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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 29, 1999
________________________
EMUSIC.COM INC.
(Exact name of registrant as specified in its charter)
Delaware 0-24671 65-0207877
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification Number)
incorporation or organization)
1991 Broadway, 2nd Floor 94063
Redwood City, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (650) 216-0200
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Item 5. Other Events
On November 29, 1999, EMusic.com Inc., a Delaware corporation
("EMusic" or the "Company"), GNB Corporation, a Delaware corporation and wholly
owned subsidiary of EMusic ("Sub"), and Tunes.com Inc., a Delaware corporation
("Tunes.com") entered into an Agreement and Plan of Reorganization (the
"Agreement"). The description contained in this Item 5 of certain aspects of the
transactions contemplated by the Agreement is qualified in its entirety by
reference to the full text of the Agreement, which is attached hereto as Exhibit
99.1.
The Agreement contemplates that, subject to the satisfaction of certain
conditions set forth therein, including the approval and adoption of the
Agreement by the requisite vote of Tunes.com stockholders and EMusic
stockholders, Sub would be merged into Tunes.com (the "Merger"). As a result of
the Merger, Tunes.com would become a wholly owned subsidiary of the Company and
Tunes.com's stockholders would become EMusic stockholders. Under the terms of
the Agreement, each share of Tunes.com capital stock outstanding as of the
effective date of the Merger would be converted into that number of shares of
EMusic common stock equal to 10,600,000 divided by the number of shares of
Tunes.com capital stock outstanding on a fully-diluted basis (including all
options, warrants or other rights to acquire shares of Tunes.com capital stock)
as of the effective date of the Merger. The Company will also assume all
outstanding options and warrants to purchase shares of Tunes.com capital stock.
Ten percent of the shares of EMusic common stock that would otherwise be
issued in exchange for shares of Tunes.com capital stock or upon exercise of the
assumed warrants or options will not be distributed initially but will be placed
in an escrow account to be available to compensate the Company for certain
losses that the Company may incur during the one-year period following the
completion of the Merger.
The Merger is intended to be a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, and is intended to be accounted for as a
purchase. The parties expect that the transaction will close in the first
calendar quarter of 2000.
A registration statement relating to the EMusic common stock to be issued
in connection with the Merger has not yet been filed with the SEC, nor has a
proxy statement relating to a vote of Tunes.com's stockholders and the Company's
stockholders on the Merger been filed with the SEC. The EMusic common stock may
not be offered, nor may offers to acquire such stock be accepted, prior to the
time such a registration statement becomes effective. This Report shall not
constitute an offer to sell or the solicitation of an offer to buy any EMusic
common stock or any other security, and shall not constitute the solicitation of
any vote with respect to the Merger.
This current report (this "Report") on Form 8-K contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
forward-looking statements contained herein involve risks and uncertainties,
including those relating to the possible inability to complete the merger
transaction as scheduled, if at all, and those associated with the ability of
the combined company to achieve the anticipated benefits of the merger. Actual
results and developments may differ materially from those described or
incorporated by reference in this Report. For more information about the Company
and Tunes.com and risks arising when investing in the Company, investors are
directed to the Company's most recent reports on Form 10-K and most recent
reports on Form 10-Q as filed with the Securities and Exchange Commission (the
"SEC").
Item 7. Exhibits.
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(c) Exhibits
Exhibit No. Description
----------- -----------
99.1 Agreement and Plan of Reorganization, dated as of November
29, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
EMUSIC.COM INC.
December 14, 1999 By: /s/ Joseph Howell
----------------------------
Joseph Howell
Executive Vice President and
Chief Financial Officer
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EXHIBIT 99.1
AGREEMENT AND PLAN OF REORGANIZATION
among EMUSIC.COM INC.,
GNB CORPORATION, and
TUNES.COM INC.
November 29, 1999
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
into this 29th day of November 1999, by and among EMusic.com Inc., a Delaware
corporation ("Acquiror"), GNB Corporation, a Delaware corporation and wholly-
owned subsidiary of Acquiror ("Sub"), and Tunes.com Inc., a Delaware corporation
("Target").
RECITALS
A. The parties intend that, subject to the terms and conditions
hereinafter set forth, Sub shall be merged with and into Target, with Target the
surviving corporation (the "Merger"), pursuant to Certificate of Merger
substantially in the form attached hereto as Exhibit A (the "Certificate of
Merger") and the applicable provisions of the laws of the State of Delaware.
Upon the Merger, the Target Stockholders shall be entitled to receive shares of
Acquiror common stock, par value $0.001 per share, at the exchange ratio set
forth herein.
B. For federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in and for
the consideration and mutual covenants set forth herein, the parties agree as
follows:
1. Definitions.
1.1 "Acquiror Shares" shall mean 10,600,000 shares of Acquiror common stock,
par value $0.001 per share.
1.2 "Affiliate" shall have the meaning set forth in the rules and regulations
promulgated by the Commission pursuant to the Securities Act.
1.3 "Closing" and "Closing Date" shall have the meanings set forth in Section
2.4.
1.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5 "Commission" shall mean the Securities and Exchange Commission.
1.6 "Confidential Information" shall mean that information of a party
("Disclosing Party") which is disclosed to another party ("Receiving Party")
pursuant to this Agreement, in written form and marked "Confidential." If
Confidential Information is initially disclosed orally, the Disclosing Party
shall send a written summary of such information to the Receiving Party within
fifteen (15) days of disclosure and mark such summary "Confidential."
Confidential Information shall
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include, but not be limited to, trade secrets, know-how, inventions, techniques,
processes, algorithms, software programs, schematics, designs, contracts,
customer lists, financial information, sales and marketing plans and business
information.
1.7 "Contaminant" shall mean, without limitation, any pollutants, residues,
infectious materials, flammable, dangerous, toxic or hazardous substances,
hazardous materials or waste of any description whatsoever, except for non-
hazardous waste of the kind generated in the normal course of operations,
including any of the foregoing as defined in or regulated under any
Environmental Law, including but not limited to polychlorinated biphenyls,
asbestos or asbestos containing materials, petroleum and petroleum containing
materials.
1.8 "Damages" shall include any loss, damage, injury, decline in value, lost
opportunity, liability, claim, demand, settlement, judgment, award, fine,
penalty, tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
1.9 "Delaware Law" shall mean the Delaware General Corporation Law, as amended.
1.10 "Dissenting Shares" shall mean any Target Shares held by Persons who have
not voted such shares for approval of the Merger and with respect to which such
Persons have become entitled to exercise dissenter's rights in accordance with
the Delaware Law.
1.11 "Effective Time" shall mean the time the Merger becomes effective as
defined in Section 2.5.
1.12 "Entity" shall mean a corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm or other enterprise, association, organization or
entity.
1.13 "Environmental Activity" shall mean, without limitation, any activity,
event or circumstance in respect of a Contaminant, including, without
limitation, its storage, use, holding, collection, purchase, accumulation,
assessment, generation, manufacture, construction, processing, treatment,
recycling, stabilization, disposition, handling or transportation or its
affirmative or accidental release into the natural environment including
movement through or in the air, soil, subsoil, surface water or groundwater or
any other activity, event or circumstance which is subject to any of the
Environmental Laws including but not limited to noise, vibration, odor or
similar nuisance.
1.14 "Environmental Laws" shall mean laws relating to the environment or any
Environmental Activity.
1.15 "Exchange Ratio" shall mean that ratio at which each outstanding Target
Share will be converted into the right to receive shares of Acquiror Common
Stock. The Exchange Ratio shall equal the number of Acquiror Shares divided by
the number of Target Shares outstanding at the Effective Time on a fully-diluted
basis (including all options, warrants or other rights to acquire Target Shares
issued and outstanding at the Effective Date).
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1.16 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute and the rules and regulations thereunder, all as
the same shall be in effect at the time.
1.17 "GAAP" shall mean United States of America generally accepted accounting
principles, consistently applied.
1.18 "Governmental Body" shall mean any: (a) nation, state, commonwealth,
province, territory, county, municipality, district or other jurisdiction of any
nature; (b) federal, state, local, municipal, foreign or other government; or
(c) governmental or quasi-governmental authority of any nature (including any
governmental division, department, agency, commission, instrumentality,
official, organization, unit, body, or Entity and any court or other tribunal).
1.19 "Indemnification Period" shall mean the period commencing on the Closing
Date and ending at the close of business on the first anniversary of the Closing
Date.
1.20 "Legal Proceeding" shall mean any action, suit, litigation, arbitration
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit, examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving any
court or other Governmental Body or any arbitrator or arbitration panel.
1.21 "Material" when capitalized and used in reference to the business, products
or financial situation of Target shall be construed, except as specifically
provided, to qualify the matter referred to herein to matters with a value in
excess of $50,000. For example, a "Material adverse effect" would be an adverse
effect resulting in costs or expenses in excess of $50,000. When the word
"material" is not capitalized it shall mean material with respect to the matter
referenced. For example, a reference to a material breach of a particular
agreement would mean a breach that is material with respect to the particular
contract (and not necessarily with respect to the overall business of Target or
Acquiror).
1.22 "Merger" shall mean the merger of Sub with and into Target, on the terms
and conditions described herein.
1.23 "Music Rights" shall mean any rights (whether on an exclusive or
nonexclusive basis) to music recording masters, musical arrangements, musical
compositions, lyrics, sound recordings, or album artwork and graphics or other
music-related Proprietary Assets, together with the associated copyrights.
1.24 "Person" shall mean any individual, Entity or Governmental Body.
1.25 "Proprietary Asset" shall mean: (a) any patent, patent application,
trademark (whether registered or unregistered), trademark application, trade
name, fictitious business name, service mark (whether registered or
unregistered), service mark application, copyright (whether registered or
unregistered), copyright application, maskwork, maskwork application, trade
secret, know-how, customer list, franchise, system, computer software, computer
program, invention, design,
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blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right; and (b) any right to use or exploit
any of the foregoing including rights granted by third parties under license
agreements.
1.26 "Proxy Statement" shall mean a joint proxy statement prepared by Target and
Acquiror and distributed to the stockholders of Target and Acquiror as required
pursuant to Section 7.5 hereof.
1.27 "Registration Statement" shall mean a registration statement filed with the
Commission covering the issuance of the Acquiror Shares to the Target
stockholders and warrant holders.
1.28 "Representatives" shall mean officers, directors, employees, agents,
attorneys, accountants and advisors.
1.29 "Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations thereunder, all as the
same shall be in effect at the time.
1.30 "Target Stockholders" shall mean the holders of the Target Shares and those
who have a right to acquire any Target Shares.
1.31 "Target Shares" shall mean the shares of Target capital stock issued and
outstanding at the Effective Time.
1.32 "Target Transaction Costs" shall mean legal, investment banking and
accounting fees and other out of the ordinary course expenses incurred by Target
and the Target Stockholders in connection with the Merger, but shall not include
(a) integration costs incurred following the Merger at the request of Acquiror,
or (b) costs incurred by Acquiror in connection with any required premerger
notification under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
1.33 "Tax" or "Taxes" shall mean all U.S. federal, territorial, state,
municipal, local or other taxes, including without limitation income capital,
sales and use taxes, value added and goods and services taxes, excise taxes,
transfer and stamp taxes, custom duties and franchise taxes, real and personal
property taxes and payroll taxes (including tax withholdings, employer health
taxes, workers' compensation assessments and ERISA plans and unemployment
insurance premiums, contributions and remittances and the U.S. equivalents
thereof), and penalties, interest and surcharges in respect of any of the
foregoing and all words derived from or including the word "Tax," such as
"Taxing" and "Taxation" shall bear a corresponding meaning.
