Exhibit 2.8
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
TICKETMASTER ONLINE-CITYSEARCH, INC.,
TMCS MERGER SUB, INC.
2B TECHNOLOGY, INC.
AND
THE SHAREHOLDERS THEREOF
JANUARY 30, 2000
TABLE OF CONTENTS
PAGE
ARTICLE I. DEFINITIONS.....................................................................................1
1.1. Defined Terms...................................................................................1
1.2. Terms Defined Elsewhere.........................................................................5
ARTICLE II. THE MERGER......................................................................................7
2.1. The Merger......................................................................................7
2.2. Effective Time..................................................................................7
2.3. Closing of the Merger...........................................................................8
2.4. Effects of the Merger...........................................................................8
2.5. Articles of Incorporation and Bylaws............................................................8
2.6. Directors.......................................................................................8
2.7. Officers........................................................................................8
2.8. Conversion of Company Shares....................................................................8
2.9. No Dissenter's Rights..........................................................................10
2.10. Distribution of the Merger Consideration.......................................................10
2.11. Additional Consideration.......................................................................10
2.12. Revenue and EBITDA Adjustments.................................................................12
2.13. Form of Consideration..........................................................................13
2.14. Adjustment Events..............................................................................13
ARTICLE III. CLOSING DELIVERIES............................................................................13
3.1. Deliveries by the Company and the Shareholders at the Closing..................................13
3.2. Deliveries by Parent and Merger Sub at the Closing.............................................14
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS.............................14
4.1. Organization of the Company....................................................................14
4.2. Subsidiaries...................................................................................15
4.3. Authorization..................................................................................15
4.4. Capitalization.................................................................................16
4.5. Assets; Personal Property......................................................................16
4.6. Absence of Certain Activities..................................................................17
4.7. Certain Actions................................................................................17
4.8. Material Contracts.............................................................................18
4.9. Compliance with Other Instruments..............................................................18
4.10. Financial Statements...........................................................................18
4.11. Liabilities....................................................................................19
4.12. Taxes..........................................................................................19
4.13. Environmental Matters..........................................................................21
4.14. Employee Benefits..............................................................................22
4.15. Compliance with Law............................................................................22
4.16. Permits........................................................................................23
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PAGE
4.17. Consents and Approvals.........................................................................23
4.18. Litigation.....................................................................................23
4.19. Labor Matters..................................................................................23
4.20. Intellectual Property..........................................................................24
4.21. Transactions with Certain Persons..............................................................32
4.22. Insurance......................................................................................32
4.23. Accounts Receivable............................................................................32
4.24. Customers......................................................................................33
4.25. Certain Business Practices.....................................................................33
4.26. No Brokers.....................................................................................33
4.27. Material Misstatements or Omissions............................................................33
4.28. Books and Records..............................................................................33
4.29. Bank Accounts..................................................................................34
4.30. Exemption from HSR Act.........................................................................34
4.31. Title to Company Shares........................................................................34
4.32. Representations Regarding Parent Shares........................................................34
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........................................36
5.1. Organization of Parent and Merger Sub..........................................................36
5.2. Authorization..................................................................................36
5.3. Compliance with Other Instruments..............................................................36
5.4. Consents and Approvals.........................................................................37
5.5. No Prior Activities............................................................................37
5.6. Litigation.....................................................................................37
5.7. Public Documents; Parent Financial Statements..................................................37
5.8. Valid Issuance of Stock........................................................................37
5.9. No Brokers.....................................................................................38
5.10. Knowledge of Parent............................................................................38
ARTICLE VI. COVENANTS OF ALL PARTIES.......................................................................38
6.1. Conduct of Business............................................................................38
6.2. Shareholder Acknowledgment, Waiver and Voting Agreement........................................39
6.3. Investigation by Parent........................................................................39
6.4. Further Assurances.............................................................................40
6.5. Transitional Matters...........................................................................40
6.6. Agreements with Executives.....................................................................41
6.7. Notification of Certain Matters................................................................41
6.8. Assumption of Responsibilities.................................................................41
6.9. Employee Matters...............................................................................42
6.10. Public Announcements...........................................................................42
6.11. Lock-up........................................................................................42
6.12. Tax-Free Reorganization Status.................................................................42
6.13. Registration Statement.........................................................................43
ARTICLE VII. CONDITIONS TO OBLIGATIONS.....................................................................44
7.1. Conditions to Each Party's Obligations.........................................................44
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7.2. Conditions to the Company's Obligations........................................................44
7.3. Conditions to the Obligations of Parent and Merger Sub to Effect the Merger....................44
ARTICLE VIII. TERMINATION..................................................................................45
8.1. Termination....................................................................................45
8.2. Effect of Termination..........................................................................46
ARTICLE IX. INDEMNIFICATION................................................................................46
9.1. Survival of Representations....................................................................46
9.2. Indemnification................................................................................47
9.3. Notice of Claims...............................................................................48
9.4. Third Person Claims............................................................................49
9.5. Limitation on Indemnity........................................................................50
9.6. Remedies.......................................................................................51
ARTICLE X. MISCELLANEOUS..................................................................................51
10.1. Binding Effect; Assignment.....................................................................51
10.2. Notices........................................................................................51
10.3. Choice of Law..................................................................................52
10.4. Entire Agreement; Amendments and Waivers.......................................................52
10.5. Counterparts...................................................................................52
10.6. Severability...................................................................................53
10.7. Headings.......................................................................................53
10.8. Schedules......................................................................................53
10.9. No Third Party Beneficiaries...................................................................53
10.10. Specific Performance...........................................................................53
10.11. No Strict Construction.........................................................................54
10.12. Expenses.......................................................................................54
10.13. Disclosure Schedules...........................................................................54
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LIST OF EXHIBITS
Exhibit A Form of Employment Agreement
Exhibit B Earn-Out Amounts
Exhibit C Form of Employee Notice
LIST OF SCHEDULES
Schedule I Schedule of Shareholders
Schedule 2.7 Officers of the Surviving Corporation
Schedule 4.2 Subsidiaries
Schedule 4.4 Capitalization
Schedule 4.5 Assets and Property
Schedule 4.6 Absence of Certain Activities
Schedule 4.7 Certain Actions
Schedule 4.8 Contracts
Schedule 4.11 Liabilities
Schedule 4.12 Taxes
Schedule 4.16 Permits
Schedule 4.17 Consents and Approvals
Schedule 4.18 Litigation
Schedule 4.19 Labor Matters
Schedule 4.20 Intellectual Property
Schedule 4.21 Transactions with Certain Persons
Schedule 4.22 Insurance
Schedule 4.23 Accounts Receivable
Schedule 4.24 Customers
Schedule 4.26 Brokers
Schedule 4.29 Bank Accounts
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "AGREEMENT"), dated as of
January 30, 2000, is entered into by and among Ticketmaster Online-CitySearch,
Inc., a Delaware corporation ("PARENT"), TMCS Merger Sub, Inc., a Virginia
corporation and wholly-owned subsidiary of Parent ("MERGER SUB"), 2b Technology,
Inc., a Virginia corporation (the "COMPANY") and the shareholders of the Company
identified on SCHEDULE I (each a "SHAREHOLDER" and collectively, the
"SHAREHOLDERS").
RECITALS
WHEREAS, the Boards of Directors of the Company, Parent and Merger Sub
have each (i) determined that the Merger (as defined below) is advisable and
fair and in the best interests of their respective stockholders and (ii)
approved the Merger upon the terms and subject to the conditions set forth in
this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the respective covenants and
promises contained herein and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree
as follows:
ARTICLE I.
DEFINITIONS
1.1. DEFINED TERMS. As used herein, the terms below shall have the
following meanings. Any of such terms, unless the context otherwise requires,
may be used in the singular or plural, depending upon the reference.
"1999 FINANCIAL STATEMENTS" means the Company's audited balance sheet
dated as of December 31, 1999 and the related statements of operations, changes
in shareholders' equity and cash flow for the year ended December 31, 1999.
"AFFILIATE" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under common control
with such Person.
"AVERAGE STOCK PRICE" means the average of the closing sales prices of
Parent Shares on the NASDAQ National Market for each of the five trading days
immediately preceding a specified date (for example, the Closing Date or the
Effective Registration Date), as reported in the Western Edition of THE WALL
STREET JOURNAL.
"BUSINESS" means the Company's business of providing reservations,
scheduling and admissions software solutions, third party event, exhibit and
venue ticketing and reservation services and online event, exhibit and venue
ticketing and reservation services.
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"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in Los Angeles, California are authorized or required
by law to close.
"CODE" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"COMPANY ACCOUNTANTS" means Xxxxxxx & Company.
"CONSENTS" means any and all consents, approvals, authorizations or
waivers of any public, governmental or regulatory body or authority or from
parties to Material Contracts that are (a) required for the consummation of the
transactions contemplated by this Agreement or (b) necessary in order that the
Company can conduct the Business after the Closing Date substantially in the
same manner as the Business was conducted by the Company before the Closing
Date.
"COURT ORDER" means any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or governmental
agency, department or authority that is binding on any Person or its property
under applicable law.
"DECEMBER 1999 BALANCE SHEET" means the Company's internally prepared
balance sheet dated as of December 31, 1999.
"DEFAULT" means (a) any actual material breach or default, (b) the
occurrence of an event that solely with the passage of time or the giving of
notice or both will constitute a material breach or default or (c) the
occurrence of an event that with or without the passage of time or the giving of
notice or both gives or will give rise to a right of termination, renegotiation
or acceleration.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization, calculated consistent with financial statements prepared in
accordance with GAAP.
"EMPLOYMENT AGREEMENTS" means those certain Employment Agreements to
be entered into at the Closing by and between the Company and each of the
Executives substantially in the form attached hereto as EXHIBIT A.
"ENCUMBRANCE" means any claim, lien, pledge, option, charge, easement,
security interest, deed of trust, mortgage, conditional sales agreement,
encumbrance or other right of third parties, whether voluntarily incurred or
arising by operation of law, and includes, without limitation, any agreement to
give any of the foregoing in the future, and any contingent sale or other title
retention agreement or lease in the nature thereof.
"EXECUTIVES" means Xxxx X. Xxxxxx and Xxxxx X. Xxxxxx
"FINANCIAL STATEMENTS" means the Company's compiled balance sheets
dated as of December 31, 1997 and December 31, 1998 and the related statements
of income and retained earnings, schedule of sales and expenses and statement of
cash flows for each of the years ended December 31, 1997 and December 31, 1998,
all as compiled by the Company Accountants, and the notes and qualifications of
the Company's Accountants accompanying such statements.
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"FISCAL YEAR" means a twelve month period commencing on January 1 of
each calendar year.
"GAAP" means generally accepted United States accounting principles
consistently applied over all relevant periods.
"HSR ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"KNOWLEDGE" of the Company means the actual knowledge of the
Executives after a reasonable investigation of the surrounding circumstances.
"LETTER OF INTENT" means that certain letter agreement, dated as of
January 14, 2000, between Parent and the Company.
"LIABILITIES" means any direct or indirect liability, indebtedness,
obligation, commitment, expense, claim, deficiency, guaranty or endorsement of
or by any Person of any type, known or unknown, and whether accrued, absolute,
contingent, matured, unmatured or other.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE" means with
respect to the Business or the assets of the Company any material adverse effect
or change in the condition (financial or otherwise), business, results of
operations, assets, prospects, Liabilities or operations of the Business and/or
the assets of the Company or the ability of the Company or the Shareholders to
consummate the transactions contemplated hereby, or any event or condition which
would, with the passage of time, constitute a "Material Adverse Effect" or
"Material Adverse Change." "MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE
CHANGE" with respect to Parent or Merger Sub has a corresponding meaning.
"NOTICE" means written notice or other written communication
specifically directed to the Executives, Parent, the Company or one of their key
employees, as the case may be, and specifying the matter as to which notice is
sought to be given, except as so expressly superseded by the language herein.
"ORDINARY COURSE OF BUSINESS" or "ORDINARY COURSE" or any similar
phrase means the ordinary course of the Business, reasonably consistent with the
past practices of the Company, taking into account the rapid pace of change and
flux in the Company's Business.
"PARENT SHARES" means shares of the Class B Common Stock, par value
$.01 per share, of Parent.
"PERMITS" means all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any governmental
authority, whether foreign, federal, state or local, or any other Person,
necessary for the past, present or anticipated conduct of, or relating to the
operation of the Business and material to its operation, including, without
limitation, any detective/security licenses, certificates of occupancy and
electricians/alarm installer licenses.
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"PERMITTED ENCUMBRANCES" means (a) liens, taxes, assessments and other
governmental charges not yet due and payable, (b) statutory, mechanics',
laborers' and materialmen liens arising in the Ordinary Course of Business for
sums not yet due, (c) statutory and contractual landlord liens under leases
pursuant to which the Company is a lessee and not in Default, (d) with regard to
real property, any and all matters of record in the jurisdiction where the real
property is located including, without limitation, restrictions, reservations,
covenants, conditions, oil and gas leases, mineral severances and liens and (e)
with regard to real property, any easements, rights-of-way, building or use
restrictions, prescriptive rights, encroachments, protrusions, rights and party
walls, and liens for taxes, assessments, and other governmental charges not yet
due.
"PERSON" means any person or entity, whether an individual, trustee,
corporation, partnership, limited partnership, limited liability company, trust,
unincorporated organization, business association, firm, joint venture,
governmental agency or authority.
"REGULATIONS" means any laws, statutes, ordinances, regulations,
rules, notice requirements, court decisions, agency guidelines, principles of
law and orders of any foreign, federal, state or local government and any other
governmental department or agency with a material impact on the Company, the
Shareholders, Parent or Merger Sub, as the case may be, including, without
limitation, environmental laws, energy, public utility, health codes,
occupational safety and health regulations and laws respecting employment
practices, employee documentation, terms and conditions of employment and wages
and hours.
"REPRESENTATIVE" means, with respect to any Person, any officer,
director, principal, attorney, agent, employee or other representative of such
Person.
"REVENUES" means the revenues of the Company for a specified period,
determined in accordance with GAAP and in accordance with the provisions of
SECTION 2.11(c). "Revenues" includes but is not limited to revenues that the
Company has recognized from venues and events ticketed or software licensed by
the Company for the relevant fiscal year and all revenues recognized by Parent
or any of its Affiliates for the relevant fiscal year from venues and events
which were either (a) provided by the Company with ticketing services at any
time from January 1, 1999 through Closing or (b) under contract with the Company
for the Company to provide exclusive ticketing services to the client at the
time of Closing. In addition, "Revenues" shall include ticketing and exhibit
revenues recognized by Parent or any of its Affiliates from venues and events
ticketed for clients who were software licensees or Museum Ticketing Network
clients of the Company at the time of Closing or at anytime afterwards, if the
Company did not have a reasonably adequate opportunity to bid on the ticketing
or otherwise contract to provide venue or event ticketing services for such
clients and such services were within the scope of the services then provided by
the Company. Notwithstanding the foregoing, "Revenues" does not include revenues
associated with venues which are currently ticketed on an exclusive basis by
Parent or any of its Affiliates, other than the Company, or for which Parent or
its Affiliates had an exclusive contract to ticket in 1999 if the Company had no
superseding contract for such events or venues in effect at Closing, even in the
event that the Company assumes some or all of the ticketing responsibilities of
Parent or any of its Affiliates, other than the Company, with respect to such
venues subsequent to the Closing, as provided by SECTION 6.8.
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In the event the Company tickets the Detroit Institute of Arts, any
associated revenues will count as Company Revenues hereunder.
"SUBSIDIARY" means (a) any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain, (b) any partnership in which the Company is a
general partner or (c) any limited liability company, partnership or other
entity in which the Company possesses a 50% or greater interest in the total
capital or total income of such limited liability company, partnership or other
entity.
