STOCK EXCHANGE AND MERGER AGREEMENT, BY AND AMONG iVILLAGE INC., VIRTUE ACQUISITION CORPORATION 2, HEALTHCENTERSONLINE, INC. AND THE STOCKHOLDERS OF HEALTHCENTERSONLINE, INC. LISTED ON THE SIGNATURE PAGES HERETO
EXHIBIT 2.1
STOCK EXCHANGE AND MERGER AGREEMENT,
BY AND AMONG
VIRTUE ACQUISITION CORPORATION 2,
HEALTHCENTERSONLINE, INC.
AND
THE STOCKHOLDERS OF HEALTHCENTERSONLINE, INC.
LISTED ON THE SIGNATURE PAGES HERETO
APRIL 8, 2005
TABLE OF CONTENTS
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No Further Ownership Rights in the Company Capital Stock; Transfers of Ownership |
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Representations and Warranties of the Company and the Rollover Stockholders |
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5.3 |
Covenants of Merger Sub and the Rollover Stockholder |
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ii
LIST OF EXHIBITS
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Exhibit A |
Certificate of Merger |
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Exhibit B |
Form of Notice of Merger, Information Statement and Letter of Transmittal |
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Exhibit C |
Escrow Agreement |
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Exhibit D |
Investor Representation Statement |
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Exhibit E-1 |
Offer Letter and Non-Competition, Non-Disclosure and Assignment of Inventions Agreement (officers) |
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Exhibit E-2 |
Non-Competition, Non-Disclosure and Assignment of Inventions Agreement (all employees) |
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Exhibit E-3 |
Optionholder Agreement |
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Exhibit F-1 |
Tax Certificate-Company |
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Exhibit F-2 |
Tax Certificate-Company |
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Exhibit G |
Officers’ Certificate |
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Exhibit H |
Opinion of Counsel to the Company |
LIST OF SCHEDULES
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Schedule 2.2(c) |
List of Employees |
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Schedule 2.2(f) |
Payment Spreadsheet |
Company Disclosure Schedule
iv
STOCK EXCHANGE AND MERGER AGREEMENT
This STOCK EXCHANGE AND MERGER AGREEMENT (this “Agreement”) is made and entered into as of April 8, 2005, by and among iVillage Inc., a Delaware corporation (“Parent”), Virtue Acquisition Corporation 2, a Delaware corporation and wholly owned subsidiary of Parent (“Merger Sub”), HealthCentersOnline, Inc., a Delaware corporation (the “Company”), Xxxxxx Xxxxx, as the Stockholders’ Agent and individually, and certain of the stockholders (each a “Signing Stockholder” and collectively the “Signing Stockholders”) of the Company, each as identified on Schedule A hereto as “Signing Stockholders.” Schedule B hereto sets forth a list of the terms defined herein and the section where the terms are defined.
RECITALS
A. The Company has issued and outstanding 1,966,906 shares of its Series A Preferred Stock, $0.01 par value per share (the “Series A Preferred Stock”), 900,000 shares of its Series B Preferred Stock, $0.01 par value per share (the “Series B Preferred Stock”), 1,000,000 shares of its Series C Preferred Stock, $0.01 par value per share (the “Series C Preferred Stock”; and, together with the Series A Preferred Stock and the Series B Preferred Stock, the “Preferred Stock”) and 16,690,543 shares of its Common Stock, $0.01 par value per share (the “Common Stock” and together with the Preferred Stock, the “Company Capital Stock”).
B. Pursuant to the terms and conditions of this Agreement, two of the Signing Stockholders (the “Rollover Stockholders”) are agreeing to sell to Parent the number of shares of Company Capital Stock set forth with respect to such Rollover Stockholders on the Payment Spreadsheet (as defined herein) in exchange for common stock, $.01 par value per share, of Parent (“Parent Common Stock”).
C. The Boards of Directors of the Company, Parent and Merger Sub believe it is in the best interests of their respective companies and the stockholders of their respective companies that the Company and Merger Sub combine into a single company through the statutory merger of Merger Sub with and into the Company (the “Merger”) immediately following the Stock Exchange (as defined in Section 1.1), and, in furtherance thereof, have approved the Merger and have declared this Agreement advisable.
D. Pursuant to the Merger, among other things, each share of the Company Capital Stock outstanding following the Stock Exchange shall be converted into the right to receive the Merger Consideration (as defined in Section 1.7(a)) upon the terms and subject to the conditions set forth herein.
E. The Company and the Signing Stockholders, Parent and Merger Sub desire to make certain representations and warranties and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants and representations set forth herein, and for other good and valuable consideration, the parties agree as follows:
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1. The Stock Exchange and the Merger.
1.1 Exchange. With effect immediately prior to the Effective Time, each Rollover Stockholder hereby sells, assigns, transfers and delivers to Parent the type and number of shares of Company Capital Stock held by each such Rollover Stockholder and to be exchanged, as specifically set forth opposite the name of each such Rollover Stockholder on the Payment Spreadsheet. With effect immediately prior to the Effective Time, Parent hereby purchases from the Rollover Stockholders such type and number of shares of Company Capital Stock and, in payment thereof, hereby issues and assigns to the Rollover Stockholders the number of shares of Parent Common Stock as set forth opposite the name of the Rollover Stockholder on the Payment Spreadsheet, it being understood that the number of shares of Parent Common Stock set forth on the Payment Spreadsheet and issuable pursuant to this Section 1.1 to the Rollover Stockholders shall be held in escrow in accordance with Section 1.8(b), other provisions of this Agreement and the Escrow Agreement (as defined in Section 1.8(b)). The transactions effected pursuant to this Section 1.1 are herein referred to as the “Stock Exchange.”
1.2 The Merger. At the Effective Time, and upon the terms of this Agreement, the certificate of merger attached hereto as Exhibit A (the “Certificate of Merger”) and the applicable provisions of the Delaware General Corporation Law (“Delaware Law”), Merger Sub shall be merged with and into the Company, the separate corporate existence of Merger Sub shall cease and the Company shall continue as the surviving corporation. The Company as the surviving corporation after the Merger is hereinafter sometimes referred to as the “Surviving Corporation.”
1.3 Effective Time. Following the execution and delivery of this Agreement by all the parties hereto and the delivery of the items listed in Article 2, the Company and Parent shall cause the Merger to be consummated by filing the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the relevant provisions of Delaware Law (the date and time of such filing being the “Effective Time”). The filing of the Certificate of Merger shall be made on the date hereof promptly following the consummation of the Stock Exchange, if this Agreement is executed and delivered by all the parties hereto on a business day at or before 2:00 p.m., New York time, and otherwise the Certificate of Merger shall be submitted for filing no later than noon, New York time, on the business day following the date of the execution and delivery hereof by all the parties hereto.
1.4 Effect of the Merger. At the Effective Time, the effect of the Merger shall be as provided in this Agreement, the Certificate of Merger and the applicable provisions of Delaware Law. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time all the property, rights, privileges, powers and franchises of the Company and Merger Sub shall vest in the Surviving Corporation and all debts, liabilities and duties of the Company and Merger Sub shall become the debts, liabilities and duties of the Surviving Corporation.
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1.5 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter amended as provided by Delaware Law and such Certificate of Incorporation; provided, however, that at the Effective Time, the Certificate of Incorporation of the Surviving Corporation shall be amended and restated as set forth in the Certificate of Merger attached hereto as Exhibit A.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation until thereafter amended.
1.6 Directors and Officers. At the Effective Time, the directors and officers of Merger Sub immediately prior to the Effective Time shall be the directors and officers of the Surviving Corporation, until their respective successors are duly elected or appointed and qualified.
1.7 Effect on Capital Stock.
(a) Company Capital Stock. Immediately prior to the Effective Time, by virtue of the Merger, without any action on the part of Parent, Merger Sub, the Company or the holders of Company Capital Stock issued and outstanding immediately prior to the Effective Time (the “Stockholders”) and in accordance with the Certificates of Designation for each of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, (i) each share of Preferred Stock issued and outstanding immediately prior to the Effective Time shall automatically be converted into one share of Common Stock (and the stock certificates formerly representing shares of Preferred Stock shall automatically be deemed to represent the corresponding number of shares of Common Stock) and (ii) because of such conversion, at the Effective Time there shall no longer be any issued and outstanding shares of Preferred Stock. At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the Stockholders, each share of Common Stock issued and outstanding immediately prior to the Effective Time and following the automatic conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock to Common Stock (the “Outstanding Company Capital Stock”), shall, except as provided in Section 1.7(e), be converted, without any action on the part of the Stockholders, into the right to receive the merger consideration specified as specified in this Section 1.7(a) (the “Merger Consideration”). The aggregate Merger Consideration shall be $12,000,000. The Merger Consideration payable to the Stockholders hereunder is equal to $ 12,000,000 less the Stockholder Transaction Expenses (as defined below) as of the Effective Time of $691,350, or an aggregate of $11,308,650. At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any Stockholder, and except as provided in Section 1.7(e) each share of Common Stock outstanding immediately prior to the Effective Time shall be converted into the right to receive $0.4493 (the “Per Share Consideration”), it being understood that (i) a portion of this amount will be held in escrow in accordance with Section 1.8(b), the other provisions of this Agreement and the Escrow Agreement and (ii) the payments to each
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Stockholder and to the Escrow Agent as provided for above shall be as set forth in the Payment Spreadsheet (as defined in Section 2.2(f)).
“Stockholder Transaction Expenses” shall mean the following: (i) all of the Company’s out-of-pocket, legal fees, costs and expenses (in each case, whether before or after the Effective Time and including travel expenses) in excess of $75,000 incurred in connection with this Agreement and the transactions contemplated by this Agreement, including the preparation, execution and delivery of this Agreement and the Company’s compliance with this Agreement, (ii) all of the Company’s financial advisor and other consultant fees and expenses incurred in connection with this Agreement (other than the $7,500 monthly fee payment to Alterity Partners and related expenses) and the transactions contemplated by this Agreement (whether before or after the Effective Time), including any investment banking success fee owed by the Company which may become payable at the Effective Time, (iii) all of the Company’s documented (whether before or after the Effective Time), out-of-pocket fees, costs and expenses (including travel expenses) incurred in connection with or arising out of the audit of the Company Financial Statements performed by Xxxxxxx Xxxxxx & Co., P.A., (iii) 50% of all reasonable, documented, out-of-pocket fees, costs and expenses of the Escrow Agent, (iv) $20,000 of the insurance premiums payable under Section 5.1(c)(ii), (v) consulting payments to Xxxxx Xxxxxxxxx in excess of $10,000, (vi) any and all fees payable to any person pursuant to any agreement disclosed on Schedule 3.22 of the Company Disclosure Schedule to the extent such fees are payable or paid as a result of the consummation of the Merger and (vii) any and all other expenses incurred by the Company prior to or at the Effective Time (whether paid or payable before, at or after the Effective Time) in connection with this Agreement and the transactions contemplated hereby; provided, however that Stockholder Transaction Expenses shall not include (x) salary or overtime payments to Xxxxxx Xxxxx or (y) withholding and employment taxes to be paid by Parent or the Surviving Corporation with respect to holders of Stock Options.
(b) Stock Options.
(i) Effective as of the Effective Time, the Company shall take all necessary action, to (A) terminate the Stock Option Plans, (B) provide that each outstanding option to purchase shares of Company Common Stock granted under the Stock Option Plans (a “Stock Option”) that is outstanding and unexercised as of immediately prior to the Effective Time, whether or not vested or exercisable, shall become fully vested and exercisable as of the Effective Time and (C) cancel, in accordance with the terms of the Plans, as of the Effective Time, each Stock Option that is outstanding and unexercised at the Effective Time. Each holder of a Stock Option that is outstanding and unexercised at the Effective Time and that has an exercise price per share of Common Stock that is less than the Per Share Consideration shall be entitled (subject to the provisions of this Section 1.7(b)) to be paid by the Surviving Corporation at the Effective Time or as soon thereafter as the Company’s payroll service provider can arrange the payment, in exchange for the delivery of an agreement in substantially the form attached hereto as Exhibit E-3 (and “Option Letter”) and cancellation of such Stock Option, an amount in cash (subject to any applicable withholding taxes) with respect to each share of Common Stock subject to the Stock Option as set forth on the Payment Spreadsheet (which shall be equal to the excess, if any, of the Per Share Consideration
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over the applicable per share exercise price of such Stock Option (the “Option Payment”)). Any such payment shall be subject to all applicable federal, state and local tax withholding requirements. The Surviving Corporation shall pay or cause to be paid the aggregate amount set forth in the Payment Spreadsheet (less applicable withholding taxes and amounts which will be held in escrow in accordance with Section 1.8(b)) to the holders of Stock Options with funds provided by Parent at the Effective Time. At the Effective Time, any unvested shares of Common Stock awarded to employees, directors or consultants pursuant to any of the Stock Option Plans or other arrangements that are outstanding immediately prior to the Effective Time shall become fully vested as of the Effective Time and converted into the amounts described in this Section 1.7(b).
(c) Warrants. The Company shall cause each warrant to purchase shares of Company Capital Stock listed in Schedule 3.12(b) of the Company Disclosure Schedule (a “Warrant”), whether vested or unvested, that is outstanding immediately prior to the Effective Time, to be surrendered and cancelled at the Effective Time in exchange for the consideration set forth with respect to each holder of Warrants on the Payment Spreadsheet. The Surviving Corporation shall pay or cause to be paid the aggregate amount set forth in the Payment Spreadsheet (less the amounts which will be held in escrow in accordance with Section 1.8(b)) to each holder of a Warrant with funds provided by Parent at the Effective Time in exchange for cancellation of such Warrant at the Effective Time.
(d) Other Rights to Acquire Company Capital Stock. Prior to or concurrently with the execution and delivery of this Agreement, the Company shall terminate any other rights to acquire capital stock of the Company, if any.
(e) Cancellation of the Company Capital Stock Owned by Parent. At the Effective Time, each share of the Company Capital Stock owned by Parent or any direct or indirect wholly owned subsidiary of Parent immediately prior to the Effective Time (including the shares of Company Capital Stock acquired in the Stock Exchange) shall be canceled and extinguished without any conversion thereof.
(f) Capital Stock of Merger Sub. At the Effective Time, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one validly issued, fully paid and nonassessable share of common stock 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.
(g) Withholding Taxes. Parent, the Surviving Corporation or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable in connection with the transactions contemplated by this Agreement such amounts as Parent, the Surviving Corporation or the Exchange Agent is required to deduct and withhold under the Internal Revenue Code of 1986, as amended (the “Code”), or any provision of state, local or foreign tax law. To the extent amounts are so withheld by Parent, the Surviving Corporation or the Exchange Agent, such withheld amounts shall be treated for all purposes of
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this Agreement as having been paid to the former holder of shares of Company Capital Stock, Stock Options or Warrants in respect of which such withholding or deduction was made.
(h) Adjustments to Merger Consideration.
(i) Attached hereto as Schedule 1.7(h) is a balance sheet of the Company at March 31, 2005 which for purposes of this Section 1.7(h) shall be considered the Company balance sheet at the Effective Time (the “Closing Balance Sheet”), subject to Section 1.7(h)(v). “Working Capital” shall mean (A) the difference between current assets of the Company based upon the referenced balance sheet and current liabilities of the Company based upon the referenced balance sheet, (B) plus any Stockholder Transaction Expenses paid or accrued prior to the Effective Time. The parties hereto agree that the “Target Working Capital Amount” is $1.1 million.