1.34 "Transaction Documents" shall mean all documents or agreements required to
be delivered by any party hereunder including the Certificate of Merger.
2. Plan of Reorganization.
2.1 The Merger. Subject to the terms and conditions of this Agreement, Sub
shall be merged with and into Target in accordance with the applicable
provisions of the laws of the State of Delaware and with the terms and
conditions of this Agreement so that:
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(a) At the Effective Time, Sub shall be merged with and into Target. As a result
of the Merger, the separate corporate existence of Sub shall cease and Target
shall continue as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") and shall succeed to and assume all of the rights and
obligations of Sub in accordance with the laws of the State of Delaware.
(b) The Certificate of Incorporation and the Bylaws of Sub in effect immediately
prior to the Effective Time shall be the certificate of incorporation and
bylaws, respectively, of the Surviving Corporation after the Effective Time
unless and until further amended as provided by law.
(c) The directors and officers of Sub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation after the
Effective Time. Such directors and officers shall hold their position until the
election and qualification of their respective successors or until their tenure
is otherwise terminated in accordance with the Bylaws of Surviving Corporation.
2.2 Cancellation of Shares and Delivery of Consideration.
(a) At the Effective Time, each share of Target capital stock, if any, that is
owned directly or indirectly by Target shall be canceled and no cash or other
consideration shall be delivered in exchange therefor.
(b) Subject to Section 2.2(f) hereof, at the Effective Time, each Target Share
(other than shares owned directly or indirectly by Target) shall, by virtue of
the Merger, and without further action on the part of any holder thereof, be
converted and exchanged for the right to receive that number of Acquiror Shares
as is equal to the product of the Exchange Ratio and one.
(c) At the Effective Time, each share of capital stock of Sub outstanding
immediately prior to the Merger shall, by virtue of the Merger, and without
further action on the part of any holder thereof, continue to be issued and
shall be converted into one share of Target common stock.
(d) The Exchange Ratio shall be adjusted to reflect the effect of any stock
split, reverse split, stock dividend (including any dividend or distribution of
securities convertible into Acquiror Common Stock or Target Shares),
reorganization, recapitalization or other like change with respect to Acquiror
Common Stock or Target capital stock occurring after the date hereof and prior
to the Effective Time.
(e) No fraction of a share of Acquiror Common Stock shall be issued, but in
lieu thereof each holder of Target Shares who would otherwise be entitled to a
fraction of a share of Acquiror Common Stock (after aggregating all fractional
shares of Acquiror Common Stock to be received by such holder) shall receive
from Acquiror an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average last sale price of
a share of Acquiror Common Stock for the twenty most recent days that Acquiror
Common Stock has traded ending on the trading day immediately prior to the
Effective Time.
(f) Any Dissenting Shares shall not be converted into Acquiror Common Stock but
shall instead be
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converted into the right to Dissenting Shares pursuant to the Delaware Law.
Target agrees that, except with the prior written consent of Acquiror, or as
required under the Delaware Law, it will not voluntarily make any payment with
respect to, or settle or offer to settle, any such purchase demand. Each holder
of Dissenting Shares (a "Dissenting Stockholder") who, pursuant to the
provisions of the Delaware Law, becomes entitled to payment for Target Shares
shall receive payment therefor (but only after the value therefor shall have
been agreed upon or finally determined pursuant to such provisions). If, after
the Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, Acquiror shall issue and deliver, upon surrender by such stockholder of
a certificate or certificates representing Target Shares, the number of shares
of Acquiror Common Stock to which such stockholder would otherwise be entitled
under this Section 2.2 less the number of shares of Acquiror Common Stock
allocable to such stockholder that have been deposited in the Indemnity Escrow.
2.3 Exchange Procedures.
(a) Following the Closing Date, Acquiror shall mail to each holder of record
of certificate(s) or other documents which represent Target Shares (the
"Certificates"), to be exchanged pursuant to Section 2.2 hereof (i) a letter of
transmittal (which shall specify that, with respect to the Certificates,
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to Acquiror and shall be in such
form and have such other provisions as Acquiror shall reasonably require) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for Acquiror Shares. Upon surrender of a Certificate for cancellation
to Acquiror, together with such letter of transmittal, duly executed, the holder
of such Certificates shall be entitled to receive in exchange therefor his
allocation of the Acquiror Shares as to which such holder is entitled pursuant
to Section 2.2 hereof. Certificates so surrendered pursuant to this Section 2.3
shall forthwith be canceled (if not otherwise canceled or terminated in
accordance with their terms). In the event of a transfer of ownership of Target
Shares which is not registered on the transfer records of Target, the
appropriate number of Acquiror Shares may be delivered to a transferee if the
Certificate representing such transferred security is presented to Acquiror and
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.3, each Certificate shall be
deemed at any time after the Effective Time to represent solely the right to
receive upon such surrender that number of Acquiror Shares (without interest and
subject to applicable withholding, escheat and other laws) to which such holder
is entitled.
(b) Notwithstanding anything to the contrary in this Section 2.3, none of
Acquiror, the Surviving Corporation or any party hereto shall be liable to a
holder of Target Shares for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(c) The Acquiror Shares paid in accordance with the terms hereof shall be
deemed to be in full satisfaction of all rights pertaining to such Target
Shares, and there shall be no further registration of transfers on the records
of the Surviving Corporation of Target Shares. If, after
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the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in Section 2.2.
(d) In the event any Certificates evidencing Target Shares shall have been
lost, stolen or destroyed, Acquiror shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereof, such holder's allocation of Acquiror Shares, as may be
required pursuant to Section 2.2; provided, however, that Acquiror may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Acquiror with respect to the Certificates alleged to have been lost,
stolen or destroyed.
2.4 The Closing. Subject to termination of this Agreement as provided in
Section 11 below, the closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Gray Cary Ware & Freidenrich
LLP at 10:00 a.m. local time on the date three (3) days following the
satisfaction of all conditions to closing set forth herein, or such other place,
time and date as Acquiror and Target may mutually select (the "Closing Date").
2.5 Effective Time. Simultaneously with the Closing, the Certificate of Merger
shall be filed in the offices of the Secretary of State of the State of
Delaware. The Merger shall become effective immediately upon the filing of the
Certificate of Merger with such office (the "Effective Time").
2.6 Restrictions on Transfers. Notwithstanding anything to the contrary set
forth herein, the holders of the Acquiror Shares, may not, during the six months
following the Effective Time, offer to sell, contract to sell, or otherwise
sell, dispose of, loan, pledge or grant any rights with respect to
(collectively, a "Disposition") any shares of the Acquiror Shares except to the
extent such Acquiror Shares are transferred as a gift or gifts, bequested or
transferred to a family trust (provided that any such case the transferee agrees
in writing to be bound by the terms hereof). The foregoing restriction is
expressly agreed to preclude holders of the Acquiror Shares from engaging in any
hedging or other transaction which is designed to or reasonably expected to lead
to or result in a Disposition during such period. Such prohibited hedging or
other transactions would include, without limitation, any short sale (whether or
not against the box) or any purchase, sale or grant of any right (including,
without limitation, any put or call option) with respect to any Acquiror Shares
or with respect to any security (other than a broad-based market basket or
index) that includes, relates to or derives any significant part of its value
from the Acquiror Shares. Acquiror shall have the right to impose a legend on
the certificates representing the Acquiror Shares consistent with the foregoing
and to enter stop transfer instructions with Acquiror's transfer agent against
the transfer of the Acquiror Shares except in compliance with this restriction.
3. Representations and Warranties of Target. Except as otherwise set forth in
the "Target Disclosure Schedule," referencing the appropriate section and
paragraph numbers, to be provided to Acquiror concurrent with the execution of
this Agreement, Target represents and warrants to Acquiror as set forth below.
No fact or circumstance disclosed to Acquiror by Target shall
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constitute an exception to these representations and warranties unless such fact
or circumstance is set forth in the Target Disclosure Schedule.
3.1 Organization. Target is a corporation duly organized, validly existing and
in good standing under the laws of its jurisdiction of incorporation and has
corporate power and authority to carry on its business as it is now being
conducted and as it is proposed to be conducted. Target is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or properties makes such qualification or licensing
necessary. The Target Disclosure Schedule contains a true and complete listing
of the locations of all sales offices, manufacturing facilities, and any other
offices or facilities of Target and a true and complete list of all
jurisdictions in which Target maintains any employees. The Target Disclosure
Schedule contains a true and complete list of all jurisdictions in which Target
is duly qualified to transact business as a foreign corporation. True and
complete copies of Target's charter documents as in effect on the date hereof
and as to be in effect immediately prior to the Closing, have been provided to
Acquiror or its Representatives.
3.2 Capitalization.
(a) The authorized capital stock of Target consists of:
(i) 11,500,000 shares of Target Common Stock, par value $0.01 per share, of
which 1,450,530 shares are issued and outstanding and held of record by the
Target Stockholders named in Section 3.2(a) of the Target Disclosure Schedule;
(ii) (A) 2,500,000 shares of Series A Convertible Preferred Stock, par value
$0.01 per share, of which (1) 1,666,666 shares are designated as Series A-I
Convertible Preferred Stock, 1,666,666 shares of which are issued and
outstanding, (2) 200,000 shares are designated as Series A-II Convertible
Preferred Stock, all of which are issued and outstanding, (3) 150,000 shares are
designated as Series A-III Convertible Preferred Stock, all of which are issued
and outstanding; and (4) 300,000 shares are designated as shares of Series A-IV
Convertible Preferred Stock, 76,165 shares of which are issued and outstanding;
(B) 500,000 shares of Series B Convertible Preferred Stock, par value $0.01 per
share, of which 472,000 shares are issued and outstanding; (C) 533,340 shares of
Series C Convertible Preferred Stock, par value $0.01 per share, of which
533,334 shares are issued and outstanding; (D) 800,000 shares of Series D
Convertible Preferred Stock, par value $0.01 per share, of which 666,136 shares
are issued and outstanding; (E) 1,999,999 shares of Series E Stock, 1,955,661 of
which are issued and outstanding; and (F) 666,661 shares of undesignated
preferred stock, issuable in series, none of which are issued and outstanding.
The shares of issued and outstanding Preferred Stock are held of record by the
Target Stockholders named in Section 3.2(a) of the Target Disclosure Schedule.
Each share of issued and outstanding Target Preferred Stock is currently
convertible into one share of Target Common Stock.
(b) Except as set forth in Section 3.2(b) of the Target Disclosure Schedule,
there are no outstanding options, warrants, rights, commitments, conversion
rights, rights of exchange, plans or other
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outstanding agreements of any character providing for the purchase, issuance or
sale of any shares of the capital stock of Target other than as contemplated by
this Agreement. Except as set forth in Section 3.2(b) of the Target Disclosure
Schedule, there are no voting trust, buy-sell or other similar agreements in
effect among the Target Stockholders or with Target. Section 3.2(b) of the
Target Disclosure Schedule sets forth a description of all outstanding vesting
restrictions or other rights of Target to re-acquire Target Shares.