1.2. TERMS DEFINED ELSEWHERE. The following is a list of additional
terms used in this Agreement and a reference to the Section hereof in which such
term is defined:
TERM SECTION
---- -------
1999 EBITDA Section 2.12(a)
0000 Xxxxxxxx Xxxxxxx 2.12 (a)
2b Content Section 4.20(a)
2b Marks Section 4.20(a)
AAA Section 9.3(b)
Act Section 6.13
Additional Merger Consideration Section 2.11(a)
Adjustment Event Section 2.14
Agreement Preamble
Arbitrator Section 9.3(b)
Auditor Section 2.11(c)
CERCLA Section 4.13
COTS Section 4.20(i)
Cap Section 9.5(b)
Claim Notice Section 9.3(a)
Closing Section 2.3
Closing Conversion Share Amount Section 2.8(a)
Closing Date Section 2.3
Common Stock Section 2.8(a)
Company Preamble
Company Shares Section 2.8(a)
Contaminant Section 4.20(o)
Content Section 4.20(a)
Copyrights Section 4.20(a)
Damages Section 9.2(a)
Designated Software Agreements Section 4.20(m)
Disabling Code Section 4.20(o)
Disposition Section 6.11
Dispute Notice Section 9.3(b)
Distribution Date Section 2.11(b)
Earn-Out Amounts Section 2.11(b)
5
TERM SECTION
---- -------
Earn-Out Dollar Amount Section 2.11(a)
Effective Period Section 6.13
Effective Registration Average Section 2.8(b)
Effective Registration Date Section 2.8(b)
Effective Time Section 2.2
Employee Pension Benefit Plan Section 4.14(a)
ERISA Section 4.14(a)
Exchange Act Section 5.7
Hazardous Materials Section 4.13
Indemnified Party Section 9.3(a)
Indemnitor Section 9.3(a)
Initial Merger Consideration Section 2.8(a)
Initial Shares Section 2.8(b)
Initial Stock Price Section 2.8(a)
Intellectual Property Rights Section 4.20(a)
IRS Installment Agreement Section 7.3(f)
Licensed Intellectual Property Section 4.20(l)
Licensed Software Section 4.20(i)
Licensed Software Agreements Section 4.20(l)
Licensed Technology Agreements Section 4.20(l)
Lock-up Period Section 6.11
Marks Section 4.20(a)
Material Contracts Section 4.8(a)
Material Systems Section 4.20(o)
Matrix Section 10.12
Maximum Additional Parent Shares Section 2.8(b)
Merger Section 2.1
Merger Articles Section 2.2
Merger Consideration Section 2.8(b)
Merger Sub Preamble
Multiemployer Plan Section 4.14(a)
Other IP Rights Section 4.20(a)
Other Licensed Technology Agreements Section 4.20(l)
Outside Date Section 8.1(b)
Owned Content Copyrights Section 4.20(a)
Owned Software Section 4.20(i)
Owned Trade Secrets Section 4.20(e)
Parent Preamble
Parent Financial Statements Section 5.7
Parent Indemnified Parties Section 9.2(a)
Patents Section 4.20(a)
Proceeding Section 4.18
Real Property Section 4.5(c)
Registration Statement Section 6.13
Restricted Parent Shares Section 2.8(c)
6
TERM SECTION
---- -------
Revenue Adjustment Amount Section 2.12(c)
SEC Section 6.13
SEC Documents Section 5.7
Second Revenue Adjustment Amount Section 2.12(c)
Settled Matters Section 4.12(b)
Shareholders Preamble
Shareholder Indemnified Parties Section 9.2(b)
Software Section 4.20(a)
Statement Section 2.11(a)
Surviving Corporation Section 2.1
Tax Return Section 4.12(a)
Taxes Section 4.12(a)
Third Party 2b Content Section 4.20(c)
Threshold Amount Section 9.5
Trade Secrets Section 4.20(a)
Transferable Parent Shares Section 2.8(c)
VSCA Section 2.1
ARTICLE II.
THE MERGER
2.1 THE MERGER. At the Effective Time (as defined below) and upon the
terms and subject to the conditions of this Agreement and in accordance with the
Virginia Stock Corporation Act (the "VSCA"), Merger Sub shall be merged with and
into the Company in a transaction intended to qualify as a tax-free
reorganization under Section 368 of the Code (the "MERGER"). Following the
Merger, the Company shall continue as the surviving corporation (the "SURVIVING
CORPORATION") and the separate corporate existence of Merger Sub shall cease.
2.2 EFFECTIVE TIME. Subject to the terms and conditions set forth in
this Agreement, on the Closing Date (as defined below), Articles of Merger, in
proper form and mutually acceptable to the parties (the "MERGER ARTICLES"),
shall be duly executed and acknowledged by Merger Sub, the Company and Parent
and thereafter delivered to the State Corporation Commission of the Commonwealth
of Virginia for filing pursuant to the VSCA. The Merger shall become effective
at such time as a properly executed copy of the Merger Articles are duly filed
with the State Corporation Commission in accordance with the VSCA or such later
time as Parent and the Company may agree upon and as set forth in the Merger
Articles (the time the Merger becomes effective being referred to herein as the
"EFFECTIVE TIME").
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2.3. CLOSING OF THE MERGER. The closing of the transactions
contemplated hereby (the "CLOSING") will take place at the offices of Xxxxxx,
Xxxx & Xxxxxxxx LLP at 000 Xxxxx Xxxxx Xxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, on
the Business Day that the last of the conditions to Closing set forth in ARTICLE
VII have been satisfied or waived by the party or parties entitled to waive the
same or such other date as to which the parties may agree, but in any event not
later than the second Business Day after such conditions to Closing have been
satisfied or waived (the "CLOSING DATE"). The parties hereto shall use their
best efforts to ensure that the Closing Date be as close to the date hereof as
is reasonably possible.
2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the VSCA. Without limiting the generality of the foregoing and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation and all debts, liabilities and duties of the Company and Merger Sub
shall become the debts, liabilities and duties of the Surviving Corporation.
2.5. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of
Incorporation of Merger Sub in effect at the Effective Time shall be the
Articles of Incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
2.6. DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the initial directors of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and bylaws of the Surviving
Corporation until such director's successor is duly elected or appointed and
qualified.
2.7. OFFICERS. The officers of Merger Sub at the Effective Time shall
be the initial officers of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and bylaws of the Surviving
Corporation until such officer's successor is duly elected or appointed and
qualified. In addition, each individual listed on SCHEDULE 2.7, shall hold the
office of the Surviving Corporation listed next to such individual's name on
SCHEDULE 2.7, as of the Closing Date until such officer's successor is duly
elected or appointed and qualified.
2.8. CONVERSION OF COMPANY SHARES.
(a) At the Effective Time, each and every share of the common
stock of the Company, $1.00 par value (the "COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time (the "COMPANY SHARES")
(which shall constitute all of the issued and outstanding Common Stock, other
than Common Stock held in the treasury of the Company or owned by the Company
immediately prior to the Effective Time) shall, by virtue of the Merger and
without any action on the part of Merger Sub, the Company or the holder thereof,
be canceled and extinguished and be converted automatically into and become the
right to receive the number of fully paid and nonassessable Parent Shares equal
to the Closing Conversion Share Amount and the per share Additional Merger
Consideration as provided in SECTION 2.11. For the purposes of this SECTION 2.8:
8
(i) "INITIAL MERGER CONSIDERATION" shall mean 400,809
Parent Shares (representing the number of Parent Shares equal to the quotient of
$16,850,000 divided by $42.04, the Average Stock Price on the date that is two
days prior to the date hereof (the "INITIAL STOCK PRICE")).
(ii) "CLOSING CONVERSION SHARE AMOUNT" shall mean the
Initial Merger Consideration divided by the aggregate number of Company Shares
immediately prior to the Effective Time.
(b) On the Closing Date, certificates representing the Parent
Shares shall be delivered to the Shareholders, pro rata according to their
respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, as Initial Merger
Consideration (the "INITIAL SHARES"). The Initial Shares are subject to
adjustment as follows:
(i) If the Average Stock Price on the date that is two
Business Days prior to the filing by Parent of a request for acceleration of the
effective date (the "EFFECTIVE REGISTRATION DATE") of the Registration Statement
(as defined below) to be filed by Parent pursuant to SECTION 6.13 (the
"EFFECTIVE REGISTRATION AVERAGE") is greater than the Initial Stock Price, then,
on the Effective Registration Date, the Shareholders shall tender their
certificates representing the Initial Shares to Parent for cancellation and
Parent shall issue new certificates representing Parent Shares equal to the
number of Initial Shares reduced by a number of Parent Shares equal to the
number determined by subtracting (x) $16,850,000 divided by the Effective
Registration Average from (y) the Initial Merger Consideration; PROVIDED,
HOWEVER, that in no event shall the Effective Registration Average used to
calculate the number of shares to be subtracted from the Initial Shares be more
than $47.30 (representing a stock price increase of 12.5% of the Initial Stock
Price). Each of the Shareholders covenants and agrees to tender their
certificates representing Parent Shares no later than one Business Day prior to
the Effective Registration Date. Until such time as the Shareholders have
tendered their certificates representing Parent Shares, Parent shall not be
obligated to cause the Registration Statement to be declared effective pursuant
to SECTION 6.13.
(ii) If the Effective Registration Average is less than the
Initial Stock Price, then, on the Effective Registration Date, Parent shall
tender to the Shareholders additional certificates representing the number of
Parent Shares equal to the number determined by subtracting (x) the Initial
Merger Consideration from (y) $16,850,000 divided by the Effective Registration
Average; PROVIDED, HOWEVER, that in no event shall the Effective Registration
Average used to calculate the number of additional Parent Shares (the "MAXIMUM
ADDITIONAL PARENT SHARES") to be tendered to the Shareholders be less than
$36.79 (representing a stock price decrease of 12.5% of the Initial Stock
Price).
The net number of Parent Shares distributed to the Shareholders
after the adjustments in this paragraph (b) are referred to herein as the
"MERGER CONSIDERATION."
(c) Of the total number of Parent Shares distributed to the
Shareholders as the Merger Consideration, (i) 44.51% shall become immediately
transferable, subject to applicable securities laws, upon the effectiveness of
the Registration Statement (the
9
"TRANSFERABLE PARENT SHARES") and (ii) 55.49% shall be subject to the lock-up
provided in SECTION 6.11 (the "RESTRICTED PARENT SHARES").
(d) At the Effective Time, each of the 100 outstanding shares of
the common stock, without par value, of Merger Sub shall be converted into one
share of common stock, $1.00 par value, of the Surviving Corporation.
(e) At the Effective Time, each share of Common Stock held in the
treasury of the Company or owned by the Company or any direct or indirect
Subsidiary of the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Merger Sub, the
Company or the holder thereof, be canceled and extinguished and no payment shall
be made with respect thereto.
2.9. NO DISSENTER'S RIGHTS. Because all Shareholders have agreed to
vote in favor of the Merger pursuant to SECTION 6.2, such Shareholders shall not
be entitled to dissenter's rights.
2.10. DISTRIBUTION OF THE MERGER CONSIDERATION.
(a) On the Closing Date, certificates representing the Parent
Shares issuable to the Shareholders shall be delivered to the Shareholders.
Parent will issue separate stock certificates as requested by any Shareholder
and reflected on SCHEDULE I hereto, in order to reflect different tax holding
periods among such Parent Shares or for any other reasonable purpose.
(b) In the event that any certificate representing Company Shares
shall have been lost, stolen or destroyed, Parent shall issue in exchange
therefor, upon making of an affidavit of that fact by the holder thereof, such
Merger Consideration as may be required pursuant to this Agreement; PROVIDED,
HOWEVER, that Parent may, in its discretion, require the delivery of a suitable
bond or indemnity.
(c) All Merger Consideration paid upon the surrender of Company
Shares in accordance with the terms hereof shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Company Shares, and there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of the Company Shares which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates
representing capital stock of the Company are presented to the Surviving
Corporation for any reason they shall be canceled as provided in this ARTICLE
II.
(d) Neither Parent nor the Surviving Corporation shall be liable
to any holder of Company Shares for Parent Shares delivered to a public official
pursuant to any applicable abandoned property escheat or similar law.
2.11. ADDITIONAL CONSIDERATION.
(a) Subject to SECTION 2.12, and as additional consideration and
in exchange for the Merger and the Company Shares, with respect to each of the
Fiscal Years ending on December 31, 2000 and December 31, 2001, Parent shall
distribute to the
10
Shareholders on each Distribution Date (as defined below) the number of
Parent Shares equal to the Additional Merger Consideration. For the purposes
of this SECTION 2.11, "ADDITIONAL MERGER CONSIDERATION" shall mean the number
of Parent Shares equal to the number determined by dividing (i) the
applicable dollar amount set forth opposite the Revenues for such Fiscal Year
as reflected on EXHIBIT B hereto (the "EARN-OUT DOLLAR AMOUNT") (it being
understood that Revenue amounts between specified levels are subject to
interpolation on a straight line basis) minus the Revenue Adjustment Amount
or Second Revenue Adjustment Amount (both as defined below), as the case may
be, if any, provided in SECTION 2.12(c), by (ii) the Average Stock Price on
the date that is two trading days prior to the applicable Distribution Date
(the "DISTRIBUTION AVERAGE"); PROVIDED, HOWEVER, that in no event shall the
Distribution Average used to calculate the Additional Merger Consideration be
more than $50.45 (representing a stock price increase of 20% of the Initial
Stock Price) or less than $29.43 (representing a stock price decrease of 30%
of the Initial Stock Price).
(b) The amounts to be distributed to Shareholders pursuant to
SECTION 2.11(a) with respect to either of the foregoing Fiscal Years (each an
"EARN-OUT AMOUNT") shall be distributed to Shareholders pro rata according to
their respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, within ten (10) days after
the completion of the Statement (as defined below) with respect to such Fiscal
Year (the "DISTRIBUTION DATE") in Parent Shares transferable pursuant to a
registration statement which Parent shall cause to be filed and declared
effective by the SEC (as defined below) prior to each Distribution Date on the
same terms and conditions provided in SECTION 6.13; PROVIDED, that, in addition
to those terms and conditions provided in SECTION 6.13, Parent may postpone the
effectiveness of any registration statement filed pursuant to this SECTION 2.11
for up to 45 days if Parent's board of directors determines that the sale of
Parent Shares would reasonably be expected to have an adverse effect on any
proposal or plan by Parent or any of its Subsidiaries to engage in any
acquisition of assets or capital stock (other than in the Ordinary Course of
Business) or any merger, consolidation, tender offer or similar transaction;
PROVIDED, HOWEVER, that, in such event the Effective Period (as defined below)
for such registration statement shall be extended by the number of days during
the postponement period. Parent agrees to issue stock certificates reflecting
the Earn-Out Amounts in denominations reasonably requested by the Shareholders.
(c) As soon as practicable after the Closing, the Executives and
Parent will mutually establish "agreed upon procedures" reasonably consistent
with the preparation of the 1999 Financial Statements to be used in determining
Revenues for purposes of calculating the Earn-Out Amounts. Not later than ninety
(90) days after the end of each of the foregoing Fiscal Years, an independent
auditor (the "AUDITOR") to be mutually agreed upon by Parent and the Executives
will determine Revenues for purposes of the Earn-Out Amount for that Fiscal Year
in accordance with such agreed upon procedures and will prepare a statement of
Revenues relating thereto (the "STATEMENT"). The fees and disbursements of the
Auditor incurred in the preparation of the Statement shall be paid 50% by the
Shareholders and 50% by Parent; PROVIDED, HOWEVER, that if Ernst & Young LLP, or
such other firm as shall then be the regular independent auditors of Parent, is
to serve as the Auditor, Parent shall pay 100% of the fees and disbursements of
such Auditor.
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2.12. REVENUE AND EBITDA ADJUSTMENTS.
(a) The parties have contemplated that Revenues of the Company
for the 1999 Fiscal Year (the "1999 REVENUES") will be at least $3,500,000 and
that EBITDA for the 1999 Fiscal Year (the "1999 EBITDA") will be at least
$290,000.
(b) On or before March 31, 2000, the Company Accountant's shall
prepare and deliver to Parent and the Company, the 1999 Financial Statements and
the calculation of 1999 Revenues and 1999 EBITDA, including the underlying
working papers therefor, setting forth the Company's calculation of 1999
Revenues and 1999 EBITDA, together with a letter from the Company Accountants to
the effect that, based on agreed upon procedures, nothing has come to the
attention of such Company Accountants that causes them to believe that 1999
Revenues and 1999 EBITDA have not been determined in accordance with GAAP.
Parent and the Company each hereby agree that the results of the Company
Accountants shall be conclusive and binding on each of them, and the final
determination of 1999 Revenues and 1999 EBITDA as approved by such firm shall
prevail. The fees and disbursements of the Company Accountants incurred in the
preparation of the 1999 Financial Statements shall be paid 50% by the
Shareholders and 50% by Parent.
(c) As provided in SECTION 2.11(a), if the 1999 Revenues are less
than $3,150,000, the Earn-Out Dollar Amount for the 2000 Fiscal Year shall be
reduced by an amount (the "REVENUE ADJUSTMENT AMOUNT") equal to $11,850,000
multiplied by a fraction, the numerator of which is an amount equal to the
difference between $3,150,000 and the 1999 Revenues and the denominator of which
is $3,150,000. If the Earn-Out Dollar Amount for the 2000 Fiscal Year is less
than the Revenue Adjustment Amount, then the Earn-Out Amount for the 2000 Fiscal
Year shall be zero and the Earn-Out Dollar Amount for the 2001 Fiscal Year shall
be reduced by an amount (the "SECOND REVENUE ADJUSTMENT AMOUNT") equal to the
difference between the Earn-Out Dollar Amount for the 2000 Fiscal Year and the
Revenue Adjustment Amount. If the Earn-Out Dollar Amount for the 2001 Fiscal
Year is less than the Second Revenue Adjustment Amount, then the Earn-Out Amount
for the 2001 Fiscal Year shall be zero and, within five Business Days after the
Distribution Date for the 2001 Fiscal Year, the Shareholders, pro rata according
to their respective percentage ownership of the Company immediately prior to the
Effective Time, as reflected on SCHEDULE I hereto, shall pay to Parent an amount
equal to the difference between the Earn-Out Dollar Amount for the 2001 Fiscal
Year and the Second Revenue Adjustment Amount. Such payment to Parent may be
made, at the sole discretion of the Shareholders, in immediately available funds
or in Parent Shares. For purposes of this payment, the Parent Shares shall be
valued in the same manner as described in SECTION 9.5(d).
