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AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
FEBRUARY 18, 1999
AMONG
iVILLAGE INC.
AND
KNOWLEDGEWEB ACQUISITION CORPORATION
AND
KNOWLEDGEWEB, INC.
AND
THE SHAREHOLDERS OF KNOWLEDGEWEB, INC.
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION, dated as of February 18, 1999,
among iVillage Inc., a Delaware corporation ("Parent"), Knowledgeweb, Inc., a
California corporation (the "Company"), the shareholders of the Company listed
in Exhibit I hereto (each a "Shareholder" and, together, the "Shareholders"),
and Knowledgeweb Acquisition Corporation, a Delaware corporation and a direct,
wholly-owned subsidiary of Parent ("Acquisition Sub").
RECITALS
A. The Shareholders own all of the outstanding shares of capital
stock of the Company.
B. The Shareholders wish to sell, and the Parent wishes to purchase,
such shares upon the terms and conditions hereinafter set forth.
C. The Boards of Directors of Parent, Acquisition Sub and the Company
have each duly approved and adopted this Agreement and Plan of Reorganization
(this "Agreement"), the Agreement of Merger in substantially the form of
Exhibit II attached hereto (the "Agreement of Merger") and the proposed merger
of the Company with and into Acquisition Sub in accordance with this
Agreement, the Agreement of Merger, the California Corporations Code (the
"California Statute") and the Delaware General Corporation Law (the "Delaware
Code"), whereby, among other things, the issued and outstanding shares of
common stock, $.0001 par value per share, of the Company (the "Company Common
Stock") and of preferred stock, $.0001 par value per share, of the Company
(the "Company Preferred Stock" and together with the Company Common Stock, the
"Shares"), will be exchanged and converted into shares of common stock, $.0005
par value per share, of Parent (the "Parent Common Stock") and cash in the
manner set forth in Article II hereof and in the Agreement of Merger, upon the
terms and subject to the conditions set forth in this Agreement and the
Agreement of Merger.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the Agreement of Merger and the representations,
warranties, covenants, agreements, conditions and promises contained herein
and therein, the parties hereby agree as follows:
ARTICLE I
GENERAL
1.1 The Merger. In accordance with the provisions of this Agreement, the
Agreement of Merger, the California Statute and the Delaware Code, Acquisition
Sub shall be merged with and into the Company (the "Merger"), which at and
after the Effective Date shall be, and is sometimes hereinafter referred to
as, the "Surviving Corporation." For convenience of reference, Acquisition Sub
and the Company are sometimes collectively hereinafter referred to as the
"Constituent Corporations."
1.2 The Effective Date of the Merger. Subject to the provisions of this
Agreement, the Agreement of Merger shall be executed and delivered to and
filed with the Corporate Division of the Secretary of State of the State of
California (the "California Secretary of State") by each of the Constituent
Corporations on the Closing Date in the manner provided under Sections 1101
and 1103 of the California Statute and a Certificate of Merger shall be
executed and delivered to and filed with the Secretary of State of the State
of Delaware (the "Delaware Secretary of State") by each of the Constituent
Corporations on the Closing Date in the manner provided under Section 252 of
the Delaware Code. The Merger shall become effective (the "Effective Date")
upon the filing with the Secretaries of State of the States of California and
Delaware of the Agreement of Merger and a Certificate of Merger, respectively.
1.3 Effect of Merger. At the Effective Date, the separate existence of
the Acquisition Sub shall cease and the Acquisition Sub shall be merged with
and into the Surviving Corporation, and the Surviving Corporation shall
possess all of the rights, privileges, powers and franchises, and be subject
to all the restrictions, disabilities and duties of each of the Constituent
Corporations.
1.4 Charter and By-Laws of Surviving Corporation. From and after the
Effective Date and pursuant to the Agreement of Merger: (i) the Charter of the
Company shall be amended and restated as of the Effective Date to read as set
forth in Exhibit A to the Agreement of Merger, (ii) the By-Laws of the Company
shall be the By-Laws of the Surviving Corporation, unless and until altered,
amended or repealed as provided in the California Statute, the Charter or such
By-Laws, (iii) the directors of Acquisition Sub shall be the directors of the
Surviving Corporation, unless and until removed, or until their respective
terms of office shall have expired, in accordance with the California Statute,
the Charter and the By-Laws of the Surviving Corporation, as applicable, and
(iv) the officers of Acquisition Sub shall be the officers of the Surviving
Corporation, unless and until removed, or until their terms of office shall
have expired, in accordance with the California Statute, the Charter and the
By-Laws of the Surviving Corporation, as applicable.
1.5 Taking of Necessary Action. Prior to the Effective Date, the parties
hereto shall do or cause to be done all such acts and things as may be
necessary or appropriate in order to effectuate the Merger as expeditiously as
reasonably practicable, in accordance with this Agreement, the Agreement of
Merger, the California Statute and the Delaware Code.
1.6 Tax-Free Reorganization. For Federal income tax purposes, the parties
intend that the Merger be treated as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of Section 368(a)(2)(E) of the Code, and that
this Agreement shall be, and is hereby, adopted as a plan of reorganization
for purposes of Section 368 of the Code. No party shall take a position on any
tax return or reports inconsistent with this Section 1.6, and each party shall
use its reasonable efforts to maintain such reporting in the context of an
audit. Each party shall give the other parties prompt notice of any challenges
or investigations undertaken by any taxing agency in connection with such
reporting, and shall keep such other parties fully informed of all aspects of
such ongoing challenge or investigation. Neither Parent nor the Company shall
take any action, except as expressly provided in this Agreement, that would be
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a) of the Code.
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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS
2.1 Total Consideration.
(a) Payment of Consideration. The entire consideration payable by Parent
with respect to all outstanding shares of capital stock of the Company and for
all options, warrants, rights, calls, commitments or agreements of any
character to which the Company is a party or by which it is bound calling for
the issuance of shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for, or representing the right
to purchase or otherwise receive, directly or indirectly, any such capital
stock, or other arrangement to acquire, at any time or under any circumstance,
capital stock of the Company or any such other securities (such options,
warrants, rights, calls, commitments, agreements or arrangements being
sometimes hereinafter collectively referred to as "Equity Rights"; and the
Equity Rights, together with all such outstanding shares of capital stock of
the Company, being sometimes collectively hereinafter referred to as the
"Fully Diluted Company Shares") shall be payable as follows:
(i) an aggregate amount of up to $1,000,000 in cash; and
(ii) up to 2,500,000 shares of Parent Common Stock, payable or
issuable as the case may be, as provided in Sections 2.1(b) and 2.2.
(b) Effect on Capital Stock. At the Effective Date, subject and pursuant
to the terms and conditions of this Agreement and the Agreement of Merger, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holders of the capital stock of the Constituent
Corporations:
(i) subject to Sections 2.2 and 2.4, the shares of Company Common
Stock and Company Preferred Stock issued and outstanding and the
outstanding options to purchase Company Common Stock (the "Company
Options") as of the Effective Date shall be exchanged for and converted
into the right to receive shares of Parent Common Stock and cash as
follows:
(A) all shares of Company Common Stock and Company Preferred
Stock shall be exchanged and converted into the right to receive in
the aggregate: (1) $964,072 in cash (less any Transaction Expenses
pursuant to Sections 4.32 and 6.2), and (2) 2,406,374 shares of
Parent Common Stock as set forth on Exhibit 2.1; and
(B) The Company Options shall convert into options to acquire
in the aggregate: (1) $35,928 in cash (less any Transaction Expenses
pursuant to Sections 4.32 and 6.2), and (2) 93,626 shares of Parent
Common Stock (the "Parent Options") as set forth on Exhibit 2.1. The
Parent Options shall have the same general terms as the Company
Options
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including, without limitation, the same vesting schedules and
acceleration provisions to which such options are subject.
(ii) If at any time subsequent to the date of this Agreement and
prior to the Effective Date (the "Executory Period"), the Company shall
issue any capital stock or Equity Rights, the foregoing allocations of
consideration shall be proportionately and equitably adjusted and
reallocated among all holders of Company Common Stock, Company Preferred
Stock and Company Options.
(iii) Each share of Company Common Stock and Company Preferred Stock
that is authorized but unissued shall cease to exist and no Parent Common
Stock or other consideration shall be delivered in exchange therefor.
(iv) For convenience of reference, the shares of Parent Common Stock
to be issued upon the exchange and conversion of Company Common Stock,
Company Preferred Stock and upon exercise of Parent Options in accordance
with this Section 2.1 are sometimes hereinafter collectively referred to
as the "Merger Shares." Notwithstanding anything to the contrary, in no
event shall the number of Merger Shares exceed 2,500,000 shares of Parent
Common Stock (subject to stock splits, reorganizations and the like).
(c) No Liability. Neither Parent, Acquisition Sub nor the Company shall
be liable to any holder of shares and/or rights to acquire Company Common
Stock or Parent Common Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) and/or rights to such shares of Parent
Common Stock to be issued in exchange for Company Common Stock and/or rights
thereto pursuant to this Section 2.1, if, on or after the expiration of six
months following the Effective Date, such shares and/or rights thereto are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
2.2 Earnout Shares.
(a) Of the Merger Shares issued at Closing to the Shareholders, 1,202,382
Merger Shares will be held in escrow by Parent and will not be transferable
for a period of five years from the date of Closing unless released pursuant
to this Section 2.2. On or before the due dates set forth on Exhibit 2.2 (the
"Due Dates"), Parent shall release to the Shareholders on a pro rata basis
Shares ("Earnout Shares") based on the Company's gross revenues for the
periods specified in Exhibit 2.2 until three years from the date of Closing
(the "Earnout Period"). The Earnout Shares to be released shall be calculated
as set forth on Exhibit 2.2. If an aggregate of 1,202,382 Earnout Shares have
not been released at the end of the Earnout Period, then Parent shall release
the remaining Earnout Shares to the Shareholders on the date which is five
years from the Closing Date. For purposes of this Section 2.2 and Exhibit 2.2,
gross revenues shall be computed in a manner consistent with generally
accepted accounting principles and shall exclude in-house ads and internal
promotions among the Parent and its subsidiaries.
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(b) On or before each Due Date, Parent will deliver to the Shareholders a
statement setting forth in reasonable detail its calculation of gross revenues
for the applicable portion of the Earnout Period and the amount of Earnout
Shares to be released to the Shareholders, which statement shall be
accompanied with each Shareholder's pro rata portion of the Earnout Shares for
such period.
(c) To the extent that Parent or any subsidiary of Parent other than the
Company generate revenues from the sale of astrology related products or
services during the Earnout Period, then such revenues shall be included in
the calculation of gross revenues for purposes of determining the amount of
Earnout Shares. The Company shall establish an ad hoc astrology task force to
address issues relating to astrology. The task force will consist of three
members. The initial members of the task force shall be Xxxxxxx Xxxxxxx,
Xxxxxxx Xxxx and Xxxxx Xxx or Xxxxx Xxx.
(d) In the event that the Parent is acquired by another entity during the
Earnout Period and the Company is no longer operated as a distinct line of
business for internal reporting purposes such that it is not possible to
calculate the Company's gross revenues, then the Parent shall release any
remaining Earnout Shares held in escrow pursuant to this Section 2.2.
(e) Parent shall provide the Company with an operating budget equal to or
greater than $2 million during the first year after Closing. The operating
budget in the second and third year after the Closing shall equal or exceed
the initial year operating budget.
2.3 Approval of Transaction; Exchange of Securities. Prior to the
Effective Date and subject to and contingent upon the effectiveness of the
Merger, the Shareholders shall vote all of their shares of Company Common
Stock and Company Preferred Stock, as applicable, or execute and deliver a
written consent, in favor of the approval of this Agreement, the Agreement of
Merger and the Merger and any matter that could reasonably be expected to
facilitate the Merger.
2.4 Escrow Deposits.
(a) Escrow Agreement. Reference is made to the escrow agreement
which shall be dated as of the Effective Date among the Shareholders, the
Parent and the escrow agent named therein (the "Escrow Agent") in a form
mutually acceptable to the parties hereto (the "Escrow Agreement"). The
Escrow Agreement is being entered into for the purpose of securing the
indemnification obligations of the Shareholders under ARTICLE VIII.