(c) All of the outstanding securities of Target have been duly authorized and
are validly issued, fully paid and nonassessable. All securities of Target were
issued in compliance with applicable securities laws. Except as set forth in
Section 3.2(c) of the Target Disclosure Schedule, none of Target's outstanding
securities were issued in consideration in whole or in part for any
contribution, transfer or assignment of any Proprietary Assets.
3.3 Power, Authority and Validity. Target has the corporate power and authority
to enter into this Agreement and the other Transaction Documents to which it is
a party and to carry out its obligations hereunder and thereunder. The execution
and delivery of this Agreement and the Transaction Documents to which it is a
party and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the board of directors of Target, and no other
corporate proceedings are necessary to authorize this Agreement or the other
Transaction Documents except for: (i) the approval of the Merger and the
Transaction Documents by the stockholders of Target and (ii) the other approvals
and consents by the stockholders of Target listed on Schedule 3.3 or otherwise
contemplated by the Proxy Statement. Except as set forth in Section 3.3 of the
Target Disclosure Schedule, Target is not subject to or obligated under any
charter, bylaw or contract provision or any license, franchise or permit, or
subject to any order or decree, which would be breached or violated by or in
conflict with its executing and carrying out this Agreement and the transactions
contemplated hereunder and under the other Transaction Documents. This Agreement
is, and each of the other Transaction Documents to which Target will be a party,
when executed and delivered by Target shall be, the valid and binding obligation
of Target enforceable in accordance with their respective terms, subject to (i)
laws of general application relating to bankruptcy, insolvency, and the relief
of debtors, and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
3.4 Financial Statements.
(a) Schedule 3.4(a) of the Target Disclosure Schedule sets forth the balance
sheet and consolidated statements of operations and changes in financial
condition for the two fiscal years ended December 31, 1998 and for the nine
month period ended September 30, 1999 (collectively, the "Target Financial
Statements"). The Target Financial Statements, including the notes thereto, were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements, and have been prepared in accordance with generally accepted
accounting principles applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto. The Target Financial statements fairly present the consolidated
financial
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condition and operating results of Target and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in Target accounting policies except as described in the notes to the
Target Financial Statements.
(b) Except and to the extent reflected or reserved against in the Target balance
sheet as of September 30, 1999 (the "Target Balance Sheet"), Target does not
have, as of the date of such balance sheet, any liabilities or obligations
(absolute or contingent) of a nature required or customarily reflected in a
balance sheet (or the notes thereto). The aggregate reserves, if any, reflected
on the Target Financial Statements are adequate in light of the contingencies
with respect to which they are made.
(c) As of the respective dates of Target Financial Statements, the Target has no
debt, liability, or obligation of any nature, whether accrued, absolute or
contingent that is as not reflected or reserved against in the Target Financial
Statements in accordance with GAAP. Except as set forth on Schedule 3.4(c) of
the Target Disclosure Schedule, all debts, liabilities, and obligations incurred
after the date of the Target Financial Statements, whether absolute or
contingent, were incurred in the ordinary course of business and are usual and
normal in amount both individually and in the aggregate.
3.5 Tax Matters.
(a) Except as set forth in Section 3.5 of the Target Schedule Disclosure, Target
has fully and timely, properly and accurately filed all Tax returns and reports
required to be filed by it (the "Target Returns"), including all federal,
foreign, state and local returns and reports for all years and periods for which
any such returns or reports were due. The Target Returns and all other Tax
returns and reports filed by Target were prepared in the manner required by
applicable law. Except for any goods and services income Tax due upon the filing
of the Target Returns, all income, sales, use, occupation, property or other
Taxes or assessments due from Target have been paid, and there are no pending
assessments, asserted deficiencies or claims for additional Taxes that have not
been paid. The reserves for Taxes, if any, reflected on the Target Financial
Statements are adequate and there are no Tax liens on any property or assets of
Target except in respect of Taxes which are not due and payable. There have been
no audits or examinations of any Tax returns or reports by any applicable
governmental agency. No state of facts exists or has existed which would
constitute grounds for the assessment of any penalty or of any further Tax
liability beyond that shown on the respective Tax reports or returns. There are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any federal, state or local income Tax return or report
for any period.
(b) All Taxes which Target has been required to collect or withhold have been
duly withheld or collected and, to the extent required, have been paid to the
proper taxing authority.
(c) Target is not a party to any tax-sharing agreement or similar arrangement
with any other party.
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(d) At no time has Target been included in the federal consolidated income Tax
return of any affiliated group of corporations.
(e) Except as set forth on Section 3.5(e) of the Target Disclosure Schedule, no
payment which Target is obliged to pay to any director, officer, employee or
independent contractor pursuant to the terms of an employment agreement,
severance agreement or otherwise will constitute an excess parachute payment as
defined in Section 280G of the Code.
(f) Target will not be required to include any adjustment in taxable income for
any Tax period (or portion thereof) ending after the Closing Date pursuant to
Section 481(c) of the Code or any comparable provision of the Tax laws of any
jurisdiction requiring Tax adjustments as a result of a change in method of
accounting implemented by Target prior to the Closing Date for any Tax period
(or portion thereof) ending on or before the Closing Date or pursuant to the
provisions of any agreement entered into by Target prior to the Closing Date
with any taxing authority with regard to the Tax liability of Target for any Tax
period (or portion thereof) ending on or before the Closing Date.
(g) Target is not currently under any contractual obligation to pay to any
Governmental Body any Tax obligations of, or with respect to any transaction
relating to, any other Person or to indemnify any other Person with respect to
any Tax.
3.6 Absence of Certain Changes or Events. Except as set forth in Section 3.6 of
the Target Disclosure Schedule, from September 30, 1999, Target has not:
(a) suffered any Material adverse change in its financial condition or in the
operations of its business, nor any Material adverse change in its balance
sheet, including but not limited to cash distributions or decreases in the net
assets of Target inconsistent with the projected results of operations shown in
Target's fourth quarter fiscal year 1999 budget, a copy of which has been
delivered to Acquiror;
(b) suffered any physical damage, destruction or loss, whether or not covered by
insurance, which is Material;
(c) granted or agreed to make any increase in the compensation payable or to
become payable by Target to its officers or employees;
(d) declared, set aside or paid any dividend or made any other distribution on
or in respect of the shares of the capital stock of Target or declared any
direct or indirect redemption, retirement, purchase or other acquisition by
Target of such shares;
(e) issued any shares of capital stock of Target or any warrants, rights,
options or entered into any commitment relating to the shares of Target;
(f) made any change in the accounting methods or practices it followed, whether
for general financial or Tax purposes, or any change in depreciation or
amortization policies or rates adopted
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therein;
(g) sold, leased, abandoned or otherwise disposed of any real property or any
machinery, equipment or other operating property other than in the ordinary
course of business;
(h) sold, assigned, transferred, licensed or otherwise disposed of any patent,
trademark, trade name, brand name, copyright (or pending application for any
patent, trademark or copyright), invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset except in the ordinary course of their business;
(i) suffered any dispute involving any employee that could reasonably be
expected to have a Material adverse effect on Target;
(j) engaged in any activity or entered into any commitment or transaction
(including without limitation any borrowing or capital expenditure), in either
case, other than in the ordinary course of business;
(k) incurred any liabilities, absolute or contingent except for (i) liabilities
identified as such in the "liabilities" column of the Target Financial
Statements; (ii) accounts payable or accrued salaries that have been incurred by
Target since September 30, 1999, in the ordinary course of business and
consistent with Target's past practices; and (iii) liabilities in Section 3.6(k)
of the Target Disclosure Schedule;
(l) permitted or allowed any of its property or assets to be subjected to any
mortgage, deed of trust, pledge, lien, security interest or other encumbrance of
any kind, other than any purchase money security interests incurred in the
ordinary course of business;
(m) made any capital expenditure or commitment for additions to property, plant
or equipment, in the aggregate, in excess of Twenty Five Thousand Dollars
($25,000);
(n) paid, loaned or advanced any amount to, or sold, transferred or leased any
properties or assets to, or entered into any agreement or arrangement with any
of its Affiliates, officers, directors or stockholders or any Affiliate or
associate of any of the foregoing;
(o) made any amendment to or terminated any agreement which, if not so amended
or terminated, would be required to be disclosed in the Target Disclosure
Schedule; or
(p) agreed to take any action described in this Section 3.6 or outside of its
ordinary course of business or which would constitute a breach of any of the
representations contained in this Agreement.
3.7 Title and Related Matters. Except as set forth in Section 3.7 of the
Target Disclosure Schedule, Target has good and marketable title to all the
properties, interests in properties and assets, real and personal, reflected in
the Target Financial Statements or acquired after the date of the Target
Financial Statements (except properties, interests in properties and assets sold
or
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otherwise disposed of since the date of the Target Financial Statements in the
ordinary course of business), free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except as set forth in Section
3.7 of the Target Disclosure Schedule. Except as noted in Section 3.7 of the
Target Disclosure Schedule, the equipment of Target used in and material to the
operation of its business taken as a whole is in reasonable operating condition
and repair, subject to normal wear and tear. All real or personal property
leases to which Target is a party are valid, binding, enforceable and effective
in accordance with their respective terms, subject to (i) laws of general
application relating to bankruptcy, insolvency, and the relief of debtors, and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies. To the knowledge of Target, there is not under any of such
leases any existing default by Target or, any other event of default or event
which, with notice or lapse of time or both, would constitute a default by any
other party to such leases. Section 3.7 of the Target Disclosure Schedule
contains a description of all real property leased or owned by Target,
describing its interest in said property, including a summary description of
each parcel and the buildings, structures and improvements thereon. Section 3.7
of the Target Disclosure Schedule contains a description of all Material
tangible personal property leased or owned by Target, describing its interest in
said property. True and correct copies of Target's real property and such
Material personal property leases have been provided or made available to
Acquiror or its Representatives.
3.8 Music Rights.
(a) Section 3.8(a)(i) of the Target Disclosure Schedule sets forth a true and
complete list or summary of all Music Rights owned by Target. Section 3.8(a)(ii)
of the Target Disclosure Schedule sets forth a true and complete list or summary
of all Music Rights licensed by or to Target, including a description of whether
such rights are exclusive or non-exclusive, whether the rights include the right
to distribute tangible copies, custom compilations or digital downloads of the
music in question, the expiration date of such rights and any territorial
limitations of such rights. Except as set forth in Section 3.8 of the Target
Disclosure Schedule, Target has written contracts (each of which are listed or
summarized in the Target Disclosure Schedule) for all Music Rights owned,
licensed, used, marketed, and sold by it, and those licensed to it, Target has
not received any notice from any party to such a contract or any third party
challenging the enforceability or validity of such a contract, and all such
contracts are enforceable in accordance with their terms. Except as set forth in
Section 3.8 of the Target Disclosure Schedule, the Merger will not constitute or
be deemed to constitute an assignment of any such Music Rights, require the
consent of any third party or otherwise result in the termination or
modification of any such Music Rights. Except as set forth in Section 3.8 of the
Target Disclosure Schedule, all Music Rights owned by Target were recorded and
otherwise prepared in all respects in accordance with the rules and regulations
of any unions, guilds and similar associations having jurisdiction. Except as
set forth in Section 3.8 of the Target Disclosure Schedule, each Person who has
rendered any service or provided any materials in connection with, or has
contributed in any way, to the making of the Music Rights owned by Target has
the right to grant such rights, render such services or furnish such materials.
