Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
ITURF INC.,
A DELAWARE CORPORATION,
ITURF CAVEMAN ACQUISITION CORPORATION,
A MASSACHUSETTS CORPORATION
XXXXXXXX.XXX, INC.,
A MASSACHUSETTS CORPORATION
XXX XXXXX,
STOCKHOLDER,
XXXXXXXXXXX XXXXX,
STOCKHOLDER,
XXXXXXX XXXXX,
STOCKHOLDER,
ET AL.
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER...................................................1
1.1 The Merger...................................................2
1.2 Effective Time...............................................2
1.3 Closing......................................................2
1.4 Effect of the Merger.........................................2
1.5 Articles of Organization; Bylaws.............................2
1.6 Directors and Officers.......................................2
1.7 Effect on Capital Stock......................................3
1.8 Adjustment of Merger Consideration...........................4
1.9 No Fractional Shares.........................................4
1.10 Escrow.......................................................4
1.11 Calculation of and Issuance of Earnout Consideration.........4
1.12 Tax-Free Reorganization.....................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SELLING STOCKHOLDERS....................................11
2.1 Organization and Qualification..............................11
2.2 Authority Relative to This Agreement........................12
2.3 Capital Structure...........................................13
2.4 Title to Shares.............................................14
2.5 Subsidiaries and Affiliates.................................14
2.6 Financial Statements........................................14
2.7 No Undisclosed Liabilities..................................14
2.8 Absence of Certain Changes or Events........................15
2.9 Taxes.......................................................15
2.10 Title to Assets.............................................15
2.11 Real and Personal Property..................................16
2.12 Intellectual Property.......................................16
2.13 Contracts, Leases and Commitments...........................17
2.14 No Conflicts, Required Filings or Consents..................18
2.15 No Permits Required; Compliance with Laws...................19
2.16 Personnel Matters...........................................20
2.17 Employee Benefit Plans......................................20
2.18 Privacy Policy..............................................22
2.19 Insurance...................................................22
2.20 Litigation..................................................22
2.21 Environmental Matters.......................................22
2.22 Restrictions on Business Activities.........................23
2.23 Transactions with Affiliates................................23
i
2.24 Books and Records...........................................................23
2.25 Improper Payments...........................................................23
2.26 Brokers.....................................................................23
2.27 Investment Representation...................................................24
2.28 Vote Required...............................................................24
2.29 Web Site Traffic............................................................24
2.30 Year 2000 Compliance........................................................24
2.31 Indebtedness to Certain Affiliates; Guaranties..............................25
2.32 Disclosure..................................................................25
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ITURF AND MERGER SUB......................26
3.1 Organization and Qualification..............................................26
3.2 Authority Relative to this Agreement........................................26
3.3 No Conflict, Required Filings and Consents..................................27
3.4 Capital Stock...............................................................27
3.5 SEC Filings, Financial Statements...........................................28
3.6 Absence of Certain Changes or Events........................................28
3.7 Brokers.....................................................................28
ARTICLE IV ADDITIONAL COVENANTS AND AGREEMENTS.........................................29
4.1 Conduct of Business.........................................................29
4.2 Access to Information.......................................................31
4.3 Notification of Certain Matters.............................................31
4.4 Warrants and Options........................................................31
4.5 Fulfillment of Conditions...................................................32
4.6 Public Announcements........................................................32
4.7 Elimination of Indebtedness.................................................32
4.8 No Solicitation.............................................................32
4.9 Release by the Selling Stockholders.........................................33
4.10 Stockholders Meeting and Approval...........................................33
4.11 Waiver of Appraisal Rights..................................................34
4.12 Lock-up Arrangements........................................................34
4.13 Effect on Existing Agreements...............................................34
4.14 Ancillary Agreements........................................................34
4.15 Tax Matters.................................................................35
4.16 Payment of Certain Transaction Costs........................................35
4.17 Efforts to Support the Company..............................................35
ARTICLE V CONDITIONS PRECEDENT........................................................36
5.1 Conditions to Each Party's Obligations......................................36
5.2 Conditions to Obligations of iTurf and Merger Sub...........................36
5.3 Conditions to Obligations of the Company and the Selling Stockholders.......37
ii
PAGE
ARTICLE VI INDEMNIFICATION; ESCROW.....................................39
6.1 Indemnification by the Selling Stockholders.................39
6.2 Indemnification by iTurf....................................40
6.3 Further Provisions Regarding Indemnification................40
6.4 Escrowed Shares.............................................41
6.5 Sole Remedy.................................................42
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...........................42
7.1 Termination.................................................42
7.2 Effect of Termination.......................................42
ARTICLE VIII [INTENTIONALLY OMITTED].....................................42
ARTICLE IX CERTAIN DEFINITIONS.........................................43
ARTICLE X MISCELLANEOUS...............................................43
10.1 Notices.....................................................43
10.2 Expenses....................................................45
10.3 Further Assurances..........................................45
10.4 Entire Agreement............................................45
10.5 Assignment; Binding Effect..................................45
10.6 No Third Party Beneficiary..................................46
10.7 Paragraph Headings..........................................46
10.8 Severability................................................46
10.9 Governing Law; Consent to Jurisdiction......................46
10.10 Counterparts................................................46
10.11 Sellers' Agent..............................................46
10.12 Construction................................................48
10.13 Nature of Certain Obligations...............................48
iii
SCHEDULES PAGE
Schedule 1.11 Accounting Policies
Schedule 2.1 Organization
Schedule 2.3 Stockholders
Schedule 2.5 Subsidiaries and Affiliates
Schedule 2.7 Undisclosed Liabilities
Schedule 2.10 Title to Assets
Schedule 2.11 Real and Personal Property
Schedule 2.12 Intellectual Property
Schedule 2.12A Company Contributors
Schedule 2.13 Contracts
Schedule 2.14 Conflicts and Consents
Schedule 2.15 Permits
Schedule 2.16 Personnel Matters
Schedule 2.17 Employee Benefit Plans
Schedule 2.18 Privacy Policy
Schedule 2.19 Insurance
Schedule 2.20 Litigation
Schedule 2.23 Transactions with Affiliates
Schedule 2.29 Web Site Traffic
Schedule 4.12 Lock-up Arrangements
EXHIBITS
Exhibit A Form of Registration Rights Agreement
Exhibit B Form of Intellectual Property Assignment Agreements
Exhibit C-1 Form of Opinion of Xxxxxx, Gesmer & Xxxxxxxxx, LLP, counsel to the
Company and the Inside Stockholders
Exhibit C-2 Form of Opinion of Xxxxxx Xxxxxx Flattau & Klimpl, LLP, counsel to Net
Associates
Exhibit D Section 368 Certificate of iTurf, Merger Sub, the Company and the Selling
Stockholders
Exhibit E Form of Opinion of Xxxx X. Xxxxxxx, Esq., General Counsel of iTurf and
Merger Sub
Exhibit F-1 Form of Employment Agreement Between the Company and Xxx Xxxxx
Exhibit F-2 Form of Employment Agreement Between the Company and Xxxxxxx Xxxxx
Exhibit F-3 Form of Employment Agreement Between the Company and Xxxxxxxxxxx
Xxxxx
Exhibit F-4 Form of Employment Agreement Between the Company and Xxxxxx Xxxxxxx
Exhibit F-5 Form of Employment Agreement Between the Company and Xxxxxxxxx
Xxxxxx
xx
PAGE
Exhibit G Form of Escrow Agreement
Exhibit H Form of Loan and Security Agreement
v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made
and entered into as of February 4, 2000 by and among iTurf Inc., a Delaware
corporation ("ITURF"), iTurf Caveman Acquisition Corporation, a Massachusetts
corporation and a wholly-owned subsidiary of iTurf ("MERGER SUB"), XxxXxxxx.xxx,
Inc., a Massachusetts corporation (the "COMPANY"), Xxxxxx Xxxxxxx ("XXXXXXX"),
Xxx Xxxxx ("YAGAN"), Xxxxxxxxxxx Xxxxx ("Xxxxx"), Xxxxxxx Xxxxx ("XXXXX"),
Xxxxxx Xxxxxxxx ("PRIHODKO"), Xxx Xxxxxxx ("XXXXXXX"), Xxxxxxxxx Xxxxxx
("XXXXXX"), Xxx Xxxx ("RING"), Xxxxxxx Xxxxxxxx ("TENGROTH"), Xxxxxx Xxxxx
("XXXXX"), Xxxxx Xxxxxxxx ("XXXXXXXX") and Net Associates, a New York general
partnership ("NET ASSOCIATES"). Yagan, Coyne, Krohn, Xxxxxxx and Rudder are
sometimes collectively referred to hereinafter as the "Principals" and
individually as a "PRINCIPAL." The Principals, Ring, Tengroth, Russo, Phillips,
Prihodko and Xxxxxxx are sometimes collectively referred to herein as the
"INSIDE STOCKHOLDERS." The Inside Stockholders and Net Associates are sometimes
collectively referred to hereinafter as the "SELLING STOCKHOLDERS" and
individually as a "SELLING STOCKHOLDER."
WHEREAS, each of the Boards of Directors of iTurf, Merger Sub
and the Company has approved the merger of the Company with and into Merger Sub
(the "MERGER") in accordance with the Massachusetts Business Corporation Law
("Massachusetts Law") and upon the terms and subject to the conditions set forth
herein; and
WHEREAS, each Selling Stockholder is the owner of such number
of shares of capital stock of the Company (the "COMPANY CAPITAL STOCK") set
forth opposite his or its name in SCHEDULE 2.3 and such shares collectively
represent 100% of the issued and outstanding shares of capital stock of the
Company.
WHEREAS, in addition to the other covenants and agreements
made herein, in order to ensure that iTurf receives the full benefit of the
acquisition of the Company, each Principal, as a material inducement to iTurf
and Merger Sub to enter into this Agreement, is agreeing hereby to enter into an
employment agreement in a form annexed in this Agreement containing certain
non-competition obligations;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained and other good and valuable
consideration, the receipt, sufficiency and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereby agree
as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with Massachusetts Law, at the
Effective Time (as defined herein), the Company shall merge with and into Merger
Sub. As a result of the Merger, the separate corporate existence of the Company
shall cease and Merger Sub shall continue as the surviving corporation of the
Merger. Merger Sub as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "SURVIVING CORPORATION."
1.2 EFFECTIVE TIME. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Article VII and subject to the satisfaction or waiver of the
conditions set forth in Article V, the consummation of the Merger (the
"CLOSING") shall take place as promptly as practicable (and in any event within
two (2) Business Days (as defined below)) after each of the conditions set forth
in Article V shall have been satisfied or waived in accordance with this
Agreement (the "CLOSING DATE") at 10:00 a.m., New York City time, at the offices
of Proskauer Rose LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, unless the
Company and the Sellers' Agents shall agree in writing upon a later date, time
or place.
1.3 CLOSING. On the Closing Date, the parties hereto shall
cause the Merger to be consummated by filing articles of merger with the
Secretary of the Commonwealth of Massachusetts, in such form as required by, and
executed in accordance with the relevant provisions of Massachusetts Law, and
shall make all other filings or recordings required under Massachusetts Law. The
Merger shall become effective upon the filing of the articles of merger with the
Secretary of the Commonwealth of Massachusetts, or at such other time as iTurf
and the Company shall agree and specify in the articles of merger (the
"EFFECTIVE TIME").
1.4 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the articles of merger and
the applicable provisions of Massachusetts Law. Without limiting the generality
of the foregoing, at the Effective Time, all the rights, privileges, powers,
franchises and property of the Company and Merger Sub shall vest in the
Surviving Corporation, and all duties, debts and liabilities of the Company and
Merger Sub shall become the duties, debts and liabilities of the Surviving
Corporation.
1.5 ARTICLES OF ORGANIZATION; BYLAWS. At the Effective Time,
the Articles of Organization of Merger Sub as in effect immediately prior to the
Effective Time shall be the Articles of Organization of the Surviving
Corporation, except that the name of the Surviving Corporation shall be
"XxxXxxxx.xxx Inc." and the bylaws of Merger Sub shall be the bylaws of the
Surviving Corporation, each of which shall continue in full force and effect
until thereafter amended. Accordingly, the authorized capital stock of the
Surviving Corporation shall consist of 100 shares of common stock, par value
$.01 per share. The purposes of the Surviving Corporation shall be (a) to
provide electronic computer services and (b) any and all acts and things a
corporation may do under the provisions of Massachusetts Laws.
1.6 DIRECTORS AND OFFICERS. The directors and officers of
Merger Sub immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving
2
Corporation, in each case until their respective successors are duly elected or
appointed and qualified or until their earlier death, resignation or removal.
1.7 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of iTurf, Merger Sub, the
Company or the holders of any of the following securities:
(a) CONVERSION OF SECURITIES.
(i) Subject to Sections 1.8 and 1.9, each
share of Company Capital Stock issued and outstanding immediately prior to the
Effective Time (other than shares held in the treasury of the Company) shall be
converted into the right to receive (1) that number of fully paid and
non-assessable shares of Class A common stock, par value $.01 per share, of
iTurf ("ITURF COMMON STOCK") equal to the quotient obtained by dividing (A) One
Million One Hundred Thousand (1,100,000) by (B) the number of shares of Company
Capital Stock issued and outstanding immediately prior to the Effective Time
(the "MERGER DENOMINATOR"), (2) the First Earnout Share Consideration (as
defined below) divided by the Merger Denominator, (3) the Second Earnout Share
Consideration (as defined below) divided by the Merger Denominator, and (4) the
First Earnout Cash Consideration and the Second Earnout Cash Consideration, in
both cases in this clause (iv) divided by the Merger Denominator (collectively,
the "MERGER CONSIDERATION").
(ii) The Initial Shares (as defined in
Section 1.11 below) shall be issued in the names of, and be delivered at the
Closing to, the applicable Selling Stockholder upon surrender for cancellation
of the certificates representing Company Capital Stock held by such Selling
Stockholder (except to the extent the Escrowed Shares (as defined below) are
delivered to the Escrow Agent (as defined below) pursuant to Section 1.10). The
balance of the Merger Consideration shall be issued or paid as provided in
Section 1.11.
(iii) Until surrendered for cancellation,
each certificate representing Company Capital Stock shall be deemed at any time
after the Effective Time to represent only the right to receive upon surrender
the certificate representing iTurf Common Stock to which such holder is entitled
and any dividends or other distributions to which such holder is entitled in
accordance with Article I. Following surrender after the Effective Time of any
certificate representing Company Capital Stock, there shall be paid to the
holder of such certificate with respect to shares of iTurf Common Stock to which
such holder is entitled pursuant to this Article I in exchange therefor (i)
promptly, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and payment date occurring prior
to surrender with respect to such shares of iTurf Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to the surrender and a payment
date occurring after surrender with respect to such shares of iTurf Common
Stock.
3
(iv) The aggregate Merger Consideration
shall be deemed in full satisfaction of all rights pertaining to all shares of
Company Capital Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Capital Stock
which were outstanding immediately prior to the Effective Time.
(b) CANCELLATION. Each share of the Company Capital
Stock held in the treasury of the Company immediately prior to the Effective
Time shall be canceled and retired without payment of any consideration therefor
and cease to exist.
(c) CAPITAL STOCK OF MERGER SUB. Each share of common
stock, par value $.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall remain issued and outstanding as
one validly issued, fully paid and non-assessable share of common stock, par
value $.01 per share, of the Surviving Corporation. Each stock certificate of
Merger Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
1.8 ADJUSTMENT OF MERGER CONSIDERATION. In the event that,
subsequent to the date of this Agreement, the outstanding shares of iTurf Common
Stock or Company Capital Stock, respectively, shall have been changed into a
different number of shares or a different class as a result of a stock split,
reverse stock split, stock dividend, subdivision, reclassification, combination,
exchange, recapitalization, spin-off, split-off, merger, consolidation or other
similar transaction, the shares of iTurf Common Stock constituting the Merger
Consideration shall be appropriately adjusted.