(ii) As soon as practicable after the Effective Time, Parent shall review the Closing Balance Sheet and shall cause to be prepared and delivered within sixty (60) days after the Effective Time to the Stockholders’ Agent (as defined in Section 8.6(a)), together with appropriate backup information as shall be reasonably requested by the Stockholders’ Agent, the Closing Balance Sheet as adjusted (the “Adjusted Balance Sheet”), together with a statement of the Company’s Working Capital based upon the Adjusted Balance Sheet (the “Adjusted Working Capital Statement”). If the Stockholders’ Agent does not dispute the Adjusted Balance Sheet or Adjusted Working Capital Statement within thirty (30) calendar days of delivery of the Adjusted Balance Sheet and Adjusted Working Capital Statement, by written notice (such notice must contain a reasonably detailed statement of the basis of the Stockholders’ Agent’s objection), then the Adjusted Balance Sheet and Adjusted Working Capital Statement will be used in computing any Adjustment Amount (as defined below). The amount, if any, by which the Target Working Capital Amount exceeds the Company’s Working Capital set forth in the Adjusted Working Capital Statement is the “Adjustment Amount.” If the Stockholders’ Agent gives a notice of objection, then Parent and the Stockholders’ Agent shall, during the thirty (30) days following such delivery, use their commercially reasonable efforts to reach agreement on the disputed items or amounts in order to determine, as may be required, the actual amount of the Company’s Working Capital at the Effective Time, which amount shall not be less than the amount thereof shown in the Adjusted Working Capital Statement nor more than the Target Working Capital Amount. If, during such period, Parent and the Stockholders’ Agent are unable to reach such agreement, then the issues in dispute will be promptly submitted to an independent nationally recognized accounting firm which shall not have any material relationship with Parent, the Company or the Stockholders’ Agent (the “Accountants”) for resolution. If issues in dispute are submitted to the Accountants for resolution, (x) each party will furnish to the Accountants such workpapers and other documents and information relating to the disputed issues as the Accountants may request and are available to that party (or its accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (y) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants as soon as practicable, but in
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any event within thirty (30) days after submission of the matter to the Accountants, will be binding and conclusive on the parties; and (z) if the final, binding determination by the Accountants of the Company’s Working Capital at the Effective Time is (A) closer to the Target Working Capital Amount than the working capital amount in the Adjusted Working Capital Statement, then Parent will bear the fees of the Accountants or (B) closer to the working capital amount in the Adjusted Working Capital Statement than the Target Working Capital Amount, then the Stockholders will bear the fees of the Accountants and the Stockholders’ Agent and Parent shall instruct the Escrow Agent to pay such fees from the Escrow Fund.
(iii) On the third business day following the final determination of the Adjustment Amount, any Adjustment Amount shall be paid by the Stockholders by offset against the Escrow Fund (and the Stockholders’ Agent and Parent shall instruct the Escrow Agent to pay such amount from the Escrow Fund) to the extent available, and the remainder, if any, in cash by the Stockholders in accordance with Article 8 and the Escrow Agreement.
(iv) Parent and the Stockholder’s Agent agree that they will, and agree to cause their respective accountants and the Accountants and the Surviving Corporation to, take all reasonable action to cooperate and assist in the preparation of the Adjusted Balance Sheet and the Adjusted Working Capital Statement, including making available, to the extent necessary, books, records, work papers and personnel.
(v) The Company (and, following the Effective Time, the Surviving Corporation), the Signing Stockholders and Parent acknowledge and agree that the Closing Balance Sheet and the Adjusted Balance Sheet shall be prepared according to GAAP (as defined in Section 3.13) and in accordance with the preparation of the Company Financial Statements.
(i) Certificate Legends. The shares of Parent Common Stock to be issued pursuant to Section 1.1 shall bear the following legend (and any other legends required by state securities laws) until such time as Parent and Parent’s stock transfer agent are reasonably satisfied that such legend is no longer required by applicable law (at which time Parent shall, and shall cause Parent’s transfer agent to, cooperate in the removal of such legend):
“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR “BLUE-SKY” LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM.”
In addition, the shares of Parent Common Stock to be issued pursuant to Section 1.1 and placed into escrow with the Escrow Agent shall bear the following legend until such shares are released
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from the escrow pursuant to the Escrow Agreement (at which time Parent shall, and shall cause Parent’s transfer agent to, cooperate in the removal of such legend):
“ADDITIONALLY, THESE SECURITIES ARE SUBJECT TO CERTAIN INDEMNIFICATION OBLIGATIONS UNDER THAT CERTAIN STOCK EXCHANGE AND MERGER AGREEMENT DATED AS OF APRIL 8, 2005 AMONG iVILLAGE INC., VIRTUE ACQUISITION CORPORATION 2, THE COMPANY AND THE OTHER SIGNATORIES THERETO AND CERTAIN OBLIGATIONS UNDER AN ESCROW AGREEMENT. COPIES OF THE AFOREMENTIONED STOCK EXCHANGE AND MERGER AGREEMENT AND THE ESCROW AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF iVILLAGE INC.”
(j) Dissenting Shares. Notwithstanding any provision of this Agreement to the contrary, shares of Company Capital Stock that are outstanding immediately prior to the Effective Time and that are held by Stockholders who shall have neither voted in favor of the Merger nor consented thereto in writing and who shall have demanded properly in writing appraisal for such shares in accordance with Section 262 of Delaware Law (collectively, the “Dissenting Shares”) shall not be converted into, or represent the right to receive, the Merger Consideration. Such Stockholders shall be entitled to receive payment of the appraised value of such Dissenting Shares held by them in accordance with the provisions of such Section 262, except that all shares of Company Capital Stock held by Stockholders who shall have failed to perfect or who effectively shall have withdrawn or lost their rights to appraisal of such shares under such Section 262 shall thereupon be deemed to have been converted into, and to have become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration, without any interest thereon, upon surrender, in the manner provided in Section 1.8, of the certificate or certificates that formerly evidenced such shares.
1.8 Surrender of Certificates; Escrow Fund.
(a) Exchange Procedures. At the Effective Time, Parent shall deposit with the Exchange Agent (as defined below) funds which are sufficient to pay the amounts required to be paid to the Stockholders pursuant to Section 1.7(a). At or promptly after the Effective Time and in any event within five (5) business days after the Effective Time, Parent shall, or shall cause the Surviving Corporation to, mail or cause to be mailed to each holder of record of shares of Outstanding Company Capital Stock (the certificates evidencing such shares being referred to herein as a “Certificate” and, collectively, as “Certificates”), at the address set forth opposite each such holder’s name on the Payment Spreadsheet, (i) a notice of merger, (ii) an information statement and (iii) a letter of transmittal in substantially the form attached hereto as Exhibit B (which shall be in compliance with Delaware Law and specify that delivery of the Merger Consideration shall be effected, and risk of loss and title shall pass, only upon delivery of the Certificates to Continental Stock Transfer and Trust Company (the “Exchange Agent”)). Upon surrender of a Certificate for cancellation to the Exchange Agent, or such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to receive from the Exchange Agent in exchange therefor, a cash payment equal
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to the Merger Consideration to which such holder is entitled pursuant to Section 1.7(a), less the amounts withheld and disbursed in accordance with such Section 1.7(a) and less the amount of cash to be deposited into the Escrow Fund on such holder’s behalf pursuant to Sections 1.7(a) and 1.8(b). Until so surrendered, each Certificate outstanding after the Effective Time will be deemed for all corporate purposes to evidence only the right to receive the Merger Consideration set forth in Section 1.7(a). Any portion of the Merger Consideration which remains undistributed to the Stockholders six months after the Effective Time shall be delivered to Parent upon demand, and any Stockholders that have not complied with this Section 1.8(a) at that time shall thereafter look only to Parent for payment of their claim for the Merger Consideration. Neither Parent nor the Surviving Corporation shall be liable to any Stockholder for any amounts paid to a public official pursuant to applicable abandoned property, escheat or similar laws. Any amounts remaining unclaimed by Stockholders three (3) years after the Effective Time (or such earlier date, immediately prior to such time when the amounts would otherwise escheat to or become property of any Governmental Entity (as defined in Section 3.2(a)) shall become, to the extent permitted by applicable law, the property of the Surviving Corporation, free and clear of any claims or interest of any person previously entitled thereto.
(b) Escrow Amount. In connection with the Stock Exchange and the Merger, Parent, the Stockholders’ Agent, Continental Stock Transfer and Trust Company (the “Escrow Agent”) and the Signing Stockholders, individually, are entering into the escrow agreement in the form attached hereto as Exhibit C (the “Escrow Agreement”). Notwithstanding anything to the contrary set forth in this Agreement, in connection with any payment hereunder, Parent shall withhold from the shares issued to the Rollover Stockholders pursuant to Section 1.1 and the cash otherwise payable to each holder of outstanding Company Capital Stock in accordance with Section 1.7(a), Stock Options in accordance with Section 1.7(b) and Warrants in accordance with Section 1.7(c) cash and, in the case of the Rollover Stockholders, shares (the “Escrow Shares”) in an amount equal to such holders’ Pro Rata Share of the Escrow Amount as set forth on the Payment Spreadsheet. For purposes of the foregoing, each such Stockholder’s, holder of Stock Options or holder of Warrants “Pro Rata Share” shall be equal to such holders initial Escrow Percentage as set forth on the Payment Spreadsheet, which is a fraction whose numerator is the aggregate Merger Consideration payable to such holder as set forth in the Payment Spreadsheet, and whose denominator is $11,308,650. When calculating the Rollover Stockholders’ initial Pro Rata Share of the Escrow Fund, the value of the Escrow Shares shall be $750,245 for Xxxxxx Xxxxx and $150,000 for Xxxx Xxxx. For purposes of the foregoing, “Escrow Amount” shall initially mean $1,800,000 (with references to the Escrow Amount in this Agreement, as at any applicable date, giving effect to any reduction of such amount from time to time). Amounts to be withheld in respect of the Rollover Stockholders’ Pro Rata Share of the Escrow Amount shall be withheld first from shares of Parent Common Stock issued pursuant to Section 1.1. If the value of such withheld shares (which shall be valued at $5.99 per share) is insufficient to provide for the Rollover Stockholders’ Pro Rata Share of the Escrow Amount, then and only to the extent of such insufficiency shall cash otherwise payable to the Rollover Stockholders in respect of Company Capital Stock be withheld by Parent to satisfy such Rollover Stockholders’ obligations in respect of the Escrow Amount. Promptly following the Effective Time, Parent shall cause the Escrow Amount consisting of cash and shares to be deposited with the Escrow Agent and the Escrow Agent shall hold such shares in its vault and such cash in an interest bearing escrow account (collectively, the shares and cash, the “Escrow Fund”) as
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security for the indemnification obligations under Article 8 and for purposes of paying any Adjustment Amount pursuant to Section 1.7(h)(iii). All income and gains earned on the Escrow Fund shall be included by Parent as taxable income or loss of Parent and the Escrow Agreement shall provide for the Escrow Agent to make quarterly distributions to Parent equal to forty percent (40%) of the taxable income recognized on the Escrow Fund in such quarter to satisfy any tax obligations that may arise as a result of such income and gains being attributed to Parent. Any income and gains of the Escrow Fund shall be available to Parent as part of the Escrow Fund, but if not paid to Parent in connection with the indemnification obligations owed to any Parent Indemnitee, or paid to Parent to cover Taxes, shall ultimately be distributable to the Stockholders, holders of Stock Options and holders of Warrants in accordance with this Agreement and the Escrow Agreement. The parties acknowledge and agree that any amounts (whether principal or income and gains on principal earned during the term of the Escrow Fund) distributed by the Escrow Agent from the Escrow Fund to the Stockholders, holders of Stock Options and holders of Warrants pursuant to the terms of the Escrow Agreement shall be treated, for U.S. federal income tax purposes, as additional consideration paid to the Stockholders, holders of Stock Options and holders of Warrants for their shares pursuant to the Stock Exchange and the Merger as and when that amount is distributed.
1.9 No Further Ownership Rights in the Company Capital Stock; Transfers of Ownership. The Merger Consideration delivered upon the surrender for exchange of Certificates in accordance with the terms hereof shall be deemed to have been issued in full satisfaction of all rights pertaining to the shares of the Company Capital Stock represented by such Certificates. At the Effective Time, the stock transfer books of the Company shall be closed and there shall be no further registration of transfers of the Common Stock thereafter on the records of the Company. If any payment is to be made to, or if any certificate for shares of Parent Common Stock is to be issued in, a name other than that in which the Certificate surrendered in exchange therefor is registered, it will be a condition of the payment or issuance thereof that the Certificate so surrendered will be properly endorsed and will otherwise be in proper form for transfer and that the person requesting such exchange will have paid to Parent or any agent designated by it any transfer or other taxes required by reason of payment or issuance of a certificate for shares of Parent Common Stock in any name other than that of the registered holder of the Certificate surrendered, or established to the satisfaction of Parent or any agent designated by it that such tax has been paid or is not payable. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article 1.
1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed Certificates, upon the making of an affidavit of that fact by the holder thereof, such Merger Consideration (and dividends, distributions and cash in lieu of fractional shares) as may be required pursuant to Section 1.7.
1.11 Taking of Necessary Action; Further Action. Each of the Signing Stockholders, the Stockholders’ Agent, Parent, Merger Sub and the Company will take all such reasonable and lawful action as may be necessary or desirable in order to effectuate the Merger in accordance with this Agreement as promptly as possible. If, at any time after the Effective Time,
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any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company and Merger Sub, the officers and directors of the Company and Merger Sub are fully authorized in the name of their respective corporations or otherwise to take, and will take, all such lawful and necessary action, so long as such action is not inconsistent with this Agreement.
2. Items to be Delivered Herewith.
2.1 Items to be Delivered by Parent. Concurrently with the execution and delivery of this Agreement, Parent shall have delivered each of the following:
(a) Escrow Agreement. To the Company, an Escrow Agreement in the form attached hereto as Exhibit C, duly executed by the Escrow Agent, Parent and Merger Sub.
(b) Nasdaq Listing. To the Company, evidence that the Parent Common Stock to be issued in the Stock Exchange shall have been authorized for listing, to the extent determined by Parent in good faith to be necessary, on the Nasdaq/National Market System upon official notice of issuance.
(c) Offer Letters. To the Company, offer letters for employment of the Rollover Stockholders with the Company or Parent following the Effective Time, in form and substance reasonably satisfactory to the Rollover Stockholders and Parent.
(d) Merger Consideration. To (i) the Exchange Agent, funds sufficient to pay the Per Share Amount (less the Escrow Amount) to the Stockholders in accordance with Section 1.7(a) and (ii) the Escrow Agent the Escrow Shares and the cash included in the Escrow Amount.
2.2 Items to be Delivered by the Company. Concurrently with the execution and delivery of this Agreement, the Company shall have delivered to Parent each of the following:
(a) Escrow Agreement. An Escrow Agreement in the form attached hereto as Exhibit C, duly executed by the Escrow Agent, the Company, the Signing Stockholders and the Stockholders’ Agent.
(b) Investor Representation Statement. An Investor Representation Statement in substantially the form of Exhibit D, duly executed by each of the Rollover Stockholders.
(c) Offer Letter Acceptances and Non-Competition, Non-Disclosure and Assignment of Inventions Agreement. (i) An Offer Letter and Non-Competition Agreement in the form of Exhibit E-1, duly executed by Xxxxxx Xxxxx and Xxxx Xxxx and (ii) a Non-Disclosure and Assignment of Inventions Agreement in the form of Exhibit E-2, duly executed by each of the employees listed on Schedule 2.2(c).
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(d) FIRPTA. The Company shall have delivered to Parent a properly executed certification, in the form of Exhibit F-1, certifying that the shares of Company Capital Stock do not constitute “United States real property interests” under Section 897(c) of the Code, for purposes of satisfying Parent’s obligations under Treasury Regulation Section 1.1445-2(c)(3), together with an executed notice to the Internal Revenue Service in accordance with the requirements of Treasury Regulation Section 1.897-2(h)(2) in the form of Exhibit F-2 that Parent may deliver to the Internal Revenue Service on behalf of the Company following the Effective Time.
(e) Officers’ Certificate. The certification attached hereto as Exhibit G with respect to the Company Financial Statements, duly executed by the Company’s Chief Financial Officer and Chief Executive Officer.
(f) Payment Spreadsheet. A spreadsheet, which shall be attached hereto as Schedule 2.2(f), certified as complete and correct by the Chief Executive Officer of the Company as of the Effective Time, and which shall separately list, as of the Effective Time: (i) all record holders of Outstanding Company Capital Stock, Stock Options and Warrants and their respective addresses, (ii) the number of shares of Outstanding Company Capital Stock held of record by each such holder, (iii) the number of shares of Parent Common Stock to be issued to the Rollover Stockholders pursuant to Section 1.1, (iv) the amount of cash to be paid to each Stockholder pursuant to Section 1.7(a), (v) the number of shares of Parent Common Stock to be deposited into the Escrow Fund on behalf the Rollover Stockholders pursuant to Sections 1.1 and 1.8(b), (vi) the amount of cash to be deposited into the Escrow Fund on behalf of each Stockholder pursuant to Sections 1.7(a) and 1.8(b), (vii) each Stockholder’s and each holder of Stock Options and Warrants Pro Rata Share, (viii) the amount of cash to be paid to each holder of Warrants or Stock Options, (ix) each Stockholder’s and each holder of Stock Options and Warrants pro rata share (excluding Xxxxxx Xxxxx and Xxxx Xxxx) of the cash (“Cash Holder Percentage”) being deposited into the Escrow Fund and (x) Xxxxxx Xxxxx’x and Xxxx Xxxx’ pro rata share of the shares in the Escrow Fund.
