MERGER AGREEMENT
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December 14, 1999
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The parties to this agreement are Network Event Theater,
Inc., a Delaware corporation ("NET"); Sixdegrees Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of NET ("Newco"); and sixdegrees,
inc., a Delaware corporation (the "Company").
The Company is engaged in the business of developing a
network database service, accessible from the Company's website, that enables
members of the Company's service to establish connections with other members
through their respective familial, professional and personal relationships (the
"Business"). The parties wish to provide for the acquisition of the Company by
NET through a tax-free reorganization by means of the merger of Newco into the
Company and the conversion of the Company's outstanding shares into common
stock and Convertible Preferred Stock of NET. Following the merger, the
Business will continue to be operated by the Company, as the surviving
corporation of the merger, and the Company will be a wholly-owned subsidiary of
NET.
It is agreed as follows:
1. Merger; Provisions Relating to Surviving Corporation.
1.1 Certificate of Merger. Contemporaneously with
the closing under this agreement, a duly executed certificate of merger
providing for the merger (the "Merger") of Newco into the Company shall be
delivered for filing to the Secretary of State of Delaware. The Merger shall
become effective upon the filing of the certificate of merger in Delaware (the
"Effective Time").
1.2 Merger. At the Effective Time, Newco shall be
merged into the Company pursuant to the Delaware General Corporation Law and
the separate existence of Newco shall cease. The Company shall be the surviving
corporation of the Merger and shall continue to be governed by the Delaware
General Corporation Law.
1.3 Certificate of Incorporation and By-Laws of the
Company. The certificate of incorporation and by-laws of Newco in effect at the
Effective Time shall become the Company's certificate of incorporation and
by-laws, and shall continue as such until amended.
1.4 Certificate of Designation of NET. NET shall
adopt and file with the Secretary of State of Delaware, on or before the
Effective Time, a certificate of designation (the "Certificate of Designation")
in the form of exhibit 1.4, which sets forth a description and
designation of a new class of NET's Convertible Preferred Stock (the
"Convertible Preferred Stock").
1.5 Directors and Officers. Commencing at the
Effective Time, the persons then serving as the directors and officers of Newco
shall be the directors and officers of the Company and shall hold office for
the term provided in the Company's bylaws after the Merger.
1.6 Closing. The closing under this agreement shall
take place at the offices of Proskauer Rose LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (or at such other place as the parties may agree upon in writing) on
the third business day following the satisfaction of the conditions set forth
in sections 6.1 and 6.2 and immediately prior to the filing referred to in
section 1.1, but in any event no later than January 31, 2000. The date on which
the closing is held is referred to in this agreement as the "Closing Date." At
the closing, the parties shall execute and deliver the documents referred to in
section 7.
2. Conversion of Shares Upon the Merger.
2.1 Conversion of Shares.
(a) All of the Company's shares of common
stock and all of the Company's shares of Preferred Stock (including all accrued
dividends thereon) that are issued and outstanding at the Effective Time shall
then automatically cease to be outstanding and shall be converted into (x) an
aggregate number of shares of NET common stock equal to 3,400,000 less the
number of shares of NET common stock issuable upon the exercise of all options
and warrants to purchase shares of NET common stock to be issued upon the
Merger pursuant to sections 2.1(d) and (e), and (y) an aggregate number of
shares of Convertible Preferred Stock equal to (i) 766,667, plus (ii) a number
calculated by dividing the aggregate exercise price of all Company options and
warrants by $24 (which shares are convertible into an equal number of shares of
NET common stock, as provided in the Certificate of Designation) (collectively,
the "Merger Consideration"), plus (z) any additional shares of NET common stock
issuable pursuant to section 2.1(f).
(b) The number of shares of NET common
stock and NET preferred stock distributable to each Company stockholder under
sections 2.1(a)(x), 2.1(a)(y) and 2.1(a)(z) and upon distribution from escrow
pursuant to section 2.2(a) shall in each case be that portion of the amount
distributed determined by multiplying the total amount being distributed by a
fraction of which the numerator shall be the number of shares of Company common
stock such stockholder owns, or in the case of the Convertible Preferred Stock
is entitled to receive upon conversion (plus the number of shares of Company
common stock distributable as a dividend as contemplated by section
5.2(i)(iv)), and the denominator shall be the aggregate number of shares of the
Company's common stock the holders of the Company's common and preferred stock
own or are entitled to receive upon conversion of their preferred stock (plus
any dividend shares). Any fractional shares shall be paid in cash based on a
value of $24 per share. After the Effective Time, the holder of any shares of
common stock or preferred stock of the
Company that were outstanding prior to the Effective Time shall have no rights
with respect to those shares except to receive the stock of NET into which
those shares have been converted in accordance with the terms of this
agreement.
(c) All of Newco's shares that are issued
and outstanding at the Effective Time shall then automatically be converted
into 100 duly authorized, validly issued, fully paid and non-assessable shares
of common stock of the Company.
(d) At the Effective Time, each option to
purchase shares of common stock of the Company issued to employees of the
Company ("Employee Options") that was outstanding at the Effective Time shall,
for each share of common stock which could be purchased upon exercise,
automatically be converted into an option to purchase .083 shares of NET common
stock, on the same terms and conditions and with the same vesting provisions as
the option to purchase shares in the Company held by such holder at the
Effective Time. These options will be issued pursuant to newly adopted stock
option plans of NET on the same terms and conditions as the existing Company
stock option plans (the "New NET Stock Option Plans"). On consummation of the
merger of NET with Common Places LLC referred to in section 5.6(c), the options
outstanding under the New NET Stock Option Plans will be converted into
comparable options outstanding under the YouthStream Media Networks Inc.
("YouthStream") Stock Incentive Plan, a copy of which has been delivered to the
Company.
(e) At the Effective Time, each option
(other than the Employee Options) and each warrant to purchase shares of common
stock of the Company that was outstanding at the Effective Time shall
automatically be converted into an option or warrant to purchase .083 shares of
NET common stock, on the same terms and conditions as the option or warrant to
purchase shares in the Company held by such holder at the Effective Time. There
are no options or warrants to purchase shares of preferred stock of the Company
outstanding.
(f) If prior to the Effective Time there is
a stock split or stock combination or other recapitalization of NET, the number
of shares of NET common stock and NET Convertible Preferred Stock distributable
hereunder shall be appropriately adjusted to reflect such split, combination or
recapitalization.
(g) Notwithstanding anything in this
agreement to the contrary, any shares of common stock or preferred stock of the
Company that are issued and outstanding immediately prior to the Effective Time
and which are held by stockholders who have not voted such shares in favor of
the Merger (or consented thereto in writing), who shall have delivered a
written objection to the Merger and a demand for appraisal of such shares in
accordance with Section 262 of the Delaware General Corporation Law (the
"DGCL") and who shall not have failed to perfect or shall not have effectively
withdrawn or lost their rights to appraisal and payment under the DGCL (the
"Dissenting Shares"), shall not be converted into the right to receive a
portion of the Merger Consideration, but shall instead entitle the holder
thereof to receive that consideration determined pursuant to section 262 of the
DGCL; provided, however, that if such holder shall have failed to perfect or
shall have effectively withdrawn such holder's right to appraisal and payment
under the DGCL, such holder's shares shall thereupon be deemed
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to have been converted, at the Effective Time, into the right to receive a
portion of the Merger Consideration, without any interest thereon. The
aggregate number of shares of NET Convertible Preferred Stock and common stock
issuable upon the Merger shall be reduced by the aggregate number of shares of
each class that the stockholders of the Company who validly perfected (and did
not withdraw) their dissenters' rights would but for their exercise of their
appraisal rights have been entitled to receive upon the Merger.
(h) The Company shall give NET prompt
notice of any demands for appraisal pursuant to the applicable provision of the
DGCL received by the Company, any withdrawals of such demands, and any other
instruments served pursuant to the DGCL and received by the Company and the
opportunity to participate in all negotiations and proceedings with respect to
demands for appraisal under the DGCL. The Company shall not, except with prior
written consent of NET, make any payment with respect to any such demands for
appraisal or offer to settle or settle any such demands.
(i) Within 15 days after the end of each
calendar year 2000-2002, NET shall issue to the stockholders of the Company, as
additional Merger Consideration, an aggregate number of shares of NET common
stock equal to (1) the excess of the value (at $24.00 per share) of all shares
of NET common stock issuable upon exercise of any options and warrants issued
pursuant to the Merger in exchange for options or warrants to purchase shares
of the Company's common stock or Preferred Stock that expired unexercised
during the prior calendar year over the aggregate exercise price of such
unexercised options or warrants, divided by (2) $24.00, adjusted to reflect any
split, combination or recapitalization of NET after the date hereof. Any
fractional shares shall be paid in cash based on a value of $24 per share.