1.9 NO FRACTIONAL SHARES. No fractional shares of iTurf Common
Stock shall be issued upon the surrender for exchange of certificates that
immediately prior to the Effective Time represented Company Capital Stock which
have been converted pursuant to Section 1.7(a), and any such fractional shares
of iTurf Common Stock that would be issued absent this Section 1.9 shall be
canceled without consideration therefor.
1.10 ESCROW. At the Closing, (i) 13.0% of the Initial Shares
(collectively, the "ESCROWED SHARES") shall be issued in the names of such
stockholders and deposited with the Escrow Agent named in the Escrow Agreement
(as defined below) for return to iTurf if required to be returned under the
indemnification provisions contained herein, and each Selling Stockholder shall
execute and deliver to the Escrow Agent at the Closing five stock powers,
endorsed in blank, with respect to the Escrowed Shares owned by such Selling
Stockholder.
1.11 CALCULATION OF AND ISSUANCE OF EARNOUT CONSIDERATION.
(a) COMPUTATION OF FIRST EARNOUT. As promptly as
practicable but not later than the First Computation Delivery Due Date, iTurf
shall deliver to the Sellers' Agents a proposed computation of the First Earnout
Amount (the "FIRST EARNOUT COMPUTATION") or a written statement that it is not
able to provide such calculation. Within fifteen (15) Business Days after
receipt of the First Earnout Computation, Sellers' Agents will notify iTurf in
writing
4
whether the Sellers' Agents accept such computation or whether the Sellers'
Agents dispute the First Earnout Computation, setting forth in reasonable detail
the basis of the dispute (a "DISPUTE NOTICE"). A Dispute Notice delivered
pursuant to this Section 1.11(a) shall contain the Sellers' Agents proposed
computation of the First Earnout Amount to the extent practicable. Should the
Sellers' Agents accept the First Earnout Computation or fail to give a Dispute
Notice within such fifteen (15) business-day period, the proposed First Earnout
Amount set forth in the First Earnout Computation shall be the First Earnout
Amount for all purposes under this Agreement.
In the event that iTurf (i) fails to deliver the
First Earnout Computation or a written statement that it is not able to do so or
(ii) delivers a written statement that it is not able to deliver the First
Earnout Calculation, in the case of (i) or (ii) by the First Computation
Delivery Due Date, then the Sellers' Agents may within twenty (20) Business Days
after the First Computation Delivery Due Date unless they have previously
received the First Earnout Computation, deliver an objection notice, which
notice shall have the same effect hereunder as, and be deemed, a Dispute Notice.
Within ten (10) Business Days following delivery of a
Dispute Notice, a designee of iTurf and the Sellers' Agents (or a designee of
the Sellers' Agents) shall meet to attempt to resolve such dispute. If a final
resolution of such dispute is reached, the agreed-upon amount shall be deemed to
be the First Earnout Amount. If no final resolution of such dispute is reached
within fifteen (15) Business Days following the delivery of the Dispute Notice,
the New York, New York office of Deloitte & Touche (or, if Deloitte & Touche is
unwilling to perform such function, another nationally recognized auditing firm
reasonably acceptable to both parties) (the "AUDITOR") shall deliver to iTurf
and the Sellers' Agents a final determination of the First Earnout Amount not
later than twenty (20) Business Days following the commencement of such
engagement. If at the end of such twenty (20) Business Day period the Auditor
concludes that the First Earnout Amount cannot be determined, then not later
than five (5) Business Days after the end of such twenty (20) Business Day
period, the Auditor shall determine the First Earnout Amount using a method
that, in the reasonable judgment of the Auditor, best reflects the intentions of
the parties reflected herein. The Auditor's determination of the First Earnout
Amount shall be conclusive and binding on all parties hereto.
Within five (5) Business Days following the final
determination of the First Earnout Amount pursuant to this Section, iTurf and
the Sellers' Agents shall execute a written certificate stating the First
Earnout Amount and iTurf shall issue and deliver to the applicable Selling
Stockholder the portion of the First Earnout Share Consideration and the portion
of First Earnout Cash Consideration to which such Selling Stockholder is
entitled pursuant to Section 1.11(e), on a pro-rata basis in accordance with
SCHEDULE 2.3.
(b) COMPUTATION OF SECOND EARNOUT. As promptly as
practicable but not later than the Second Computation Delivery Due Date, iTurf
shall deliver to the Sellers' Agents a proposed computation of the Second
Earnout Amount (the "SECOND EARNOUT COMPUTATION") or a written statement that it
is not able to provide such calculation. Within fifteen (15) Business Days after
receipt of the Second Earnout Computation, Sellers' Agents will
5
notify iTurf in writing whether the Sellers' Agents accept the Second Earnout
Computation or whether the Sellers' Agents dispute such computation, setting
forth in reasonable detail the basis of the dispute (a "SECOND EARNOUT DISPUTE
NOTICE"). A Second Earnout Dispute Notice delivered pursuant to this Section
1.11(b) shall contain the Sellers' Agents proposed computation of the Second
Earnout Amount to the extent practicable. Should the Sellers' Agents accept the
Second Earnout Computation or fail to give a Second Earnout Dispute Notice
within such fifteen (15) business-day period, the proposed Second Earnout Amount
set forth in the Second Earnout Computation shall be the Second Earnout Amount
for all purposes under this Agreement.
In the event that (i) iTurf fails to deliver the
Second Earnout Computation or a written statement that it is not able to do so
or (ii) delivers a written statement that it is not able to deliver the Second
Earnout Calculation, in the case of (i) or (ii) by the Second Computation
Delivery Due Date, then the Sellers' Agents may, within twenty (20) Business
Days after the Second Computation Delivery Due Date unless they have previously
received the Second Earnout Computation, deliver an objection notice to iTurf,
which notice shall have the same effect hereunder as, and be deemed, a Second
Earnout Dispute Notice.
Within ten (10) Business Days following delivery of a
Second Earnout Dispute Notice, a designee of iTurf and the Sellers' Agents (or a
designee of the Sellers' Agents) shall meet to attempt to resolve such dispute.
If a final resolution of such dispute is reached, the agreed-upon amount shall
be deemed to be the Second Earnout Amount. If no final resolution of such
dispute is reached within fifteen (15) Business Days following the delivery of
the Second Earnout Dispute Notice, the Auditor shall deliver to iTurf and the
Sellers' Agents a final determination of the Second Earnout Amount not later
than twenty (20) Business Days following the commencement of such engagement. If
at the end of such twenty (20) Business Day period the Auditor concludes that
the Second Earnout Amount cannot be determined, then not later than five (5)
Business Days after the end of such twenty (20) Business Day period, the Auditor
shall determine the Second Earnout Amount using a method that, in the reasonable
judgment of the Auditor, best reflects the intentions of the parties reflected
herein. The Auditor's determination of the Second Earnout Amount shall be
conclusive and binding on all parties hereto.
Within five (5) Business Days following the final
determination of the Second Earnout Amount pursuant to this Section, iTurf and
the Sellers' Agents shall execute a written certificate stating the Second
Earnout Amount and iTurf shall issue and deliver to the applicable Selling
Stockholder the portion of the Second Earnout Share Consideration and the
portion of Second Earnout Cash Consideration to which such Selling Stockholder
is entitled pursuant to Section 1.11(e), on a pro-rata basis in accordance with
SCHEDULE 2.3.
(c) AUDITOR'S FEES. iTurf, on the one hand, and the
Selling Stockholders, on the other hand, shall each pay such portion of the fees
and expenses of the Auditor (or any arbitrators selected in lieu of an Auditor
pursuant to Section 1.11(g)) as such Auditor (or arbitrators) shall deem fair
and equitable in view of each parties' proposed computation of the First Earnout
Amount or Second Earnout Amount, if applicable.
6
(d) ACCOUNTING POLICIES. SCHEDULE 1.11 attached
hereto sets forth the revenue recognition policies and certain other accounting
policies currently used by iTurf in the preparation of its consolidated
financial statements. These policies may change from time to time to the extent
required by changes in GAAP (as defined in Section 2.6), Securities and Exchange
Commission ("SEC") rules, regulations or interpretations or if the principal
accounting officer of iTurf in good faith determines that such change is
appropriate for reasons other than this Agreement. iTurf shall notify Sellers'
Agents promptly of any changes or additions to its revenue recognition policies
and whenever possible not less than thirty (30) days prior to the change.
(e) REGULATORY LIMIT CASH GROSS-UP.
(i) If the sum of (x) the number of shares
of iTurf Common Stock issued at Closing pursuant to clause 1 of Section
1.7(a)(i) (the "INITIAL SHARES") and (y) the First Earnout Share Consideration
(without giving effect to the limit on the number of shares of iTurf Common
Stock to be issued as provided in the definition of First Earnout Consideration)
is greater than 3,783,626 shares of iTurf Common Stock (appropriately adjusted
to give effect to stock splits, reverse stock splits, stock dividends,
subdivisions, reclassifications, combinations, recapitalizations and the like),
then no later than contemporaneously with the time iTurf would otherwise have
been required to deliver, and in addition to, the First Earnout Share
Consideration, iTurf shall pay to the Selling Stockholders an amount in cash
equal to the difference between (A) the First Earnout Amount less (B) the
product of the First Earnout Share Consideration multiplied by the First Earnout
Average Price.
(ii) If the sum of (x) the Initial Shares,
(y) the First Earnout Share Consideration and (z) the Second Earnout Share
Consideration (without giving effect to the limit in the number of shares of
iTurf Common Stock to be issued as provided in the definition of Second Earnout
Consideration) is greater than 3,783,626 shares of iTurf Common Stock
(appropriately adjusted to give effect to stock splits, reverse stock splits,
stock dividends, subdivisions, reclassifications, combinations,
recapitalizations and the like), then no later than contemporaneously with the
time iTurf would otherwise have been required to deliver, and in addition to,
the Second Earnout Share Consideration, if any, iTurf shall pay to the Selling
Stockholders an amount in cash equal to the difference between (A) the Second
Earnout Amount less (B) the product of the Second Earnout Share Consideration,
if any, multiplied by the Second Earnout Average Price.
(iii) Notwithstanding anything in the
foregoing to the contrary, if at the time of any determination under this
Section which relates to the market price of iTurf Common Stock, the Nasdaq
National Market is not the principal trading market for iTurf Common Stock, such
determination shall be made based upon the closing prices of iTurf Common Stock
on the principal securities exchange or trading market where such security is
listed or traded; provided, however, that if iTurf Common Stock is not traded on
either the Nasdaq National Market or the New York Stock Exchange, the First
Earnout Amount and/or
7
Second Earnout Amount, as the case may be, shall be paid in cash in lieu of in
shares of iTurf Common Stock.
(f) ACCESS TO BOOKS AND RECORDS. iTurf agrees to
provide the Sellers' Agents (or the Sellers' Agents' designee), upon request,
with prompt access to appropriate books and records and any other information
reasonably necessary to verify the calculation of the Earnout Amount, subject to
execution of customary confidentiality agreements.
(g) SELECTION OF AUDITOR. If, at any time, the
parties are unable to agree upon an Auditor or if no such Auditor accepts the
appointment, any such dispute shall be submitted for settlement to three
arbitrators under the rules of the American Arbitration Association in New York
City (with one arbitrator to be selected by iTurf and one arbitrator to be
selected by the Sellers' Agents, with the third arbitrator to be selected by the
arbitrators selected by iTurf and the Sellers' Agents). Such arbitrators shall
have the same power and authority as, and deemed to be, for the purposes
selected, the Auditor herein.
(h) CERTAIN DEFINITIONS. As used herein, the
following capitalized terms have the respective meanings ascribed to them below:
"ADJUSTED E-COMMERCE REVENUES" means the sum of (i) High
Margin Revenues and (ii) Adjusted Low Margin Revenues, BUT NOT MORE THAN the
product of (x) 0.1364 and (y) Advertising/Other Revenues.
"ADJUSTED LOW MARGIN REVENUES" means the quotient obtained by
dividing (A) the product of High Margin Revenues and the difference between (w)
High Margin Gross Margin less (x) 24% by (B) the difference between (y) 24% less
(z) Low Margin Gross Margin.
"ADVERTISING/OTHER REVENUES" means all net revenues recognized
by iTurf or any of its subsidiaries (including the Surviving Corporation) under
GAAP (as defined below), as applied by iTurf consistent with its consolidated
audited financial statements and Section 1.11(d), for the sale of advertising,
sponsorships, subscription fees and licensing or downloading of content or other
similar transaction(other than subscription fees, sales of downloads and
licenses of a kind which are classified by iTurf as "Net product sales" in its
publicly-issued financial statements) in the ordinary course of business of the
XxxXxxxx.xxx or the sale of any domain name listed on SCHEDULE 2.12 (with the
approval of iTurf which shall not be unreasonably withheld or delayed);
provided, however, the following shall be excluded from Advertising Revenues:
(i) the value of advertising for properties of iTurf and Affiliates of iTurf
placed on the XxxXxxxx.xxx site by iTurf and Affiliates of iTurf (it being
understood that such advertising will not be placed in lieu of paid thirty party
advertising, PROVIDED, HOWEVER, no revenues will be imputed hereunder as a
result of placement on XxxXxxxx.xxx or related web sites or other media for
graphic or text designations indicating that such properties are part of the
"iTurf Network"); and (ii) the cost of commissions paid on advertising or
sponsorship sales or similar sources of revenue.
8
"EARNOUT NET REVENUES" means the sum of Advertising/Other
Revenues and Adjusted E-Commerce Revenues.
"E-COMMERCE REVENUES" means all net revenues recognized by
iTurf or any of its subsidiaries (including the Surviving Corporation) under
GAAP (as defined below), as applied by iTurf consistent with its consolidated
audited financial statements and Section 1.11(d) ("ITURF GAAP"), for the sale of
goods in the ordinary course of business on the XxxXxxxx.xxx or otherwise
classified by iTurf as "Net product sales" in its publicly-issued financial
statements.
"FIRST COMPUTATION DELIVERY DUE DATE" means the first Business
Day following the 45-day period following the expiration of the First Earnout
Measurement Period.
"FIRST EARNOUT AMOUNT" means the lesser of (i) the First
Earnout Base and (ii) Six Million Seven Hundred Fifty Thousand Dollars
($6,750,000).
"FIRST EARNOUT AVERAGE PRICE" means the average of the closing
prices per share of iTurf Common Stock on the Nasdaq Stock Market for the period
consisting of the ten (10) Trading Days immediately following the conclusion of
the First Earnout Measurement Period.
"FIRST EARNOUT BASE" equals the product of (A) Thirteen (13)
multiplied by (B) the greater of (1) zero and (2) the difference between (y)
Earnout Net Revenues recognized during the First Earnout Measurement Period less
(z) $1,650,000.
"FIRST EARNOUT CASH CONSIDERATION" means any cash payable
pursuant to Section 1.11(e)(i).
"FIRST EARNOUT MEASUREMENT PERIOD" means the period of twelve
(12) Fiscal Months commencing on the first day of the Fiscal Month immediately
following the Closing.
"FIRST EARNOUT SHARE CONSIDERATION" means that number of
shares of iTurf Common Stock equal to the greater of (i) zero and (ii) the
quotient obtained by dividing (A) the First Earnout Amount by (B) the First
Earnout Average Price; but not more shares than the difference between 3,783,626
less the number of shares of iTurf Common Stock issued as Merger Consideration
at the Closing.
"FISCAL MONTH" means each four or five week period based on a
fiscal year calendar that commences on the Sunday following the Saturday closest
to each January 31, and in which the first so-called month of each quarter of
each fiscal year consists of four weeks, the second so-called month of each
quarter consists of five weeks and the third month of each quarter consists of
four weeks. By way of example, the first Fiscal Month of the fiscal year
commencing on Sunday, January 30, 2000, concludes on Saturday, February 26,
2000.
"HIGH MARGIN GROSS MARGIN" means the gross profit margin
(determined in accordance in iTurf GAAP) resulting from High Margin Revenues.
9
"HIGH MARGIN REVENUES" means E-Commerce Revenues which have a
gross profit margin (determined in accordance with iTurf GAAP) of equal to or
greater than 24%.
"LOW MARGIN GROSS MARGIN" means the gross profit margin
(determined in accordance with iTurf GAAP) resulting from Low Margin Revenues.