(b) Escrow Deposit. At the Effective Date, Parent shall cause to be
deposited with the Escrow Agent to be held by the Escrow Agent and
distributed subject to the terms of the Escrow Agreement certificates
representing 225,000 Merger Shares (of which all of the Parent Common
Stock shall be deposited on behalf of the Shareholders as set forth on
Exhibit 2.1), together with stock powers duly endorsed in blank for
transfer on behalf of the Shareholders, who by their execution and
delivery of this
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Agreement, hereby authorize and direct the Parent to make such deposit on
their behalf. In addition, the Parent shall cause to be deposited with
the Escrow Agent and distributed subject to the terms of the Escrow
Agreement certificates representing the first 225,000 Earnout Shares to
be released pursuant to Section 2.2, together with stock powers duly
endorsed in blank for transfer on behalf of the Shareholders, who by
their execution and delivery of this Agreement, hereby authorize and
direct the Parent to make such deposit on their behalf. The 225,000
Merger Shares and the 225,000 Earnout Shares subject to the Escrow
Agreement are collectively referred to as the "Escrow Shares".
ARTICLE III
CLOSING
3.1 Closing. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the
provisions of ARTICLE IX, and subject to the provisions of ARTICLE VII, the
closing of the Merger (the "Closing") will take place at 10:00 a.m.
(California time) on a date (the "Closing Date") to be mutually agreed upon by
the parties, which date shall be not later than the third Business Day after
all the conditions set forth in ARTICLE VII shall have been satisfied (or
waived in accordance with Section 9.3, to the extent the same may be waived),
unless another date is agreed to in writing by the parties. The Closing shall
take place at the offices of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, 000 Xxxxxxx
Xxxxxx, Xxx Xxxxxxxxx, XX 00000, unless another place is agreed to in writing
by the parties. As used herein, the term "Business Day" shall mean any day
other than a Saturday, Sunday or day on which banks are permitted to close in
the City of San Francisco and State of California.
3.2 Company's and Shareholders' Obligations at the Closing. At the
Closing, the Company and the Shareholders shall deliver or cause to be
delivered:
(a) Stock certificates representing all of the Shares, free and
clear of all claims, liens, security interests, pledges, charges or
encumbrances of any kind, which certificates shall be duly endorsed to
the Parent or accompanied by duly executed stock powers in form
satisfactory to the Parent;
(b) Consents from any third parties whose consent to the
transactions contemplated hereby is required under the terms of the
Company's contracts, licenses or rights;
(c) A certificate of the Shareholders, dated the Closing Date,
certifying as to the matters requested by the Parent pursuant to Section
7.2(b);
(d) Resignations effective as of the Closing of all the directors of
the Company;
(e) The Articles of Incorporation and Bylaws, as amended as of the
Closing, minute books, stock transfer books and corporate seal of the
Company;
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(f) The opinion of Xxxxxxx, Xxxxxxxxx and Xxxxxxxxx, counsel to
the Company and the Shareholders, substantially in the form of Exhibit
3.2(f);
(g) The employment agreements duly executed by Xxxxx Xxx and Xxxxx
Xxx, substantially in the form of Exhibit 3.2(g) (the "Employment
Agreements");
(h) The Escrow Agreement executed by the Shareholders, substantially
in the form of Exhibit 3.2(h);
(i) The escrow agreement executed by the Founders, substantially in
the form of Exhibit 3.2(i) (the "Cash Escrow Agreement");
(j) The Agreement of Merger executed by the Company, substantially
in the form of Exhibit III;
(k) The option agreements executed by the Founders, substantially in
the form of Exhibit 3.2(k) (the "Founders' Option Agreements");
(l) The registration rights agreement executed by the Shareholders,
substantially in the form of Exhibit 3.2(l) (the "Registration Rights
Agreement");
(m) The Service Xxxx Assignment Agreement in the form of Exhibit
3.2(m) executed by the Founders;
(n) The consent of Xxxxx Xxx in the form of Exhibit 3.2(n) executed
by Xxxxx Xxx;
(o) The servicemark applications in the form of Exhibit 3.2(o)
executed by Xxxxx Xxx;
(p) The servicemark assignment in the form of Exhibit 3.2(p)
executed by Xxxxx Xxx and Xxxxx Xxx;
(q) The assignment of all of the Company's URLs executed by Xxxxx
Xxx;
(r) The marketing rights agreement in the form of Exhibit 3.2(r)
(the "Marketing Rights Agreement") executed by Xxxxx Xxx, Xxxxx Xxx,
Parent and the Company;
(s) Parent's employee non-disclosure, non-competition and
proprietary rights agreement in the form of Exhibit 3.2(s) executed by
all of the Company's employees;
(t) An agreement executed by the Shareholders and the Equity Rights
holders, substantially in the form of Exhibit 3.2(m), pursuant to which
the Shareholders and Equity Rights holders agree not to sell, transfer or
otherwise dispose of the Parent Common Stock acquired by them pursuant to
Section 2.1(a) for a period of 180 days after the date of the Parent's
initial public offering of Parent Common Stock (the "Lock-Up Agreement",
and, together with the Employment Agreements, the Escrow Agreement,
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the Cash Escrow Agreement, the Founders' Option Agreements, the Parent
Option Agreements, the Registration Rights Agreement and the Marketing
Rights Agreement, the "Related Agreements"); and
(u) Such other resolutions, certificates, consents or other
documents of authority as provided for herein, or as may be otherwise
necessary to convey and transfer the Shares, and all other instruments or
documents that counsel for the Parent may reasonably request in order to
assure compliance with the terms and conditions of this Agreement.
3.3 Optionholders' Obligations at the Closing. At the Closing, the
optionholders of the Company listed in Exhibit III hereto (each an
"Optionholder" and, together, the "Optionholders") shall deliver or cause to
be delivered:
(a) The cancelled option agreements representing the Company
Options;
(b) The Option Representation Letter executed by each Optionholder;
(c) The option agreements representing the Parent Options executed
by the Optionholders, substantially in the form of Exhibit 3.3(c) (the
"Parent Option Agreements");
(d) Lockup Agreement executed by the Optionholders, substantially in
the form of Exhibit 3.2(m); and
(e) Such other resolutions, certificates, consents or other
documents of authority as provided for herein, or as may be otherwise
necessary to convey and transfer the Options, and all other instruments
or documents that counsel for the Parent may reasonably request in order
to assure compliance with the terms and conditions of this Agreement.
3.4 Parent's and Acquisition Sub's Obligations at the Closing. At the
Closing, the Parent shall deliver or cause to be delivered:
(a) To the Shareholders, stock certificates representing the Merger
Shares required to be delivered to the Shareholders pursuant to Section
2.1(b);
(b) To the Shareholders, the cash portion of the Purchase Price
required to be paid to the Shareholders pursuant to Section 2.1(b);
(c) A certificate of a duly authorized officer of the Parent and
Acquisition Sub certifying as to the matters requested by the Shareholders
pursuant to Section 7.3(b);
(d) The opinion of Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP, outside counsel
to the Parent, substantially in the form of Exhibit 3.4(d);
(e) The Employment Agreements executed by the Parent or the
Acquisition Sub, substantially in the form of Exhibit 3.2(g);
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(f) The Escrow Agreement executed by the Parent or the Acquisition
Sub, substantially in the form of Exhibit 3.2(h);
(g) The Cash Escrow Agreement executed by the Parent or the
Acquisition Sub, substantially in the form of Exhibit 3.2(i);
(h) The Agreement of Merger executed by the Acquisition Sub,
substantially in the form of Exhibit 3.2(j);
(i) To the Founders, the Founders' Option Agreements executed by the
Parent, substantially in the form of Exhibit 3.2(k);
(j) To the Optionholders, the Parent Option Agreements executed by the
Parent, substantially in the form of Exhibit 3.3(c);
(k) The Registration Rights Agreement executed by the Parent,
substantially in the form of Exhibit 3.2(l);
(l) The Marketing Rights Agreement in the form of Exhibit 3.2(r); and
(m) Such instruments or documents that counsel for the Shareholders
may reasonably request in order to assure compliance with the terms and
conditions of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE FOUNDERS
The Company and each Founder jointly and severally represent and
warrant to the Parent and Acquisition Sub, subject to the exceptions disclosed
in the disclosure schedule supplied by the Company and the Founders and attached
hereto (the "Disclosure Schedule"), as follows:
4.1 Organization and Standing. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
The Company has all requisite power and authority to own and operate its
properties and assets and to conduct its business as presently conducted, to
enter into this Agreement and the Agreement of Merger, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Company is qualified or licensed and in
good standing as a foreign corporation in all jurisdictions where the failure to
be so qualified or licensed could reasonably be expected to materially adversely
affect the business, earnings, prospects, properties or condition (financial or
other) of the Company (hereinafter referred to as a "Material Adverse Effect").
True, complete and accurate copies of the Company's Articles of Incorporation,
Bylaws and all amendments to each to date have been delivered to counsel for the
Parent and the Company has provided such counsel with true, complete and
accurate copies of the minutes of all meetings, and all consents in lieu of
meetings, of the Board of Directors and shareholders of the Company.
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4.2 Capitalization.
(a) The authorized capital stock of the Company at the Closing will
consist of 25,000,000 shares of Company Common Stock and 5,000,000 shares
of Company Preferred Stock. Of such authorized shares of capital stock of
the Company, 5,111,111 shares of Company Common Stock and 421,880 shares of
Company Preferred Stock (constituting the Shares) will be issued and
outstanding at the Closing.
(b) The Shares have been, and as of the Closing Date will be, duly
authorized, validly issued, fully paid and nonassessable and are and were,
and as of the Closing Date will have been, offered, issued, sold and
delivered by the Company in compliance with all applicable state and
federal laws concerning the issuance of securities.
(c) Except as set forth in Schedule 4.2(c), there are no outstanding
rights, subscriptions, calls, options, warrants, preemptive rights,
conversion rights or agreements granted or issued by or binding upon the
Company for the purchase or acquisition (contingent or otherwise) from the
Company of any shares of its capital stock or any other securities, except
in accordance with the terms of this Agreement. Copies of each outstanding
Company Option have been provided to the Parent. The Company is not subject
to any obligation (contingent or otherwise) to repurchase or otherwise
acquire or retire any shares of its capital stock or any security
convertible into or exchangeable for any shares of its capital stock. No
holder of Company Common Stock or Company Preferred Stock or any other
security of the Company or any other person or entity is entitled to any
preemptive right, right of first refusal or similar right as a result of
the sale of the Shares pursuant to this Agreement. There is no voting
trust, agreement or arrangement among any of the beneficial holders of
Company Common Stock or Company Preferred Stock of the Company affecting
the exercise of the voting rights of such stock.
(d) All shares of Company capital stock and all other securities
previously issued by the Company have been issued in compliance with or
pursuant to an exemption from all applicable Federal and State securities
or "blue sky" laws.
(e) The Shareholders have good and marketable title to all of the
Shares, in each case free and clear of all claims, liens, security
interests, pledges, charges or encumbrances of any kind, and the transfer
of the Shares to the Parent pursuant to this Agreement will pass good and
marketable title to the Shares, free and clear of all claims, liens,
security interests, pledges, charges and encumbrances.
4.3 Binding Obligation. This Agreement, the Agreement of Merger and the
Related Agreements have been duly executed and delivered by the Company, the
Shareholders and the Optionholders and, assuming due authorization, execution
and delivery of the other parties thereto, constitute valid and binding
obligations of the Company, the Shareholders and the Optionholders enforceable
in accordance with their terms, except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and to rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution, delivery and
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performance by the Company and the Shareholders of this Agreement, the Agreement
of Merger and the Related Agreements does not and will not conflict with, or
result in any violation of or default under, any provision of the Articles of
Incorporation or Bylaws of the Company or any material ordinance, rule,
regulation, judgment, order, decree, agreement, instrument or license applicable
to the Company, the Shareholders or to any of their properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required by
or with respect to the Shareholders, the Company or the Optionholders in
connection with the execution, delivery or performance of this Agreement by the
Shareholders, the Company and the Optionholders, except for the filing of the
Agreement of Merger with the Secretary of State of the State of California and a
Certificate of Merger with the Secretary of State of the State of Delaware.