Except as set forth in Section 3.8 of the Target Disclosure
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Schedule, all fees and other payments applicable to or resulting from the
creation, recording, manufacture, duplication, and distribution of the Music
Rights, including, but not limited to, payments to performers, producers,
engineers and others, have been fully and completely paid by Target.
(b) Except as set forth in Section 3.8 of the Target Disclosure Schedule, there
are no amounts owed or that will become owing to any holder of rights for
royalties arising as a result of the Music Rights, nor has the Target paid an
advance in respect of such royalties.
(c) Except as described in Section 3.8 of the Target Disclosure Schedule, Target
does not know of or have any reason to believe that any customers of the Target,
or any holder of Music Rights, (i) has any complaint or objection with respect
to the service or any business practices of the Target or the transactions
contemplated hereby which could reasonably be expected to have a Material
Adverse Effect, or (ii) will cease to do business, or significantly reduce the
business conducted, with Target as a result of the Merger.
3.9 Proprietary Rights and Warranty Claims.
(a) Section 3.9(a)(i) of the Disclosure Schedule sets forth, with respect to
each Proprietary Asset owned by Target (each a "Target Proprietary Asset" and
collectively, the "Target Proprietary Assets") registered with any Governmental
Body or for which an application has been filed with any Governmental Body, (i)
a brief description of such Target Proprietary Asset, and (ii) the names of the
jurisdictions covered by the applicable registration or application. Section
3.9(a)(ii) of the Target Disclosure Schedule identifies and provides a brief
description of all other Target Proprietary Assets owned by Target. Section
3.9(a)(iii) of the Target Disclosure Schedule identifies and provides a brief
description of each Proprietary Asset licensed to Target by any Person (except
for any Proprietary Asset that is licensed to Target under any third party
software license generally available to the public at a per unit cost of less
than One Thousand Dollars ($1,000)), and identifies the license agreement under
which such Proprietary Asset is being licensed to Target. Except as set forth in
Section 3.9(a)(iv) of the Target Disclosure Schedule, Target has good, valid and
marketable title to all Target Proprietary Assets identified in Sections
3.9(a)(i) and 3.9(a)(ii) of the Target Disclosure Schedule, free and clear of
all liens and other encumbrances, and, except as disclosed in Section 3.9 of the
Target Disclosure Schedule, Target has a valid right to use all Proprietary
Assets identified in Section 3.9(a)(iii) of the Target Disclosure Schedule in
its business as it is currently conducted. Except as set forth in Section
3.9(a)(v) of the Target Disclosure Schedule, Target is not obligated to make any
payment to any Person for the use of any Proprietary Asset. Except as set forth
in Section 3.9(a)(vi) of the Target Disclosure Schedule, Target has not
developed jointly with any other Person any Proprietary Asset with respect to
which such other Person has any rights.
(b) Except as set forth in Section 3.9(b) of the Target Disclosure Schedule,
Target has taken reasonable and customary measures and precautions necessary to
protect and maintain the confidentiality and secrecy of all Target Proprietary
Assets (except Target Proprietary Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect
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the value of all Target Proprietary Assets. Except as set forth in the Target
Disclosure Schedule, Target has not disclosed or delivered to any Person, or
permitted the disclosure or delivery to any Person of any of the Target
Proprietary Assets used in or necessary for the conduct of business by Target as
currently conducted by Target (except Target Proprietary Assets whose value
would be unimpaired by public disclosure).
(c) Except as set forth in Section 3.9(c) of the Target Disclosure Schedule,
Target is not infringing, misappropriating or making any unlawful use of, and
Target has not at any time infringed, misappropriated or made any unlawful use
of, or received any notice or other communication (in writing or otherwise) of
any actual, alleged, possible or potential infringement, misappropriation or
unlawful use of, any Proprietary Asset owned or used by any other Person ("Third
Party Proprietary Asset"). Except as set forth in Section 3.9(c) of the Target
Disclosure Schedule, no other Person is infringing, misappropriating or making
any unlawful use of, and no Third Party Proprietary Asset owned or used by any
other Person infringes or conflicts with, any Target Proprietary Asset. (d)
Except as set forth in Section 3.9(d) of the Target Disclosure Schedule: (i)
each Target Proprietary Asset conforms with any specification, documentation,
performance standard, representation or statement made or provided with respect
thereto by or on behalf of Target; and (ii) there has not been any claim made
against Target by any customer or other person alleging that any Target
Proprietary Asset (including each version thereof that has ever been licensed or
otherwise made available by Target to any person) does not conform with any
specification, documentation, performance standard, representation or statement
made or provided by or on behalf of Target, and there is no basis for any such
claim.
(e) Except as set forth in Section 3.9(e) of the Target Disclosure Schedule,
Target's Proprietary Assets constitute all the proprietary assets necessary to
enable Target to conduct its business in the manner in which such business has
been and is being conducted. Except as set forth in Section 3.9(e) of the Target
Disclosure Schedule, (i) Target has not licensed any of the Target Proprietary
Assets to any Person and (ii) Target has not entered into any covenant not to
compete or contract limiting its ability to exploit fully any of the Target
Proprietary Assets or to transact business in any market or geographical area or
with any Person.
3.10 Employee Benefit Plans. Target does not maintain, nor is it obligated to
contribute to, any defined benefit pension plan or any employee benefit plan
that is subject to either Title IV of the Employee Retirement Income Security
Act of 1974 ("ERISA") or the minimum funding standards of ERISA or the Code.
Except as set forth in Section 3.10 of the Target Disclosure Schedule, each
bonus, incentive, deferred compensation, pension, profit-sharing, retirement,
vacation, severance pay, stock purchase, stock option, group insurance and other
employee benefit or fringe benefit plans, whether formal or informal (whether
written or not), maintained by Target conforms to all applicable requirements,
if any, of ERISA. Section 3.10 of the Target Disclosure Schedule lists and
describes all such plans.
3.11 Bank Accounts and Receivables. Section 3.11 of the Target Disclosure
Schedule sets forth the
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names and locations of all banks, trust companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all Persons authorized to draw thereon
or make withdrawals therefrom. Section 3.11 of the Target Disclosure Schedule
sets forth an accurate and complete breakdown and aging of all accounts
receivable, notes receivable, and other receivables of Target as of the date of
the Target Balance Sheet. Except as set forth on the Target Disclosure Schedule,
all existing accounts receivable of Target (including those accounts receivable
reflected on the Target Financial Statements that have not yet been collected
and those accounts receivable that have arisen since December 31, 1998 and have
not yet been collected) (i) represent valid obligations of customers of Target
arising from bona fide transactions entered into in the ordinary course of
business, and (ii) are current and to Target's knowledge are collectible when
due, net of allowances therefor, without any counterclaim or setoff.
3.12 Contracts.
(a) Section 3.12(a) of the Target Disclosure Schedule identifies each Material
document or instrument that is still in effect, to which Target is a party and
that relates to the acquisition, transfer, use, development, sharing or
licensing of any Music Right or Proprietary Asset.
(b) Except as set forth in Section 3.12(b) of the Target Disclosure Schedule:
(i) Target has no outstanding agreements, contracts or commitments that call for
fixed and/or contingent payments or expenditures by or to Target which are
Material over the life of any such agreement, contract or commitment;
(ii) Target has no outstanding purchase agreement, contract or commitment that
calls for fixed and/or contingent payments by Target that are in excess of the
normal, ordinary and usual requirements of Target's business;
(iii) There is no outstanding sales contract, commitment or proposal (including,
without limitation, development projects) of Target that Target currently
expects (or reasonably should expect) to result in any loss to Target upon
completion or performance thereof;
(iv) Target has no outstanding agreements, contracts or commitments with
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by it on notice
of not longer than thirty (30) days and without liability, penalty or premium;
(v) Target has no outstanding agreements, contracts or commitments with sales
representatives, OEM's, distributors or dealers;
(vi) Target is not restricted by agreement from competing with any Person or
from carrying on its business anywhere in the world;
(vii) Target has not guaranteed any obligations of other Persons, or made any
agreements to acquire or
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guarantee any obligations of other Persons, which guaranties or agreements are
still in effect, other than agreements entered into in the ordinary course of
Target's business pursuant to which Target has sublicensed certain Music Rights
and may thereby be deemed to have warranted to its sublicensee the original
licensor's performance of its license with Target;
(viii) Target does not have any outstanding loan or advance to any Person; nor
is it party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
Target of any sum not reflected in the Target Financial Statements; and
(ix) All contracts, agreements and instruments listed (including any
incorporated by reference) in the Target Disclosure Schedule pursuant to Section
3.12 (a) and (b) (the "Target Material Contracts") are valid, binding, in full
force and effect, and enforceable by Target in accordance with their respective
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies. To the knowledge of
Target, no party to any Target Material Contract intends to cancel, withdraw,
modify or amend such contract.
(c) Target has delivered or made available to Acquiror or its Representatives
accurate and complete copies of all written Target Material Contracts, including
all amendments thereto and any correspondence regarding any dispute with respect
thereto. Target has not entered into any Material oral contracts. (d) Except as
set forth in Section 3.12(d) of the Target Disclosure Schedule:
(i) Target has not violated or breached, or committed any default under, any
Target Material Contract, and to the knowledge of Target, no other Person has
violated or breached, or committed any default under, any Target Material
Contract;
(ii) No event has occurred, and no circumstance or condition exists, that with
respect to Target, or, to the knowledge of Target, with respect to any other
party (with or without notice or lapse of time) will, or could reasonably be
expected to, (A) result in a violation or breach of any of the provisions of any
Target Material Contract, (B) give any Person the right to declare default or
exercise any remedy under any Target Material Contract, (C) give any Person the
right to accelerate the maturity or performance of any Target Material Contract;
or (D) give any Person the right to cancel, terminate or modify any Target
Material Contract;
(iii) There are no unresolved claims between Target and any of its material
licensors, vendors, suppliers, distributors, representatives or customers and
none of such Persons has advised Target of its intention to cease doing business
with Target, or with Acquiror following the Closing Date, whether as a result of
the transactions contemplated hereunder or otherwise.
3.13 Compliance With Law. Except as set forth in Section 3.13 of the Target
Disclosure Schedule, Target is in compliance in all material respects with all
applicable laws and regulations. All
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licenses, franchises, permits and other governmental authorizations held by
Target and which are required for its business are valid and sufficient in all
respects for the businesses presently carried on by Target and as set forth in
the Target Disclosure Schedule.
3.14 Labor Difficulties; No Discrimination.
(a) Target is not engaged in any unfair labor practice or in violation of any
applicable laws respecting employment and employment practices, health and
safety, human rights, terms and conditions of employment, and wages and hours.
(b) There is no unfair labor practice complaint against Target actually pending
or threatened before a labor relations board.