"LOW MARGIN REVENUES" means E-Commerce Revenues which have a
gross profit margin (determined in accordance with iTurf GAAP) of less than 24%.
"SECOND COMPUTATION DELIVERY DUE DATE" means the first
Business Day following the 45-day period following the expiration of the Second
Earnout Measurement Period.
"SECOND EARNOUT AMOUNT" means the lesser of the (i) Second
Earnout Base and (ii) the difference between (A) Thirteen Million Five Hundred
Thousand Dollars ($13,500,000) less (B) the First Earnout Amount.
"SECOND EARNOUT AVERAGE PRICE" means the average of the
closing prices per share of iTurf Common Stock on the Nasdaq Stock Market for
the period consisting of the ten (10) Trading Days immediately following the
conclusion of the Second Earnout Measurement Period.
"SECOND EARNOUT BASE" equals the sum of (i) the product of (A)
Thirteen (13) multiplied by (B) the greater of (1) zero and (2) the difference
between (y) Earnout Net Revenues recognized in the Second Earnout Measurement
Period less (z) the Year Two Hurdle (as defined below) and (ii) the excess (if
any) of the First Earnout Base over Six Million Seven Hundred Fifty Thousand
Dollars ($6,500,000).
"SECOND EARNOUT CASH CONSIDERATION" means any cash payable
pursuant to Section 1.11(e)(ii).
"SECOND EARNOUT MEASUREMENT PERIOD" means the period of twelve
(12) Fiscal Months following the expiration of the First Earnout Measurement
Period.
"SECOND EARNOUT SHARE CONSIDERATION" means that number of
shares of iTurf Common Stock equal to the greater of (i) zero and (ii) the
quotient obtained by dividing (A) the Second Earnout Amount by (B) the Second
Earnout Average Price; but not more shares than the difference between (y)
3,783,626 less (z) the sum of (1) number of shares of iTurf Common Stock issued
as Merger Consideration at the Closing and (2) the First Earnout Share
Consideration.
"XXXXXXXX.XXX" means XxxXxxxx.xxx World Wide Web site (as it
currently exists at XxxXxxxx.xxx and as it may exist in the future as a single
integral site at any future second-level domain or third-level domain (e.g.,
XxxXxxxx.xXxxx.xxx) and any other web site
10
located at a domain name listed on SCHEDULE 2.12 so long as such web site is
operated by the Surviving Corporation.
"YEAR TWO HURDLE" means the greater of (i) $1,650,000 and (ii)
the product of (A) Earnout Net Revenues recognized in the First Earnout
Measurement Period multiplied by (B) 1.25.
1.12 TAX-FREE REORGANIZATION. For Federal income tax purposes,
the parties intend that the Merger be treated as a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "CODE").
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND
THE SELLING STOCKHOLDERS
Each of the Company and each Selling Stockholder hereby makes
the following representations and warranties to iTurf and Merger Sub, each of
which shall be unaffected by any investigation heretofore or hereafter made by
iTurf or Merger Sub or any notice to iTurf or Merger Sub other than in the
schedules or as expressly contemplated by this Agreement to this Agreement
relating to the Company (it being understood that a fact disclosed on one
schedule shall be deemed to be disclosed on all relevant schedules); PROVIDED,
HOWEVER, that no Selling Stockholder is making any representation or warranty
hereby in Sections 2.2(b), clause (ii) of the first sentence of Section 2.3(b),
the penultimate sentence of Section 2.3(b), 2.4, 2.14(c) the last sentence of
Section 2.23, 2.27 and, as it pertains to the foregoing representations and
warranties, 2.32 (such representations and warranties, together the Selling
Stockholders' covenants made in Sections 4.3, 4.4, 4.5, 4.8, 4.9, 4.10, 4.11,
4.12, 4.14, 4.15 and 4.16, are sometimes referred to herein as the "STOCKHOLDER
REPRESENTATIONS, WARRANTIES AND COVENANTS") relating to any other Selling
Stockholder:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization and has the requisite power and authority to
own, lease and operate its assets and properties and to conduct its business as
it is presently being conducted. The Company is duly qualified or licensed as a
foreign corporation to do business and is in good standing under the laws of
those jurisdictions listed on SCHEDULE 2.1 hereto, constituting all
jurisdictions in which the nature of its business or the ownership or leasing of
its assets requires such qualification, except for such failures to be so duly
qualified or licensed and in good standing that would not have a material
adverse effect on the business, results of operations, financial condition or
prospects of the Company (a "COMPANY MATERIAL ADVERSE EFFECT"). True and correct
copies of the Company's articles of organization and bylaws, each as amended to
date, have been previously delivered to
11
iTurf. The Company is not in violation of any of the provisions of its articles
of organization or by-laws.
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) The Company has all requisite corporate power and
authority, to enter into and to deliver this Agreement and to perform the
obligations hereunder and to consummate the transactions contemplated hereby
and, where applicable, other agreements (including the Ancillary Agreements
(as defined herein)), instruments, certificates and documents executed, or to
be executed, by it pursuant to this Agreement (such other agreements,
instruments, certificates and documents, the "TRANSACTION DOCUMENTS"). The
execution, delivery and performance of this Agreement and the Transaction
Documents to which it is a party by the Company have been duly authorized by
all necessary action, corporate or otherwise, on the part of the Company and
no other corporate or other proceedings on the part of the Company is
necessary to authorize this Agreement or the Transaction Documents or to
consummate the transactions contemplated hereby or thereby (other than the
adoption of this Agreement by the holders of at least two-thirds of the
outstanding shares of Company Capital Stock entitled to vote in accordance
with Massachusetts Law and the Company's Articles of Organization and bylaws
and the holders of at least two-thirds of the outstanding shares of the
Company's Series A preferred stock). This Agreement has been, and the
Transaction Documents to which it is a party at Closing will be, duly
executed and delivered by the Company and, assuming the due authorization,
execution and delivery of this Agreement and the Transaction Documents by the
other parties hereto or thereto, constitute legal, valid and binding
obligations of the Company enforceable against it in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditors' rights generally and general
principles of equity (regardless of whether enforceability is considered a
proceeding at law or in equity).
(b) Each Selling Stockholder has all requisite power
and authority to enter into and to deliver this Agreement and to perform the
obligations hereunder and to consummate the transactions contemplated hereby and
by the Transaction Documents to which it is party. The execution, delivery and
performance by each Selling Stockholder of this Agreement and the Transaction
Documents to which it is party have been duly authorized by all necessary
action, partnership or otherwise, on the part of each Selling Stockholder and no
other partnership or other proceedings on the part of such Selling Stockholder
is necessary to authorize this Agreement or the Transaction Documents to which
it is party or to consummate the transactions contemplated hereby or thereby
(other than the adoption of this Agreement by the holders of at least two-thirds
of the outstanding shares of Company Capital Stock entitled to vote in
accordance with Massachusetts Law and the Company's Articles of Organization and
bylaws and the holders of at least two-thirds of the outstanding shares of the
Company's Series A preferred stock). This Agreement has been, and the
Transaction Documents to which it is party at Closing will be, duly executed and
delivered by each Selling Stockholder, and assuming the due authorization,
execution and delivery of this Agreement and the Transaction Documents by the
other parties hereto or thereto, constitute legal, valid and binding obligations
of each Selling
12
Stockholder, enforceable against each of them in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or similar laws now or hereafter in
effect relating to creditor's rights generally and general principles of equity
(regardless of whether enforceability is considered a proceeding at law or in
equity).
(c) The Board of Directors of the Company (i) has
declared that this Agreement, the Merger and the other transactions contemplated
hereby and thereby are advisable and in the best interests of the stockholders
of such corporation, (ii) has authorized, approved and adopted this Agreement,
the Merger and the other transactions contemplated hereby and thereby, and (iii)
has taken appropriate action (subject to stockholder approval as contemplated in
Section 2.2(a)) pursuant to applicable law to cause the Merger to become
effective at the Effective Time.
2.3 CAPITAL STRUCTURE.
(a) The authorized capital stock of the Company
consists of 200,000 shares of common stock, par value $.01 per share, of which
83,334 shares are issued and outstanding and 20,834 shares of Series A preferred
stock, par value $.01 per share, of which 10,417 shares are issued and
outstanding as of the date hereof. SCHEDULE 2.3 sets forth a true and complete
list of all record owners of all classes of Company capital stock. Each
outstanding share of Company capital stock is duly authorized, validly issued
and outstanding, fully paid and nonassessable, free of any preemptive rights and
not issued in violation of any federal or state securities laws.
(b) Except as set forth in SCHEDULE 2.3, (i) there
are no equity securities or similar ownership interests of any class of capital
stock of the Company, or any securities exchangeable for or convertible into or
exercisable for such equity securities or similar ownership interests of the
Company, issued, reserved for issuance or outstanding and (ii) there are no
outstanding subscriptions, options, warrants, calls, commitments or other
agreements to which the Company or any Selling Stockholder is a party or by
which he or it is bound obligating the Company or any Selling Stockholder to
issue, deliver or sell, or repurchase, redeem or otherwise acquire, any shares
of capital stock or similar ownership interests of the Company or obligating the
Company or any Selling Stockholder to grant, extend, accelerate the vesting of
or enter into any such subscription, option, warrant, call, commitment or
agreement. Except as contemplated by this Agreement, there are no registration
rights and there is no voting trust, proxy or other agreement or understanding
to which the Company or any Selling Stockholder is a party or by which he or it
is bound with respect to any equity security or similar ownership interest of
any class of capital stock of the Company requiring the issuance or sale of any
additional shares of capital stock or other securities convertible into,
exchangeable for or evidencing the right to subscribe for any shares of capital
stock of the Company. Except as set forth on SCHEDULE 2.3, no shares of capital
stock or other securities of the Company are reserved for issuance for any
purpose and there are no agreements, commitments or restrictions relating to
ownership or voting of any shares of stock or other securities of the Company.
13
(c) Except as set forth on SCHEDULE 2.3, there are no
outstanding purchase agreements, stockholders agreements, registration rights
agreements, investors' rights agreements, co-sale agreements, rights of first
refusal or similar agreements between any Selling Stockholder and the Company.
2.4 TITLE TO SHARES. Each Selling Stockholder owns all of his
or its shares of Company capital stock as set forth on SCHEDULE 2.3, of record
and beneficially, free and clear of any lien, pledge, security interest,
liability, charge or other encumbrance or claim of any person or entity, voting
trusts, proxies, preemptive rights, rights of first refusal, buy-sell
arrangements or other stockholder agreements. On the Closing Date, each Selling
Stockholder will own all of his or its shares of Company capital stock, of
record and beneficially, free and clear of any such liens.
2.5 SUBSIDIARIES AND AFFILIATES. The Company has no direct or
indirect Subsidiaries or Affiliates and has no equity interest in any
corporation, partnership, joint venture or other entity. Except as set forth on
SCHEDULE 2.5, the Company has conducted its business only through the Company.
"SUBSIDIARY" means an Affiliate controlled by the Company directly or indirectly
through one or more intermediaries.
2.6 FINANCIAL STATEMENTS. The Company has previously delivered
to iTurf true and complete copies of the audited balance sheet of the Company at
October 31, 1999 (the "INTERIM BALANCE SHEET") and the related statements of
income, cash flow and changes in stockholders' equity for the period from
inception to October 31, 1999, and the notes thereto, accompanied by the report
thereon of BDO Xxxxxxx, LLP (collectively, all financial information referred to
in this Section 2.6 is hereafter referred to as the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared from the books and records of the
Company, present fairly the financial condition of the Company at the dates
specified and the results of its operations for the periods specified and have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis ("GAAP"), except as may be stated in the notes
thereto.
2.7 NO UNDISCLOSED LIABILITIES. The Company does not have any
Liabilities (as defined herein), except for (a) Liabilities specifically
identified in the Interim Balance Sheet and (b) Liabilities which have arisen
after the date of the Interim Balance Sheet in the ordinary course of business
as theretofore conducted (none of which results from, arises out of, relates to,
is in the nature of or was caused by any breach of contract, breach of warranty,
tort, infringement or violation of law) and (c) Liabilities disclosed on
SCHEDULE 2.7. The Company does not know of any reasonable basis for the
assertion against the Company of any other loss contingency of a nature defined
by GAAP. For purposes of this Agreement, "Liabilities" mean direct or indirect
debts, obligations or liabilities of any nature, whether absolute, accrued,
unmatured, contingent, liquidated or otherwise and whether due or to become due,
asserted or unasserted, known or unknown.
14
2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of
the Interim Balance Sheet, the Company has operated its business consistent with
ordinary commercial business practices and only in the ordinary course of
business as theretofore conducted, and there has been no: (a) amendments or
changes to the articles of organization or bylaws of the Company; (b) material
adverse change in the business, properties, assets, Liabilities, commitments,
financial condition or prospects of the Company; (c) material damage or
destruction to property or assets of the Company resulting in a loss or cost to
the Company (whether or not covered by insurance); or (d) act or omission which,
if taken or omitted after the date of this Agreement and before the Closing
would conflict with Section 4.1.
2.9 TAXES. The Company has properly filed on a timely basis
all federal, foreign, state, local and other tax returns and reports which are
required to be filed by it. All such tax returns were true, correct and
complete, and all taxes, interest and penalties due and payable as shown on such
returns or claimed to be due by any taxing authority have been timely paid. All
unpaid federal, foreign, state, local and other taxes, fees, assessments, duties
and other similar governmental charges payable by the Company or which will,
with the passage of time, become payable by the Company (including interest and
penalties) whether or not disputed have been adequately reserved against in
accordance with GAAP on the face of the Interim Balance Sheet. There are no
outstanding waivers or extensions of time with respect to the assessment or
audit of any tax or tax return of the Company, or audits, examinations or claims
now pending or matters under discussion with any taxing authority in respect of
any tax of the Company. The Company has furnished to iTurf true and complete
copies of all federal, foreign, state and local tax returns of the Company,
which tax returns have been filed with the relevant taxing authorities. The
Company has not at any time consented to have the provisions of Section
341(f)(2) of the Code apply to it. All taxes to be collected or withheld by the
Company have been duly collected or withheld and any such amounts that were
required to be remitted to any taxing authority have been duly remitted. There
are no tax rulings, requests for ruling, closing agreements or changes of
accounting method relating to the Company that could affect its tax liability
for any period after the Effective Time. There will not be includible in the
Company's gross income for a taxable period after the Effective Time any amount
attributable to a prior tax period, as a result of any of the following methods
of accounting: installment, completed contract, long-term contract, cash, or as
a result of the application of Section 481 of the Code or comparable provisions
of state, local or foreign tax law. For purposes of this Agreement, "TAX" or
"TAXES" means taxes of any kind, levies or other like assessments, customs,
duties, imposts, charges or, including, without limitation, income, gross
receipts, ad valorem, value added, excise, real or personal property, asset,
sales, use, license, payroll, transaction, capital, net worth and franchise
taxes, estimated taxes, withholding, employment, social security, workers
compensation, occupation or other governmental taxes imposed or payable to the
United States or any state, local or foreign government or subdivision or agency
thereof, and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such tax.
2.10 TITLE TO ASSETS. Except as set forth on SCHEDULE 2.10,
the Company has good and marketable title to or, in the case of leases and
licenses, valid and subsisting leasehold interests or licenses in, all of its
properties and assets of whatever kind (whether real or personal,
15
tangible or intangible), including, without limitation, all properties and
assets that are shown on the Financial Statements and to properties and assets
that are shown on any schedule hereto, in each case free and clear of any and
all liens, mortgages, pledges, security interests, restrictions, prior
assignments, claims and encumbrances of any kind whatsoever (collectively
"LIENS"), except for Liens for current taxes and assessments not yet due and
payable (which the Company will promptly pay when due if due prior to the
Closing Date) and except for Liens that do not materially detract from the value
of the properties subject thereto. All assets, properties and rights relating to
the business of the Company are held by, and all agreements, obligations and
transactions relating to such entities' business have been entered into,
incurred and conducted by, such entities.