4.4 Subsidiaries. The Company does not currently own and has never owned,
of record or beneficially, or control, directly or indirectly, any capital stock
or equity interest in any corporation, association or business entity. The
Company is not, directly or indirectly, a participant in any joint venture or
partnership.
4.5 Governmental Consents.
(a) No consent, approval, order or authorization of, or registration,
qualification, designation, declaration or filing with, or notice to, any
federal, state or local governmental or public authority or agency on the
part of the Shareholders, the Optionholders or the Company is or was
required for the Company's or the Shareholders' or the Optionholders' valid
execution, delivery and performance of this Agreement or the offer and sale
of the Shares or the consummation of any other transaction contemplated
hereby.
(b) The Company has obtained all consents, approvals or authorizations
of, made all declarations or filings with, and given all notices to, all
federal, state and local governmental or public authorities or agencies
which are necessary for the continued conduct by the Company of its
business as now conducted or as proposed to be conducted in which the
failure to so obtain, make or give could reasonably be expected to
materially adversely affect the business, earnings, prospects, properties
or condition (financial or other) of the Company.
4.6 Compliance with Other Instruments and Laws.
(a) The Company is not (i) in violation of or in default under any
provision of its Articles of Incorporation or Bylaws, each as amended and
in effect on the date hereof and on and as of the Closing Date; or (ii)
except as to defaults which, in the aggregate, would result in liability or
loss to the Company of $10,000 or less, in default in the performance,
observance or fulfillment of any of the obligations, covenants or
conditions contained in, and is not otherwise in default under, (A) any
evidence of indebtedness for any money borrowed or any other evidence of
indebtedness or any instrument or agreement under or pursuant to which any
evidence of indebtedness for money borrowed or other evidence of
indebtedness has been issued, or (B) any other instrument, mortgage,
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deed of trust, loan, contract, commitment or obligation to which it is a
party or by which it is bound or any of its properties is affected. The
Company has not defaulted on, nor has it failed to make at the time
contemplated, payment of any principal of, or premium or interest on, any
indebtedness of $10,000 or more. Neither the execution, delivery and
performance of and compliance with this Agreement by the Shareholders nor
the offer and sale of the Shares pursuant to this Agreement does or will:
(i) conflict with or violate the Articles of Incorporation or Bylaws of the
Company; (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or result in
the creation of any lien on any of the properties or assets of the Company
pursuant to the terms of any instrument or agreement referred to in this
Section 4.6 to which the Company is a party or by which it is bound; or
(iii) require the consent of, or other action by, any shareholder (other
than the Shareholders), trustee or any creditor of, any lessor to or any
investor in, the Company or any other person.
(b) The Company is in full compliance with all laws and ordinances and
all governmental rules and regulations to which it is subject, the
violation of which, in the aggregate, would result in a Material Adverse
Effect to the Company.
(c) The Company is not a party to or bound by (nor are any of its
properties affected by) any contract or agreement, or subject to any order,
writ, injunction or decree or any action of any court or any governmental
department, commission, bureau, board or other administrative agency or
official, or any charter or other corporate or contractual restriction
which materially adversely affects, or in the future could reasonably be
expected to materially adversely affect, the business, earnings, prospects,
properties or condition (financial or other) of the Company.
4.7 Litigation. Except as set forth in Schedule 4.7, there is no action,
suit, proceeding, claim or investigation in any court or by or before any other
governmental or public authority or agency or any arbitrator or arbitration
panel, pending or, to the knowledge of the Company or the Shareholders,
threatened against or affecting the Company or any of its properties that,
either individually or in the aggregate, (a) could question the validity or
enforceability of this Agreement and the other agreements and documents
contemplated hereby or the right of the Company, the Shareholders or the
Optionholders to enter into any of them, or to consummate the transactions
contemplated hereby or thereby, or (b) could reasonably be expected to adversely
affect the business, earnings, prospects, properties or condition (financial or
other) of the Company, nor are the Company or the Shareholders aware that there
is any basis for the foregoing. The foregoing includes, without limitation,
actions pending or threatened (or any basis therefor known to the Company or the
Shareholders) involving the prior employment of any of the Company's employees,
the use in connection with the Company's business of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers.
4.8 Intellectual Property.
(a) Schedule 4.8(a) contains a true and complete list of all of (A)
the Company's Material Intellectual Property Rights (as defined below) and
applications therefor; (B) other filings and formal actions made or taken
pursuant to Federal, state,
12
local and foreign laws by the Company to perfect or protect its interest
therein; and (C) the Material Intellectual Property licensed by the Company
from any third party or constituting "off-the-shelf" software (the
"Licensed Software"), in each case that is manufactured or used by the
Company in the operation of its business or marketed, licensed or sold by
the Company to third parties and, in the case of Licensed Software,
Schedule 4.8(a) identifies each Material license agreement with respect
thereto. "Material" in the context of Intellectual Property shall include
any intellectual property that is either: (A) employed by the Company and
reasonably significant in the operation of its business and web sites or
marketed, licensed, or sold by the Company, or (B) the subject of an
application to preserve or register such rights including, without
limitation, any domain name registrations, any patent applications or
issued patents, trademark applications or registrations, and copyright
applications or registrations, or (C) that is the subject of any written or
oral agreements with third parties including, without limitation, any
licenses, non-disclosure or confidentiality agreements, and which is
reasonably significant to the operation of the Company's business and its
web sites or (D) has a value of at least $1000.
(b) As used herein, the term "Intellectual Property Rights" shall mean
all industrial and intellectual property rights, including, without
limitation, patents, patent applications, patent rights, inventions,
trademarks, trademark applications, trade names, service marks, service
xxxx applications, copyrights, copyright applications, works of authorship,
mask works, franchises, licenses, databases, "URL's" and Internet domain
names and applications therefor (and all interest therein), computer
programs and other computer software, user interfaces, know-how, trade
secrets, customer lists, proprietary technology, processes and formulae,
source code, object code, algorithms, architecture, structure, display
screens, layouts, development tools, instructions, templates, marketing
materials, inventions, trade dress, logos and designs and all documentation
and media constituting, describing or relating to the foregoing.
"Invention" includes, without limitation, all inventions, developments and
discoveries which during the period of an employee's, consultant's or
contractor's service to the Company he, she or it makes or conceives of,
either solely or jointly with others, that relate to any subject matter
with which his, her or its work for the Company may be concerned, or relate
to or are connected with the business, products, services or projects of
the Company, or relate to the actual or demonstrably anticipated research
or development of the Company or involve the use of the Company's funds,
time, material, facilities or trade secret information.
(c) Except as set forth in Schedule 4.8(c), the Company has good and
valid title to, owns and has the exclusive right to use, sell, license (or
sublicense), transmit, broadcast, deliver (electronically or otherwise) and
dispose of, and has the right to bring actions for the infringement of, all
Intellectual Property Rights necessary or required for the conduct of its
business as currently conducted and as proposed to be conducted
(collectively, the "Company Rights"), free and clear of all Encumbrances
and any right, lien or claim of others with the exception of rights of
owners of Licensed Software, including without limitation former employers
of its employees, consultants and contractors, and current employers of
employees, consultants and contractors, where such
13
employees, consultants or contractors are also employed or under contract
with another person.
(d) The execution, delivery and performance of this Agreement and the
other documents contemplated hereby, the sale of the Shares, the
consummation of the other transactions contemplated hereby and the carrying
on of the business of the Company as currently conducted will not breach,
violate or conflict with any instrument or agreement governing any Company
Rights, will not cause the default under, forfeiture or termination or give
rise to a default or a right of forfeiture or termination of any Company
Right or in any way impair the right of the Company or its successors to
use, sell, license (or sublicense), transmit, broadcast, deliver
(electronically or otherwise) or dispose of or to bring any action for the
infringement of, any Company Right or portion thereof.
(e) Except as set forth on Schedule 4.8(e), the Company is not
infringing upon or otherwise acting adversely to the right or claimed right
of any person or entity under or with respect to any patent, trademark,
service xxxx, trade name, invention, trade secret, copyright, license or
other Intellectual Property Right with respect thereto. There are no
royalties, honoraria, fees or other payments payable by the Company to any
person by reason of the ownership, use, license (or sublicense),
transmission, broadcast, delivery (electronically or otherwise), sale, or
disposition of the Company Rights, other than sales commissions paid in the
ordinary course of business. In particular, there is no obligation or
liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service xxxx, trade name, invention, trade secret, or copyright
with respect to the use thereof on or in connection with the conduct of the
Company's business.
(f) Neither the manufacture, marketing, license (or sublicense), sale,
transmission, delivery (electronically or otherwise), or use of any product
or service currently licensed, sold, marketed, transmitted, broadcast,
delivered (electronically or otherwise) or used by the Company or currently
under development by the Company, violates any license (or sublicense) or
agreement of the Company with any third party or, to the knowledge of the
Company, infringes any common law or statutory rights of any other party,
including, without limitation, rights relating to defamation, contractual
rights, Intellectual Property Rights and rights of privacy or publicity;
nor, to the best knowledge of the Company or the Shareholders, is any third
party infringing upon, or violating any license (or sublicense),
transmission, broadcast, delivery (electronically or otherwise) or
agreement with the Company relating to, any Company Right; and there is no
pending or threatened claim or litigation contesting the validity,
ownership or right to use, manufacture, sell, license (or sublicense),
transmit, broadcast, delivery (electronically or otherwise) or dispose of
any Company Right, nor is there any basis for any such claim, nor has the
Company received any notice asserting that any Company Right or the
proposed use, manufacture, sale, license (or sublicense), transmission,
broadcast, delivery (electronically or otherwise) or disposition thereof
conflicts or will conflict with the rights of any other party, nor, is
there any basis for any such assertion.
(g) Since its organization, the Company has taken reasonable security
measures to protect the secrecy, confidentiality and value of all
Intellectual Property
14
Rights and all Inventions. Except as set forth in Schedule 4.8(g), and
since its organization, each of the Company's officers, directors,
employees, consultants and contractors, who, either alone or in concert
with others, developed, invented, discovered, derived, programmed or
designed Intellectual Property Rights or Inventions, or who has knowledge
of or access to information about Intellectual Property Rights or
Inventions, has entered into a written agreement ("Proprietary Information
Agreement") with the Company which provides that (i) the Intellectual
Property Rights, other information and Inventions are proprietary to the
Company and are not to be divulged (except as authorized by the Company),
misused or misappropriated, and (ii) the Intellectual Property Rights,
other information and Inventions are to be disclosed by such employees,
consultants and contractors to the Company and transferred by them to the
Company, without any further consideration being given therefor by the
Company, together with all of such employees', consultants' or contractors'
right, title and interest in and to such Intellectual Property Rights,
other information and Inventions and all patents, trademarks, service
marks, trade names, copyrights, licenses and rights with respect to such
Intellectual Property Rights, other information and Inventions; in cases
where the Intellectual Property Rights and Inventions may be subject to
rights of a third person, the Company has secured from said third person
unrestricted, perpetual, irrevocable, royalty-free and exclusive license
rights thereto.
(h) Except as set forth in Schedule 4.8(h), all works that were
created, prepared or delivered by consultants, independent contractors or
other third parties for or on behalf of the Company (including any
materials and elements created, prepared or delivered by such parties in
connection therewith) (A) constitute "works made for hire" specially
ordered or commissioned by the Company within the meaning of United States
copyright law, or (B) all right, title and interest therein (including any
materials and elements created, prepared or delivered by such parties in
connection therewith) have been assigned to the Company.
(i) Except as set forth in Schedule 4.8(i), the Company has not sold,
transferred, assigned, licensed or subjected to any lien, security interest
or other encumbrance, any Intellectual Property Right, trade secret,
know-how, invention, design, process, computer program or technical data,
or any interest therein, necessary or useful for the development,
manufacture, use, operation or sale of any product or service presently
under development or manufactured, sold or rendered by the Company and the
Company is not bound by any agreement that affects the Company's exclusive
right to develop, license, market or sell its products and services.
(j) Except as set forth in Schedule 4.8(j), no director, officer,
employee, agent or shareholder of the Company owns or has any right in the
Intellectual Property Rights of the Company or any Inventions used in or
necessary for the conduct of the Company's business as now conducted or as
proposed to be conducted.