(c) Except as set forth on Section 3.14 of the Target Disclosure Schedule, there
is not and has not been any claim made against Target based on actual or alleged
wrongful termination or on actual or alleged race, age, sex, disability or other
harassment or discrimination, or similar tortious conduct, nor is there any
reasonable basis for any such claim.
(d) Target is not aware of any key-Target employee who intends to terminate his
or her employment with Target as a result of the Merger or otherwise.
3.15 Insider Transactions. Except as set forth in Section 3.16 of the Target
Disclosure Schedule, no Affiliate of Target has any interest in (i) any
equipment or other property, real or personal, tangible or intangible,
including, without limitation, any Target Music Right or Proprietary Asset, used
in connection with or pertaining to the businesses of Target, or (ii) any
creditor, supplier, customer, manufacturer, agent, representative, or
distributor of products of Target; provided, however, that no such Affiliate or
other Person shall be deemed to have such an interest solely by virtue of the
ownership of less than one percent (1%) of the outstanding stock or debt
securities of any publicly-held company whose stock or debt securities are
traded on a recognized U.S. stock exchange or quoted on the National Association
of Securities Dealers Automated Quotation System.
3.16 Employees, Independent Contractors and Consultants. Section 3.16 of the
Target Disclosure Schedule lists all currently effective written and describes
all oral consulting, independent contractor and/or employment agreements and
other agreements concluded with individual employees, independent contractors or
consultants to which Target is a party and which are Material. True and correct
copies of all such written agreements have been provided or made available to
Acquiror or its Representatives. All salaries and wages paid by Target are in
compliance in all respects with applicable federal, state and local laws.
Section 3.16 of the Target Disclosure Schedule lists the names of all Persons
currently employed by Target as well as the salaries and other compensation
arrangements (bonus, deferred compensation, etc.) and the accrued vacation time
for each such Person.
3.17 Insurance. Section 3.17 of the Target Disclosure Schedule contains a list
of the policies of fire,
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liability and other forms of insurance held by Target. Target has done nothing,
either by way of action or inaction, that could reasonably be expected to
invalidate such insurance policies in whole or in part.
3.18 Litigation. Except as set forth in Section 3.18 of the Target Disclosure
Schedule, there is no suit, action or proceeding which has been served upon or,
to the knowledge of Target, threatened against Target (nor is there any
reasonable basis therefor), in each case other than immaterial matters, or which
questions or challenges the validity of this Agreement or the Transaction
Documents. Except as set forth in Section 3.18 of the Target Disclosure
Schedule, there is no judgment, decree, injunction, or order of any court,
governmental department, commission, agency, instrumentality or arbitrator
outstanding against Target.
3.19 Subsidiaries. Except as set forth in Section 3.19 of the Target Disclosure
Schedule, Target has no subsidiaries. Except as set forth in Section 3.19 of the
Target Disclosure Schedule, Target does not own or control (directly or
indirectly) any capital stock, bonds or other securities of, and does not have
any proprietary interest in, any other corporation, general or limited
partnership, joint venture, firm, association or business organization, entity
or enterprise, and Target does not control (directly or indirectly) the
management or policies of any other corporation, partnership, firm, association
or business organization, entity or enterprise.
3.20 Compliance with Environmental Requirements. Target has obtained all
permits, licenses and other authorizations which are required under federal,
state and local laws applicable to Target and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes. Except as set forth in Section 3.20 of the Target
Disclosure Schedule, Target is in compliance with all terms and conditions of
the required permits, licenses and authorizations. Except as set forth in
Section 3.20 of the Target Disclosure Schedule, Target is not aware of, nor has
Target received written notice of, any conditions, circumstances, activities,
practices, incidents, or actions which may form the basis of any claim, action,
suit, proceeding, hearing, or investigation of, by, against or relating to
Target, based on or related to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling, or the emission,
discharge, release or threatened release into the environment, of any pollutant,
contaminant, or hazardous or toxic substance, material or waste.
Except as disclosed in Section 3.20 of the Target Disclosure Schedule,
(a) No Environmental Activity has occurred in the business of Target or on or in
relation to any premises currently or formerly used by Target which may cause
Target to incur expenses or costs for the elimination, neutralization or
amelioration of the results of the Environmental Activity or become liable for
compensation to any third party.
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(b) Target has held its assets, occupied its respective premises, operated
its respective businesses and conducted all other activities in compliance with
all Environmental Laws. Target has not received any notice of non-compliance
with Environmental Laws from any Person or governmental authority and Target
does not know of any facts which could reasonably be expected to give rise to
any such notice.
(c) There are no underground storage tanks or surface impoundments at, on, or
under premises formerly or currently used by Target.
(d) Target has maintained all environmental and operating documents and
records substantially in the manner and for the time periods required by any
Environmental Laws. Section 3.20 of the Target Disclosure Schedule lists each
environmental permit and each Environmental Audit conducted with respect to
Target or its premises while occupied by either of them. An "Environmental
Audit" shall mean any evaluation, inspection, assessment, study or test
performed at the request of or on behalf of a governmental authority, including
but not limited to, a public liaison committee, as well as a self-evaluation,
whether or not required by Environmental Law.
3.21 Corporate Documents. Target has furnished or made available to Acquiror or
its Representatives for their examination all documents requested by Acquiror,
including, but not limited to: (i) copies of its charter documents; (ii) its
minute book containing all records required to be set forth of all proceedings,
consents, actions, and meetings of the stockholders, the board of directors and
any committees thereof; (iii) all permits, orders, and consents issued by any
regulatory agency with respect to Target, or any securities of Target, and all
applications for such permits, orders, and consents; and (iv) the stock transfer
books of Target setting forth all transfers of any capital stock. The corporate
minute books, stock certificate books, stock registers and other corporate
records of Target are complete and the signatures appearing on all documents
contained therein are the true signatures of the Persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction.
3.22 Accuracy of Information In Proxy Statement. The information furnished by
Target to the Target Stockholders to be included in the Proxy Statement to be
sent to the Target Stockholders in connection with the solicitation of
stockholder consent or proxies for the approval and adoption of this Agreement
and the approval and adoption of the Merger shall not, on the date the Proxy
Statement is first mailed to the Target stockholders, on any date subsequent
thereto and prior to the Effective Time or at the Effective Time, contain any
untrue statement of a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they are made, not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of consent or proxies which has become false or misleading.
3.23 No Brokers. Except as set forth in Section 3.23 of the Target Disclosure
Schedule, neither Target nor any stockholder, officer or director of Target is
obligated for the payment of fees or
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expenses of any broker or finder in connection with the origin, negotiation or
execution of this Agreement or in connection with any transaction contemplated
hereby.
3.24 Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, the schedules or exhibits to this Agreement or specifically required to be
furnished pursuant to this Agreement to Acquiror by Target are complete and
correct. No representations or warranties made by Target in this Agreement, nor
any document, written information, statement, financial statement, certificate,
schedule or exhibit furnished directly to Acquiror pursuant to this Agreement
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
There is no fact which materially and adversely affects Target known to Target
which has not been expressly and fully set forth in this Agreement or the
schedules and exhibits hereto.
4. Representations and Warranties of Acquiror and Sub. Except as otherwise set
forth in the "Acquiror Disclosure Schedule," referencing the appropriate section
and paragraph numbers, to be provided to Target concurrent with the execution of
this Agreement, Acquiror represents and warrants to Target as set forth below.
No fact or circumstance disclosed to Target by Acquiror shall constitute an
exception to these representations and warranties unless such fact or
circumstance is set forth in the Acquiror Disclosure Schedule.
4.1 Organization. Acquiror and Sub are corporations duly organized, validly
existing and in good standing under the laws of their jurisdictions of
incorporation and have corporate power and authority to carry on their
businesses as they are now being conducted and as they are proposed to be
conducted. Acquiror is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or properties
makes such qualification or licensing necessary.
4.2 Power, Authority and Validity. Acquiror and Sub have the corporate power
and authority to enter into this Agreement and other Transaction Documents to
which they are a party and to carry out their obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Transaction
Documents to which they are a party and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the board of
directors of Acquiror and Sub, and no other corporate proceedings are necessary
to authorize this Agreement or the other Transaction Documents. Acquiror and Sub
are not subject to or obligated under any charter, bylaw or contract provision
or any license, franchise or permit or subject to any order or decree, which
would be breached or violated in a material manner by or in material conflict
with its executing and carrying out this Agreement and the transactions
contemplated hereunder and under the Transaction Documents. This Agreement is,
and the other Transaction Documents to which Acquiror and Sub are or will be a
party, when executed and delivered by Acquiror and Sub shall be, the valid and
binding obligations of Acquiror and Sub, enforceable in accordance with their
terms, subject to (i) laws of general application relating to bankruptcy,
insolvency, and the relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies.
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4.3 Capitalization.
(a) The authorized capital stock of Acquiror as of the date of this Agreement
consists of: (i) Two Hundred Million (200,000,000) shares of common stock, not
more than Thirty Five Million (35,000,000) shares of which are currently
outstanding and (ii) Twenty Million (20,000,000) shares of preferred stock, none
of which are issued and outstanding.
(b) All of the outstanding securities of Acquiror have been duly authorized
and are validly issued, fully paid and nonassessable. All securities of Acquiror
were issued in compliance with applicable securities laws. Except as otherwise
set forth in the Acquiror Disclosure Schedule or in the Acquiror Commission
Documents (as defined in Section 4.6 below), Acquiror does not have any other
shares of its capital stock issued or outstanding and does not have any other
outstanding subscriptions, options, warrants, rights or other agreements or
commitments obligating Acquiror to issue shares of its capital stock or other
securities.
(c) Acquiror owns all of the outstanding stock of Sub.
4.4 Valid Issuance of Acquiror Common Stock. The shares of Acquiror's Common
Stock to be issued pursuant to the Merger will be duly authorized, validly
issued, fully paid, and non-assessable and issued in compliance with all
applicable federal or state securities laws, free and clear of all liens and
preemptive rights.
4.5 Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no
other business activities and has conducted its operations only as contemplated
by this Agreement.
4.6 Commission Documents; Financial Statements. Acquiror has made available to
Target a true and complete copy of its Annual Report on Form 10-K for the year
ended June 30, 1999 as filed with the Commission by Acquiror; and, prior to the
Effective Time, Acquiror will have made available to Target any additional
documents filed with the Commission by Acquiror prior to the Effective Time
(collectively, the "Acquiror Commission Documents"). As of their respective
filing dates, the Acquiror Commission Documents complied in all material
respects with the requirements of the Exchange Act and the Securities Act, and
none of the Acquiror Commission Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent corrected by a
subsequently filed Acquiror Commission Document prior to the date hereof. The
financial statements of Acquiror, including the notes thereto, included in the
Acquiror Commission Documents (the "Acquiror Financial Statements") were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of
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unaudited statements included in Quarterly Reports on Form 10-Qs, as permitted
by Form 10-Q of the Commission). The Acquiror Financial statements fairly
present the consolidated financial condition and operating results of Acquiror
and its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments). There has been no change in Acquiror accounting policies except as
described in the notes to the Acquiror Financial Statements.