2.2 Payment of Merger Consideration.
(a) Promptly after the Effective Time, (1)
NET shall issue to an escrow agent to be designated by NET, which shall be a
commercial bank of national reputation that shall have executed and delivered
an escrow agreement in substantially the form of exhibit 2.2 (the "Escrow
Agreement"), 75,000 shares of the NET common stock distributable under section
2.1(a)(x) and all of the shares of Convertible Preferred Stock to which the
former stockholders of the Company are entitled, such shares to be held for one
year after the Effective Time as security for the indemnification obligations
of the Company pursuant to section 8, and (2) NET shall issue to the former
holders of Company common stock or Company preferred stock the remaining shares
of NET common stock distributable under section 2.1(a)(x), plus in each case
any applicable shares distributable pursuant to section 2.1(a)(z). At any time
after the Effective Time, each former holder of Company common stock or Company
preferred stock may surrender to NET the certificate or certificates for that
holder's shares and shall receive in exchange the shares of common stock of NET
and Convertible Preferred Stock to which such holder is entitled by virtue of
the Merger (other than the shares delivered and held pursuant to the Escrow
Agreement). The Escrow Agent's fee shall be paid by NET.
(b) At the closing provided for in section
1.6, the Company shall deliver to NET a list, certified as true and complete by
the Company's chief financial officer,
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setting forth the names and addresses of all of the record holders of the
Company's common stock and preferred stock and all record holders of the
Company's options and warrants to purchase common stock and Convertible
Preferred Stock, if any, and the number of shares of common stock of NET and
Convertible Preferred Stock that each stockholder of record is entitled to
receive on the Merger (which shall aggregate to the Merger Consideration) and
the number of shares of NET common stock each option or warrant holder of
record is entitled to receive upon exercise of the option or warrant. In making
any payments to the former holders of the Company's common stock or preferred
stock, NET shall be entitled to rely on that list and shall not have any
liability of any kind arising out of any payment made in accordance with the
list or the failure to make any payment to any holder whose name and holdings
of common stock or preferred stock or options or warrants is omitted from, or
is not accurately stated on, that list.
3. Representations and Warranties by the Company. The Company
represents and warrants to NET and Newco as follows:
3.1 Organization and Authority of the Company. The
Company is a corporation duly organized, validly existing and in good standing
under the law of Delaware and has the full corporate power and authority to
own, lease and operate its properties as it now does and to carry on its
business as it is presently being conducted. The Company is duly qualified and
in good standing in New York, which is the only jurisdiction in which the
Company owns or leases real property. Except as set forth on schedule 3.1, the
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
3.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by the Company have been duly
authorized by all requisite corporate action of the Company, other than
approval by the stockholders of the Company. The Voting Agreements referred to
in section 5.10 cover the requisite number of shares of common stock of the
Company and preferred stock of the Company required to approve the Merger. This
agreement constitutes a valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that the Company's
obligation to consummate the Merger is subject to approval of the Merger by the
Company's stockholders and except as may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
3.3 Consents of Third Parties. Except as set forth
on schedule 3.3, the execution, delivery and performance of this agreement by
the Company do not and will not (i) conflict with the certificate of
incorporation or by-laws of the Company or conflict with, result in the breach
or termination of, constitute a default under, or increase or accelerate any
obligation under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which the Company is a party or by which the
Company or any of the assets of the Company is bound; (ii) constitute a
violation by the Company of any law, regulation, order, writ, judgment,
injunction or decree applicable to it; or (iii) result in the creation of any
claim, lien, security
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interest, charge or encumbrance ("Liens") upon any of the assets of the
Company. Except as set forth on schedule 3.3, no consent, approval or
authorization of, or designation, declaration or filing with, any court or
governmental authority or any other person or entity is required on the part of
the Company in connection with the execution, delivery and performance of this
agreement.
3.4 Ownership of the Company. As of the close of
business on December 13, 1999, there were issued and outstanding 10,212,666
shares of the Company's common stock, 8,000 shares of the Company's Series A
Preferred Stock, 10,478.08595 shares of the Company's Series B Preferred Stock,
13,418,831 shares of the Company's Series C Preferred Stock, and an aggregate
of 10,815,716 shares of the Company's Series D Preferred Stock and Series E
Preferred Stock; and there were outstanding options and warrants to purchase an
aggregate of 5,187,585 shares of the Company's common stock. Since December 13,
1999, except as set forth on schedule 3.4, the Company has not (i) issued any
common stock, other than upon the exercise of stock options or warrants or the
conversion of Convertible Preferred Stock then outstanding, (ii) granted or
issued any options, rights or warrants to purchase common stock (under the
Company's 1997 Incentive Stock Plan, 1999 Stock Plan or otherwise) or options,
rights or warrants to purchase preferred stock, or (iii) split, combined or
reclassified any common stock. Except as set forth on schedule 3.4, all the
outstanding common stock and preferred stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are free
of preemptive rights and free and clear of any Liens granted pursuant to any
agreement in which the Company is a party. Except as set forth on schedule 3.4,
there are no outstanding options, warrants, rights or other agreements or
commitments to acquire from the Company, or obligations of the Company to
issue, any shares of common stock or preferred stock of the Company or
securities convertible into or exchangeable for shares of common stock of the
Company, or obligations of the Company to grant, extend or enter into any
subscription, warrant, right, convertible or exchangeable security or other
similar agreement or commitment (collectively, "Company Securities"). Except as
set forth on schedule 3.4, there are no outstanding obligations of the Company
to repurchase, redeem or otherwise acquire any Company Securities and there are
no other outstanding equity related awards. Except as set forth on schedule
3.4, there are no voting trusts or other agreements or understandings to which
the Company is a party with respect to the voting of capital stock of the
Company. The Company does not own or have any liability or obligation to
acquire any securities or other interest in any other business or entity. The
aggregate exercise price of all outstanding options and warrants to purchase
shares of the Company's common stock is $5,672,416.
3.5 Financial Statements. The following financial
statements, copies of which have been delivered to NET, have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and fairly present in all material respects the financial
position of the Company as of the dates indicated and the results of operations
for the periods indicated (subject, in the case of interim financial
statements, to normal year-end audit adjustments):
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(a) Balance sheets of the Company as of
December 31, 1998 and 1997, and related statements of income and cash flows for
the years then ended, reviewed by PricewaterhouseCoopers LLP; and
(b) Unaudited balance sheets of the Company
as of September 30, 1999 and 1998, and related statements of income for the 9
month period then ended.
All such financial statements have been prepared in
accordance with the books and records of the Company. All of the books of
account of the Company have been exhibited or made available to NET and those
books of account have been maintained in accordance with good business practice
on a consistent basis and accurately record all transactions of the Company
during the periods covered by them. All of the Company's accounts receivable
outstanding as of the date of this agreement arose from bona fide transactions
in the ordinary course of the business and, to the best knowledge of the
Company, none of them is subject to any defense, counterclaim or setoff, and
the Company has no reason to believe that any of them will not be collected in
full when due.
3.6 Absence of Undisclosed Liabilities. The Company does not
have any material liability or obligation of any kind, whether accrued,
absolute, contingent or otherwise, other than (a) the liabilities reflected on
the balance sheet of the Company as of September 30, 1999, (b) liabilities and
obligations under leases, commitments and other agreements entered into in the
ordinary course of business (which, to the extent required by section 3.13, are
listed on schedule 3.13), (c) trade accounts payable and accrued expenses
incurred in the ordinary course of business since September 30, 1999, and (d)
the liabilities set forth on schedule 3.6. The Company does not know of any
basis for the assertion against the Company of any material liability other
than those described in the preceding sentence.