(g) Opinion. An opinion of counsel to the Company in the form attached hereto as Exhibit H.
(h) Terminations and Consents. Written evidence of the Company’s termination of (i) the Stock Restriction and Investor Rights Agreement, dated February 2000, by and among the Company and certain holders of Series A Preferred Stock (ii) the warrant to purchase Company equity in favor of (A) Echobridge, Inc. dated as of Xxxxx 0, 0000, (X) Xxxxxxx Xxxxxxx dated as of April 2, 2001 and (C) Blausen Medical Media, dated as of November 13, 2003 and (iii) any third-party consents required in connection with Section 3.22.
(i) Stockholder Information Statement. Properly addressed packages to each Stockholder with postage pre-paid in order to send the notice of merger, information statement and letter of transmittal referred to in Section 1.8(a) and described in Section 5.2(c) to each Stockholder.
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(j) Certified Minutes. A copy of the Company board minutes (or resolutions adopted by unanimous written consent in lieu thereof) with respect to the Stock Exchange and Merger, and the approval of this Agreement, certified by the Company’s secretary.
(k) Resignations. An executed resignation from service with the Company from the director and each of the officers of the Company.
(l) Minute Books; Corporate Records. The minute books, stock record books, and other corporate and human resource records of the Company.
(m) Written Consent. A written consent of 75% of the stockholders of the Company, certified by the Secretary of the Company, to approve and adopt this Agreement, the Merger and the Certificate of Merger, in lieu of a meeting of the Stockholders in accordance with Sections 228 and 251 of Delaware Law.
3. Representations and Warranties of the Company and the Rollover Stockholders. The Company and the Rollover Stockholders, jointly and severally, represent and warrant to Parent and Merger Sub as follows:
3.1 Organization, Standing and Power.
(a) The Company is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. The Company has all necessary power to own its properties and to carry on its business as now being conducted and as proposed to be conducted and is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified and in good standing. The Company has delivered a true and correct copy of the Certificate of Incorporation and Bylaws or other charter documents, as applicable, of the Company, each as amended through the time immediately prior to the Effective Time, to Parent. The Company is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws.
(b) The Company has no subsidiaries and does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for, any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.
3.2 Company Authority.
(a) The Company has all corporate power and authority to enter into this Agreement and any related agreement to which it is a party, and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. A correct and complete copy of the minutes of the meeting of the Board of Directors of the Company (or resolutions adopted by unanimous written consent in lieu thereof) at which this Agreement was approved has been provided to Parent. The affirmative vote of a majority of the shares of the Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock outstanding, voting
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together as a single class and on an as converted to Common Stock basis, is the only vote of the holders of any of the Company’s capital stock necessary under Delaware Law to approve this Agreement and the transactions contemplated hereby. This Agreement and the Merger have been approved and adopted by the Stockholders by the requisite vote or written consent required by applicable law and the Company’s Certificate of Incorporation.
(b) Each of this Agreement and the Escrow Agreement has been duly executed and delivered by each of the Company, the Signing Stockholders and the Stockholders’ Agent and constitutes the valid and binding obligation of each of the Company, the Signing Stockholders and the Stockholders’ Agent, enforceable against each of them in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally, and is subject to general principles of equity. The execution and delivery of this Agreement and the Escrow Agreement by the Company and each Signing Stockholder party hereto or thereto, as applicable, does not, and the consummation of the transactions contemplated hereby will not, conflict with, or result in any material violation, breach of or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any material obligation or loss of any material benefit under, (i) any provision of the Certificate of Incorporation or Bylaws of the Company, each as amended through the time immediately prior to the Effective Time, (ii) any mortgage, indenture, lease, credit agreement, contract or other agreement or instrument to which the Company is a party or by which it or any of its properties or assets may be bound or subject, including those listed on Schedule 3.22(a) of the Company Disclosure Schedule, (iii) any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or by which any of their properties or assets may be bound or subject or (iv) any license, sublicense or any other agreement relating to any Intellectual Property or Third Party Intellectual Property Rights (each as defined in Section 3.18). No consent, approval, waiver, order or authorization of, or registration, declaration or filing with, or notice to any court, administrative agency or commission or other governmental authority or instrumentality (“Governmental Entity”) or third party is required to be obtained, made or provided by or with respect to the Company or any Stockholder in connection with the execution and delivery of this Agreement or the Escrow Agreement or the consummation of the transactions contemplated hereby or thereby, except for the filing of the Certificate of Merger with the Delaware Secretary of State.
3.3 Governmental Authorization. The Company has obtained each federal, state, county, local or foreign governmental consent, license, permit, grant, or other authorization of a Governmental Entity (i) pursuant to which the Company currently operates or holds any interest in any of its properties or (ii) that is required for the operation of the Company’s business or the holding of any such interest and all of such authorizations are in full force and effect.
3.4 Title to Property. The Company owns no real property. The Company has good and marketable title to all of its properties, interests in properties and assets, of the nature to be reflected on a balance sheet under GAAP, reflected on the Company Balance Sheet (as defined in Section 3.13(a)) or acquired after December 31, 2004 (except properties, interests in properties and assets sold or otherwise disposed of since the Company Balance Sheet Date in the ordinary course of business consistent with past practice), or with respect to leased properties and
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assets, valid leasehold interests therein, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except (i) the lien for current Taxes not yet due and payable or for Taxes that are being contested in good faith, (ii) such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations involving such properties and (iii) liens securing debt which is reflected on the Company Balance Sheet. All properties used in the operations of the Company as of the Company Balance Sheet Date are reflected in the Company Balance Sheet at the Company Balance Sheet Date to the extent GAAP requires the same to be reflected and any properties acquired since such date of the nature to be reflected on a balance sheet under GAAP are listed on Schedule 3.4 of a document of even date herewith and attached hereto (the “Company Disclosure Schedule”) delivered by the Company to Parent prior to the execution and delivery of this Agreement referencing the particular Section of this Agreement to which exception is being taken (it being understood and agreed by the parties hereto that the disclosure of any fact or item in any such section of the Company Disclosure Schedule shall, should the fact or item be relevant to any other section of this Agreement or the Company Disclosure Schedule, be deemed disclosed with respect to such other section of this Agreement or the Company Disclosure Schedule, but only to the extent such relevance is readily apparent on the face of such disclosure without the need for investigation or inquiry by Parent). Schedule 3.4 of the Company Disclosure Schedule sets forth a true and complete list of all real property and equipment, having a value individually in excess of $2,500, leased by the Company. Assuming the due execution and delivery thereof by the other parties thereto, all such leases are in full force and effect and are valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy laws and other similar laws affecting creditors’ rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law. Correct and complete copies of all such leases have been provided to Parent.
3.5 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) “Environmental Laws” shall mean any federal, state or local laws, ordinances, codes, regulations, rules, policies and orders that are intended to assure the protection of the environment, or that classify, regulate, call for the remediation of, require reporting with respect to, or list or define air, water, groundwater, solid waste, hazardous or toxic substances, materials, wastes, pollutants or contaminants, or which are intended to assure the safety of employees, workers or other persons, including the public.
(ii) “Hazardous Materials” shall mean any toxic or hazardous substance, material or waste or any pollutant or contaminant, or infectious or radioactive substance or material, including without limitation, those substances, materials and wastes defined in or regulated under any Environmental Laws.
(b) The Company is not and has not been in violation of any Environmental Law relating to the properties or facilities of the Company at which any part of the Company’s business is or has been conducted. The Company has not used, generated,
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manufactured or stored on or under any part of its properties or facilities at which any part of the Company’s business is or has been conducted, or transported to or from any part thereof, any Hazardous Materials in violation of any applicable Environmental Laws. There has not been any presence, disposal, or release of any Hazardous Materials on, from or under any part of the Company’s properties or facilities at which any part of the Company’s business is or has been conducted. No civil, criminal or administrative action, proceeding or investigation is pending against the Company, or to the knowledge of the Company or the Rollover Stockholders, threatened against the Company, and the Company is not aware of any facts or circumstances which could form the basis for assertion of a claim or liability, regarding non-compliance with Environmental Laws relating to the Company’s business.
3.6 Taxes. (a) The Company and each other corporation (if any) included in any consolidated or combined Tax return in which the Company has been included (i) have filed, in a timely and proper manner, consistent with applicable laws, all Federal, state and local Tax returns and Tax reports required to be filed by them through the Effective Time (the “Company Returns”) with the appropriate governmental agencies in all jurisdictions in which the Company Returns are required to be filed and have timely paid all amounts shown thereon to be due; (ii) have paid all Taxes of the Company (or such other corporation) required to have been paid by the Company (or such other corporation) on or before the date hereof; and (iii) currently are not the beneficiary of an extension of time within which to file any Tax return or Tax report. All such Company Returns are correct and complete in all material respects.
(b) All Taxes of the Company attributable to all periods up to the date hereof, to the extent not required to have been previously paid, have been adequately provided for on the Closing Balance Sheet in accordance with GAAP.
(c) No Tax returns of the Company are currently under examination by the Internal Revenue Service (the “IRS”) or any state, local or foreign taxing authority, and no waivers of statutes of limitations have been given with respect to the Company that are still in effect.
(d) Any deficiencies asserted or assessments (including interest and penalties) made as a result of any examination by the IRS or by any other taxing authorities of any Taxes of the Company have been fully paid or are adequately provided for on the Closing Balance Sheet.
(e) The Company has not agreed to, nor is it required to, make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise.
(f) The Company is not a party to any agreement or contract with any “disqualified individual” (as defined in Section 280G(c) of the Code) that, by reason of the transactions contemplated hereby and occurring on or prior to the date hereof or taking into account any other agreements or contracts currently in effect between the Company and such disqualified individual, will result in the disallowance of any deduction for any payment under
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such agreement or contract as an “excess parachute payment” (as defined in Section 280G(b)(1) of the Code).
(g) The Company is not, and has not been during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property holding corporation within the meaning of Section 897(c) of the Code.
(h) The Company has complied with all applicable laws relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441, 1442 and 3406 of the Code or similar provisions under any state or foreign laws) and has, within the time and in the manner required by law, withheld from employee wages and paid over to proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws.
(i) The Company is not liable for Taxes of any other person or entity by virtue of Section 6901 of the Code, Treas. Reg. §1.1502-6 or otherwise.
As used in this Agreement: “Tax” means any of the Taxes and “Taxes” means, with respect to any entity, all income taxes (including any tax on or based upon net income, gross income, income as specially defined, earnings, profits or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem, transfer, franchise, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, property or windfall profits taxes, alternative or add-on minimum taxes, customs duties and other taxes, fees, assessments or charges of any kind whatsoever, together with all interest and penalties, additions to tax and other additional amounts imposed by any taxing authority (domestic or foreign) on such entity and including any obligations to indemnify or otherwise assume or succeed to the Tax liability of any other persons or entity.
3.7 Employee Benefit Plans.
(a) Schedule 3.7(a) of the Company Disclosure Schedule lists: each medical plan, life insurance plan, short-term or long-term disability plan, dental plan, excess benefit plan, top hat plan or other deferred compensation plan or arrangement, nonqualified retirement plan or arrangement, qualified defined contribution or defined benefit plan; and all other written benefit plans, policies, programs, arrangements or agreements, including, but not limited to, any fringe benefit plan or program, bonus or incentive plan, stock option, restricted stock, stock bonus, vacation pay, sick pay, bonus program, service award, salary reduction agreement, change-of-control plan or agreement and each employment agreement or consulting agreement, whether or not subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), which in all cases, is sponsored or maintained by the Company or any ERISA Affiliate (collectively, the “Employee Benefit Plans”). For this purpose, “ERISA Affiliate” means any entity treated as a single employer with the Company under Section 414 of the Code or Section 4001 of ERISA.
(b) The Company has made available to Parent: (i) a complete copy of each Employee Benefit Plan as amended; (ii) a copy of the most recently received determination
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letter or opinion letter, if any, and any and all rulings or notices issued by a governmental authority, with respect to each such Employee Benefit Plan; (iii) a copy of the Form 5500 Annual Report, if any, for the three most recent plan years for each such Employee Benefit Plan; (iv) a copy of the most recent summary plan description and/or summary of material modifications, if any, with respect to each such Employee Benefit Plan; (v) all contracts and agreements (and any amendments thereto) relating to each such Employee Benefit Plan, including, without limitation, all trust agreements, investment management agreements, annuity contracts, insurance contracts, bonds, indemnification agreements and service provider agreements; (vi) the most recent annual actuarial valuation, if any, prepared for each such Employee Benefit Plan; (vii) all corporate resolutions or minutes during the last three years relating to the creation, amendment or termination of each such Employee Benefit Plan, or an increase or decrease in benefits, acceleration of payments or vesting or other events that could result in liability to the Company; (viii) all correspondence to or from any governmental or quasi-governmental agency relating to each such Employee Benefit Plan that could result in liability to the Company; and (ix) all coverage, nondiscrimination, and other qualification-related tests, if any, performed with respect to each such Employee Benefit Plan for the last three years.
(c) Each Employee Benefit Plan and each trust or other funding medium, if any, established in connection therewith has at all times been established, maintained and operated in substantial compliance with its terms and the requirements prescribed by applicable law, including, but not limited to, ERISA, the Code and the provisions imposed by the Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”). All amendments and actions required to bring each of the Employee Benefit Plans into conformity with all of the applicable provisions of ERISA, the Code, HIPAA and other applicable laws have been made or taken except to the extent that such amendments or actions are not required by law to be made or taken until a date after the Effective Time.
(d) With respect to those Employee Benefit Plans which are “pension plans” within the meaning of Section 3(2) of ERISA (“Pension Plans”) that are intended to be qualified under Section 401(a) of the Code, such Pension Plans are the subject of determination letters or opinion letters from the IRS to the effect that such Pension Plans are qualified and exempt from taxes under Sections 401(a) and 501(a), respectively, of the Code, and no such determination letter has been revoked nor has any event occurred since the date of its most recent determination letter, opinion letter or application therefore that would adversely affect its qualification or increase its costs. None of the Pension Plans are subject to Title IV of ERISA or Section 412 of the Code.
(e) Neither the Company nor any ERISA Affiliate has maintained, contributed to or otherwise had any obligation with respect to (i) any “multiemployer plan” (as defined in Section 3(37) of ERISA), or (ii) any “multiple employer welfare arrangement” (as defined in Section 3(40) of ERISA).
(f) All Employee Benefit Plans have complied, to the extent applicable, with the requirements of Section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA (or such similar state law). Except as required pursuant to the preceding sentence, no Employee Benefit Plan provides for post-retirement medical, life insurance or disability benefits.
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(g) There are no suits, actions, disputes, claims (other than routine claims for benefits), arbitrations, administrative or other proceedings pending or, to the knowledge of the Company or the Rollover Stockholders, threatened, anticipated or expected to be asserted with respect to any Employee Benefit Plan or any related trust or other funding medium thereunder or with respect to the Company, as the sponsor or fiduciary thereof or with respect to any other fiduciary thereof. To the knowledge of the Company and the Rollover Stockholders, no Employee Benefit Plan or any related trust or other funding medium thereunder or any fiduciary thereof is the subject of an audit, investigation or examination by a governmental or quasi-governmental agency.
(h) (i) Neither the Company nor any of its ERISA Affiliates has any commitment, intention or understanding to create, terminate or adopt any Employee Benefit Plan; and (ii) since the beginning of the current fiscal year of the Company, no event has occurred and no condition or circumstance has existed that reasonably would be expected to result in an increase in the benefits under or the expense of maintaining a Employee Benefit Plan from the level of benefits or expense incurred for the most recently completed fiscal year of the Company.