(k) Except as set forth on Schedule 4.8(k), the Company and the
Shareholders have no knowledge of any facts and neither the Company nor the
Shareholders have received any communication alleging or stating that the
Company or any employee, consultant or contractor has violated or
infringed, or by conducting business as proposed,
15
would violate or infringe, any patent, trademark, service xxxx, trade name,
copyright, trade secret, proprietary right, process or other Intellectual
Property Rights of any other person or entity; the Company and the
Shareholders have no knowledge of any impediment whereby any employee,
consultant or contractor who performs or is to perform services of any kind
for the Company that would interfere with such person's ability to promote
the business of the Company or would conflict with the business or proposed
business of the Company.
(l) Except as set forth on Schedule 4.8(l), the software employed by
the Company in carrying on its business is free from any significant
software defect or programming or documentation error, operates and runs in
a reasonable and efficient business manner, conforms to the specifications
thereof, and, with respect to the software owned by the Company, the
applications can be recreated from their associated source code without
undue burden.
(m) The Company has not knowingly altered its data, or any software or
supporting software that may in turn damage the integrity of the data,
whether stored in electronic, optical or magnetic or other form. The
software proprietary to the Company does not contain any bugs or viruses.
The Company has furnished the Parent with all available documentation
relating to the use, maintenance and operation of the software, all of
which is true and accurate.
(n) Since the inception of the Company, the Company has not, to any
material extent, (A) defaulted under any software or multimedia development
contract, (B) failed to meet any product specifications or characteristics
or software or multimedia development milestones and standards thereunder,
or (C) failed to properly interface any computer software or multimedia
program with the intended operating system software or related hardware
designs applicable thereto.
(o) To the Company's knowledge, all content used on the Company's web
sites is original material. 4.9 Financial Statements.
Schedule 4.9 contains complete and accurate copies of the Company's audited
balance sheets as at December 31, 1997 and December 31, 1998 (the "Balance
Sheets") and its audited statements of operations and of changes in cash flows
for the twelve month periods therein (all such financial statements and balance
sheets being referred to herein collectively as the "Financial Statements"),
certified by PricewaterhouseCoopers LLP. The Financial Statements are true,
complete and correct and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods indicated. The Financial Statements present fairly, completely and
accurately the financial condition of the Company as of the respective dates and
for the periods indicated. The Company does not have any obligation or
liability, individually or in the aggregate, required to be disclosed on the
Financial Statements prepared in accordance with generally accepted accounting
principles that is not disclosed by the Financial Statements.
4.10 Accounts and Notes Receivable. All the accounts receivable and notes
receivable owing to the Company as of the date hereof constitute, and as of the
Effective Date
16
will constitute, valid and enforceable claims arising from bona fide
transactions in the ordinary course of business, and there are no known or
asserted claims, refusals to pay or other rights of set off against any thereof.
Except as set forth in Schedule 4.10, there is (a) no account debtor or note
debtor delinquent in its payment by more than 90 days, (b) no account debtor or
note debtor that has refused (or, to the best knowledge of the Company,
threatened to refuse) to pay its obligations for any reason, (c) to the best
knowledge of the Company, no account debtor or note debtor that is insolvent or
bankrupt and (d) no account receivable or note receivable which is pledged to
any third party by the Company. Except to the extent of a reserve which the
Company has established specifically for doubtful accounts receivable and notes
receivable (which reserve is set forth on the Balance Sheet, is reasonable under
the circumstances and is consistent with past practice), to the knowledge of the
Company, all of the accounts receivable of the Company existing at the Closing
shall be paid in full by not later than the ninetieth (90th) day after the
Closing and, to the knowledge of the Company, all of the notes receivable shall
be paid in accordance with the terms thereof.
4.11 Accounts and Notes Payable. All accounts payable and notes payable by
the Company to third parties as of the date hereof arose in the ordinary course
of business, and, except as set forth in Schedule 4.11, there is no such account
payable or note payable delinquent in its payment.
4.12 Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general and specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorizations; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
4.13 Outstanding Indebtedness; Liabilities. Except as set forth in Schedule
4.13, the Company has no indebtedness for borrowed money which the Company has
directly or indirectly created, incurred, assumed or guaranteed, or with respect
to which the Company has otherwise become directly or indirectly liable, except
as shown on the Balance Sheet as of December 31, 1998. Except as set forth in
Schedule 4.13, the Company has no liabilities or obligations, absolute or
contingent, which are not shown or provided for in the Balance Sheet, except (1)
liabilities or obligations which are less than $10,000 in the aggregate, (2)
those incurred after the date of the Balance Sheet as of December 31, 1998 in
the ordinary course of business, or (3) normal contractual obligations under the
Contracts set forth in Schedule 4.16(a).
4.14 Tax Matters. The Company has timely filed all federal, state, local
and foreign tax returns required to be filed, and all such Tax Returns were
true, complete and correct at the time of filing in all material respects. The
Company is not currently a beneficiary of any extension of time within which to
file any Tax Return. All taxes owed by the Company (whether or not shown on any
Tax Return) have been paid, or, to the extent not required to have been
previously paid, have been adequately reserved for on the latest Balance Sheet
(excluding any reserve for deferred Taxes established to reflect timing
differences between book and Tax treatment) in accordance with generally
accepted accounting principles. The Company has not
17
incurred a Tax liability from the date of the latest Balance Sheet other than a
Tax liability in the ordinary course of business. No additional Taxes have been
proposed, asserted or assessed either orally or in writing by any taxing
authority against the Company, and the Company has not been notified in writing
by any taxing authority regarding a potential tax liability. The Company has not
made an election to be treated as a "consenting corporation" under Section
341(f) of the Code. The Company has not agreed to, nor is required to make, any
adjustment under Section 481(a) of the Code by reason of a change in accounting
method or otherwise. The Company is not now, nor has it ever been, a member of a
consolidated or combined group for Federal, state, local or foreign tax purposes
nor has it ever been included in a consolidated or combined tax return for
Federal, state, local or foreign tax purposes. The Company is not liable for
Taxes of any other party, as a transferee or successor. The Company has not made
any payments, is not obligated to make any payments, and is not a party to any
agreements that under any circumstances could obligate it to make any payments
that will not be deductible under Section 280G of the Code. 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), and has within the time and in the manner
required by law withheld and paid over all amounts required to be withheld and
paid from the wages and salaries of employees, and the Company is not liable for
any Taxes for failure to comply with such laws. The Company has never been a
United States real property holding corporation within the meaning of Section
897(c) of the Code. As used in this Agreement, (i) "Tax" means any federal,
state, local, or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including taxes under Code Section 59A), custom duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, ad valorem, transfer,
registration, value added, alternative or add-on minimum taxes, estimated, and
other tax, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts, in
each case, imposed by any taxing authority (domestic or foreign); and (ii) "Tax
Return" means any return, declaration, report, claim for refund, information
return or statement relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
4.15 Absence of Certain Changes. Except as set forth in Schedule 4.15,
since December 31, 1998 (a) the Company has not entered into any transaction
which was not in the ordinary course of its business; (b) there has been no
material adverse change in the business, earnings, prospects, properties or
condition (financial or other) of the Company; (c) there has been no damage to,
destruction of or loss of any of the properties or assets of the Company
(whether or not covered by insurance) materially adversely affecting the
business, earnings, prospects, properties or condition (financial or other) of
the Company; (d) the Company has not declared or paid any dividend or made any
distribution on its capital stock, redeemed, purchased or otherwise acquired any
of its capital stock, granted any options to purchase shares of its capital
stock, or issued any shares of its capital stock; (e) the Company has not
received notice that there has been a cancellation of an order for its services
or a loss of a customer of the Company, the cancellation or loss of which could
materially adversely affect the business, earnings, prospects, properties or
condition (financial or other) of the Company; (f) there has been no resignation
or termination of employment of any key officer or key employee of the Company,
with the exception of the departure of Xxxxxxxx Xxxxxx, and the Shareholders do
not
18
know of the impending resignation or termination of employment of any key
officer or key employee of the Company in either case; (g) there has been no
labor dispute involving the Company or any of its employees; (h) there has been
no material change in the contingent obligations of the Company by way of
guaranty, endorsement, indemnity, warranty or otherwise; (i) there have been no
loans made by the Company to its employees, officers or directors, other than
travel advances and other advances made in the ordinary course of business; (j)
there has been no waiver or compromise by the Company of a valuable right or of
a debt owed to it or amendment or change to any material contract or arrangement
of the Company; (k) there has been no sale, assignment, or transfer of any
patents, trademarks, copyrights, trade secrets or other intangible assets; (l)
there has been no extraordinary increase in the compensation of any of the
Company's employees, officers or directors and there has been no increase in the
compensation of any such employees, officers or directors who earn compensation
at an annual rate of more than $45,000; (m) there has been no agreement or
commitment by the Company to do or perform any of the acts described in this
Section 4.15 and (n) there has been no other event or condition of any character
which might reasonably be expected either to materially adversely affect the
business, earnings, prospects, properties or condition (financial or other) of
the Company or liabilities of the Company or to impair the ability of the
Company to conduct the business now being or proposed to be conducted by it.
4.16 Material Contracts and Commitments.
(a) Except as set forth in Schedule 4.16(a), the Company has no
currently existing contract, obligation, agreement, plan, arrangement,
commitment or the like (written or oral) of any material nature (the
"Contracts"), including, without limitation, the following:
(i) agreements for the development, modification or enhancement
of computer software or multimedia products;
(ii) any material distributorship, dealer, sales, advertising,
agency, affiliate, manufacturer's representative, franchise or similar
contract or relationship or any other contract relating to the payment
of a commission or other fee calculated as or by reference to a
percentage of the profits or revenues of the Company or of any
business segment of the Company;
(iii) any license (whether as licensor or licensee), or
sublicense, royalty, permit, or franchise agreement, including,
without limitation, any agreement pursuant to which the Company
licenses any Company Rights to any third party (other than ordinary
course licenses to end-users);
(iv) the content or delivery of its computer software or
multimedia products and services (including the transmission or other
performance (electronically or otherwise));
(v) loans, notes, indentures, or instruments relating to or
evidencing indebtedness for borrowed money, or mortgages, pledges,
liens, security interests or other encumbrances on any of the
Company's property or any agreement or
19
instrument evidencing any guaranty by the Company of payment or
performance by any other person;
(vi) the employment of any officer, employee, consultant or agent
or any other type of contract, commitment or understanding with any
officer, employee, consultant or agent which (except as otherwise
generally provided by applicable law) is not immediately terminable
without cost or other liability at or at any time after the Effective
Date;
(vii) profit-sharing, bonus, stock option, stock appreciation
right, pension, retirement, disability, stock purchase,
hospitalization, insurance or similar plan or agreement, formal or
informal, providing benefits to any current or former director,
officer, employee, agent or consultant;
(viii) agreements with any labor union or collective bargaining
organization or other similar labor agreements;
(ix) any contract or series of contracts with the same person for
the furnishing or purchase of machinery, equipment, goods or services
in excess of $10,000;
(x) (v) the future purchase, sale or license of products,
material, supplies, equipment or services requiring payments to or
from the Company in an amount in excess of $10,000 per annum, which
agreement, arrangement or understanding is not terminable on 30 days'
notice without cost or other liability at or at any time after the
Effective Date, or in which the Company has granted or received
manufacturing rights, most favored nations pricing provisions or
exclusive marketing or other rights relating to any product, group of
products, services, technology, assets or territory;
(xi) any indenture, agreement or other document (including
private placement brochures) relating to the sale or repurchase of
securities;
(xii) any joint venture contract or arrangement or other
agreement involving a sharing of profits or expenses to which the
Company is a party;
(xiii) agreements and purchase orders with customers;
(xiv) agreements limiting the freedom of the Company to compete
in any line of business or in any geographic area or with any person;
(xv) agreements providing for disposition of the business, assets
or shares of the Company, agreements of merger or consolidation to
which the Company is a party or letters of intent with respect to the
foregoing;
(xvi) agreements involving or letters of intent with respect to
the acquisition of the business, assets or shares of any other
business;
20
(xvii) insurance policies;
(xviii) powers of attorney; and
(xix) any other agreement, contract or commitment which is
material to the Company.