2.11 REAL AND PERSONAL PROPERTY. SCHEDULE 2.11 contains a true
and complete list of all real property owned or leased by the Company and all
interests therein (including a brief description of the property). All such real
property, and the equipment therein, and the operations and maintenance thereof,
comply with any applicable agreements and restrictive covenants and conform to
all applicable legal requirements including those relating to the environment,
health and safety, land use and zoning, and all work required to be done by the
Company as tenant has been duly performed except for failures to comply or
conform which, in the aggregate, would not result in a Company Material Adverse
Effect. No condemnation or other proceeding is pending or, to the knowledge of
the Company, after due investigation, threatened, which would affect the use of
any such property by the Company. SCHEDULE 2.11 contains a true and complete
list and brief description of all equipment, machinery, computers, furniture,
leasehold improvements, vehicles and other personal property owned or leased by
the Company or any of its Subsidiaries and all interests therein. The Company's
buildings and other structures, equipment and other assets (whether leased or
owned) are in good operating condition and repair, subject to ordinary wear and
tear except in instances which, in the aggregate, would not result in a Company
Material Adverse Effect.
2.12 INTELLECTUAL PROPERTY. SCHEDULE 2.12 contains a true and
complete list and brief description of all trademarks, service marks, trade
names, brands, copyrights and patents except in instances which, in the
aggregate, would not result in a Company Material Adverse Effect, all
applications for registration and registrations for such trademarks, copyrights
and patents, and all mask works, trade secrets, confidential and proprietary
information, compositions of matter, formulas, designs, proprietary rights,
know-how and processes in each case which are presently being used or have been
used in the Company's business (other than commercially available "shrink-wrap"
software, "freeware" software or other software, which, in each case, may be
replaced at a cost of less than $2,000) (collectively, the "PROPRIETARY ASSETS")
and all licenses, contracts, rights and arrangements with respect to the
foregoing. Except as set forth in SCHEDULE 2.12, (a) the Company owns the
entire, unencumbered right, title and interest to all such Proprietary Assets,
free and clear of all Liens, and, except as set forth in SCHEDULE 2.12, no
rights or licenses to others have been granted with respect to any of such
properties; (b) the Company owns or possesses the right to use all the
trademarks, service marks, trade names, brands, copyrights, patents, franchises,
permits and licenses and rights with respect to the foregoing, necessary for the
conduct of its business as presently conducted, without any conflict
16
with or infringement of the rights of others; and (c) the Company has not
received notice of any claimed conflict with respect to any of the foregoing.
The Company does not have knowledge of any default or alleged default which with
notice or lapse of time or both would constitute a default on the part of any
party in the performance of any obligation to be performed or paid by any party
under any licenses, contracts, agreements or arrangements referred to in or
submitted as a part of SCHEDULE 2.12 except in instances which, in the
aggregate, would not result in a Company Material Adverse Effect. The Company
has taken, and until the Closing Date, will take, all commercially prudent steps
to preserve its legal rights in, and the secrecy of, all its Proprietary Assets,
except those for which disclosure is required for legitimate business or legal
reasons. All intellectual property rights to all processes, systems and
techniques used by and material to the Company that were developed by any of its
employees engaged in research or product development while such employee was
employed by it have, by virtue of an invention assignment agreement, been
assigned to the Company. In addition, all intellectual property rights to all
processes, systems and techniques material to the Company and either used by the
Company or which the Company currently intends to use in its business which were
developed by any of its employees at any time have been assigned by such
employees to the Company. SCHEDULE 2.12A sets forth a true and complete list of
each person who is the author, inventor or creator of any Proprietary Asset of
the Company (each such person, a "COMPANY CONTRIBUTOR").
2.13 CONTRACTS, LEASES AND COMMITMENTS.
(a) The Company has furnished to iTurf true and
complete copies of the material contracts, leases and commitments listed in
SCHEDULE 2.13 hereto, including summaries of the terms of any unwritten
commitments. Except as set forth in SCHEDULE 2.13, (i) the Company, and to the
knowledge of the Company, the other parties thereto, have complied in all
material respects with such contracts, leases and commitments, all of which are
valid and enforceable except as may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to creditor's rights generally and general
principles of equity (regardless of whether enforceability is considered a
proceeding at law or in equity); (ii) such contracts, leases and commitments are
in full force and effect and there exists no event or condition which with or
without notice or lapse of time would be a default thereunder, give rise to a
right in favor of a third party or, to the Company's knowledge, in favor of the
Company to accelerate or terminate any provision thereof or give rise to any
Lien on any of the assets or properties of the Company; and (iii) all of such
contracts, leases and commitments have been entered into on an arm's-length
basis and in the ordinary course of business.
(b) The Company is not a party, nor is any of its
assets or business subject, to any contract, lease or commitment not listed in
SCHEDULE 2.13 (including, without limitation, purchase or sales commitments,
financing or security agreements or guaranties, repurchase agreements, agency
agreements, manufacturers representative agreements, commission agreements,
employment or collective bargaining agreements, pension, bonus or profit-sharing
agreements, group insurance, medical or other fringe benefit plans and leases of
real or personal property), other than contracts terminable without penalty on
not more than
17
30 days' notice that do not involve, individually or in the aggregate, the
receipt or expenditure of more than $10,000 in any one year. The Company is not
engaged in any material disputes with customers or suppliers. Except as set
forth on Schedule 2.13, to the knowledge of the Company, (i) no customer or
supplier is considering termination, non-renewal or any adverse modification of
its arrangements with the Company and (ii) the Company has not received any
notice that the transactions contemplated by this Agreement would have a
material adverse effect on the Company's relationship with any of its suppliers
or customers.
(c) The term of the Custom Mail Services Agreement
between the Company and Commtouch Software, Inc., as amended by the Addendum 1
dated January 10, 2000 expires on May 3, 2001.
(d) Notwithstanding anything contained in the
agreement to the contrary, the commission rate payable by the Company to
Worldata under the Worldata E-mail Newsletter Management Agreement between the
Company and Worldata dated January 17, 1999 is fifteen (15%).
(e) There is no conflict between the Company's
obligations (i) under the Worldata List Management Agreement between the Company
and Worldata and (ii) the Online Database Management Agreement between the
Company and 24/7 Mail dated January 21, 2000.
(f) The "Effective Date" of the Representation
Agreement between the Company and Adsmart Corporation (as such term is defined
therein) is not earlier than April 29, 1999.
2.14 NO CONFLICTS, REQUIRED FILINGS OR CONSENTS.
(a) Except as set forth in SCHEDULE 2.14, and
assuming the requisite stockholder approval described in Section 2.3(b) is
obtained prior to Closing, the execution and delivery by the Company of this
Agreement and the Transaction Documents to which it is a party does not, and the
performance of this Agreement and such Transaction Documents by the Company will
not, (i) conflict with or violate the articles of organization or bylaws of the
Company, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or by which its properties are
bound or affected or (iii) result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or impair the rights of the Company or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, any contracts material to the business of the
Company or result in the creation of a Lien on any of the properties or assets
of the Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company or its properties are
bound or affected except in any case for any such breaches, defaults or other
occurrences that, in the aggregate would not result in a Company Material
Adverse Effect.
18
(b) The execution and delivery of this Agreement by
the Company will not require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental entity, except (i) for
applicable requirements, if any, of the Securities Act of 1933, as amended (the
"SECURITIES ACT"), the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT") and state securities laws ("BLUE SKY LAWS"), (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Merger, or otherwise prevent the Company from performing its respective
obligations under this Agreement and (iii) would not result in a Company
Material Adverse Effect.
(c) Except as set forth in SCHEDULE 2.14, the
execution and delivery by each Selling Stockholder of this Agreement and the
Transaction Documents to which it is a party does not, and the performance by
such Selling Stockholder of this Agreement and the Transaction Documents to
which it is party will not, (i) conflict with or violate the governing documents
of any Selling Stockholder that is not a natural person, (ii) conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to the
Selling Stockholder or by which its properties are bound or affected or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any contracts material
to the business of the Company or result in the creation of a Lien on any of the
properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or is a party or by which the
Company or its properties are bound or affected except in any case for any such
breaches, defaults or other occurrences that would not, in the aggregate, result
in a Company Material Adverse Effect. The execution and delivery of this
Agreement by each Selling Stockholder will not require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
entity, except (i) for applicable requirements, if any, of the Securities Act,
the Exchange Act and Blue Sky Laws, (ii) where the failure to obtain such
consents, approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of the Merger, or
otherwise prevent the Company or any Selling Stockholder from performing its
respective obligations under this Agreement and (iii) would not result in a
Company Material Adverse Effect.
2.15 NO PERMITS REQUIRED; COMPLIANCE WITH LAWS. Except as set
forth on SCHEDULE 2.15, the Company does not hold any governmental licenses,
permits or authorizations nor are any such licenses, permits or authorizations
required for the ownership or occupancy of its properties and assets or the
operation of its business. The business of the Company is and has been operated
in material compliance therewith and all laws and regulations (federal, state,
local and foreign) applicable to it, and all required reports and filings with
governmental authorities have been properly made except where the failure make
such a report or filing would not result in a Company Material Adverse Effect.
19
2.16 PERSONNEL MATTERS. SCHEDULE 2.16 contains a true and
complete list of the names, office locations, compensation and years of credited
service for severance, vacation and pension plan purposes of all full- and
part-time employees of the Company as of the date of this Agreement. The Company
does not know of any efforts since the Company's inception to attempt to
organize any of its employees, and no strike or labor dispute involving the
Company has occurred since the Company's inception or, to the knowledge of the
Company, is threatened. Since the date of the Interim Balance Sheet, no key
employee of the Company has indicated that he is considering terminating his
employment in a manner that would lead a reasonably prudent manager to believe
such employee might reasonably be expected to actually terminate his employment.
Except as set forth on Schedule 2.16, the Company has complied in all material
respects with applicable wage and hour, equal employment, safety and other legal
requirements relating to its employees.
2.17 EMPLOYEE BENEFIT PLANS.
(a) Except as set forth on SCHEDULE 2.17, neither the
Company nor any entity that would be deemed a "single employer" with the Company
under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") (an "ERISA
AFFILIATE") maintains, sponsors, contributes to, or has or has had an obligation
to, or otherwise participated in or participates in or in any way, directly or
indirectly, has or has had any liability with respect to any "employee benefit
plan," as defined in Section 3(3) of ERISA, or any other bonus, profit sharing,
pension, deferred compensation, incentive, stock option, fringe benefit, health,
welfare, change in control, or other plan, agreement, policy, trust fund, or
arrangement, whether written or unwritten, insured or self-insured (each a
"PLAN"). None of the Company, any ERISA Affiliate or any of their respective
predecessors has ever contributed to, contributes to, has ever been required to
contribute to, or otherwise participated in or participates in or in any way,
directly or indirectly, has any liability with respect to any plan subject to
Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA, including,
without limitation, any "multi employer plan" (within the meaning of Sections
(3)(37) or 4001(a)(3) of ERISA or Section 414(f) of the Code), or any single
employer pension plan (within the meaning of Section 4001(a)(15) of ERISA). The
consummation of the transactions contemplated by this Agreement will not give
rise to any liability of the Company for severance pay or termination pay or
accelerate the time of payment or vesting or increase the amount of compensation
or benefits due to an employee, director or stockholder of the Company (whether
current, former or restricted) or their beneficiaries solely by reason of such
transactions or by reason of a termination of employment following such
transactions. No event, condition or circumstance exists that would prevent the
amendment or termination of any Plan. SCHEDULE 2.17 hereto contains a true and
complete list of all Plans, benefits or perks of the Company and a description
of the Company's severance pay policy. A true and correct copy of each such Plan
has previously been delivered by the Company to iTurf.
(b) With respect to each of the Plans on SCHEDULE
2.17:
20
(i) each Plan intended to qualify under
Section 401(a) of the Code has been qualified effective with
its inception and has received a determination letter from the
Internal Revenue Service ("IRS") to the effect that the Plan
is qualified under Section 401 of the Code and any trust
maintained pursuant thereto is exempt from federal income
taxation under Section 501 of the Code and nothing has
occurred or is expected to occur through the date of the
Closing that caused or could cause the loss of such
qualification or exemption or the imposition of any penalty or
tax liability;
(ii) all payments required by any Plan, any
collective bargaining agreement or other agreement, or by law
(including, without limitation, all contributions, insurance
premiums, or intercompany charges) with respect to all periods
through the date of the Closing shall have been made prior to
the Closing (on a pro rata calendar basis where such payments
are otherwise discretionary at year end) or provided for by
the Company, as applicable, by proper accruals as if all
targets required by such Plan had been or will be met at
maximum levels) on its financial statements;
(iii) no claim, lawsuit, arbitration or
other action has been threatened, asserted, instituted, or is
expected by the Company to be threatened, asserted or
instituted, against the Plans (other than non-material routine
claims for benefits, and appeals of such claims), any trustee
or fiduciaries thereof, the Company, any ERISA Affiliate, any
director, officer, or employee thereof, or any of the assets
of any trust of the Plans;
(iv) the Plan complies in all material
respects and has been maintained and administered at all times
in all material respects in accordance with its terms and all
applicable laws, rules and regulations, including, without
limitation, ERISA and the Code;
(v) no "prohibited transaction," within the
meaning of Section 4975 of the Code and Section 406 of ERISA,
has occurred or is expected to occur with respect to the Plan
(and the consummation of the transactions contemplated by this
Agreement will not constitute or directly or indirectly result
in a "prohibited transaction");
(vi) no Plan is or is expected by the
Company to be under audit or investigation by the IRS,
Department of Labor, or any other governmental authority and
no such completed audit, if any, has resulted in the
imposition of any tax or penalty;
(vii) with respect to each Plan that is
funded mostly or partially through an insurance policy,
neither the Company nor any ERISA Affiliate has any liability
in the nature of retroactive rate adjustment, loss sharing
arrangement
21
or other actual or contingent liability arising wholly or
partially out of events occurring on or before the Closing.
(c) Neither the Company nor any ERISA Affiliate
maintains, contributes to, or in any way provides for any benefits of any kind
whatsoever (other than under Section 4980B of the Code, the Federal Social
Security Act, or a plan qualified under Section 401(a) of the Code) to any
current or future retiree or terminee. Neither the Company nor any ERISA
Affiliate has any unfunded Liabilities pursuant to any Plan that is not intended
to be qualified under Section 401(a) of the Code.
2.18 PRIVACY POLICY. Except as disclosed on SCHEDULE 2.18, the
Company has made a privacy policy available to the end users of each of its Web
sites at all times since its inception and has complied in all respects with
such policy and has not made false or misleading statements on any of its Web
sites or elsewhere regarding its use of personal information collected from end
users.
2.19 INSURANCE. SCHEDULE 2.19 sets forth a true and complete
list of the general liability, fire and casualty insurance policies and
liability insurance of the Company providing coverage in such amounts as is
customary in the industry for a similar company. Such policies are in full force
and effect, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed.
2.20 LITIGATION. SCHEDULE 2.20 contains a true and complete
list of all actions, suits, proceedings, claims or governmental investigations
pending or, to the knowledge of the Company and threatened against, the Company
or any of its assets, or, in connection with the Company's business, or any of
the Company's officers, directors or employees in their capacity as such. Except
as set forth on SCHEDULE 2.20, neither the Company nor, in connection with the
business of the Company, any of the Company's officers, directors or employees
is subject or party to any judgment, order, or other direction of or stipulation
with any court or other governmental authority or tribunal, or in violation of
any other legal requirements material to the Company's business and the Company
does not know of any reasonable basis for a claim that such a violation exists.
The Company does not know of any proposed legal requirement that might adversely
affect in any material respect the operation or prospects of the business of the
Company. Notwithstanding the foregoing, the Company is aware that there have
been various proposals to enact federal and state laws directed at regulating
Internet advertising.