3.7 Absence of Certain Changes. Since October 1, 1999, the
Company has operated its business in the ordinary course and consistent with
past practice, and, except as set forth on schedule 3.7:
(a) the Company has not entered into any transaction
or incurred any liability or obligation other than in the ordinary course of
business;
(b) there has been no material adverse change in the
condition (financial or otherwise), business, operations or assets, or, to the
best of the Company's knowledge, except for changes resulting from general
economic conditions and general conditions in the internet industry, in the
prospects of the Company;
(c) the Company has not sold or transferred any
assets other than in the ordinary course of business and other than assets that
have been replaced with other assets of equal or greater value;
(d) the Company has not incurred any liability that
was unusual in nature or amount or any indebtedness other than indebtedness to
trade creditors incurred in the ordinary course of business;
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(e) except for compensation and expense
reimbursements paid in the ordinary course of business and legal fees payable
to Morse, Zelnick, Rose and Lander LLP, the Company has not made any
distribution on or acquired any of its stock or, directly or indirectly, made
any other payment of any kind or any loan to or on behalf of any holder of 5%
or more of the Company's common stock or preferred stock (the "Significant
Stockholders"), any member of any Significant Stockholder's family, or any
entity controlled by any of the Significant Stockholders or any member of their
families;
(f) the Company has not granted or agreed to grant
any general increase in any rate or rates of salaries or compensation or in
benefits of any kind to its employees, or any specific increase in the salary
of or compensation to any employee whose total salary and compensation after
such increase would be at an annual rate in excess of $50,000;
(g) the Company has not made any change in its
accounting methods or principles (or the application of those methods or
principles) or introduced any material new method of management, operations or
accounting;
(h) the Company has not established any new employee
benefit plan (as defined in section 3.24), amended or modified any existing
employee benefit plan, or incurred any obligation or liability under any
employee benefit plan materially different in nature or amount from obligations
or liabilities incurred during similar periods in prior years; and
(i) the Company has not entered into any employment,
bonus or deferred compensation agreement with any of its directors, officers or
other employees other than agreements entered into with employees hired since
October 1, 1999 in the ordinary course of business.
3.8 Taxes. Except as set forth on schedule 3.8, the Company
has timely filed all foreign, federal, state and local income, gross receipts,
personal property, commercial rent, sales and use and other tax returns,
reports and information returns (including any related or supporting
information) required by law to be filed by it; each of those tax returns is
correct and complete in all material respects and the Company has paid all
taxes shown as due on such returns. None of the Company's tax returns has been
audited by any tax authority. There exist no pending or, to the best of the
knowledge of the Company, proposed tax assessments, suits, actions, claims,
audits, investigations or inquiries by any tax authority with respect to the
business or assets of the Company or against the Company or, with respect to
the operations of the Company, against any of its directors, officers,
employees or independent contractors. There are no tax liens on any of the
Company's assets. The Company (including any person acting on behalf of the
Company) has not given nor been requested to give waivers or extensions of any
statute of limitations relating to payment of taxes of the Company or for which
the Company may be liable and no other party has given or been requested to
give such waivers or extensions with respect to taxes for which the Company may
be liable. All taxes that are or were required by law to be withheld or
collected by the Company have been duly withheld or collected and paid to the
proper tax authority. The Company does not have any tax liability of any kind
that could result in a Lien on any of its assets other than taxes not yet due
and payable.
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3.9 Title to Assets. Except as set forth on schedule 3.9 and
except for the lien, if any, of current taxes not yet due and payable, the
Company has valid title, free and clear of any Liens, to all the assets,
tangible and intangible, used in or needed to conduct the Business, and those
assets will be sufficient to enable the Company to continue after the Effective
Time to operate all aspects of the Business in the manner in which it has been
operated by the Company. Except as set forth in Schedule 3.9 and except for
compensation and expense reimbursements for services rendered by employees of
the Company payable in the ordinary course of the Company's business, the
Company does not owe any amount to, or have any contract with or commitment to,
or use any property (real or personal) in its business owned or leased by, any
of the Significant Stockholders or any director, officer, employee, agent or
representative of the Company, or any of their respective affiliates.
3.10 Personal Property. Schedule 3.10 lists all of the
equipment, machinery, computers, furniture, leasehold improvements, vehicles
and other personal property having an individual value greater than $25,000
owned or leased by the Company and all interests therein. All equipment and
other tangible assets owned or used by the Company are in good operating
condition and in good condition of maintenance and repair, ordinary wear and
tear excepted, are suitable for their present uses and purposes, and conform in
all material respects with all applicable ordinances, rules and regulations and
all building, zoning and other laws.
3.11 Real Property. The Company does not own any real
property. Schedule 3.11 contains a list and brief description of all real
properties used or leased by the Company and all structures located on those
real properties. To the best knowledge of the Company, all improvements on the
real properties used by the Company are in accordance with all applicable laws,
ordinances, regulations and orders, including, but not limited to, those
applicable to zoning, environment and the establishment and maintenance of
working conditions for labor (other than immaterial violations), and all of the
buildings and structures on those properties are in good condition of
maintenance and repair and are adequate, sufficient and suitable for their
present uses and purposes. The transactions contemplated by this agreement will
not adversely affect the Company's right to use those properties after the
Effective Time for the same purpose and to the same extent as they were being
used by the Company prior to the Effective Time.
3.12 Litigation; Compliance with Laws. Except as set forth on
schedule 3.12, there is no claim, litigation, proceeding or governmental
investigation pending or, to the best knowledge of the Company, threatened, or
any order, injunction or decree outstanding, against the Company or any of its
properties or assets. The Company does not know of any basis for future claims,
litigations, proceedings or investigations against the Company or any of its
properties or assets. The Company is not in violation of any law, regulation or
ordinance which is material to the operation of the business of the Company, or
any other requirement of any governmental body or court which is material to
the operation of the business of the Company, and no notice has been received
by the Company or any of its officers or directors alleging any such violation.
3.13 Lists of Agreements, etc. Schedule 3.13 contains a true
and complete list of (a) all of the Company's commitments and other agreements
for the future purchase of
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materials, supplies, equipment and software, other than commitments and other
agreements that were entered into in the ordinary course of business and
involve an expenditure by the Company of less than $25,000 for any one
commitment or two or more related commitments; (b) all notes and agreements
relating to any indebtedness for borrowings of the Company; (c) all real estate
leases and all personal property leases or other rental agreements under which
the Company is either lessor or lessee involving payments by or to the Company
of more than $25,000 individually; and (d) all of the Company's other
agreements, commitments and understandings (written or oral) that require
payment by the Company of more than $50,000 individually. True and complete
copies of the agreements, commitments and leases referred to on schedule 3.13
have been delivered to NET.
3.14 Status of Agreements. Except as set forth on schedule
3.13, each of the agreements, commitments and orders referred to in section
3.13 is presently in full force and effect in accordance with its terms and the
Company is not in default in any material respect, and, to the best of the
knowledge of the Company, (i) no other party is in default in any material
respect under any of the provisions of any of those agreements and (ii) no
condition exists that, with notice or lapse of time or both, would constitute a
material default by the Company or any other party to any of those agreements.
Each of the agreements, commitments or orders referred to in section 3.13 is
valid and binding upon and enforceable against each of the parties thereto in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general. Except as set forth on schedule 3.13, no party to
any of the agreements, commitments or orders referred to in section 3.13 has
made, asserted or, to the best of the Company's knowledge, has any defense,
setoff or counterclaim under any of those agreements, commitments or orders or
has exercised any option granted to it to cancel or terminate its agreement, to
shorten the term of its agreement, or to renew or extend the term of its
agreement.
3.15 Employees.
(a) The Company has provided to NET a true and
complete list of the names and addresses, social security numbers, positions,
hire dates and annual or hourly compensation of all employees of the Company.
Schedule 3.15(a) sets forth a description of vacation policies, sick leave
policies, and bonus, incentive compensation and group insurance plans for the
benefit of those employees. No employee of the Company is owed any wages,
benefits or other compensation for past services, other than wages and benefits
accrued in the ordinary course of business during the current pay period and
accrued vacation. Except as set forth on schedule 3.15(a), the Company does not
have any severance policy and no employee of the Company is entitled to any
severance payment, either by law or by agreement, upon the termination of his
or her employment. To the best knowledge of the Company, the transactions
provided for in this agreement will not give rise to any liability of the
Company for severance pay or termination pay to any employee of the Company or
trigger any payments of any kind to any employee of the Company. No employee of
the Company is represented by any union or other collective bargaining agent
and there are no collective bargaining or other labor agreements with respect
to those employees.
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(b) Schedule 3.15(b) contains a true and complete
list of the names and addresses, social security or tax identification numbers,
the annual, weekly or hourly compensation, and the job descriptions, of all
persons that the Company has engaged as independent contractors since December
31, 1998. To the best knowledge of the Company, all such persons are properly
characterized as independent contractors. Neither the Internal Revenue Service
nor any other governmental agency has asserted any claim to the contrary and,
to the best of the knowledge of the Company, there is no pending investigation
by any governmental agency relating to the Company's practice of engaging
independent contractors.