(b) The Company and the Shareholders have provided the Parent with
either copies of or access to all of the Contracts. Except as set forth in
Schedule 4.16(b), each of the Contracts is valid, binding and in full force
and effect in all material respects and enforceable by the Company in
accordance with its terms. The Company is not in default under, or
otherwise in violation of the terms of, any of the Contracts in any
material respect. To the knowledge of the Company and the Shareholders, no
other party to any of the Contracts is in default thereunder or otherwise
in violation of the material terms thereof. No consent of any party to any
of the Contracts is required in connection with the execution, delivery or
performance of this Agreement and the consummation of the transactions
contemplated hereby.
4.17 Registration Rights. Except as set forth in Schedule 4.17, the Company
has not granted or agreed to grant any rights relating to the registration of
its securities under applicable federal and state securities laws, including but
not limited to demand or piggy-back registration rights.
4.18 Title to Property and Assets. The Company has good and marketable
title to its properties and assets (including but not limited to its
intellectual property (excluding Licensed Software) and other intangible assets
listed in Schedule 4.8(a)) free and clear of all mortgages, security interests,
claims, liens and encumbrances, except liens for current taxes and assessments
not yet due. The Company owns, leases, licenses or otherwise has sufficient
rights to use all properties and assets necessary for the operation of its
business as now conducted. With respect to the property and assets it leases,
the Company has the right to, and does, enjoy peaceful and undisturbed
possession under all leases under which it is leasing property. All such leases
are in full force and effect, and the Company is in compliance with such leases
and holds a valid leasehold interest free of all security interests, liens,
claims or encumbrances. Schedule 4.18 contains a list and brief description of
(i) all real property leased by the Company, together with all buildings and
other structures and material improvements located on such real property (the
"Leased Real Property"), and (ii) with respect to each lease covering the Leased
Real Property (collectively, the "Leases"), (A) the name of the lessor, (B) any
requirement of consent of the lessor to assignment (including assignment by way
of merger or change of control) and (C) the termination date of the Lease. The
Company's tangible properties and assets are in good condition and repair,
except for hidden defects where the defects, in the aggregate, cause $10,000 or
less of damage and except for ordinary wear and tear.
21
4.19 Employee Compensation and Benefit Plans.
(a) Except for the Employment Agreements and the Knowledgeweb Stock
Option Agreement, the Company is not a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement or other employee
compensation agreement. Except as set forth on Schedule 4.19, the Company
does not maintain any "employee benefit plan" (as such term is defined by
the Employee Retirement Income Security Act of 1974 ("ERISA")). The
Purchaser has been provided with copies of such plans, if any, and any
agreements arising therefrom to which the Company currently is a party.
(b) Each employee benefit plan has been operated and administered in
compliance with ERISA, the Code and in accordance with the provisions of
all other applicable federal and state laws; (B) all reporting and
disclosure obligations imposed under ERISA and the Code have been satisfied
with respect to each employee benefit plan; (C) each employee benefit plan
which is a "group health plan" within the meaning of Section 5000 of the
Code has been maintained in compliance with Section 4980B of the Code and
Title I, Subtitle B, Part 6 of ERISA and no tax payable on account of
Section 4908B of the Code has been or is expected to be incurred; (D) all
contributions due and payable on or before the Closing Date in respect of
any employee benefit plan have been made in full and proper form, or
adequate accruals have been provided for in the financial statements for
all other contributions or amounts in respect of the employee benefit plans
for periods ending prior to or on the Closing Date; (E) neither the Company
not any of its ERISA Affiliates, nor to the knowledge of the Company and
its ERISA Affiliates, any other "disqualified person" or "party in
interest" (as defined in Section 4975 of the Code and Section 3(14) of
ERISA, respectively) with respect to any employee benefit plan has breached
the fiduciary rules of the ERISA or engaged in a prohibited transaction
which could subject the Company or its ERISA Affiliates to any tax or
penalty imposed under Sections 4975 of the Code or Section 502(i), (j) or
(l) of ERISA; and (F) neither the Company nor any of its ERISA Affiliates
currently is or has ever maintained or been obligated to contribute to (1)
a "multiple employer plan" (within the meaning of Section 413 of the Code);
(2) a "multiemployer plan" (as defined in Section 3(37) of ERISA); (3) a
"defined benefit plan" (as defined in Section 3(35) of ERISA) or (4) any
employee benefit plan that provides post-retirement health of life
insurance benefits.
4.20 Labor Union Activities. The Company is not engaged in any unfair labor
practice which could reasonably be expected to adversely affect the business,
earnings, prospects, properties or condition (financial or other) of the
Company. There are (a) no unfair labor practice complaints pending or, to the
knowledge of the Company or the Shareholders, threatened against the Company or
before the National Labor Relations Board which could reasonably be expected to
adversely affect the business, earnings, prospects, properties or condition
(financial or other) of the Company and no grievance or arbitration proceeding
arising out of or under a collective bargaining agreement is so pending or
threatened; (b) no strike, labor dispute, slow down or stoppage pending or, to
the knowledge of the Company or the Shareholders, threatened against the
Company; and (c) no union representation questions
22
existing with respect to the employees of the Company and no union organizing
activities taking place with respect to the Company.
4.21 Employee Relations. The Company's believes relations with its
employees are good. The name, position and salary of all employees are set forth
in Schedule 4.21.
4.22 No Discrimination. The Company has not and does not in any manner or
form discriminate, xxxxxx discrimination or permit discrimination against any
person, whether as to race, sex, religion, or other legally protected classes of
persons.
4.23 Certain Transactions. Except as set forth in Schedule 4.23, the
Company is not indebted, either directly or indirectly, to any of its officers,
directors or holders of Company Common Stock, Company Preferred Stock or Company
Options or to their respective spouses, children or other family members; none
of such officers, directors and holders of capital stock or options or any
members of their families are indebted to the Company or, to the knowledge of
the Company and the Shareholders, have any direct or indirect ownership interest
in any firm or corporation with which the Company is affiliated or with which
the Company has a business relationship, or any firm or corporation which
competes with the Company. No officer, director or holder of any of the
Company's capital stock or options or, to the knowledge of the Company and the
Shareholders, any member of their families, has, directly or indirectly, any
interest in any contract with the Company. The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.24 Environmental Laws and Regulations. The Company is in compliance with
all federal, state, local and foreign laws, common law, rules, codes,
administrative orders and regulations relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws, common law, rules, codes, administrative
orders and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products (collectively, "Hazardous
Materials") or to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials (collectively,
"Environmental Laws") and there are no events or circumstances that could form
the basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against or
affecting the Company relating to any Hazardous Materials or the violation of
any Environmental Laws.
4.25 Other Names. Except as set forth on Schedule 4.25, the business
conducted by the Company prior to the date hereof has not been conducted under
any corporate, trade or fictitious name.
4.26 Minute Books. The minute books of the Company provided to the Parent
contain all resolutions adopted by directors and shareholders of the Company
since the incorporation of the Company and fairly and accurately reflect, in all
material respects, all matters and transactions referred to in such minutes or
written consents.
23
4.27 Insurance Coverage. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility insuring
the Company and its properties and business against such losses and risks, and
in such amounts, as are customary in the case of corporations engaged in the
same or similar business and similarly situated. The Company has not been
refused any insurance coverage sought or applied for, and the Company and the
Shareholders have no reason to believe that the Company will be unable to renew
its existing insurance coverage as and when the same shall expire upon terms at
least as favorable as those presently in effect, other than possible increases
in premiums that do not result from any act or omission of the Company. Such
insurance is summarized in Schedule 4.27.
4.28 Business Metrics. For the period beginning December 1, 1998 and ending
December 31, 1998, the Xxxxxxxxx.xxx and related Web sites owned by the Company
received approximately (a) eight million (8,000,000) advertising views as
evidenced by the information set forth in Schedule 4.28, and (b) five hundred
fifty thousand (550,000) unique email addresses as evidenced by the information
set forth in Schedule 4.28. As of December 31, 1998, the Company owned accurate
lists of approximately the following: (w) one hundred ten thousand (110,000)
email addresses on the daily horoscope list as evidenced by the information set
forth in Schedule 4.28, (x) five hundred thousand (500,000) names in the general
email file as evidenced by the information set forth in Schedule 4.28, (y)
information regarding thirty thousand (30,000) unique buyers in the chart shop
buyers list as evidenced by the information set forth in Schedule 4.28, and (z)
true and accurate copies of duly executed and enforceable agreements between
Company and two hundred fifty (250) affiliates representing one thousand two
hundred fifty (1,250) Web sites set forth in Schedule 4.28, including expiration
dates of said agreements. Except as set forth in Schedule 4.28, to the knowledge
of the Company, none of the Company's customers or affiliates listed on Schedule
4.28 intends to cease dealing with the Company or materially reduce its business
with the Company or that the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement would be likely
to adversely affect the relationship of the Company with any such customer after
the date of this Agreement.
4.29 Year 2000 Compliant Systems. Except as set forth on Schedule 4.29, all
of the Company's computer-based systems are able to operate and effectively
process data including dates on or after January 1, 2000, and none of the
products and services sold, licensed, rendered, or otherwise provided by the
Company will malfunction or will cease to function as a result of the Year 2000.
4.30 Bank Accounts; Powers of Attorney. Schedule 4.30 sets forth a true and
complete list of (i) all bank accounts and safe deposit boxes of the Company and
all persons who are signatories thereunder or who have access thereto and (ii)
the names of all persons, firms, associations, corporations or business
organizations holding general or special powers of attorney from the Company and
a summary of the terms thereof.
4.31 Vote Required. The affirmative vote of at least 51% of the outstanding
shares of the Company Common Stock, as a class, and Company Preferred Stock, as
a class, approving the Merger and this Agreement are the only votes and/or
consents of the holders of any class or series of the Company's capital stock
necessary to approve this Agreement and the transactions contemplated hereby.
24
4.32 Company Expenses. Schedule 4.32 sets forth a true, correct and
complete schedule of all Company expenses relating to this Agreement, the letter
of intent dated January 1, 1999 and the transactions contemplated hereby and
thereby that have been incurred or paid by or on behalf of the Company (whether
or not theretofore billed) through the Effective Date, and there are no other
such Company expenses other than as set forth therein.
4.33 Officers and Directors. Set forth on Schedule 4.33 is a true and
complete list of the current officers and directors of the Company.
4.34 Broker's Fees. Except with respect to fees payable to b|z partners and
as set forth in Schedule 4.34, which fees shall be paid by the Shareholders,
neither the Shareholders nor the Company have any liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.35 Disclosure. No representation, warranty or statement by the Company or
the Shareholders in this Agreement or in any written statement or certificate
furnished or to be furnished to the Parents pursuant to this Agreement
(including all exhibits and schedules hereto and any other agreements or
documents delivered on the Closing or any Financial Statements referred to in
Section 4.9 hereof) contains or will contain any untrue statement of a material
fact or, when taken together, omits or will omit to state a material fact
necessary to make the statements made herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact known
to the Founders that has not been disclosed to the Parent in writing that (1)
materially adversely affects or could materially adversely affect the business,
earnings, prospects, properties or condition (financial or other) of the Company
or (2) adversely affects or could adversely affect the ability of the Company,
the Shareholders or the Optionholders to perform their obligations under this
Agreement.
4.36 Investment Representations.
(a) The Shareholders and the Optionholders are acquiring the Parent
Common Stock for their own account and not with a view to or for sale in
connection with any distribution of the Parent Common Stock.
(b) The offer and sale of the Parent Common Stock to the Shareholders
and the Optionholders was not accompanied by the publication of any
advertisement.
(c) The Shareholders and the Optionholders have carefully reviewed the
Parent's financial statements for the year ended December 31, 1997,
together with the interim report for the nine-month period ended September
30, 1998, and have had access to all other information regarding the Parent
and its present and prospective business, assets, liabilities and financial
condition that the Shareholders and the Optionholders reasonably consider
important in making the decision to acquire the Parent Common Stock, and
the Shareholders and the Optionholders have had ample opportunity to ask
questions of the Parent's representatives concerning such matters and the
acquisition of the Parent Common Stock.