4.7 Accuracy of Information In Proxy Statement. The information furnished by
Acquiror to be included in the Proxy Statement to be sent to the Target
Stockholders in connection with the solicitation of stockholder consent or
proxies for the approval and adoption of this Agreement and the approval and
adoption of the Merger shall not, on the date the Proxy Statement is first
mailed to the Target stockholders, on any date subsequent thereto and prior to
the Effective Time or at the Effective Time, contain any untrue statement of a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
consent or proxies which has become false or misleading.
4.8 Accuracy of Documents and Information. No representations or warranties
made by Acquiror or Sub in this Agreement, nor any document, written
information, statement, financial statement, certificate, schedule or exhibit
furnished directly to Target pursuant to this Agreement, taken as a whole,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein not misleading.
4.9 No Brokers. Except for fees payable to CIBC World Markets Corp., Acquiror
is not obligated to pay fees or expenses to any broker or finder in connection
with the origin, negotiation or execution of this Agreement or in connection
with any transaction contemplated hereby.
5. Covenants of Target
5.1 Advice of Changes. Target will promptly advise Acquiror in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Target contained in this Agreement, if made on
or as of the date of such event or the Closing Date, untrue or inaccurate in any
material respect and (ii) of any Material adverse change in Target's business,
taken as a whole.
5.2 Conduct of Business. Until the Closing, Target will continue to conduct its
business and maintain its business relationships in the ordinary and usual
course and will not, without the prior written consent of Acquiror or as
otherwise provided in Section 5.2 of the Target Disclosure Schedule:
(a) borrow any money which borrowings exceed in the aggregate Twenty Five
Thousand Dollars ($25,000);
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(b) incur any liability other than in the ordinary and usual course of
business or in connection with the performance or consummation of this
Agreement;
(c) encumber or permit to be encumbered any of its assets except in the
ordinary course of its business;
(d) dispose of any of its assets, except inventory in the regular and
ordinary course of business;
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal except for inventory purchased in the ordinary course
of business or other leases or contracts for less than $25,000;
(f) fail to maintain its equipment and other assets in good working condition
and repair according to the standards it has maintained up to the date of this
Agreement, subject only to ordinary wear and tear;
(g) pay or authorize any bonus, increased salary, or special remuneration to
any officer or employee, including any amounts for accrued but unpaid salary or
bonuses;
(h) enter into any agreement for the acquisition or license of any Music
Rights with advances or minimum future commitments in excess of $25,000;
(i) adopt or change any accounting methods;
(j) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital, or redeem or otherwise acquire any of its
capital stock;
(k) amend or terminate any contract, agreement or license to which it is a
party except non-Material agreements in the ordinary course of business or other
agreements with an annual value of less than $25,000;
(l) enter into any other Material contract;
(m) loan any amount to any Person or entity, or guaranty or act as a surety
for any obligation;
(n) waive or release any right or claim;
(o) issue or sell any shares of its capital stock of any class or any other
of its securities, or issue or create any warrants, obligations, subscriptions,
options, convertible securities, or other commitments to issue shares of capital
stock or amend the terms of any agreement regarding the foregoing;
(p) split or combine the outstanding shares of its capital stock of any class
or enter into any recapitalization affecting the number of outstanding shares of
its capital stock of any class or affecting any other of its securities;
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(q) merge, consolidate or reorganize with any entity;
(r) license all or a significant portion of its assets, including, but not
limited to, any license of a significant portion of Target's catalog of Music
Rights;
(s) amend its Articles of Incorporation or Bylaws;
(t) make or change (except as required by applicable tax law) any election,
change any annual accounting period, file any tax return or amended tax return
(other than sales and use tax returns), enter into any closing agreement, settle
any tax claim or assessment relating to Target, surrender any right to claim
refund of taxes, consent to any extension or waiver of the limitation period
applicable to any tax claim or assessment relating to Target, or take any other
action or omit to take any action, if any such election, adoption, change,
filing, amendment, agreement, settlement, surrender, consent or other action or
omission would have the effect of increasing the tax liability of Target or
Acquiror; or
(u) agree to do any of the things described in the preceding clauses of this
Section.
5.3 Risk of Loss. Until the Closing and subject to the confidentiality and
nonuse provisions hereof, all risk of loss, damage or destruction to Target's
assets shall be borne by Target, and the Merger terms described in Section 2
shall, in case of any such loss, damage or destruction, be revised as the
parties may agree, or this Agreement shall be terminated in accordance with
Section 11.
5.4 Access to Information. Until the Closing and subject to the confidentiality
and nonuse provisions hereof, Target shall allow Acquiror and its
Representatives free access upon reasonable notice and during normal working
hours to its files, books, records, and offices, including, without limitation,
any and all information relating to taxes, commitments, contracts, leases,
licenses, and personal property and financial condition. Until the Closing,
Target shall cause its accountants to cooperate with Acquiror and its
Representatives in making available all financial information requested,
including without limitation the right to examine all working papers pertaining
to all financial statements prepared or audited by such accountants.
5.5 Regulatory Approvals. Prior to the Closing, Target shall execute and file,
or join in the execution and filing, of any application or other document which
may be necessary in order to obtain the authorization, approval or consent of
any Governmental Body, federal, state or local, which may be reasonably
required, or which Acquiror may reasonably request, in connection with the
consummation of the transactions contemplated by this Agreement. Target shall
use its best efforts to obtain all such authorizations, approvals and consents.
5.6 Satisfaction of Conditions Precedent. Target will use its best efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 10, and, without limiting the generality of the foregoing, to
obtain all consents and authorizations of third parties and to make all filings
with, and give all notices to, third parties which may be necessary or
reasonably required on its part in order to effect the transactions contemplated
hereby.
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5.7 Equity Compensation Arrangements. Prior to the Closing, any obligation of
Target to issue stock, warrants or options which have been offered or promised
to the employees of Target shall have been fulfilled or been terminated to the
satisfaction of Acquiror.
5.8 Stockholder Consent. Prior to the Closing, Target will submit this
Agreement, the Certificate of Merger and related matters to its stockholders for
consideration and approval and the Board of Directors of Target will recommend
such approval to the Target Stockholders.
6. Covenants of Acquiror and Sub.
6.1 Advice of Changes. Acquiror will promptly advise Target in writing (i) of
any event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Acquiror contained in this Agreement, if made
on or as of the date of such event or the Closing Date, untrue or inaccurate in
any material respect, and (ii) of any material adverse change in Acquiror's
business, taken as a whole.
6.2 Regulatory Approvals. Prior to the Closing, Acquiror and Sub shall execute
and file, or join in the execution and filing, of any application or other
document which may be necessary in order to obtain the authorization, approval
or consent of any Governmental Body, federal, state or local, which may be
reasonably required, or which Target may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. Such
Persons and entities shall use their best efforts to obtain all such
authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. Acquiror will use its best efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 9, and Acquiror will use its best efforts to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties which may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
6.4 Stock Options and Warrants.
(a) At the Effective Time, each outstanding option to purchase Target Stock
(a "Target Option") under the Target 1997 and 1999 Stock Option Plans (the
"Target Option Plan"), whether vested or unvested, shall be assumed by Acquiror
and deemed to constitute an option (an "Acquiror Option") to acquire, on the
same terms and conditions as were applicable under the Target Option, the same
number of shares of Acquiror Common Stock as the holder of such Target Option
would have been entitled to receive pursuant to the Merger had such holder
exercised such option in full immediately prior to the Effective Time (rounded
down to the nearest whole number), at a price per share (rounded up to the
nearest whole cent) equal to (i) the aggregate exercise price for the shares of
Target Common Stock otherwise purchasable pursuant to such Target Option divided
by (ii) the number of full shares of Acquiror Common Stock deemed purchasable
pursuant to such Acquiror Option in accordance with the foregoing; provided,
--------
however, that, in the case of any Target Option to which Section 422 of the Code
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applies
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("incentive stock options"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424(a) of the Code.
(b) Within a reasonable time after the Effective Time, Acquiror shall deliver
to the participants in the Target Option Plan appropriate notice setting forth
such participants' rights pursuant thereto and the grants pursuant to the Target
Option Plan shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section after giving effect to the Merger).
Acquiror shall comply with the terms of the Target Option Plan and use
reasonable commercial efforts to ensure, to the extent required by, and subject
to the provisions of, such Target Option Plan and Sections 422 and 424(a) of the
Code, that Target Options which qualified as incentive stock options prior the
Effective Time continue to qualify as incentive stock options after the
Effective Time.
(c) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of Target Options assumed in accordance with this Section.
(d) Each Target Warrant, to the extent outstanding at the Effective Time,
whether or not exercisable and whether or not vested at the Effective Time,
shall remain outstanding at the Effective Time. At the Effective Time, Target
Warrants shall, by virtue of the Merger and without any further action on the
part of Target or the holder of any of Target Warrants (unless further action
may be required by the terms of any of Target Warrants), be assumed by Acquiror
and each Target Warrant assumed by Acquiror shall be exercisable upon the same
terms and conditions as under the applicable warrant agreements with respect to
such Target Warrants, except that (A) each such Target Warrant shall be
exercisable for that whole number of shares of Acquiror Common Stock (rounded
down to the nearest whole share) into which the number of shares of Target
Common Stock subject to such Target Warrant would be converted under Section
2.2(b), and (B) the exercise price per share of Acquiror Common Stock shall be
an amount equal to the exercise price per share of Target Common Stock subject
to such Target Warrant in effect immediately prior to the Effective Time divided
by the applicable Exchange Ratio (the exercise price per share, so determined,
being rounded to the nearest full cent). From and after the Effective Time, all
references to Target in the warrant agreements underlying Target Warrants shall
be deemed to refer to Acquiror. Acquiror shall (i) on or prior to the Effective
Time, reserve for issuance the number of shares of Acquiror Common Stock that
will become subject to warrants to purchase Acquiror Common Stock ("Acquiror
Warrants") pursuant to this Section 7.4(d), (ii) from and after the Effective
Time, upon exercise of the Acquiror Warrants in accordance with the terms
thereof, make available for issuance all shares of Acquiror Common Stock covered
thereby and (iii) promptly following the Effective Time, issue to each holder of
an outstanding Target Warrant a document evidencing the foregoing assumption by
Acquiror.
(e) In addition to any options and warrants assumed pursuant to the terms
hereof, Acquiror shall grant to employees of Target designated by Acquiror after
consultation with Target options to purchase not less than 500,000 shares of
Acquiror Common Stock. Such options shall be granted
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effective as of the Effective Time and shall be in accordance with the standard
terms and conditions of options granted to employees of Acquiror pursuant to its
stock option plans.
(f) Acquiror shall file a registration statement on Form S-8 for the shares
of Acquiror Common Stock issuable with respect to assumed Target Stock Options
so that such registration statement will become effective on or before the 180th
day following the Closing Date, and shall maintain the effectiveness of such
registration statement thereafter for so long as any of such options or other
rights remain outstanding. Notwithstanding the registration of such Acquiror
Common Stock, no Person may sell or otherwise transfer any shares of Acquiror
Common Stock issued with respect to assumed Target Stock Options within the 180-
day period commencing on the Closing Date.
6.5 Employees, Employee Benefits.
(a) Acquiror agrees that individuals who are employed by the Target as of the
Effective Time shall become employees of the Surviving Corporation following the
Effective Time (each such employee, an "Affected Employee"); provided, however,
that nothing contained in this Section 7.8 shall require the Surviving
Corporation to continue the employment of any Affected Employee for any period
of time following the Effective Time.