(c) Schedule 3.15(c) contains a true and complete
copy of the Company's employee handbook, which contains accurate summaries of
the Company's employee benefit plans and human resources policies.
3.16 Labor Disagreements. Except as set forth on schedule
3.16, (a) to the best knowledge of the Company, the Company is in compliance
with all applicable laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice; (b) there is no (and has never been any)
unfair labor practice charge or complaint against the Company pending before
the National Labor Relations Board, any state labor relations board or any
court or tribunal and, to the best of the knowledge of the Company, none is or
has been threatened; (c) there is no labor strike, dispute, request for
representation, slowdown or stoppage actually pending against or affecting the
Company and, to the best of the knowledge of the Company, none is or has been
threatened; and (d) to the best of the Company's knowledge, no grievance which
might have an adverse effect on the conduct of the operations of the Business
or any arbitration proceeding arising out of or under any collective bargaining
agreement is pending or is or has been threatened.
3.17 Restrictive Documents, etc. The Company is not subject
to, or a party to, any lease, license, permit, agreement or other commitment,
instrument, law, rule, ordinance, regulation, order, judgment or decree, or any
other restriction of any kind, that materially and adversely affects its
business practices or operations or any of the assets of the Company or that
would prevent its compliance with the terms, conditions and provisions of this
agreement or the continued operation of the Business by the Company after the
Effective Date on substantially the same basis as it has been operated.
3.18 Environmental Matters. To the best of the Company's
knowledge, the Company is not in violation of any federal, state or local law,
regulation, rule, order, decree, ordinance or common law relating to pollution,
the protection of human health or the environment.
3.19 Permits and Licenses. The Company has all permits,
licenses, franchises and other authorizations ("Licenses") necessary for the
conduct of the Business and all such Licenses are valid and in full force and
effect. All Licenses held by the Company that are material to the Company are
listed on schedule 3.19.
11
3.20 Banks; Powers of Attorney. Schedule 3.20 sets forth (a)
the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which the Company maintains
safe deposit boxes or accounts of any nature and the names of all persons
authorized to draw thereon, make withdrawals therefrom or have access thereto
and (b) the names of all persons to whom the Company has granted a power of
attorney, together with a description thereof. The Company has provided NET
with true and complete copies of all bank statements received by it twenty-four
months prior to the date of this agreement.
3.21 Intangible Property. Schedule 3.21 contains a complete
list of the trademarks, trade names, copyrights, logos and internet URLs used
by the Company. The Company owns, free and clear of any Liens, each of the
trademarks, trade names, copyrights and logos (including registrations and
applications for registration of any of them) and internet URLs listed on
schedule 3.21, and they constitute all of the trademarks, copyrights, trade
names and logos and internet URLs necessary for the continued operation of the
Business in a manner consistent with past practices. To the best of the
Company's knowledge, the Company is not infringing upon any trademark, trade
name, copyright or other rights of any third party; no proceedings are pending
or threatened; and no claim has been received by the Company alleging any such
violation. Except as set forth in schedule 3.21, to the best knowledge of the
Company, there is no violation by others of any right of the Company with
respect to any trademark, trade name or copyright.
3.22 Software and Databases. Schedule 3.22 contains a list of
all software used by the Company in its operations that is material to the
operations of the business of the Company. The Company owns or possesses
adequate licenses or other rights to use all computer software listed on
schedule 3.22. Any license of the Company to use any software is valid and, to
the best of the Company's knowledge, does not infringe on the property rights
of any third party. The Company has not granted to any person or entity any
interest, as licensee or otherwise, in any of its owned software or databases
or in any of its mailing lists, advertiser lists or member lists.
3.23 Insurance. Schedule 3.23 contains a complete list of all
of the insurance policies held by the Company, specifying with respect to each
policy the policy limit, type of coverage, location of the property covered,
annual premium, premium payment date and expiration date. True and complete
copies of all of those policies have been delivered to NET.
3.24 ERISA. Except as set forth on schedule 3.24, the Company
is not a party to or bound by or liable with respect to any "employee benefit
plan," within the meaning of section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"). The Company is in compliance in all material
respects with the applicable provisions of ERISA.
3.25 Expenses Related to this Agreement. Except for the fees
of counsel and accountants to the Company in connection with the negotiation
and execution of this agreement and the consummation of the Merger, the Company
has not paid any expenses related to the negotiation or preparation of this
agreement or any broker's, finder's or similar fee relating to the
12
transactions contemplated by this agreement, and no such payment of broker's
fees will be payable after execution of this agreement.
3.26 Transactions with Affiliates. Except as set forth on
schedule 3.26 and except for compensation and expense reimbursements paid in
the ordinary course of business and legal fees payable to Morse, Zelnick, Rose
and Lander LLP, during the twelve months preceding the date of this agreement
the Company has not engaged in any transaction with any of the Significant
Stockholders or any of their respective affiliates.
3.27 Year 2000 Compliance. The Company's proprietary software
described on schedule 3.22 is able to accurately process dates and date-related
data (including, without limitation, in calculation, comparison, manipulation
and sequencing processes) with dates prior to, through, and subsequent to
January 1, 2000, and all manipulations of time-related data (for example,
dates, durations, weekdays, time zones, leap years, etc.) will produce
reasonably expected and accurate results, provided, however, that this
representation assumes that all other products (including, without limitation,
hardware, software and firmware) used with such software properly exchange date
data with such software ("Y2K Compliant").
3.28 Business Relationships. Except as set forth on schedule
3.13 to this agreement, the Company currently enjoys good relationships with
all material suppliers of goods or services to the Company and all other
parties, including advertisers, with which it has material business relations,
and the Company does not know of any intention on the part of any such vendor
or other party to substantially change its relationship with the Company and
the Company has not received any notice to the effect that its relationship
with any such vendor or other party will change after the consummation of the
Merger under this agreement.
3.29 Website Information.
(a) As of December 1, 1999, the Company had enrolled
not less than 2,850,000 members of which 1,590,000 had completed registration.
Not less than 40% of those members who had completed registration described
their principal occupation as "student."
(b) The Company's website (xxx.xxxxxxxxxx.xxx) (the
"Website") had monthly page-views (including chat and degreemail bot page views
refreshed every thirty seconds) for August, September, October and November
1999 in the amount of 24,100,000, 19,500,000, 19,800,000, and 18,900,000,
respectively.
(c) The Website is currently able to handle not less
than 800 users concurrently, where concurrently references a number that
appears on the "who's-on" page of the Website.
3.30 No Misrepresentation. No representation or warranty by
the Company in this agreement (including the schedules and exhibits to this
agreement) contains any untrue statement of material fact or omits to state a
material fact necessary to make the statements
13
contained in this agreement (including the schedules and exhibits to this
agreement) not misleading.
40 Representations and Warranties by Newco and NET. Newco and
NET jointly and severally represent and warrant to the Company as follows:
4.1 Organization. Each of Newco and NET is a
corporation duly organized, validly
existing and in good standing under the law of the State of Delaware and has
the full corporate power to enter into and to perform this agreement and NET is
duly qualified and in good standing in each jurisdiction in which NET owns or
leases real property.
4.2 Authorization of Agreement. The execution,
delivery and performance of this agreement by Newco and NET have been duly
authorized by all requisite corporate action of each of them. This agreement
constitutes a valid and binding obligation of Newco and NET, enforceable
against each of them in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4.3 Consents of Third Parties. The execution,
delivery and performance of this agreement by each of Newco and NET will not
(a) conflict with Newco's or NET's certificate of incorporation or by-laws and
will not conflict with, result in the breach or termination of, or constitute a
default under, any lease, agreement, commitment or other instrument, or any
order, judgment or decree, to which either of them is a party or by which
either of them is bound, or (b) constitute a violation by it of any law,
regulation, order, writ, judgment, injunction or decree applicable to it. No
consent, approval or authorization of, or designation, declaration or filing
with, any court or governmental authority is required on the part of Newco or
NET in connection with the execution, delivery and performance of this
agreement.
4.4 Validity of Shares. All of the issued and
outstanding shares of common and preferred stock of NET have been duly
authorized, are validly issued, fully paid and non-assessable. The shares of
NET common stock and NET Convertible Preferred Stock, when issued upon the
Merger, will be duly authorized, validly issued, fully paid and non-assessable.