25
(d) By reason of the Shareholders' and the Optionholders business or
financial experience, the Shareholders and the Optionholders are each
capable of evaluating the merits and risks of their investment in the
Parent Common Stock, have the ability to protect their own interests in
this transaction and are financially capable of bearing a total loss of
this investment.
(e) The Shareholders and the Optionholders understand that
their ability to transfer the Parent Common Stock is subject to the
restrictions set forth in the Lock-Up Agreement and, with respect to the
Shareholders, is further subject to the Escrow Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION
SUB
The Parent and Acquisition Sub represent and warrant to the Company and
the Shareholders as follows:
5.1 Organization, Standing and Power. Each of Parent and Acquisition Sub
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the state of its incorporation and (ii) has the corporate power to
own its properties and to carry on its business as now being conducted. Each of
the Parent and the Acquisition Sub is qualified or licensed and in good standing
as a foreign corporation in all jurisdictions where the failure to be so
qualified or licensed could reasonably be expected to materially impair the
ability to consummate the transaction contemplated hereby or materially
adversely affect the business of Parent or Acquisition Sub.
5.2 Authority. Each of Parent and Acquisition Sub has all requisite
corporate power and authority to enter into this Agreement, the Agreement of
Merger and any Related Agreements to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement, the Agreement of Merger and any Related Agreements to which it is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by all necessary corporate and stockholder action on
the part of each of the Parent and Acquisition Sub, and no further action is
required on the part of either the Parent or Acquisition Sub to authorize this
Agreement, the Agreement of Merger or any Related Agreements to which it is a
party and the transactions contemplated hereby and thereby. This Agreement, the
Agreement of Merger and any Related Agreements to which it is a party have been
duly executed and delivered by each of Parent and Acquisition Sub, and, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligation of each of the Parent and
Acquisition Sub, enforceable in accordance with their respective terms, except
as such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance, injunctive
relief or other equitable remedies.
5.3 No Conflict. The execution and delivery of this Agreement and any
Related Agreements by each of Parent and Acquisition Sub do not, and, the
consummation of the
26
transactions contemplated hereby and thereby 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, modification or
acceleration of any obligation or loss of any benefit under (i) any provision of
the organizational documents of the Parent or Acquisition Sub, (ii) any
mortgage, indenture or lease to which the Parent or Acquisition Sub or any of
their respective properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Parent or
Acquisition Sub or their respective properties or assets.
5.4 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any governmental entity or any third
party, including a party to any agreement with the Parent, is required by or
with respect to the Parent in connection with the execution and delivery of this
Agreement and any Related Agreements or the consummation of the transactions
contemplated hereby and thereby.
5.5 Capital Stock. All outstanding shares of Parent Common Stock are
validly issued, fully paid and non-assessable and not subject to preemptive
rights. The Parent has duly authorized and reserved for issuance the Merger
Shares, and, when issued in accordance with the terms of ARTICLE II, the Merger
Shares will be validly issued, fully paid and non-assessable and free of
preemptive rights. The Parent directly owns all of the outstanding shares of
capital stock of Acquisition Sub, and all of such shares are validly issued,
fully paid and non-assessable and not subject to preemptive rights.
5.6 Broker's Fees. The Parent has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Commercially Reasonable Efforts. Subject to the terms and conditions
provided in this Agreement, each of the parties hereto shall use its
commercially reasonable efforts to take promptly, or cause to be taken, all
reasonable actions, and to do promptly, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated hereby, to obtain
all necessary waivers, consents and approvals and to effect all necessary
registrations and filings and to remove any injunctions or other impediments or
delays, legal or otherwise, in order to consummate and make effective the
transactions contemplated by this Agreement for the purpose of securing to the
parties hereto the benefits contemplated by this Agreement.
6.2 Expenses. All fees and expenses incurred in connection with the
transactions contemplated by this Agreement including, without limitation, all
legal, accounting, financial advisory, consulting and all other fees and
expenses ("Transaction Expenses") incurred by a party in connection with the
negotiation and effectuation of the terms and conditions of this Agreement, the
Related Agreements and the transactions contemplated hereby and thereby, shall
be the obligation of the respective party incurring such fees and expenses; it
being understood that the Transaction Expenses of the Company shall be the
responsibility of the Shareholders and Optionholders, except that Parent agrees
to pay up to $10,000 of the
27
Company's expenses. All Transaction Expenses of the Company and the Shareholders
shall be payable at Closing. To the extent that the Company pays or becomes
liable with respect to any Transaction Expenses of the Company or the
Shareholders, the cash consideration payable pursuant to Section 2.1(a)(i) shall
be reduced dollar for dollar.
6.3 Confidentiality. Each party hereto agrees that any information obtained
by such party (the "Receiving Party") pursuant to or in connection with this
Agreement, the Related Agreements and the transactions contemplated hereby and
thereby which may be proprietary or otherwise confidential to any other party
hereto (the "Disclosing Party") will not be disclosed by the Receiving Party
without the prior written consent of the Disclosing Party. Each party further
acknowledges and understands that any information obtained which may be
considered "inside" non-public information will not be utilized by such party in
connection with purchases and/or sales of the Parent Common Stock except in
compliance with applicable state and federal anti-fraud statutes. The provisions
of this Section 6.3 shall not be in limitation of any rights which the Parent
may have with respect to the books and records of the Company, or to inspect its
properties or discuss its affairs, finances and accounts, under the laws of the
jurisdiction in which it is incorporated.
6.4 Operation of Business. Except as contemplated by this Agreement, during
the period from the date of this Agreement to the Closing Date, the Shareholders
shall use their best efforts to cause the Company to conduct its operations in
the ordinary course of business and in compliance in all material respects with
all applicable laws and regulations and, to the extent consistent therewith, the
Shareholders shall use their best efforts to cause the Company to use all
commercially reasonable efforts to preserve intact its current business
organization, keep its physical assets in good working condition, keep available
the services of its current officers and employees and preserve its
relationships with customers and others having business dealings with it to the
end that its good will and ongoing business shall not be impaired in any
material respect. Without the prior written consent of Parent, the Company shall
not, among other things, (a) except for the issuance of shares of capital stock
of the Company upon exercise or conversion of presently outstanding warrants,
options, rights or convertible securities, issue or sell, or contract to issue
or sell, any shares of capital stock of the Company or any securities
convertible into or exchangeable for shares of capital stock of the Company or
securities, warrants, options or rights to purchase any of the foregoing (other
than the issuance of employee stock options and stock appreciation rights under
existing stock option plans), (b) purchase or redeem any shares of capital stock
of the Company, (c) declare or pay any dividends or agree to make any other
distribution with respect to any shares of capital stock of the Company or (d)
amend the Articles of Incorporation or By-Laws of the Company.
6.5 Right of First Refusal.
(a) If any Shareholder shall receive a bona fide written offer (an
"Offer") from a Third Party (as defined below) to purchase all or a portion
of the Merger Shares held by such Shareholder and such Shareholder desires
to accept the offer, such Shareholder, before accepting the Offer, shall
deliver to the Parent an offer (the "First Refusal Offer") to sell such
Merger Shares in accordance with this Section 6.5.
28
(b) The First Refusal Offer shall state that such Shareholder proposes
to effect a sale of Merger Shares to a Third Party, the number of Merger
Shares proposed to be sold, the terms and conditions of the Offer, and the
name and address of the Third Party. The Parent shall have the right to
purchase all, but not part, of such Merger Shares. Such right may be
exercised by the Company by delivery of a written notice to the Shareholder
within 30 days after delivery of the First Refusal Offer (the "Acceptance
Period"). Upon delivery of such notice, the purchase of such Merger Shares
shall be consummated on a business day designated by such Shareholder at
the offices of the Parent within 60 days after the delivery of such notice
on the terms of the First Refusal Offer.
(c) If the Parent did not accept all Merger Shares offered in the
First Refusal Offer, or if the Parent failed to purchase such shares within
the 60-day period referred to in Section 6.5(b) above, such Shareholder may
sell such Merger Shares on the terms of the Offer to the Third Party within
90 days after the expiration of the Acceptance Period or the 60-day period
referred to in Section 6.5(b), as the case may be. If such sale is not made
within such 90-day period, the restrictions provided for in this Section
6.5 shall again become effective.
(d) For purposes of this Section 6.5, "Third Party" shall mean, with
respect to any Shareholder, any person or entity that is not the spouse or
lineal descendant of such Shareholder or a trust for the benefit of any of
the foregoing.
(e) The restrictions under this Section 6.5 shall terminate upon
closing of the first underwritten public offering for the account of the
Parent of Parent Common Stock pursuant to a registration statement filed
under the Securities Act of 1933, as amended.
6.6 Appointment of Representative.
(a) Powers of Attorney. Each Shareholder irrevocably constitutes and
appoints Xxxxx X. Xxx (the "Representative") as such Shareholder's true and
lawful agent, proxy, and attorney-in-fact and agent and authorizes the
Representative acting for such Shareholder and in such Shareholder's name,
place, and stead, in any and all capacities to do and perform every act and
thing required or permitted to be done in connection with the transactions
contemplated by this Agreement and the Related Documents, as fully to all
intents and purposes as such person might or could do in person, including,
without limitation, the power to :
(i) receive all notices required to be delivered to such
Shareholder under this Agreement, including, without limitation, any
notice of a claim for which indemnification is sought under Section
8.2 below;
(ii) take any and all action on behalf of such Shareholder from
time to time as the Representative may deem necessary or desirable to
defend, pursue, resolve, and/or settle claims under this Agreement,
including, without limitation, claims for indemnification under
Section 8.2; and
29
(iii) engage and employ agents and representatives (including
accountants, legal counsel, and other professionals) and incur such
other expenses as he deems necessary or prudent in connection with the
administration of the foregoing.
Each Shareholder grants unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary or
desirable to be done in connection with the transactions contemplated by
this Agreement and the Related Documents, as fully to all intents and
purposes as such Shareholder might or could do in person, hereby ratifying
and confirming all that the Representative may lawfully do or cause to be
done by virtue hereof. Each Shareholder, by executing this Agreement,
agrees that such agency, proxy, and power of attorney are coupled with an
interest, and are therefore irrevocable without the consent of the
Representative and shall survive the death, incapacity, or bankruptcy of
such Shareholder to the extent permitted by applicable law. Each
Shareholder acknowledges and agrees that upon execution of this Agreement,
any delivery by the Representative of any waiver, amendment, agreement,
opinion, certificate, or other documents executed by the Representative or
any decisions made by the Representative pursuant to this Section 6.6 shall
bind such Shareholder with respect to such documents or decision as fully
as if such Shareholder had executed and delivered such documents or made
such decisions.
(b) Not Liable. The Representative shall not have, by reason of this
Agreement, a fiduciary relationship in respect of any Shareholder, except
in respect of amounts received on behalf of such Shareholder. The
Representative shall not be liable to any Shareholder for any action taken
or omitted by him or any agent employed by him hereunder or under any
Related Document, or in connection therewith, except that the
Representative shall not be relieved of any liability imposed by law for
gross negligence or willful misconduct. The Representative shall not be
liable to Shareholders for any apportionment or distribution of payments
made by him in good faith, and if any such apportionment or distribution is
subsequently determined to have been made in error the sole recourse from
other Shareholder to whom payment was due, but not made, shall be to
recover from other Shareholders any payment in excess of the amount to
which they are determined to have been entitled. The Representative, in
such capacity, shall not be required to make any inquiry concerning either
the performance or observance of any of the terms, provisions, or
conditions of this Agreement.
(c) Replacement of the Representative. Upon the death, disability, or
incapacity of the initial Representative appointed pursuant to Section
6.6(a) above, each Shareholder acknowledges and agrees that such
Representative's executor, guardian, or legal representative, as the case
may be, shall (in consultation with the Shareholders) appoint a replacement
reasonably believed by such person as capable of carrying out the duties
and performing the obligations of the Representative hereunder within
thirty (30) days. In the event that the Representative resigns for any
reason, the Representative shall (in consultation with Shareholders) select
another representative to fill such vacancy. Any substituted representative
shall be deemed the Representative for all purposes of this Agreement and
the Related Documents.