(d) If the actual 1999 EBITDA is less than $120,000, Parent and
the Shareholders shall discuss in good faith an appropriate reduction in the
Earn-Out Amount for the 2000 Fiscal Year or other appropriate changes in the
other terms of the transactions contemplated by this Agreement to be mutually
agreed upon in writing by Parent and the Shareholders. In the event the parties
are unable to agree on such reduction or other appropriate change, the parties
shall proceed to binding arbitration as provided in SECTION 9.3. Nothing in this
SECTION 2.12(d) will affect the issuance of Parent Shares as Merger
Consideration pursuant to SECTION 2.8. The parties acknowledge that the
adjustment formula for differences in Revenues from the estimate
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set forth in SECTION 2.12(c) is not necessarily appropriate for application
in the case of EBITDA differences.
2.13. FORM OF CONSIDERATION. With the written consent of the
Executives in their sole discretion, in lieu of delivering the Parent Shares
described in SECTION 2.8(a) above, Parent may elect to pay all or any portion of
such Initial Merger Consideration in cash. In the event that Parent elects to
pay any portion of the Initial Merger Consideration in cash rather than Parent
Shares, on the Closing Date, (i) Parent will pay to the Shareholders on a pro
rata basis in immediately available funds to an account designated by each
Shareholder prior to the Closing Date that portion of the Initial Merger
Consideration so converted to cash and (ii) the Company Shares shall be deemed
to have been converted into the right to receive cash by virtue of the Merger to
the extent of such cash payment, based on the $16,850,000 value of the Merger
Consideration.
2.14. ADJUSTMENT EVENTS. If, between the date of this Agreement and
the Effective Time, the outstanding Parent Shares shall have been changed into
or exchanged for a different number of shares or kind of shares of Parent or
another corporation or entity by reason of any reclassification, split-up, stock
dividend or stock combination or merger or any arrangement, amalgamation or
similar statutory procedure (an "ADJUSTMENT EVENT"), then the Closing Conversion
Share Amount and the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the Adjustment Event occurs between the Effective Time and a
Distribution Date, the Earn-Out Amounts shall be reasonably and equitably
adjusted. If the record date for any such Adjustment Event shall be prior to the
Effective Time or a Distribution Date, as applicable, but the payment date
therefor shall be subsequent to the Effective Time or a Distribution Date, as
applicable, Parent shall take such action as shall be required so that on such
payment date the Shareholders shall be entitled to receive such number or kind
of shares as such holder would have received as a result of such event if the
record date therefor had been immediately after the Effective Time or a
Distribution Date, as applicable.
ARTICLE III.
CLOSING DELIVERIES
3.1. DELIVERIES BY THE COMPANY AND THE SHAREHOLDERS AT THE CLOSING. At
the Closing, the Company and the Shareholders, as the case may be, shall
deliver, or cause to be delivered:
(a) the Employment Agreements;
(b) Except as provided in SECTION 2.10(b), certificates
representing all of the Company Shares;
(c) certificate of good standing issued by the State Corporation
Commission of the Commonwealth of Virginia for the Company, dated not more than
five days prior to the Closing Date;
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(d) a certificate, dated as of the Closing Date and signed by the
Company's President or a Vice President, as to the fulfillment of the conditions
set forth in SECTION 7.3;
(e) a certificate executed by the Secretary of the Company, dated
as of the Closing Date, certifying resolutions adopted by the Company's board of
directors relating to the transactions contemplated by this Agreement and the
Employment Agreements;
(f) copies of all third party and governmental consents,
approvals and filings required in connection with the consummation of the
transactions hereunder; and
(g) such other documents and items as Parent may reasonably
request, including, without limitation, evidence of the release of the liens
described on SCHEDULE 7.3(e) and evidence of payment of any amounts due pursuant
to the IRS Installment Agreement described in SECTION 7.3.
3.2. DELIVERIES BY PARENT AND MERGER SUB AT THE CLOSING. At the
Closing, Parent and Merger Sub shall deliver, or cause to be delivered:
(a) the Employment Agreements;
(b) certificates representing the Parent Shares to be distributed
pursuant to SECTION 2.8(a);
(c) a certificate, dated as of the Closing Date and signed by
Parent's authorized representative, as to the fulfillment of the conditions set
forth in SECTION 7.2; and
(d) such other documents and items as the Company or the
Shareholders may reasonably request, including, without limitation, evidence of
the payment by Parent of the outstanding loans to First Market Bank, FSB
described in SECTION 7.3.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE SHAREHOLDERS
As a material inducement to Parent and Merger Sub to enter into this
Agreement, the Company and each of the Shareholders, severally, but not jointly,
hereby represent and warrant to Parent and Merger Sub, which representations and
warranties are, as of the date hereof, and will be, as of the Closing Date,
true, correct and complete:
4.1. ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Virginia with full corporate power and corporate authority to
conduct the Business as it is presently being conducted, to own or lease, as
applicable, its assets and properties, and to perform all its obligations under
its Contracts. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
its properties owned or leased or the nature of its activities make such
qualification necessary,
14
except where the failure to be so qualified or in good standing would not
have a Material Adverse Effect on the assets of the Company or the Business.
Copies of the Articles of Incorporation and bylaws of the Company, and all
amendments thereto, heretofore delivered to Parent, are accurate and complete
as of the date hereof.
4.2. SUBSIDIARIES. Except as set forth on SCHEDULE 4.2, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, partnership, trust, joint venture, association, or other
entity.
4.3. AUTHORIZATION.
(a) The Company has all requisite power and authority, and has
taken all action necessary, to execute, deliver and perform this Agreement and
the Employment Agreements, to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Employment Agreements by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly approved by the board of directors of the
Company. No other corporate proceedings on the part of the Company are necessary
to authorize this Agreement and the Employment Agreements and the transactions
contemplated hereby and thereby. This Agreement has been duly executed and
delivered by the Company and is, and, upon execution and delivery of the
Employment Agreements, this Agreement and the Employment Agreements will be, the
legal, valid and binding obligations of the Company, enforceable against it in
accordance with their respective terms except as enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting creditors' rights generally and except insofar as the availability of
equitable remedies may be limited by applicable law.
(b) Each of the Shareholders has all requisite power and
authority, and has taken all action necessary, to execute, deliver and perform
this Agreement and the Employment Agreements to which he is a party, to
consummate the transactions contemplated hereby and thereby and to perform his
obligations hereunder and thereunder. This Agreement has been duly executed and
delivered by each of the Shareholders and is, and, upon execution and delivery
of the Employment Agreements, this Agreement and the Employment Agreements to
which each Shareholder is party will be, the legal, valid and binding
obligations of each of the Shareholders, enforceable against him in accordance
with their respective terms except as enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting
creditors' rights generally and except insofar as the availability of equitable
remedies may be limited by applicable law.
15
4.4. CAPITALIZATION.
(a) The SCHEDULE OF SHAREHOLDERS attached hereto as SCHEDULE I
sets forth the name of each Person holding any equity securities of the Company
or securities convertible into or exchangeable for equity securities of the
Company. The authorized capital stock of the Company consists of 100 shares of
Common Stock, all of which are issued and outstanding. All shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
non-assessable. No claim has been made or threatened to the Company asserting
that any Person other than a Person listed on SCHEDULE I is the holder or
beneficial owner of, or has the right to acquire beneficial ownership of, any
stock of, or any other voting, equity or ownership interest in the Company.
(b) Except as set forth on SCHEDULE 4.4, there are no (i)
outstanding warrants, agreements, convertible or exchangeable securities or
other commitments pursuant to which the Company is or may become obligated to
issue, sell, transfer, purchase, return or redeem any securities of the Company,
(ii) securities of the Company reserved for issuance for any purpose, (iii)
agreements pursuant to which registration rights in the capital stock of the
Company have been granted, (iv) shareholders agreements, whether written or
verbal, among any current and former shareholders of the Company or (v)
statutory or contractual preemptive rights or rights of first refusal with
respect to the Company Shares.
(c) The Company has issued all shares of its capital stock
pursuant to valid exemptions from registration under applicable federal and
state securities laws. There are no agreements between the Company's
shareholders with respect to the voting or transfer of the Company's capital
stock or with respect to any other aspect of the Company's affairs.
4.5. TITLE TO PROPERTIES AND ASSETS.
(a) Except as set forth on SCHEDULE 4.5(A), (i) the Company has,
or will have, as of the Closing, good and valid title to or, in the case of
leased properties or properties held under license, good and valid leasehold or
license interest in, all of its properties and assets and (ii) the Company holds
title to each such property and asset which it purports to own, free and clear
of all liens, adverse claims, mortgages, pledges, encumbrances, security
interest or charge of any kind other than Permitted Encumbrances. The
representations in this SECTION 4.5 do not apply to the Intellectual Property
Rights as to which only the representations in SECTION 4.20 shall apply.
(b) Except as set forth on SCHEDULE 4.5(b), all of the tangible
assets of the Company, are, or will be as of the Closing, in all material
respects in reasonably serviceable operating condition and repair and are
adequate for the conduct of the Business of the Company in substantially the
same manner as has heretofore been conducted.
(c) SCHEDULE 4.5(c) sets forth a true and complete list of all
real property owned or leased by the Company (collectively, the "REAL
PROPERTY"). Except as set forth on SCHEDULE 4.5(c), the Company has good and
marketable fee simple title to or a valid leaseholder interest in the Real
Property, free and clear of all Encumbrances, except Permitted Encumbrances.
16
4.6. ABSENCE OF CERTAIN ACTIVITIES. Except as set forth on SCHEDULE
4.6, since December 31, 1999, there has not been:
(a) to the Company's knowledge, any damage, destruction or loss
to tangible property, whether or not covered by insurance, materially and
adversely affecting the assets, properties, financial condition, operating
results, prospects or business of the Company (as presently conducted and as
presently proposed to be conducted);
(b) any waiver by the Company of a material right or of a
material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company, except such a
satisfaction, discharge or payment made in the Ordinary Course of Business or
that is not material to the assets, properties, financial condition, operating
results or business of the Company;
(d) any material change or amendment to a Material Contract (as
defined below) or arrangement by which the Company or any of its assets or
properties is bound or subject, except for changes or amendments which are
expressly provided for or disclosed in this Agreement or in the Ordinary Course
of Business;
(e) any material change in any compensation arrangement or
agreement with any present or prospective employee, contractor or director not
approved by the Company's Board of Directors; or
(f) to the Company's knowledge, any other event or condition of
any character which will materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company.
4.7. CERTAIN ACTIONS. Except as set forth on SCHEDULE 4.7, since
December 31, 1999, the Company has not:
(a) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its capital stock;
(b) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $25,000 or in excess of $50,000 in
the aggregate;
(c) made any loans or advances to any person, other than ordinary
advances for travel and other reasonable business expenses;
(d) sold, exchanged or otherwise disposed of any material assets
or rights other than the sale of inventory and licensing of software in the
Ordinary Course of Business; or
(e) entered into any transactions with any of its officers,
directors or employees or any entity controlled by any of such individuals
(other than employment, stock
17
option, confidentiality, non-competition and intellectual property rights
agreements entered into in the Ordinary Course of Business and disclosed on
SCHEDULE 4.8 hereto).
4.8. MATERIAL CONTRACTS.
(a) All agreements, contracts, leases, licenses, instruments,
commitments (oral or written), indebtedness, liabilities and other obligations
to which the Company is a party or by which it is bound that (i) are material to
the conduct and operations of its Business and properties, (ii) involve any of
the officers, consultants, directors, employees or Shareholders of the Company
or (iii) obligate the Company to develop any product or technology outside the
Ordinary Course of Business (the "MATERIAL CONTRACTS") are listed in SCHEDULE
4.8 and have been made available for inspection by Parent and its counsel. For
purposes of this SECTION 4.8, "material" shall mean any agreement, contract,
indebtedness, liability or other obligation either (x) having an aggregate
value, cost or amount in excess of $50,000 per year or (y) having an aggregate
value, cost or amount in excess of $25,000 per year and not terminable upon
thirty days' notice.
(b) Each Material Contract is in full force and effect, paid in
accordance with past practices, and has not been materially impaired by any acts
or omissions of the Company. Except as set forth on SCHEDULE 4.8, no Material
Contract requires the consent of any other contracting party to the transactions
contemplated by this Agreement. All of the Material Contracts are valid, binding
and enforceable in accordance with their terms except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws affecting enforcement of creditors' rights generally and except
insofar as the availability of equitable remedies may be limited by applicable
law. To the Company's knowledge, no party is in Default under such Material
Contracts and the Company has not received notice of any claim of Default. The
Company is not aware of any intent by any party to any Material Contract to
terminate or amend the terms thereof or to refuse to renew any such Material
Contract upon expiration of its term, other than Material Contracts to ticket
single or one-time events. The Company is not currently paying liquidated
damages in lieu of performance thereunder.
4.9. COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in Default
of any term of the Company's Articles of Incorporation or bylaws or in any
material respect of any term or provision of any mortgage, indenture, contract,
agreement or instrument to which the Company is a party or by which it may be
bound. The execution, delivery and performance of and compliance with this
Agreement and the consummation of the transactions contemplated hereby will not
result in any such Default, or be in conflict with the Company's Articles of
Incorporation or bylaws, or to the Company's knowledge, a violation of any
Regulations or Court Orders, or an event which results in the creation of any
lien, charge or encumbrance upon any of the Company's assets.
4.10. FINANCIAL STATEMENTS. Except as set forth on SCHEDULE 4.10, The
Company heretofore has delivered to Parent true and correct copies of the
Financial Statements and the December 1999 Balance Sheet. The Financial
Statements (a) are complete in all material respects, (b) are in accordance with
the books and records of the Company and (c) fairly and accurately present the
financial position of the Company as of the respective dates thereof and
18
the results of operations for the periods then ended in accordance with the
accounting methods historically used by the Company. The Financial Statements
have been compiled by the Company Accountants, whose report thereon is
included with such financial statements. Specifically, but not by way of
limitation, the balance sheet of the Financial Statements discloses all of
the Company's material debts, Liabilities and obligations of any nature,
whether due or to become due (other than contingent Liabilities unknown to
the Company), as of the date thereof to the extent such debts, Liabilities
and obligations are disclosed based on accounting practices historically used
by the Company. The Company has good and marketable title to all assets set
forth on the December 1999 Balance Sheet, except for such assets as have been
spent, sold or transferred in the Ordinary Course of Business since the date
thereof, subject to Permitted Encumbrances and those liens set forth on
SCHEDULE 4.5.
4.11. LIABILITIES. Except as set forth on SCHEDULE 4.11 and on the
December 1999 Balance Sheet, the Company has no indebtedness for borrowed money
that the Company has, directly or indirectly, created, incurred, assumed or
guaranteed, or with respect to which Company has otherwise become directly or
indirectly liable, other than in the Ordinary Course of Business.
4.12. TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) the term "TAX" (including with correlative meaning,
the terms "TAXES" and "TAXABLE") means (A) all federal, state, local, foreign
and other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments or charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts with respect thereto, (B) any liability for payment
of amounts described in clause (A) whether as a result of transferee liability,
of being a member of an affiliated, consolidated, combined or unitary group for
any period, or otherwise through operation of law, and (C) any liability for the
payment of amounts described in clauses (A) or (B) as a result of any tax
sharing, tax indemnity or tax allocation agreement or any other express or
implied agreement to indemnify any other person; and
(ii) the term "TAX RETURN" means any return, declaration,
report, statement, information statement and other document required to be filed
with respect to Taxes.
(b) Except for the Fiscal Years which were the subject of the IRS
Installment Agreement (as defined below) and to the extent of the matters
settled by the IRS Installment Agreement (the "SETTLED MATTERS"), the Company
has accurately prepared and timely filed all Tax Returns it is required to have
filed with respect to its past five Fiscal Years. Such Tax Returns are accurate,
complete and correct in all material respects and do not contain a disclosure
statement under Section 6662 of the Code (or any predecessor provision or
comparable provision of state, local or foreign law).
19
(c) The Company has paid all Taxes it is required to have paid,
other than amounts owing in connection with the IRS Installment Agreement.
(d) Except as set forth on SCHEDULE 4.12(d):
(i) no written claim has been made against the Company
by any taxing authority in any jurisdiction where the Company does not file Tax
Returns that it is or may be subject to Tax by that jurisdiction; and
(ii) except for the Settled Matters, no extensions or
waivers of statutes of limitations with respect to the Tax Returns have been
given by or requested from the Company, other than in connection with the IRS
Installment Agreement.
