" means, with respect to any entity, any material
adverse effect on the operations, condition (financial or
other), assets, liabilities, earnings or prospects of such
entity or on the transactions contemplated hereby.
Section 4.2 Subsidiaries. KidSoft does not own,
directly or indirectly, any equity or similar interest, or
any interest convertible into or exchangeable or exercisable
for any equity or similar interest, in any corporation,
partnership, joint venture, limited liability company or
other business association, entity or person.
Section 4.3 Authorization. KidSoft has all
requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and the performance
by KidSoft of its obligations hereunder have been duly
authorized by KidSoft and no other proceeding therefor on
the part of KidSoft or the Members is required. This
Agreement has been duly executed and delivered by KidSoft
and, assuming the due authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of
KidSoft, enforceable against KidSoft in accordance with its
terms.
Section 4.4 Membership Interests.
(a) The Membership Interests constitute all
of the outstanding membership or other ownership interests
in KidSoft. KidSoft has not issued and is not obligated to
issue any warrants, options or other rights to purchase or
acquire any membership or other ownership interests, or any
securities convertible into any such interests or any
warrants, options or other rights to acquire any such
convertible securities.
(b) All of the Membership Interests have
been validly issued in accordance with the LLC Agreement and
applicable law, including federal and state securities laws,
and none of the Membership Interests were at the time of
issuance subject to any preemptive or similar rights. There
are no preemptive rights, rights of first refusal, put or
call rights or obligations, or anti-dilution rights with
respect to the issuance, sale or redemption of Membership
Interests, other than rights set forth in the LLC Agreement.
Section 4.5 Financial Statements. KidSoft has
previously delivered to the Company complete and correct
copies of its audited balance sheets, statements of income
and statements of cash flows for the period of May 12, 1995
(date of inception) to December 31, 1995 and for the year
ended December 31, 1996. All such financial statements were
prepared in conformity with generally accepted accounting
principles applied on a consistent basis, are complete,
correct and consistent in all material respects with the
books and records of KidSoft, contain notations for all
significant accruals or contingencies and fairly present the
financial position of KidSoft as of the dates thereof and
the results of operations and cash flows of KidSoft for the
periods shown therein.
Section 4.6 No Undisclosed or Contingent
Liabilities. KidSoft has no liabilities or obligations of
any nature (whether absolute, accrued, contingent or
otherwise and whether due or to become due) that are not
fully reflected on the audited balance sheet of December 31,
1996 (including the footnotes and schedules thereto, the
"Balance Sheet"), except for liabilities and obligations
incurred in the ordinary course of business since the date
thereof, and there is no basis for the assertion against
KidSoft of any liability or obligation of any nature
whatsoever not fully reflected on the Balance Sheet.
Section 4.7 Accounts Receivable. All accounts
receivable of KidSoft, whether reflected on the Balance
Sheet or otherwise, represent bona fide completed sales made
in the ordinary course of business, are valid and
enforceable claims, are subject to no known set-offs or
counterclaims, and are, in the best judgment of KidSoft and
the Members, fully collectible in the normal course of
business after deducting the reserve set forth in the
Balance Sheet and adjusted since that date, which reserve is
a reasonable estimate of KidSoft's uncollectible accounts.
Section 4.8 Absence of Certain Changes. Since the
date of the Balance Sheet, KidSoft has conducted its
business only in the ordinary course and consistent with
past practice, and has not:
(a) Suffered any material adverse change in
its operations, condition (financial or otherwise), assets,
liabilities, earnings or prospects;
(b) Increased, or experienced any change in
any assumptions underlying or methods of calculating, any
bad debt, contingency or other reserves;
(c) Paid, discharged or satisfied any
claims, liabilities or obligations (absolute, accrued,
contingent or otherwise) other than the payment, discharge
or satisfaction in the ordinary course of business and
consistent with past practice of liabilities and obligations
reflected or reserved against in the Balance Sheet or
incurred in the ordinary course of business and consistent
with past practice since the date of the Balance Sheet;
(d) Permitted or allowed any of its assets
to be subjected to any mortgage, pledge, lien, security
interest, encumbrance, restriction or charge of any kind;
(e) Written down the value of any inventory
or written off as uncollectible any notes or accounts
receivable;
(f) Canceled any debts or waived any claims
or rights of substantial value;
(g) Sold, transferred or otherwise disposed
of any of its properties or assets, except in the ordinary
course of business and consistent with past practice;
(h) Granted any general increase in the
amount paid to KidSoft, Inc. in respect of the compensation
paid to employees of KidSoft, Inc. (including any such
increase pursuant to any bonus, pension, profit sharing or
other plan or commitment) or any increase in the amount
payable or to become payable in respect of the compensation
of any such employee, and no such increase is customary on a
periodic basis or required by agreement or understanding; or
experienced any material loss of personnel, material change
in the terms and conditions of the employment of key
personnel, or any labor trouble involving KidSoft Inc.'s
employees;
(i) Made any capital expenditure or
commitment for additions to its property, equipment or
intangible capital assets;
(j) Made any change in any method of
accounting or accounting practice or failed to maintain its
books, accounts and records in the ordinary course of
business and consistent with past practice;
(k) Failed to maintain any properties or
equipment in good operating condition and repair;
(l) Failed to maintain in full force and
effect all existing policies of insurance at least at such
levels as were in effect prior to such date or canceled any
such insurance or taken or failed to take any action that
would enable the insurers under such policies to avoid
liability for claims arising out of occurrences prior to the
Closing;
(m) Entered into any transaction or made or
entered into any material contract or commitment, or
terminated or amended any material contract or commitment,
except in the ordinary course of business and consistent
with past practice, and not in excess of current
requirements;
(n) Taken any action or experienced any
development that could have a material adverse effect on its
business organization or its current relationships with its
employees, suppliers, distributors, advertisers, subscribers
or others having business relationships with it;
(o) Paid or set aside for payment any
distribution in respect of the Membership Interests or
redeemed, purchased or otherwise acquired, directly or
indirectly, any Membership Interests; or
(p) Agreed in writing or otherwise to take
any action with respect to any of the matters described in
this Section 4.8.
Section 4.9 No Violation. Neither the execution and
delivery of this Agreement by KidSoft nor the performance by
KidSoft of its obligations hereunder will (i) conflict with
or result in any breach of any provision of its Certificate
of Formation or the LLC Agreement, (ii) result in a
violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default or give rise to
any lien or encumbrance on KidSoft's properties or assets or
any right of termination, cancellation or acceleration under
any of the terms or conditions of any note, bond, mortgage,
indenture, license, agreement or other instrument or
obligation to which KidSoft is a party or by which it or
any of its properties or assets may be bound, or (iii)
violate any statute, law, rule, regulation, writ,
injunction, judgment, order or decree of any court,
administrative agency or governmental authority binding on
KidSoft or any of its properties or assets, excluding from
the foregoing clauses (ii) and (iii) violations, breaches
and defaults that, individually and in the aggregate, would
not have a Material Adverse Effect.
Section 4.10 Compliance with Applicable Law. KidSoft
is currently in compliance with all applicable laws (whether
statutory or otherwise), rules, regulations, orders,
ordinances, judgments, decrees, writs, requirements and
injunctions of all governmental authorities, except for such
noncompliance that, individually and in the aggregate, would
not have a Material Adverse Effect.
Section 4.11 Licenses and Permits. KidSoft possesses
all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or
regulatory authorities, and all patents, trademarks, service
marks, trade names, copyrights, licenses and other rights,
free from burdensome restrictions, that are necessary for
the ownership, maintenance and operation of KidSoft's
properties and assets, and KidSoft is not in violation of
any thereof except for such violations that, individually
and in the aggregate, would not have a Material Adverse
Effect.
Section 4.12 Consents. Except for the filings
referred to in Section 1.2, no consent, approval or
authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or other
person or entity is required to be made or obtained by
KidSoft in connection with the execution and delivery of
this Agreement by KidSoft or the performance by KidSoft of
its obligations hereunder, other than such consents,
approvals, authorizations, declarations, filings or
registrations, the failure of which to make or obtain,
individually and in the aggregate, would not have a Material
Adverse Effect.
Section 4.13 Taxes.
(a) KidSoft (which term shall include, for
purposes of this Section 4.13, any predecessor entity) has
filed all Tax (as hereinafter defined) reports and returns
that it was required to file. All such reports and returns
were correct and complete. All Taxes owed by KidSoft
(whether or not shown on any report or return) have been
paid, KidSoft is not currently the beneficiary of any
extension of time within which to file any report or return.
No claim has been made by a governmental authority in a
jurisdiction where KidSoft does not file reports and returns
that it is or may be subject to taxation by that
jurisdiction. There are no security interests on any of the
assets of KidSoft that arose in connection with the failure
or alleged failure to pay any Tax.
(b) KidSoft has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent
contractor or third party.
(c) To the knowledge of KidSoft, no
governmental authority will assess, or will have reason to
assess, any additional Taxes for any period for which
returns have been, or are required to be, filed by KidSoft.
There is no dispute or claim concerning any Tax liability of
KidSoft either (i) claimed or raised by any governmental
authority in writing or (ii) as to which KidSoft has
knowledge based upon personal contact with any agent of such
authority. All federal, state, local and foreign income tax
returns filed with respect to KidSoft for taxable periods
ended on or after December 31, 1991 are set forth on
Schedule IV, and such schedule indicates those returns that
have been audited or currently are the subject of an audit.
KidSoft has delivered to the Company correct and complete
copies of all federal income Tax returns, examination
reports and statements of deficiencies assessed against or
agreed to by KidSoft since December 31, 1991.
(d) KidSoft has not waived any statute of
limitations in respect of Taxes or agreed to any extension
of time with respect to a tax assessment or deficiency.
KidSoft has not entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code of 1986, as
amended (the "Code").
(e) As used in this Section 4.13, the terms
"Taxes" and "Tax" mean all federal, state, local and foreign
taxes, including income, unemployment, withholding, payroll,
social security, real property, personal property, excise,
sales, use and franchise taxes, levies, assessments, duties,
licenses and registration fees and charges of any nature
whatsoever, including interest, penalties and additions with
respect thereto and any interest in respect of such
additions and penalties.
Section 4.14 Litigation, Orders. There are no
claims, actions, suits, proceedings, investigations or
inquiries pending before any court, arbitrator or
governmental or regulatory official or office, or, to the
knowledge of KidSoft, threatened, against or affecting
KidSoft or questioning the validity of this Agreement, the
transactions contemplated hereby or any action taken or to
be taken by KidSoft or any Member pursuant to this
Agreement, at law or in equity; nor is there any valid basis
for any such claim, action, suit, proceeding, inquiry or
investigation. KidSoft is not subject to any judgment,
order or decree entered in any lawsuit or proceeding that
has had or may have a Material Adverse Effect.
Section 4.15 Title to Properties; Encumbrances.
KidSoft does not own any real property and does not lease
any real property other than its offices located at 00000
Xxxxx XxXxxx Xxxxxxxxx, Xxxxxxxxx, XX and a warehouse
located at 0000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx Xxxx,
Xxxxxxxxxx. KidSoft has good title to all of its properties
and assets, including any vehicles, free and clear of all
liens, charges and encumbrances, except liens for taxes not
yet due and payable and such liens or other imperfections of
title, if any, that do not materially detract from the value
of or interfere with the present use of the property
affected thereby or that would not and are not reasonably
likely to have a Material Adverse Effect. Without limiting
the generality of the foregoing, KidSoft owns and has the
right to use without restrictions or interference from any
person, all customer mailing lists currently used by KidSoft
and KidSoft is not aware of any facts or events that could
reasonably be expected to give rise to any such restrictions
or limitations in the future. All leases pursuant to which
KidSoft leases real or personal property, including any
vehicles, are in good standing, valid and effective in
accordance with their respective terms, and there is no
existing default or event of default (or event which with
notice or lapse of time, or both, would constitute a default
and in respect of which KidSoft has not taken adequate steps
to prevent such a default from occurring) thereunder.