30
(d) Actions of the Representative; Liability of the Representative.
Each Shareholder agrees that the Parent shall be entitled to rely on any
action taken by the Representative, on behalf of the Shareholders, pursuant
to Section 6.6(a) above (each, an "Authorized Action"), and that each
Authorized Action shall be binding on each Shareholder as fully as if such
Shareholder had himself taken such Authorized Action. The Parent agrees
that the Representative shall have no liability to the Parent for any
Authorized Action, except to the extent that such Authorized Action is
found by a final order of a court of competent jurisdiction to have
constituted fraud or willful misconduct. The Shareholders hereby release
and discharge the Parent from and against any liability arising out of or
in connection with the Representative's failure to distribute any amounts
received by the Representative on Shareholders' behalf to Shareholders.
6.7 Access to Information. The Company shall afford to the Parent, and to
the Parent's accountants, counsel and other representatives, reasonable access
during normal business hours during the period prior to the Closing to the books
and records relating to the Company's business, and shall furnish promptly to
the Parent or its representative all information concerning the operations,
properties and personnel of the Company as the Parent may reasonably request.
6.8 Use of Name. Except in the course of their employment, if any, by the
Company, the Shareholders will not use the names "KnowledgeWeb" or
"Xxxxxxxxx.Xxx" or any derivative thereof in any way whatsoever at any time
after the Closing.
ARTICLE VII
CONDITIONS TO THE SALE OF THE SHARES
7.1 Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement shall be subject to the satisfaction or waiver at
or prior to the Closing Date of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated by this
Agreement or the related Documents shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there by any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the sale contemplated hereby, which makes the consummation of
such sale illegal.
(b) Government Approvals. The Company and the Shareholders shall have
obtained all other consents and approvals required from all governmental
authorities for the consummation of the transactions contemplated by this
Agreement.
7.2 Additional Conditions to the Obligations of the Parent. The obligations
of the Parent to consummate and effect this Agreement and the transactions
contemplated hereby
31
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
the Parent:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Company and the Shareholders in this Agreement shall be
true and correct in all material respects, and the Company and the
Shareholders shall have performed and complied in all material respects
with all covenants, obligations and conditions of this Agreement required
to be performed and complied with by them as of the Closing Date.
(b) Certificate of the Company and Shareholders. The Parent shall have
been provided with a certificate executed on behalf of the Company by an
authorized officer and by the representative on behalf of the Shareholders
to the effect that, as of the Closing Date:
(i) all representations and warranties made by the Company and
the Shareholders in this Agreement are true and correct; and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by the Shareholders, or by the Company at the
direction of the Shareholders, on or before such date have been so
performed.
(c) Claims. There shall not have occurred any written claims (whether
or not asserted in litigation) which may materially and adversely affect
the consummation of the transactions contemplated by this Agreement or the
Related Documents or materially adversely affect the business, earnings,
prospects, properties or condition (financial or other) of the Company.
(d) Third Party Consents. All required consents, waivers and approvals
required to be obtained in order to consummate the transactions
contemplated by this Agreement and the Related Documents shall have been
obtained.
(e) Additional Closing Documents. The Parent shall have received each
document required to be delivered by the Shareholders and the Optionholders
at the Closing pursuant to Section 3.2 and Section 3.3.
7.3 Additional Conditions to Obligations of the Shareholders. The
obligation of the Shareholders to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Closing Date of each of the following conditions, any of which may
be waived, in writing, by the Representative on behalf of the Shareholders:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Parent and Acquisition Sub in this Agreement shall be
true and correct in all material respects, and each of the Parent and
Acquisition Sub shall have performed and complied in all material respects
with all covenants, obligations and conditions of
32
this Agreement required to be performed and complied with by them as of the
Closing Date.
(b) Certificate of the Parent and Acquisition Sub. The Shareholders
shall have been provided with a certificate executed on behalf of the
Parent and Acquisition Sub by an authorized officer to the effect that, as
of the Closing Date:
(i) all representations and warranties made by the Parent and
Acquisition Sub in this Agreement are true and correct; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by the Parent and Acquisition Sub on or before such date have
been so performed.
(c) The Shareholders shall have received a tax opinion of Xxxxxxx Coie
LLP, substantially in the form of Exhibit 7.3(c), to the effect that the
Merger will be treated as a reorganization within the meaning of Section
368(a) by reason of Section 368(a)(2)(E) of the Code, such opinion to be
supported by tax certificates supplied by the Parent and the Company and
satisfactory to Xxxxxxx Coie LLP;
(d) Additional Closing Documents. The Shareholders shall have received
each document required to be delivered by the Parent at the Closing
pursuant to Section 3.3.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival of Representations and Warranties. The representations and
warranties of the Company and the Shareholders in ARTICLE IV and of the Parent
in ARTICLE V shall survive the execution, delivery and performance of this
Agreement for a period of eighteen months, except with respect to any claim
arising from or related to a breach of the representations and warranties of the
Company and the Shareholders set forth in Section 4.2 (Capitalization) and
Section 4.14 (Tax Matters) which shall survive until the date of expiration of
the applicable statute of limitations (including any extensions thereto to the
extent that such statute of limitations may be tolled) applicable to the event
which gave rise to such claim.
8.2 Indemnification by the Shareholders. Except as otherwise limited by
this ARTICLE VIII, each Shareholder, jointly and severally, shall indemnify,
defend and hold harmless the Parent and its affiliates, shareholders, officers,
directors, employees, subsidiaries, successors and assigns (collectively, the
"Parent Indemnified Parties") from and against, and pay or reimburse the Parent
Indemnified Parties for, any and all losses, damages, claims, costs and
expenses, interest, awards, judgments, fines and penalties (including legal
costs and expenses) suffered or incurred by them (hereinafter a "Parent Loss")
arising out of or resulting from:
(a) the inaccuracy of any representation or warranty of the Company
and the Shareholders set forth in ARTICLE IV;
33
(b) any other breach or violation of this Agreement by the Company,
the Shareholders or the Optionholders; or
(c) any and all debts, liabilities and obligations of the Company of
any nature (including debts, liabilities and obligations resulting from any
audit of the Company's federal or state income or sales tax returns)
arising out of or resulting from any transaction or event occurring prior
to the Closing to the extent that such debts, liabilities or obligations
were not fully reserved against in the Financial Statements.
8.3 General Indemnification Provisions.
(a) For the purposes of this Section 8.3 and Section 8.4, 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 8.2, and the term "Indemnitor" shall refer to the Shareholders.
(b) Within a reasonable time following the determination thereof, 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 Parent
Loss, 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. The obligations and liabilities of an Indemnitor under this ARTICLE
VIII with respect to Parent Losses arising from claims of any third party
that are subject to the indemnification provided for in this ARTICLE VIII
("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 promptly give the
Indemnitor notice of such Third Party Claim and shall permit the
Indemnitor, at its option, to undertake the defense of such Third Party
Claim by counsel of its own choice and at its expense; provided, however,
that the failure of the Indemnitee to notify the Indemnitor during the
required notification period shall only relieve the Indemnitor from its
obligation to indemnify the Indemnitee pursuant to this ARTICLE VIII to the
extent that the Indemnitor is materially prejudiced by such failure
(whether as a result of the forfeiture of substantive rights or defenses or
otherwise). If the Indemnitor acknowledges in writing its obligation to
indemnify the Indemnitee hereunder against any Parent Losses that may
result from such Third Party Claims, 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 20 calendar days of the receipt of notice
of such Third Party Claim from the Indemnitee of its intention to do so. If
the Indemnitor elects to assume and control the defense of any such Third
Party Claim, the Indemnitee shall have the right to employ separate counsel
and to participate in (but not control) the defense, compromise or
settlement of the Third Party Claim, but the fees and expenses of such
counsel will be at the expense of the Indemnitee, unless (i) the Indemnitor
has agreed to pay such fees and expenses, (ii) any relief other than the
payment of money damages is sought against the Indemnitee, or (iii) the
Indemnitee has been advised by its counsel that there may be one or more
defenses reasonably available to it which are different from or additional
to those
34
available to the Indemnitor, and in any such case that portion of the fees
and expenses of such separate counsel that are reasonably related to
matters covered by the indemnification provided by this ARTICLE VIII will
be paid by the Indemnitor. Expenses of counsel to the Indemnitee shall be
reimbursed on a current basis by the Indemnitor if there is no dispute as
to the obligation of the Indemnitor to pay such amounts pursuant to this
ARTICLE VIII. 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, at the Indemnitor's expense, 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 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. 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.
8.4 Limitations on Indemnification. No claim or claims may be made against
an Indemnitor for indemnification pursuant to Section 8.2(a) unless the
collective Parent Losses of the Indemnitees with respect to such subsection
shall exceed in the aggregate an amount equal to $50,000, in which case the
Indemnitor shall be obligated to the Indemnitee for the full amount of the
Parent Loss or Losses. The sole recourse for the Shareholders indemnity
obligations or any other breach or cause of action under the Agreement shall be
limited to the Escrow Shares, except with respect to claims based upon fraud and
any claim arising from or related to a breach of the representations and
warranties of the Company and the Shareholders set forth in Section 4.2(e)
(Capitalization) and Section 4.14 (Tax Matters). With respect to any claim
arising from or related to a breach by one or more Shareholders of the
representations and warranties set forth in Section 4.2(e) (Capitalization), or
based upon the fraudulent conduct of one or more Shareholders, a Shareholder
shall be liable only if, and to the extent that, the breach or fraud is based
upon his misrepresentation or his act(s) or failure to act. With respect to any
claim arising from or related to a breach of the representations and warranties
of the Company and the Founders set forth in Section 4.14 (Tax Matters), or
based upon the fraudulent conduct of the Company, the Founders shall be solely
responsible for the satisfaction of any claims in excess of the amounts
satisfied by application of the Escrow Shares pursuant to the terms of the
Escrow Agreement.
ARTICLE IX
TERMINATION, AMENDMENT, EXTENSION AND WAIVER
9.1 Termination. Except as provided in Section 9.2 below, this Agreement
may be terminated and the transaction abandoned at any time prior to the Closing
Date:
35
(a) by mutual consent of the Shareholders and the Parent;
(b) by the Shareholders and the Parent if the Closing has not occurred
by February 28, 1999;
(c) by the Shareholders if they are not in material breach of their
obligations under this Agreement, and there has been a material breach of
any representation, warranty, covenant or agreement contained in this
Agreement on the part of the Parent and such breach has not been cured
within fifteen (15) calendar days after written notice to the Parent
(provided that no cure period shall be required for a breach which by its
nature cannot be cured); or
(d) by the Parent if it is not in material breach of its obligations
under this Agreement, and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Shareholders and such breach has not been cured within
fifteen (15) calendar days after written notice to the Company (provided
that no cure period shall be required for a breach which by its nature
cannot be cured).
9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of the Shareholders or the
Parent, or its officers, directors or shareholders, provided that each party
shall remain liable for any breaches of this Agreement prior to its termination
and provided further that the provisions of Sections 6.2 and 6.3 shall remain in
full force and effect and shall survive any termination of this Agreement.
9.3 Amendment. Except as is otherwise required by applicable law, this
Agreement may be amended by the parties hereto at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto.
9.4 Extension; Waiver. At any time, the Parent and the Shareholders may, to
the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefits of such party 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 an instrument in writing signed on behalf of such
party.
ARTICLE X
GENERAL PROVISION
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
36
if to the Parent, to:
iVillage
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxx Xxxxx, Esq.
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx, Xxxxxxxxxx & Xxxxxxxxx LLP
00 Xxxxxxxxxxx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
if to the Shareholders, to:
Xxxxx and Xxxxx Xxx
0000 Xxxxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxxx, Xxxxxxxxx and Xxxxxxxxx LLP
000 0xx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxx Xxxxxxxxx
Telephone No.: (000) 000-0000
Facsimile No.: (000) 000-0000
10.2 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The words "knowledge" (and terms of similar import) mean, with
respect to a given matter, the knowledge of Xxxxx Xxx and Xxxxx Xxx and any
information contained in the files of the Company. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The
references herein to Sections, Exhibits and Schedules, unless otherwise
indicated, are references to sections of and exhibits and schedules to this
Agreement.