4.5 NET Financials and SEC Reports. The "SEC
Documents" shall mean (a) each final prospectus and definitive proxy statement
filed by NET with the Securities and Exchange Commission (the "SEC") from
January 1, 1998 through the Effective Time, and (b) each report on Form 10-K or
Form 10-Q (and any amendments thereto) filed by NET with the SEC from January
1, 1998 through the Effective Time. None of the SEC Documents referred to in
the preceding sentence, as of the date they were filed with the SEC, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The consolidated financial statements of NET and its subsidiaries
for the fiscal years ended December 31, 1998 and 1999 and as of September 30,
1999 included the SEC Documents (the "NET Financials") (including any
related notes thereto) fairly present in
14
all material respects the consolidated financial position and the consolidated
operations, shareholders' equity and changes in financial position, as the case
may be, of NET and its consolidated subsidiaries as of its date or for the
respective periods set forth therein (subject, in the case of unaudited
statements, to normal recurring year-end audit adjustments), in each case, in
accordance with generally accepted accounting principles consistently applied
during the periods involved (in the case of audited statements) or applicable
accounting requirements of the SEC (in the case of unaudited statements),
except as set forth therein.
4.6 Capitalization. The authorized capital stock of
NET consists of 32,000,000 shares of common stock and 1,000,000 shares of NET
preferred stock. As of the close of business on November 30, 1999, 17,419,447
shares of NET common stock were issued and outstanding; no shares of preferred
stock were issued or outstanding; no shares of NET common stock were held in
NET's treasury; and there were outstanding stock options to purchase an
aggregate of 850,000 shares of NET common stock under NET's Stock Option Plans
and other options and warrants to purchase an aggregate of 340,707 shares of
NET common stock under option and warrant agreements. Since November 30, 1999,
except as set forth on schedule 4.6, NET has not (i) issued any shares of NET
common stock, other than upon the exercise of NET stock options or warrants
then outstanding, (ii) granted any options, warrants or other rights to
purchase shares of NET common stock (under the NET Stock Option Plan or
otherwise) or (iii) split, combined or reclassified any of its shares of
capital stock. All the outstanding shares of NET common stock have been duly
authorized and validly issued and are fully paid and nonassessable and are free
of preemptive rights. Except as set forth in this section 4.6 or on schedule
4.6, there are no outstanding (i) shares of capital stock or other voting
securities of NET, (ii) securities of NET convertible into or exchangeable for
shares of capital stock or voting securities of NET or (iii) options, warrants,
rights or other agreements or commitments to acquire from NET, or obligations
of NET to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of NET, or
obligations of NET to grant, extend or enter into any subscription, warrant,
right, convertible or exchangeable security or other similar agreement or
commitment.
Upon the completion of the Common Places Merger (as
defined in section 5.6(c)) YouthStream will issue an aggregate of 4,715,312
shares of common stock to the members of Common Places LLC and options to
acquire approximately 1,100,000 shares of YouthStream common stock.
4.7 Absence of Certain Changes. Since September 30,
1999, except as set forth in schedule 4.7, there has not been the commencement
of an investigation, lawsuit or proceeding against it or Common Places LLC
seeking to enjoin the Common Places Merger or seeking damages in excess of
$5,000,000, or injunctive relief which, if granted, would have a material
adverse effect on any of NET's business operations.
50 Further Agreements of the Parties.
5.1 Access to Information. Prior to the closing, NET
and its representatives may make such investigation of the property, assets and
businesses of the
15
Business as they may desire, and the Company shall give to NET and to its
counsel, accountants and other representatives, upon reasonable notice, full
access, during normal hours throughout the period prior to the closing, to all
of the assets, books, commitments, agreements, records and files of the Company
relating to the Company and the Company shall furnish to NET during that period
all documents and copies of documents and information concerning the Company as
NET reasonably may request. NET shall hold, and shall cause its representatives
to hold, all such information and documents and all other information and
documents delivered pursuant to this agreement confidential and, if the
purchase and sale contemplated by this agreement is not consummated for any
reason, shall return to the Company all such information and documents and any
copies as soon as practicable, and shall not disclose any such information
(that has not previously been disclosed by a party other than NET) to any third
party, unless required to do so pursuant to an order under applicable laws and
regulations or pursuant to a subpoena or other legal process. NET's
confidentiality obligations under this section shall survive the termination of
this agreement.
Prior to the closing, the Company and its
representatives may make such reasonable investigation of the financial
condition and business of NET as they may desire, and NET shall give to the
Company and to its counsel and representatives, upon reasonable notice,
reasonable access during normal business hours throughout the period prior to
the closing to the books and records of NET. The Company shall hold, and shall
cause its representatives to hold, all such information and documents and all
other information and documents delivered pursuant to this agreement
confidential and, if the purchase and sale contemplated by this agreement is
not consummated for any reason, shall return to NET all such information and
documents and any copies as soon as practicable, and shall not disclose any
such information (that has not previously been disclosed by a party other than
the Company) to any third party, unless required to do so pursuant to an order
under applicable laws and regulations or pursuant to a subpoena or other legal
process. The Company's confidentiality obligations under this section shall
survive the termination of this agreement.
5.2 Conduct of the Business Pending the Closing.
Until the closing, the Company shall operate the Business in the ordinary
course in a manner consistent with past practices and shall:
(a) promptly notify NET in writing of, and
furnish any information that NET reasonably may request with respect to, (i)
any claim, litigation, proceeding or governmental investigation threatened by
or against the Company relating to the Business or any material development
with respect to any such claim, litigation, proceeding or governmental
investigation, (ii) the occurrence of any event or the existence of any state
of facts that would result in any of the Company's representations and
warranties not being true as of the Closing Date, and (iii) any other
occurrence of any kind adversely affecting the Business;
(b) duly comply with all laws, ordinances,
orders, injunctions and decrees applicable to the operation of the Business,
and pay all income, payroll, franchise and other taxes when due;
16
(c) maintain all of the tangible assets of
the Company in good repair, maintenance and condition, except to the extent of
normal wear and tear, and replace any items of equipment at time intervals
consistent with past practices;
(d) maintain all insurance policies set
forth on schedule 3.23;
(e) except as otherwise requested by NET,
use reasonable efforts, consistent with its past practices, (i) to preserve the
business organization of the Company intact and to preserve the goodwill and
business of the advertisers, suppliers, subscribers and others having business
relations with the Company, (ii) to retain the services of the employees of the
Company, and (iii) to preserve all trademarks, trade names, logos and
copyrights and related registrations of the Company;
(f) not grant or agree to grant any general
increase in the rates of salaries or compensation of its employees, or any
specific increase to any such employee whose total salary or compensation after
the increase would be at an annual rate in excess of $50,000, other than in
each case regularly scheduled annual increases to employees (other than
officers) in the ordinary course of business in amounts consistent with past
practices, or any increase in the pension, retirement or other employment
benefits of the employees of the Company;
(g) except with NET's prior written
approval, not (i) enter into or renew any agreement, commitment or lease which,
if entered into prior to the date of this agreement, would have been required
to be included in schedule 3.13, or (ii) cause or take any action to allow any
lease, agreement or commitment of the Company to lapse (other than in
accordance with its terms), to be modified in any material adverse respect or
otherwise to become impaired in any manner;
(h) except in the ordinary course of
business and substantially consistent with past practice, not (i) enter into
any transaction or incur any liability or obligation that is material to the
Company or (ii) sell or transfer any of the assets of the Company, other than
assets that have worn out or been replaced with other assets of equal or
greater value or assets that are no longer needed in the operation of the
Company; and
(i) not (i) issue any capital stock or
other securities except upon the conversion of outstanding Convertible
Preferred Stock or the exercise of outstanding stock options or warrants, (ii)
amend its certificate of incorporation or by-laws, (iii) take any other action
affecting the capitalization or corporate organization of the Company, (iv)
except for payment of stock dividends on its Convertible Preferred Stock as
required pursuant to the terms of the Convertible Preferred Stock, declare, set
aside or pay any dividend or other distribution in respect of its capital
stock, and not redeem, purchase or otherwise acquire any such stock, or (v)
engage in any transaction with or make any direct or indirect payment of any
kind to or on behalf of the Significant Stockholders or any of the Company's
directors or officers or any of their respective affiliates (other than
payments of compensation to employees hired by the Company in the ordinary
course of business consistent with past practice).