(i) All contributions required to be made under the terms of any Employee Benefit Plan as of the date hereof have been timely made.
(j) The execution of, and performance of the transactions contemplated by, this Agreement will not (either along with or upon the occurrence of any additional or subsequent events) constitute an event under any Employee Benefit Plan or agreement that will or may reasonably be expected to result in any payment (whether severance pay or otherwise), acceleration, vesting or increase in benefits with respect to any employee, former employee or director of the Company, whether or not any such payment would be a “parachute payment” (within the meaning of Section 280G of the Code). Except as set forth in Schedule 3.7(j) of the Company Disclosure Schedule, none of the payments described therein is an parachute payment.
(k) The Company may terminate any Employee Benefit Plan maintained by the Company or may cease contributions to the Employee Benefit Plans without incurring any liability other than (i) a benefit liability accrued in accordance with the terms of each such Employee Benefit Plan immediately prior to such termination or ceasing of contributions; or (ii) expenses attendant to the termination of each such Employee Benefit Plan.
(l) Neither the Company nor any of its ERISA Affiliates has incurred any liability for any tax, excise tax or penalty with respect to any Employee Benefit Plan, including, but not limited to, taxes arising under the Code or penalties arising under ERISA, and, to the knowledge of the Company and the Rollover Stockholders, no event has occurred and no circumstance has existed (including the consummation of the obligations set forth in this Agreement) that reasonably would be expected to give rise to any such liability.
(m) None of the Employee Benefit Plans are subject to any law or applicable custom or rule of any jurisdiction outside of the United States.
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3.8 Employee Matters.
(a) Schedule 3.8(a) of the Company Disclosure Schedule accurately sets forth, with respect to each employee of the Company (including any employee of the Company who is on a leave of absence): (i) the name of such employee and the date as of which such employee was originally hired by the Company; (ii) such employee’s title; (iii) the aggregate dollar amount of the compensation (including wages, salary, commissions, director’s fees, fringe benefits, bonuses, profit sharing payments, incentive compensation and other payments or benefits of any type) received by such employee from the Company with respect to services performed in 2004; (iv) such employee’s annualized compensation as of March 31, 2005; and (v) such employee’s work authorization status.
(b) The employment of the Company’s employees is terminable by the Company at will. Except as disclosed on Schedule 3.8(b)(ii) of the Company Disclosure Schedule, the Company does not use, and has not used during the three years preceding the date hereof, the services of any independent contractors.
(c) No employee of the Company is a party to or is bound by any confidentiality agreement, non-competition agreement or other agreement that may have an adverse effect on: (A) the performance by such employee of any of his duties or responsibilities as an employee of the Company; or (B) the Company’s business or operations. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (either alone or upon the occurrence of any additional or subsequent events) constitute an event of default under any Employee Benefit Plan, Company contract, trust or loan that will or may result (either alone or in connection with any other circumstance or event) in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any employees of the Company.
(d) The Company is, and at all times has been, in compliance with all currently applicable laws and regulations respecting discrimination in employment, terms and conditions of employment, wages, hours and occupational safety and health and employment practices, including the health care continuation requirements of COBRA, the requirements of the Family Medical Leave Act of 1993, as amended, the requirements of the Health Insurance Portability and Accountability Act of 1996, as amended, and any similar provisions of state law. The Company is not and has not engaged in any unfair labor practice. There are no pending or, to the knowledge of the Company or the Rollover Stockholders, threatened or reasonably anticipated claims or legal proceedings against the Company under any worker’s compensation policy or long-term disability policy. The Company has no material obligations under COBRA with respect to any former employees or beneficiaries thereunder. The Company is not a party to any collective bargaining agreement or other labor union contract nor does the Company know of any activities or proceedings of any labor union to organize its employees. In addition, the Company has provided all employees with all relocation benefits, stock options, bonuses and incentives, and all other compensation earned and presently due and payable up through the date of this Agreement.
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(e) There has not been, and there currently is no claim against the Company based on actual or alleged race, age, sex, disability or other harassment or discrimination, or similar tortuous conduct, nor, to the knowledge of the Company or the Rollover Stockholders, is there any basis for such claim.
3.9 Insurance. Schedule 3.9 of the Company Disclosure Schedule identifies all insurance policies maintained by, at the expense of or for the benefit of the Company and identifies any material claims made thereunder, and the Company has delivered to Parent accurate and complete copies of the insurance policies identified on Schedule 3.9 of the Company Disclosure Schedule. To the knowledge of the Company or the Rollover Stockholders, the Company has policies of insurance and bonds of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of the Company. Each of the insurance policies identified in Schedule 3.9 of the Company Disclosure Schedule is in full force and effect. There is no material claim pending under any of such policies identified in Schedule 3.9. The Company has not received any written, or, to the knowledge of the Company or the Rollover Stockholders, other, notice or other communication regarding any actual or possible (a) cancellation or invalidation of any insurance policy, (b) refusal of any coverage or rejection of any claim under any insurance policy, or (c) material adjustment in the amount of the premiums payable with respect to any insurance policy. All premiums due and payable under all such policies and bonds have been paid and the Company is otherwise in compliance with the material terms of such policies and bonds.
3.10 Compliance with Laws. The Company has complied with, is not in violation of and has not received any written, or to the knowledge of the Company or the Rollover Stockholders other, notices of violation with respect to, any federal state, local or foreign statute, law or regulation with respect to the conduct of its business, or the ownership or operation of its business. The Company has complied with, is not in violation of, and has not received any written, or to the knowledge of the Company or the Rollover Stockholders other, notices of violation with respect to, any federal or state privacy, confidentiality, health, consumer protection, advertising, electronic mail or data security laws and regulations.
3.11 Brokers’ and Finders’ Fees. Except as set forth in Schedule 3.11 of the Company Disclosure Schedule, the Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges in connection with this Agreement or any transaction contemplated hereby.
3.12 Capital Structure; Title to Shares.
(a) The authorized capital stock of the Company consists of (i) 35,000,000 shares of Common Stock, of which 16,690,543 shares were issued and outstanding as of the close of business on the date hereof, (ii) 3,400,000 shares of the Series A Preferred Stock, of which 1,966,906 shares were issued and outstanding as of the close of business on the date hereof, (iii) 1,025,000 shares of the Series B Preferred Stock, of which 900,000 shares were issued and outstanding as of the close of business on the date hereof and (iv) 2,500,000 shares of
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the Series C Preferred Stock, of which 1,000,000 shares were issued and outstanding as of the close of business on the date hereof.
(b) All outstanding shares of Company Capital Stock (i) are duly authorized, validly issued, fully paid and non-assessable and are free of any liens or encumbrances other than any liens or encumbrances created by or imposed upon the holders thereof, and (ii) are not subject to preemptive rights or rights of first refusal created by statute, the Certificate of Incorporation or Bylaws of the Company or any agreement to which the Company is a party or by which it is bound. The shares of the Company Capital Stock owned by the Stockholders as set forth in the Payment Spreadsheet constitute all of the issued and outstanding capital stock of the Company. Except for the rights created pursuant to this Agreement and as set forth on Schedule 3.12(b) of the Company Disclosure Schedule, there are no other options, warrants, calls, rights, commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or redeemed, any shares of the Company Capital Stock or obligating the Company to grant, extend, accelerate the vesting of, change the price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no other contracts, commitments or agreements relating to voting, purchase or sale of Company Capital Stock (i) between or among the Company and any of the Stockholders and (ii) to the knowledge of the Company or the Rollover Stockholders, between or among any of the Stockholders. Each outstanding share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock is convertible into one share of Common Stock. All shares of Company Capital Stock and all Stock Options and Warrants have been issued and granted in compliance with (y) all applicable federal and state securities laws and other applicable legal requirements, and (z) any requirements set forth in the Company Certificate of Incorporation and Bylaws and applicable Company contracts.
(c) As of the date of this Agreement options to purchase 5,354,466 shares are outstanding and 5,354,466 shares of Common Stock are reserved for future issuance under, the EA Web Holdings, Inc. 2000 Stock Option/Stock Issuance Plan (the “2000 Stock Option Plan”) and the Heartcenteronline, Inc. 2002 Stock Option/Stock Issuance Plan (together with the 2000 Stock Option Plan, the “Stock Option Plans”). The Company does not have any other stock option plan. Schedule 3.12(c) of the Company Disclosure Schedule accurately sets forth, with respect to each Stock Option outstanding as of the date hereof (whether vested or unvested): (i) the name of the holder of such Stock Option; (ii) the total number of shares of Company Capital Stock that are subject to such Stock Option and the number of shares of Company Capital Stock with respect to which such Stock Option is immediately exercisable; (iii) the date on which such Stock Option was granted or issued and the term of such Stock Option; (iv) the vesting schedule for such Stock Option, if applicable; (v) the exercise price per share of Company Capital Stock purchasable under such Stock Option; and (vi) whether such Stock Option has been designated an “incentive stock option” as defined in Section 422 of the Code. The Company is not obligated to issue any additional stock options. As of the Effective Time, each such Stock Option will be canceled, and no such Stock Option will represent a right to purchase, acquire or convert into, or obligate the Company or the Surviving Corporation to issue, any shares of capital stock of the Company or the Surviving Corporation, or any rights, options or warrants to purchase or acquire capital stock of the Company or the Surviving Corporation.
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No consent of a participant in the Stock Option Plans is required to be obtained in connection with the acceleration of the Stock Options or the termination of the Stock Option Plans by Parent. Except for Stock Options granted pursuant to the Stock Option Plans and as set forth in Schedule 3.12(c) of the Company Disclosure Schedule, there is no: (w) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of capital stock or other securities of the Company; (x) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of capital stock or other securities of the Company; (y) contract under which the Company is or may become obligated to sell or otherwise issue any shares of its capital stock or any other securities of the Company; or (z) condition or circumstance that may give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of the Company. The Company has not issued any debt securities which grant the holder thereof any right to vote on, or veto, any actions by the Company.
(d) As of the Effective Time, each Warrant, Stock Option and share of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock will represent only a right to receive the amounts specified in the Payment Spreadsheet. The appropriate distribution of the Merger Consideration (following the completion of the Stock Exchange as set forth in the Payment Spreadsheet) pursuant to the Certificate of Incorporation, as amended immediately prior to the Effective Time, is as set forth in the Payment Spreadsheet.
(e) The Company has never repurchased, redeemed or otherwise reacquired any shares of capital stock or other securities of the Company.
(f) No more than 25% of the holders of Company Capital Stock outstanding immediately prior to the Effective Time is eligible for appraisal rights as provided in Section 262 of the Delaware Law.
(g) All outstanding shares of Company Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock have converted to shares of Common Stock in accordance with the provisions of the Certificate of Incorporation. All outstanding Warrants to purchase shares of Common Stock have been terminated.
3.13 Financial Statements. (a) The Company has delivered to Parent the following financial statements (collectively, the “Company Financial Statements”):
(i) the unaudited balance sheets of the Company as of December 31, 2004 (the “Company Balance Sheet,” and the date thereof is referred to herein as the “Company Balance Sheet Date”) and December 31, 2003, and the related unaudited income statements, statements of stockholders’ equity and statements of cash flows of the Company for the twelve months ended December 31, 2004 and the twelve months ended December 31, 2003, together with the notes thereto;
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(ii) the unaudited balance sheet of the Company as of March 31, 2005 and the related unaudited income statements of the Company for the three months then ended; and
(iii) the Closing Balance Sheet.
(b) The Company Financial Statements are accurate and complete in all material respects, consistent with the Company’s books and records, and present fairly the financial position of the Company as of the respective dates thereof and the results of operations (and, in the case of the financial statements referred to in Section 3.13(a)(i), cash flows of the Company) for the periods covered thereby. The Company Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods covered and consistent with each other (except that the Company Financial Statements referred to in Sections 3.13(a)(ii) and (iii) do not contain footnotes and are subject to normal and recurring year-end audit adjustments, which will not, individually or in the aggregate, be material in magnitude).
(c) The Company has disclosed to Parent any (i) significant deficiency or material weakness in the design or operation of internal control over financial reporting (as such term is defined in Rule 13a-15 of the Exchange Act), which have in the past or are reasonably likely to affect the Company’s ability to record, process, summarize and report financial information or (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting, in each case since December 31, 2002.
(d) Since December 31, 2002, none of the Company, nor, to Company’s or the Rollover Stockholders’ knowledge, any director, officer, agent, employee or other person acting on behalf of the Company, has (i) used any corporate or other funds for contributions, payments, gifts or entertainment, or made any expenditures, which, in the case of any of the foregoing, would be unlawful, relating to political activity, to government officials or others or established or maintained any unlawful or unrecorded funds in violation of Section 30A of the Exchange Act or (ii) accepted or received any unlawful contributions, payments, gifts or entertainment expenditures.
(e) Since December 31, 2002, none of the Company nor, to Company’s or the Rollover Stockholders’ knowledge, any director, officer, employee, auditor, accountant or representative of any of them, has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company has engaged in questionable accounting or auditing practices, and (ii) no attorney representing the Company, whether or not employed by the Company, has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by any of the Company or any of their respective officers, directors, employees or agents to the Board of Directors of the Company or any committee thereof or to any director or officer of Company
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(f) The Company does not have any off-balance sheet arrangements as defined in Item 303(c) of Regulation S-K of the Securities Act of 1933, as amended (the “Securities Act”).
3.14 Absence of Certain Changes. Except as set forth on Schedule 3.14 of the Company Disclosure Schedule, since December 31, 2004, the Company has conducted its business in the ordinary course and there has not occurred: (i) any change, event or condition (whether or not covered by insurance) that has resulted in, or might reasonably be expected to result in, a Material Adverse Effect to the Company; (ii) any destruction, loss of or damage to, or any acquisition, sale or transfer of, any material asset of the Company; (iii) any change in accounting principles or practices (including any change in depreciation or amortization policies or rates) by the Company or any revaluation by the Company of any of its material assets; (iv) any declaration, setting aside, or payment of a dividend or other distribution with respect to the shares of the Company or any direct or indirect redemption, purchase or other acquisition by the Company of any of its shares of capital stock; (v) any Material Contract entered into by the Company, other than in the ordinary course of business and as provided to Parent, or any material amendment or termination of, any Material Contract to which the Company is a party or by which it is bound; (vi) any amendment or change to the Certificate of Incorporation or Bylaws of the Company; (vii) any increase in or modification of the compensation or benefits payable or to become payable by the Company to any of its directors or employees or (viii) any negotiation or agreement by the Company to do any of the things described in the preceding clauses (i) through (vii) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement and negotiations which have concluded without resulting in any agreement). At the Effective Time, there will be no accrued but unpaid dividends on shares of the Company’s capital stock.
3.15 Absence of Undisclosed Liabilities. The Company has no obligations or liabilities of any nature whatsoever, whether accrued or fixed, absolute or contingent, mature or unmatured or determined or indeterminable, (together, “Liabilities”) other than (i) those set forth or adequately reflected on the face of the Company Balance Sheet or described in the footnotes thereto and (ii) those incurred since December 31, 2004 in the ordinary course of business consistent with the accounting principles and practices used in the Company Financial Statements.
3.16 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending before any Governmental Entity, foreign or domestic, or, to the knowledge of the Company or the Rollover Stockholders, threatened against the Company or any of its properties or assets or any of its officers, employees or directors. To the knowledge of the Company or the Rollover Stockholders, no event has occurred, and no claim, dispute or other condition or circumstance exists, that will, or that could reasonably be expected to, give rise to or serve as a basis for the commencement of any such action, suit, proceeding, claim, arbitration or investigation. Neither the execution of this Agreement nor the consummation of the transactions contemplated hereby will, or could reasonably be expected to, give rise to or serve as a basis for the commencement of any such action, suit, proceeding, claim, arbitration or investigation. There is no judgment, decree or order against the Company, or, to the knowledge of the Company or the Rollover Stockholders, any of their directors or officers, that could prevent,
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enjoin, or materially alter or delay any of the transactions contemplated by this Agreement. All actions, suits, proceedings, claims, arbitrations or investigations to which the Company is a party (or, to the knowledge of the Company or the Rollover Stockholders, to which the Company has been threatened to be made a party) are disclosed in Schedule 3.16 of the Company Disclosure Schedule.
3.17 Restrictions on Business Activities. 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 materially impairing any current or proposed business practice of the Company, any acquisition of property by the Company or the conduct of business by the Company as currently conducted or as proposed to be conducted by the Company.