10.3 Entire Agreement; Assignment. This Agreement, the schedules and
exhibits hereto, the Non-Disclosure Agreement, dated August 5, 1998, between the
Company and the Parent and the documents and instruments and other agreements
among the parties hereto
37
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and (b) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.
10.4 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.
10.5 Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of California regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction and venue of the federal court encompassing the County of San
Francisco, California, in connection with any matter based upon or arising out
of this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction, venue and such process.
10.6 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation 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.
10.7 Counterparts. This Agreement may be executed in any number of
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 party, it being understood that all
parties need not sign the same counterpart.
10.8 Attorneys' Fees; Disputes. If either party to this Agreement or any of
the agreements contemplated hereby brings any action, suit, counterclaim,
appeal, arbitration, or proceeding for any relief against the other (an
"Action"), the prevailing party shall be entitled to reasonable attorneys' fees
and costs incurred in such Action.
[Remainder of Page Intentionally Blank]
38
IN WITNESS WHEREOF, the Shareholders, the Company, the Parent and
Acquisition Sub have caused this Agreement to be signed themselves or by a
duly authorized officer, all as of the date first written above.
SHAREHOLDERS:
/s/ Xxxxx Xxx
----------------------------------------------
Xxxxx Xxx
/s/ Xxxxx Xxx
----------------------------------------------
Xxxxx Xxx
/s/ Xxxxx X. Xxxxx
----------------------------------------------
IA Holdings Limited
By: Xxxxx X. Xxxxx
Title: Director
/s/ Xxx Xxxxxxx
----------------------------------------------
Xxx Xxxxxxx
/s/ Xxxxx Xxxxxxx
----------------------------------------------
Xxxxx Xxxxxxx
/s/ Xxxx Xxxxxxxx
----------------------------------------------
Xxxx Xxxxxxxx
/s/ Xxxxxxx Xxxxxxxxx
----------------------------------------------
Xxxxxxx Xxxxxxxxx
/s/ Xxx Xxxxxxxxx
----------------------------------------------
BSC Ventures I LLC
By: Xxx Xxxxxxxxx
Title: Member
Signature Page to Agreement
39 and Plan of Reorganization
COMPANY:
KNOWLEDGEWEB, INC.
By: /s/ Xxxxx X. Xxx
------------------------------------------
Name: Xxxxx X. Xxx
Title: President
PARENT:
iVILLAGE INC.
By: /s/ Xxxxx Xxxxx
------------------------------------------
Name:
Title:
ACQUISITION SUB:
KNOWLEDGEWEB ACQUISITION
CORPORATION
By: /s/ Xxxxx Xxxxx
------------------------------------------
Name:
Title:
40
EXHIBIT I
List of Shareholders
Number of Company
Name Shares Owned
---- ------------
Xxxxx Xxx.................................. 2,300,000
Xxxxx Xxx.................................. 2,300,000
IA Holdings Limited........................ 511,111
Xxx Xxxxxxx................................ 51,104
Xxxxx Xxxxxxx.............................. 153,690
Xxxx Xxxxxxxx.............................. 52,341
Xxxxxxx Xxxxxxxxx.......................... 154,541
BSC Ventures I LLC......................... 10,204
---------
Total...................................... 5,532,991
=========
EXHIBIT III
List of Optionholders
Number of Options to
Name Purchase Company Shares
---- -----------------------
Xxxx Xxxxxxx................................ 29,774
Xxxx Xx..................................... 29,774
Xxxxxxxx Xxxxxx............................. 14,887
Xxxx Xxxxx.................................. 17,865
Xxxxxx Xxxxx................................ 2,233
Xxxxx Xxxxx................................. 11,165
Xxxxxxxxx Xxxxxx............................ 8,932
Xxxxxx Xxxxx................................ 4,466
Xxxxxxx Xxxx................................ 1,117
Xxxx Xxxxxx................................. 2,233
Linea Van Horn.............................. 1,117
Xxxxxx Xxxx................................. 2,233
Xxxx Xxxxxx................................. 1,117
Xxxxxx Xxxxxxx.............................. 1,117
Xxxxxxx Xxxxxxxxx........................... 3,000
Xxxxx Xxxx.................................. 1,500
Xxxxx Xxxxxxxx.............................. 6,000
Xxxx Xxxxx.................................. 3,000
Xxxxx Xxxxxxx............................... 4,000
Xxxx Xxxxxxxx............................... 2,000
Xxxxxxx Ax.................................. 5,000
Rainmaker Capital, LLC...................... 5,000
Xxx Xxxxxxx................................. 1,000
Xxxxxx Xxxxxxxx............................. 1,000
Xxxxxx Xxxxx................................ 1,000
Xxx Xxxxxxxxx............................... 1,000
b|z partners................................ 57,594
-------
Total....................................... 219,124
=======
EXHIBIT 2.2
Calculation of Earnout Shares to be Released
Due Dates Number of Earnout Shares (1)(2)
--------- ---------------------------------------------------------------------------
6 Months from Closing.............. (Gross revenue in dollars for the period beginning on the date of Closing
thru 6/30/99)/$2,000,000X(601,191 shares)
9 Months from Closing.............. (Gross revenue in dollars for the period beginning 7/1/99 thru 9/30/99)/
$2,000,000X(601,191 shares)
12 Months from Closing............. (Gross revenue in dollars for the period beginning 10/1/99 thru 12/31/99)/
$2,000,000X(601,191 shares)
15 Months from Closing............. (Gross revenue in dollars for the period beginning 1/1/00 thru
3/31/00)/$4,000,000X(601,191 shares)
18 Months from Closing............. (Gross revenue in dollars for the period beginning 4/1/00 thru 6/30/00)/
$4,000,000X(601,191 shares)
21 Months from Closing............. (Gross revenue in dollars for the period beginning 7/1/00 thru 9/30/00)/
$4,000,000X(601,191 shares)
24 Months from Closing............. (Gross revenue in dollars for the period beginning 10/1/00 thru 12/31/00)/
$4,000,000X(601,191 shares)
27 Months from Closing............. (Gross revenue in dollars for the period beginning 1/1/01 thru 3/30/01)/
$4,000,000X(601,191 shares)
30 Months from Closing............. (Gross revenue in dollars for the period beginning 4/1/01 thru 6/30/01)/
$4,000,000X(601,191 shares)
33 Months from Closing............. (Gross revenue in dollars for the period beginning 7/1/01 thru 9/30/01)/
$4,000,000X(601,191 shares)
37 Months from Closing............. (Gross revenue in dollars for the period beginning 10/1/01 thru 36 Months
from Closing)/ $4,000,000X(601,191 shares)
(1) In no event shall the aggregate number of Earnout Shares released exceed
1,202,382.
(2) If, and once, 601,191 Earnout Shares have been released prior to 12 months
from Closing, then additional Earnout Shares to be released shall be
calculated as follows: (Gross revenue in dollars for the respective
period)/ $4,000,000X(601,191 shares).
The Earnout Shares will be released to the Shareholders on a pro rata basis as
follows:
Shareholder Percentage of Earnout Shares
----------- ----------------------------
Xxxxx Xxx.......................... 41.5688%
Xxxxx Xxx.......................... 41.5688
IA Holdings Limited................ 9.2375
Xxx Xxxxxxx........................ 0.9236
Xxxxx Xxxxxxx...................... 2.7777
Xxxx Xxxxxxxx...................... 0.9460
Xxxxxxx Xxxxxxxxx.................. 2.7931
BSC Ventures I LLC................. 0.1844
TABLE OF CONTENTS
Page
ARTICLE I GENERAL....................................................................................1
1.1 The Merger.....................................................................................1
1.2 The Effective Date of the Merger...............................................................2
1.3 Effect of Merger...............................................................................2
1.4 Charter and By-Laws of Surviving Corporation...................................................2
1.5 Taking of Necessary Action.....................................................................2
1.6 Tax-Free Reorganization........................................................................2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS..................3
2.1 Total Consideration............................................................................3
2.2 Earnout Shares.................................................................................4
2.3 Approval of Transaction; Exchange of Securities................................................5
2.4 Escrow Deposits................................................................................5
ARTICLE III CLOSING....................................................................................6
3.1 Closing........................................................................................6
3.2 Company's and Shareholders' Obligations at the Closing.........................................6
3.3 Optionholders' Obligations at the Closing......................................................8
3.4 Parent's and Acquisition Sub's Obligations at the Closing......................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE FOUNDERS.............................9
4.1 Organization and Standing......................................................................9
4.2 Capitalization................................................................................10
4.3 Binding Obligation............................................................................10
4.4 Subsidiaries..................................................................................11
4.5 Governmental Consents.........................................................................11
4.6 Compliance with Other Instruments and Laws....................................................11
4.7 Litigation....................................................................................12
4.8 Intellectual Property.........................................................................12
4.9 Financial Statements..........................................................................16
4.10 Accounts and Notes Receivable.................................................................16
4.11 Accounts and Notes Payable....................................................................17
4.12 Internal Accounting Controls..................................................................17
4.13 Outstanding Indebtedness; Liabilities.........................................................17
4.14 Tax Matters...................................................................................17
4.15 Absence of Certain Changes....................................................................18
4.16 Material Contracts and Commitments............................................................19
4.17 Registration Rights...........................................................................21
4.18 Title to Property and Assets..................................................................21
4.19 Employee Compensation and Benefit Plans.......................................................22
4.20 Labor Union Activities........................................................................22
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Page
4.21 Employee Relations............................................................................23
4.22 No Discrimination.............................................................................23
4.23 Certain Transactions..........................................................................23
4.24 Environmental Laws and Regulations............................................................23
4.25 Other Names...................................................................................23
4.26 Minute Books..................................................................................23
4.27 Insurance Coverage............................................................................24
4.28 Business Metrics..............................................................................24
4.29 Year 2000 Compliant Systems...................................................................24
4.30 Bank Accounts; Powers of Attorney.............................................................24
4.31 Vote Required.................................................................................24
4.32 Company Expenses..............................................................................25
4.33 Officers and Directors........................................................................25
4.34 Broker's Fees.................................................................................25
4.35 Disclosure....................................................................................25
4.36 Investment Representations....................................................................25
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PARENT AND ACQUISITION SUB..........................26
5.1 Organization, Standing and Power..............................................................26
5.2 Authority.....................................................................................26
5.3 No Conflict...................................................................................26
5.4 Consents......................................................................................27
5.5 Capital Stock.................................................................................27
5.6 Broker's Fees.................................................................................27
ARTICLE VI ADDITIONAL AGREEMENTS.....................................................................27
6.1 Commercially Reasonable Efforts...............................................................27
6.2 Expenses......................................................................................27
6.3 Confidentiality...............................................................................28
6.4 Operation of Business.........................................................................28
6.5 Right of First Refusal........................................................................28
6.6 Appointment of Representative.................................................................29
6.7 Access to Information.........................................................................31
6.8 Use of Name...................................................................................31
ARTICLE VII CONDITIONS TO THE SALE OF THE SHARES......................................................31
7.1 Conditions to Obligations of Each Party.......................................................31
7.2 Additional Conditions to the Obligations of the Parent........................................31
7.3 Additional Conditions to Obligations of the Shareholders......................................32
ARTICLE VIII INDEMNIFICATION...........................................................................33
8.1 Survival of Representations and Warranties....................................................33
8.2 Indemnification by the Shareholders...........................................................33
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Page
8.3 General Indemnification Provisions............................................................34
8.4 Limitations on Indemnification................................................................35
ARTICLE IX TERMINATION, AMENDMENT, EXTENSION AND WAIVER..............................................35
9.1 Termination...................................................................................35
9.2 Effect of Termination.........................................................................36
9.3 Amendment.....................................................................................36
9.4 Extension; Waiver.............................................................................36
ARTICLE X GENERAL PROVISION.........................................................................36
10.1 Notices.......................................................................................36
10.2 Interpretation................................................................................37
10.3 Entire Agreement; Assignment..................................................................37
10.4 Severability..................................................................................38
10.5 Governing Law; Jurisdiction...................................................................38
10.6 Rules of Construction.........................................................................38
10.7 Counterparts..................................................................................38
10.8 Attorneys' Fees; Disputes.....................................................................38
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