(e) SCHEDULE 4.12(e) sets forth:
(i) those taxable years for which the Company has
knowledge that examinations by taxing authorities are presently being conducted;
(ii) those years for which written notice of pending or
threatened examination or adjustment has been received; and
(iii) those years for which required income Tax Returns
have not yet been filed.
(f) Except to the extent indicated in SCHEDULE 4.12(f), all
deficiencies asserted or assessments made against the Company as a result of any
examinations by any taxing authority have been fully paid or otherwise resolved.
(g) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company, other than as disclosed
on SCHEDULE 4.5.
(h) The Company is not a party to or bound by any tax indemnity,
tax sharing or tax allocation agreement.
(i) The Company is not a party to or bound by any closing
agreement or offer in compromise with any taxing authority, other than the IRS
Installment Agreement.
(j) Except to the extent indicated in SCHEDULE 4.12(j):
(i) the Company has never been a member of an affiliated
group of corporations, within the meaning of Section 1504 of the Code (or any
predecessor provision or comparable provision of state, local or foreign law),
or a member of combined, consolidated or unitary group for state, local or
foreign Tax purposes;
(ii) the Company has no liability for Taxes of any person
(other than the Company and its subsidiaries) under Treasury Regulations Section
1.1502-6 (or any corresponding provision of state, local or foreign income Tax
law), as transferee or successor, by contract, or otherwise;
20
(iii) the Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it; and
(iv) the Company has not been a personal holding company
under Section 542 of the Code.
(k) The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting
method or otherwise. The Company has not taken action that is not in accordance
with past practice that could defer a liability for Taxes of the Company from
any taxable period ending on or before the Closing Date to any taxable period
ending after such date.
(l) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in connection with this Agreement or any change of control of the
Company, in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code; PROVIDED that the Company makes no representation that
the transactions under this Agreement and the Employment Agreements viewed in
isolation would not result in the payment of any "excess parachute payment."
(m) SCHEDULE 4.12(m) sets forth all foreign jurisdictions in
which the Company is subject to tax, is engaged in business or has a permanent
establishment.
(n) The Company is not a party to any joint venture, partnership,
or other arrangement or contract which will be treated as a partnership for
federal income tax purposes.
(o) No material election with respect to Taxes of the Company
will be made by the Executives or the Company after the date of this Agreement
without the prior written consent of Parent.
(p) None of the income recognized, for federal, state, local or
foreign income tax purposes, by the Company during the period commencing on the
date hereof and ending on the Closing Date will be derived other than in the
ordinary course of business.
(q) The provisions for Taxes currently payable on the December
1999 Balance Sheet are at least equal, as of the date thereof, to all unpaid
Taxes of the Company, whether or not disputed.
4.13. ENVIRONMENTAL MATTERS. During the period that the Company has
owned or leased its properties and facilities, (a) to the Company's knowledge,
there have been no disposals, releases or threatened releases of Hazardous
Materials (as defined below) on, from or under such properties or facilities and
(b) neither the Company, nor, to the Company's knowledge, any third party, has
used, generated, manufactured or stored on, under or about such
21
properties or facilities or transported to or from such properties or
facilities any Hazardous Materials. The Company has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials
on, from or under any of such properties or facilities, which may have
occurred prior to the Company having taken possession of any of such
properties or facilities. For purposes of this Agreement, the terms
"disposal," "release" and "threatened release" shall have the definitions
assigned thereto by the U.S. Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., as
amended ("CERCLA"). For the purposes of this SECTION 4.13, "HAZARDOUS
MATERIALS" shall mean any hazardous or toxic substance, material or waste
which is regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Section 11001 ET SEQ.; (iii) the U.S.
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; (iv)
the U.S. Toxic Substances Control Act, 15 U.S.C. Section 2601 ET SEQ.; (v)
the U.S. Occupational Safety and Health Act of 1970, 29 U.S.C. Section 651 ET
SEQ.; (vi) regulations promulgated under any of the above statutes or (vii)
any applicable state or local statute, ordinance, rule, or Regulation that
has a scope or purpose similar to those statutes identified above, but shall
not include normal cleaning, housekeeping or pest control products or
photocopying materials.
4.14. EMPLOYEE BENEFITS.
(a) For all purposes of this Agreement,
(i) "EMPLOYEE PENSION BENEFIT PLAN" means any employee
pension benefit plan, as defined in Section 3(2) of ERISA, that is subject to
Title IV of ERISA, other than a Multiemployer Plan.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(iii) "MULTIEMPLOYER PLAN" means a multiemployer plan, as
defined in Section 3(37) and 4001(a)(3) of ERISA.
(b) The Company does not currently sponsor and has not ever
sponsored, maintained, contributed to, or incurred an obligation to contribute
to, any Employee Pension Benefit Plan on behalf of or with respect to any
employee of the Company. The Company does not currently sponsor, maintain or
contribute to any Multiemployer Plan covering its employees.
4.15. COMPLIANCE WITH LAW. To the Company's knowledge, the Company and
the conduct of the Business are not in violation of any Regulations and Court
Orders relating to the Business or operations of the Company, except where such
violation would not have, either individually or in the aggregate, a Material
Adverse Effect. The Company has not received any notice to the effect that, or
otherwise been advised that, it is not in compliance with any such Regulations
or Court Orders, and the Company does not know of any existing circumstances
that would result in violations of any of the foregoing.
22
4.16. PERMITS. SCHEDULE 4.16 sets forth a complete list of all Permits
used in the operation of the Business or otherwise held by the Company in
connection with the Business, all of which are as of the date hereof, and all of
which will be as of the Closing Date, in full force and effect. The Company has
all Permits required under any Regulation in the operation of the Business and
owns or possesses such Permits free and clear of all Encumbrances except
Permitted Encumbrances, and except such Permits the failure of which to obtain
would not have a Material Adverse Effect on the Assets or the Business. The
Company is not in Default and has not received any notice of any claim of
Default, with respect to any such Permit. Except as otherwise governed by law,
all such Permits are renewable by their terms or in the Ordinary Course of
Business without the need to comply with any special qualification procedures or
to pay any amounts other than routine filing fees and will not be adversely
affected by the completion of the transactions contemplated by this Agreement.
Except as set forth on SCHEDULE 4.16, no present or former shareholder,
director, officer or employee of the Company or any Affiliate thereof, or any
other Person, owns or has any proprietary, financial or other interest (direct
or indirect) in any Permit which the Company owns, possesses or uses.
4.17. CONSENTS AND APPROVALS. Except as set forth on SCHEDULE 4.17 and
except for filings, permits, authorizations, consents and approvals as may be
required under, and other applicable requirements, of state securities laws, and
the filing and recordation of the Merger Articles as required by the VSCA, no
consent, approval or authorization of, declaration to, or filing or registration
with, any governmental or regulatory authority, or any other Person, is required
to be made or obtained by the Company or any of its Affiliates in connection
with the execution, delivery and performance by the Company of this Agreement
and the consummation of the transactions contemplated hereby.
4.18. LITIGATION. Except as set forth on SCHEDULE 4.18, there is no
action, suit, proceeding, Court Order, claim, arbitration or investigation
("PROCEEDING") pending (or, to the Company's knowledge, currently threatened)
against the Company, its activities, properties or assets or, to the Company's
knowledge, against any officer, director or employee of the Company in
connection with such officer's, director's or employee's relationship with, or
actions taken on behalf of, the Company, other than usual customer complaints in
the Ordinary Course of Business. To the Company's knowledge, there is no factual
or legal basis for any such Proceeding that might result, individually or in the
aggregate, in any Material Adverse Change in the Business, properties, assets,
condition (financial or otherwise) or operations of the Company. There is no
Proceeding by the Company currently pending or which the Company intends to
initiate.
4.19. LABOR MATTERS.
(a) The Company is not bound by or subject to (and none of
its assets or properties is bound by or subject to) any written or oral, express
or implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company, has sought to
represent any of the employees, representatives or agents of Company. There is
no strike or other labor dispute involving the Company pending, or to the
knowledge of the Company, threatened, which could have a Material Adverse Effect
on the assets, properties, financial condition, operating results or Business of
the Company, nor is the Company aware of any labor organization involving its
employees.
23
(b) SCHEDULE 4.19(b) sets forth the names of each of the
key, exempt employees (I.E., those employees whose annual cash compensation
exceeds $50,000 and who are considered "exempt" from the payment of overtime) of
the Company, and also sets forth the base payment made to such key employee each
pay period as of the date hereof and projections for the current Fiscal Year of
other incentive compensation (including bonuses) for each person named therein.
SCHEDULE 4.19(b) also lists as of the date hereof the names of all other
employees of the Company (other than call center telephone operators), the
hourly pay rates of compensation and the job titles for all such employees. The
Company is not aware that any officer or key employee, or that any group of key
employees, intends to terminate his or her employment with the Company, nor does
the Company have a present intention to terminate the employment of any of the
foregoing. SCHEDULE 4.19 also sets forth all written employment agreements
between the Company and any employee of the Company. To the Company's knowledge,
no employee or director of the Company is a party to, or is otherwise bound by,
any nondisclosure, confidentiality, noncompetition, proprietary rights,
employment, consulting or similar agreement, between such employee or director
and any other Person that materially adversely affects or will affect the
performance of his or her duties as an employee or director of the Company.
4.20. INTELLECTUAL PROPERTY.
(a) CERTAIN DEFINITIONS. When used in this SECTION 4.20, the
following capitalized terms shall have the following meanings:
(i) "CONTENT" means content and information (including
editorial and advertising content and information) of whatever type and in
whatever medium, including without limitation, all text, graphics (including
JPEG and GIF files), images, artwork and audiovisual materials, in each case
whether in analog or digital format, displayed on a website, excluding
executable software programs. The following are examples of items that
constitute "Content" of a website.
(A) text displayed on a website in the form of
reviews, features, listings, event calendars,
promotional and descriptive text (such as
headlines and teasers), site taxonomy and
nomenclature;
(B) audio and video (both streaming and downloadable)
clips;
(C) animations;
(D) format and structure and overall design and
appearance of the user interface;
(E) archival and original materials, such as text
documents, uncompressed images (such as Photoshop
or Illustrator artwork), and uncompressed audio
and video clips; and
24
(F) artwork for banners and other images designed to
promote content and functionality.
(ii) "INTELLECTUAL PROPERTY RIGHTS" means intellectual
property rights arising from or in respect of the following, whether protected,
created or arising under the laws of the United States or any other
jurisdiction:
(A) fictional business names, trade names, trademarks
and service marks (whether registered or
unregistered, including any applications for
registration of any of the foregoing), logos,
Internet domain names, trade dress rights and
general intangibles of a like nature, together
with the goodwill associated with any of the
foregoing (collectively, "MARKS");
(B) patents and applications therefor, including
continuation, divisional, continuation-in-part, or
reissue patent applications and patents issuing
thereon (collectively, "PATENTS");
(C) copyrights and registrations and applications
therefor (collectively, "COPYRIGHTS");
(D) proprietary and confidential information which
constitute trade secrets such as proprietary and
confidential know-how, inventions, discoveries,
concepts, ideas, methods, processes, designs,
formulae, technical data, drawings,
specifications, and data bases in each case
excluding any of the foregoing to the extent the
rights therein comprise or are protected by
Copyrights or Patents (collectively, "TRADE
SECRETS"); and
(E) moral rights, publicity rights and any other
intellectual, proprietary or similar intangible
rights of any kind or nature that do not comprise
or are not protected by Marks, Patents,
Copyrights, or Trade Secrets (collectively, "OTHER
IP RIGHTS").
(iii) "SOFTWARE" means any and all (w) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (x) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (y) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and (z)
all documentation, including user manuals and training software, relating to any
of the foregoing, in each case developed or licensed by the Company, or used in
or necessary for the conduct of its Business, specifically excluding those items
prepared for customers in the operation of the Company's Business for which the
customer contractually has vested title.
25
(iv) "2b MARKS" means the marks 2b, MTN and Vista and
related design marks, together with the goodwill of the business symbolized
thereby, and all Intellectual Property Rights therein or thereto.
(v) "2b CONTENT" means Content used or acquired for use
in connection with the Business.
(b) MARKS. Except as may be set forth in SCHEDULE 4.20(b), the
Company makes the following representations and warranties with respect to the
2b Marks:
(i) None of the 2b Marks has been registered and the
Company has filed no application for registration of any 2b Xxxx other than the
application identified on SCHEDULE 4.20(b) that is currently pending before the
United States Patent and Trademark Office. The Company is the owner of all
right, title and interest in and to the 2b Marks, free and clear of any and all
Encumbrances, covenants, conditions or other adverse claims or interests of any
kind or nature other than Permitted Encumbrances and those liens disclosed on
SCHEDULE 4.5, and the Company has not received any notice challenging the
Company's ownership of such rights in the 2b Marks or suggesting that any other
Person has any claim of legal or beneficial ownership with respect thereto.
(ii) the Company has not received any notice or claim
(whether written or oral) challenging the validity or enforceability of the 2b
Marks;
(iii) the Company has not granted to any Person any right,
license or permission to use the 2b Marks;
(iv) to the knowledge of the Company, there is no
trademark or service xxxx or application therefor of any other Person that is
conflicting with the 2b Marks and the use of the 2b Marks in the manner used by
the Company as of the Closing Date does not create a likelihood of confusion
with any trade name, trademark or service xxxx of any other Person; and
(v) to the knowledge of the Company, there has been no
prior use of the 2b Marks by any third party which would confer upon such third
party superior rights in the 2b Marks vis-a-vis the uses of the 2b Marks by the
Company as of the Closing Date.
(c) 2b CONTENT. the Company has not registered (with the United
States Copyright Office or in the appropriate office in any foreign
jurisdiction) any Copyrights that relate to 2b Content, nor has the Company
filed any pending applications for registration of such Copyrights anywhere in
the world. Except as may be set forth on SCHEDULE 4.20(c):
(i) The Company has not received any written notice or
claim challenging or questioning the validity or enforceability of any Copyright
covering material 2b Content or indicating an intention on the part of any
Person to bring a claim that any such Copyright is invalid, is unenforceable or
has been misused and, to the knowledge of the Company, no such Copyright
otherwise has been challenged or threatened in any way;
26
(ii) The Company has not taken any action with regard to
the licensing of any Copyright covering any 2b Content that is owned exclusively
by the Company (collectively, "OWNED CONTENT COPYRIGHTS") that , to the
knowledge of the Company, would result in the unenforceability of any of the
Owned Content Copyrights;
(iii) The Company has not granted to any Person any right,
license or permission to exercise any rights under any of the Owned Content
Copyrights, including without limitation any exclusive or non-exclusive right to
display, distribute, develop, prepare derivative works based on, or otherwise
commercially exploit any 2b Content, other than (A) non-exclusive linking and
framing arrangements with museums and other client venues and search engines and
other portal websites in the Ordinary Course of Business, (B) non-exclusive use
licenses granted to end users and (C) rights retained by developers of Content
that are customarily retained by independent contractors that develop Content
for third parties, in each case in the Ordinary Course of Business;
(iv) The Company has acquired all rights, licenses or
permissions necessary to display, publish, distribute and otherwise commercially
exploit in connection with the Business as of the Closing all 2b Content as to
which the Company is not the exclusive owner (collectively, "THIRD PARTY 2b
CONTENT"), and the Company has received no notice from any third party
questioning or challenging the Company's right so to exploit any Third Party 2b
Content; and
(v) The Company's rights with respect to Third Party 2b
Content shall be exercisable by Parent on and after the Closing to the same
extent as exercisable by the Company prior to the Closing.
(d) PATENTS.The Company does not own any Patents.
(e) TRADE SECRETS. The Company has taken reasonable precautions
as described in SCHEDULE 4.20(e) to protect the secrecy, confidentiality and
value of all other material Trade Secrets of the Company (collectively, "OWNED
TRADE SECRETS"). Except as may be set forth in SCHEDULE 4.20(e):
(i) the Company owns all of the Owned Trade Secrets and
none of the Owned Trade Secrets is subject to any Encumbrances or other adverse
claims or interests of any kind or nature other than Permitted Encumbrances and
those liens disclosed on SCHEDULE 4.5, and the Company have not received any
notice challenging its ownership of any of the Owned Trade Secrets;
(ii) with respect to each Owned Trade Secret other than
know-how that is generally not documented, the documentation relating thereto is
sufficient in detail and content to identify and explain it and to allow its
full and proper use without reliance on the special knowledge or memory of
others;
(iii) except under appropriate confidentiality obligations
that, to the Company's knowledge, have been fully observed and performed in all
material respects, there has been no disclosure by the Company of material
confidential information or other Owned Trade Secrets to any other Person; and
27
(iv) to the knowledge of the Company, no other Person has
misappropriated any of the Owned Trade Secrets.