Section 4.16 Contracts and Commitments. KidSoft is
not a party or subject to or bound by (whether written or
oral) nor has it committed to enter into in the future:
(a) any plan or contract providing for
collective bargaining or any similar obligations, or any
contract or agreement with any labor union;
(b) any contract, lease or agreement,
including programming and license agreements, creating any
obligation of KidSoft to pay to any third party $25,000 or
more with respect to any single such contract or agreement
or which is otherwise material and not entered into in the
ordinary course of business, except for purchase orders
entered into in the ordinary course of business;
(c) any contract or agreement for the sale,
license, lease or disposition of products or services in
excess of $25,000;
(d) any contract containing covenants
directly or explicitly limiting the freedom of KidSoft to
compete in any line of business or with any person or
entity;
(e) any license agreement (as licensor or
licensee);
(f) any joint venture, partnership,
manufacturing, development or supply agreement;
(g) any royalty, dividend or similar
arrangement based on the sales volume of KidSoft;
(h) any acquisition, merger or similar
agreement;
(i) any network affiliation agreement; or
(j) any other contract not executed in the
ordinary course of business.
All of KidSoft's contracts and commitments are in
full force and effect and neither KidSoft nor, to the
knowledge of KidSoft, any other party is in default
thereunder, nor, to the knowledge of KidSoft, has any event
occurred that with notice, lapse of time or both would
constitute a material default thereunder, except for any
such default that would not have a Material Adverse Effect,
and KidSoft has not received notice of any alleged default
under any such contract, agreement, understanding or
commitment.
Section 4.17 Customers and Suppliers. Schedule IV
sets forth a list of KidSoft's ten largest customers and ten
largest suppliers in terms of sales and purchasers,
respectively, during the fiscal year ended December 31,
1996, showing the approximate total sales by KidSoft to each
such customer and the approximate total purchases by KidSoft
from each such supplier during such year. No material
adverse change has occurred in the business relationship of
KidSoft with any such customer or any such supplier and, to
the knowledge of KidSoft, no facts exist and no events have
occurred that could reasonably be expected to result in a
material adverse change to any such relationship.
Section 4.18 Equipment. The equipment of KidSoft has
no known material defects and is in good operating condition
and repair (ordinary wear and tear excepted) and is adequate
for its current uses; and none of such equipment is in need
of maintenance or repairs except for ordinary routine
maintenance and repairs that are not material in nature or
cost.
Section 4.19 Certain Interests. Neither KidSoft nor,
to the knowledge of KidSoft, any of its affiliates has (a)
any direct or indirect interest (other than the ownership of
less than one percent of the outstanding securities of a
publicly held company) in any corporation or business that
is involved in or competes with KidSoft or (b) any direct or
indirect interest in any property or assets used by, or
relating to, KidSoft or its business, except through the
ownership of Membership Interests.
Section 4.20 Intellectual Property.
(a) KidSoft owns, free and clear of all
liens, mortgages, security interests, charges and
encumbrances, and has good title to, or holds adequate
licenses or otherwise possesses all rights necessary to use,
all patents, trademarks, service marks, trade names,
copyrights (including any applications for any of the
foregoing), inventions, discoveries, processes, know-how,
trade secrets, scientific, technical, engineering and
marketing data, object and source codes, and techniques used
or proposed to be used in, or necessary for, the conduct of
KidSoft's business as now conducted or proposed to be
conducted, including without limitation the name "KidSoft"
(collectively, the "Intellectual Property").
(b) Schedule IV contains an accurate and
complete list of (i) all such patents, trademarks, trade
names, service marks and copyrights, and all applications
therefor and, with respect to registered items, contains a
list of all jurisdictions in which such items are registered
and all registration numbers; (ii) all licenses, permits and
other agreements relating thereto; and (iii) all agreements
relating to any of the Intellectual Property that KidSoft is
licensed or authorized to use by others. The patents,
trademarks and copyrights constituting a part of the
Intellectual Property are valid, subsisting and enforceable,
and are duly recorded in the name of KidSoft.
(c) KidSoft has the sole and exclusive right
to use all of the Intellectual Property in all jurisdictions
in which KidSoft conducts or proposes to conduct its
business, and the consummation of the transactions
contemplated hereby will not alter or impair any such
rights.
(d) No claims have been asserted by any
person challenging or questioning the ownership, validity,
enforceability or use by KidSoft of any of the Intellectual
Property and, to the knowledge of KidSoft, there is no valid
basis for any such claim, and the use or other exploitation
of the Intellectual Property by KidSoft does not infringe on
or dilute the rights of any person; and, to the knowledge of
KidSoft, no other person is infringing on the rights of
KidSoft with respect to any of the Intellectual Property.
(e) KidSoft has taken reasonable security
measures to protect the secrecy, confidentiality and value
of its trade secrets and other confidential information.
(f) KidSoft has delivered to the Company all
documents with respect to any invention, process, design,
computer program or other know-how or trade secret included
in the Intellectual Property, which documents are accurate
in all material respects and reasonably sufficient in detail
and content to identify and explain such invention, process,
design, computer program or other know-how or trade secret
and to facilitate its full and proper use without reliance
on the special knowledge or memory of any person.
Section 4.21 Employees and Employee Benefit Plans.
(a) KidSoft currently has, and since its
inception has had, no employees. All persons who perform
services, directly or indirectly, for KidSoft are
independent contractors or employees of KidSoft, Inc. The
services of such employees of KidSoft, Inc. are provided to
KidSoft pursuant to Section 6.10 of the LLC Agreement, and
there are no other contracts, commitments or arrangement
between KidSoft, Inc. and KidSoft that relate to the
provision of services to KidSoft by any employee of KidSoft,
Inc.
(b) KidSoft does not maintain or contribute
to, and since its inception has not maintained or
contributed to, any employee benefit plan, stock option,
bonus or incentive plan, severance pay policy or agreement,
deferred compensation agreement, or any similar plan or
agreement (each, an "Employee Benefit Plan"). KidSoft is
not required to make any payments or contributions to any
Employee Benefit Plan pursuant to any collective bargaining
agreement or, to the knowledge of KidSoft, any applicable
labor relations law.
(c) Without limiting the generality of the
foregoing, KidSoft has not maintained any employee benefit
plan or other plan for the employees of KidSoft as described
in Section 4021(a) of ERISA (each, a "Pension Plan") at any
time during the twelve-month period ending on the Closing
Date. KidSoft has not incurred (i) any material accumulated
funding deficiency within the meaning of ERISA, or (ii) any
material liability to the Pension Benefit Guaranty
Corporation established under ERISA (or any successor
thereto under ERISA) in connection with any Pension Plan
established or maintained by KidSoft. KidSoft has not had
any tax assessed against it by the Internal Revenue Service
for any alleged violation under Section 4975 of the Code.
KidSoft does not have any unfunded liability under any
Pension Plan or a contingent liability for withdrawal from
any multi-employer Pension Plan.
Section 4.22 Insurance. KidSoft has in force fire,
casualty, product liability and business interruption and
other insurance policies, with extended coverage, sufficient
in amount to allow it to replace any of its material
properties or assets which might be damaged or destroyed or
sufficient to cover liabilities to which KidSoft may
reasonably become subject, and such types and amounts of
other insurance with respect to its business and properties,
on both a per occurrence and an aggregate basis, are as
customarily carried by persons engaged in the same or
similar business as KidSoft. To the knowledge of KidSoft,
no default or event has occurred that could give rise to a
default under any such policy.
Section 4.23 Transactions with Affiliates. There are
no loans, leases, agreements, understandings, commitments or
other continuing transactions between KidSoft and any Member
or any family member or any person or entity that directly
or indirectly through one or more intermediaries, controls,
is controlled by, or is under common control with any of the
foregoing persons.
Section 4.24 Labor Matters. KidSoft and its
predecessors have complied for the past three years and
KidSoft is currently complying in all material respects with
all applicable laws relating to employment and employment
practices, terms and conditions of employment, and wages and
hours, and is not engaged in any unfair labor practice or
unlawful employment practice. There is no charge or
complaint pending or threatened against KidSoft before the
Equal Employment Opportunity Commission or the Department of
Labor or any state or local agency of similar jurisdiction.
Section 4.25 Environmental Matters. To the knowledge
of KidSoft, (i) there is no environmental litigation or
other environmental proceeding pending or threatened by any
governmental or regulatory authority or others with respect
to the business of KidSoft, (ii) no state of facts exists as
to environmental matters or Hazardous Substances that
involves the reasonable likelihood of a material capital
expenditure by KidSoft or that may otherwise have a Material
Adverse Effect, and (iii) no Hazardous Substances have been
treated, stored or disposed of, or otherwise deposited, in
or on the properties owned or leased by KidSoft in violation
of any applicable environmental laws. The environmental
compliance programs of KidSoft comply in all respects with
all environmental laws, whether federal, state or local,
currently in effect. As used herein, "Hazardous Substances"
means any substance, waste, contaminant, pollutant or
material that has been determined by any governmental
authority to be capable of posing a risk of injury to
health, safety, property or the environment.
Section 4.26 Investment Banking; Brokerage. There
are no claims for investment banking fees, brokerage
commissions, finder's fees or similar compensation
(exclusive of professional fees to lawyers and accountants)
in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or
on behalf of KidSoft, any Member or any affiliate thereof,
except for fees payable to Frost & Xxxxxx Incorporated.
Section 4.27 Bank Accounts. Schedule IV sets forth
the names and locations of all banks, trust companies,
savings and loan associations and other financial
institutions at which KidSoft has accounts or safe deposit
boxes and the names of all persons authorized to draw
thereon or to have access thereto.
Section 4.28 Disclosure. The representations and
warranties made or contained in this Agreement, the
schedules and exhibits hereto and the certificates and
statements executed or delivered in connection herewith, and
the information concerning the business of KidSoft delivered
to the Company in connection with or pursuant to this
Agreement, do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary in order to make such representations,
warranties or other material not misleading. No event has
occurred and nothing has come to the attention of KidSoft
that would indicate that any of such information (together
with any written updates thereof furnished by KidSoft) is
not true and correct in all material respects as of the date
hereof. To the knowledge of KidSoft, the projections
contained in the materials furnished to the Company by
KidSoft and the assumptions underlying such projections were
reasonable when made and continue to be reasonable, and the
projections were based upon good faith and diligent
estimates of the anticipated operating results and financial
condition of KidSoft. There are no facts known to KidSoft
that currently or may in the future have a Material Adverse
Effect and that have not been specifically disclosed herein
or in a schedule furnished herewith, other than economic
conditions affecting the industry of KidSoft generally.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HEARST AND HEARST SUB
Hearst and Hearst Sub, jointly and severally, represent and
warrant to the Company as follows:
Section 5.1 Organization. Hearst Sub is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Hearst
Sub has all requisite power and authority to own, operate
and lease its properties and to conduct its business as
currently conducted. Hearst Sub is not required to be
qualified or licensed to do business in any jurisdiction
other than the State of Delaware. Hearst Sub has delivered
to the Company complete and correct copies of its
certificate of incorporation and by-laws, each as in effect
on the date hereof. Hearst is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware. Hearst has all requisite power and
authority to own, operate and lease its properties and to
conduct its business as currently conducted.
Section 5.2 Subsidiaries. Except for its
Membership Interest, Hearst Sub does not own, directly or
indirectly, any equity or similar interest, or any interest
convertible into or exchangeable or exercisable for any
equity or similar interest, in any corporation, partnership,
joint venture, limited liability company or other business
association, entity or person.
Section 5.3 Limited Business and Assets, etc. Since
its incorporation, Hearst Sub has conducted, and on the date
hereof conducts, directly or indirectly, no business or
other activities other than holding a 34.99% Membership
Interest, which constitutes its sole asset. Since its
incorporation, Hearst Sub has had, and as of the date hereof
has, no employees. Hearst Sub has not entered into any
arrangement and is not a party to or bound by any note,
bond, mortgage, lease, license, agreement or other
instrument other than the LLC Agreement and has no
liabilities or obligations of any nature whatsoever except
as set forth herein and in the LLC Agreement.