17
5.3 Consents and Approvals. The Company shall use
its best efforts to obtain, at the earliest practicable date, in form and
substance reasonably satisfactory to NET, all consents and approvals required
for the consummation of the transactions contemplated by this agreement,
without any condition adverse to NET or the operation of the Company after the
Effective Time. NET shall cooperate with the Company in obtaining the consents.
5.4 Interim Financial Statements. The Company shall
promptly deliver to NET copies of any monthly or quarterly financial statements
or other reports of the Company that may be prepared by the Company during the
period from the date of this agreement to the Closing Date. All such financial
statements shall be prepared from the books and records of the Company, shall
show all income and expenses attributable to the Company and shall fairly
present in all material respects the financial position and results of
operations of the Company as of and for the periods indicated (subject, in the
case of interim financial statements, to normal year-end audit adjustments).
The Company shall also furnish to NET any other information concerning the
financial and operating condition of the Company as NET from time to time
reasonably may request.
5.5 Other Action. No party to this agreement shall
take any action that would result in any of its or their representations and
warranties not being true as of the Closing Date. Each of the parties to this
agreement shall use its best efforts to cause the fulfillment at the earliest
practicable date of all of the conditions to the obligations of the parties to
consummate the transactions contemplated by this agreement.
5.6 Securities Act Matters.
(a) The Company recognizes that the
issuance of shares of NET common stock and Convertible Preferred Stock under
section 2 is intended to be exempt from registration under the Securities Act
of 1933, as amended (the "Securities Act"), by virtue of section 4(2) of the
Securities Act. In that connection, the Company acknowledges that sales or
transfers of shares of NET common stock and Convertible Preferred Stock to be
acquired by the stockholders of the Company are restricted by the Securities
Act and by certain state securities laws and that a legend referring to that
restriction and the restrictions pursuant to this agreement will be placed on
the certificates representing the shares.
(b) None of the stockholders of the Company
may sell or otherwise transfer the shares acquired by them pursuant to this
agreement unless the transaction is registered under the Securities Act and
applicable state securities laws or an exemption from registration is
available.
(c) NET intends to file a Registration
Statement on Form S-4 (the "S-4") in connection with its proposed merger with
Common Places, LLC (the "Common Places Merger"). All of the outstanding shares
of NET at the time of the filing of the S-4, including all shares of common
stock to be issued under this agreement and the shares of common stock of NET
issuable upon conversion of the shares of Convertible Preferred Stock to be
issued under this agreement, shall be exchanged for shares of YouthStream, as
successor to
18
NET, and shall thereafter be freely tradeable. If the S-4 does not
become effective by April 30, 2000, the Company shall promptly thereafter file
a Registration Statement on Form S-3 registering the resale of the shares of
common stock of NET issued to the Company stockholders in the Merger (the "Form
S-3"), including the shares of common stock issuable upon conversion of the
Convertible Preferred Stock (any resale to be limited by the terms of the
Lock-Up Agreements referred to in section 5.8). The Company shall use
reasonable efforts to cause the Form S-3 to become effective as promptly as
practicable after the filing and to keep the S-3 effective until June 30, 2001.
If the S-4 does not become effective and if for any reason the Form S-3 is not
then effective and within two years after the Effective Time NET proposes to
file a registration statement (other than a registration statement on Form S-4
or S-8 or any form substituting therefor or the equivalent thereof) on which
securities of NET are to be registered for sale by NET, NET shall give written
notice of such proposed filing to each of the stockholders of the Company at
least 30 days before the anticipated filing date of such registration statement
and such notice shall offer each of the stockholders the opportunity to have up
to 10% of the shares of NET common stock issued to him on the Closing Date
(including the shares issuable upon conversion of the Convertible Preferred
Stock) included in the registration statement. Each stockholder of the Company
desiring to have any of his shares of NET common stock included in the
registration statement shall so advise NET in writing within 20 days after the
date such notice is given by NET (which request shall set forth the number of
shares of NET common stock for which registration is requested). NET shall
include in the registration statement all such securities requested to be
included therein unless, if the registration statement is filed pursuant to an
underwritten offering, the managing underwriter delivers a written opinion that
the inclusion of such requested securities would likely have an adverse effect
on the offering, in which event NET shall include only so many shares as the
managing underwriter indicates may be included without having an adverse effect
on the offering.
Notwithstanding the foregoing, NET shall not have any
obligation to include any of a stockholder's shares in a registration statement
other than the S-3 if, in the opinion of NET's counsel (a copy of which shall
be addressed and delivered to the stockholder), the stockholder is then
permitted by law to sell, in a single transaction pursuant to the provisions of
Rule 144 under the Securities Act, all of the shares of common stock of NET
then held by him. NET shall not have any obligation to notify any of the
stockholders of the filing of a registration statement if he has received a
copy of the opinion referred to in the preceding sentence.
Each stockholder of the Company shall furnish to NET such
information and other material as NET or its counsel may reasonably request
with respect to the public offering of the shares of common stock of NET and
the stockholder shall take any other action which NET may reasonably request in
connection with the registration statement.
(d) NET shall deliver to the Company, no
later than 10 days after the date of this agreement, disclosure materials to be
delivered by the Company to its stockholders in connection with their vote on
the Merger.
5.7 Stockholder Approval. NET shall use reasonable
efforts to obtain approval of its stockholders of the YouthStream Stock
Incentive Plan at the meeting at which the
19
merger with Common Places LLC is approved by the stockholders of NET. If the
merger with Common Places LLC is not approved by the stockholders of NET by
April 30, 2000, NET shall call a meeting of its stockholders in accordance with
law as promptly as practicable thereafter to approve the issuance to the
stockholders of the Company of the common stock of NET issuable upon conversion
of the Convertible Preferred Stock and to approve the New NET Stock Option
Plans and shall use best efforts to obtain the requisite vote of approval. If
the stockholders of NET do not approve the New NET Stock Option Plans or the
YouthStream Stock Incentive Plan within one year after adoption by the board of
directors of NET, NET shall indemnify and hold harmless any holder who
exercises an option from any tax consequences of exercise and sale of the
underlying shares of NET common stock that are more adverse than those tax
consequences had the NET Stock Option Plans been so approved by the
stockholders of NET (and NET shall lend to any option holder, without interest,
an amount equal to the taxes payable upon exercise of such options, to be
repaid upon sale of the underlying shares). Upon such stockholder approval, the
Convertible Preferred Stock shall immediately convert into common stock of NET
in accordance with the terms of the Convertible Preferred Stock.
5.8 Lock-Up Agreements. The Company shall use
reasonable efforts to cause stockholders of the Company holding at least 95% of
the sum of the Company's common stock and the Company's common stock issuable
upon conversion of the Company's Convertible Preferred Stock to enter into
Lock-Up Agreements (the "Lock-Up Agreements") with NET in substantially the
form of exhibit 5.8, prohibiting each stockholder from selling 90% of the
shares of common stock of NET issuable to him pursuant to this agreement
(including the shares of common stock of NET issuable upon conversion of the
Convertible Preferred Stock) and 90% of any shares of common stock issuable to
him upon exercise of any option or warrants for a period of nine months after
the Effective Time and 80% of those shares for a period of one year after the
Effective Time. For purposes of each Lock-Up Agreement, shares issued to the
Escrow Agent which would otherwise have been issued to any holder shall be
deemed shares owned by that holder.
5.9 Non-Competition Agreements. The Company shall
use reasonable efforts to cause the management and other key employees of the
Company listed on schedule 5.9 to enter into Non-Competition Agreements in
substantially the form of exhibit 5.9.
5.10 Voting Agreement. Each of the stockholders of
the Company listed on schedule 5.10 has entered into a Voting Agreement with
NET, substantially in the form of exhibit 5.10, agreeing to vote all of the
shares of the Company owned by that stockholder in favor of the Merger and the
transactions contemplated by the agreement.
5.11 S-8. NET shall cause the options to be issued
to employees of the Company pursuant to the New NET Stock Option Plans or the
YouthStream Stock Option Plan to be included in the Registration Statement on
Form S-8 filed by NET with respect to its existing stock option plans or in the
Registration Statement on Form S-8 to be filed by YouthStream with respect to
its stock option plans after the merger with Common Places LLC.
20
5.12 D&O Insurance. NET shall cause the Company to
maintain its existing directors and officers liability insurance for a period
of one year after the Effective Time. After the Merger, NET shall not amend the
certificate of incorporation of Newco to limit or eliminate the indemnification
of officers and directors as currently provided for in article ___ of Newco's
certificate of incorporation.