3.18 Intellectual Property.
(a) The Company owns and has good and marketable title to, or is licensed or otherwise possesses legally enforceable rights to use, all copyrights, patents, trademarks, trade names, service marks (whether registered or unregistered), and any applications therefor, domain names, opt-in lists, client lists, Company Content (as defined in Section 3.18(i)), know-how, trade secrets and the computer software programs and applications as set forth on Schedule 3.18(h) of the Company Disclosure Schedule (the “Company Software”) (in both source code and object code form), that are used in the business of the Company as currently conducted or as proposed to be conducted by the Company.
(b) Schedule 3.18(b) of the Company Disclosure Schedule lists (i) all registered and unregistered copyrights and applications for registration, patents and patent applications, trademark registrations and applications and unregistered trademarks, owned by the Company that is used in the business of the Company as currently conducted or as proposed to be conducted by the Company, (ii) all licenses, sublicenses and other agreements in effect as to which the Company is a licensor and pursuant to which any other person is authorized to use any material Intellectual Property (as hereafter defined) or content and (iii) all licenses, sublicenses and other agreements in effect, as to which the Company is a party and pursuant to which the Company is authorized to use any third party copyrights, patents or trademarks, know-how or other Intellectual Property, including content (“Third Party Intellectual Property Rights”) which are incorporated in, are, or form a part of any Company product or which are used in connection with any services offered by or performed by the Company. “Intellectual Property” as used herein means all registered or unregistered copyrights, patents, patent applications, trademarks, trade names, service marks, and any applications therefor, domain names, opt-in lists, client lists, works of authorship, know-how, trade secrets, computer software programs or applications (in both source code and object code form), technology, algorithms, processes and tangible or intangible proprietary information or material
(c) There is no material unauthorized use, disclosure, infringement or misappropriation of any Intellectual Property rights of the Company by any third party, including any employee or former employee of the Company. The Company has not entered into any agreement to indemnify any other person against any charge of infringement of any Intellectual
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Property other than indemnification provisions contained sales agreements or licensing agreements arising in the ordinary course of business. There are no royalties, fees or other payments payable by the Company to any Person by reason of the ownership, use, sale or disposition of Intellectual Property pursuant to licenses, sublicenses and other agreements.
(d) All copyrights, patents and trademarks (whether registered or unregistered) owned by the Company are listed on Schedule 3.18(b) of the Company Disclosure Schedule, and are valid and subsisting. The business of the Company as currently conducted and as conducted prior to the date hereof is not and was not infringing, misappropriating or making unlawful use of any Intellectual Property or other proprietary right owned by any third party, and the Company has not received any notice or other communication (in writing or, to the knowledge of Company or the Rollover Stockholders, otherwise) of any actual or alleged infringement, misappropriation or unlawful use by the Company of any Intellectual Property or other proprietary right owned by any third party. The Company has not (i) been sued in any suit, action or proceeding which involves a claim of infringement by the Company of any copyrights, patents, trademarks, tradenames or service marks, or violation by the Company of any Intellectual Property or other proprietary right of any third party or (ii) brought any action, suit or proceeding for infringement of Intellectual Property or breach of any license or agreement involving Intellectual Property against any third party.
(e) To the knowledge of the Company or the Rollover Stockholders (excluding knowledge of the specific employee or independent contractor involved), no employee or independent contractor of the Company is in violation of any term of any confidentiality or non-disclosure agreement, copyright assignment or “work-for-hire” agreement, invention disclosure agreement or employment contract in relation to any confidentiality or non-disclosure obligation or in relation to any matter relating to Intellectual Property.
(f) The Company has taken all commercially reasonable and customary measures and precautions necessary to protect and maintain the confidentiality of all Intellectual Property owned by the Company (except such Intellectual Property whose value does not derive in whole or in part from confidentiality).
(g) The Company has provided to Parent a complete and accurate copy of each standard form of the following Intellectual Property contracts used by the Company (i) license agreement, (ii) employee agreement containing intellectual property assignment or license of Intellectual Property or Intellectual Property rights or any confidentiality provision, (iii) consulting or independent contractor agreement containing intellectual property assignment or license of Intellectual Property or Intellectual Property rights or any confidentiality provision and (iv) confidentiality or nondisclosure agreement. All employees of the Company have signed an agreement to be bound by the confidentiality and non-disclosure provisions contained in the Company’s employee manual, a copy of which has been delivered to Parent. The Company, pursuant to a written contract, owns, or has the right to compel assignment of ownership rights to the Company, with respect to all relevant Intellectual Property, including but not limited to copyright and trade secret rights in any work of authorship and computer software created by an employee or independent contractor that arises from the employee’s or independent contractor’s
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work for the Company, or which is otherwise material to the conduct of the business of the Company as presently conducted..
(h) A complete list of the Company Software, together with a brief description, is set forth in Schedule 3.18(h) of the Company Disclosure Schedule. The Company Software conforms in all material respects with any specification, documentation, performance standard, representation or statement provided with respect thereto by or on behalf of the Company.
(i) A complete list of the Company’s proprietary content (the “Company Content”), is set forth in Schedule 3.18(i) of the Company Disclosure Schedule. The Company Content is an original work of authorship commissioned by the Company and created as a work for hire by employees or consultants of the Company except as set forth in Schedule 3.18(i).
(j) All of the Company’s material computer-based systems are able to operate and effectively process data.
3.19 Interested Party Transactions. The Company is not indebted to any director, officer, employee or agent of the Company (except for amounts due as normal salaries and bonuses and in reimbursement of ordinary expenses), and no such person is indebted to the Company.
3.20 Books and Records. The minute books, stock record books, and other records of the Company, all of which have been made available to Parent, are complete and correct in all material respects and have been maintained in accordance with sound business practices. The minute books of the Company contain accurate and complete records of all meetings held of, and corporate action taken by, the stockholders, the board of directors, and committees of the board of directors of the Company, and no meeting of any such stockholders, board of directors, or committee has been held for which minutes have not been prepared and are not contained in such minute books. At the date hereof, all of those books and records are in the possession of the Company.
3.21 Representations Complete. None of the representations or warranties made by the Company or the Rollover Stockholders herein or in any Schedule or Exhibit hereto, including the Company Disclosure Schedule, or in any certificate furnished at the Effective Time, when all such documents are read together in their entirety, contain, or will contain at the Effective Time any untrue statement of a material fact, or omits or will omit at the Effective Time to state any material fact necessary in order to make the statements contained herein or therein, in the light of the circumstances under which made, not misleading. The Company has delivered to Parent copies of each material document of the Company, which copies are true, correct and complete in all material respects.
3.22 Material Contracts.
(a) All contracts and agreements to which the Company is a party involving amounts in excess of $10,000 (which, for purposes hereof, shall include multiple
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contracts and agreements with a single party aggregating such amount) are listed on Schedule 3.22(a) of the Company Disclosure Schedule (each, a “Material Contract”) With respect to each Material Contract, except as disclosed on Schedule 3.22(a) of the Company Disclosure Schedule: (i) the agreement is legal, valid, binding and enforceable and in full force and effect with respect to the Company, and to the knowledge of the Company or the Signing Stockholders, is legal, valid, binding, enforceable and in full force and effect with respect to each other party thereto, in either case subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and except as the availability of equitable remedies may be limited by general principles of equity; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect following the Effective Time in accordance with the terms thereof as in effect prior to the Effective Time, subject to the effect of bankruptcy, insolvency, moratorium or other similar laws affecting the enforcement of creditors’ rights generally and except as the availability of equitable remedies may be limited by general principles of equity; and (iii) neither the Company nor, to the knowledge of the Company or the Signing Stockholders, any other party, is in material breach or default, and no event has occurred which with notice or lapse of time would constitute a material breach or default by the Company or, to the knowledge of the Company or the Signing Stockholders, by any such other party, or permit termination, material modification or acceleration, under the agreement. The Company is not a party to any oral contract, agreement or other arrangement which would be a Material Contract, other than the agreements listed on Schedule 3.22(a) of the Company Disclosure Schedule.
(b) Attached to Schedule 3.22(b) of the Company Disclosure Schedule is evidence reasonably satisfactory to Parent of the consent or approval of those persons whose consent or approval is required in connection with the Merger in order to preserve the value of any Material Contract.
(c) Investor Rights Agreement and Warrants. As of the execution and delivery hereof, the Company has caused to be terminated (i) the Stock Restriction and Investor Rights Agreement, dated February 2000, by and among the Company and certain holders of Series A Preferred Stock (ii) the warrant to purchase Company equity in favor of (A) Echobridge, Inc. dated as of Xxxxx 0, 0000, (X) Xxxxxxx Xxxxxxx dated as of April 2, 2001 and (C) Blausen Medical Media, dated as of November 13, 2003 and (iii) any third-party consents required in connection with Section 3.22.
3.23 Inventory. Except as set forth on Schedule 3.23 of the Company Disclosure Schedule, the Company does not have any tangible inventory for sale.
3.24 Accounts Receivable.
(a) Schedule 3.24 of the Company Disclosure Schedule contains a list of all accounts receivable of the Company as of the date of the Closing Balance Sheet, together with an aging schedule indicating a range of days elapsed since invoice.
(b) Subject to any reserves set forth in the Closing Balance Sheet, the accounts receivable shown on the Closing Balance Sheet are valid and genuine, have arisen
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solely out of bona fide sales and deliveries of goods, performance of services and other business transactions in the ordinary course of business consistent with the accounting principles and practices used in the Company Financial Statements, in each case with persons other than affiliates, are not subject to any prior assignment, lien or security interest and are not subject to valid defenses, set-offs or counter claims. The Company has no reason to believe that the accounts receivable will not be collected at their recorded amounts, subject only to the reserve for doubtful accounts on the Closing Balance Sheet.
3.25 Financial Projections/Operating Plan. The Company has made available to Parent certain financial projections with respect to the Company’s business which projections were prepared for internal use only. Such projections were prepared in good faith and are based on assumptions believed by the Company to be reasonable (on a quarterly and annual basis) as of the date of this Agreement.
3.26 State Takeover Statutes. The Company board of directors has taken all actions necessary so that the restrictions contained in Section 203 of the Delaware Law are not applicable to Parent, Merger Sub or this Agreement. No other state takeover statute or similar statute or regulation applies or purports to apply to the Company with respect to this Agreement and the transactions contemplated by this Agreement.
3.27 Customers and Suppliers.
(a) Schedule 3.27(a)(i) of the Company Disclosure Schedule sets forth a complete and accurate list of the twenty (20) largest customers of the Company on the basis of revenues. Schedule 3.27(a)(ii) of the Company Disclosure Schedule sets forth a complete and accurate list of the twenty (20) largest suppliers of the Company on the basis of cost of content, goods or services purchased by the Company during the last twelve (12) calendar months since the date of this Agreement.
(b) As of the date hereof, no customer which individually accounted for more than five percent (5%) of the Company’s gross revenues during the twelve (12) month period of 2004 or the three month period preceding the date hereof and no supplier of the Company, has canceled or otherwise terminated, or made any written threat to the Company to cancel or otherwise terminate its relationship with the Company or has at any time on or after December 31, 2003, decreased materially its services or supplies to the Company in the case of any such supplier, or its usage of the services or products of the Company in the case of such customer, and to the knowledge of the Company or the Rollover Stockholders, no such supplier or customer has indicated either orally or in writing that it will cancel or otherwise terminate its relationship with the Company or to decrease materially its services or supplies to the Company or its usage of the services or products of the Company, as the case may be. The Company has not knowingly breached, so as to provide a benefit to the Company that was not intended by the parties, any agreement with, or engaged in any fraudulent conduct with respect to, any customer or supplier of the Company.
3.28 Condition and Sufficiency of Assets. The buildings, structures, property and equipment of the Company that are used in the operations of its businesses are in all material
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respects in good operating condition and repair, subject to normal wear and tear, and are adequate for the uses to which they are being put, and none of such buildings, structures, property or equipment is in need of maintenance or repairs except for ordinary, routine maintenance and repairs that are not material in nature or cost. The building, structures, property and equipment of the Company are sufficient for the continued conduct of the Company’s businesses after the date hereof in substantially the same manner as conducted prior to the date hereof.
3A. Representations and Warranties of Each Signing Stockholder. Each Signing Stockholder represents and warrants, severally and not jointly, as follows:
(a) Such Signing Stockholder has full right, power and authority to enter into, perform and consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Signing Stockholder and is a legal, valid and binding obligation of such Signing Stockholder, enforceable against such Signing Stockholder in accordance with its terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or similar laws affecting or relating to creditors’ rights generally, and is subject to general principles of equity.
(b) Such Signing Stockholder has good and valid title to the shares of the Company Capital Stock held by such Signing Stockholder, free and clear of any lien, pledge, charge, security interest, encumbrance, title retention agreement, hypothecation, adverse claim, option, or equity. Upon the delivery to Parent of the share certificates of Company Capital Stock owned by each Rollover Stockholder at the effective time of the Stock Exchange, good and valid title to all of the then Outstanding Company Capital Stock held by such Signing Stockholder will have been acquired by Parent, free and clear of all liens, pledges, charges, security interests, encumbrances, title retention agreements, hypothecations, adverse claims, options, or equities whatsoever, other than any created by Parent or Merger Sub.
4. Representations and Warrantees of Parent and Merger Sub. Parent and Merger Sub represent and warrant to the Company and the Stockholders as follows:
4.1 Organization, Standing and Power. Each of Parent and Merger Sub is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of organization. Each of Parent and Merger Sub has the corporate power to own its properties and to carry on its business as now being conducted. Parent has made available true and correct copy of the Certificate of Incorporation and Bylaws or other charter documents, as applicable, of Parent and Merger Sub, each as amended to date, to the Company.
4.2 Capital Structure. The authorized capital stock of Parent consists of 200,000,000 shares of Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, par value $.01, of which there were issued and outstanding as of the close of business on April 5, 2005, 71,975,625 shares of Common Stock, and no shares of Preferred Stock. There are no other outstanding shares of capital stock or voting securities of Parent other than shares of Parent Common Stock issued after April 5, 2005 upon the exercise of options issued under the Parent 1999 Employee Stock Option Plan, the Parent 1999 Acquisition Stock Option Plan, the Parent 1997 Amended and Restated Acquisition Stock Option Plan, the Parent 1995 Amended and
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Restated Employee Stock Option Plan, the Parent 1999 Directors Option Plan, 1999 Non-Qualified Stock Option Plan, the Amended 2001 Non-Qualified Stock Option Plan, or the 2000 Healthology, Inc. Stock Option Plan, or shares of Parent Common Stock issued under the Parent 1999 Employee Stock Purchase Plan. The authorized capital stock of Merger Sub consists of 100 shares of Common Stock all of which are issued and outstanding and are held by Parent. All outstanding shares of Parent and Merger Sub have been duly authorized, validly issued, fully paid and are nonassessable. The shares of Parent Common Stock to be issued pursuant to Section 1.1 of this Agreement will be duly authorized, validly issued, fully paid, and nonassessable and free and clear of any liens, pledges, charges, security interests, encumbrances, title retention agreements, hypothecations, adverse claims, options, or equities other than as created by the Rollover Stockholders.
4.3 Authority. Parent and Merger Sub have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the Escrow Agreement and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent and Merger Sub, enforceable against Parent and Merger Sub, as applicable, in accordance with their terms, except that such enforceability may be limited by bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors’ rights generally, and is subject to general principles of equity. This Agreement has been duly executed and delivered by Parent and Merger Sub and constitutes the valid and binding obligations of Parent and Merger Sub. The execution and delivery of this Agreement do not and the consummation of the transactions contemplated hereby will not conflict with, or result in any violation of, or default under (with or without notice or lapse of time, or both), or give rise to a right of termination, cancellation or acceleration of any material obligation or loss of a material benefit under (i) any provision of the Certificate of Incorporation or Bylaws of Parent or any of its subsidiaries, as amended, or (ii) any material mortgage, indenture, lease, contract or other agreement or instrument permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent or any of its subsidiaries or their properties or assets. No consent, approval, order or authorization of or registration, declaration or filing with, any Governmental Entity, is required by or with respect to Parent or any of its subsidiaries in connection with the execution and delivery of this Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub of the transactions contemplated hereby, except for (i) the filing of the Certificate of Merger, (ii) filings required under the Securities Act, the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Delaware Law and (iii) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Parent and would not prevent, or materially alter or delay any of the transactions contemplated by this Agreement.