2.21 ENVIRONMENTAL MATTERS. The business, assets and
properties of the Company are and have been operated and maintained in
compliance in all material respects with all applicable federal, state and local
environmental protection laws and regulations (the "ENVIRONMENTAL LAWS"). No
event has occurred or condition exists which, with or without the passage of
time or the giving of notice, or both, would constitute a non-compliance by the
Company with, or a violation by the Company of, the Environmental Laws. To the
knowledge of the Company, no real property owned, leased, occupied or used by
the Company contains any underground storage tanks, asbestos, polychlorinated
biphenyls, hazardous wastes or other
22
hazardous substances, as such terms are defined in the Environmental Laws. To
the knowledge of the Company, neither the Company nor any of its predecessor
companies has caused or permitted to exist, as a result of an intentional or
unintentional act or omission, a disposal, discharge or release of solid wastes,
hazardous wastes, pollutants or hazardous substances, as such terms are defined
in the Environmental Laws, on or from any site which currently is or formerly
was owned, leased, occupied or used by the Company or any predecessor company,
except where such disposal, discharge or release was pursuant to and in
compliance with the conditions of a permit issued by the appropriate federal,
state and/or local governmental agency or otherwise in compliance with
Environmental Laws.
2.22 RESTRICTIONS ON BUSINESS ACTIVITIES. Other than this
Agreement, there is no agreement, judgment, injunction, order or decree binding
upon the Company which has or could reasonably be expected to have the effect of
prohibiting or impairing any material business of the Company as presently
conducted.
2.23 TRANSACTIONS WITH AFFILIATES. Except as set forth on
SCHEDULE 2.23 and transactions disclosed in the Financial Statements or notes
thereto and except for ordinary dealings with its employees, since December 31,
1998, the Company has had no direct or indirect dealings with any stockholder of
the Company or with any key employee of the Company or with any of their
affiliates, associates or relatives. Except for employment arrangements with its
employees and transactions disclosed in the Financial Statements or notes
thereto, the Company has no obligation to or claim against any stockholder of
the Company or any key employee of the Company, or any of their affiliates,
associates or relatives, and no such person or entity has any obligation to or
claim against the Company. Neither the Selling Stockholders nor any key employee
of the Company nor any of their respective affiliates, nor, to their knowledge,
associates or relatives has any direct or indirect interest of any kind in any
business or entity which is directly or indirectly competitive with the Company.
2.24 BOOKS AND RECORDS. The books and records of the Company
are complete and correct in all material respects and have been maintained in
accordance with good business practices. The minute books of the Company contain
complete and accurate records of all meetings and accurately reflect all other
corporate action of the stockholders and board of directors of the Company. True
and complete copies of the books and records and the minute books of the Company
for the period from the date of the Company's incorporation to date have been
previously, and to the Closing Date will be, delivered to iTurf.
2.25 IMPROPER PAYMENTS. Neither the Company nor any of its
officers and agents have made any illegal or improper payments to, or provided
any illegal or improper benefit or inducement for, any governmental official,
supplier, customer or other person in an attempt to influence any such person to
take or to refrain from taking any action relating to the Company or any of its
Subsidiaries.
2.26 BROKERS. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried out by the Company
directly with iTurf without the
23
intervention of any person engaged by the Company in such a manner as to give
rise to any valid claim by any person against the Company, iTurf, Merger Sub or
the Surviving Corporation for a finder's fee, brokerage commission or similar
payment.
2.27 INVESTMENT REPRESENTATION. The Selling Stockholders
possess such knowledge and experience in financial and business matters that
they are capable of evaluating the merits and risks of the portion of the Merger
Consideration consisting of shares of iTurf Common Stock and contingent earnout
rights. The Selling Stockholders are fully aware of the restrictions on resale
of such shares pursuant to applicable securities laws prior to registration
thereof. On the Closing Date, the Selling Stockholders are acquiring the shares
of iTurf Common Stock for investment purposes and not with a view to or in
connection with a distribution within the meaning of the Securities Act, except
pursuant to an effective registration statement or an exemption therefrom.
The Selling Stockholders understand and acknowledge that the
shares of iTurf Common Stock included in the Merger Consideration and contingent
xxxxxxx rights will not be registered for issuance to the Selling Stockholders
under the Securities Act, in reliance upon an exemption from the registration
requirements thereof, and that such shares will not be registered or qualified
under the securities or Blue Sky laws of any other jurisdiction for issuance to
the Selling Stockholders. The Selling Stockholders understand and acknowledge
that the availability of such exemption is based, in part, upon their
representations in this Section. The Selling Stockholders have also been
afforded an opportunity to ask questions of iTurf and its senior management
regarding iTurf and the terms of the transactions contemplated by this Agreement
and have been given all information as has been requested by such Selling
Stockholders in order to fully evaluate the merits and risks of the Merger
Consideration. Each of the Selling Stockholders has received a copy of each of
the SEC Reports (as defined below).
2.28 VOTE REQUIRED. The affirmative vote of the (i) holders of
at least two-thirds of the outstanding shares of Company Capital Stock and (ii)
holders of at least two-thirds of the outstanding shares of Series A preferred
stock of the Company are the only votes of the holders of any class or series of
the Company's capital stock that is necessary to approve the Merger.
2.29 WEB SITE TRAFFIC. A true and correct statement of the
number of page views on, user sessions, and unique visitors to each of the
Company's Web sites for each calendar month of 1999 (through December 1999) is
set forth on SCHEDULE 2.29.
2.30 YEAR 2000 COMPLIANCE. The computer systems of the Company
(including, without limitation, all software, hardware, workstations and related
components, automated devices, products consisting of or containing one or more
thereof; and any and all enhancements, upgrades, customizations, modifications
or maintenance, embedded chips and other date sensitive equipment such as
security systems, alarms, elevators and other systems) ("COMPUTER SYSTEMS") are
Year 2000 Compliant (as defined below). The Company's supply of services through
its Computer Systems shall not be interrupted, delayed, decreased, or otherwise
24
affected by dates/times prior to, on, after or spanning January 1, 2000 by
reason of such dates or times. The Computer Systems of the Company have the
ability to properly interface and, to the best knowledge of the Company, will
continue to properly interface with internal and external applications and
systems of third parties with whom the Company exchange data electronically
(including, without limitation, customers, clients, suppliers, service
providers, subcontractors, processors, converters, shippers, warehousemen,
outsourcers, data processors, regulatory agencies and banks) whether or not they
have achieved Year 2000 Compliance. The Company has inquired of all such third
parties whose lack of Year 2000 Compliance would be materially adverse to it.
For purposes of this Agreement, "YEAR 2000 COMPLIANT"
means that (1) the Computer Systems (1) are capable of recognizing, processing,
managing, representing, interpreting, and manipulating correctly date related
data for dates earlier and later than January 1, 2000, including, but not
limited to, calculating, comparing, sorting, storing, tagging and sequencing,
without resulting in or causing logical or mathematical errors or
inconsistencies in any user-interface functionalities or otherwise, including
data input and retrieval, data storage, data fields, calculations, reports,
processing, or any other input or output, (2) have the ability to provide date
recognition for any data element without limitation (including, but not limited
to, date-related data represented without a century designation, date-related
data whose year is represented by only two digits and date fields assigned
special values), (3) have the ability to automatically function into and beyond
the year 2000 without human intervention and without any change in operations
associated with the advent of the year 2000, (4) have the ability to correctly
interpret data, dates and time into and beyond the year 2000, (5) have the
ability not to produce noncompliance in existing information, nor otherwise
corrupt such data into and beyond the year 2000, (6) have the ability to
correctly process after January 1, 2000 data containing dates before that date
and (7) have the ability to recognize all "leap years," including February 29,
2000.
2.31 INDEBTEDNESS TO CERTAIN AFFILIATES; GUARANTIES. Except as
contemplated by Section 4.7, immediately prior to the Effective Time, the
Company shall not have any liability or obligation (including indebtedness) owed
or owing to any Selling Stockholder or any Affiliate or relative thereof. The
Company is not a guarantor or otherwise liable for any Liability or obligation
(including indebtedness) of any other person, firm or entity.
2.32 DISCLOSURE. No representation, warranty or other written
statement by the Company or any Selling Stockholder herein or in any other of
the Transaction Documents or made in connection with the Transaction Documents,
contains or will as of the Effective Time contain an untrue statement of a
material fact, or omits or will as of the Effective Time omit to state a
material fact necessary to make the statements contained herein or therein not
misleading. Neither the Company nor any Selling Stockholder has any knowledge of
any matter (excluding matters relating to general economic, business, political
or social conditions or that relate to the Internet industry or
advertising-supported industries as a whole) that could reasonably be expected
to have a materially adverse effect on the Company's business or prospects that
has not been disclosed in writing to iTurf.
25
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF ITURF AND MERGER SUB
iTurf and Merger Sub, jointly and severally, hereby make the
following representations and warranties to the Company:
3.1 ORGANIZATION AND QUALIFICATION.
(a) Each of iTurf and Merger Sub is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and under the laws of the State of Massachusetts,
respectively, has the requisite corporate power and authority to own, lease and
operate its assets and properties and to conduct its business as it is presently
being conducted, except where the failure to be so organized, existing and in
good standing or to have such power, authority and approvals would not have a
material adverse effect on the business, results of operations or financial
condition of iTurf and its subsidiaries, taken as a whole (an "ITURF MATERIAL
ADVERSE EFFECT"). Each of iTurf and Merger Sub is duly qualified or licensed as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the conduct of its business or the ownership or leasing of
its properties requires such qualification, except for such failures to be so
duly qualified or licensed and in good standing that would not have an iTurf
Material Adverse Effect.
(b) iTurf has heretofore furnished to the Company
true and complete copies of iTurf's certificate of incorporation and bylaws and
Merger Sub's articles of organization and bylaws, each as amended to date. Such
certificate of incorporation, articles of organization and bylaws are in full
force and effect. Neither iTurf nor Merger Sub is in violation of any of the
provisions of such instruments, except for any such violations as would not have
an iTurf Material Adverse Effect.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) Each of iTurf and Merger Sub has all requisite
corporate power and authority to enter into and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby and the Transaction Documents to be executed and delivered
by it. The execution and delivery of this Agreement by iTurf and Merger Sub and
the consummation by iTurf and Merger Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of iTurf and Merger Sub, and no other corporate proceedings on the part of
iTurf and Merger Sub are necessary to authorize this Agreement or to consummate
the transactions so contemplated hereby. This Agreement has been, and the
Transaction Documents to be entered into by iTurf or Merger Sub at Closing will
be, duly executed and delivered by iTurf and Merger Sub and,
26
assuming the due authorization, execution and delivery of this Agreement by the
other parties hereto and thereto, constitute legal, valid and binding
obligations of iTurf and Merger Sub, enforceable against each of them in
accordance with their respective terms except as may be limited bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or similar laws
now or hereafter in effect relating to creditors' rights generally and general
principles of equity (regardless of whether enforceability is considered a
proceeding at law or in equity).
(b) The Board of Directors of iTurf (i) has declared
that this Agreement, the Merger and the other transactions contemplated hereby
and thereby are advisable and in the best interests of the stockholders of
iTurf, (ii) has authorized, approved and adopted this Agreement, the Merger and
the other transactions contemplated hereby and thereby, and (iii) has taken
appropriate action, pursuant to applicable law, to cause the Merger to become
effective at the Effective Time.
3.3 NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement and
the applicable Transaction Documents by iTurf and Merger Sub do not, and the
performance of this Agreement by iTurf and Merger Sub will not, (i) conflict
with or violate the certificate of incorporation or bylaws of iTurf or the
articles of organization or bylaws of Merger Sub, (ii) conflict with or violate
any law, rule, regulation, order, judgment or decree applicable to iTurf or
Merger Sub or by which its or their respective properties are bound or affected
or (iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or impair iTurf's
or Merger Sub's rights or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any contracts material to the business of iTurf and Merger Sub,
taken as a whole, or result in the creation of a Lien or encumbrance on any of
the properties or assets of iTurf and Merger Sub pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which iTurf and Merger Sub is a party or by
which iTurf and Merger Sub or its or any of their respective properties are
bound or affected, except in any such case for any such breaches, defaults or
other occurrences that would not have an iTurf Material Adverse Effect.
(b) The execution and delivery of this Agreement and
the applicable Transaction Documents by iTurf and Merger Sub will not require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental entity except (i) for applicable requirements,
if any, of the Securities Act, the Exchange Act and Blue Sky Laws and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent or delay consummation of
the Merger, or otherwise prevent iTurf and Merger Sub from performing their
respective obligations under this Agreement and (iii) as would not have an iTurf
Material Adverse Effect.
3.4 CAPITAL STOCK.
27
(a) As of the date of this Agreement, the authorized
capital stock of iTurf consists of (i) 67,500,000 shares of Class A common
stock, par value $.01 per share, of which 7,493,132 shares are issued and
outstanding, (ii) 12,500,000 shares of Class B common stock, par value $.01 per
share, of which 11,425,000 shares are issued and outstanding and (iii) 1,000,000
shares of preferred stock, par value $.01 per share, none of which are issued
and outstanding. Each outstanding share of iTurf capital stock is duly
authorized, validly issued and outstanding, fully paid and nonassessable and
free of any preemptive rights and not issued in violation of any federal or
state securities laws.
(b) The shares of iTurf Common Stock to be issued in
the Merger have been duly authorized and, when so issued in accordance with the
terms hereof, such shares will be validly issued, fully paid and non-assessable
and, based upon the representations and warranties made by the Selling
Stockholders in Section 2.27, will not be issued in violation of any federal or
state securities laws.
3.5 SEC FILINGS, FINANCIAL STATEMENTS.
(a) iTurf has filed all forms, reports and documents
required to be filed by it with the SEC since April 9, 1999. iTurf has
heretofore delivered to the Company, in the form filed with the SEC or delivered
to the Nasdaq Stock Market, as the case may be, its (i) prospectus dated
November 29, 1999 and (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended May 1, 1999, July 31, 1999 and October 30, 1999 (collectively,
the "ITURF SEC REPORTS"). The iTurf SEC Reports (A) were prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and (B) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then on the date of such filing)
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 the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the financial statements (including, in
each case, any related notes thereto) contained in the iTurf SEC Reports was
prepared in accordance with GAAP (except as may be indicated in the notes
thereto) and each fairly presents in all material respects the financial
position of iTurf as at the respective dates thereof and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments and such statements do not contain all notes required by
GAAP.
3.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in the iTurf SEC Reports, since October 30, 1999, to iTurf's knowledge, no event
or events has or have occurred, or failed to occur, that, either individually or
in the aggregate, has had, or reasonably could be expected to have, an iTurf
Material Adverse Effect.
3.7 BROKERS. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried out by iTurf directly
with the Company without the
28
intervention of any person engaged by iTurf in such a manner as to give rise to
any valid claim by any person against iTurf, Merger Sub, the Company or the
Surviving Corporation for a finder's fee, brokerage commission or similar
payment.