(b) To the extent permitted under any applicable Acquiror employee benefit
plans or arrangements, Acquiror shall, or shall cause the Surviving Corporation
to, give Affected Employees full credit for purposes of eligibility, vesting and
determination of the level of benefits (but not for the purpose of benefit
accrual under any defined benefit plan) under any employee benefit plans or
arrangements maintained by the Acquiror, the Surviving Corporation or any
Subsidiary of the Acquiror for such Affected Employees' service with the Target
or any Subsidiary of the Target to the same extent recognized by the Target
immediately prior to the Effective Time.
(c) Acquiror shall use reasonable efforts to the extent permitted by such
welfare benefit plans, to, or to cause the Surviving Corporation to (i) waive
all limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Affected
Employees under any welfare benefit plans that such Affected Employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such Affected
Employees and that have not been satisfied as of the Effective Time under any
welfare plan maintained for the Affected Employees immediately prior to the
Effective Time, and (ii) provide each Affected Employee with credit for any
co-payments and deductibles paid prior to the Effective Time in satisfying any
applicable deductible or out-of-pocket requirements under any welfare plans that
such Affected Employees are eligible to participate in after the Effective Time.
(d) Following the Effective Date, Acquiror agrees to indemnify Target's
officers and members of Target's board of directors to the extent that Target is
currently obligated, by any statute, bylaw, or agreement, to indemnify such
officers and directors with respect to actions taken by such officers and
directors prior to the Effective Date.
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6.6 Observation Rights; Board Representation. For the twelve (12) months
following the Effective Date, Acquiror shall permit one Person designated by the
holders of a majority of the Target Shares (the "Observer") to attend all
meetings of Acquiror's Board of Directors, in a non-voting observer capacity,
and, in this respect, Acquiror shall, at its expense, give the Observer copies
of all notices, minutes, consents and other materials that it provides to its
directors in connection with such Board of Director meetings at the same time as
such notices are given to Board members; provided, however, that the Observer
shall agree to hold in confidence and trust all information so provided to the
same extent as if he was a member of Acquiror's Board of Directors. The
foregoing provisions shall not be interpreted to preclude meetings to be held by
telephone conference and actions to be taken by written consent. Upon the
Effective Date, Acquiror shall take all actions necessary to appoint and elect a
mutually agreeable representative of Target to Acquiror's Board of Directors.
6.7 Loan. In the event the Merger is not consummated prior to January 10, 2000,
Acquiror shall lend Target $3,000,000 within five business days of a request for
such loan made by Target. The loan amount, including principal and interest at
2% above prime, will be due in full at the earlier of the consummation of the
Merger or one year following the date of this Agreement. The loan shall be
secured by the accounts receivable of Target.
7. Mutual Covenants.
7.1 Confidentiality. Each party acknowledges that in the course of the
performance of this Agreement, it may obtain the Confidential Information of the
other party. The Receiving Party shall, at all times, both during the term of
this Agreement and thereafter, keep in confidence and trust all of the
Disclosing Party's Confidential Information received by it. The Receiving Party
shall not use the Confidential Information of the Disclosing Party other than as
expressly permitted under the terms of this Agreement or by a separate written
agreement. The Receiving Party shall take all reasonable steps to prevent
unauthorized disclosure or use of the Disclosing Party's Confidential
Information and to prevent it from falling into the public domain or into the
possession of unauthorized Persons. The Receiving Party shall not disclose
Confidential Information of the Disclosing Party to any Person or entity other
than its Representatives who need access to such Confidential Information in
order to effect the intent of this Agreement and who have entered into
confidentiality agreements with such Person's employer which protects the
Confidential Information of the Disclosing Party. The Receiving Party shall
promptly give notice to the Disclosing Party of any unauthorized use or
disclosure of Disclosing Party's Confidential Information. The Receiving Party
agrees to assist the Disclosing Party to remedy such unauthorized use or
disclosure of its Confidential Information, which remedies shall include
injunctive relief without the necessity of posting a bond or proving damages.
These obligations shall not apply to the extent that Confidential Information
includes information which:
(a) is already known to the Receiving Party at the time of disclosure, which
knowledge the Receiving Party shall have the burden of proving;
(b) is, or, through no act or failure to act of the Receiving Party, becomes
publicly known;
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(c) is received by the Receiving Party from a third party without restriction
on disclosure;
(d) is independently developed by the Receiving Party without reference to the
Confidential Information of the Disclosing Party, which independent development
the Receiving Party will have the burden of proving;
(e) is approved for release by written authorization of the Disclosing Party;
or
(f) is required to be disclosed by a government agency to further the
objectives of this Agreement or by a proper order of a court of competent
jurisdiction; provided, however that the Receiving Party will use its best
efforts to minimize such disclosure and will consult with and assist the
Disclosing Party in obtaining a protective order prior to such disclosure.
7.2 Exclusivity. Until the earlier of the Closing Date or the termination of
this Agreement, Target agrees that it will not (and that it will use best
efforts to assure that its employees, agents and affiliates do not on its
behalf) discuss or enter into any agreement concerning the sale or acquisition
of Target, its stock (including by means of any public offering thereof, but
excluding issuance of stock and options to employees in the ordinary course of
business consistent with past practices) or a substantial part of its assets
with any party other than Acquiror (any of the foregoing transactions, an
"Acquisition Transaction"), and that any such discussions presently in progress
will be terminated or suspended during that period. Target represents and
warrants that it has the legal right to terminate or suspend any such pending
negotiations and agrees to indemnify Acquiror, its representatives and agents
from and against any claims by any party to such negotiations based upon or
arising out of the discussion or any consummation of the Merger. Target shall
notify Acquiror no later than 24 hours after receipt by Target (or its advisors)
of any proposal for any Acquisition Transaction or any request for nonpublic
information in connection with an Acquisition Transaction or for access to the
properties, books or records of Target by any person or entity that informs
Target that it is considering making, or has made, a proposal with respect to an
Acquisition Transaction. Such notice shall be made orally and in writing and
shall indicate in reasonable detail the identity of the offeror and the terms
and conditions of such proposal, inquiry or contact
7.3 Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to
give such further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
7.4 Tax-Free Organization. Each party shall each use its best efforts to cause
the Merger to be treated as a reorganization within the meaning of Section
368(a) of the Code.
7.5 Proxy Statement; Registration Statement. As promptly as practicable after
the execution of this Agreement, Acquiror and Target shall prepare and file with
the Commission the Proxy Statement, and Acquiror shall prepare and file with the
Commission the Registration Statement,
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in which the Proxy Statement will be included as a prospectus. Acquiror and
Target shall use all reasonable efforts to cause the Registration Statement to
become effective as soon after such filing as practicable. The Proxy Statement
shall include the recommendation of the Board of Directors of Target in favor of
this Agreement and the Merger and the recommendation of the Board of Directors
of Acquiror in favor of the issuance of shares of Acquiror Common Stock pursuant
to the Merger. Acquiror and Target shall make all necessary filings with respect
to the Merger under the Securities Act and the Exchange Act and applicable state
blue sky laws and the rules and regulations thereunder. To the extent the
issuance of Acquiror Shares pursuant to the Merger to any stockholder of the
Target agreeing to vote in favor of the Merger pursuant to Section 5.8 are not
permitted by the rules and regulations of the SEC to be registered on the
Registration Statement, Acquiror will use its best efforts to register such
issuance of Acquiror Shares to such stockholders of the Company on a Form S-3 or
other appropriate form.
7.6 Stockholder Meetings. Acquiror and Target each shall call a meeting of its
respective stockholders, subject to the provisions of applicable law, to be held
as promptly as reasonably practicable for the purpose of voting upon, in the
case of Target, the adoption of this Agreement and the approval of the Merger
and, in the case of Acquiror, the issuance of shares of Acquiror Common Stock
pursuant to the Merger. Acquiror and Target will, through their respective Board
of Directors, recommend to their respective stockholders approval of such
matters and will coordinate and cooperate with respect to the timing of such
meetings and shall use all reasonable efforts to hold such meetings as soon as
reasonably practicable after the date hereof; provided, however, that the
parties shall notice such meetings for the same day, with Acquiror's meeting to
be held before Target's meeting. Subject to applicable law, each party shall use
its reasonable efforts to solicit from its stockholders proxies in favor of such
matters.
8. The Closing.
8.1 Merger. On the date of the Closing, but not prior to the Closing, the
Certificate of Merger shall be filed with the office of the Secretary of State
of the State of Delaware and the merger of Sub with and into Target shall be
consummated.
8.2 Additional Documents.
(a) At any time and from time to time at or after the Closing, the parties
shall at the request of the other party execute and deliver or cause to be
executed and delivered all such assignments, consents and other documents and
take or cause to be taken all such other actions as either party may reasonably
deem necessary or desirable, in order to more fully and effectively carry out
the intents and purposes of this Agreement.
(b) Target shall execute and deliver to Acquiror a statement meeting the
requirements of Treasury Regulation Section 1.897-2(h)(2) stating that interests
in Target are not United States real property interests.
9. Conditions to Target's Obligations.
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Target's obligations to effect the Merger are subject to the
fulfillment or satisfaction on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Target, but only in a
writing signed by Target):
9.1 Accuracy of Representations and Warranties. The representations and
warranties of Acquiror and Sub set forth in Section 4 shall be true on and as of
the Closing with the same force and effect as if they had been made at the
Closing and the conditions to Target's obligations set forth under Sections 9.1,
9.2, 9.3 and 9.4 shall have been satisfied. Target shall receive a certificate
to such effect from an executive officer of Acquiror.
9.2 Covenants. Acquiror and Sub shall have performed and complied with all of
their covenants contained in this Agreement to be performed on or before the
Closing, and Acquiror shall deliver to Target a certificate executed by an
executive officer of Acquiror at Closing stating that such condition has been
satisfied.
9.3 No Litigation. On and as of the Closing, no litigation or proceeding shall
be threatened or pending against Acquiror for the purpose or with the probable
effect of enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement or which would have a material adverse effect on
the business, liabilities, income, property, operations or prospects of Acquiror
subsequent to the Closing.
9.4 Authorizations. Target shall have received from Acquiror and Sub written
evidence that the execution, delivery and performance of Acquiror and Sub's
obligations under this Agreement and the Certificate of Merger have been duly
and validly approved and authorized by the Board of Directors and stockholders,
respectively, of Acquiror and Sub.
9.5 No Adverse Development. There shall be no order, decree, or ruling by any
court or Governmental Body or threat thereof or any other fact or circumstance,
which could reasonably be expected to prohibit or render illegal or have a
material adverse effect on the business, prospects, liabilities, income,
property, assets or operations of Acquiror subsequent to the Closing. Acquiror
shall not have sustained a loss, whether or not insured, by reason of physical
damage caused by fire, flood or earthquake, accident or other calamity which
materially affects the Acquiror's financial position or its ability to carry on
its business as proposed to be conducted. There shall have been no other event
which has a material and adverse effect on Acquiror's assets, business,
liabilities, income, property, assets, prospects or operations subsequent to the
Closing.