(f) OWNERSHIP. The Company is the owner of all right, title and
interest in and to the Owned Content Copyrights free and clear of any and all
Encumbrances, covenants, conditions or other adverse claims or interests of any
kind or nature other than Permitted Encumbrances and those liens disclosed on
SCHEDULE 4.5, and the Company has not received any notice challenging the
Company's ownership of the Owned Content Copyrights or suggesting that any other
Person has any claim of legal or beneficial ownership with respect thereto.
(g) INFRINGEMENT. Except as may be set forth in SCHEDULE 4.20(g),
the Company is not a party to any legal action or proceeding, nor is, or during
one-year period prior to date hereof has been, any legal action or proceeding
been threatened in writing, that involves or involved a claim of infringement,
misappropriation or other wrongful use or exploitation, either (i) by the
Company against any other Person or (ii) by any Person against the Company, of
any Intellectual Property Right used or exploited by the Company. To the
knowledge of the Company, no other Person has infringed, misappropriated,
violated or otherwise wrongfully exploited any Owned Content Copyright in any
material manner. Except as may be set forth in SCHEDULE 4.20(g), the use or
other exploitation by the Company of the 2b Marks, the 2b Content or any other
Content owned by the Company and displayed on xxx.0xxxxx.xxx immediately prior
to the Closing, do not conflict with, infringe upon, violate, result in a
misappropriation of, or otherwise involve any material wrongful use or
exploitation of, any patent, copyright, trade secret or other Intellectual
Property Right or other right of any Person, nor is any of the foregoing subject
to any outstanding order, judgment, decree, stipulation or agreement materially
restricting the use thereof by the Company or, in the case of the 2b Marks and
the Owned Content Copyrights, restricting the sale, transfer, assignment or
licensing thereof by the Company to any Person. Except as may be set forth in
SCHEDULE 4.20(g), the Company has the exclusive right to bring actions against
any Person that is infringing the 2b Marks or any Owned Content Copyrights, and
to retain for itself any damages recovered in any such action.
(h) EMPLOYEE ASSIGNMENT AGREEMENTS. Except as set forth in
SCHEDULE 4.20(h), all current and former employees and consultants of the
Company whose duties or responsibilities relate to the development of Content or
Owned Software have entered into assignment and proprietary information
agreements with the Company in substantially the form provided to Parent. To the
Company's knowledge, no employee or consultant of the Company whose duties or
responsibilities relate to the development of Content or Owned Software is
obligated under any agreement (including licenses, covenants or commitments of
any nature) or subject to any Court Order or any other restriction that would
interfere with the use of his or her best efforts to carry out his or her duties
for the Company or to promote the interests of the Company. To the knowledge of
the Company, the carrying on of the Business by such employees and contractors
of the Company and the conduct of the Business as presently proposed, will not,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees or consultants or the Company is now obligated. Except as
set forth in SCHEDULE 4.20(h) and to the knowledge of the Company, it will not
be necessary to utilize any intellectual property of any employees of the
Company (or Persons the Company currently
28
intends to hire) acquired prior to their employment by the Company in order
to continue to use, display and exploit any 2b Content or any Owned Software
(it being acknowledged that any such employees will in any event be required
to utilize programming and design experience, techniques and know-how that is
customarily used in developing similar Content or Software).
(i) SOFTWARE. SCHEDULE 4.20(i) sets forth an accurate description
of all of the Software, excluding licensed software that is contained in
standard desktop applications and is available in consumer retail stores other
than Software used in, or used in connection with the development of, any of the
Company's products (such licensed Software that is so contained in standard
desktop applications and so available is collectively referred to herein as
"COTS"). SCHEDULE 4.20(i) specifically identifies all Software that is owned
exclusively by the Company (the "OWNED SOFTWARE") and all Software that is used
by the Company in the conduct of the Business that is not exclusively owned by
the Company (excluding COTS) (the "LICENSED SOFTWARE"). Except as may be set
forth in SCHEDULE 4.20(i):
(i) the Company is the owner of all right, title and
interest in and to all Owned Software, including without limitation all
Copyrights, Trade Secrets and Other IP Rights relating thereto, free and clear
of any and all Encumbrances, covenants, conditions and restrictions or other
adverse claims or interests of any kind or nature other than Permitted
Encumbrances and those liens disclosed on SCHEDULE 4.5, and the Company has not
received any notice challenging the Company's ownership of all Owned Software
and all such Intellectual Property Rights relating thereto or suggesting that
any other person has any claim of legal or beneficial ownership with respect
thereto;
(ii) the Company has not assigned, licensed, transferred
or encumbered any of its rights in or to any Owned Software except for Permitted
Encumbrances and those liens disclosed on SCHEDULE 4.5, including without
limitation any Copyrights, Trade Secrets or Other IP Rights with respect
thereto, to any person, excluding any non-exclusive use licenses granted to
customers in the Ordinary Course of Business;
(iii) no source code of any Owned Software has been
licensed or, to the Company's knowledge, otherwise made available to any person,
and the Company has treated such source code, and the data associated therewith,
as confidential and proprietary business information, and has taken all
reasonable steps to protect the same as trade secrets of the Company;
(iv) any person identified in SCHEDULE 4.20(i) as having
received any such source code or data relating to Owned Software is legally
bound by an appropriate confidentiality and non-disclosure obligation with
respect thereto and the Company is not aware of any material breach of any such
agreement or any threatened disputes or disagreements with respect thereto;
(v) none of the Software products licensed by the
Company to third parties contains any Software that embodies Intellectual
Property Rights of any person other than the Company, except for such Software
obtained by the Company from other third parties that make such Software
generally available to all interested purchasers or end-users on
29
standard commercial terms and that have expressly licensed the Company to
utilize such Software in the manner such Software has been utilized;
(vi) the Company has been granted all necessary the
rights or permission to use the Licensed Software that is material to the
conduct of the Business, as it is used in the conduct of their Business as
presently conducted, and has not exercised any rights in respect of any Licensed
Software, including without limitation any reproduction, distribution or
derivative work rights, outside the scope of any license or permission granted
by the person from which the right to use such Licensed Software was obtained;
and
(vii) no royalties, fees, honoraria or other payments are
payable by the Company to any person by reason of the ownership, use, sale,
licensing, distribution or other exploitation of any Software or any
Intellectual Property Rights of the Company (excluding any salaries or
consulting fees payable to employees or contractors of the Company in the
Ordinary Course of Business that are not based on revenues arising from such
exploitation).
(j) PERFORMANCE OF EXISTING SOFTWARE PRODUCTS. Except as may be
set forth in SCHEDULE 4.20(j), to the knowledge of the Company, all Owned
Software products that the Company has distributed to third parties function in
all material respects in the intended manner free of any significant bugs or
programming errors.
(k) SOFTWARE DOCUMENTATION. The Company has taken reasonable
actions to document the Software and its operation, such that the Software,
including the source code and documentation, may be modified and maintained in
an efficient manner by reasonably competent programmers.
(l) AGREEMENTS IN RESPECT OF LICENSED TECHNOLOGY. SCHEDULE
4.20(l) contains a complete and accurate specific list of all written agreements
pertaining to Licensed Software (excluding COTS) (collectively, "LICENSED
SOFTWARE AGREEMENTS") and a complete and accurate specific list of all written
agreements pertaining to any other technology (other than COTS) used or
practiced by the Company as to which a person other than the Company owns the
applicable Intellectual Property Rights other than technology incorporated in
commercial products generally available for sale or license to the public (I.E.,
Microsoft office products, computers, fax machines) (collectively, "OTHER
LICENSED TECHNOLOGY AGREEMENTS" and, together with Licensed Software Agreements,
the "LICENSED TECHNOLOGY AGREEMENTS"). SCHEDULE 4.20(l) sets forth a complete
and accurate list of all royalty obligations of the Company under any Licensed
Technology Agreements. Except as may be set forth in SCHEDULE 4.20(l):
(i) all Licensed Technology Agreements are in full force
and effect, and the Company is not in material breach thereof, nor has the
Company received any notice to the contrary;
(ii) all Licensed Technology Agreements will be
maintained by the Company in full force and effect through the Closing;
(iii) there are no outstanding disputes or disagreements
with respect to any Licensed Technology Agreement;
30
(iv) the expiration dates of all Licensed Technology
Agreements are sufficiently distant from the date hereof such that no potential
impairment of the value of any of the Company's products could reasonably be
imputed by virtue of the non-renewal of the term of any Licensed Technology
Agreement;
(v) to the Company's knowledge, the rights licensed
under each Licensed Technology Agreement shall be exercisable by the Company on
and after the Closing to the same extent as prior to the Closing;
(vi) the Licensed Technology Agreements together
expressly confer on the Company valid and enforceable rights under or in respect
of all of the Intellectual Property Rights that are not owned exclusively by the
Company and that are used or practiced in the Company's business (collectively,
the "LICENSED INTELLECTUAL PROPERTY"); and
(vii) Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
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 impairment of any
rights under, any Licensed Technology Agreement.
(m) AGREEMENTS INVOLVING DISTRIBUTION OR OTHER RIGHTS GRANTED TO
THIRD PARTIES IN RESPECT OF OWNED SOFTWARE. SCHEDULE 4.20(m) contains an
accurate specific list of all agreements and arrangements involving the grant by
the Company to any person of any right to distribute, prepare derivative works
based on, support or maintain or otherwise commercially exploit (through
distribution or licensing arrangements) any Owned Software, including without
limitation any value-added reseller agreements, joint development or marketing
agreements or strategic alliance agreements involving any Owned Software
(collectively, "DESIGNATED SOFTWARE AGREEMENTS"). Except as may be set forth in
SCHEDULE 4.20(m):
(i) all Designated Software Agreements are in full force
and effect, and to the Company's knowledge the Company is not in material breach
thereof, nor has the Company received any notice to the contrary;
(ii) all Designated Software Agreements will be
maintained by the Company in full force and effect through the Closing;
(iii) there are no outstanding disputes or disagreements
with respect to any Designated Software Agreement; and
(iv) to the Company's knowledge, neither the execution
and delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will conflict with or result in a breach of any of the
terms, conditions or provisions of, or constitute a default under any Designated
Software Agreement.
(n) SUFFICIENCY OF OWNED AND LICENSED INTELLECTUAL PROPERTY. To
the Company's knowledge, except as set forth in SCHEDULE 4.20(n), the 2b Marks,
Owned Content Copyrights, Trade Secrets and Licensed Intellectual Property,
including without limitation the foregoing to the extent they apply to any
Software, constitute all of the Intellectual Property
31
Rights necessary for the conduct of the Company's Business as presently
conducted or contemplated to be conducted by the Company's existing business
plan and constitute all of the Intellectual Property Rights necessary to
operate such business after the Closing in substantially the same manner as
such business heretofore has been operated by the Company.
(o) DISABLING CODES AND CONTAMINANTS. To the Company's knowledge,
all of the Software is free of any disabling codes or instructions (a "DISABLING
CODE"), and any virus or other intentionally created, undocumented contaminant
(a "CONTAMINANT"), that may, or may be used to, access, modify, delete, damage
or disable the Material Systems or that may result in damage thereto, in each
case that would have a Material Adverse Effect on the Business. The Company has
taken reasonable steps and implemented reasonable procedures to ensure that the
Owned Software and Material Systems are free from Disabling Codes and
Contaminants. Except as may be set forth in SCHEDULE 4.20(o), the Company has in
place appropriate disaster recovery plans, procedures and facilities and has
taken all reasonable steps to safeguard its Material Systems and restrict
unauthorized access thereto. "MATERIAL SYSTEMS" means, with respect to any
person, all internal computer systems, communications systems, embedded control
systems and facilities infrastructure systems that are material to the business,
financial and accounting controls and operations of such person.
(p) Due to the evolving nature of intellectual property laws
relating to the Company, the parties particularly recognize that representations
in this SECTION 4.20 calling for a legal conclusion are meant as risk allocation
measures and their breach, in and of themselves, will not create a presumption
or evidence that the Company or the Shareholders engaged in actual fraud,
intentional misrepresentation or active concealment.
4.21. TRANSACTIONS WITH CERTAIN PERSONS. Except as set forth SCHEDULE
4.21, no officer or director of any of the Company or any Affiliate of any such
person has had, either directly or indirectly, a material interest in: (a) any
person or entity which purchases from or sells, licenses or furnishes to the
Company any goods, property, technology, intellectual or other property rights
or (b) any contract or agreement to which the Company is a party or by which it
may be bound or affected.
4.22. INSURANCE. SCHEDULE 4.22 sets forth a complete and correct list
of all insurance policies of the Company of any kind currently in force and also
sets forth for each insurance policy the type of coverage, the insurer, the
expiration date and the amounts of coverage. All insurance coverage applicable
to the Company and the Business is in full force and effect, and, to the
Company's knowledge, insures the Company in reasonably sufficient amounts
against the risks disclosed in such policies. Except as set forth on SCHEDULE
4.22, the Company has no self-insurance or co-insurance programs.
4.23. ACCOUNTS RECEIVABLE. The accounts receivable set forth on the
December 1999 Balance Sheet represent BONA FIDE claims of the Company against
debtors for products sold or licensed or services performed or other charges
arising on or before the date hereof. Except for accounts receivable set forth
on SCHEDULE 4.23, to the Company's knowledge, such accounts receivable are
subject to no defenses, counterclaims or rights of setoff and are fully
collectible in the Ordinary Course of Business without material cost in
collection efforts therefor, subject to the expected write-off in the Ordinary
Course of Business. Ordinary Course of Business for this
32
purpose means write-offs of no more than 15% of the accounts receivable on
the December 1999 Balance Sheet.
4.24. CUSTOMERS.
(a) SCHEDULE 4.24 sets forth a true and correct list of the ten
largest customers of the Company in terms of revenues during the Fiscal Year
ended December 31, 1999, showing the approximate total products sold or services
performed by the Company to or for each such customer during each such period.
(b) No customer of the Company listed on SCHEDULE 4.24 has
notified the Company in writing or otherwise of the Company's material default
in the performance of services for such customer.
4.25. CERTAIN BUSINESS PRACTICES. To the Company's knowledge, none of
the directors, officers, agents or employees of the Company has, in each case in
connection with the Business, (a) used any funds for unlawful contributions,
gifts, entertainment or other unlawful expenses, including without limitation,
expenses related to political activity, (b) made any unlawful payment to foreign
or domestic government officials or employees or to foreign or domestic
political parties or campaigns, made any bribes or kickback payments or violated
any provision of the Foreign Corrupt Practices Act of 1977, as amended, or (c)
made any other unlawful payment, in each case except where any such payment
would not have a Material Adverse Effect.
4.26. NO BROKERS. Except as set forth on SCHEDULE 4.26, none of the
Company or any of the Company's officers, directors, employees or Shareholders
has entered into nor will enter into any contract, agreement, arrangement or
understanding with any broker, finder or similar agent or any Person which will
result in the obligation of Parent, the Company or any of their respective
Affiliates to pay any finder's fee, brokerage fees or commission or similar
payment in connection with the transactions contemplated hereby.
4.27. MATERIAL MISSTATEMENTS OR OMISSIONS. No representations or
warranties by the Company or the Shareholders in this Agreement, or, to the
Company's knowledge, any written document, exhibit, statement, certificate or
schedule heretofore furnished to Parent pursuant hereto, or in connection with
the transactions contemplated hereby, including, without limitation, the
Schedules hereto, contains any untrue statement of a material fact, or omits to
state any material fact necessary to make the statements or facts contained
therein not misleading.
4.28. BOOKS AND RECORDS. The Company has made and kept (and given
Parent access to) its true and correct books and records and accounts, which,
in reasonable detail, accurately and fairly reflect in all material respects
the fiscal activities of the Company in accordance with its historic
accounting practices. The minute books of the Company previously made
available to Parent accurately and adequately reflect in all material
respects all action previously taken by the shareholders, board of directors
and committees of the board of directors of the Company. The copies of the
stock book records of the Company previously made
33
available to Parent are true, correct and complete, and accurately reflect
all transactions effected in the stock of the Company through and including
the date hereof.
4.29. BANK ACCOUNTS. SCHEDULE 4.29 contains a true, correct and
complete list of all bank accounts maintained by the Company, including each
account number and the name and address of each bank and the name of each person
who has signature power with respect to each such account.
4.30. EXEMPTION FROM HSR ACT. The Company and its "ultimate parent
entity" (as defined under the HSR Act) did not have (a) annual sales of
$10,000,000 or more in the most recently completed Fiscal Year or (b) total
assets, as shown on the most recent regularly prepared balance sheet, of
$10,000,000 or more.
4.31. TITLE TO COMPANY SHARES. Each Shareholder has legal and valid
title to the Company Shares held by such Shareholder, free and clear of any and
all liens, security interests, pledges, mortgages, charges, limitation, claims,
restrictions, rights of first refusal, rights of first offer, rights of first
negotiation or other encumbrance of any kind or nature whatsoever, other than
Encumbrances created by the Company.