Section 5.4 Authorization. Each of Hearst and
Hearst Sub has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and
the performance by Hearst of its obligations hereunder have
been duly authorized, the execution and delivery of this
Agreement by Hearst Sub and the performance by Hearst Sub of
its obligations hereunder have been duly authorized by the
Board of Directors of Hearst Sub and by Hearst, as the sole
stockholder of Hearst Sub, and no other proceeding therefor
on the part of Hearst Sub or Hearst is required. This
Agreement has been duly executed and delivered by Hearst and
Hearst Sub and, assuming the due authorization, execution
and delivery hereof by the Company, is a valid and binding
obligation of Hearst and Hearst Sub, enforceable against
Hearst and Hearst Sub in accordance with its terms.
Section 5.5 No Violation. Neither the execution and
delivery of this Agreement by Hearst or Hearst Sub nor the
performance by either of them of their obligations hereunder
will (i) conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws of
Hearst, the certificate of incorporation or by-laws of
Hearst Sub or the LLC Agreement, (ii) result in a violation
or breach of, or constitute (with or without due notice or
lapse of time or both) a default or give rise to any lien or
encumbrance on any of their respective properties or assets
or any right of termination, cancellation or acceleration
under any of the terms or conditions of any note, bond,
mortgage, lease, license, agreement or other instrument or
obligation to which either of them is a party or by which
either of them or any of their respective properties or
assets may be bound, or (iii) violate any statute, law,
rule, regulation, writ, injunction, judgment, order or
decree of any court, administrative agency or governmental
authority binding on Hearst or Hearst Sub or any of their
respective properties or assets, excluding from the
foregoing clauses (ii) and (iii) violations, breaches and
defaults that, individually and in the aggregate, would not
have a Material Adverse Effect on Hearst or Hearst Sub, as
the case may be.
Section 5.6 Consents. Except for the filings
referred to in Section 1.2 and the consents and waivers
referred to in Article XIX, no consent, approval or
authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or other
person or entity is required to be made or obtained by
Hearst or Hearst Sub in connection with the execution and
delivery of this Agreement by Hearst or Hearst Sub or the
performance by either of them of their obligations
hereunder, other than such consents, approvals,
authorizations, declarations, filings or registrations, the
failure of which to make or obtain, individually and in the
aggregate, would not have a Material Adverse Effect.
Section 5.7 Ownership of Membership Interests and
Shares.
(a) The authorized capital stock of Hearst
Sub consists of 1,000 shares of common stock, $1.00 par
value, all of which shares are issued and outstanding.
Hearst is the sole record owner of all such issued and
outstanding shares, and has good title thereto, free and
clear of any lien, security interest, claim or other
encumbrance of any nature whatsoever.
(b) Hearst Sub is the sole record owner of a
34.99% Membership Interest and has good title thereto, free
and clear of any lien, security interest, claim or other
encumbrance of any nature whatsoever.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF AMERITECH AND AMERITECH
SUB
Ameritech and Ameritech Sub, jointly and severally,
represent and warrant to the Company as follows:
Section 6.1 Organization. Ameritech Sub is a
corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Ameritech
Sub has all requisite power and authority to own, operate
and lease its properties and to conduct its business as
currently conducted. Ameritech Sub is not required to be
qualified or licensed to do business in any jurisdiction
other than the State of Delaware. Ameritech Sub has
delivered to the Company complete and correct copies of its
certificate of incorporation and by-laws, each as in effect
on the date hereof. Ameritech is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Delaware. Ameritech has all requisite
power and authority to own, operate and lease its properties
and to conduct its business as currently conducted.
Section 6.2 Subsidiaries. Except for its
Membership Interest, Ameritech Sub does not own, directly
or indirectly, any equity or similar interest, or any
interest convertible into or exchangeable or exercisable for
any equity or similar interest, in any corporation,
partnership, joint venture, limited liability company or
other business association, entity or person.
Section 6.3 Limited Business and Assets, etc. Since
its incorporation, Ameritech Sub has conducted, and on the
date hereof conducts, directly or indirectly, no business or
other activities other than holding a 20.62% Membership
Interest, which constitutes its sole asset. Since its
incorporation, Ameritech Sub has had, and as of the date
hereof has, no employees. Ameritech Sub has not entered
into any arrangement and is not a party to or bound by any
note, bond, mortgage, lease, license, agreement or other
instrument other than the LLC Agreement and has no
liabilities or obligations of any nature whatsoever except
as set forth herein and in the LLC Agreement.
Section 6.4 Authorization. Each of Ameritech and
Ameritech Sub has all requisite power and authority to
execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this
Agreement and the performance by Ameritech of its
obligations hereunder have been duly authorized, the
execution and delivery of this Agreement by Ameritech Sub
and the performance by Ameritech Sub of its obligations
hereunder have been duly authorized by Ameritech, as the
sole stockholder of Ameritech Sub, and no other proceeding
therefor on the part of Ameritech Sub or Ameritech is
required. This Agreement has been duly executed and
delivered by Ameritech and Ameritech Sub and, assuming the
due authorization, execution and delivery hereof by the
Company, is a valid and binding obligation of Ameritech and
Ameritech Sub, enforceable against Ameritech and Ameritech
Sub in accordance with its terms.
Section 6.5 No Violation. Neither the execution and
delivery of this Agreement by Ameritech or Ameritech Sub nor
the performance by either of them of their obligations
hereunder will (i) conflict with or result in any breach of
any provision of the certificate of incorporation or by-laws
of Ameritech, the certificate of incorporation or by-laws of
Ameritech Sub or the LLC Agreement, (ii) result in a
violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default or give rise to
any lien or encumbrance on any of their respective
properties or assets or any right of termination,
cancellation or acceleration under any of the terms or
conditions of any note, bond, mortgage, lease, license,
agreement or other instrument or obligation to which either
of them is a party or by which either of them or any of
their respective properties or assets may be bound, or (iii)
violate any statute, law, rule, regulation, writ,
injunction, judgment, order or decree of any court,
administrative agency or governmental authority binding on
Ameritech or Ameritech Sub or any of their respective
properties or assets, excluding from the foregoing clauses
(ii) and (iii) violations, breaches and defaults that,
individually and in the aggregate, would not have a Material
Adverse Effect on Ameritech or Ameritech Sub, as the case
may be.
Section 6.6 Consents. Except for the filings
referred to in Section 1.2 and the consents and waivers
referred to in Article XIX, no consent, approval or
authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or other
person or entity is required to be made or obtained by
Ameritech or Ameritech Sub in connection with the execution
and delivery of this Agreement by Ameritech or Ameritech Sub
or the performance by either of them of their obligations
hereunder, other than such consents, approvals,
authorizations, declarations, filings or registrations, the
failure of which to make or obtain, individually and in the
aggregate, would not have a Material Adverse Effect.
Section 6.7 Ownership of Membership Interests and
Shares.
(a) The authorized capital stock of
Ameritech Sub consists of one share of common stock, $1.00
par value, which is issued and outstanding. Ameritech is
the sole record owner of such issued and outstanding share,
and has good title thereto, free and clear of any lien,
security interest, claim or other encumbrance of any nature
whatsoever.
(b) Ameritech Sub is the sole record owner
of a 20.62% Membership Interest and has good title thereto,
free and clear of any lien, security interest, claim or
other encumbrance of any nature whatsoever.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF KIDSOFT, INC.
KidSoft, Inc. represents and warrants to the Company as
follows:
Section 7.1 Organization. KidSoft, Inc. is a
corporation duly organized, validly existing and in good
standing under the laws of the State of California.
KidSoft, Inc. has all requisite power and authority to own,
operate and lease its properties and to conduct its business
as currently conducted.
Section 7.2 Authorization. KidSoft, Inc. has all
requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and the performance
by KidSoft, Inc. of its obligations hereunder have been duly
authorized by KidSoft, Inc. and no other proceeding therefor
on the part of KidSoft, Inc. or its shareholders is
required. The sale by KidSoft, Inc. of its Membership
Interest to the Company pursuant to this Agreement has been
duly authorized by the Hearst Managers (as such term is
defined in the LLC Agreement). This Agreement has been duly
executed and delivered by KidSoft, Inc. and, assuming the
due authorization, execution and delivery hereof by the
Company, is a valid and binding obligation of KidSoft, Inc.,
enforceable against KidSoft, Inc. in accordance with its
terms.
Section 7.3 Ownership of Membership Interests.
KidSoft, Inc. is the sole record owner of a 43.81%
Membership Interest and has good title thereto, free and
clear of any lien, security interest, claim or other
encumbrance of any nature whatsoever. Upon execution and
delivery of the Assignment of Membership Interest at the LLC
Closing pursuant to Section 3.4(b), the Company will acquire
good title to such Membership Interest, free and clear of
any lien, security interest, claim or other encumbrance of
any nature whatsoever.
Section 7.4 No Violation. Neither the execution and
delivery of this Agreement by KidSoft, Inc. nor the
performance by KidSoft, Inc. of its obligations hereunder
will (i) conflict with or result in any breach of any
provision of its articles of incorporation or the LLC
Agreement, (ii) result in a violation or breach of, or
constitute (with or without due notice or lapse of time or
both) a default or give rise to any lien or encumbrance on
KidSoft, Inc.'s properties or assets or any right of
termination, cancellation or acceleration under any of the
terms or conditions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to
which KidSoft, Inc. is a party or by which it or any of its
properties or assets may be bound, or (iii) violate any
statute, law, rule, regulation, writ, injunction, judgment,
order or decree of any court, administrative agency or
governmental authority binding on KidSoft, Inc. or any of
its properties or assets, excluding from the foregoing
clauses (ii) and (iii) violations, breaches and defaults
that, individually and in the aggregate, would not have a
Material Adverse Effect.
Section 7.5 Consents. Except for the consents and
waivers referred to in Article XIX, no consent, approval or
authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or other
person or entity is required to be made or obtained by
KidSoft, Inc. in connection with the execution and delivery
of this Agreement by KidSoft, Inc. or the performance by
KidSoft, Inc. of its obligations hereunder, other than such
consents, approvals, authorizations, declarations, filings
or registrations, the failure of which to make or obtain,
individually and in the aggregate, would not have a Material
Adverse Effect.
Section 7.6 Financial Statements. KidSoft, Inc.
has previously delivered to the Company complete and correct
copies of its audited balance sheets, statements of income
and statements of cash flows for each of the years ended
December 31, 1994 and 1995. All such financial statements
were prepared in conformity with generally accepted
accounting principles applied on a consistent basis, are
complete, correct and consistent in all material respects
with the books and records of KidSoft, Inc., contain
notations for all significant accruals or contingencies and
fairly present the financial position of KidSoft, Inc. as of
the dates thereof and the results of operations and cash
flows of KidSoft, Inc. for the periods shown therein.
Section 7.7 Employees, etc.
(a) Schedule 7.7 contains an accurate and
complete list of (i) the names and current salaries of all
officers of KidSoft, Inc. and (ii) the names and the wage
rates for all non-salaried and non-executive salaried
employees of KidSoft, Inc. by classification. Each person
listed on Schedule 7.7 devotes substantially all of his or
her working time to the business of KidSoft, which
reimburses KidSoft, Inc. for the cost of salaries and
benefits provided to such persons as provided in the LLC
Agreement. Other than the LLC Agreement, there are no other
contracts, commitments or arrangements between KidSoft, Inc.
and KidSoft that relate to the provision of services to
KidSoft by employees of KidSoft, Inc.
(b) Schedule 7.7 contains an accurate and
complete list of all employment agreements to which KidSoft,
Inc. and any of its current employees is a party, and
complete copies of such agreements have been provided to the
Company. KidSoft, Inc. is not in default with respect to
any obligation to any of its employees. Except as set forth
on such schedule, KidSoft, Inc. is not liable for any
severance or other obligation to any of its former employees
and will not become liable for any severance or other
obligation to any of its current employees as a result of
the transactions contemplated hereby.