4.4 SEC Documents; Financial Statements. Parent has made available to the Company a true and complete copy of each statement, report, registration statement (with the prospectus in the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy statement, and other filing filed with the Securities and Exchange Commission (the “SEC”) by Parent since March 15, 2004, through the date hereof (collectively, the “Parent SEC Documents”). In addition, Parent has made available to the Company all exhibits to the Parent SEC Documents filed prior to the date hereof. All documents required to be filed as exhibits to
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the Parent SEC Documents have been so filed, and all material contracts so filed as exhibits are in full force and effect except those which have expired in accordance with their terms or have terminated, and neither Parent nor any of its subsidiaries is in default thereunder. As of their respective filing dates, the Parent SEC Documents complied in all material respects as to form with the requirements of the Exchange Act and the Securities Act, and none of the Parent SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except to the extent corrected by a subsequently filed Parent SEC Document prior to the date hereof. The financial statements of Parent, including the notes thereto, included in the Parent SEC Documents (the “Parent Financial Statements”), complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto as of their respective dates, and have been prepared in accordance with GAAP applied on a basis consistent throughout the periods indicated and consistent with each other (except as may be indicated in the notes thereto or, in the case of unaudited statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Parent Financial Statements fairly present the consolidated financial condition and operating results of Parent and its subsidiaries at the dates and during the periods indicated therein (subject, in the case of unaudited statements, to normal, recurring year-end adjustments). There has been no change in Parent accounting policies except as described in the notes to the Parent Financial Statements.
4.5 Brokers’ and Finders’ Fees. Parent has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or any similar charges in connection with this Agreement or any transaction contemplated hereby.
5. Covenants.
5.1 Parent Covenants.
(a) Employee Matters.
(i) At the Effective Time and by virtue of the Merger, the employees of the Company will become employees of the Surviving Corporation (the “Affected Employees”). The Affected Employees shall be (A) employees at will and (B) subject to and employed in compliance with Parent’s applicable human resources policies and procedures. Parent hereby reserves the right to reassign, terminate and/or change the positions of all Affected Employees, subject to any written employment agreement between individual Affected Employees and the Surviving Corporation or Parent.
(ii) Following the Effective Time, Parent shall, or shall cause its affiliates to, recognize each Affected Employee’s service with the Company or any of its subsidiaries prior to the Effective Time (or such later transition date) as service with Parent and its affiliates in connection with any tax-qualified pension plan and welfare benefit plan (including paid time off, vacations and holidays) maintained by Parent or any of its affiliates in which such Affected Employee participates and which is made available
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following the Effective Time by Parent or any of its affiliates for purposes of any waiting period, vesting, eligibility and benefit entitlement (but excluding benefit accruals under any defined benefit pension plan). Parent shall, or shall cause its affiliates to, waive any pre-existing condition exclusions, evidence of insurability provisions, waiting period requirements or any similar provision under any of the welfare plans (as defined in Section 3(1) of ERISA) maintained by Parent or any of its affiliates in which Affected Employees participate following the Effective Time. In addition, Affected Employees shall receive credit for any co-payments, deductibles and annual out-of-pocket expenses incurred under the welfare plans of the Company or any of its affiliates during the 2005 calendar year, but prior to the Effective Time (or such later transition date) for purposes of the corresponding co-payments, deductibles and annual out-of-pocket expenses under welfare plans of Parent or any of its affiliates for the 2005 calendar year.
(b) Rule 144. During the 24-month period commencing with the Effective Time, Parent shall (A) during any period in which it is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, use all commercially reasonable efforts to provide to each holder of shares of Parent Common Stock that constitute restricted securities within the meaning of Rule 144(a)(3) under the Securities Act who is also a Rollover Stockholder, and to each prospective purchaser (as designated by such holder) of such restricted securities from such Rollover Stockholder, upon the request of such holder or prospective purchaser, any information required to be provided by Rule 144A(d)(4) under the Act and (B) use all commercially reasonable efforts to furnish to each Rollover Stockholder upon request a written statement by Parent as to its compliance with the reporting requirements of such Rule 144 and of the Securities Act and the Exchange Act as such Rollover Stockholders may reasonably request in availing themselves of any rule or regulation of the SEC allowing such Rollover Stockholders to sell any Parent Common Stock without registration. This covenant is intended to be for the benefit of such Rollover Stockholders, and such prospective purchasers designated by such Rollover Stockholders.
(c) Indemnification.
(i) Parent, the Company, the Signing Stockholders and the Surviving Corporation agree that all rights to indemnification or exculpation now existing in favor of the directors and officers of the Company provided in the Company’s Certificate of Incorporation and Bylaws as in effect on the date of this Agreement shall continue in full force and effect for a period of six (6) years after the Effective Time.
(ii) For the six-year period after the Effective Time, the Surviving Corporation shall maintain in effect the Company’s current directors’ and officers’ and cyber liability insurance covering acts or omissions occurring prior to the Effective Time with respect to those persons who are currently covered by such of the Company’s liability insurance policies on terms with respect to such coverage and amount no less favorable to the Company’s directors, officers and other employees currently covered by such insurance (such persons, “Tail Indemnitees”) than those of such policies in effect on the date hereof, provided that the Surviving Corporation may substitute therefor policies of a reputable insurance company the terms of which,
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including coverage and amount, are no less favorable to such Tail Indemnitees than the insurance coverage otherwise required under this Section 5.1(c)(ii). Notwithstanding the foregoing proviso, in no event shall Parent or the Surviving Corporation be required to pay premiums for insurance under this Section 5.1(c)(ii).
5.2 Covenants of the Rollover Stockholders.
(a) Notice of Merger. As promptly as practicable following the receipt of approval of the Merger by the requisite vote of Stockholders, the Rollover Stockholders shall cooperate with Parent to give written notice of this Agreement, the Merger, the approval of the Merger by the Stockholders and any appraisal rights under Section 262 of the Delaware Law, all as required by the Delaware Law.
(b) Stock Option Letters. Immediately following the Effective Time, the Rollover Stockholders shall use their commercially reasonable efforts to obtain a written consent from each of the holders of Stock Options.
(c) Non-Competition Agreements. Immediately following the Effective Time, the Rollover Stockholders shall use their commercially reasonable efforts to cause the Company employees who have not at the Effective Time executed a non-competition agreement in the form of Exhibit E-1 hereto to enter into such a non-competition agreement.
(d) Payments to holders of Stock Options and Warrants. The Rollover Stockholders shall use their commercially reasonable efforts to ensure that the amounts set forth on the Payment Spreadsheet are paid to the holders of Stock Options following the Effective Time and the holders of Warrants at the Effective Time.
(e) Restrictions on Transfer of Shares. The Rollover Stockholders shall not effect any sale, transfer or other disposition, or any assignment, pledge or hypothecation, of any shares of Parent Common Stock that they are to receive in the Merger unless:
(i) such sale, transfer, disposition, assignment, pledge or hypothecation has been registered under the Securities Act; or
(ii) if such sale, transfer, disposition, assignment, pledge or hypothecation occurs within two years following the Effective Time, evidence reasonably satisfactory to Parent that such sale, transfer, disposition, assignment, pledge or hypothecation will be exempt from registration under the Securities Act.
6. Additional Agreements.
6.1 Approval of Stockholders; Waiver of Appraisal Rights. By signing this Agreement below, the Signing Stockholders approve and adopt this Agreement, the Merger and the Certificate of Merger, and consent to the appointment of the Stockholders’ Agent and the other transactions contemplated hereby, and waive any dissenter’s rights they may otherwise have pursuant to applicable law under Section 262 of the Delaware Law.
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6.2 Access to Information. No information or knowledge obtained in any investigation in connection with this Agreement shall affect or be deemed to modify any representation or warranty contained herein.
6.3 Public Disclosure. Unless otherwise permitted by this Agreement, Parent and the Company shall consult with each other before issuing any press release or otherwise making any public statement or making any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby, and neither shall issue any such press release or make any such statement or disclosure without the prior approval of the other (which approval shall not be unreasonably withheld), except as may be required by law or by obligations pursuant to any listing agreement with the NASDAQ stock market.
6.4 Legal Requirements. Each of Parent, Merger Sub and the Company will, and will cause their respective subsidiaries to, take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the consummation of the transactions contemplated by this Agreement and will promptly cooperate with and furnish information to any party hereto necessary in connection with any such requirements imposed upon such other party in connection with the consummation of the transactions contemplated by this Agreement and will take all reasonable actions necessary to obtain (and will cooperate with the other parties hereto in obtaining) any consent, approval, order or authorization of or any registration, declaration or filing with, any Governmental Entity or other person, required to be obtained or made in connection with the taking of any action contemplated by this Agreement.
6.5 Expenses. Whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expense; provided however, that if the Merger is consummated, the Stockholders shall bear all Stockholder Transaction Expenses pursuant to a deduction from the Merger Consideration prior to distribution thereof to the Stockholders and, with respect to such costs and expenses of the Company determined after the Effective Time, pursuant to a claim by the Surviving Corporation or Parent against the Escrow Fund (which claim shall not be subject to the Threshold), other than as expressly provided in Section 1.7(a) in the definition of Stockholder Transaction Expenses.
6.6 Reasonable Commercial Efforts and Further Assurances. Each of the parties to this Agreement shall use reasonable commercial efforts to effectuate the transactions contemplated hereby and to fulfill and cause to be taken all actions under Article 2 and under this Agreement. Each party hereto, at the reasonable request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of this Agreement and the transactions contemplated hereby.
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7. Amendment and Waiver.
7.1 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective boards of directors. This Agreement may not be amended except by an instrument in writing signed on behalf of Parent and the Stockholders’ Agent.
7.2 Extension; Waiver. At any time prior to the Effective Time, the parties hereto may, to the extent legally allowed, (i) extend the time for the performance of any of the obligations or other acts of the other parties hereto, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in a written instrument signed on behalf of Parent and the Stockholders’ Agent.
8. Indemnification.
8.1 Indemnification.
(a) Survival of Representations and Warranties. All representations and warranties made by the Company, the Signing Stockholders, Parent or Merger Sub herein, or in any agreement, certificate, Schedule or Exhibit delivered pursuant hereto or in connection herewith, shall survive the Effective Time and continue in full force and effect until eighteen (18) months after the date hereof (such date is sometimes referred to herein as the “Termination Date”); provided however, that (i) the representations and warranties contained in Sections 3.6 (Taxes) and 3.7 (Employee Benefit Plans) and the covenants contained in Section 8.1(c) shall survive until thirty (30) days after the expiration of all applicable statute of limitations periods, including any waivers or extensions, (ii) the representations and warranties contained in Sections 3.2 (Authority) and 3.12 (Capital Structure) shall survive indefinitely, (iii) the representations and warranties contained in Article 3A (Representations and Warranties of Signing Stockholders) shall survive indefinitely, (iv) the representations and warranties contained in Section 3.18 (Intellectual Property) shall survive until forty-eight (48) months after the date hereof and (v) any representation and warranty which is inaccurate as a result of fraud of, or an intentional misrepresentation made by, the party making such representation and warranty shall survive until thirty (30) days after the expiration of all applicable statute of limitations periods, including any waivers or extensions. The subject matter of the representations, warranties and covenants specified in clauses (i), (ii), (iii), (iv) and (v) of the preceding sentence of this Section 8.1(a), together with the matters described in Section 8.1(b)(iii), (iv), (v) and (vii), are referred to as “Special Matters”). If a Notice of Claim has been given prior to the expiration of the applicable representations and warranties by a party in whose favor such representations and warranties have been made to the party that made such representations and warranties, then the relevant representations and warranties shall survive as to such claim, until the claim has been finally resolved. Neither the period of survival nor the liability of any party with respect to the parties’ representations and warranties shall be reduced by any investigation made at any time by or on behalf of any party or by facts disclosed subsequent to the date of this Agreement. A “Notice of Claim” shall be presented in the form of a certificate signed by any officer of Parent, any other Parent Indemnitee or a Stockholder Indemnitee, as the case may be, stating that, with respect to the indemnification obligations set forth in Sections 8.1(b), (c) or (d), Damages exist and
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specifying in reasonable detail the individual items of such Damages included in the amount so stated, the date each such item was paid, or properly accrued or arose, and the nature of the misrepresentation, breach of warranty or claim to which such item is related, or that an adjustment pursuant to Section 1.7(h) is to be made. A Notice of Claim presented by a Stockholder Indemnitee is referred to hereinafter as a “Stockholder Claim Notice.”
(b) Indemnification by the Stockholders and holders of Stock Options and Warrants. The Stockholders and holders of Stock Options and Warrants, jointly and severally with respect to payments from the Escrow Fund, and severally and not jointly with respect to payments in excess thereof, will indemnify and hold harmless Parent and the Surviving Corporation and their respective officers, directors, agents, attorneys, employees, stockholders, successors and assigns, and each person, if any, who controls or may control Parent or the Surviving Corporation within the meaning of the Securities Act (hereinafter referred to individually as a “Parent Indemnitee” and collectively as “Parent Indemnitees”), from and against any and all losses, costs, damages, diminution of value, Liabilities and expenses, including investigation, reasonable legal and accounting expenses (collectively, “Damages”) arising out of:
(i) any breach of any of the representations and warranties of the Company and/or the Stockholders set forth in this Agreement, the Company Disclosure Schedule or any other Exhibit or Schedule to this Agreement or certificate or instrument (including any letter of transmittal) delivered in connection with this Agreement;
(ii) any breach or violation of any covenant made in this Agreement by the Signing Stockholders or, if such breach or violation occurred prior to the Effective Time, by the Company;
(iii) any claim asserted by a holder of Stock Options, Warrants or Company Capital Stock, where such claim relates to whether the holder has a right to acquire stock or convert into an equity interest in the Company or the Surviving Corporation from and after the Effective Time;
(iv) the Adjustment Amount, if any, under Section 1.7(h);
(v) any claims against Parent or the Surviving Corporation with respect to appraisal rights under Section 262 of the Delaware Law and any expenses, including legal fees, related thereto, net of any Merger Consideration set forth in the Payment Spreadsheet as payable to the holders of Common Stock asserting such claims;
(vi) any Liabilities of the Company or any current or former director, officer, stockholder, employee, independent contractor or agent of the Company to the extent arising at or before the Effective Time (including those relating to or arising out of the ownership, use or operation of the Company or any predecessor thereto at or before the Effective Time) or relating to actions, omissions to act, events or circumstances occurring at or before the Effective Time (including any pending litigation,
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any failure to qualify to do business in any jurisdiction and any services provided by the Company at or before the Effective Time), other than (in each of the foregoing instances in this Section 8.1(b)(vi)) those Liabilities reflected on the face of the Closing Balance Sheet or described in the footnotes thereto or, for the avoidance of doubt, those arising from breaches after the Effective Time by the Surviving Corporation of contracts entered into by the Company before the Effective Time; or
(vii) any brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or similar charges, as well as any claim asserted seeking the same, relating to this Agreement or any transaction contemplated hereby.
(c) Tax Indemnification. The Stockholders and holders of Stock Options and Warrants, jointly and severally with respect to payments from the Escrow Fund, and severally and not jointly with respect to payments in excess thereof, will indemnify and hold harmless on an after-tax basis each Parent Indemnitee from and against any and all liability for Taxes (and all Damages arising from such liability) (i) attributable to any period prior to and including the date hereof, to the extent such Taxes are not shown as an accrued liability taken into account in the Working Capital as finally determined under Section 1.7(h), if any, (ii) with respect to income reportable for a period ending after the date hereof but attributable to a transaction occurring in, or a change in accounting method made for, a period on or before the date hereof, to the extent such Taxes are not shown as an accrued liability taken into account in the Working Capital as finally determined under Section 1.7(h), if any, or (iii) as a result of any breach of a representation or warranty under Section 3.6. To the extent that the Company is not permitted by applicable law to treat or elect to treat the date hereof as the last day of its taxable period, then the Taxes attributable to the operations of the Company for the portion of the period up to and including the date hereof shall be (i) in the case of real or personal property taxes or a flat minimum dollar amount tax, the total amount of such Taxes multiplied by a fraction, the numerator of which is the number of days in the partial period up to and including the date hereof and the denominator of which is the total number of days in the taxable period, (ii) in the case of all Taxes based on or in respect of income, the Tax computed on the basis of the taxable income or loss of the Company for such partial period as determined from its books and records, and (iii) in the case of all other Taxes, on the basis of the actual activities of the Company for such partial period as determined from its books and records, provided that exemptions, allowances or deductions which are calculated on an annual basis (including depreciation and amortization deductions) shall be allocated between the period ending on the date hereof and the period after the date hereof in proportion to the number of days in each such period. For avoidance of doubt, this Section 8.1(c) sets forth the indemnification obligations of the Stockholders, the holders of Stock Options and Warrants in respect of Taxes, and Section 8.1(b) shall not apply to Taxes.