4.32. REPRESENTATION REGARDING PARENT SHARES. Each of the
Shareholders, severally, but not jointly, hereby represent and warrant to Parent
and Merger Sub as follows:
(a) INVESTIGATION; ECONOMIC RISK. Each of the Shareholders
acknowledges that he has had an opportunity to discuss the business, affairs and
current prospects of Parent with its officers. Each of the Shareholders further
acknowledges having had access to information about Parent that it has
requested. Each of the Shareholders acknowledges that he is able to fend for
himself in the transactions contemplated by this Agreement and has the ability
to bear the economic risks of holding Parent Shares pursuant to this Agreement.
(b) PURCHASE FOR OWN ACCOUNT. The Parent Shares to be acquired by
each of the Shareholders hereunder will be acquired for such Shareholder's own
account, not as a nominee or agent, and not with a view to or in connection with
the sale or distribution of any part thereof, except for such transfers made
under an effective Registration Statement or such other transfer as may be in
compliance with applicable securities laws as provided in an opinion, acceptable
in form to Parent, delivered to Parent by counsel for the Shareholders prior to
any such transfer.
(c) RESTRICTED PARENT SHARES. Each of the Shareholders
understands that the Parent Shares being issued are not currently registered and
that the Restricted Parent Shares must be held pursuant to the provisions of
SECTION 6.11 below.
(d) RESTRICTIVE LEGENDS. It is understood by each of the
Shareholders that:
(i) each certificate representing the Restricted Parent
Shares and any other securities issued in respect of the Restricted Parent
Shares upon any stock split, stock dividend, recapitalization, merger or similar
event shall be stamped or otherwise imprinted with a legend substantially in the
following form:
34
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THAT CERTAIN AGREEMENT AND PLAN OF MERGER, DATED AS OF
JANUARY 30, 2000, BY AND BETWEEN TICKETMASTER ONLINE-CITYSEARCH, INC.,
TICKETMASTER MERGER SUB, 2B TECHNOLOGY, INC. AND THE SHAREHOLDERS THEREOF
(THE "MERGER AGREEMENT"), THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE NUMBER OF SHARES
REPRESENTED HEREBY IS SUBJECT TO ADJUSTMENT PURSUANT TO THE MERGER
AGREEMENT.
(ii) each certificate representing the
Transferable Parent Shares and any other securities issued in respect of the
Transferable Parent Shares upon any stock split, stock dividend,
recapitalization, merger or similar event shall be stamped or otherwise
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE NUMBER OF SHARES
REPRESENTED HEREBY IS SUBJECT TO ADJUSTMENT PURSUANT TO THAT CERTAIN
AGREEMENT AND PLAN OF MERGER, DATED AS OF JANUARY 30, 2000, BY AND
BETWEEN TICKETMASTER ONLINE-CITYSEARCH, INC., TICKETMASTER MERGER SUB,
2B TECHNOLOGY, INC. AND THE SHAREHOLDERS THEREOF.
(e) REMOVAL OF RESTRICTIVE LEGEND. The legends set
forth above shall be removed by Parent within five Business Days from any
certificate evidencing (i) Restricted Parent Shares, (A) with respect to the
legend regarding the Act, upon the transfer of such Restricted Parent Shares in
accordance with the Registration Statement and (B) with respect to the lock-up,
upon the transfer of such Restricted Parent Shares subsequent to the expiration
of the Lock-up Period (as defined below) and (ii) Transferable Parent Shares
upon the transfer of such Transferable Parent Shares in accordance with the
Registration Statement.
35
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Each of Parent and Merger Sub hereby represents and warrants
to each of the Company and the Shareholders as follows, which representations
and warranties are, as of the date hereof, and will be, as of the Closing Date,
true and correct:
5.1. ORGANIZATION OF PARENT AND MERGER SUB. Each of Parent and
Merger Sub is duly organized, validly existing and in good standing under the
laws of its state of organization with full power and authority to conduct its
business as it is presently being conducted, to own or lease, as applicable, its
assets, and to perform all its obligations under its contracts. Each of Parent
and Merger Sub is duly qualified to do business as a foreign entity and is in
good standing in each jurisdiction where the character of its properties owned
or leased or the nature of its activities make such qualification necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on Parent or Merger Sub, as the case may be.
5.2. AUTHORIZATION. Each of Parent and Merger Sub has all
requisite power and authority, and has taken all action necessary, to execute
and deliver this Agreement and the Employment Agreements to which it is a party,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Employment Agreements by each of Parent and Merger Sub and the
consummation by each of Parent and Merger Sub of the transactions contemplated
hereby and thereby have been duly approved by the boards of directors of each of
Parent and Merger Sub. No other proceeding on the part of each of Parent and
Merger Sub are necessary to authorize this Agreement and the Employment
Agreements and the transactions contemplated hereby and thereby. This Agreement
has been duly executed and delivered by each of Parent and Merger Sub and is,
and upon execution and delivery the Employment Agreements will be, a legal,
valid and binding obligation of each of Parent and Merger Sub, enforceable
against each of Parent and Merger Sub in accordance with their respective terms
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws affecting creditors' rights generally
and except insofar as the availability of equitable remedies may be limited by
applicable law
5.3. COMPLIANCE WITH OTHER INSTRUMENTS. Each of Parent and
Merger Sub is not in any Default of any term of its charter or bylaws or in any
material respect of any term or provision of any mortgage, indenture, contract,
agreement or instrument to which Parent of Merger Sub is a party or by which it
may be bound. The execution, delivery and performance of and compliance with
this Agreement and the consummation of the transactions contemplated hereby will
not result in any such Default, or be in conflict with Parent's or Merger Sub's
charter or bylaws, or, to Parent's knowledge, a violation of any statutes, laws,
Regulations or Court Orders, or an event which results in the creation of any
lien, charge or encumbrance upon any of the assets of Parent or Merger Sub.
Parent has furnished to the Shareholders true and accurate copies of its
Certificate of Incorporation and Bylaws.
36
5.4. CONSENTS AND APPROVALS. Except for filings, permits,
authorizations, consents and approvals as may be required under, and other
applicable requirements, of state securities laws, and the filing and
recordation of the Merger Articles as required by the VSCA no consent, approval
or authorization of, declaration to, or filing or registration with, any
governmental or regulatory authority, or any other Person, is required to be
made or obtained by each of Parent and Merger Sub in connection with the
execution, delivery and performance by each of Parent and Merger Sub of this
Agreement and the consummation of the transactions contemplated hereby.
5.5. NO PRIOR ACTIVITIES. Except for the obligations of Merger
Sub pursuant to or relating to this Agreement, Merger Sub has neither incurred
any obligation or liability nor engaged in any business or activity of any type
or kind whatsoever or entered into any agreement or arrangement with any person.
Merger Sub is a wholly-owned first-tier subsidiary of Parent.
5.6. LITIGATION. There is no Proceeding pending, or to the
knowledge of each of Parent and Merger Sub, threatened or anticipated against or
affecting Parent and Merger Sub or either of them which has or might be
reasonably expected to have a Material Adverse Effect on the ability of each of
Parent and Merger Sub to perform any of its obligations hereunder or on the
consummation of the transactions contemplated by this Agreement, or on the
condition (financial or otherwise), business, results of operations, assets,
prospects, liabilities or operations of Parent or Merger Sub.
5.7. PUBLIC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has
furnished or made available to the Company a true and complete copy of its
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and its
Report on Form 10-Q for the nine months ended September 30, 1999 (the "SEC
DOCUMENTS"), which Parent filed under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), with the SEC. As of their respective dates, the
SEC Documents complied in all materials respects with the requirements of the
Exchange Act and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they are made,
not misleading. There has been no change in the Parent's operations resulting in
a Material Adverse Effect of the Parent since September 30, 1999. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "PARENT FINANCIAL STATEMENTS") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by applicable rules and regulations of the
SEC) and fairly present the consolidated financial position of Parent at the
dates thereof and of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal, recurring audit
adjustments). There has been no change in Parent accounting policies except as
described in the notes to the Parent Financial Statements. Parent has no
material obligations other than (i) those set forth in the Parent Financial
Statements and (ii) those not required to be set forth in the Parent Financial
Statements under GAAP.
5.8. VALID ISSUANCE OF STOCK. The Parent Shares to be issued
hereunder, when issued and delivered in accordance with the terms of this
Agreement, will be duly and validly issued, fully paid and non assessable, free
and clear of all liens, claims, encumbrances and
37
adverse interests of any kind, except for the adjustments provided in SECTION
2.8(b). All Parent Shares upon issuance will have the rights, privileges and
preferences set forth in Parent's Certificate of Incorporation and Bylaws for
such class of shares. The Parent Shares will be issued in compliance with
applicable federal and state securities laws.
5.9. NO BROKERS. Neither Parent, Merger Sub nor any of their
respective partners, Representatives or Affiliates has entered into nor will
enter into any contract, agreement, arrangement or understanding with any
broker, finder or similar agent or any Person which will result in the
obligation of the Company or the Shareholders to pay any finder's fee, brokerage
fees or commission or similar payment in connection with the transactions
contemplated hereby.
5.10. KNOWLEDGE OF PARENT. In the course of Parent's due
diligence review of the Company, nothing has come to the attention of Parent
that has given Parent actual knowledge of any circumstances that would cause the
Shareholders to be responsible for paying Damages to Parent pursuant to SECTION
9.2 of this Agreement. For the purposes of this SECTION 5.10, knowledge of
Parent shall mean only the knowledge of Xxxxxxx X. Xxxxxx and Xxxxxx X.
Marriott, officers of Parent.
ARTICLE VI.
COVENANTS OF ALL PARTIES
Each of the Company, the Shareholders, Parent and Merger Sub
covenants and agrees as follows:
6.1. CONDUCT OF BUSINESS. From the date hereof through the
Closing, the Company shall, and the Shareholders shall cause the Company to,
carry on its operations in the Ordinary Course of Business and will use its
reasonable best efforts not to take any action inconsistent with this Agreement.
Except as contemplated hereby or as may be incidental to or in furtherance of
the transactions contemplated hereby or as may have been set forth herein or in
the Schedules hereto, the Company shall, and the Shareholders shall cause the
Company to, use its best efforts to maintain the present character and quality
of the Business, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers, customers and
employees. Without limiting the generality of the foregoing, unless consented to
by Parent in writing (which consent shall not be unreasonably withheld), the
Company, except as specifically contemplated by this Agreement, shall not:
(a) incur any indebtedness for borrowed or purchase
money or letters of credit, or assume, guarantee, endorse (other than
endorsements for deposit or collection in the Ordinary Course of Business), or
otherwise become responsible for obligations of any other Person except in the
Ordinary Course of Business;
(b) issue or redeem any securities;
(c) make or incur any obligation to make any
distribution to its Shareholders;
38
(d) make any change to its Articles of Incorporation
or Bylaws;
(e) mortgage, pledge or otherwise encumber any of its
assets or sell, transfer or otherwise dispose of any of its assets except in the
Ordinary Course of Business;
(f) make any investment of a capital nature either by
purchase of stock or securities, contributions to capital, property transfer or
otherwise, or by the purchase of any property or assets of any other Person,
except in the Ordinary Course of Business;
(g) terminate any Material Contract or make any
material change in any Material Contract not in the Ordinary Course of Business;
(h) make any change in any method of accounting or
accounting practice;
(i) with respect to the Business, other than in the
Ordinary Course of Business, (i) enter into or renew any employment contract,
(ii) pay or agree to pay any compensation to or for any employee, shareholder,
officer or director of the Company other than in the Ordinary Course of Business
and in the amounts and manner as such compensation has been paid by the Company
in the past, (iii) pay or agree to pay any bonus, incentive compensation,
service award or other like benefit or (iv) enter into or renew any employee
welfare, pension, retirement, profit-sharing or similar payment or arrangement;
(j) enter into or renew any other Material Contract
with respect to the Business which is not in the Ordinary Course of Business;
(k) distribute or incur any obligation to make any
distribution by the Company to the Shareholders; or
(l) do any other act which would cause any
representation or warranty of the Company in this Agreement to be or become
untrue in any material respect or that is not in the Ordinary Course of Business
consistent with past practice.
6.2. SHAREHOLDER ACKNOWLEDGMENT, WAIVER AND VOTING
AGREEMENT.
(a) Each Shareholder, by signing this Agreement
acknowledges and agrees that, pursuant to the terms of the Merger set forth in
this Agreement, all Company Shares will be canceled and extinguished and
converted into and become the right to receive the Parent Shares as provided in
SECTION 2.8(a) and the Additional Merger Consideration as provided in SECTION
2.11 (or, as provided in SECTION 2.13, cash) upon consummation of the Merger.
(b) Each Shareholder, by signing this Agreement,
agrees to vote all of his Company Shares in favor of the adoption and approval
of this Agreement and the approval of the Merger at any and all shareholder
meetings held for such purpose and to execute any and all written consents
containing a resolution adopting and approving this Agreement.
6.3. INVESTIGATION BY PARENT. The Company shall allow Parent
during regular business hours to make such investigation of the business,
properties, books and records of the
39
Company, and to conduct such examination of the condition of the assets of the
Company and the Business as Parent reasonably deems necessary or advisable to
familiarize itself with the assets, properties, books, records and other matters
and to verify the representations and warranties of the Company hereunder,
including, without limitation, discussions with the Company's officers,
employees, independent accountants, actuaries, customers, distributors and
suppliers and other agents; PROVIDED that Parent and its representatives shall
conduct such investigation in a manner so as to minimize the disruption of the
Company's business and operations and shall execute such confidentiality
agreements as reasonably requested by the Company.
6.4. FURTHER ASSURANCES. Upon the terms and subject to the
conditions contained herein, the parties agree (i) to use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated by this Agreement and the Employment Agreements, (ii)
to execute any documents, instruments or conveyances of any kind which may be
reasonably necessary or advisable to carry out any of the transactions
contemplated hereunder and thereunder and (iii) to cooperate with each other in
connection with the foregoing.
6.5. TRANSITIONAL MATTERS.
(a) Parent hereby acknowledges and agrees that it will
use its best efforts to ensure that, subsequent to the Closing, (i) the
Company, as the Surviving Corporation, will be operated as a wholly-owned
Subsidiary of Parent and Parent will not take or omit to take any action that
would materially and adversely affect the Shareholders' ability to earn the
Earn-Out Amounts, (ii) the Company will continue to be located in its current
geographical area and retain is current identity and (iii) the Executives
will be given general authority and control to manage and supervise the
day-to-day operations of the Company's Business and the fulfillment of its
business goals within the scope of their respective Employment Agreements and
in accordance with the budgets and capital resources described in
SECTION 6.5(b).
(b) Parent and the Company acknowledge and agree that,
promptly following the Closing (with respect to the 2000 Fiscal Year) and
prior to the beginning of the 2001 Fiscal Year (with respect to the 2001
Fiscal Year), the parties will jointly prepare an operating plan for the
Company that will include minimum and maximum working capital resources and
an annual budget for any applicable Fiscal Years; PROVIDED, HOWEVER, that
Parent shall have the right to approve the final operating plan in its
discretion, which approval will not be unreasonably withheld. Parent will not
take any action or inaction, whether related to budgeting, access to working
capital or otherwise, which will unreasonably impair the Executives' ability
to earn the maximum Earn-Out Amount for each of the 2000 and 2001 Fiscal
Years.
(c) The Executives shall be entitled to serve as
directors of the Company, and Xxxx X. Xxxxxx and Xxxxx X. Xxxxxx shall be
entitled to hold the offices of President and Vice-Chairman, respectively, at
all times following the Merger that they are employed by the Company.
40
(d) Parent hereby acknowledges and agrees that it
will use commercially reasonable efforts to ensure that, subsequent to the
Closing, Xxxxx X. Xxxxxx be removed as guarantor from all outstanding
obligations of the Company and, in the event that Parent cannot remove Xx.
Xxxxxx from the guarantees, Parent will add itself as a joint and several
additional guarantor.
6.6. AGREEMENTS WITH EXECUTIVES. In connection with the
transactions contemplated hereby and pursuant to the terms and conditions
outlined in the Letter of Intent, Parent and the Company will enter into the
Employment Agreements with each of the Executives.
6.7. NOTIFICATION OF CERTAIN MATTERS.
(a) The Company shall give prompt notice to Parent of
(i) the occurrence, or failure to occur, of any event before the Closing which
occurrence or failure causes any representation or warranty of the Company
contained in this Agreement, the Employment Agreements or any exhibit or
schedule to be untrue or inaccurate in any material respect and (ii) any
material failure of the Company or any of its Affiliates to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement, the Employment Agreements or any exhibit or schedule;
PROVIDED, HOWEVER, that such disclosure shall not be deemed to cure any breach
of a representation, warranty, covenant or agreement or to satisfy any
condition. The Company shall promptly notify Parent of any event or state of
facts before the Closing that constitutes a Material Adverse Effect.