(c) Since December 31, 1996, KidSoft, Inc.
has not:
(i) granted any general increase in the
compensation of employees (including any such increase
pursuant to any bonus, pension, profit sharing or other plan
or commitment) or any increase in the compensation payable
or to become payable to any employee, and no such increase
is customary on a periodic basis or required by agreement or
understanding; or experienced any material loss of
personnel, material change in the terms and conditions of
the employment of its key personnel, or any labor trouble
involving its employees; or
(ii) failed to maintain in full force
and effect all existing policies of insurance with respect
to its employees at least at such levels as were in effect
prior to such date or canceled any such insurance or taken
or failed to take any action that would enable the insurers
under such policies to avoid liability for claims arising
out of occurrences prior to the Closings.
(d) KidSoft, Inc. has withheld and paid all
Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, creditor,
independent contractor or third party.
(e) KidSoft, Inc. is not a party or subject
to or bound by (whether written or oral), nor has it
committed to enter into in the future, any plan or contract
providing for collective bargaining or any similar
obligations, or any contract or agreement with any labor
union.
Section 7.8 Employee Benefit Plans.
(a) KidSoft, Inc. does not maintain or contribute
to any Employee Benefit Plan other than the Employee Benefit
Plans identified in Schedule 7.8. The terms and operation of
each Employee Benefit Plan comply in all material respects
with all applicable laws and regulations relating to such
Employee Benefit Plan. There are no unfunded obligations of
KidSoft, Inc. under any retirement, pension, profit-sharing,
deferred compensation plan or similar program. KidSoft,
Inc. is not required to make any payments or contributions
to any Employee Benefit Plan pursuant to any collective
bargaining agreement or, to the knowledge of KidSoft, Inc.,
any applicable labor relations law. Neither KidSoft, Inc.
nor any predecessor has ever maintained or contributed to
any Employee Benefit Plan providing or promising any health
or other nonpension benefits to terminated employees.
(b) KidSoft, Inc. has not maintained any employee
benefit plan or other plan for the employees of KidSoft,
Inc. as described in Section 4021(a) of ERISA (each, a
"Pension Plan") at any time during the twelve-month period
ending on the Closing Date. KidSoft, Inc. has not incurred
(i) any material accumulated funding deficiency within the
meaning of ERISA, or (ii) any material liability to the
Pension Benefit Guaranty Corporation established under ERISA
(or any successor thereto under ERISA) in connection with
any Pension Plan established or maintained by KidSoft, Inc.
KidSoft, Inc. has not had any tax assessed against it by the
Internal Revenue Service for any alleged violation under
Section 4975 of the Code. KidSoft, Inc. does not have any
unfunded liability under any Pension Plan or a contingent
liability for withdrawal from any multi-employer Pension
Plan.
Section 7.9 Compliance with Applicable Law.
KidSoft, Inc. is currently in compliance with all applicable
laws (whether statutory or otherwise), rules, regulations,
orders, ordinances, judgments, decrees, writs, requirements
and injunctions of all governmental authorities, except for
such noncompliance that, individually and in the aggregate,
would not have a Material Adverse Effect.
Section 7.10 Labor Matters.
(a) KidSoft, Inc. and its predecessors have
complied for the past three years and KidSoft, Inc. is
currently complying in all material respects with all
applicable laws relating to employment and employment
practices, terms and conditions of employment, and wages and
hours, and is not engaged in any unfair labor practice or
unlawful employment practice.
(b) There is no charge or complaint pending
or threatened against KidSoft, Inc. before the Equal
Employment Opportunity Commission or the Department of Labor
or any state or local agency of similar jurisdiction. No
employees of KidSoft, Inc. are represented by any labor
union and there is no collective bargaining agreement in
effect with respect to such employees. During the past
three years, to the knowledge of KidSoft, Inc., no labor
union has engaged in any organizing activities with respect
to KidSoft, Inc.'s employees.
Section 7.11 Contracts and Commitments. Each of the
contracts and commitments identified in the Assignment and
Assumption Agreement referred to in Section 12.11 (the
"Assigned Contracts") is in full force and effect and
neither KidSoft, Inc. nor, to the knowledge of KidSoft,
Inc., any other party is in default thereunder, nor, to the
knowledge of KidSoft, Inc., has any event occurred that with
notice, lapse of time or both would constitute a material
default thereunder, except for any such default that would
not have a Material Adverse Effect, and KidSoft, Inc. has
not received notice of any alleged default under any such
contract or commitment. Except for the Assigned Contracts,
KidSoft, Inc. is not a party to any contract or commitment
relating to the business currently conducted or proposed to
be conducted by KidSoft that is or could reasonably be
expected to be material to such business. Except as set
forth on Schedule 7.11, all consents have been obtained, and
all notices have been provided, that are required for
KidSoft, Inc. to transfer and assign the Assigned Contracts
to KidSoft.
Section 7.12 Litigation, Orders. Except as set forth
on Schedule 7.12, there are no claims, actions, suits,
proceedings, investigations or inquiries pending before any
court, arbitrator or governmental or regulatory official or
office, or, to the knowledge of KidSoft, Inc., threatened,
against or affecting KidSoft, Inc. or questioning the
validity of this Agreement, the transactions contemplated
hereby or any action taken or to be taken by KidSoft, Inc.
pursuant to this Agreement, at law or in equity; nor is
there any valid basis for any such claim, action, suit,
proceeding, inquiry or investigation. KidSoft, Inc. is not
subject to any judgment, order or decree entered in any
lawsuit or proceeding that has had or may have a Material
Adverse Effect.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF XXXXX AND XXXXX
Each of Xxxxx and Gross represents and warrants (solely
as to himself) to the Company as follows:
Section 8.1 Authorization. He has all legal
capacity necessary to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement has
been duly executed and delivered by such Member and,
assuming the due authorization, execution and delivery
hereof by the Company, is a valid and binding obligation of
such Member, enforceable against him in accordance with its
terms.
Section 8.2 Ownership of Membership Interests. He
is the sole record and beneficial owner of a 0.29%
Membership Interest and has good title thereto, free and
clear of any lien, security interest, claim to other
encumbrance of any nature whatsoever. Upon the execution
and delivery of the Assignment of Membership Interest at the
LLC Closing pursuant to Section 3.4(b), the Company will
acquire good title to such Membership Interest, free and
clear of any lien, security interest, claim to other
encumbrance of any nature whatsoever.
Section 8.3 No Violation. Neither the execution and
delivery of this Agreement by such Member nor the
performance by him of his obligations hereunder will (i)
conflict with or result in any breach of any provision of
the LLC Agreement, (ii) result in a violation or breach of,
or constitute (with or without due notice or lapse of time
or both) a default or give rise to any lien or encumbrance
on any of his properties or assets or any right of
termination, cancellation or acceleration under any of the
terms or conditions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to
which he is a party or by which he or any of his properties
or assets may be bound, or (iii) violate any statute, law,
rule, regulation, writ, injunction, judgment, order or
decree of any court, administrative agency or governmental
authority binding on him or any of his properties or assets,
excluding from the foregoing clauses (ii) and (iii)
violations, breaches and defaults that, individually and in
the aggregate, would not have a material adverse effect on
his assets or financial condition.
Section 8.4 Consents. Except for the consents and
waivers referred to in Article XIX, no consent, approval or
authorization of, or declaration, filing or registration
with, any governmental or regulatory authority or other
person or entity is required to be made or obtained by such
Member in connection with the execution and delivery of this
Agreement by him or the performance by him of his
obligations hereunder, other than such consents, approvals,
authorizations, declarations, filings or registrations, the
failure of which to make or obtain, individually and in the
aggregate, would not have a material adverse effect on his
assets or financial condition.
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF
HEARST, AMERITECH, KIDSOFT, INC., XXXXX and XXXXX
Section 9.1 Representations and Warranties. Each of
Hearst, Ameritech, KidSoft, Inc., Xxxxx and Gross (each, an
"Investor") represent and warrant to the Company (solely as
to itself or himself, as the case may be) as follows:
(a) Such Investor is acquiring the shares of
Company Common Stock (and, in the case of Hearst, the
Warrants and the shares of Company Common Stock issuable
upon exercise of the Warrants) as described in Sections 1.5
and 2.1, as the case may be, for its or his own account for
investment only and not with a view to or for sale in
connection with the distribution thereof.
(b) Such Investor has such knowledge and
experience in financial and business matters that it or he
is capable of evaluating the merits and risks of the
investment in the Company contemplated by this Agreement and
making an informed investment decision with respect thereto.
(c) Such Investor (other than KidSoft, Inc.)
is an "accredited investor" as such term is defined in Rule
501 under the Securities Act.
(d) Such Investor has received copies of and
has reviewed (i) the Company's Quarterly Report on Form 10-
QSB with respect to the quarter ended September 30, 1996;
(ii) the Company's Quarterly Report on Form 10-QSB with
respect to the quarter ended March 31, 1997 (the "1997 Form
10-QSB"), (iii) the Company's Annual Report on Form 10-KSB
with respect to the year ended December 31, 1996 (the "Form
10-KSB"); (iv) a draft, dated May 1, 1997, of the Company's
Proxy Statement with respect to its 1997 annual meeting of
shareholders; (v) a draft of the Private Placement
Memorandum (the "Memorandum"), dated May 1, 1997, relating
to the offering by the Company of convertible preferred
stock, which describes, among other things, certain risks
relating to an investment in the Company; and (vi) press
releases issued by the Company since May 23, 1996.
(e) Such Investor understands that certain
of the information provided by the Company in connection
with the transactions contemplated hereby contains forward-
looking statements regarding potential future events and
developments affecting the Company's business. Such
statements relate to, among other things, (i) competition
for customers for its products and services; (ii) the
uncertainty of developing or obtaining rights to new
products that will be accepted by the market and the timing
of the introduction of new products into the market;
(iii) the limited market life of the Company's products;
(iv) the uncertainty of consummating potential acquisitions
or entering into joint ventures; and (v) the availability of
financing to fund working capital and expansion needs. Such
Investor further understands that the Company's ability to
predict results or the effect of any pending events on the
Company's operating results is inherently subject to various
risks and uncertainties, including those discussed in the
Form 10-KSB under "Description of Business" and
"Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in the Memorandum under "Risk
Factors." Such Investor further understands that the
projected financial information regarding the Company's
future performance is merely an estimate based on various
assumptions concerning the occurrence of future events, many
of which are beyond the Company's control. Accordingly,
such Investor understands that the Company's actual results
in all likelihood will differ from projected results, and
such differences may be material.
(f) Such Investor has had the opportunity to
ask questions of and receive answers from the Company
concerning its business and operations, the terms and
conditions of the acquisition of securities hereunder, as
well as the opportunity to obtain additional information
necessary to verify the accuracy of information furnished in
connection therewith that the Company possesses or can
acquire without unreasonable effort or expense.
(g) Such Investor understands that the
shares of Company Common Stock and, in the case of Hearst,
the Warrants to be acquired by such Investor pursuant to
this Agreement and, in the case of Hearst, the shares of
Company Common Stock issuable upon exercise of the Warrants
have not been registered under the Securities Act or any
state securities laws, and may not be transferred unless
subsequently registered thereunder or pursuant to an
exemption from registration, and that a legend indicating
such restrictions will be placed on the certificates
representing such securities. The Company may require, as a
condition to any such transfer that is not registered, that
the transferring Investor deliver to the Company an opinion
of counsel, in form and substance satisfactory to the
Company, that no registration for such transfer is required.
Section 9.2 Sales of Company Securities. If the
Company determines to effect a public offering of Company
Common Stock or securities convertible into or exercisable
for Company Common Stock, upon the request of the managing
underwriter for such offering, such Investor shall not offer
or sell, or agree to offer or sell, any Company Common Stock
or securities convertible into or exercisable for Company
Common Stock during the period requested by such
underwriter, which shall not exceed 180 days.
Section 9.3 Confidential Information. The Investors
acknowledge that all information provided by the Company in
connection with this Agreement (other than press releases
and documents filed with the Securities and Exchange
Commission) is non-public, confidential or proprietary in
nature. Each Investor agrees to hold such information in
strict confidence, not to make use thereof other than for
the performance of this Agreement, and not to release or
disclose it to any third party other than for the
performance of this Agreement or as required by law. In the
event that any Investor is requested pursuant to, or
required by, applicable law or regulation or by legal
process to disclose any such information of another party,
such Investor shall provide the Company with prompt notice
of such request to enable the Company to seek an appropriate
protective order. Such Investor shall cooperate with the
Company in connection with such matter.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Hearst, Hearst
Sub, Ameritech, Ameritech Sub, KidSoft, KidSoft, Inc., Xxxxx
and Xxxxx as follows:
Section 10.1 Organization. The Company is a
corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania.