(d) Indemnification by Parent and the Surviving Corporation. Parent and the Surviving Corporation shall indemnify and hold harmless the Stockholders and holders of Stock Options and Warrants and their respective officers, directors, agents, attorneys, employees, stockholders, successors, heirs, legatees and assigns (hereinafter referred to individually as a “Stockholder Indemnitee” and collectively as “Stockholder Indemnitees”) from and against any and all Damages arising out of:
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(i) any breach of any of the representations, warranties, covenants and agreements given or made by Parent or Merger Sub in this Agreement, or any Exhibit or Schedule to this Agreement or certificate or other document or instrument delivered in connection with this Agreement; or
(ii) any Liabilities of the Surviving Corporation arising after the Effective Time as a result of the ownership, use or operation of the Surviving Corporation after the Effective Time.
8.2 General Indemnification Provisions.
(a) For the purposes of this Section 8.2, the term “Indemnitee” shall refer to the person or persons indemnified, or entitled, or claiming to be entitled, to be indemnified, pursuant to the provisions of Section 8.1(b), (c) or (d), as the case may be; the term “Indemnitor” shall refer to the person or persons having the obligation to indemnify pursuant to such provisions; and “Damages” shall refer to Damages (including liability for Taxes) referred to in Section 8.1(b), (c) or (d), as the case may be.
(b) Within a reasonable time following such determination, an Indemnitee shall give the Indemnitor notice of any matter which an Indemnitee has determined has given or could give rise to a right of indemnification under this Agreement, stating the amount of the Damages, if known, and method of computation thereof, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises; provided however that claims with respect to Tax matters shall be governed by Section 8.8 and not this Section 8.2(b). The obligations and liabilities of an Indemnitor under this Article 8 with respect to Damages arising from claims of any third party that are subject to the indemnification provided for in this Article 8 (“Third Party Claims”) shall be governed by and contingent upon the following additional terms and conditions: if an Indemnitee shall receive notice of any Third Party Claim, the Indemnitee shall give the Indemnitor notice of such Third Party Claim within thirty (30) calendar days and shall permit the Indemnitor, at its option, to participate in the defense of such Third Party Claim by counsel of its own choice and at its expense. If the Indemnitor acknowledges in writing its obligation to indemnify the Indemnitee hereunder against any Damages that may result from such Third Party Claims (subject to the limitations set forth herein), then the Indemnitor shall be entitled, at its option, to assume and control the defense of such Third Party Claim at its expense and through counsel of its reasonable choice if it gives notice to the Indemnitee within thirty (30) calendar days of the receipt of notice of such Third Party Claim from the Indemnitee of its intention to do so. In the event the Indemnitor exercises its right to undertake the defense against any such Third Party Claim as provided above, the Indemnitee shall cooperate with the Indemnitor in such defense and make available to the Indemnitor, at the Indemnitor’s expense, all witnesses, pertinent records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitor. Similarly, in the event the Indemnitee is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee in such defense and make available to it all such witnesses, records, materials and information in its possession or under its control relating thereto as is reasonably required by the Indemnitee. No such Third Party Claim, except the
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settlement thereof which involves the payment of money only (by a party or parties other than the Indemnitee) and for which the Indemnitee is released by the third party claimant and is totally indemnified by the Indemnitor, may be settled by the Indemnitor without the written consent of the Indemnitee. Similarly, no Third Party Claim which is being defended in good faith by the Indemnitor shall be settled by the Indemnitee without the written consent of the Indemnitor.
(c) Limitations.
(i) Notwithstanding anything to the contrary in this Agreement, (A) Parent Indemnitees’ aggregate recovery for any and all obligations arising under Section 8.1(b) and (B) the Stockholder Indemnitees’ aggregate recovery for any and all obligations arising under Section 8.1(d) shall be limited to $1,800,000 (the “Indemnification Cap”); provided however, that this limitation shall not apply to Damages involving the Special Matters, fraud or an intentional misrepresentation. Notwithstanding anything to the contrary in this Agreement, in no event shall any Stockholder or holder of Stock Options or Warrants be liable for (i) Damages in excess of the aggregate amount paid to such Stockholders or holder of Stock Options or Warrants as set forth in the Payment Spreadsheet and (ii) more than such Stockholder’s or such holder of Stock Options or Warrants Pro Rata Share of any Damages.
(ii) No Parent Indemnitee shall be entitled to seek indemnification hereunder for Damages pursuant to Section 8.1(b)(i), (ii) or (vi) until the aggregate of all Damages under this Agreement payable pursuant to Section 8.1(b) to such Parent Indemnitees (in the aggregate) exceeds $100,000. No Stockholder Indemnitee shall be entitled to seek indemnification hereunder for Damages pursuant to Section 8.1(d) until the aggregate of all Damages under this Agreement payable to all Stockholder Indemnitees exceeds $100,000. This $100,000 figure is referred to herein as the “Threshold.” At such time as such Damages exceed the Threshold, the applicable Indemnitee shall have the right to seek indemnification from the first dollar; provided, however, that the Threshold shall not apply to (A) Damages involving fraud or an intentional misrepresentation, (B) the payment of any amount with respect to the Special Matters (other than the representations and warranties in Sections 3.7 and 3.18), (C) Damages relating to Taxes, including as set forth in Section 8.1(c) or (D) Damages relating to Parent’s failure to (x) wire to the transfer agent the aggregate amount payable to the Stockholders, as set forth in the Payment Spreadsheet (y) fund the account at the Surviving Corporation described in Section 1.7(b) or (z) fund the account at the Surviving Corporation described in Section 1.7(c), in each case for which Indemnitees shall be entitled to seek indemnification hereunder for Damages from the first dollar.
(iii) So long as the Escrow Fund has not been fully disbursed in accordance with the Escrow Agreement, in the event that an Indemnitee receives insurance proceeds in respect of Damages or alleged Damages, the calculation of Damages shall be limited to the amount of such Damages net of the difference between any insurance proceeds received by the Indemnitee in respect thereof minus the amount of premiums paid for such insurance by the Indemnitee. Once the Escrow Fund has been fully disbursed in accordance with the Escrow Agreement, in the event that a Parent
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Indemnitee receives insurance proceeds in respect of Damages relating to a specific Claim or alleged Damages relating to such Claim, the calculation of Damages relating to such Claim shall be limited to the excess, if any, of (a) the amount of such Damages over (b) the sum of any insurance proceeds received by the Parent Indemnitee in respect of such Claim (net of premiums paid for such insurance and expenses incurred in connection with collecting such insurance) and any indemnification payments received by the Parent Indemnitee from the Stockholders, holders of Stock Options and holders of Warrants in respect of Damages relating to such Claim (net of any expenses incurred by the Parent Indemnitee in collecting such payments). Any such excess shall be paid to the Stockholders’ Agent for return on a pro rata basis to the Stockholders, holders of Stock Options and holders of Warrants who made a payment to the Parent Indemnitee with respect to such Damages. The parties hereto agree that Parent shall not be liable for payment of any such excess to the Stockholders, holders of Stock Options and holders of Warrants after delivery of any such excess to the Stockholders’ Agent.
(iv) Notwithstanding any other provision of this Agreement, the Company Disclosure Schedule or any other Exhibit or Schedule to this Agreement or certificate or instrument delivered in connection with this Agreement, the indemnities set forth in this Article 8 shall be the exclusive remedies of the Indemnitees for Damages due to any misrepresentation or breach of any representation or warranty or covenant or agreement contained in this Agreement, the Company Disclosure Schedule or any other Exhibit (other than Exhibits E-1 and E-2) or Schedule to this Agreement or certificate or instrument delivered in connection with this Agreement, except as to Damages attributable to fraud or an intentional misrepresentation, in which case the aggrieved party shall have recourse to all remedies at law or in equity, including (in the case of Parent Indemnitees during the term of the Escrow Agreement) against the Escrow Fund. Nothing contained in this Section 8.2(c)(iv) shall prohibit a party from proceeding under Section 8.6 or commencing an Action to enforce this Article 8.
(v) Parent, the Surviving Corporation, the Company and the Stockholders and their respective affiliates (including all Parent Indemnitees) shall act in good faith and in a commercially reasonable manner to mitigate any Damages they may suffer.
(d) Payments from Escrow. As more particularly described in Section 8.3 and the Escrow Agreement, during the Escrow Period Parent shall satisfy indemnification obligations of the Stockholders by payment from the Escrow Fund of cash and shares of Parent Common Stock issued hereunder, valued at the average closing trading price, as reported by the Nasdaq National Market, per share of Parent Common Stock for the twenty (20) consecutive trading days ending on, and including, the trading day prior to the date of payment).
(e) Adjustment of Merger Consideration. The parties hereto agree to report any indemnification payment received by any of them (either pursuant to Sections 8.1(b), (c) or (d) as an adjustment to the Merger Consideration.
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8.3 Escrow Fund. Subject to the limitations set forth in Section 8.2(c), in addition to any other available remedies, Parent, the Surviving Corporation and the Parent Indemnitees shall be entitled to recover from the Escrow Fund in accordance with the Escrow Agreement the amount of any indemnification by the Stockholders and the holders of Stock Options and Warrants to which they are entitled under this Agreement; provided, however, that the Escrow Fund shall not be the exclusive source of indemnification under this Agreement. The Escrow Fund shall be the first source of recovery for Damages of Parent Indemnitees that are indemnified by Stockholders under this Agreement, unless (i) the Escrow Fund has been or would be exhausted, (ii) in Parent’s reasonable discretion, it would be deemed to limit or prejudice Parent’s and/or the Stockholders’ rights (other than the right to seek satisfaction of Damages other than from the Escrow Fund), or (iii) indemnification under this Agreement by the Stockholders is several.
8.4 Escrow Period; Release From Escrow.
(a) The escrow shall terminate on the Termination Date (the “Escrow Period”); provided, however, that a portion of the Escrow Fund, which, in the reasonable judgment of Parent is necessary to satisfy any unsatisfied claims specified in any Notice of Claim theretofore delivered to the Escrow Agent prior to termination of the Escrow Period, shall remain in the Escrow Fund until such claims have been resolved.
(b) Subject to the terms and conditions of the Escrow Agreement and Section 8.4(a), within ten (10) business days after the Termination Date (the “Release Date”), the Escrow Agent shall release from escrow any amounts remaining in the Escrow Fund to the Stockholders’ Agent for the benefit of the Stockholders, holders of Stock Option and holders of warrants.
8.5 Resolution of Conflicts and Arbitration.
(a) If there are Contested Amounts (as defined in the Escrow Agreement) with respect to matters other than determination of any Adjustment Amount (which shall be governed by Section 1.7(h) or Tax matters (which shall be governed by Section 8.8), and no agreement with respect thereto is reached pursuant to the process set forth in the Escrow Agreement, either Parent or the Stockholders’ Agent may, by written notice to the other, demand arbitration of the matter unless the amount of the Damage is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by one arbitrator. Parent and the Stockholders’ Agent shall agree on the arbitrator, provided that if Parent and the Stockholders’ Agent cannot agree on such arbitrator, either Parent or the Stockholders’ Agent can request that Judicial Arbitration and Mediation Services (“JAMS”) select the arbitrator. The arbitrator shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrator, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrator shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys’ fees and costs, to the same extent as a court of competent law or equity, should the
43
arbitrator determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial justification. The decision of the arbitrator shall be written, shall be in accordance with applicable law and with this Agreement, and shall be supported by written findings of fact and conclusions of law which shall set forth the basis for the decision of the arbitrator. The decision of the arbitrator as to the validity and amount of any claim shall be binding and conclusive upon the parties to this Agreement.
(b) Judgment upon any award rendered by the arbitrator may be entered in any court having jurisdiction. Any such arbitration shall be held in New York, New York under the commercial rules then in effect of the American Arbitration Association.
8.6 The Stockholders’ Agent.
(a) The approval by the Stockholders of the principal terms of this Agreement and the Merger shall automatically and without any further action on the part of any Stockholder constitute the irrevocable appointment of Xxxxxx Xxxxx (“Stockholders’ Agent”) as the agent, proxy and attorney-in-fact for each of the Stockholders, holders of Stock Options and holders of Warrants with respect to matters arising after the effectiveness of the Merger and the other matters expressly set forth Section 8.6(b), in this Agreement and in the Escrow Agreement to be performed by the Stockholders’ Agent.
(b) Without limiting Section 8.6(a), the Stockholders’ Agent is hereby irrevocably appointed the agent, proxy and attorney-in-fact for each of the Stockholders, holders of Stock Options and holders of Warrants for all purposes of this Agreement, including without limitation, full power and authority on such Stockholders, holders of Stock Options and holders of Warrants behalf (i) to give and receive notices and communications, (ii) to authorize payment to any Indemnitee from the Escrow Fund in satisfaction of claims by any Indemnitee, to object to such payments, to bring any claim for indemnification on behalf of any Stockholder Indemnitee, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, to assert, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to, any other claim by any Parent Indemnitee against any Stockholder, holder of Stock Options or holder of Warrants or by any such Stockholder, holder of Stock Options or holder of Warrants against any Parent Indemnitee or any dispute between any Parent Indemnitee and any such Stockholder, holder of Stock Options or holder of Warrants, in the case of (b)(i) and (b)(ii) relating to this Agreement or the transactions contemplated hereby, (iii) to execute and deliver on behalf of such Stockholder, holder of Stock Options or holder of Warrants any amendment hereto; provided that such amendment does not increase the Stockholders’, holder of Stock Options and holder of Warrants liabilities in any material respect, (iv) to execute and deliver the Escrow Agreement and to take such further actions with respect thereto as the Stockholders’ Agent shall deem appropriate and (v) to take all other actions that are either (A) necessary or appropriate in the judgment of the Stockholders’ Agent for the accomplishment of the foregoing or (B) specifically mandated by the terms of this Agreement. Such agency may be changed by the Stockholders, holders of Stock Options or holders of Warrants from time to time upon not less than thirty (30) days’ prior written notice to Parent; provided, however, that the Stockholders’ Agent may not be removed
44
unless holders of a majority in interest of the Escrow Fund agree to such removal and to the identity of the substituted agent.
(c) A vacancy in the position of Stockholders’ Agent may be filled by the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Stockholders’ Agent, and the Stockholders’ Agent shall not receive any compensation for his services. Notices or communications to or from the Stockholders’ Agent shall constitute notice to or from each of the Stockholders, holders of Stock Options and holders of Warrants.
(d) The Stockholder’s Agent shall have the right to recover from the Escrow Fund, prior to any distribution to the Stockholders, holders of Stock Options and holders of Warrants (but after any disbursement from the Escrow Fund to the Escrow Agent pursuant to terms and conditions of the Escrow Agreement), the Stockholder’s Agent’s reasonable out-of-pocket expenses (including attorneys’ and accountants’ fees and expenses) incurred in serving in that capacity (the “Charges”). In the event the Escrow Fund is insufficient to satisfy the Charges, then each Stockholder, holder of Stock Options or holder of Warrants will be obligated to pay a percentage of the Charges in excess of the Escrow Fund proportionate to such Stockholders’, holder of Stock Options or holder of Warrants Pro Rata Share.
(e) The Stockholders’ Agent shall not be liable for any act done or omitted hereunder as the Stockholders’ Agent while acting in good faith and in the exercise of reasonable judgment and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. The Stockholders, holders of Stock Options and holders of Warrants shall severally indemnify the Stockholders’ Agent and hold him harmless against any loss, liability or expense incurred without gross negligence or bad faith on the part of the Stockholders’ Agent and arising out of or in connection with the acceptance or administration of his duties hereunder.