(b) Parent shall give prompt notice to the Company of
(i) the occurrence, or failure to occur, of any event before the Closing which
occurrence or failure causes any representation or warranty of Parent or Merger
Sub contained in this Agreement, the Employment Agreements or any exhibit or
schedule to be untrue or inaccurate in any material respect and (ii) any
material failure of Parent or Merger Sub or any of their respective Affiliates
or Representatives, as applicable, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, the Employment Agreements or any exhibit or schedule; PROVIDED,
HOWEVER, that such disclosure shall not be deemed to cure any breach of a
representation, warranty, covenant or agreement or to satisfy any condition. To
the extent permitted by applicable securities laws, Parent shall promptly notify
the Company of any event or state of facts before the Closing that constitutes a
Material Adverse Effect.
6.8. ASSUMPTION OF RESPONSIBILITIES. The Company hereby
acknowledges and agrees that, upon ninety (90) days written notice from Parent,
the Company will assume all or any portion of Parent's ticketing
responsibilities with respect to certain venues as determined in Parent's
reasonable discretion after consultation with the Executives. In connection with
such assumption by the Company, Parent will also notify the Executives of any
appropriate increases to the working capital of the Company or other budgetary
constraints imposed by the assumption of such responsibilities by the Company
and will reasonably negotiate and resolve any budgetary issues with the
Executives prior to the assumption of any ticketing responsibility by the
Company.
41
6.9. EMPLOYEE MATTERS. Parent intends to hire, as employees of
the Surviving Corporation, all employees of the Company on an at-will basis at
the Closing at the same compensation levels such employees received in the
Fiscal Year prior to the Closing, all pursuant to a notice in the form attached
hereto as EXHIBIT C. The Company and the Shareholders shall each use their best
efforts to assist Parent in employing such employees of the Company. In
addition, promptly after the Closing, at Parent's sole discretion, the employees
to be hired by the Surviving Corporation will be granted options to purchase
Parent Shares in amounts commensurate with those options provided to similarly
situated employees of Parent, such amount to be determined for each employee
based on the mutual and reasonable agreement of Parent and the Executives. In
addition, in accordance with Parent's normal compensation and review process,
all former employees of the Company hired by the Surviving Corporation will
receive salary adjustments and Parent option awards commensurate with other
employees of Parent in the same general positions and geographic locations, no
later than six months following the Closing.
6.10. PUBLIC ANNOUNCEMENTS. On and after the date hereof and
through the Closing Date, the Company and Parent shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement or the transactions contemplated hereby, and none of
the parties shall issue any such press release or make any public statement
prior to obtaining the other parties' written approval, which approval shall not
be unreasonably withheld, except that no such approval shall be necessary to the
extent disclosure may be required by law or any listing agreement of any party
hereto.
6.11. LOCK-UP. Each of the Shareholders agrees that he, she or
it will not offer to sell, contract to sell, or otherwise sell, dispose of,
loan, pledge or grant any rights with respect to (collectively, a "DISPOSITION")
any Restricted Parent Shares for a period commencing on the Closing Date and
continuing to a date 180 days after the Closing Date (the "LOCK-UP PERIOD");
PROVIDED, HOWEVER, that nothing in the preceding sentence shall prohibit the
Shareholders from exchanging the Restricted Parent Shares for interests in a
diversified exchange fund or with a brokerage firm or from using a protective
put, costless collar or similar risk-limiting device in a private transaction.
Each of the Shareholders also consents to the entry of stop transfer
instructions by Parent's transfer agent and registrar prohibiting the transfer
of Restricted Parent Shares by the Shareholders except in compliance with the
foregoing restrictions.
6.12. TAX-FREE REORGANIZATION STATUS. Except as provided in
SECTION 2.13, Parent covenants and agrees, for a period of three years from the
Effective Time, not to undertake any act or fail to take any action within its
control that would jeopardize, prevent or eliminate the tax-free status of the
Merger under Section 368(a) of the Code, including without limitation merging
the Surviving Corporation with or into another corporation other than Parent or
failing to continue the Company's historic enterprise; PROVIDED, HOWEVER, that
if Parent assumes in writing the risk of elimination of the tax free status of
the Merger prior to such time, this covenant will lapse. Parent shall make all
Tax filings consistent with the treatment of the Merger as a tax-free
reorganization under Code Section 368(a), unless the Parent has given prior
written notice to the Shareholders specifying the basis for treating the Merger
as a taxable transaction and the Shareholders have had adequate time thereafter
to consult with Parent and/or to obtain a tax opinion from a nationally
recognized or otherwise acceptable law or accounting firm reasonably acceptable
to Parent in order to confirm that there is substantial authority, within
42
the meaning of Section 6662 of the Code, for treating and reporting the Merger
as a tax-free transaction.
6.13. REGISTRATION STATEMENT. Parent shall promptly prepare at
its sole expense, with the cooperation of the Shareholders with respect to
information relating to the Shareholders or their sale of Parent Shares, and
Parent at its sole expense shall file with the SEC as soon as practicable
following the Closing, a Registration Statement on Form S-3 or other appropriate
short-form registration statement (the "REGISTRATION STATEMENT") under the
Securities Act of 1933, as amended (the "ACT"), with respect to all of the
following : (i) the Transferable Parent Shares, (ii) the Restricted Parent
Shares and (iii) the Maximum Additional Parent Shares. Parent, with the
cooperation of the Shareholders with respect to information relating to the
Shareholders or their sale of such Parent Shares, shall cause the Registration
Statement to comply as to form in all material respects with the applicable
provisions of the Act and the rules and regulations thereunder. Parent shall use
all reasonable efforts, and the Shareholders will cooperate with Parent, to have
the Registration Statement declared effective by the U.S. Securities and
Exchange Commission ("SEC") as promptly as practicable, but in any event no
later than seventy-five (75) days after the Closing Date. Parent shall use its
reasonable efforts to obtain, prior to the effective date of the Registration
Statement, all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the sale of such Parent Shares by the Shareholders and
will pay all expenses incident thereto. Parent agrees that the Registration
Statement and each amendment or supplement thereto at the time it is filed or
becomes effective, will not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading and indemnifies and holds harmless the Shareholders with
respect to any breach of the foregoing; PROVIDED, HOWEVER, that the foregoing
shall not apply to the extent that any such untrue statement of a material fact
or omission to state a material fact was made by Parent in reliance upon and in
conformity with written information concerning the Shareholders furnished to
Parent by the Shareholders specifically for use in the Registration Statement or
any amendment thereto, and the Shareholders and their counsel have been given
reasonable opportunity to review the Registration Statement or any amendment
thereto prior to filing. Parent shall advise the Shareholders, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective. Parent shall cause the Registration Statement to remain effective
until the earlier of (1) the date at which all of the Parent Shares described in
clauses (i) through (iii) of the first sentence of this paragraph have been sold
by the Shareholders or (2) twelve months following the Registration Date (the
"EFFECTIVE PERIOD"). The Shareholders agree that (A) the written information
provided by each of them for inclusion in the Registration Statement and each
amendment or supplement thereto at the time it is filed or becomes effective,
will not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and (B) such Shareholders, upon notification from Parent, shall not
use the Registration Statement to effect sales of Parent Shares for any
reasonable time period during which Parent is amending the Registration
Statement to reflect material developments, as specified in the notice from
Parent. Parent at its expense shall provide the shareholders with such number of
copies of the Registration Statement and any amendments thereto as any
Shareholder may reasonably request from time to time.
43
ARTICLE VII.
CONDITIONS TO OBLIGATIONS
7.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party hereto to consummate the
transactions provided for hereby are subject to the satisfaction, on or prior to
the Closing Date, of each of the following conditions:
(a) No Proceeding by any governmental authority or
other Person shall have been instituted or threatened which questions the
validity or legality of the transactions contemplated hereby and which could
reasonably be expected to damage the assets of the Company or the Business
materially if the transactions contemplated hereby are consummated. There shall
not be any Regulation or Court Order that makes the transactions contemplated
hereby and by the Employment Agreements illegal or otherwise prohibited.
(b) Any governmental or regulatory notices or
approvals required under any Regulations to carry out the transactions
contemplated by this Agreement shall have been obtained and the parties shall
have complied with all Regulations applicable to the transactions contemplated
by this Agreement.
7.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS TO EFFECT THE
MERGER. The obligations of the Company to consummate the transactions provided
for hereby are subject to the satisfaction, on or prior to the Closing Date, of
each of the following conditions, any of which may be waived by the Company:
(a) All representations and warranties of Parent and
Merger Sub contained in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date, except as and to the extent that the facts and conditions upon which such
representations and warranties are based are expressly required or permitted to
be changed by the terms hereof, and each of Parent and Merger Sub shall have
performed and satisfied in all material respects all agreements and covenants
required hereby to be performed by it prior to or on the Closing Date.
(b) Each of Parent and Merger Sub shall have tendered
for delivery the documents and other items to be delivered by such parties
pursuant to ARTICLE III of this Agreement.
(c) The Company and Parent shall have executed and
delivered the Employment Agreements.
7.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB TO
EFFECT THE MERGER. The respective obligations of Parent and Merger Sub to
consummate the transactions provided for hereby are subject to the satisfaction,
on or prior to the Closing Date, of each of the following conditions, any of
which may be waived by Parent or Merger Sub:
(a) all representations and warranties of the Company
and the Shareholders contained in this Agreement shall be true and correct in
all material respects at and
44
as of the date of this Agreement and at and as of the Closing Date, except as
and to the extent that the facts and conditions upon which such representations
and warranties are based are expressly required or permitted to be changed by
the terms hereof, and the Company and each of the Shareholders shall have
performed and satisfied in all material respects all agreements and covenants
required hereby to be performed by each of them prior to or on the Closing Date.
(b) The Company shall have tendered for delivery the
documents and other items to be delivered by such parties pursuant to ARTICLE
III of this Agreement.
(c) All Permits and Consents by governmental agencies
that are required for the consummation of the transactions contemplated hereby,
or by third parties that are required in order to prevent a breach of, a default
under, or a termination, change in the terms or conditions or modification of,
any instrument, contract, lease, license or other agreement to which the Company
is a party and which is denoted with an asterisk (*) on SCHEDULES 4.8 shall have
been obtained on terms and conditions satisfactory to Parent. In addition,
Parent shall have received from the Company the Consents set forth on SCHEDULE
4.17 hereto. In the event the Company cannot obtain certain Consents prior to
the Closing and Parent elects to waive this condition to Closing, the Company
shall have the continuing obligation after the Closing to use its commercially
reasonable efforts to endeavor to obtain all necessary consents.
(d) The Executives shall have executed and delivered
the Employment Agreements.
(e) All liens against the Company or any of its
assets or properties shall have been released, including, without limitation,
those liens listed on SCHEDULE 7.3(e) hereto.
(f) Any amounts owed by the Company pursuant to the
IRS Installment Agreement, IRS stamped on September 20, 1994, between the
Company and the IRS (the "IRS INSTALLMENT AGREEMENT"), shall have been paid in
full.
ARTICLE VIII.
TERMINATION
8.1. TERMINATION. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time whether before
or after approval and adoption of this Agreement by the Shareholders:
(a) by mutual written consent of Parent, Merger Sub,
the Company and the Shareholders;
(b) by Parent and Merger Sub or the Company and the
Shareholders if (i) any court of competent jurisdiction in the United States or
other United States Governmental Entity shall have issued a final order, decree
or ruling or taken any other final action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other action is or
shall have become nonappealable or (ii) subject to the following, the Merger has
not been consummated by February 15, 2000 (the "OUTSIDE DATE"); PROVIDED that in
the event that the
45
Closing is delayed by reason of events contemplated by SECTION 7.1, the Outside
Date shall be extended to February 29, 2000; PROVIDED FURTHER that no party may
terminate this Agreement pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement shall have been the reason
that the Effective Time shall not have occurred on or before said date;
(c) by the Company and the Shareholders if (i) there
shall have been a breach of any representation or warranty on the part of Parent
or Merger Sub set forth in this Agreement or if any representation or warranty
of Parent or Merger Sub shall have become untrue, in either case such that the
conditions set forth in SECTION 7.2(a) would be incapable of being satisfied by
the Outside Date (as extended by SECTION 8.1(b)(ii) or otherwise) or (ii) there
shall have been a breach by Parent or Merger Sub of any of their respective
covenants or agreements hereunder having a Material Adverse Effect on Parent or
Merger Sub or materially adversely affecting (or materially delaying) the
consummation of the Merger, and Parent or Merger Sub, as the case may be, has
not cured such breach or event within twenty (20) Business Days after notice by
the Company thereof; PROVIDED that the Company has not breached any of its
obligations hereunder; or
(d) by Parent and Merger Sub if (i) there shall have
been a breach of any representation or warranty on the part of the Company or
the Shareholders set forth in this Agreement or if any representation or
warranty of the Company or the Shareholders shall have become untrue in either
case such that the conditions set forth in SECTION 7.3(a) would be incapable of
being satisfied by the Outside Date (as extended by SECTION 8.1(b)(ii) or
otherwise) or (ii) there shall have been a breach by the Company or the
Shareholders of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on the Company or materially adversely affecting (or
materially delaying) the consummation of the Merger, and the Company or the
Shareholders, as the case may be, have not cured such breach or event within
twenty (20) Business Days after notice by Parent or Merger Sub thereof; PROVIDED
that neither Parent nor Merger Sub has breached any of their respective
obligations hereunder.
8.2. EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement pursuant to SECTION 8.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this SECTION 8.2, the arbitration provisions of SECTION
9.3(b) and SECTION 10.12 hereof. Nothing contained in this SECTION 8.2 shall
relieve any party from liability for any breach of this Agreement.
ARTICLE IX.
INDEMNIFICATION
9.1. SURVIVAL OF REPRESENTATIONS. All statements contained in
any schedule or in any certificate or other document delivered by or on behalf
of the parties pursuant to this Agreement or in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
parties hereunder. The representations and warranties of the Company, the
Shareholders, Parent and Merger Sub contained herein shall survive the Effective
Time until the later to occur of (a) forty five days after the delivery of the
audited
46
financial statements for the Fiscal Year ending December 31, 2001 and (b) June
30, 2002; PROVIDED, HOWEVER, that: (i) the representations and warranties in
SECTION 4.14 ("Employee Benefit Plans") shall survive until the fifth
anniversary of the Effective Time, (ii) the representations and warranties set
forth in SECTIONS 4.3 and 5.2 ("Authorization"), 4.4 ("Capitalization"), 4.13
("Compliance with Environmental Laws"), 4.15 ("Compliance with Law"), 4.26 and
5.9 ("No Brokers") and SECTION 5.8 ("Valid Issuance of Stock") shall survive in
perpetuity, (iii) the representations and warranties in SECTION 4.12 ("Taxes")
shall survive the Effective Time until sixty days following the expiration of
any applicable statute of limitations (including any extensions thereof) and
(iv) the representations and warranties in SECTION 5.10 shall survive the
Effective Time so long as the applicable representations and warranties of the
Shareholders to which they apply survive. In the case of actual fraud,
intentional misrepresentation or active concealment, the representations and
warranties of such breaching party shall survive until the expiration of the
applicable statute of limitations. Any claims under this Agreement with respect
to a breach of a representation and warranty must be asserted by written notice
within the applicable survival period contemplated by this SECTION 9.1, and if
such a notice is given, the survival period for such representation and warranty
shall continue until the claim is fully resolved. Subject to SECTION 5.10, the
right to indemnification or other remedy based on the representations,
warranties, covenants and agreements herein will not be affected by any
investigation conducted with respect to, or any knowledge acquired (or capable
of being acquired) at any time, whether before or after the execution and
delivery of this Agreement or the Closing, with respect to the accuracy or
inaccuracy of or compliance with, any such representation, warranty, covenant or
agreement. All representations and warranties of each party set forth in this
Agreement shall be deemed to have been made again by such party at and as of the
Closing Date. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or agreement, will not affect the right to indemnification or other
remedy based on such representations, warranties, covenants and agreements,
unless such right is also expressly waived.
9.2. INDEMNIFICATION.
(a) Subsequent to the Closing, subject to the
limitations described below in SECTION 9.5, the Shareholders shall severally,
but not jointly, indemnify Parent and its respective Affiliates (including,
after the Closing, the Company), and each of its respective officers, directors,
employees, shareholders, partners and agents ("PARENT INDEMNIFIED PARTIES")
against, and hold each of the Parent Indemnified Parties harmless from, any
damage, claim, loss, cost, liability or expense, including without limitation,
interest, penalties, reasonable attorneys' fees and expenses of investigation
(other than those expressly allocated pursuant to SECTION 9.3(b)(3)),
consequential damages, response action, removal action or remedial action
(collectively "DAMAGES") incurred by such Parent Indemnified Party that arise
out of or relate to, whether directly or indirectly: (i) any misrepresentation
or breach of any warranty on the part of the Company or the Shareholders
contained in this Agreement or in any agreement, certificate or other instrument
delivered by the Company or the Shareholders pursuant to this Agreement or (ii)
any breach or non-performance by the Company or the Shareholders of any of their
respective covenants or agreements contained in this Agreement or in any
agreement, certificate or other instrument delivered by the Company or the
Shareholders pursuant to this Agreement.