The Company has all requisite power and authority to own,
operate and lease its properties and to conduct its business
as currently conducted. The Company is duly qualified or
licensed to do business and is in good standing in each
jurisdiction in which its ownership or leasing of property
or the conduct of its business requires such licensing or
qualification, except to the extent that the failure to be
so qualified or licensed would not have a Material Adverse
Effect. The Company has delivered to KidSoft complete and
correct copies of its articles of incorporation and by-laws,
each as in effect on the date hereof.
Section 10.2 Subsidiaries. Each of AbleSoft, Inc.,
REP Acquisition Corporation and REP Holdings Company, Inc.
(the "Subsidiaries") is duly organized, validly existing and
in good standing under the laws of its jurisdiction of
incorporation. Each Subsidiary has all requisite power and
authority to own, operate and lease it properties and to
conduct its business as currently conducted. Each
Subsidiary is duly qualified or licensed to do business and
is in good standing in each jurisdiction is which its
ownership or leasing of property or the conduct of its
business requires such licensing or qualification, except to
the extent that the failure to be so qualified would not
have a Material Adverse Effect. The Company owns directly
or indirectly all of the outstanding capital stock of each
Subsidiary.
Section 10.3 Authorization. The Company has all
requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and the performance
by the Company of its obligations hereunder have been duly
authorized by the Board of Directors of the Company and no
other proceeding therefor on the part of the Company or its
shareholders is required. This Agreement has been duly
executed and delivered by the Company and, assuming the due
authorization, execution and delivery hereof by other
parties hereto, is a valid and binding obligation of the
Company, enforceable against the Company in accordance with
its terms.
Section 10.4 Capitalization.
(a) The authorized capital stock of the
Company consists of 10,000,000 shares of Company Common
Stock and of which 4,568,740 shares are issued and
outstanding and 1,000,000 shares of preferred stock, $.01
par value, none of which are outstanding. Except as set
forth on Schedule 10.4, the Company has not issued and is
not obligated to issue any warrants, options or other rights
to purchase or acquire any shares of its capital stock, or
any securities convertible into any such shares or any
warrants, options or other rights to acquire any such
convertible securities.
(b) All of the shares of Company Common
Stock have been duly authorized and, when issued in
accordance with the term of this Agreement will be, validly
issued, fully paid and nonassessable and will not be subject
to any preemptive rights. The Warrants have been duly
authorized and, when issued in accordance with the terms of
this Agreement, will constitute valid and binding
obligations of the Company, enforceable against the Company
in accordance with their terms. The shares of Company
Common Stock issuable upon exercise of the Warrants have
been duly authorized and reserved for issuance and, when
issued upon such exercise will be, validly issued, fully
paid and non-assessable and will not be subject to any
preemptive rights. Except as set forth in Schedule 10.4,
there are no preemptive rights, rights of first refusal, put
or call rights or obligations, or anti-dilution rights with
respect to the issuance, sale or redemption of the capital
stock of the Company.
Section 10.5 Financial Statements. The Company
has previously delivered to KidSoft complete and correct
copies of the Company's audited balance sheets, statements
of income and statements of cash flows for each of the years
ended December 31, 1994, 1995 and 1996. All such financial
statements were prepared in conformity with generally
accepted accounting principles applied on a consistent
basis, are complete, correct and consistent in all material
respects with the books and records of the Company, contain
notations for all significant accruals or contingencies and
fairly present the financial position of the Company as of
the dates thereof and the results of operations and cash
flows of the Company for the periods shown therein.
Section 10.6 No Violation. Neither the execution
and delivery of this Agreement by the Company nor the
performance by the Company of its obligations hereunder will
(i) conflict with or result in any breach of any provision
of its articles of incorporation or by-laws, (ii) result in
a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default or give rise to
any lien or encumbrance on the Company's properties or
assets or any right of termination, cancellation or
acceleration under any of the terms or conditions of any
note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which the Company is a party or
by which it or any of its properties or assets may be
bound, or (iii) violate any statute, law, rule, regulation,
writ, injunction, judgment, order or decree of any court,
administrative agency or governmental authority binding on
the Company or any of its properties or assets, excluding
from the foregoing clauses (ii) and (iii) violations,
breaches and defaults that, individually and in the
aggregate, would not have a Material Adverse Effect.
Section 10.7 Consents. Except for the filings
referred to in Section 1.2 and consents that have been
obtained, no consent, approval or authorization of, or
declaration, filing or registration with, any governmental
or regulatory authority or other person or entity is
required to be made or obtained by the Company in connection
with the execution and delivery of this Agreement by the
Company or the performance by the Company of its obligations
hereunder, other than such consents, approvals,
authorizations, declarations, filings or registrations, the
failure of which to make or obtain, individually and in the
aggregate, would not have a Material Adverse Effect.
Section 10.8 Litigation, Orders. Except as set forth
on Schedule 10.8, there are no claims, actions, suits,
proceedings, investigations or inquiries pending before any
court, arbitrator or governmental or regulatory official or
office, or, to the knowledge of the Company, threatened,
against or affecting the Company or questioning the validity
of this Agreement, the transactions contemplated hereby or
any action taken or to be taken by the Company pursuant to
this Agreement, at law or in equity; nor is there any valid
basis for any such claim, action, suit, proceeding, inquiry
or investigation. The Company is not subject to any
judgment, order or decree entered in any lawsuit or
proceeding that has had or may have a Material Adverse
Effect.
Section 10.9 Securities Laws. The offer, issuance
and sale by the Company of the Company Common Stock and
Warrants pursuant to this Agreement (assuming the accuracy
of the representations and warranties of the Investors
contained in Article IX) will be exempt from the
registration requirements of the Securities Act of 1933, as
amended, and applicable state securities laws.
Section 10.10 Disclosure. The representations and
warranties made or contained in this Agreement, the
schedules and exhibits hereto and the certificates executed
or delivered in connection herewith do not, and the Form 10-
KSB, the 1997 Form 10-QSB and the information contained in
the Memorandum under the heading "Risk Factors" did not, as
of the respective dates thereof, contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to
make such representations, warranties or other material not
misleading. No event has occurred and nothing material has
come to the attention of the Company that would indicate
that any of such information (together with any written
updates thereof furnished by the Company, including
information in the Form 1997 10-QSB that updates information
in the Form 10-KSB) is not true and correct in all material
respects as of the date hereof. To the knowledge of the
Company, the projections contained in the materials
furnished to KidSoft by the Company and the assumptions
underlying such projections were reasonable when made and
continue to be reasonable, and the projections were based
upon good faith and diligent estimates of the anticipated
operating results and financial condition of the Company.
There are no facts known to the Company that currently or
may in the future have a Material Adverse Effect and that
have not been specifically disclosed herein, in a schedule
furnished herewith or in the documents referred to above,
other than economic conditions affecting the industry of the
Company generally.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 11.1 Survival of Representations. All
representations, warranties and agreements made by any party
to this Agreement or pursuant hereto shall survive the
Closings and any investigation made by or on behalf of any
party hereto for a period of one year following the Closing
Date; provided, however, that the representations and
warranties of KidSoft with respect to Taxes contained in
Section 4.13 will remain in full force and effect until 30
days following the expiration of the statute of limitations
(including any extensions thereof) applicable to the tax
claim giving rise to such breach, and shall be effective
with respect to any inaccuracy or breach of any such
representation and warranty notice of which shall have been
so given within such 30-day period.
Section 11.2 Indemnification.
(a) Subject to the terms and conditions of
this Article XI, KidSoft shall indemnify, defend and hold
harmless the Company, each person who controls the Company
within the meaning of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and each of the respective
officers, directors, employees and agents of the foregoing
in their respective capacities as such (collectively, the
"Company Indemnified Parties"), from and against all
demands, claims, assessments, losses, damages, liabilities,
costs and expenses, including interest, penalties and
reasonable attorneys' fees and expenses, net of any
insurance proceeds and tax benefits (collectively,
"Damages"), asserted against, resulting to, imposed upon or
incurred by any Company Indemnified Party, directly or
indirectly, by reason of or resulting from (i) a breach of
any representation, warranty or agreement of KidSoft
contained in or made pursuant to this Agreement, (ii) any
claim asserted against KidSoft or KidSoft, Inc. with respect
to any Taxes relating to the operations or properties of
KidSoft or KidSoft, Inc. on or prior to the Closing Date,
(iii) Taxes that may be due as a result of the Mergers or
the sale of the Membership Interests pursuant to this
Agreement, (iv) any liabilities under any federal, state or
local plant closing, bulk sales or similar law, (v) any
liabilities or obligations relating to events prior to the
Closing Date with regard to any Employee Benefit Plan, or
(vi) any other liabilities or obligations of KidSoft or
KidSoft, Inc. (whether absolute, accrued, contingent or
otherwise) existing as of the Closing Date or arising out of
facts, conditions or circumstances existing at or prior
thereto, whether or not such liabilities, obligations or
claims were known at the time of the Closing, except for
liabilities or obligations reflected on the Balance Sheet or
incurred in the ordinary course of business since the date
of the Balance Sheet or disclosed to the Company in this
Agreement or a schedule hereto (collectively with the
matters referred to in (b), (c) and (d) below, "Claims").
(b) Subject to the terms and conditions of
this Article XI, Hearst shall indemnify, defend and hold
harmless the Company Indemnified Parties for all liability
for Taxes imposed on Hearst or any affiliate that is a
member of Hearst's consolidated tax group (including Hearst
Merger Sub) and Ameritech shall indemnify, defend and hold
harmless the Company Indemnified Parties for all liability
for Taxes imposed on Ameritech or any affiliate that is a
member of Ameritech's consolidated tax group (including
Ameritech Merger Sub).
(c) Subject to the terms and conditions of
this Article XI, each of Hearst, Ameritech, KidSoft, Inc.,
Xxxxx and Xxxxx (solely as to itself or himself, as the case
may be, and, in the case of Hearst and Ameritech, as to
Hearst Sub and Ameritech Sub, respectively) shall indemnify,
defend and hold harmless the Company Indemnified Parties
from and against all Damages asserted against, resulting to,
imposed upon or incurred by any Company Indemnified Party,
directly or indirectly, by reason of or resulting from a
breach of any representation, warranty or agreement of such
indemnifying party contained in or made pursuant to this
Agreement. Without limiting the generality of the
foregoing, none of Hearst, Ameritech, KidSoft, Inc., Xxxxx
or Gross shall have any obligation under this Section
11.2(c) for breaches of any representations, warranties or
agreements by any other party, except for Hearst with
respect to breaches by Hearst Sub and Ameritech with respect
to breaches by Ameritech Sub.
(d) Subject to the terms and conditions of
this Article XI, the Company shall indemnify, defend and
hold harmless Hearst, Ameritech, KidSoft, Inc., Xxxxx and
Xxxxx, each person who controls such party within the
meaning of the Exchange Act, and each of the respective
partners, officers, directors, employees and agents of the
foregoing in their respective capacities as such
(collectively, the "KidSoft Indemnified Parties") from and
against all Damages asserted against, resulting to, imposed
upon or incurred by any such KidSoft Indemnified Party,
directly or indirectly, by reason of or resulting from a
breach of any representation, warranty or agreement of the
Company contained in or made pursuant to this Agreement;
provided, however, the Company's liability pursuant to this
paragraph (d) and pursuant to the Stock Purchase Agreement
shall not exceed, in the aggregate, $2,000,000.
(e) Notwithstanding anything to the contrary
contained in this Article XI, no party shall have any
liability under this Section 11.2 or Section 11.4 with
respect to any Claim unless the Damages related thereto
(determined on an aggregate basis and without regard to any
allocation among the applicable Indemnifying Parties (as
defined below)) would, but for this paragraph (e), exceed
$25,000, and then only to the extent of such excess.