ARTICLE IV
ADDITIONAL COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. During the period from the date of
this Agreement and continuing until the Effective Time, the Company covenants
and agrees that, unless iTurf shall otherwise agree in writing or unless
otherwise expressly permitted under this Agreement, the Company shall conduct
its business only in the ordinary course and consistent with past practice, and
the Company shall use its best efforts to maintain, preserve and protect the
assets and goodwill of the Company, to keep available the services of the
present officer, employees and consultants of the Company and to preserve the
present relationships of the Company with customers, suppliers and other persons
which the Company has business relations. Without limiting the generality of the
foregoing, the Company shall not, without the prior written consent of iTurf or
unless otherwise expressly permitted under this Agreement, take or commit to
take any of following actions:
(i) amend its bylaws or articles of organization;
(ii) issue, sell, pledge, dispose of or encumber, or
authorize the issuance, sale, pledge, disposition or encumbrance of, any shares
of capital stock of any class or any options, warrants, convertible securities
or other rights of any kind to acquire any shares of capital stock, or any other
ownership interest of the Company, PROVIDED, HOWEVER, the Company (A) shall
issue shares of its capital stock pursuant to the exercise of outstanding
options or warrants disclosed on SCHEDULE 2.3 and (B) may issue the shares of
its capital stock expressly contemplated by SCHEDULE 2.3 subject to the payment
by the recipient of any federal, state or local taxes required by law to be
withheld with respect to the issuance of any such shares;
(iii) except as required by the Company's articles of
incorporation as they exist as of the date hereof, declare, set aside, make or
pay any dividend or other distribution (whether in cash, stock or property or
any combination thereof) in respect of any of its capital stock, or split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect of shares of its capital stock;
(iv) amend the terms of, repurchase, redeem or
otherwise acquire any shares of its capital stock or propose to do any of the
foregoing;
(v) pay, discharge, settle or satisfy any lawsuits,
claims, Liabilities or obligations, other than in the ordinary course of
business consistent with past practice, or incur, or perform, pay or otherwise
discharge, any obligation or liability (absolute or contingent),
29
except for current obligations and Liabilities incurred in the ordinary course
of business consistent with past practice, PROVIDED, HOWEVER, the Company may
pay Xxxxxxx the bonus due to him described in the employment agreement between
Xxxxxxx and the Company in the event Xxxxxxx exercises his employee stock
option;
(vi) sell, pledge, dispose of or encumber any assets
of the Company, tangible or intangible, other than for fair consideration in the
ordinary course of business, or sell, transfer, license, sublicense or otherwise
dispose of any Proprietary Assets (other than in the ordinary course of business
consistent with past practice) or amend or modify any existing agreements with
respect to any Proprietary Assets;
(vii) (A) acquire any corporation, partnership or
other business organization, (B) incur any indebtedness for borrowed money or
issue any debt securities or assume, guarantee or endorse (except with respect
to collections of negotiable instruments) or otherwise as an accommodation
become responsible for, the obligations of any person, or make loans or advances
(other than to employees in the ordinary course of business consistent with past
practice), (C) enter into or amend any contract or agreement other than in the
ordinary course of business, (D) authorize or make any capital expenditures that
are not currently budgeted and that in the aggregate exceed $10,000, (E)
terminate any material contract of the Company or amend any of its material
terms or (E) enter into or amend any contract, agreement, commitment or
arrangement to effect any of the matters prohibited by this Section 4.1(viii);
(viii) take any action, other than as required by
GAAP, to change accounting policies or procedures or cash maintenance policies
or procedures, or make any material changes in its customary method of
operations, including marketing, selling and pricing policies and maintenance of
business premises, fixtures, furniture and equipment;
(ix) modify, amend or cancel any of its existing
leases or enter into any contracts, agreements, leases or understandings other
than in the ordinary course of business or involving more than $10,000;
(x) issue any note, bond or other debt security or
create, incur, assume or guarantee any indebtedness for borrowed money or
capitalized lease obligations either involving more than $5,000 singly or
$10,000 in the aggregate or enter into any loan agreements therefor;
(xi) delay or postpone the payment of accounts
payable or other Liabilities and, in no event, shall the Company fail to pay any
such accounts payable or other Liabilities when and in the amounts due;
(xii) grant any increase in the base compensation
payable or to become payable to any of its directors, officers or employees,
grant any severance or termination pay to any of its directors, officers or
employees or make any other change in employment terms
30
applicable to any of its directors, officers or employees other than in the
ordinary course of business;
(xiii) adopt, amend, modify or terminate any bonus,
profit-sharing, incentive, severance or other Plan, contract or commitment for
the benefit of any of its directors, officers or employees or take any such
action with respect to any other employee benefit plan, except as required by
law; or
(xiv) take or agree in writing or otherwise to take,
any of the actions described in Sections 4.1(i) through (xiii) above, or any
action which would cause any of the representations and warranties made by the
Company or the Selling Stockholders herein and in the Transaction Documents not
to be true and correct or prevent the Company or the Selling Stockholders from
performing any of their respective covenants herein or result in any of the
conditions to the Merger set forth herein not being satisfied.
4.2 ACCESS TO INFORMATION. Prior to the Closing, the Company
shall afford to iTurf and its officers, employees, counsel, financial advisers
and other representatives reasonable access during normal business hours to the
Company's assets, premises, books and records and key employees and accountants,
including, without limitation, the audit work papers of the Company's
accountants relating to the Financial Statements, and the Company shall furnish
to iTurf such information concerning its business, properties, financial
condition, operations and personnel as iTurf may from time to time reasonably
request. The Company shall promptly furnish to iTurf all financial statements of
the Company that are prepared in the ordinary course of business, including,
without limitation, monthly reports of sales, revenue and cash flow and
quarterly balance sheets.
4.3 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Selling Stockholders shall give prompt written notice to iTurf, and iTurf shall
give prompt written notice to the Company and the Selling Stockholders, of (i)
the occurrence, or non-occurrence, of any event of which has such party has
knowledge the occurrence, or non-occurrence, of which would be likely to cause
any representation or warranty contained in this Agreement to be untrue or
inaccurate and (ii) any failure of by the Company or any Selling Stockholder, on
the one hand, or iTurf or Merger Sub, on the other hand, as the case may be,
materially to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder.
4.4 WARRANTS AND OPTIONS.
(a) Each Selling Stockholder who holds an option, warrant or
other right to purchase shares of the Company's Capital Stock shall exercise
such option, warrant or right, to the extent that it is exercisable, prior to
the Closing.
(b) The Company and each Selling Stockholder shall take such
action as is necessary to provide that all options granted under the Company's
1999 Stock Option Stock
31
Issuance Plan (the "1999 PLAN") become immediately exercisable in full prior to
the Closing in accordance with clause (ii) of Section 16 of the 1999 Plan.
(c) Subject to the terms and conditions of this Section
4.4(c), upon the request of any Selling Stockholder who receives a grant of
Company Capital Stock (a "STOCK GRANT")in accordance with the 1999 Plan as
contemplated by SCHEDULE 2.3 (a "HOLDER"), the Company agrees to loan to such
Holder an amount in cash equal to the Company's withholding obligation resulting
from such grant, provided that the Holder has executed a loan and security
agreement substantially in the form of EXHIBIT H annexed hereto and uses the
amount of the loan to satisfy the Holder's obligation under Section 23 of the
1999 Plan to pay to the Company the amount of the Company's withholding
obligation. The parties hereto agree that, solely for the purposes of this
Section 4.4(c), the Company's withholding obligation resulting from a Stock
Grant shall be equal to the product of (A) the number of shares comprising the
Stock Grant, (B) the quotient obtained by dividing the Initial Shares by the
Merger Denominator, (C) the closing price per share of iTurf Common Stock as
reported by the Nasdaq Stock Market on the date of the Stock Grant and (D) the
sum (expressed as a percentage) of (w) twenty-eight percent (28%), (x) the
Holder's marginal state and local income tax rates, (y) the FICA rate applicable
to the Holder's wages and (z) the FUTA rate applicable to the Holder's taxes.
4.5 FULFILLMENT OF CONDITIONS. The parties hereto agree not to
take any action that would cause the conditions to the obligations of the
parties to effect the transactions contemplated hereby not to be fulfilled,
including, without limitation, by taking or causing to be taken any action that
(except as expressly permitted hereby) would cause the representations and
warranties made by it herein not to be true and correct as of the Closing. The
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all other things necessary, proper,
or advisable to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all registrations and filings to consummate, and make
effective as promptly as practicable the transactions contemplated, by this
Agreement.
4.6 PUBLIC ANNOUNCEMENTS. The Company and iTurf shall consult
with each other before issuing any press release or other public statement with
respect to the transactions contemplated by this Agreement, including the
Merger, and no party hereto shall issue any such press release or make any such
public statement without the prior consent of the Company and iTurf (which shall
not be unreasonably withheld or delayed), except as may be required by
applicable law or judicial process.
4.7 ELIMINATION OF INDEBTEDNESS. Prior to the Effective Time,
the Company shall take such action as is necessary to eliminate all loans
payable shown on the Interim Balance Sheet by securing a release of such
indebtedness or conversion of such indebtedness to equity except for $25,000, in
the aggregate, payable to Xxxxx.
4.8 NO SOLICITATION. Neither the Company nor any
representatives or affiliates of the Company (including any Selling Shareholder)
shall, directly or indirectly, initiate, solicit, encourage or otherwise
facilitate any inquiries or the making of any proposal or offer with
32
respect to a merger, reorganization, share exchange, consolidation or similar
transaction involving the Company, or any purchase of 15% or more of the assets
or capital stock of the Company (any such proposal or offer being hereinafter
referred to as an "ACQUISITION PROPOSAL"). Neither the Company nor any
representatives of the Company shall, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any party relating to an Acquisition Proposal,
whether made before or after this Agreement. The Company and any representatives
of the Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. The Company will notify in writing iTurf
immediately of any such inquiries, proposals or offers are received by, any such
information requested from, or any such discussions or negotiations are sought
to be initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of such party and the material terms and
conditions of any proposals or offers. The Company will also promptly request
that each party that has heretofore executed a confidentiality agreement in
connection with its consideration of an Acquisition Proposal to return all
confidential information heretofore furnished to such party by or on behalf of
the Company.
4.9 RELEASE BY THE SELLING STOCKHOLDERS. Effective upon the
Closing, each Selling Stockholder, severally, for himself or itself and his or
its heirs, executors, administrators, successors and assigns, hereby fully and
unconditionally releases and forever discharges and holds harmless the Company,
Merger Sub and their respective employees, officers, directors, successors and
assigns from any and all claims, demands, losses, costs, expenses (including,
without limitation, attorneys' fees and expenses), obligations, Liabilities
and/or damages of every kind and nature whatsoever, whether or not now existing
or known, relating in any way, directly or indirectly, to the Company or its
business, that such Selling Stockholder may now have or may hereafter claim to
have against the Company, Merger Sub or any of their employees, officers,
directors, successors or assigns in his or its capacities as such, in each case
except pursuant to this Agreement and the Transaction Documents
4.10 STOCKHOLDERS MEETING AND APPROVAL. The Company shall
take, in accordance with applicable law, its articles of organization and its
bylaws, all action necessary to convene a meeting of stockholders (the
"STOCKHOLDERS' MEETING") of the Company as promptly as practicable after the
date of this Agreement but in no event later than five (5) Business Days
following the date hereof to consider and vote upon the adoption and approval of
this Agreement and the Merger. Each Selling Stockholder, together constituting
all of the holders of outstanding Company Capital Stock, in accordance with
Massachusetts Law, hereby waives notice of time, place or purpose of such
meeting. The Company shall file a copy of this Agreement with the records of
such meeting. The Board of Directors of the Company shall (subject to their
fiduciary duties under Massachusetts Law) recommend such adoption and approval
and the Company shall take all lawful action to solicit such approval by its
Stockholders. By executing this Agreement, each Selling Stockholder evidences
his or its irrevocable agreement to vote all shares of Company Capital Stock
owned by him or it in favor of the Merger.
33
4.11 WAIVER OF APPRAISAL RIGHTS. Each Selling Stockholder
hereby waives any rights of appraisal or rights to dissent from the Merger that
he or it may have.
4.12 LOCK-UP ARRANGEMENTS.
(a) Each of the Selling Stockholders hereby covenants
and agrees that he, she or it shall not sell or otherwise transfer or dispose of
any shares of iTurf Common Stock acquired hereunder in violation of the
Securities Act or any other applicable law.
(b) In addition, each of the Selling Stockholders
hereby covenants and agrees that he, she or it shall not sell or otherwise
transfer or dispose of shares of iTurf Common Stock acquired hereunder or
pursuant to the exercise of Options or any other stock options granted in
connection with the transactions contemplated hereby (or other securities
received as a result of a stock split, stock dividend, subdivision,
reclassification, combination, exchange, recapitalization, spin-off, split-off,
merger, consolidation or similar transaction) in excess of the amounts permitted
during the applicable periods set forth on SCHEDULE 4.12. In order to enforce
the foregoing covenants, iTurf shall have the right to place restrictive legends
on the certificates representing the securities subject to this Section 4.12 and
to impose stop transfer instructions with respect to such shares until the end
of the relevant periods. Notwithstanding anything to the contrary contained
herein, the Selling Stockholders shall be released from their respective
obligations under this Section 4.12(b) in the event that an event occurs that
would cause all unvested options granted under iTurf's Amended and Restated 1999
Stock Incentive Plan to become immediately exercisable (even if exercised prior
to the date thereof) in accordance with Article XI thereof or otherwise, which
options constitute the only outstanding options, warrants or similar rights to
purchase shares of iTurf Common Stock issued by iTurf. Promptly following the
date the applicable periods in Section 4.12 lapse, upon the request of a Selling
Stockholder, iTurf shall cause appropriate stock certificates to be issued in
exchange for existing certificates without the portion of any restrictive legend
imprinted and "stop transfer instructions" removed that have been imposed, by
virtue of this Section 4.12(b).
4.13 EFFECT ON EXISTING AGREEMENTS. The Company and the
Selling Stockholders agree that as of the Effective Time, all shareholder
agreements, participation rights, registration rights agreements and similar
agreement by and among some or all of them shall immediately terminate and be
null and avoid.
4.14 ANCILLARY AGREEMENTS. Prior to or simultaneously with the
Closing: (a) iTurf and the Selling Stockholders shall enter into a registration
rights agreement in substantially the form attached hereto as EXHIBIT A (the
"REGISTRATION RIGHTS AGREEMENT"); (b) each of the Company and each Selling
Stockholder shall use their reasonable best efforts to cause each Company
Contributor to execute an agreement in the form of Exhibit B hereto (an
"INTELLECTUAL PROPERTY ASSIGNMENT AGREEMENT") or other substantially similar
agreement in which the Company Contributor assigns to the Company proprietary
rights to the contributions; (c) iTurf and each of the Principals shall enter
into employment agreements in the form attached hereto as Exhibits F-1, F-2,
F-3, F-4 and F-5, respectively (the "EMPLOYMENT AGREEMENTS"); and
34
(d) iTurf and each of the Selling Stockholders shall enter into an escrow
agreement in the form attached hereto as Exhibit G with the escrow agent named
therein (the "ESCROW AGREEMENT," and together with the Registration Rights
Agreement, the Intellectual Property Assignment Agreements and the Employment
Agreements, the "ANCILLARY AGREEMENTS").
4.15 TAX MATTERS. All transfer, documentary, stamp,
registration and other such taxes and fees (including any penalties and
interest) incurred in connection with the issuance or conversion of Company
Capital Stock pursuant to with this Agreement shall be paid by the Selling
Stockholders when due, and each Selling Stockholder will, at his or its own
expense, file all necessary tax returns and other documentation with respect to
all such transfer, documentary, stamp, registration and similar taxes and fees,
and, if required by applicable law, iTurf will, and will cause its Affiliates
to, join in the execution of any such tax returns and other documentation.
4.16 PAYMENT OF CERTAIN TRANSACTION COSTS. Notwithstanding
anything contained herein to the contrary: (a) the Company and each of the
Selling Stockholders covenant that the Company shall not incur any legal,
accounting, tax advisory or other professional fees or expenses relating to the
transactions contemplated hereby, including any accounting fees relating to the
preparation of financial statements for purposes of this transaction
("TRANSACTION COSTS"), in excess of Eighty-Five Thousand Dollars ($85,000); (b)
promptly following presentation by the Inside Stockholders to iTurf of a
detailed invoice reasonably satisfactory to iTurf, iTurf shall reimburse the
Inside Stockholders for Transaction Costs they may incur in connection with the
transactions contemplated hereby (the "INSIDE STOCKHOLDER EXPENSES") in an
amount not to exceed the difference, if any, between Eighty-Five Thousand
Dollars ($85,000) less the Inside Stockholder Expenses; and (c) promptly
following presentation by Net Associates to iTurf of a detailed invoice
reasonably satisfactory to iTurf, iTurf shall reimburse Net Associates for
Transaction Costs it may incur in connection with the Merger in an amount not to
exceed Twenty-Five Thousand Dollars ($25,000).