(f) The Stockholders’ Agent shall have reasonable access to information about the Company (and, after the Effective Time, the Surviving Corporation) and the reasonable assistance of the Company’s (and, after the Effective Time, the Surviving Corporation’s) officers and employees for purposes of performing his duties and exercising his rights hereunder, provided that the Stockholders’ Agent shall treat confidentially and not disclose any nonpublic information from or about the Company to anyone (except on a need to know basis to individuals who agree to treat such information confidentially).
(g) Xxxxxx Xxxxx acknowledges that he may have a conflict of interest with respect to his duties as the Stockholders’ Agent, and in such regard Xxxxxx Xxxxx agrees that he will act in the best interests of all of the Stockholders, holders of Stock Options and holders of Warrants.
8.7 Actions of the Stockholders’ Agent. A decision, act, consent or instruction of the Stockholders’ Agent shall constitute a decision of all the Stockholders, holders of Stock Options and holders of Warrants and shall be final, binding and conclusive upon each such Stockholder, holder of Stock Options and holder of Warrants, and the Escrow Agent and Parent may rely upon any decision, act, consent or instruction of the Stockholders’ Agent as
45
being the decision, act, consent or instruction of each and every Stockholder, holder of Stock Options and holder of Warrants. The Escrow Agent and Parent are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Stockholders’ Agent.
8.8 Tax Matters. (a) Following the Effective Time, with respect to any taxable period of the Company that ends on or before the date hereof or begins before and ends after the date hereof, Parent shall cause to be timely filed all Tax returns required to be filed by the Surviving Corporation after the Effective Time and, subject to the right to payment from the Stockholders and the holders of Stock Options and Warrants under Section 8.1(c), pay or cause to be paid all Taxes shown due thereon. To the extent any Taxes shown due on any Tax return described in this Section 8.8(a) are indemnifiable by the Stockholders and the holders of Stock Options and Warrants, Parent shall cause the Surviving Corporation to provide the Stockholders’ Agent with copies of such completed Tax returns or other statements or schedules that set forth in sufficient detail the amount of Tax due and the basis thereof at least twenty (20) days prior to the due date for filing thereof, along with supporting workpapers, for the Stockholders’ Agent’s review and approval. The Stockholders’ Agent and Parent shall attempt in good faith to resolve any disagreements regarding such Tax returns prior to the due date for filing. In the event that the Stockholders’ Agent and Parent are unable to resolve any dispute with respect to such Tax returns at least ten (10) days prior to the due date for filing, such dispute shall be resolved pursuant to Section 8.8(c) which resolution shall be binding on the parties. The Stockholders and the holders of Stock Options and Warrants shall each bear their respective Pro Rata Share of the costs of preparing any Tax return relating to any taxable period of the Company that ends on or before the date hereof, which amount shall be treated as an indemnification obligation by such parties under Section 8.1(c).
(b) (i) If notice of any audit with respect to Taxes of the Company shall be received by the Surviving Corporation or Parent for which the Stockholders and the holders of Stock Options and Warrants may reasonably be expected to be liable pursuant to Section 8.1(c) (a “Tax Claim”), the notified party shall notify the Stockholders’ Agent in writing of such Tax Claim. The Stockholders’ Agent shall have the right, at its own expense, to represent the interests of the Company in any Tax Claim, and Parent shall be kept informed of the handling of the Tax Claim, and there shall be no settlement with respect thereto without the consent of Parent, which consent will not be unreasonably withhold or delayed (and if the Parent shall fail to provide such consent and granting such consent will not result in a materially adverse impact on Parent or any of its subsidiaries, the liability of the Stockholders and the holders of Stock Options and Warrants shall not exceed the amount for which that the Tax Claim could have been settled), provided, however, that with respect to a Tax Claim relating exclusively to a period beginning before the date hereof and ending after the date hereof or a Tax Claim which may reasonably be expected to affect the Taxes of the Company or Parent for which the Stockholders and the holders of Stock Options and Warrants would not be liable pursuant to Section 8.1(c), (A) the Stockholders’ Agent and Parent shall jointly control the defense and settlement of any such Tax Claim at each party’s own expense, and (B) there shall be no settlement with respect thereto without the consent of the other party, which consent will not be unreasonably withheld or delayed.
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(ii) Notwithstanding anything in Section 8.8(b)(i) to the contrary, (A) if Parent notifies the Stockholders’ Agent of Parent’s request to control the defense and settlement of any Tax Claim, or (B) if Parent fails to timely notify the Stockholders’ Agent of a Tax Claim and such failure materially impairs the Stockholders’ Agent’s ability to contest such Tax Claim, then in either case, the Stockholders and the holders of Stock Options and Warrants shall be released from any and all indemnification obligations under Section 8.1(c) in regard to such Tax Claim.
(c) Any dispute as to any matter covered by this Section 8.8 shall be resolved by the Accountants. The fees and expenses of the Accountants incurred as a result of any dispute described in the preceding sentence shall be borne equally by the Stockholders, on the one hand, and Parent on the other.
9. General Provisions.
9.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly delivered if delivered personally (upon receipt), or three (3) business days after being mailed by registered or certified mail, postage prepaid (return receipt requested), or one (1) business day after it is sent by reputable nationwide overnight courier service, or upon transmission, if sent via facsimile (with confirmation of receipt) to the parties at the following address (or at such other address for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
iVillage Inc.
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Chief
Financial Officer
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy (not constituting notice) to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
The Xxxxxx Building
000 Xxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx
X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
(b) if to the Company, to:
HealthCentersOnline, Inc.
Atrium Financial Center
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
00
Xxxx Xxxxx, Xxxxxxx 00000
Attention: Xxxxxx
Xxxxx
Telephone: (000)
000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxxxx Traurig, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
if to the Stockholders’ Agent, to:
Xxxxxx Xxxxx
HealthCentersOnline, Inc.
Atrium Financial Center
0000 Xxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
with a copy to:
Xxxxxxxxx Xxxxxxx, LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx
X. Xxxxxxx, Esq.
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
(c) if to the Stockholders, holders of Stock Options or holders of Warrants, to the addresses set forth on the Payment Spreadsheet.
9.2 Definitions. In this Agreement any reference to any event, change, condition or effect being “material” with respect to any entity or group of entities means any material event, change, condition or effect related to the financial condition, properties, assets (including intangible assets), liabilities, business, operations or results of operations of such entity or group of entities. In this Agreement any reference to a “Material Adverse Effect” with respect to any entity or group of entities means any event, change or effect that is materially adverse to the financial condition, properties, assets, liabilities, business, operations or results of operations of such entity and its subsidiaries, taken as a whole. In this Agreement any reference to a “business day” means any day other than a Saturday, Sunday or other day on which banks
48
are authorized to be closed in New York, New York. In this Agreement any reference to the business of the Company “as proposed to be conducted” means any Company plan, proposal, projection or intention with respect to the conduct of the business of the Company as discussed with or delivered to Parent prior to the Effective Time. When a reference is made in this Agreement to Sections, subsections, Schedules or Exhibits, such reference shall be to a Section, subsection, Schedule or Exhibit to this Agreement unless otherwise indicated. In this Agreement, the words “include,” “includes” and “including” when used herein shall be deemed in each case to be followed by the words “without limitation.” In this Agreement, the words “herein” and “hereby” and similar references mean, except where a specific Section or Article reference is expressly indicated, the entire Agreement rather than any specific Section or Article. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms.
9.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement, the Escrow Agreement and the documents and instruments and other agreements specifically referred to herein or delivered pursuant hereto, including the Exhibits, the Schedules (including the Company Disclosure Schedule) (a) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and and (b) are not intended to confer upon any other person any rights or remedies hereunder (except as expressly set forth in Sections 1.7(b), 1.7(c), 5.1(a)(ii) and 5.1(c) and Article 8).
9.5 Severability. In the event that any provision of this Agreement, or the application thereof becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such party, and the exercise by a party of any one remedy will not preclude the exercise of any other remedy.
9.7 Governing Law; Jurisdiction.
(a) This Agreement shall be governed by and construed in accordance with the laws of New York that might otherwise govern under applicable principles of conflicts of law.
49
(b) Except as otherwise provided in Sections 1.7(h) or 8.8 or in the event of fraud or an intentional misrepresentation, any dispute, controversy or claim among the parties hereto arising out of this Agreement or the Escrow Agreement, any related document or certificate or any transaction contemplated hereby or thereby, including as to their existence, enforceability, validity, interpretation, performance or breach, may be resolved by arbitration pursuant to Section 8.5 upon written notice made by one party hereto to the other, unless such dispute, controversy or claim is then the subject of a proceeding before a Governmental Entity.
(c) Each of the parties hereto irrevocably consents to the exclusive jurisdiction of (i) the Supreme Court of the State of New York, New York County, and (ii) the United States District Court for the Southern District of New York, for the purposes of any Action (as defined below) arising out of this Agreement or the Escrow Agreement, any related document or certificate or any transaction contemplated hereby or thereby. Unless an Action is the subject of a then pending arbitration proceeding, each of the parties hereto agrees to commence any Action relating hereto either in the United States District Court for the Southern District of New York or if such Action may not be brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County. Each of the parties hereto further agrees that service of any process, summons, notice or document by U.S. registered mail to such party’s respective address set forth in Section 9.1 shall be effective service of process for any Action in New York with respect to any matters to which it has submitted to jurisdiction in this Section 9.7. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any Action arising out of this Agreement, or any transaction contemplated hereby in (x) the Supreme Court of the State of New York, New York County, or (y) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action brought in any such court has been brought in an inconvenient forum. For purposes of this Agreement, “Action” means any claim, action, suit or arbitration, or any other proceeding, in each instance by or before any Governmental Entity or any nongovernmental arbitration, mediation or other nonjudicial dispute resolution body.
9.8 Rules of Construction. The parties hereto agree that they have been represented by counsel during the negotiation, preparation and execution of this Agreement and, therefore, waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document. The headings and captions herein are inserted for convenience of reference only and are not intended to govern, limit or aid in the construction of any term or provision hereof.
50
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by each of them or their respective officers hereunto duly authorized, all as of the date first written above.
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HEALTHCENTERSONLINE, INC. |
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By: |
/s/ Xxxxxx Xxxxx |
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Xxxxxx X. Xxxxx |
Xxxxxx Xxxxx |
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Chief Financial Officer
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VIRTUE ACQUISITION CORPORATION 2 |
ROLLOVER STOCKHOLDER: |
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/s/ Xxxxxx Xxxxx |
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STOCKHOLDERS’ AGENT: |
Xxxx Xxxx |
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/s/ Xxxxxx Xxxxx |
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Xxxxxx Xxxxx |
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STOCKHOLDERS: |
STOCKHOLDERS: |
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/s/ Xxxxxx Xxxxx |
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/s/ Xxxx McVity |
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Xxxxxx Xxxxx |
Xxxx McVity |
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SCHEDULE
A
SIGNING STOCKHOLDERS
Xxxxxx Xxxxx
Xxxx Xxxx
Xxxx McVity
Xxxxxx Xxxxx
Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxx
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Term |
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Section |
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2006 Audit Date |
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Section 8.2(c) |
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Accountants |
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Section 1.7(h)(ii) |
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Adjusted Balance Sheet |
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Section 1.7(h) |
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Adjusted Working Capital Statement |
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Section 1.7(h) |
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Adjustment Amount |
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Section 1.7(h) |
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Affected Employees |
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Section 5.1(b)(i) |
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Agreement |
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First Paragraph |
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Business Day |
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Section 9.2 |
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Certificate |
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Section 1.8(a) |
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Certificate of Merger |
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Section 1.2 |
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Charges |
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Section 8.6(d) |
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Closing Balance Sheet |
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Section 1.7(h) |
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Code |
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Section 1.7(g) |
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Common Stock |
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Recital A |
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Company |
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First Paragraph |
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Company Balance Sheet |
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Section 3.13(a)(i) |
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Company Balance Sheet Date |
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Section 3.13(a) |
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Company Capital Stock |
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Recital A |
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Company Content |
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Section 3.18(i) |
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Company Disclosure Schedule |
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Section 3.2(b) |
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Company Financial Statements |
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Section 3.13 |
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Company Returns |
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Section 3.6(a) |
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Company Software |
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Section 3.18(a) |
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Damages |
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Section 8.1(b) |
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Delaware Law |
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Section 1.2 |
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Dissenting Shares |
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Section 1.7(j) |
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Effective Time |
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Section 1.3 |
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Employee Benefit Plans |
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Section 3.7(a) |
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Environmental Laws |
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Section 3.5(a)(i) |
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ERISA |
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Section 3.7(a) |
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ERISA Affiliate |
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Section 3.7(a) |
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Escrow Agent |
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Section 1.8(b) |
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Escrow Agreement |
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Section 1.8(b) |
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Escrow Amount |
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Section 1.8(b) |
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Cash Holder Percentage |
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Section 2.2(f) |
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Escrow Fund |
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Section 1.8(b) |
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Escrow Period |
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Section 8.4(a) |
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Escrow Shares |
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Section 1.8(b) |
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Exchange Act |
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Section 4.3 |
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Exchange Agent |
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Section 1.8(a) |
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Exchange Ratio |
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Section 1.7(b) |
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GAAP |
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Section 3.13(b) |
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Governmental Entity |
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Section 3.2(b) |
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Hazardous Materials |
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Section 3.5(a)(ii) |
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HIPAA |
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Section 3.7(c) |
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Indemnification Cap |
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Section 8.2(c)(i) |
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Indemnitee |
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Section 8.2(a) |
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Indemnitor |
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Section 8.2(a) |
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Intellectual Property |
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Section 3.18(b) |
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IRS |
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Section 3.6(c) |
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JAMS |
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Section 8.6(a) |
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Liabilities |
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Section 3.15 |
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Material Contract |
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Section 3.22(a) |
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Material Adverse Effect |
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Section 9.2 |
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Merger |
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Recital C |
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Merger Consideration |
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Section 1.7(a) |
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Merger Sub |
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First Paragraph |
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Notice of Claim |
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Section 8.1(a) |
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Option Letter |
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Section 1.7(b) |
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Outstanding Company Capital Stock |
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Section 1.7(a) |
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Parent |
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First Paragraph |
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Parent Common Stock |
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Recital B |
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Parent Financial Statements |
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Section 4.4 |
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Parent Indemnitee |
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Section 8.1(b) |
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Parent SEC Documents |
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Section 4.4 |
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Payment Spreadsheet |
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Section 2.2(f) |
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Pension Plans |
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Section 3.7(d) |
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Per Share Consideration |
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Section 1.7(a) |
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Preferred Stock |
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Recital A |
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Pro Rata Share |
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Section 1.8(b) |
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Release Date |
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Section 8.4(b) |
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Rollover Stockholder |
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Recital B |
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SEC |
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Section 4.4 |
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Securities Act |
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Section 3.13(f) |
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Series A Preferred Stock |
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Recital A |
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Series B Preferred Stock |
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Recital A |
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Series C Preferred Stock |
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Recital A |
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Severally |
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Section 8.1(f) |
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Signing Stockholders |
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First Paragraph |
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Special Matters |
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Section 8.1(a) |
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Stock Exchange |
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Section 1.1 |
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Stockholder Claim Notice |
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Section 8.1(a) |
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Stockholder Indemnitee |
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Section 8.1(d) |
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Stockholder Transaction Expenses |
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Section 1.7(a) |
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Stockholders |
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Section 1.7(a) |
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Stockholders’ Agent |
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Section 8.6(a) |
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Stock Option |
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Section 1.7(b) |
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Stock Option Plans |
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Section 3.12(c) |
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Surviving Corporation |
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Section 1.2 |
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Tail Indemnitee |
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Section 5.1(c) |
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Target Working Capital Amount |
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Section 1.7(h) |
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Tax/Taxes |
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Section 3.6 |
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Tax Claim |
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Section 8.8(b)(i) |
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Termination Date |
|
Section 8.1(a) |
|
Third Party Claims |
|
Section 8.2(b) |
|
Third Party Intellectual Property Right |
|
Section 3.18(b) |
|
Threshold |
|
Section 8.2(c)(ii) |
|
Warrant |
|
Section 1.7(c) |
|
Working Capital |
|
Section 1.7(h) |
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