Section 11.3 Conditions of Indemnification. The
obligations of the Company and Hearst, Ameritech, KidSoft,
Inc., Xxxxx and Gross as indemnifying parties (each, an
"Indemnifying Party") to indemnify the KidSoft Indemnified
Parties and the Company Indemnified Parties, respectively
(each, an "Indemnified Party"), under Section 11.2 with
respect to Claims made by third parties shall be subject to
the following terms and conditions:
(a) The Indemnified Party shall give the
Indemnifying Party prompt notice of any such Claim, and the
Indemnifying Party shall have the right to undertake the
defense thereof by representatives chosen by it;
(b) If the Indemnifying Party, within a
reasonable time after notice of any such Claim, fails to
defend any Indemnified Party against which such Claim has
been asserted, such Indemnified Party shall (upon further
notice to the Indemnifying Party) have the right to
undertake the defense, compromise or settlement of such
Claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying
Party to assume the defense of such Claim at any time prior
to settlement, compromise or final determination thereof;
and
(c) Anything in this Section 11.3 to the
contrary notwithstanding, (i) if there is a reasonable
probability that a Claim may materially and adversely affect
an Indemnified Party other than as a result of money damages
or other money payments, such Indemnified Party shall have
the right, at its own cost and expense, to defend,
compromise or settle such Claim; provided, however, that if
such Claim is settled without the Indemnifying Party's
consent (which consent shall not be unreasonably withheld)
such Indemnified Party shall be deemed to have waived all
rights hereunder against such Indemnifying Party for money
damages arising out of such Claim, and (ii) such
Indemnifying Party shall not, without the written consent of
such Indemnified Party, settle or compromise any Claim or
consent to the entry of any judgment that does not include
as an unconditional term thereof the giving by the claimant
or the plaintiff to such Indemnified Party a release from
all liability in respect to such Claim.
Section 11.4 Contribution. In the event that the
foregoing indemnity is unavailable to any Indemnified Party
for any reason, the Indemnifying Parties with respect to
such Claim, jointly and severally, shall contribute to all
related Damages in such proportion as is appropriate to
reflect the relative fault of each party in connection with
the conduct that gave rise to such Claim. The parties agree
that it would not be just or equitable if contributions were
determined by pro rata allocation or by any other method of
allocation that does not take account of relative fault and
other equitable considerations. The parties further agree
that if and to the extent that pro rata contributions were
nevertheless considered by court, all Indemnified Parties
shall collectively be deemed to be one person.
Section 11.5 Indemnification Under Escrow Agreement.
Notwithstanding anything to the contrary contained in this
Article XI, the right to indemnity and to be held harmless
against any Claim under Section 11.2(a) or 11.2(c), and the
right to contribution in respect of any such Claim under
Section 11.4, other than Claims relating to Taxes, may be
asserted solely against the collateral then held under the
Escrow Agreement. Each of Hearst, Ameritech and KidSoft,
Inc. acknowledge that the shares of Company Common Stock to
be delivered on their behalf to the Escrow Agent pursuant to
Sections 3.2, 3.3 and 3.4 will be available, subject to the
terms of this Agreement and the Escrow Agreement, to satisfy
any Claims by the Company pursuant to Section 11.2(a) or
11.2(c) and that any Claim pursuant to Section 11.2(a) may
be asserted against the collateral then held under the
Escrow Agreement regardless of whether KidSoft is in
existence at the time such Claim is made. The 601 shares of
Company Common Stock to be delivered to the Escrow Agent
pursuant to Section 3.4 on behalf of Xxxxx shall only be
available to satisfy Claims by the Company against Xxxxx
pursuant to Section 11.2(c) and the 601 shares of Company
Common Stock to be delivered to the Escrow Agent pursuant to
Section 3.4 on behalf of Gross shall only be available to
satisfy Claims by the Company against Gross pursuant to
Section 11.2(c).
Section 11.6 KidSoft Members' Representatives. For
all matters arising under the Escrow Agreement, each of
Hearst, Ameritech, KidSoft, Inc., Xxxxx and Xxxxx (the
"KidSoft Indemnifying Parties") shall be represented by Xxxx
Xxxxxxx and Xxxxxxx Xxxxxxx or their designees (the
"Representatives"). Except as otherwise provided herein,
each Representative shall have the full power and authority
to act alone in the name of, for and on behalf of each of
the KidSoft Indemnifying Parties in any manner with respect
to the Escrow Agreement and any Claim under Section 11.2(a)
or 11.2(c) and the right to contribution in respect of any
Claim under Section 11.4. In the event either of them shall
die or resign or otherwise terminate his authority
hereunder, there surviving or remaining Representative shall
make all decisions on behalf of the KidSoft Indemnifying
Parties as authorized by this Section 11.6. In taking any
action whatsoever hereunder, the Representatives shall be
protected in relying upon any notice, paper or other
document reasonably believed by them to be sufficient. The
Representatives shall not be liable to the Company or the
KidSoft Indemnifying Parties for any act performed by them
in good faith and shall be liable only in the case of their
own bad faith or willful misconduct or gross negligence.
The Representatives may consult with counsel in connection
with their duties hereunder and shall be fully protected in
any act taken, suffered or permitted by them in good faith
in accordance with the advice of counsel, the expenses of
which shall be paid (a) by the KidSoft Indemnifying Parties
if such expenses are incurred prior to the first anniversary
of the Closing Date and (b) from the proceeds of the sale or
other disposition of the collateral held under the Escrow
Agreement if such expenses are incurred after such first
anniversary. The Representatives shall not be responsible
for determining or verifying the authority of any person
acting or purporting to act on behalf of any party to this
Agreement.
ARTICLE XII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
The obligations of the Company under this Agreement are
subject to the satisfaction, at or before the Closings, of
each of the following conditions:
Section 12.1 Representations and Warranties. The
representations and warranties of each of the parties to
this Agreement (other than the Company) shall be true and
correct in all material respects as of the date when made
and as of the Closing Date as though made at that time
(except for representations and warranties that expressly
relate to a different date) and each of such parties shall
have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or
complied with by such party at or prior to the Closings.
The Company shall have received a certificate, executed by
the respective Chief Executive Officers (or other officers
reasonably acceptable to the Company) of Hearst, Hearst Sub,
Ameritech, Ameritech Sub, KidSoft, and KidSoft, Inc., each
dated as of the Closing Date, to the foregoing effect with
respect to such party.
Section 12.2 No Proceeding or Litigation. There
shall not be threatened, instituted or pending any suit,
action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting or looking
toward an order, judgment or decree that (a) restrains or
prohibits the consummation of any of the transactions
contemplated hereby or (b) could have a Material Adverse
Effect on KidSoft.
Section 12.3 No Injunction. On the Closing Date,
there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of
competent jurisdiction restraining or prohibiting the
consummation of any of the transactions contemplated hereby.
Section 12.4 Resolutions. Each of Hearst Sub,
Ameritech Sub, KidSoft, and KidSoft, Inc. shall have
delivered to the Company copies of resolutions of such
party's Board of Directors (or other governing body) and
stockholders (if required), certified by the Secretary of
such party as in full force and effect on the Closing Date,
authorizing, among other things, the execution and delivery
of this Agreement and the consummation of the transactions
contemplated hereby and, in the case of Hearst and
Ameritech, evidence reasonably satisfactory to the Company
of the authority of the officers thereof executing this
Agreement and the other documents contemplated hereby to
take such action and to consummate the transactions
contemplated hereby and thereby.
Section 12.5 Incumbency Certificate. Each such party
shall have delivered to the Company a certificate of the
Secretary of such party, dated as of the Closing Date, as to
the incumbency and signatures of the officers of such party
executing this Agreement and the related certificates.
Section 12.6 Opinion of Counsel. The Company shall
have received from counsel to each such party opinions, each
dated as of the Closing Date, in form and substance
reasonably satisfactory to the Company as follows:
(a) in the case of counsel to KidSoft, with
respect to the matters set forth in Sections 4.1, 4.3, 4.4
(b), 4.9, 4.12 and 4.14, provided that in the case of
Section 4.14, such opinion may be to the knowledge of such
counsel;
(b) in the case of counsel to Hearst and
Hearst Sub, with respect to the matters set forth in Article
V (other than Section 5.3 and Section 5.7(b);
(c) in the case of counsel to Ameritech and
Ameritech Sub, with respect to the matters set forth in
Article VI (other than Section 6.3 and Section 6.7(b)); and
(d) in the case of counsel to KidSoft, Inc.,
with respect to the matters set forth in Sections 7.1, 7.2,
7.4 and 7.5.
Section 12.7 All Proceedings Satisfactory. All
corporate and other proceedings taken prior to or at the
Closings in connection with the transactions contemplated by
this Agreement, and all documents and evidences incident
thereto, shall be reasonably satisfactory in form and
substance to the Company.
Section 12.8 Stock Purchase Agreement. Hearst and
Ameritech shall have executed the Stock Purchase Agreement
in substantially the form attached hereto as Exhibit C (the
"Stock Purchase Agreement"), and delivered an executed copy
thereof to the Company and all conditions to closing
thereunder to be satisfied by Hearst and Ameritech shall
have been satisfied or waived.
Section 12.9 Fairness Opinion. The Company shall
have received the written opinion of Xxxxxx Xxxxxxxxxx Xxxxx
to the effect that, as of the Closing Date, the acquisition
of KidSoft by the Company in consideration of 1,450,000
shares of Company Common Stock and the Warrants is fair to
the shareholders of the Company from a financial point of
view.
Section 12.10 KidSoft Cash Account. Immediately prior
to the Closings, Ameritech shall have contributed $200,000
in cash to KidSoft, which amount shall be deposited in
KidSoft's cash account.
Section 12.11 Assignment and Assumption Agreement.
KidSoft and KidSoft, Inc. shall have entered into an
Assignment and Assumption Agreement, in form and substance
satisfactory to the Company, pursuant to which KidSoft, Inc.
shall assign to KidSoft all of its rights, and KidSoft shall
assume all of KidSoft, Inc.'s liabilities and obligations,
under such contracts and commitments of KidSoft, Inc.
relating to the business of KidSoft as the Company shall
request.
Section 12.12 Escrow Agreement. The Representatives
and the Escrow Agent shall have executed and delivered to
the Company the Escrow Agreement.
ARTICLE XIII
CONDITIONS TO OBLIGATIONS OF HEARST AND HEARST SUB
The obligations of Hearst and Hearst Sub under this
Agreement are subject to the satisfaction, at or before the
Hearst Merger Closing, of each of the following conditions:
Section 13.1 Representations and Warranties. The
representations and warranties of the Company shall be true
and correct in all material respects as of the date when
made and as of the date of the Hearst Merger Closing as
though made at that time (except for representations and
warranties that expressly relate to a different date) and
the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and
conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Hearst Merger Closing. Hearst and Hearst Sub shall have
received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the
foregoing effect.
Section 13.2 No Proceeding or Litigation. There
shall not be threatened, instituted or pending any suit,
action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting or looking
toward an order, judgment or decree that (a) restrains or
prohibits the consummation of the Hearst Sub Merger or (b)
could have a Material Adverse Effect on the Company.
Section 13.3 No Injunction. On the Closing Date,
there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of
competent jurisdiction restraining or prohibiting the
consummation of the Hearst Sub Merger.
Section 13.4 Resolutions of the Company. The Company
shall have executed and delivered to Hearst and Hearst Sub
copies of resolutions of the Company's Board of Directors,
certified by the Secretary of the Company as in full force
and effect on the Closing Date, authorizing, among other
things, the execution and delivery of this Agreement and the
consummation of the Hearst Sub Merger.
Section 13.5 Incumbency Certificate. The Company
shall have delivered to Hearst and Hearst Sub a certificate
of the Secretary of the Company, dated as of the Closing
Date, as to the incumbency and signatures of the officers of
the Company executing this Agreement and the related
certificates.
Section 13.6 Opinion of Counsel. Hearst and Hearst
Sub shall have received from Klehr, Harrison, Xxxxxx,
Branzburg & Xxxxxx, counsel to the Company, an opinion,
dated as of the Closing Date, in form and substance
reasonably satisfactory to Hearst and Hearst Sub, with
respect to the matters set forth in Section 10.1, 10.2,
10.3, 10.4, 10.6, 10.7, 10.8 and 10.9.