4.17 EFFORTS TO SUPPORT THE SURVIVING CORPORATION. iTurf will
maintain, and use its reasonable commercial efforts to support and expand, the
Surviving Corporation's domain name, Web site and organization and use
reasonable commercial efforts (including funding of operating expenses) to
increase its sales commensurate with the Surviving Corporation's growth
opportunities. iTurf shall cause its senior executive officers to consult no
less often than quarterly with the General Manager of the Surviving Corporation
to discuss the performance of the Surviving Corporation, budgetary issues,
corporate strategy and such other corporate issues as the General Manager of the
Surviving Corporation shall request. iTurf shall make all reasonable efforts to
consult with the General Manager of the Surviving Corporation prior to causing
the Surviving Corporation to hire or fire any employee of the Surviving
Corporation. iTurf shall provide employees of the Surviving Corporation with all
medical insurance coverage and other benefits which are generally provided to
iTurf employees and shall include employees of the Surviving Corporation in all
employee benefit plans in which iTurf employees generally participate, including
without limitation, retirement plans and equity participation plans. If at any
time Yagan is not the General Manager of the Surviving Corporation, or holding a
similar or more senior position with the Surviving Corporation, the Surviving
Corporation's and iTurf's
35
obligations under this Section shall be to consult with Xxxxx if he holds such a
position at the Surviving Corporation or, if not, with the Surviving
Corporation's Creative Director. If neither Yagan nor Xxxxx is employed with the
Surviving Corporation, the Sellers' Agents may appoint another employee with
whom iTurf shall consult pursuant to this Section. The obligations of iTurf
under this Section shall terminate upon the expiration of the Second Earnout
Measurement Period.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of each party to effect the Merger is subject to there being on the
Closing no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger in effect;
PROVIDED, HOWEVER, that the party against whom such order, injunction or other
restraint is in effect shall use its reasonable best efforts to have any such
order or injunction vacated.
5.2 CONDITIONS TO OBLIGATIONS OF ITURF AND MERGER SUB. The
respective obligations of iTurf and Merger Sub to consummate the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of each of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company and the Selling Stockholders in
this Agreement and the Transaction Documents shall be true and correct in all
material respects (except for those representations or warranties which, by
their terms, are qualified by materiality, which representations and warranties
shall be true and correct in all respects after giving effect to materiality
qualifiers therein) on and as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the Effective
Time as though made at and as of the Effective Time and except as expressly
contemplated hereby.
(b) PERFORMANCE OF THE OBLIGATIONS. The Company and
the Selling Stockholders shall have performed and complied in all material
respects with all agreements, covenants and conditions required by this
Agreement and the Transaction Documents to be performed or complied with by the
Company and the Selling Stockholders at or before the Effective Time.
(c) ANCILLARY AGREEMENTS. Each of the Company
Contributors shall have entered into an Intellectual Property Assignment
Agreement; and the Sellers' Agents and the Escrow Agent shall have entered into
the Escrow Agreement.
(d) OPINION OF COUNSEL. The Company shall have
delivered to iTurf an opinion of Xxxxxx, Gesmer & Xxxxxxxxx, LLP, counsel to the
Company and the Inside
36
Stockholders, dated the Closing Date, substantially in the form attached hereto
as EXHIBIT C-1. Net Associates shall have delivered to iTurf an opinion of
Xxxxxx Xxxxxx Flattau & Klimpl, LLP, counsel to Net Associates, dated the
Closing Date, substantially in the form attached hereto as EXHIBIT C-2.
(e) CONSENTS. All consents, approvals or waivers from
regulatory authorities and third parties necessary for the execution, delivery
and performance of this Agreement and the Transaction Documents and the
transactions contemplated hereby and thereby shall have been obtained.
(f) MATERIAL ADVERSE CHANGE. There shall not have
occurred any (i) change, occurrence or circumstance in the business, financial
condition or prospects of the Company having or reasonably likely to have a
Company Material Adverse Effect, (ii) declaration of a banking moratorium by New
York or United States authorities or (iii) an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or any other national or international calamity or emergency.
(g) CERTIFICATES. iTurf shall have received a
certificate or certificates signed by the Chief Executive Officer, Chief
Financial Officer or Clerk of the Company and by the Selling Stockholders, dated
the Closing Date, certifying as to such matters as may be reasonably requested
by iTurf, including, without limitation, (i) a certificate signed by the
Secretary with respect to the Company's articles of organization, bylaws, board
of directors' and stockholders' resolutions relating to the transactions
contemplated hereby and the incumbency and signatures of each of the officers of
the Company who shall execute on behalf of the Company any document delivered on
the Closing Date, (ii) a certificate signed by an officer of the Company and
each Selling Stockholder certifying to the fulfillment of the conditions set
forth in Section 5.2(a), (b), (e) and (f); and (iii) a certificate signed by an
officer of the Company and each Selling Stockholder certifying as to the matters
set forth in EXHIBIT D attached hereto.
5.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The obligation of the Company and the Selling Stockholders to
consummate the Merger is subject to the satisfaction or waiver, at or before the
Effective Time, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of iTurf and Merger Sub in this Agreement and the
Transaction Documents shall be true and correct in all material respects (except
for those representations or warranties which, by their terms, are qualified by
materiality, which representations and warranties shall be true and correct in
all respects) on and as of the date hereof, and, except to the extent such
representations and warranties speak as of an earlier date, as of the Effective
Time as though made at and as of the Effective Time and except as expressly
contemplated hereby.
37
(b) PERFORMANCE BY OBLIGATIONS. iTurf and the Merger
Sub shall have performed and complied in all material respects with the
agreements, covenants and conditions required by this Agreement and the
Transaction Documents to be performed or complied with by them at or before the
Effective Time.
(c) OPINION OF COUNSEL. iTurf and Merger Sub shall
have delivered to the Company an opinion of Xxxx X. Xxxxxxx, Esq., General
Counsel of iTurf and Merger Sub, dated the Closing Date, substantially in the
form attached hereto as EXHIBIT E.
(d) ANCILLARY AGREEMENTS. iTurf shall have entered
into the Registration Rights Agreement and the Escrow Agreement.
(e) EMPLOYMENT AGREEMENTS. iTurf shall have entered
into Employment Agreements.
(f) MATERIAL ADVERSE CHANGE. There shall not have
occurred any (i) change, occurrence or circumstance in the business, results of
operations or financial condition of iTurf having or reasonably likely to have
an iTurf Material Adverse Effect , (ii) declaration of a banking moratorium by
New York or United States authorities or (iii) an outbreak or escalation of
hostilities between the United States and any foreign power or an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or any other national or international calamity or emergency.
(g) iTurf shall have made all filings with the Nasdaq
Stock Market required to cause the maximum number shares of iTurf Common Stock
iTurf may be required to issue as Merger Consideration to be listed on such
market.
(h) OFFICER'S CERTIFICATES. The Company shall have
received a certificate or certificates executed by a senior officer of iTurf and
Merger Sub, dated the Closing Date, certifying as to such matters as may be
reasonably requested by the Company, including, without limitation, (i)
certificates with respect to iTurf's and Merger Sub's respective certificates of
incorporation or articles of organization (as the case may be), bylaws, board of
directors' and stockholder resolutions relating to the transactions contemplated
hereby and the incumbency and signatures of each of the officers of iTurf and
Merger Sub who shall execute on behalf of iTurf and Merger Sub any document
delivered on the Closing Date; (ii) a certificate certifying to the fulfillment
of the conditions set forth in Section 5.3(a), (b), (f) and (g); and (iii) a
certificate certifying as to the matters set forth in EXHIBIT D attached hereto.
ARTICLE VI
38
INDEMNIFICATION; ESCROW
6.1 INDEMNIFICATION BY THE SELLING STOCKHOLDERS.
(a) In the event any of the Selling Stockholders
breaches any of his or its representations, warranties, and covenants contained
herein (other than the Stockholder Representations, Warranties and Covenants),
then the Selling Stockholders shall indemnify, defend and hold harmless iTurf
and Merger Sub from and against (x) the entirety of any losses, Liabilities,
claims, actions, damages and expenses (including without limitation, reasonable
attorneys' fees and disbursements) (collectively, "LOSSES") iTurf or its
affiliates (including Merger Sub and the Surviving Corporation) incurs through
and (except to the extent they could reasonably mitigate such Losses) after the
date of the claim for indemnification resulting from, arising out of, relating
to, in the nature of, or caused by the breach, or (y) any claims by Harvard
University related to the matters disclosed in Schedule 2.7; provided, however,
that (A) no Selling Stockholders shall have any obligation to indemnify iTurf or
Merger Sub from and against any Losses resulting from, arising out of, relating
to, in the nature of, or caused by the breach of any representation or warranty
of the Selling Stockholders contained in Article II above (other than the
Stockholder Representations, Warranties and Covenants) until iTurf and Merger
Sub have suffered Losses by reason of all such breaches (other than breaches of
Stockholder Representations, Warranties and Covenants) in excess of a $100,000
aggregate threshold (after which point the Selling Stockholders will be
obligated to indemnify iTurf and its affiliates from and against Losses relating
back to the first dollar).
(b) In the event any of the Selling Stockholders
breaches any of his or its Stockholder Representations, Warranties and
Covenants, then that Selling Stockholder shall indemnify, defend and hold
harmless iTurf and its affiliates (including Merger Sub and the Surviving
Corporation) from and against the entirety of any Losses iTurf and its
affiliates (including Merger Sub and the Surviving Corporation) may suffer
through and after the date of the claim for indemnification.
(c) Notwithstanding anything herein to the contrary,
except in the event of fraud or beaches of any Stockholder Representations,
Warranties and Covenants or Sections 2.9 or 2.17, the individual monetary
liability of any Selling Stockholder for Losses (or otherwise under this
Agreement) shall not exceed such Selling Stockholder's pro rata portion of the
Initial Merger Consideration and the monetary liability of iTurf and Merger Sub
for Losses shall not exceed the Initial Merger Consideration; PROVIDED, HOWEVER,
that the foregoing limitations on each party's indemnification obligation shall
not apply to Losses arising out of or in connection with any breach of the
Stockholder Representations, Warranties and Covenants or Sections 3.1 - 3.4.
(d) No party hereto may make a claim under this
Article VI for indemnification for Losses as a result of on breaches of
representations or warranties made herein if such party had knowledge of such
breach prior to the Effective Time, unless such
39
breach is of a nature that would not constitute the failure of a condition
precedent described in Article V.
(e) For purposes of this Article, the representations
and warranties contained in Article II shall be read as though none of them
contains any Company Material Adverse Affect or other materiality qualifier.
6.2 INDEMNIFICATION BY ITURF. In the event iTurf breaches any
of its representations, warranties, and covenants contained herein, then iTurf
shall indemnify, defend and hold harmless each of the Selling Stockholders from
and against the entirety of any Losses such Selling Stockholder may suffer
through and after the date of the claim for indemnification resulting from,
arising out of, relating to, in the nature of, or caused by the breach.
6.3 FURTHER PROVISIONS REGARDING INDEMNIFICATION.
(a) SURVIVAL. All representations, warranties and
covenants made by the Company and the Selling Stockholders in this Agreement and
the Transaction Documents or by iTurf in this Agreement shall survive the
Closing until May 31, 2001, except that the representations and warranties
contained in or made pursuant to Sections 2.9 (Tax) and 2.17 (Employee Benefits)
shall survive until 30 days after the applicable statute of limitations has run.
The expiration of any representation or warranty shall not affect any claim
(including Losses arising after such expiration except to the extent the party
suffering the Loss could reasonably mitigate such Loss) made in writing in
accordance with Section 6.3(b) prior to the date of such expiration.
(b) LIMITATIONS AND PROCEDURES. Notwithstanding the
foregoing:
(i) Neither any Selling Stockholder, on the
one hand, nor iTurf, on the other hand shall be entitled to indemnification for
Losses arising out of matters referred to in Section 6.1 or 6.2, as applicable,
unless it shall have given written notice to the other party, setting forth its
claim for indemnification in reasonable detail, within the applicable period of
survival as set forth in Section 6.3(a);
(ii) An indemnified party shall promptly
give written notice to the indemnifying party after the indemnified party has
knowledge that any legal proceeding has been instituted or any claim has been
asserted in respect of which indemnification may be sought under the provisions
of Sections 6.1 or 6.2; PROVIDED, HOWEVER, that no delay on the part of the
indemnified party in notifying any indemnifying party shall relieve the
indemnifying party from any obligation hereunder unless (and then solely to the
extent) the indemnifying party thereby is prejudiced. If the indemnifying party,
within 10 days after the indemnified party has given such notice (or within such
shorter period of time as an answer or other responsive motion may be required),
shall have acknowledged in writing his or its obligation to indemnify the
indemnified party from and against the entirety of any Losses that may result
from such claim, then the indemnifying party shall have the right to control the
defense of such claim or proceeding, and the indemnified party shall not settle,
compromise or consent to the entry of a judgment relating
40
to such claim or proceeding without the written consent of the indemnifying
party and the indemnifying party may not settle, compromise or consent to the
entry of a judgment relating to such claim without the prior written consent of
the indemnified party unless such settlement, compromise or judgment includes a
complete and unconditional release of the indemnified party; PROVIDED, HOWEVER,
(A) the indemnified party may in any event participate in any such defense with
his or its own counsel and at his or its own expense; and (B) the indemnified
party shall be kept fully informed by the indemnifying party of such action,
suit or proceeding at all stages thereof, whether or not it is represented by
counsel.
(iii) In the event none of the indemnifying
parties assumes and conducts the defense of a claim in accordance with Section
6.3(ii), (A) the indemnified party shall defend against such claim in such
manner he or it reasonably may deem prudent, and may not consent to the entry of
any judgment or enter into any settlement with respect thereto without the
consent of the indemnifying party, which shall not be unreasonably withheld
(unless such settlement, compromise or judgment includes a complete and
unconditional release of the indemnifying party in which case no prior consent
shall be required) and (B) the indemnifying parties will remain responsible for
any Losses the indemnified party may suffer resulting from, arising out of,
relating to, in the nature of, or caused by such claim to the fullest extent
provided in this Article VI.
(iv) The indemnifying party shall, at the
indemnifying party's expense, make available to the indemnified party and its
attorneys and accountants all books and records of the indemnifying party
relating to such proceedings or litigation, and if an indemnifying party assumes
the defense of a claim, the indemnified party shall make available to the
indemnifying party and its attorneys and accountants all books and records of
the indemnified party relating to such proceedings or litigation, and the
parties hereto agree to render to each other such assistance as they may
reasonably require of each other in order to ensure the proper and adequate
defense of any such action, suit or proceeding.
6.4 ESCROWED SHARES. Notwithstanding anything in this Article
VI to the contrary, any claim by iTurf for indemnification against any Selling
Stockholder shall first be satisfied by return of the portion of the Escrowed
Shares owned by such Selling Stockholder. If the number of Escrowed Shares of a
Selling Stockholder then held by the Escrow Agent is insufficient to satisfy a
Loss of iTurf against such Selling Stockholder, then that Selling Stockholder
may pay his or its liability under this Article VI in cash and/or with shares of
iTurf Common Stock acquired by him or it under this Agreement valued at the
Current Price (as defined below). To the extent an indemnification claim is made
against the Escrowed Shares (as defined in the Escrow Agreement) in accordance
with the Escrow Agreement, the number of shares of iTurf Common Stock to be
disbursed shall be determined by dividing the dollar amount of the Loss (as
finally determined hereunder and in accordance with the provisions of the Escrow
Agreement) by the Current Price. As used herein, "CURRENT PRICE" means the mean
of the closing prices for iTurf Common Stock on the Nasdaq Stock Market (or
other principal market upon which iTurf Common Stock is then traded or, if such
principal market does not provide closing price information, the mean between
the high bid and the low asked prices of iTurf Common
41
Stock on such dates) for the twenty (20) Trading Days immediately preceding the
giving of any written notice of a claim in accordance with the Escrow Agreement.