5.13 Company Stockholder Approval. The Company shall
call a meeting of its stockholders in accordance with law as promptly as
practicable and, in any event, no later than 25 days after the date of this
agreement, to approve the Merger and related matters and shall, through its
board of directors, use reasonable efforts to solicit the requisite vote of
approval. The board of directors of the Company shall recommend to the
stockholders of the Company that they approve the Merger.
5.14 Tax Free Reorganization. The Merger is a tax
free reorganization pursuant to the Internal Revenue Code, and the parties
shall so characterize the Merger and the transactions contemplated by this
agreement for tax and all other purposes.
5.15 Common Places Merger. NET shall use reasonable
efforts to cause the merger with Common Places LLC to be effected as promptly
as practicable after the Effective Time; provided, however (a) the board of
directors of NET may make any determination to delay or not to consummate the
merger with Common Places LLC that the board of directors of NET determines to
be in the best interests of the stockholders of NET, and (b) NET shall have no
liability to the Company or its stockholders as a result of any delay or
abandonment of the merger with Common Places LLC as a result of any
determination by the board of directors of NET pursuant to clause (a) above.
5.16 Securities Act Covenants. NET shall promptly
deliver to the Representatives copies of all filings with the SEC, including
the S-4, in connection with the Common Places Merger, and all correspondences
to and from the SEC with respect to that Merger. NET shall file all reports
required under the Securities Exchange Act of 1934 on a timely basis to permit
sales of shares of NET common stock by the Company's stockholders pursuant to
Rule 144 under the Securities Act of 1933.
5.17 Accountants Consent. The Company shall use
reasonable efforts to cause PricewaterhouseCoopers LLP to deliver to NET its
consent to the inclusion of the audited financial statements of the Company for
the years ended December 31, 1997, 1998 and 1999 in any filing by NET or
YouthStream with the SEC.
5.18 Listing on NASDAQ. NET shall cause the shares
of NET common stock to be issued at the Effective Time to be listed on NASDAQ
by the Effective Time and the shares of NET common stock (or YouthStream common
stock) to be issued upon conversion of the Convertible Preferred Stock to be
listed on NASDAQ by the time of the conversion of the Convertible Preferred
Stock.
21
5.19 Expenses. Except as expressly provided in this
agreement, the parties shall bear their own expenses incurred in connection
with the negotiation and preparation of this agreement and in connection with
the transactions contemplated by this agreement.
5.20 Further Assurances. At any time and from time
to time after the date of this agreement, each party shall, without further
consideration, execute and deliver to the other parties such other instruments
and take such other action as the others may reasonably request to carry out
the transactions contemplated by this agreement.
60 Conditions to Closing.
6.1 Conditions Precedent to Obligations of Newco and
NET. The obligations of Newco
and NET to consummate the transactions contemplated by this agreement are
subject to the fulfillment, prior to or at the closing, of each of the
following conditions (any or all of which may be waived by Newco or NET):
(a) all representations and warranties of
the Company to Newco and NET shall be true and correct in all material respects
as of the time of the closing, with the same effect as though those
representations and warranties had been made again at and as of that time;
(b) the Company shall have performed and
complied with all obligations and covenants required by this agreement to be
performed or complied with by them, respectively, prior to or at the closing;
(c) NET shall have been furnished with a
certificate (dated the Closing Date and in form and substance reasonably
satisfactory to NET) executed by the president of the Company, certifying to
the fulfillment of the conditions specified in sections 6.1(a) and 6.1(b);
(d) NET shall have been furnished with an
opinion of Morse, Zelnick, Rose & Lander, LLP, counsel to the Company, in the
form of exhibit 6.1(d);
(e) the holders of the requisite percentage
of the Company's common stock and preferred stock shall have approved the
Merger;
(f) the requisite Lock-Up Agreements
required pursuant to section 5.8 and the Non-Competition Agreements required
pursuant to section 5.9 shall have been executed and delivered to NET;
(g) the Company shall have duly received
all consents and approvals required for the consummation of the transactions
contemplated by this agreement, including any required consents from the
holders of all options (other than Employee Stock Options) and warrants to the
conversion of their options or warrants as provided in section 2.1(e);
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(h) the Company shall have delivered to NET
evidence reasonably satisfactory to NET that the issuance of NET common stock
and Convertible Preferred Stock upon the Merger is exempt from registration
under the Securities Act;
(i) there shall not be in effect any
injunction or restraining order issued by a court of competent jurisdiction in
an action or proceeding against the consummation of the transactions
contemplated by this agreement; and
(j) the holders of not more than 5% of the
stock of the Company shall have validly exercised appraisal rights with respect
to the Merger.
6.2 Conditions Precedent to Obligations of the
Company. The obligations of the Company to consummate the transactions
contemplated by this agreement are subject to the fulfillment, prior to or at
the closing, of each of the following conditions (any or all of which may be
waived by the Company):
(a) all representations and warranties of Newco
and NET shall be true and correct in all material respects as of the time of
the closing, with the same effect as though those representations and
warranties had been made again at and as of that time;
(b) Newco and NET shall have performed and
complied with all obligations and covenants required by this agreement to be
performed or complied with by them, respectively, prior to or at the closing;
(c) since the date of this agreement there shall
not have occurred: (i) the death or disability or resignation or other
termination of employment of Xxxxxx Xxxxx or Xxxxxxxx Xxxxx; (ii) the
suspension of trading on NASDAQ of NET's stock for a period of two consecutive
days; (iii) the commencement of an investigation, lawsuit or proceeding against
NET or Common Places LLC seeking to enjoin the Common Places Merger or seeking
damages in excess of $5,000,000, or injunctive relief which, if granted, would
have a material adverse effect on any of NET's business operations, unless
counsel for NET or Common Places LLC delivers a written opinion to the Company
that, in its judgment, the investigation, lawsuit or proceeding is not likely
to result in injunctive relief or an award of damages material to NET or Common
Places LLC; or (iv) a decision to terminate or abandon the Common Places
Merger.
(d) the Representatives (as defined in Section
8.5) shall have been furnished with a certificate (dated the Closing Date and
in form and substance reasonably satisfactory to the Representatives) executed
by the president of NET, certifying to the fulfillment of the conditions
specified in sections 6.2(a), 6.2(b) and 6.2(c);
(e) the Representatives shall have been
furnished with an opinion of Proskauer Rose LLP, counsel to Newco and NET, in
the form of exhibit 6.2(e);
(f) the holders of the requisite percentage of
the Company's common stock and preferred stock shall have approved the Merger;
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(g) there shall not be in effect any injunction
or restraining order issued by a court of competent jurisdiction in an action
or proceeding against the consummation of the transactions contemplated by this
agreement; and
(h) there shall have been listed on NASDAQ the
shares of NET common stock issuable to the stockholders of the Company at the
Effective Time.
70 Documents to be Delivered at Closing.
7.1 Documents to Be Delivered by the Company. At the closing,
the Company shall deliver to NET and Newco the following:
(a) the certificate referred to in section
6.1(c);
(b) the opinion referred to in section
6.1(d);
(c) a copy of resolutions of the board of
directors and the stockholders of the Company approving the Merger, and a
certificate of its secretary or assistant secretary, dated the Closing Date,
that such resolutions were duly adopted and are in full force and effect;
(d) the Lock-up Agreements referred to in
section 5.8; and
(e) the Non-Competition Agreements referred
to in section 5.9.
7.2 Documents To Be Delivered by Newco and NET. At
the closing, Newco and NET shall deliver to the Representatives the following:
(a) certificates representing the number of
shares of common stock and Convertible Preferred Stock of NET as determined in
accordance with section 2.1(a) issued in the names of the stockholders of the
Company;
(b) the certificate referred to in section
6.2(d);
(c) the opinion referred to in section
6.2(e);
= (d) a copy of resolutions of the boards of directors
of NET and Newco, and a certificate of the secretary or assistant secretary of
NET or Newco, as the case may be, dated the Closing Date, that such resolutions
were duly adopted and are in full force and effect;
(e) the Lock-up Agreements referred to in section
5.8; and
(f) the Non-Competition Agreements referred to in
section 5.9.
80 Survival of Representations and Warranties;
Indemnification.