Section 13.7 All Proceedings Satisfactory. All
corporate proceedings taken prior to or at the Hearst Merger
Closing in connection with the Hearst Sub Merger, and all
documents and evidences incident thereto, shall be
reasonably satisfactory in form and substance to Hearst and
Hearst Sub.
ARTICLE XIV
CONDITIONS TO OBLIGATIONS OF AMERITECH AND AMERITECH SUB
The obligations of Ameritech and Ameritech Sub under
this Agreement are subject to the satisfaction, at or before
the Ameritech Sub Merger Closing, of each of the following
conditions:
Section 14.1 Representations and Warranties. The
representations and warranties of the Company shall be true
and correct in all material respects as of the date when
made and as of the date of the Ameritech Sub Closing as
though made at that time (except for representations and
warranties that expressly relate to a different date) and
the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and
conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the
Ameritech Sub Merger Closing. Ameritech and Ameritech Sub
shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect.
Section 14.2 No Proceeding or Litigation. There
shall not be threatened, instituted or pending any suit,
action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting or looking
toward an order, judgment or decree that (a) restrains or
prohibits the consummation of any of the transactions
contemplated hereby or (b) could have a Material Adverse
Effect on the Company.
Section 14.3 No Injunction. On the Closing Date,
there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of
competent jurisdiction restraining or prohibiting the
consummation of the Ameritech Sub Merger.
Section 14.4 Resolutions of the Company. The Company
shall have executed and delivered to Ameritech and Ameritech
Sub copies of resolutions of the Company's Board of
Directors, certified by the Secretary of the Company as in
full force and effect on the Closing Date, authorizing,
among other things, the execution and delivery of this
Agreement and the consummation of the Ameritech Sub Merger.
Section 14.5 Incumbency Certificate. The Company
shall have delivered to Ameritech and Ameritech Sub a
certificate of the Secretary of the Company, dated as of the
Closing Date, as to the incumbency and signatures of the
officers of the Company executing this Agreement and the
related certificates.
Section 14.6 Opinion of Counsel. Ameritech and
Ameritech Sub shall have received from Klehr, Harrison,
Xxxxxx, Branzburg & Xxxxxx, counsel to the Company, an
opinion, dated as of the Closing Date, in form and substance
reasonably satisfactory to Hearst and Hearst Sub, with
respect to the matters set forth in Section 10.1, 10.2,
10.3, 10.4, 10.6, 10.7, 10.8 and 10.9.
Section 14.7 All Proceedings Satisfactory. All
corporate proceedings taken prior to or at the Ameritech
Merger Closing in connection with the Ameritech Sub Merger,
and all documents and evidences incident thereto, shall be
reasonably satisfactory in form and substance to Ameritech
and Ameritech Sub.
ARTICLE XV
CONDITIONS TO OBLIGATIONS OF KIDSOFT, INC., XXXXX AND GROSS
The obligations of KidSoft, Inc., Xxxxx and Xxxxx under
this Agreement are subject to the satisfaction, at or before
the LLC Closing, of each of the following conditions:
Section 15.1 Representations and Warranties. The
representations and warranties of the Company shall be true
and correct in all material respects as of the date when
made and as of the date of the LLC Closing as though made at
that time (except for representations and warranties that
expressly relate to a different date) and the Company shall
have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or
complied with by the Company at or prior to the LLC Closing.
KidSoft, Inc., Xxxxx and Xxxxx shall have received a
certificate, executed by the Chief Executive Officer of the
Company, dated as of the Closing Date, to the foregoing
effect.
Section 15.2 No Proceeding or Litigation. There
shall not be threatened, instituted or pending any suit,
action, investigation, inquiry or other proceeding by or
before any court or governmental or other regulatory or
administrative agency or commission requesting or looking
toward an order, judgment or decree that (a) restrains or
prohibits the consummation of any of the transactions
contemplated hereby or (b) could have a Material Adverse
Effect to the Company.
Section 15.3 No Injunction. On the Closing Date,
there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of
competent jurisdiction restraining or prohibiting the
consummation of the LLC Closing.
Section 15.4 Resolutions of the Company. The Company
shall have executed and delivered to KidSoft, Inc., Xxxxx
and Gross copies of resolutions of the Company's Board of
Directors, certified by the Secretary of the Company as in
full force and effect on the Closing Date, authorizing,
among other things, the execution and delivery of this
Agreement and the consummation of the LLC Closing.
Section 15.5 Incumbency Certificate. The Company
shall have delivered to KidSoft, Inc., Xxxxx and Xxxxx a
certificate of the Secretary of the Company, dated as of the
Closing Date, as to the incumbency and signatures of the
officers of the Company executing this Agreement and the
related certificates.
Section 15.6 Opinion of Counsel. KidSoft, Inc.,
Xxxxx and Gross shall have received from Klehr, Harrison,
Xxxxxx, Xxxxxxxxx & Xxxxxx, counsel to the Company, an
opinion, dated as of the Closing Date, in form and substance
reasonably satisfactory to Hearst and Hearst Sub, with
respect to the matters set forth in Section 10.1, 10.2,
10.3, 10.4, 10.6, 10.7, 10.8 and 10.9.
Section 15.7 All Proceedings Satisfactory. All
corporate proceedings taken prior to or at the LLC Closing
in connection with the LLC Closing, and all documents and
evidences incident thereto, shall be reasonably satisfactory
in form and substance to KidSoft, Inc., Xxxxx and Gross.
ARTICLE XVI
COMPANY BOARD OF DIRECTORS
Section 16.1 Company Board of Directors. Promptly
following the Closings, the Company shall cause the Board of
Directors of the Company to be expanded to ten members and
to elect three additional directors, who shall be Xxxx
Xxxxxxx, one person nominated by Hearst and one person
nominated by Ameritech. The persons nominated by Hearst and
Ameritech, respectively, shall be reasonably satisfactory to
the Company. In accordance with Section 4.03 of the
Company's Amended and Restated By-Laws, such expansion shall
be effected by increasing each of Class I, Class II and
Class III of the Board of Directors by one director and
adding one of the new directors to each such Class, as the
current Board of Directors shall determine.
ARTICLE XVII
REGISTRATION RIGHTS
Section 17.1 Piggyback Registration Rights. If, at
any time, the Company proposes to register any shares of
Common Stock under the Securities Act other than pursuant to
a registration effected to implement (a) an employee benefit
plan or (b) a transaction to which Rule 145 or any similar
rule of the SEC under the Securities Act applies, whether or
not for sale for its own account, the Company shall give
written notice thereof to the Investors and upon the written
request of any Investor, given within 15 days after the
receipt of any such written notice, the Company will include
in such registration statement any or all of the shares of
Common Stock acquired pursuant to this Agreement then owned
by such Investor [including shares issuable upon exercise of
the Warrants]; provided, however, that (i) the maximum
number of shares to be sold shall not exceed the number
which the managing underwriter considers, in good faith, to
be appropriate based on market conditions and other relevant
factors (including pricing); and (ii) if the total number of
shares desired to be sold exceeds such amount, the Company
shall be entitled to include in such registration statement
the full amount of shares that it desires to include, and
the Investors, together with any other shareholders who
elect to participate in the offering, shall be entitled to
sell up to any remaining amount of shares pro rata in
proportion to the number of shares requested to be included
therein.
Section 17.2 Withdrawal of Shares. If the number of
shares to be included in a registration statement pursuant
to this Article XVII is reduced as provided in Section 17.1,
any Investor that previously had elected to participate in
such offering may withdraw its shares from such registration
statement by giving written notice to such effect to the
Company at any time prior to the effective date thereof. At
any time prior to such effective date, the Company shall
have the right to withdraw such registration statement for
any reason whatsoever.
Section 17.3 Information Regarding Investors;
Underwriting Arrangements.
(a) Each Investor participating in a
registration hereunder shall furnish to the Company such
information regarding such Investor and the distribution of
such Investor's securities as the Company may from time to
time request in order to comply with the Securities Act of
1933 (the "Securities Act") and the rules and regulations of
the Securities and Exchange Commission thereunder. Each
Investor shall notify the Company as promptly as practicable
of any inaccuracy or change in information previously
furnished by such Investor to the Company or of the
happening of any event as a result of which any prospectus
relating to such registration contains an untrue statement
of a material fact regarding such Investor or the
distribution of such securities or omits to state any
material fact regarding such Investor or the distribution of
such securities required to be stated therein or necessary
to make the statements therein, in light of the
circumstances under which they were made, not misleading,
and shall promptly furnish to the Company any additional
information required to correct or update any previously
furnished information or required so that such prospectus
shall not contain, with respect to such Investor or the
distribution of such securities, an untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(b) Each Investor participating in a
registration hereunder shall, if requested by the Company or
the managing underwriter(s) in connection with such
registration, (i) subject to Section 17.4, agree to sell its
shares on the basis provided in any underwriting
arrangements entered into in connection therewith and
(ii) complete and execute all questionnaires, powers of
attorney, indemnities, underwriting agreements and other
documents customary in similar offerings.
Section 17.4 Restrictions on Sales. In connection
with any registration under this Article XVII, no Investor
shall sell any shares of Common Stock or securities
convertible into or exercisable for Common Stock, except
pursuant to such registration, for the period following the
effective date of the applicable registration statement that
the managing underwriter of the offering determines is
necessary to effect the offering, which period shall not
exceed 180 days.
Section 17.5 Indemnification.
(a) Indemnification by the Company. In
connection with any registration pursuant to this Section
17, the Company shall indemnify, defend and hold harmless
each Investor participating in such registration, each
person who controls such Investor within the meaning of the
Securities Act, and each of the partners, officers,
directors, employees and agents of the foregoing in their
respective capacities as such (the "Indemnitees"), to the
full extent lawful, from and against all actions, suits,
claims, proceedings, costs, damages, judgments, amounts paid
in settlement and expenses (including, without limitation,
reasonable attorneys' fees and disbursements), whether joint
or several (collectively, a "Loss"), to which any such
Indemnitee may become subject under the Securities Act or
any other statute or common law, insofar as any such Loss
may arise out of or be based upon any untrue statement or
alleged untrue statement of any material fact contained in
any registration statement under which such securities were
registered, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement thereto,
or in any filing made in connection with the qualification
of the offering under blue sky or other securities laws of
jurisdictions in which the Registrable Securities are
offered ("Blue Sky Filing"), or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading and the Company will reimburse each
Indemnitee for any legal or other expenses reasonably
incurred in connection with investigating or defending such
Loss; provided, however, that such indemnification covenant
shall not (i) apply to any Loss arising out of, or based
upon, any such untrue statement or alleged untrue statement,
or any such omission or alleged omission, if such statement
or omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf
of such Indemnitee for use in connection with preparation of
the registration statement, any preliminary prospectus or
final prospectus contained in the registration statement,
any such amendment or supplement thereto or any Blue Sky
Filing or (ii) inure to the benefit of any Indemnitee to the
extent that any such Loss arises out of such Indemnitee's
failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, to the person
asserting an untrue statement or alleged untrue statement or
omission or alleged omission at or prior to the written
confirmation of the sale of the securities to such person if
such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf
of any Indemnitee and shall survive the transfer of such
securities by any Indemnitee.
(b) Indemnification by the Sellers. As a
condition to including any securities in any registration
statement filed pursuant to Section 17.1, the Company shall
have received an undertaking satisfactory to it from the
prospective seller of such securities to indemnify, defend
and hold harmless (in the same manner and to the same extent
as set forth in subsection (a) of this Section 17.5) the
Company, each director of the Company, each officer of the
Company and each other person, if any, who controls the
Company within the meaning of the Securities Act, with
respect to any untrue statement or alleged untrue statement
in, or omission or alleged omission from, such registration
statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein or any Blue Sky Filing,
or any amendment or supplement thereto, if such statement or
alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such seller for
use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, in
no event shall the liability of any seller under this
paragraph (b) exceed the net proceeds received by such
seller (after the payment of underwriting discounts and
commissions) from the sale of its securities pursuant to
such registration statement. Such indemnity shall remain in
full force and effect regardless of any investigation made
by or on behalf of the Company or any such director, officer
or controlling person and shall survive the transfer of such
securities by such seller.