47
(b) Parent shall indemnify each of the Shareholders
("SHAREHOLDER INDEMNIFIED PARTIES"), against, and hold each of the Shareholder
Indemnified Parties harmless from, any Damages incurred by such Shareholder
Indemnified Party that arise out of or relate to, whether directly or
indirectly: (i) any breach of any representation or warranty of Parent or Merger
Sub contained in this Agreement or in any agreement, certificate or other
instrument delivered by Parent or Merger Sub pursuant to this Agreement or (ii)
any breach or non-performance by Parent or Merger of its covenants or agreements
contained in this Agreement or in any agreement, certificate or other instrument
delivered by Parent or Merger Sub pursuant to this Agreement.
(c) The term "DAMAGES" as used in this SECTION 9.2 is
not limited to matters asserted by third parties against Shareholder Indemnified
Parties or Parent Indemnified Parties, but includes Damages incurred or
sustained by such persons in the absence of third-party claims, and payments by
the indemnitee shall not be a condition precedent to recovery.
9.3. NOTICE OF CLAIMS.
(a) Any Parent Indemnified Party or Shareholder
Indemnified Party (the "INDEMNIFIED PARTY") seeking indemnification hereunder
shall, within the relevant limitation period provided for in SECTION 9.1 above,
give to the party obligated to provide indemnification to such Indemnified Party
(the "INDEMNITOR") a notice (a "CLAIM NOTICE") describing in reasonable detail
the facts giving rise to any claims for indemnification hereunder and shall
include in such Claim Notice (if then known) the amount or the method of
computation of the amount of such claim, and a reference to the provision of
this Agreement or any agreement, certificate or instrument executed pursuant
hereto or in connection herewith upon which such claim is based; PROVIDED, that
a Claim Notice in respect of any action at law or suit in equity by or against a
third Person as to which indemnification will be sought shall be given promptly
after the action or suit is commenced; and PROVIDED FURTHER, that failure to
give such notice shall not relieve the Indemnitor of its obligations hereunder
except to the extent it shall have been prejudiced by such failure.
(b) Indemnitor shall have thirty days after the
giving of any Claim Notice pursuant hereto to (i) agree to the amount or method
of determination set forth in the Claim Notice and to pay such amount to such
Indemnified Party in immediately available funds or (ii) to provide such
Indemnified Party with notice that it disagrees with the amount or method of
determination set forth in the Claim Notice (the "DISPUTE NOTICE"). Within
fifteen days after the giving of the Dispute Notice, a representative of
Indemnitor and such Indemnified Party shall negotiate in a BONA FIDE attempt to
resolve the matter. In the event that the controversy is not resolved within
thirty days of the giving of the Dispute Notice, the parties shall proceed to
binding arbitration pursuant to the following procedures:
(1) Any party may send another party written
notice identifying the matter in dispute and invoking the procedures of this
SECTION 9.3. Within 14 days, each party involved in the dispute shall meet at
a mutually agreed location in Chicago, Illinois, or such other location as
mutually agreed by the parties, for the purpose of determining whether they
can resolve the dispute themselves by written agreement, and, if not, whether
they
48
can agree upon a third-party arbitrator to whom to submit the matter in dispute
for final and binding arbitration.
(2) If such parties fail to resolve the dispute by
written agreement or agree on the arbitrator within said 14-day period, any
such party may make written application to the American Arbitration
Association ("AAA") for the appointment of a panel of three arbitrators
(collectively, the "ARBITRATOR") to resolve the dispute by arbitration. At
the request of AAA the parties involved in the dispute shall meet with AAA at
its offices within ten calendar days of such request to discuss the dispute
and the qualifications and experience which each party respectively believes
the Arbitrator should have; PROVIDED, HOWEVER, that the selection of the
Arbitrator shall be the exclusive decision of AAA and shall be made within 30
days of the written application to AAA.
(3) Within 120 days of the selection of the
Arbitrator, the parties involved in the dispute shall meet in Chicago, Illinois,
or such other location as mutually agreed by the parties, with such Arbitrator
at a place and time designated by such Arbitrator after consultation with such
parties and present their respective positions on the dispute. The arbitration
proceeding shall be held in accordance with the rules for commercial arbitration
of the AAA in effect on the date of the initial request by for appointment of
the Arbitrator, that gave rise to the dispute to be arbitrated (as such rules
are modified by the terms of this Agreement or may be further modified by mutual
agreement of the parties) Each party shall have no longer than five days to
present its position, the entire proceedings before the Arbitrator shall be no
more than ten consecutive days, and the decision of the Arbitrator shall be made
in writing no more than 30 days following the end of the proceeding and shall
set forth in writing the grounds or basis of the Arbitrator's decision. Such an
award shall be a final and binding determination of the dispute and shall be
fully enforceable as an arbitration decision in any court having jurisdiction
and venue over such parties. Each party shall pay its own attorneys' fees and
expenses in connection with such proceeding. The parties shall equally bear the
Arbitrator's fees and expenses.
9.4. THIRD PERSON CLAIMS. If a claim by a third Person is made
against an Indemnified Party, and if such party intends to seek indemnity with
respect thereto under this ARTICLE IX, such Indemnified Party shall promptly
notify the Indemnitor in writing of such claims, setting forth such claims in
reasonable detail. The Indemnitor shall be relieved of its indemnification
obligations hereunder to the extent that notice is not delivered promptly and
the Indemnitor is prejudiced thereby. The Indemnitor shall have twenty days
after receipt of such notice to undertake, conduct and control, through counsel
of its own choosing and at its own expense, the settlement or defense thereof,
and the Indemnified Party shall cooperate with it in connection therewith;
PROVIDED that the Indemnified Party may participate in such settlement or
defense through counsel chosen by such Indemnified Party and paid at its own
expense; and PROVIDED FURTHER that, if in the reasonable opinion of counsel for
the Indemnitor, there is a reasonable likelihood of a conflict of interest
between the Indemnitor and the Indemnified Party, the Indemnitor shall be
responsible for reasonable fees and expenses of one counsel to such Indemnified
Party in connection with such defense. So long as the Indemnitor is reasonably
contesting any such claim in good faith, the Indemnified Party shall not pay or
settle any such claim without the consent of the Indemnitor. If the Indemnitor
does not notify the Indemnified Party within ten days after receipt of the
Indemnified Party's notice of a claim of indemnity
49
hereunder that it elects to undertake the defense thereof, the Indemnified Party
shall have the right to undertake, at Indemnitor's cost, risk and expense, the
defense, compromise or settlement of the claim but shall not thereby waive any
right to indemnity therefore pursuant to this Agreement. The Indemnitor shall
not, except with the consent of the Indemnified Party, enter into any settlement
that does not include as an unconditional term thereof the giving by the person
or persons asserting such claim to all Indemnified Parties (I.E., the
Shareholder Indemnified Party or the Parent Indemnified Party, as the case may
be) of an unconditional release from all liability with respect to such claim or
consent to entry of any judgment.
9.5. LIMITATION ON INDEMNITY.
(a) Notwithstanding the foregoing, an Indemnitor
shall not be obligated to indemnify an Indemnified Party under SECTIONS 9.2(a)
or (b) unless and until the aggregate of all Damages suffered by such
Indemnified Parties hereunder exceeds $350,000 (the "THRESHOLD AMOUNT"),
whereupon, provided the other requirements of this ARTICLE IX have been complied
with, the full amount of such Damages, and all subsequent Damages, shall become
due and payable. Notwithstanding the foregoing, (a) no Threshold Amount shall
apply to the Company's representations and warranties set forth in SECTIONS 4.3,
4.4, 4.12 and 4.26 hereof, (b) no Threshold Amount shall apply to Parent's
representations and warranties set forth in SECTION 5.9 hereof and (c) no
Threshold Amount shall apply to the obligations of any party hereto to the
extent a breach results from actual fraud, intentional misrepresentation or
active concealment. In addition, notwithstanding any of the foregoing, the
Threshold Amount solely for any breaches by Parent and/or Merger Sub of its or
their covenants and agreements hereunder (other than representations and
warranties contained in ARTICLE V) shall equal $100,000, except in the case of
willful breaches of these covenants and agreements, in which case there shall be
no Threshold Amount.
(b) The total indemnity obligations of the
Shareholders shall not exceed the sum of $10,850,000 and all Earn-Out Amounts
(the "CAP"). Each Shareholder's maximum individual indemnity obligations shall
be the product of the Cap multiplied by such Shareholder's percentage ownership
of the Company immediately prior to the Effective Time, as reflected on SCHEDULE
I hereto. Parent shall have the right to offset any Damages suffered by the
Parent Indemnified Parties not previously indemnified by the Shareholders
against any Earn-Out Amount to be paid to the Shareholders prior to payment by
Parent of such Earn-Out Amount. The Cap shall not limit indemnification with
respect to breaches by the Shareholders or the Company of the representations
and warranties set forth in 4.3 ("Authorization"), 4.4 ("Capitalization"), 4.12
("Taxes") and 4.26 ("No Brokers").
(c) Except as provided in SECTION 9.5(a), the
Threshold Amount and Cap shall apply to all Damages regardless of whether
asserted as a breach under the Agreement or under any other theory or cause of
action.
(d) The Shareholders, at their election, shall be
entitled to pay any indemnification obligations hereunder in cash or Parent
Shares or any combination thereof, and if in Parent Shares, such Parent Shares
shall be valued at the Average Stock Price on the date that is two Business Days
prior to the date the amount due is finally determined; PROVIDED, HOWEVER, that
in no event shall the Parent Shares be valued at more than $50.45 (representing
a stock price
50
increase of 20% of the Initial Stock Price) or less than $29.43 (representing a
stock price decrease of 30% of the Initial Stock Price).
9.6. REMEDIES. The remedies in this ARTICLE IX shall be the
exclusive remedies of the parties with respect to any breach of the respective
representations, warranties, covenants and agreements pursuant to this Agreement
or otherwise arising out of this Agreement, regardless of the theory or cause of
action plead, except for the remedies of specific performance, injunction and
other equitable relief; PROVIDED, HOWEVER, that no party hereto shall be deemed
to have waived any rights, claims, causes of action or remedies if and to the
extent such rights, claims, causes of action or remedies may not be waived under
applicable law or actual fraud, intentional misrepresentation or active
concealment is proven on the part of a party by another party hereto.
ARTICLE X.
MISCELLANEOUS
10.1. BINDING EFFECT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, their successors
and permitted assigns, in accordance with the terms hereof. Neither this
Agreement nor any of the rights or obligations hereunder may be assigned by the
Company or the Shareholders without the prior written consent of Parent, or by
Parent or Merger Sub without the prior written consent of the Shareholders,
except that Parent may, without such consent, assign the rights hereunder
(either before or after the Closing Date), to an Affiliate of Parent; PROVIDED,
HOWEVER, that no such assignment shall release Parent of any of its obligations
under this Agreement. Subject to the foregoing, this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, and no other Person shall have any right, benefit or
obligation hereunder.
10.2. NOTICES. Unless otherwise provided herein, any notice,
request, instruction or other document to be given hereunder by any party to the
other shall be in writing and delivered in person or by courier, telegraphed,
telexed or by facsimile transmission or mailed by registered or certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective on
the date of such receipt is acknowledged), as follows:
If to Parent or Merger Sub:
Ticketmaster Online-CitySearch, Inc.
000 X. Xxxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
With copies to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
51
Attention: Xxxxxxx X. Xxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
If to the Company or the Shareholders:
2b Technology, Inc.
00000 Xxxxxxx Xx., Xxxxx #X
Xxxx Xxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Hirschler, Fleischer, Xxxxxxxx, Xxx & Xxxxx
Federal Reserve Bank Building
000 Xxxx Xxxx Xxxxxx
X.X. Xxx 000
Xxxxxxxx, XX 00000
Attention: S. Xxxxx Xxxxxx
Telephone: (000) 000-0000
Fax: (000) 000-0000
Any party may, from time to time, designate any other address
to which any such notice to such party shall be sent. Any such notice shall be
deemed to have been delivered upon receipt.
10.3. CHOICE OF LAW. This Agreement shall be construed,
interpreted and the rights of the parties determined in accordance with the laws
of the State of Delaware, as applied to agreements among Delaware residents
entered into and wholly to be performed within the State of Delaware (without
reference to any choice of law rules that would require the application of the
laws of any other jurisdiction).
10.4. ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This
Agreement, together with the Employment Agreements and all exhibits and
schedules hereto, constitutes the entire agreement among the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties. No supplement, modification or other amendment or waiver of this
Agreement shall be binding unless executed in writing by the party to be bound
thereby. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision hereof (whether or not
similar), nor shall such waiver constitute a continuing waiver unless otherwise
expressly provided.
10.5. COUNTERPARTS. This Agreement may be executed by
facsimile and in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
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10.6. SEVERABILITY. If any provision of this Agreement is
deemed or held to be illegal, invalid or unenforceable, this Agreement shall be
considered divisible and inoperative as to such provision to the extent it is
deemed to be illegal, invalid or unenforceable, and in all other respects this
Agreement shall remain in full force and effect; PROVIDED, HOWEVER, that if any
provision of this Agreement is deemed or held to be illegal, invalid or
unenforceable there shall be added hereto automatically a provision as similar
as possible to such illegal, invalid or unenforceable provision that is legal,
valid and enforceable. Further, should any provision contained in this Agreement
ever be reformed or rewritten by any judicial body of competent jurisdiction,
such provision as so reformed or rewritten shall be binding upon all parties
hereto.
10.7. HEADINGS. The headings of the Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
10.8. SCHEDULES. The Schedules and the Exhibits referenced in
this Agreement are a material part hereof and shall be treated as if fully
incorporated into the body of the Agreement.
10.9. NO THIRD PARTY BENEFICIARIES. Nothing expressed or
referred to in this Agreement will be construed to give any Person other than
the parties to this Agreement (and their successors and assigns) any legal or
equitable right, remedy, or claim under or with respect to this Agreement or any
provision of this Agreement.
10.10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity without the necessity of demonstrating the inadequacy of
monetary damages.
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10.11. NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
10.12. EXPENSES. Except as otherwise specifically provided in
this Agreement, (a) Parent will pay its own fees and expenses incident to this
Agreement and the transactions contemplated hereby, including legal and
accounting fees, investment banking fees, fees and points to any lender,
consulting fees and related disbursements in connection with any of the
foregoing ("TRANSACTION FEES"), (b) the aggregate Transaction Fees of the
Company and the Executives shall be paid 50% by the Company and 50% by the
Executives and (c) Parent will pay $150,000 to Matrix Capital Markets Group,
Inc. ("MATRIX") at the Closing; PROVIDED, HOWEVER, that the Executives shall be
responsible for, and shall pay, any amount in excess of $150,000 due to Matrix.
In the event this Agreement is terminated prior to the Effective Time other than
under SECTIONS 8.1(a), (b) or (d), Parent shall immediately pay the Company a
break-up fee of $100,000.
10.13. DISCLOSURE SCHEDULES. Any information disclosed on a
particular Schedule or Schedules shall also be deemed to have been disclosed for
purposes of any other Schedule, even if not actually disclosed on such other
Schedule, unless such disclosure is of a nature that does not reasonably inform
or notify the reader of its applicability to a Schedule in which it is required
to be disclosed.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused this Agreement to be duly executed on their respective
behalf, by their respective officers thereunto duly authorized, all as of the
day and year first above written.
TICKETMASTER ONLINE-CITYSEARCH, INC., a
Delaware corporation
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: General Counsel, Vice President and
Secretary
TMCS MERGER SUB, INC., a Virginia corporation
By: /s/ Xxxxxxx X. Xxxxxx
----------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: General Counsel, Vice President and
Secretary
2B TECHNOLOGY, INC.,
a Virginia corporation
By: /s/ Xxxx X. Xxxxxx
----------------------------------------------
Name: Xxxx X. Xxxxxx
Title: President
SHAREHOLDERS:
/s/ Xxxxx X. Xxxxxx
----------------------------------------------
Xxxxx X. Xxxxxx
/s/ Xxxx X. Xxxxxx
----------------------------------------------
Xxxx X. Xxxxxx
/s/ Xxx Xxxxxx
----------------------------------------------
Xxx Xxxxxx
00
XXXX XXX XXXXXXXX, X.X.
By: /s/ Xxxxx X. Xxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxx
----------------------------------------
Title:
----------------------------------------
XXXXXX HOLDINGS, L.C.
By: /s/ Xxxx X. Xxxxxx
----------------------------------------------
Name: Xxxx X. Xxxxxx
----------------------------------------
Title:
----------------------------------------
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