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............ 5
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........................... 8
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... 13
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.................... 14
Section 5.3 Limited Business and Assets, etc. 15
Section 5.4 Authorization................... 15
Section 5.5 No Violation.................... 15
Section 5.6 Consents........................ 15
Section 5.7 Ownership of Membership Interests
and Shares................ 15
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.................... 16
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......................... 18
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.................... 20
Section 7.11 Contracts and Commitments........ 21
Section 7.12 Litigation, Orders............... 21
ARTICLE VIII.
REPRESENTATIONS AND WARRANTIES OF XXXXX AND XXXXX.... 21
Section 8.1 Authorization.................... 21
Section 8.2 Ownership of Membership Interests 21
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 22
Section 9.1 Representations and Warranties... 22
Section 9.2 Sales of Company Securities...... 24
Section 9.3 Confidential Information......... 24
ARTICLE X.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........ 24
Section 10.1 Organization..................... 24
Section 10.2 Subsidiaries..................... 24
Section 10.3 Authorization.................... 25
Section 10.4 Capitalization................... 25
Section 10.5 Financial Statements............. 25
Section 10.6 No Violation..................... 25
Section 10.7 Consents......................... 26
Section 10.8 Litigation, Orders............... 26
Section 10.9 Securities Laws.................. 26
Section 10.10 Disclosure....................... 26
ARTICLE XI.
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION........... 27
Section 11.1 Survival of Representations..... 27
Section 11.2 Indemnification................. 27
Section 11.3 Conditions of Indemnification... 28
Section 11.4 Contribution.................... 29
Section 11.5 Indemnification Under Escrow
Agreement................... 29
Section 11.6 KidSoft Members' Representatives 30
ARTICLE XII.
CONDITIONS TO OBLIGATIONS OF THE COMPANY............... 30
Section 12.1 Representations and Warranties.. 30
Section 12.2 No Proceeding or Litigation..... 30
Section 12.3 No Injunction................... 31
Section 12.4 Resolutions..................... 31
Section 12.5 Incumbency Certificate.......... 31
Section 12.6 Opinion of Counsel.............. 31
Section 12.7 All Proceedings Satisfactory.... 31
Section 12.8 Stock Purchase Agreement........ 31
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..... 32
Section 13.1 Representations and Warranties.. 32
Section 13.2 No Proceeding or Litigation..... 32
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....................................... 33
Section 14.1 Representations and Warranties.. 33
Section 14.2 No Proceeding or Litigation..... 33
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.... 34
ARTICLE XV.
CONDITIONS TO OBLIGATIONS OF KIDSOFT, INC., XXXXX AND
GROSS..................................... 34
Section 15.1 Representations and Warranties.. 34
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.............. 35
Section 15.7 All Proceedings Satisfactory.... 35
ARTICLE XVI.
COMPANY BOARD OF DIRECTORS 35
Section 16.1 Company Board of Directors....... 35
ARTICLE XVII.
REGISTRATION RIGHTS 36
Section 17.1 Piggyback Registration Rights.... 36
Section 17.2 Withdrawal of Shares............. 36
Section 17.3 Information Regarding Investors;
Underwriting Arrangements..... 36
Section 17.4 Restrictions on Sales............ 37
Section 17.5 Indemnification.................. 37
ARTICLE XVIII. 39
RELATED MATTERS 39
Section 18.1 Use of Name...................... 39
Section 18.2 Employees, Benefit Plans, Etc.... 39
ARTICLE XIX.
CONSENTS AND WAIVERS OF HEARST SUB,AMERITECH SUB, KIDSOFT,
INC.......................................... 40
Section 19.1 Transfer by KidSoft, Inc.......... 40
Section 19.2 Transfer by Hearst Sub and
Ameritech Sub................ 40
Section 19.3 Transfer by Xxxxx and Xxxxx....... 40
Section 19.4 Ameritech Sub Right of First
Refusal...................... 40
Section 19.5 Hearst Sub Right of First Refusal. 40
ARTICLE XX.
MISCELLANEOUS 40
Section 20.1 Expenses; Taxes, Etc............... 40
Section 20.2 Further Assurances................. 41
Section 20.3 Parties in Interest................ 41
Section 20.4 Entire Agreement, Amendments and
Waiver........................ 41
Section 20.5 Headings........................... 41
Section 20.6 Notices............................ 41
Section 20.7 Governing Law...................... 42
Section 20.8 Third Parties...................... 42
Section 20.9 Counterparts....................... 42
ARTICLE XXI.
DEFINED TERMS 43
Section 21.1 Location of Certain Defined Terms.. 43
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
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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."
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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;
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(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
5
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;
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(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;
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(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.
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(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.
9
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
10
(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
11
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")
12
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
13
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.
14
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.
15
(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
16
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.
17
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
18
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
19
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
20
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
21
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.
22
(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
23
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
24
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
25
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
26
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,
27
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
28
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
29
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
30
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
31
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.
32
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
Gross shall have received a certificate, executed by the Chief Executive
Officer of the Company, dated as of the Closing Date, to the foregoing effect.
34
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 Xxxxx 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 Gross 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 Xxxxx
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 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.
35
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
36
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 xxxx
xxxxxxxx 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
37
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
38
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.
39
(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
40
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
41
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.
42
ARTICLE XXI.
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)
43
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]
44
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