(c) Notices of Claims. Promptly after
receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim
hereunder, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party,
give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified
party to give notice as provided herein shall not relieve
the indemnifying party of its obligations under this Section
17.5 unless the indemnifying party is actually prejudiced by
such failure to give notice. In case any such action is
brought against an indemnified party, the indemnifying party
shall be entitled to participate in and, unless a conflict
of interest between such indemnified and indemnifying
parties exists in respect of such claim, to assume the
defense thereof, jointly with any other indemnifying party
similarly notified to the extent that the indemnifying party
may wish, and after notice from the indemnifying party to
such indemnified party of its election so to assume the
defense thereof, the indemnifying party shall not be liable
to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof. In the event that the indemnifying party
advises an indemnified party that it will contest a claim
for indemnification hereunder, or fails, within 30 days of
receipt of any indemnification notice to notify, in writing,
such person of its election to defend, settle or compromise
any action, proceeding or claim (or discontinues its defense
at any time after it commences such defense), then the
indemnified party may, at its option, defend, settle or
otherwise compromise or pay such action or claim with the
consent of the indemnifying party, which consent shall not
be unreasonably withheld. The indemnified party shall
cooperate fully with the indemnifying party in connection
with any negotiation or defense of any such action or claim
by the indemnifying party and shall furnish to the
indemnifying party all information reasonably available to
the indemnified party that relates to such action or claim.
The indemnifying party shall keep the indemnified party
fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto. If the
indemnifying party elects to defend any such action or
claim, then the indemnified party shall be entitled to
participate in such defense with counsel of its choice at
its sole cost and expense. If the indemnifying party does
not assume such defense, the indemnified party shall keep
the indemnifying party apprised at all times as is
reasonably practicable as to the status of the defense. No
indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written
consent; provided, however, that the indemnifying party
shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent
of the indemnified party (not to be unreasonably withheld),
consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect
to such claim or litigation.
ARTICLE XVIII
RELATED MATTERS
Section 18.1 Use of Name. KidSoft, Inc.
acknowledges that KidSoft owns the exclusive right to use
the name "KidSoft" and that such right is a material
inducement for the Company to consummate the transactions
contemplated by this Agreement. KidSoft, Inc. further
acknowledges that any use of the name "KidSoft" by KidSoft,
Inc. could cause confusion among customers, suppliers or
others doing business with KidSoft or the Company and could
result in irreparable harm to the Company. Accordingly,
after the Closings, KidSoft, Inc. shall not conduct any
business or other activities except through a fictitious
name that does not include the name "KidSoft" or any
variation or derivative thereof.
Section 18.2 Employees, Benefit Plans, Etc.
(a) The Company shall have the right, but
shall have no obligation, to offer employment to such
employees of KidSoft, Inc. as the Company in its sole
discretion may determine. Any employment offered by the
Company to employees of KidSoft, Inc. shall be on such terms
and conditions as the Company in its sole discretion may
determine. Nothing contained in this Section 18.2 shall be
construed to confer upon or give to any person other than
the parties to this Agreement and their successors or
permitted assigns any rights or remedies hereunder.
(b) Notwithstanding anything to the contrary
contained in this Agreement or in any document or instrument
delivered pursuant hereto, the Company is not assuming, and
KidSoft, Inc. shall remain responsible for, all amounts due
to employees of KidSoft, Inc. in respect of wages, bonuses,
commissions or other compensation or under any benefit plan
with respect to all periods prior to the Closing Date.
KidSoft, Inc. shall withhold all taxes and other amounts
required by law to be withheld in respect of such wages,
bonuses, commissions and compensation.
(c) KidSoft, Inc. shall hold the shares of
the Company Common Stock received pursuant to Section 2.1(a)
for the benefit of its employees and, subject to Article IX,
shall apply such shares or the proceeds received from the
sale thereof to satisfy in full the obligations of KidSoft,
Inc. under its Incentive Compensation Plan and the
obligation of KidSoft under the Incentive Compensation
Agreement, dated as of May 1, 1996, between KidSoft and Xxxx
Xxxxxxx.
ARTICLE XIX
CONSENTS AND WAIVERS OF HEARST SUB,
AMERITECH SUB, KIDSOFT, INC.
Pursuant to Paragraph 9.4 of the LLC Agreement:
Section 19.1 Transfer by KidSoft, Inc. Hearst Sub
and Ameritech Sub hereby acknowledge and consent to the sale
by KidSoft, Inc. of its Membership Interest to the Company
in accordance with the terms and conditions contained
herein.
Section 19.2 Transfer by Hearst Sub and Ameritech
Sub. KidSoft, Inc. hereby acknowledges and consents to the
transfer by each of Hearst Sub and Ameritech Sub of its
respective Membership Interest to the Company pursuant to
the Hearst Sub Merger and the Ameritech Sub Merger,
respectively, in each case in accordance with the terms and
conditions contained herein.
Section 19.3 Transfer by Xxxxx and Gross. KidSoft,
Inc., Hearst Sub and Ameritech Sub hereby acknowledge and
consent to the sale by each of Xxxxx and Xxxxx of his
respective Membership Interest to the Company in accordance
with the terms and conditions contained herein.
Section 19.4 Ameritech Sub Right of First Refusal.
Ameritech Sub hereby waives its right of first refusal to
acquire Hearst Sub's Membership Interest and acknowledges
that Hearst Sub is free to transfer all or any portion of
its Membership Interest to the Company in accordance with
the terms and conditions contained herein.
Section 19.5 Hearst Sub Right of First Refusal.
Hearst Sub hereby waives its right of first refusal to
acquire Ameritech Sub's Membership Interest and acknowledges
that Ameritech Sub is free to transfer all or any portion of
its Membership Interest to the Company in accordance with
the terms and conditions contained herein.
ARTICLE XX
MISCELLANEOUS
Section 20.1 Expenses; Taxes, Etc. Except as
otherwise provided herein, each party hereto shall pay all
fees and expenses incurred by it in connection with the
negotiation and execution of this Agreement and the
consummation of the transactions contemplated hereby.
Section 20.2 Further Assurances. From time to time,
at the Company's request and without further consideration,
each party hereto shall execute and deliver to the Company
such documents and take such other action as the Company may
reasonably request in order to consummate more effectively
the transactions contemplated hereby.
Section 20.3 Parties in Interest. This Agreement
shall be binding upon, inure to the benefit of, and be
enforceable by the respective successors and permitted
assigns of the parties hereto. The rights and obligations
of the parties hereto hereunder may not be assigned without
the consent of the other parties hereto.
Section 20.4 Entire Agreement, Amendments and Waiver.
(a) This Agreement, the exhibits, the
schedules and other writings referred to herein or delivered
pursuant hereto that form a part hereof contain the entire
understanding of the parties with respect to its subject
matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its
subject matter.
(b) This Agreement may be amended only by a
written instrument duly executed by the parties. Any
condition to a party's obligations hereunder may be waived
in writing by such party to the extent permitted by law.
Section 20.5 Headings. The Article and Section
headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 20.6 Notices. All notices, claims,
certificates, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, by telex or
facsimile transmission or mailed (registered or certified
mail, postage prepaid, return receipt requested) as follows:
If to the Company to: MicroLeague Multimedia, Inc.
0000 Xxxxxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Facsimile No.: (000) 000-0000
with a copy to: Klehr, Harrison, Xxxxxx, Xxxxxxxxx
& Xxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
Facsimile No.: (000) 000-0000
If to Hearst : The Hearst Corporation
000 Xxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: General Counsel
If to Ameritech: Ameritech Corporation
00 X. Xxxxxx Xxxxx
Xxxxxxx, XX 00000
Attention: Assistant General Counsel -
Transactions
If to KidSoft, Inc.: 00000 Xxxxx XxXxxx Xxxxxxxxx
Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx
with a copy to: Xxxx X. Xxxxxx, Esquire
Xxxx Xxxx Xxxx Freidenrich
0000 Xxxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
If to Xxxxx: x/x Xxxxxxx Xxxxx & Xx.
Xxxxx Xxxxx
World Financial Center
Xxx Xxxx, XX 00000-0000
If to Gross: Concurrent Industries Group, LLC
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
or to such other address as the person to whom notice is to
be given may have previously furnished to the others in
writing in the manner set forth above, provided that notice
of a change of address shall be deemed given only upon
receipt.
Section 20.7 Governing Law. This Agreement shall be
governed by, and construed and enforced in accordance with,
the laws of the Commonwealth of Pennsylvania with regard to
its or any other jurisdiction's conflicts of law rules.
Section 20.8 Third Parties. Nothing herein expressed
or implied is intended or shall be construed to confer upon
or give to any person, other than the parties hereto and
their successors or permitted assigns, any rights or
remedies under or by reason of this Agreement.
Section 20.9 Counterparts. This Agreement may be
executed simultaneously in several counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
ARTICLE
DEFINED TERMS
Section 21.1 Location of Certain Defined Terms. The
following terms used in this Agreement are defined in the
Section indicated:
Term Section
Ameritech forepart
Ameritech Merger Closing 3.1
Ameritech Merger Consideration 1.5 (b)
Ameritech Sub forepart
Ameritech Sub Merger 1.1 (b)
Articles of Merger 1.2 (a) (i)
Balance Sheet 4.6
Xxxxx forepart
Blue Sky Filing 17.5
Certificate of Merger 1.2 (a) (ii)
Closings 3.1
Claims 11.2(a)
Code 4.13(d)
Company forepart
Company Common Stock Recitals
Company Indemnified Parties 11.2(a)
Damages 11.2(a)
Effective Time 1.2 (b)
Employee Benefit Plan 4.21 (a)
Escrow Agent 3.2(a)
Escrow Agreement 3.2(a)
Exchange Act 11.2(a)
Form 10-KSB 9.1(d)
Gross forepart
Hazardous Substances 4.25
Hearst forepart
Hearst Merger Closing 3.1
Hearst Merger Consideration 1.5 (a)
Hearst Sub forepart
Hearst Sub Merger 1.1 (a)
Indemnitees 17.5
Intellectual Property 4.20
KidSoft forepart
KidSoft, Inc. forepart
KidSoft Indemnified Parties 11.2(b)
KidSoft Indemnifying Parties 11.6
LLC Closing 3.1
Loss 17.5
Material Adverse Effect 4.1
Members Recitals
Membership Interests Recitals
Memorandum 9.1(d)
Mergers 1.1 (b)
1997 Form 10-QSB 9.1(d)
PBCL 1.1 (a)
Pension Plan 4.21 (b)
Representatives 11.6
Securities Act 17.3
Stock Purchase Agreement 12.8
Surviving Corporation 1.1 (b)
Taxes and Tax 4.13 (e)
Warrants Recitals
[Signature Pages Follow]
IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the parties hereto in the
capacities so indicated on the date first written above.
MICROLEAGUE MULTIMEDIA, INC.
By: /s/ Xxxx X. Xxxxxx
Name: Xxxx X. Xxxxxx
Title: Chairman and
Chief Executive Officer
KIDSOFT, L.L.C.
By: /s/ Xxxx X. Xxxxxxx
Name: Xxxx X. Xxxxxxx
Title: Chief Executive Officer
HEARST CORPORATION
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: Vice President
AMERITECH CORPORATION
By: /s/ Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: Secretary
KIDSOFT HOLDINGS, INC.
By: /s/ Xxxxxx X. Xxxxx
Name: Xxxxxx X. Xxxxx
Title: President
[Signatures Continue on Following Page]
AMERITECH KIDSOFT HOLDINGS, INC.
By: /s/ Xxxxx X. Xxx
Name: Xxxxx X. Xxx
Title: President
KIDSOFT, INC.
By: /s/ Xxxx X. Xxxxxxx
Name: Xxxx X. Xxxxxxx
Title: President
/s/ Xxxxxx X. Xxxxx
Xxxxxx X. Xxxxx
/s/ Xxxxxxxx X. Xxxxx
Xxxxxxxx X. Xxxxx