6.5 SOLE REMEDY. The rights of parties to indemnification as
provided in this Article VI for a breach of representations, warranties,
covenants or agreements shall constitute such parties' sole monetary remedy for
such a breach, and an Indemnifying Party shall have no other monetary liability
to a party entitled to indemnification hereunder resulting from such breach.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION. This Agreement may be terminated and the
Merger abandoned at any time prior to the Effective Time: (a) by mutual written
consent of the Company, iTurf and the Selling Stockholders; (b) by iTurf and
Merger Sub by giving written notice to the Company and the Selling Stockholders
if the Company or any Selling Stockholder has breached any representation or
warranty pursuant to Article II of this Agreement or otherwise materially
breached any covenant or agreement herein which renders a condition precedent
set forth in Sections 5.1 or 5.2 incapable of being fulfilled; (c) by iTurf and
Merger Sub by giving written notice to the Company and the Selling Stockholders
if the Closing shall not have occurred on or before February 29, 2000 by reason
of the failure of any condition precedent set forth in Article V hereof; or (d)
by the Sellers' Agents by giving written notice to iTurf if iTurf or Merger Sub
has breached any representation or warranty pursuant to Article III of the
Agreement or otherwise materially breached any covenant or agreement herein
which renders a condition precedent in Sections 5.1 or 5.3 incapable of being
fulfilled; or (e) by the Company by giving written notice to iTurf if the
Closing shall not have occurred on or before February 29, 2000 by reason of the
failure of any condition precedent set forth in Section 5.3 hereof.
7.2 EFFECT OF TERMINATION. If this Agreement is terminated as
provided in Section 7.1, this Agreement shall forthwith become void and have no
effect without any liability or obligation on the part of iTurf, the Selling
Stockholders, the Company or any of their respective directors, officers,
employees, stockholders or counsel, except that nothing contained in this
Section 7.2 shall relieve any party from any liability resulting from any
willful, material breach of the representations, warranties, covenants or
agreements set forth in this Agreement. Notwithstanding anything to the contrary
contained herein, the Confidentiality Letter shall survive any termination of
this Agreement.
ARTICLE VIII
[INTENTIONALLY OMITTED]
42
ARTICLE IX
CERTAIN DEFINITIONS
As used herein, the capitalized terms used below have the
respective meanings to them in this Article IX:
"AFFILIATE" of a person, firm or entity means another
person, firm or entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such person, firm or entity.
"BUSINESS DAY" means a day other than a Saturday,
Sunday or day on which banks in the State of New York are required or permitted
to be closed.
"INITIAL MERGER CONSIDERATION" means the product of
the Initial Shares and the average closing price of one share of iTurf Common
Stock as quoted by The Nasdaq Stock Market during the twenty-one (21) day
trading period beginning ten (10) Trading Days prior to the date of execution of
this Agreement and concluding ten (10) Trading Days following the date of
execution of this Agreement or such lesser period ending on the Trading Day
immediately preceding the Closing Date if the Closing Date is within ten (10) or
fewer Trading Days of the date hereof.
"TRADING DAY" means a day on which the principal
market for iTurf Common Stock is open for trading, regardless of whether iTurf
Common Stock is traded on such day.
ARTICLE X
MISCELLANEOUS
10.1 NOTICES. All notices or other communications in
connection with this Agreement shall be in writing and shall be considered given
when personally delivered or five Business Days after mailed by registered or
certified mail, postage prepaid, return receipt requested, or when delivered by
overnight courier as follows:
If to the Company: The Xxxxx.xxx, Inc.
0000 Xxxxxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attn: President
43
with copies to: Xxxxxx, Gesmer & Xxxxxxxxx, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx Xxxxx, Esq.
If to the Selling
Stockholders: Xxx Xxxxx
c/o The Xxxxx.xxx, Inc.
0000 Xxxxxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
AND
Net Associates
c/o HPB Associates
00 X. 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx Xxxxxxxx
with copies to: UNTIL FEBRUARY 11, 2000:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
AFTER FEBRUARY 11, 2000:
Xxxxxx Xxxxxx LLP
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxxx, Esq.
and
Xxxxxx, Gesmer & Xxxxxxxxx, LLP
00 Xxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxx Xxxxx, Esq.
If to iTurf or Merger Sub: iTurf Inc.
Xxx Xxxxxxx Xxxx Xxxxx
Xxx Xxxx, XX 00000
Attn: General Counsel
44
with a copy to: Proskauer Rose LLP
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxx, Esq.
10.2 EXPENSES. Except as expressly provided in Section 4.16
hereof, whether or not the Merger is consummated, each of the parties shall each
bear their own respective costs and expenses incident to preparing for, entering
into and carrying out this Agreement. Except as expressly provided in Section
4.16 hereof, the Selling Stockholders agree that the Company has not borne and
will not bear any expenses relating to the transactions contemplated hereby,
including any legal fees or accounting fees relating to the preparation of
financial statements for purposes of this transaction and any of the Selling
Stockholders' costs and expenses (including any of their legal fees and
expenses) in connection with this Agreement or the Transaction Documents or any
of the transactions contemplated hereby or thereby. Except as expressly provided
in Section 4.16 hereof, in no event shall the Company, iTurf, Merger Sub or the
Surviving Corporation pay any expenses incurred on behalf of any Selling
Stockholder, which expenses shall be paid solely by the Selling Stockholder
incurring such expenses.
10.3 FURTHER ASSURANCES. Each party agrees to execute any and
all documents and to perform such other acts as may be reasonable and necessary
or expedient to further the purposes of this Agreement and the transactions
completed hereby.
10.4 ENTIRE AGREEMENT. This Agreement (which includes the
schedules and exhibits hereto and the Confidentiality Letter dated October 27,
1999 from iTurf to the Company (the "CONFIDENTIALITY LETTER")) sets forth the
parties' final and entire agreement with respect to its subject matter and
supersede any and all prior understandings and agreements. This Agreement and
the Confidentiality Letter can be amended, supplemented or changed, and any
provision hereof can be waived, only by a written instrument making specific
reference to this Agreement signed by the party against whom enforcement of any
such amendment, supplement, change or waiver is sought except that this
Agreement may be amended by iTurf, the Company, Merger Sub and a majority in
interest of the Selling Stockholders so long as the amendment does not adversely
affect a non-signing Selling Stockholder in a disparate manner.
10.5 ASSIGNMENT; BINDING EFFECT. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, executors, administrators, personal representatives,
successors and assigns; PROVIDED, HOWEVER, that neither this Agreement nor any
right or obligation hereunder may be assigned or transferred without the written
consent of the other parties, except that iTurf and/or Merger Sub may assign
this Agreement and its rights hereunder to any direct or indirect wholly-owned
subsidiary of iTurf. Notwithstanding anything to the contrary contained herein,
it is understood that the right of the Selling Shareholders to receive First
Earnout Share Consideration or Second Earnout Share Consideration is not
transferable under any circumstances except by operation of law or the laws of
descent and distribution.
45
10.6 NO THIRD PARTY BENEFICIARY. Except as otherwise expressly
provided herein, the terms and provisions of this Agreement are intended solely
for the benefit of the parties hereto and their respective successors and
assigns, and it is not the intention of the parties to confer third-party
beneficiary rights upon any other person.
10.7 PARAGRAPH HEADINGS. The paragraph or section headings in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.8 SEVERABILITY. If any provision of this Agreement shall be
held by any court of competent jurisdiction to be illegal, invalid or
unenforceable, such provision (to the extent possible) shall be construed and
enforced as if it had been more narrowly drawn so as not to be illegal, invalid
or unenforceable, and such illegality, invalidity or unenforceability shall have
no effect upon and shall not impair the enforceability of any other provision of
this Agreement.
10.9 GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement
shall be governed by and construed and interpreted in accordance with the laws
of the Commonwealth of Massachusetts. The state courts of the State of New York
in New York County and, if the jurisdictional prerequisites exist at the time,
the United States District Court for the Southern District of New York, shall
have sole and exclusive jurisdictions to hear and determine any dispute or
controversy arising under or concerning this Agreement. In any action or
proceeding concerning such dispute or controversy, the parties consent to
jurisdiction and waive personal service of any summons, complaint or other
process; a summons or complaint in any such action or proceeding may be served
by mail in accordance with Section 10.1.
10.10 COUNTERPARTS. This Agreement may be delivered by
facsimile and executed in one or more counterparts, each of which shall be
deemed an original, but all of which taken together shall constitute one and the
same instrument.
10.11 SELLERS' AGENT.
(a) APPOINTMENT OF SELLERS' AGENT.
(i) Each of the Selling Stockholders hereby
irrevocably appoints Yagan and Xxxxxx Xxxxxxxx as agents and
attorneys-in-fact (sometimes referred to herein as "SELLERS'
AGENTS") of each of the Selling Stockholders to take jointly
any action required or permitted to be taken by such persons
under the terms of this Agreement or any other Transaction
Document (excluding the Employment Agreements), including,
without limiting the generality of the foregoing, the
execution, delivery and receipt of any funds, notices,
certificates or other documents to be executed delivered or
received by or on behalf of any or all of the Selling
Stockholders (including without limitation the Escrow
Agreement and the Registration Rights Agreement but excluding
the Employment Agreements), the representation of the Selling
Stockholders in the resolution of
46
any disputed matters hereunder and in indemnification
proceedings hereunder and the rights to waive, modify or amend
the terms of this Agreement PROVIDED, HOWEVER, that no such
waiver, modification or amendment which would directly
adversely affect any Selling Stockholder but not the Selling
Stockholders as a group shall be effective unless signed by
the adversely affected Selling Stockholder. No action taken by
the Sellers' Agents shall be valid unless signed in writing by
the two Sellers' Agents; PROVIDED, HOWEVER, (A) the Sellers'
Agents do not have the authority to amend provisions of
Sections 1.7 and 1.11 relating to the amount of Merger
Consideration and the basis for calculating the First Earnout
Amount or the Second Earnout Amount, and (B) that if the
Sellers' Agents do not agree, any action permitted to be taken
by the Sellers' Agents may be taken by one Sellers' Agent with
the written approval of a majority in interest of the Selling
Stockholders so long as the acting Sellers' Agent shall
certify in writing to iTurf that such approval has been
obtained. The Selling Stockholders severally agree to
indemnify the Sellers' Agents from and against and in respect
of any and all Liabilities, damages, claims, costs and
expenses, including but not limited to attorneys' fees,
arising out of or due to any action as the Sellers' Agents and
any and all actions proceedings, demands, assessments,
judgments, costs and expenses incidental thereto, except to
the extent that the same result from bad faith or gross
negligence on the part of such Sellers' Agents.
(ii) iTurf, Merger Sub and the Surviving
Corporation shall be entitled to rely exclusively upon any
communications given by the Sellers' Agents on behalf of any
of the Selling Stockholders in accordance with this Section
and shall not be liable in any manner whatsoever for any
action taken or not taken in reliance upon the actions taken
or not taken or communications made by the Sellers' Agents in
accordance with this Section. Notwithstanding anything to the
contrary contained herein, iTurf, Merger Sub and the Surviving
Corporation shall be entitled to disregard any notices or
communications given or made by the Selling Stockholders
unless given or made through the Sellers' Agents, except as
provided in subparagraph (b) below.
(iii) All actions, decisions and
instructions of the Sellers' Agents shall be conclusive and
binding upon all of the Selling Stockholders and no Selling
Stockholder shall have any cause of action against the
Sellers' Agents for any action taken, decision made or
instruction given by the Sellers' Agents under this Agreement,
except for fraud, gross negligence or willful breach of this
Agreement by the Sellers' Agents.
(iv) The Sellers' Agents shall be deemed to
fulfill any fiduciary obligation to the Selling Stockholders
so long as no Selling Stockholder is adversely affected by any
action or failure to act of the Sellers' Agents in a disparate
manner compared to any other Selling Stockholder.
47
(v) The provisions of this Section 10.11 are
independent and severable, shall constitute an irrevocable
power of attorney, coupled with an interest and surviving
death, granted by the Selling Stockholders to the Sellers'
Agents and shall be binding upon the executors, heirs, legal
agents and successors of each Selling Stockholder.
(b) SUCCESSOR AGENT. In the event of the inability of
a Sellers' Agent to perform its functions hereunder, the Inside Stockholders (in
the case of the inability of Yagan) and Net Associates (in the case of the
inability of Xxxxxx Xxxxxxxx) shall promptly appoint a new agent as
attorney-in-fact, and such appointment shall be deemed to have made when
communicated to iTurf and Merger Sub in writing signed by a majority in interest
of the group of Selling Stockholders (based on their pro-rata share of the
Initial Merger Consideration) entitled to elect such successor. If the Selling
Stockholders do not within 15 days appoint a new agent, then Xxxxx shall serve
as the Sellers' Agent to replace Xxx Xxxxx and Xxxxx Xxxxxxx shall serve as the
Sellers' Agent to replace Xxxxxx Xxxxxxxx if such person is able and willing to
do so, until a successor agent shall have been appointed in accordance with the
provisions hereof.
(c) SELLERS' AGENT ACTIONS. The manner and form by
which the Selling Stockholders shall decide upon any new agent and
attorney-in-fact shall be decided by a writing signed by a majority in interest
of the Selling Stockholders. The Selling Stockholders recognize, and hereby
acknowledge, that each Sellers' Agent has an interest in the subject matter of
this Agreement and that the appointment of such Sellers' Agent (which shall
include any person who becomes the Sellers' Agent pursuant to the provisions of
subparagraph (b) above) as the Sellers' Agent constitutes an irrevocable
power-of-attorney coupled with an interest.
10.12 CONSTRUCTION. Each of the parties hereto has
participated jointly in the negotiation and drafting of this Agreement and the
Transaction Documents. In the event an ambiguity or question of intent or
interpretation arises, this Agreement and the Transaction Documents shall be
construed as if drafted jointly by the parties and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement and the Transaction Documents. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise. The word "including" shall mean including
without limitation. The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty, or covenant.
10.13 NATURE OF CERTAIN OBLIGATIONS. The Stockholder
Representations Warranties and Covenants are several obligations. This means
that the particular Selling Stockholder making the representation, warranty or
covenant will be solely responsible to the extent provided in Article VI above
for any Losses iTurf or MergerSub may suffer as a result of
48
any breach thereof. The remainder of the representations, warranties, and
covenants of the Selling Stockholders in this Agreement are joint obligations.
This means that each Selling Stockholder will be responsible to the extent
provided in Article VI above for his or its pro-rata portion (based on his or
its share of the Initial Merger Consideration) of any Losses iTurf and its
affiliates may suffer as a result of any breach thereof.
[SIGNATURE PAGE FOLLOWS]
49
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
ITURF INC.
By: /s/ Xxxxxxx X. Xxxx
-----------------------
Name: Xxxxxxx X. Xxxx
Title: President
By: /s/ Xxxx X. Xxxxxxx
-----------------------
Name: Xxxx X. Xxxxxxx
Title: Secretary
ITURF CAVEMAN ACQUISITION CORPORATION
By: /s/ Xxxxxxx X. Xxxx
-----------------------
Name: Xxxxxxx X. Xxxx
Title: President
By: /s/ Xxxxxx Xxxxxx
-----------------------
Name: Xxxxxx Xxxxxx
Title: Assistant Treasurer
XXXXXXXX.XXX, INC.
By: /s/ Xxxxxxxxxxx Xxxxx
-----------------------
Name: Xxxxxxxxxxx Xxxxx
Title: President
XXXXXXXX.XXX, INC.
By: /s/ Xxx Xxxxx
-----------------------
Name: Xxx Xxxxx
Title: Treasurer
50
SELLING STOCKHOLDERS:
/s/ XXX XXXXX
--------------------------
XXX XXXXX
/s/ XXXXXXXXXXX XXXXX
--------------------------
XXXXXXXXXXX XXXXX
/s/ XXXXXXX XXXXX
--------------------------
XXXXXXX XXXXX
/s/ XXXXXX XXXXXXXX
--------------------------
XXXXXX XXXXXXXX
/s/ XXX XXXXXXX
--------------------------
XXX XXXXXXX
/s/ XXXXXXXXX XXXXXX
--------------------------
XXXXXXXXX XXXXXX
/s/ XXX XXXX
--------------------------
XXX XXXX
51
/s/ XXXXXXX XXXXXXXX
--------------------------
XXXXXXX XXXXXXXX
/s/ XXXXXX XXXXX
--------------------------
XXXXXX XXXXX
/s/ XXXXX XXXXXXXX
--------------------------
XXXXX XXXXXXXX
NET ASSOCIATES
By: /s/ Xxxxxx Xxxxxxxx
--------------------------
Name: Xxxxxx Xxxxxxxx
Title: Partner
52