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8.1 Survival. All representations, warranties and
agreements by the Company shall survive the closing under this agreement for a
period of one year notwithstanding any investigation at any time by or on
behalf of Newco or NET, and shall not be considered waived by Newco's or NET's
consummation of the transactions contemplated by this agreement with knowledge
of any breach or misrepresentation by the Company. All representations,
warranties and agreements by Newco and NET shall survive the closing under this
agreement for a period of one year except for the representations covered by
the certification under section 6.2(d) relating to the conditions in section
6.2(c) which shall survive the closing for three months, notwithstanding any
investigation at any time by or on behalf of the Company, and shall not be
considered waived by the Company's consummation of the transactions
contemplated by this agreement with knowledge of any breach or
misrepresentation by Newco or NET.
8.2 Indemnification.
(a) The Company and NET shall be
indemnified and held harmless, solely out of the shares of NET common stock and
Convertible Preferred Stock held pursuant to the Escrow Agreement, against all
loss, liability, damage or expense (including reasonable fees and expenses of
counsel, whether involving a third party or between the parties to this
agreement) (collectively, "Losses") the Company or NET may suffer, sustain or
become subject to as a result of any breach of any representation, warranty,
covenant or other agreement of the Company contained in this agreement, or any
misrepresentation by the Company, or any claim by a third party which without
regard to the merits of the claim would constitute such a breach or
misrepresentation.
(b) NET shall indemnify and hold harmless
the stockholders of the Company against all Losses the stockholders of the
Company may suffer, sustain or become subject to as a result of any breach of
any representation, warranty, covenant or other agreement of Newco or NET
contained in this agreement, or any misrepresentation by Newco or NET, or any
claim by a third party which, without regard to the merits of the claim, would
constitute such a breach or misrepresentation.
8.3 Limitations on Liability. Notwithstanding
anything to the contrary in this agreement, (a) no party shall be entitled to
indemnification for misrepresentation or breach of warranty unless the aggregate
Losses incurred as a result of all such misrepresentations and breaches of
warranty exceeds the sum of $500,000, in which event such party shall be
entitled to indemnification for all such Losses in excess of $500,000, (b) the
only recourse of NET and the Company for indemnification under this agreement
shall be to the shares of NET common stock and Convertible Preferred Stock held
pursuant to the Escrow Agreement and NET and the Company shall have no other
recourse against the stockholders of the Company with respect to such
indemnification obligations, and (c) for purposes of indemnification by the
stockholders of the Company, each share of NET common stock and Convertible
Preferred Stock held in escrow shall be valued at $24.00.
8.4 Defense of Claims. If any third-party claim is
made against any party that, if sustained, would give rise to a liability of
the other party, the party against whom
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the claim is made shall promptly cause notice of the claim to be delivered to
the other party and shall afford the other party and its counsel, at the other
party's sole expense, the opportunity to join in defending or compromising the
claim.
8.5 Representatives. For purposes of any
indemnification claim, Xxxxxx Xxxxxxxxx and Xxxxxxx Xxxxx (or if either of them
ceases to act, a successor designated by the holders of a majority of the
shares of the Company's common stock) shall act as representatives (the
"Representatives") of the stockholders of the Company, and shall have full
authority, on behalf of all of the stockholders of the Company, to make any
determination or to settle any claim pursuant to this section 8. By approving
the Merger, the stockholders of the Company shall be deemed to have confirmed
the appointment and authority of the Representatives, and NET shall be entitled
to rely on the Representatives' authority. The Representatives in acting for
the stockholders of the Company shall have no liability unless they are guilty
of gross negligence or willful misconduct in performing their responsibilities
as Representatives. The Representatives may instruct the Escrow Agent to sell
up to 25,000 shares of the NET common stock held in escrow to pay any expenses
of defending any claims for indemnification pursuant to this section 8.
90 Termination.
9.1 This agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual consent of the boards of directors
of NET and the Company;
(b) by NET or the Company, if, without fault of
the terminating party, the Merger shall not have been consummated on or before
January 31, 2000, which date may be extended by mutual agreement of the boards
of directors of NET and the Company;
(c) by the Company, if any event shall have
occurred that renders any condition set forth in section 6.2 incapable of
fulfillment and such condition is not waived by the Company; or
(d) by NET, if any event shall have occurred
that renders any condition set forth in section 6.1 incapable of fulfillment
and such condition is not waived by NET.
9.2 Notice of Termination. In the event of
termination of the Merger pursuant to this section 9, written notice of
termination shall promptly be given to each other party to this agreement.
9.3 Effect of Termination. The termination of
this agreement under section 9.1 shall not relieve any party of any liability
for breach of this agreement prior to the date of termination.
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100 Miscellaneous.
10.1 Finders. The parties represent and warrant that
they have not employed or
utilized the services of any broker or finder in connection with this agreement
or the transactions contemplated by it, except that NET has employed Xxxxx &
Company, and shall be responsible for the fees payable to Xxxxx & Company.
10.2 Entire Agreement. This agreement (together
with the Lock-up Agreements referred to in section 5.8, the Employment
Agreements referred to in section 5.9, and the Voting Agreements referred to in
section 5.10 and the Escrow Agreement referred to in section 2.2) contains, and
is intended as, a complete statement of all of the terms of the arrangements
among the parties, supersedes any previous agreements and understandings among
the parties with respect to those matters, and cannot be changed or terminated
orally and there are no representations or warranties by any party except as
provided in this agreement.
10.3 Governing Law. This agreement shall be
governed by and construed in accordance with the law of the State of New York
applicable to agreements made and to be performed entirely in New York, except
that the provisions relating to the merger of Newco into the Company shall be
governed by Delaware law to the extent appropriate.
10.4 Headings. The section headings of this
agreement are for reference purposes only and are to be given no effect in the
construction or interpretation of this agreement.
10.5 Notices. All notices and other
communications under this agreement shall be in writing and shall be deemed
given when delivered personally or by facsimile (receipt confirmed), one day
after being sent by recognized overnight courier or four days after being
mailed by registered mail, return receipt requested, to the parties at the
following addresses (or to such other address as a party may specify by notice
given to the other pursuant to this provision):
(a) If to the Company, addressed to it at:
c/o sixdegrees, inc.
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attention:
Xxxx X. Xxxxxxxx, Esq.
Vice President & General Counsel
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx
Attention: Xxxxxx X. Xxxxxxxxx, Esq.
(b) If to Newco or NET, addressed to either
or both of them at:
Network Event Theater, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxx,
Executive Vice President and
Chief Financial Officer
with a copy to:
Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
10.6 Waiver. Any party may waive compliance by another with
any of the provisions of this agreement. No waiver of any provision shall be
construed as a waiver of any other provision. Any waiver must be in writing and
must be signed by the party waiving the provision.
10.7 Separability. If any provision of this agreement is
invalid or unenforceable, the balance of this agreement shall remain in effect
unless such invalidity or unenforceability shall materially impair the purpose
or objectives of this agreement.
10.8 Assignment. No party may assign any of its or her rights
or delegate any of its or her duties under this agreement without the consent
of the other parties.
10.9 Publicity. No party shall issue any press release or
other public statement regarding the transactions contemplated by this
agreement, except as required by applicable law and except that the Company and
NET may issue a press release approved in writing by both parties and either
party may thereafter disclose such information as it determines necessary or
appropriate.
10.10 Definitions. As used in this agreement, the term
"affiliate" means any person or entity directly or indirectly controlled by,
controlling, or under common control with, any other person or entity. As used
in this agreement, the term "subsidiary" of a person means any corporation or
other legal entity of which that person (either alone or through or together
with any other subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests that are ordinarily and generally, in the
absence of contingencies and understandings, entitled to vote for the election
of the board of directors or other governing body of such entity.
10.11 No Third Party Beneficiaries. This agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this agreement.
10.12 Specific Performance. The Company acknowledges that the
Company is of a special, unique and extraordinary character, and that any
breach of this agreement by the Company could not be compensated for by
damages. Accordingly, if the Company breaches its obligations under this
agreement NET shall be entitled, in addition to any other remedies that it
28
may have, to enforcement of this agreement by a decree of specific performance
requiring the Company to fulfill its obligations under this agreement, and no
bond or other security shall be required.
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10.13 Counterparts. This agreement may be executed in one or
more counterparts.
sixdegrees, inc.
By: /s/ Xxxxxx Xxxxxxxxx
--------------------------------------
Xxxxxx Xxxxxxxxx
President & Chief Executive Officer
SIXDEGREES ACQUISITION CORP.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
Executive Vice President and
Chief Financial Officer
NETWORK EVENT THEATER, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------------------------
Xxxxx X. Xxxxxx
Executive Vice President and
Chief Financial Officer
30