9.6 Government Consents. There shall have been obtained at or prior to the date
of Closing such permits or authorizations, and there shall have been taken such
other action, as may be required by any regulatory authority having jurisdiction
over the parties and the subject matter and the actions herein proposed to be
taken, including, but not limited to, compliance with applicable state and
federal securities laws.
9.7 Opinion of Acquiror's Counsel. Target shall have received from counsel to
Acquiror, an
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opinion substantially in the form attached hereto as Exhibit E.
9.8 Stockholder Approvals. This issuance of shares of Acquiror Common Stock in
the Merger shall have been approved by the minimum vote required under the rules
of the National Association of Securities Dealers, Inc.
9.9 Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
10. Conditions to Acquiror and Sub's Obligations.
Acquiror's and Sub's obligations to effect the Merger are subject to
the fulfillment or satisfaction on and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Acquiror, but
only in a writing signed by Acquiror):
10.1 Accuracy of Representations and Warranties. The representations and
warranties of Target contained in Section 3 and of certain Target Stockholders
in certain Shareholder Voting Agreements of even date herewith shall be true in
all material respects on and as of the Closing with the same force and effect as
if they had been made at the Closing and the conditions to Acquiror's and Sub's
obligations set forth under Sections 10.1, 10.2, 10.3 and 10.4 shall have been
satisfied. Acquiror shall receive a certificate to such effect from an executive
officer of Target.
10.2 Covenants. Target shall have performed and complied with all of its
covenants set forth in this Agreement on or before the Closing.
10.3 No Litigation. On and as of the Closing, no litigation or proceeding shall
be threatened or pending against Target for the purpose or with the probable
effect of enjoining or preventing the consummation of any of the transactions
contemplated by this Agreement, or which would have a material adverse effect on
the business, liabilities, income, property, operations or prospects of Target
subsequent to the Closing.
10.4 Authorizations. Acquiror shall have received from Target written evidence
that (i) the execution, delivery and performance of this Agreement and the
Certificate of Merger have been duly and validly approved and authorized by its
Board of Directors and (ii) not less than ninety-five percent (95%) of Target
Shares held by the Target Stockholders have approved this Agreement, the Merger
and the transactions contemplated hereby and thereby.
10.5 No Adverse Development. There shall be no order, decree, or ruling by any
court or Governmental Body or threat thereof or any other fact or circumstance,
which could reasonably be expected to prohibit or render illegal or have a
material adverse effect on the business, prospects, liabilities, income,
property, assets or operations of Target subsequent to the Closing. Target shall
not have sustained a loss, whether or not insured, by reason of physical damage
caused by fire, flood or earthquake, accident or other calamity which materially
affects the Target Balance Sheet or its ability to carry on its business as
proposed to be conducted. There shall
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have been no other event which has a material and adverse effect on Target's
assets, business, liabilities, income, property, assets, prospects or operations
subsequent to the Closing.
10.6 Required Consents.
(a) Acquiror shall have received all written consents, assignments, waivers,
authorizations or other certificates reasonably deemed necessary by Acquiror's
legal counsel to provide for the continuation in full force and effect of any
and all contracts and leases of Target, except where the failure to obtain such
consent, assignment, waiver, authorization or other certificate would not have a
material adverse effect on Target's business.
(b) Target shall have obtained and provided Acquiror with certified copies of
all approvals and consents by the stockholders of Target listed on Schedule 3.3
or otherwise contemplated by the Proxy Statement.
10.7 Opinion of Target's Counsel. Acquiror shall have received from counsel to
Target, an opinion substantially in the form attached hereto as Exhibit F.
10.8 Government Consents. There shall have been obtained at or prior to the
Closing Date such permits or authorizations and there shall have been taken such
other action, as may be required by any regulatory authority having jurisdiction
over the parties and the subject matter and the actions herein proposed to be
taken, including, but not limited to, compliance with applicable state and
federal securities laws. All waiting periods required under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976 shall have expired or been terminated.
10.9 Employment Offers and Other Agreements. Each of the officers and key
employees of Target shall have entered into non-compete agreements with Acquiror
in substantially the same form as attached hereto as Exhibit C and employment
letters in form and substance agreeable to Acquiror; substantially all other
employees and consultants of Target as of the Closing shall have accepted
employment (or consultant positions, as appropriate) with Acquiror or Target on
terms satisfactory to Acquiror; such employees and consultants shall have
entered into confidentiality and inventions agreements in Acquiror's standard
form.
10.10 Transaction Costs. Target shall have a delivered a certificate confirming
all Transaction Costs (as hereinafter defined) payable by Target or the Target
Shareholders.
10.11 Stockholder Approvals. This Agreement shall have been adopted and the
Merger shall have been approved by the affirmative vote of the holders of a
majority of the shares of Target Common Stock outstanding as of the record date
for the Target Stockholders Meeting, and the issuance of shares of Acquiror
Common Stock in the Merger shall have been approved by the minimum vote required
under the rules of the National Association of Securities Dealers, Inc.
10.12 Registration Statement. The Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
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11. Termination of Agreement.
11.1 Mutual Agreement. This Agreement may be terminated at any time prior to the
Closing by the mutual written consent of each of the parties hereto.
11.2 Failure to Fulfill Conditions. Either Acquiror or Target may terminate this
Agreement if the Merger has not been consummated within one hundred and twenty
(120) days of the date of this Agreement or such shorter period as may be
reasonable in the event of breach by one party which is not cured within thirty
(30) days of the date of such breach (provided that the right to terminate this
Agreement under this Section shall not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of or resulted
in the failure of the Merger to occur on or before such date). Any termination
of this Agreement under this Section shall be effective by the delivery of
notice of the terminating party to the other parties hereto.
11.3 No Liability. Any termination of this Agreement pursuant to this Section
shall be without further obligation or liability upon any party in favor of any
other party hereto.
11.4 Effect of Termination. The termination of the Agreement pursuant to this
Section shall terminate all sections hereof other than Section 7.1.
12. Indemnification.
12.1 Survival of Representations.
(a) The representations and warranties made by Target under Section 3 hereof,
the representations and warranties of certain Target Stockholders in the
Shareholder Voting Agreement, and the representations and warranties set forth
in any certificate delivered by Target in connection with this Agreement shall
survive the Closing and shall remain in full force and effect and shall survive
until the end of the Indemnification Period and shall survive thereafter only
with respect to any claims made prior to the end of the Indemnification Period.
(b) The representations, warranties, covenants and obligations of Target, and
the rights and remedies that may be exercised by the Indemnitees (as defined
herein), shall not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item of information
set forth in the Target Disclosure Schedule shall be deemed to be a
representation and warranty made by Target in this Agreement.
12.2 Indemnification by Target Stockholders.
(a) From and after the Closing Date, the Target Stockholders shall be jointly
and severally liable for and shall hold harmless and indemnify Acquiror and the
Surviving Corporation (each an "Indemnitee") from and against, and shall
compensate and reimburse each of the Indemnitees
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for, any Damages which are directly or indirectly suffered or incurred by any of
the Indemnitees or to which any of the Indemnitees may otherwise become subject
(regardless of whether or not such Damages relate to any third-party claim) and
which arise from or as a result of, or are directly or indirectly connected
with: (i) any inaccuracy in or breach of any representation or warranty set
forth in Section 3 hereunder or in any certificate delivered by Target in
connection with this Agreement; (ii) any breach of any covenant or obligation of
Target or the Target Stockholders hereunder or pursuant to any agreement
delivered in connection herewith; or (iii) any Legal Proceeding relating to any
inaccuracy, breach or expense of the type referred to in clause "(i)" or "(ii)"
above (including any Legal Proceeding commenced by any Indemnitee for the
purpose of enforcing any of its rights under this Section if such Indemnitee is
the prevailing party in any such Legal Proceeding).
(b) If the Surviving Corporation suffers, incurs or otherwise becomes subject
to any Damages as a result of or in connection with any inaccuracy in or breach
of any representation, warranty, covenant or obligation, then (without limiting
any of the rights of the Surviving Corporation as an Indemnitee) Acquiror shall
also be deemed, by virtue of its ownership of the stock of the Surviving
Corporation, to have incurred Damages as a result of and in connection with such
inaccuracy or breach.
(c) No Indemnitee shall have the right to be indemnified pursuant to this
Section unless and until the Indemnitees together shall have incurred on a
cumulative basis from and after the Closing Date aggregate Damages in an amount
not less than $250,000 whereupon the Target Stockholders shall be obligated to
indemnify against all Damages.
(d) Notwithstanding anything to the contrary set forth herein, except with
respect to breaches of Section 7.1 hereof or claims for fraud or intentional
misrepresentation, the indemnity provisions set forth in this Section shall be
Acquiror's sole and exclusive remedy related to claims following the closing of
the acquisition transaction described herein and the maximum liability of each
of the Target Stockholders shall be limited to the Acquiror Shares issuable to
such stockholder which are deposited into escrow pursuant to the terms hereof.
(e) In the event of any withdrawal from the Indemnity Escrow to satisfy any
claim for damages or to pay any Excess Target Transaction Costs, the Acquiror
Shares shall be valued based upon the average closing price for Acquiror Common
Stock for the twenty trading days prior to the Closing.
12.3 No Contribution. The Target Stockholders shall not have and shall not
exercise or assert (or attempt to exercise or assert), any right of
contribution, right of indemnity or other right or remedy against the Surviving
Corporation which they have in their capacity as stockholders in connection with
any indemnification obligation or any other liability to which it may become
subject under or in connection with this Agreement or any certificate delivered
by Target in connection with this Agreement.
12.4 Defense of Third Party Claims. In the event of the assertion or
commencement by any Person
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of any claim or Legal Proceeding (whether against the Surviving Corporation,
against Acquiror or against any other Person) with respect to which the Target
Stockholders may become obligated to hold harmless, indemnify, compensate or
reimburse any Indemnitee pursuant to this Section, the procedure set forth below
shall be followed.
(a) Notice. Acquiror shall give prompt written notice of the commencement of
any such Legal Proceeding against Acquiror or the Surviving Corporation for
which indemnity may be sought; provided, however, that any failure on the part
of Acquiror to so notify Target shall not limit any of the obligations of Target
under this Section unless the ability to defend such claim is materially
prejudiced by such failure or delay. The Indemnification Period shall be tolled
solely with respect to a particular claim for the period beginning on the date
the Target Stockholders receive written notice of that claim until the final
resolution of such claim so long as such claim is made within the
Indemnification Period.
(b) Defense of Claim. The Indemnitee shall have the right to be represented by
counsel of its choice and to defend or otherwise control the handling of any
claim, or Legal Proceeding for which indemnity is sought. If the Indemnitee so
proceeds with the defense of any such claim or Legal Proceeding:
(i) all expenses relating to the defense of such claim or Legal Proceeding
(whether or not incurred by the Indemnitee) shall be borne and paid exclusively
by the Target Stockholders;
(ii) the Target Stockholders shall make available to the Indemnitee any
non-privileged documents and materials in the possession or control of the
Target Stockholders that may be necessary to the defense of such claim or Legal
Proceeding except for documents or materials which are sealed by a court order
or are subject to a nondisclosure agreement prohibiting disclosure by the Target
Stockholders;
(iii) the Indemnitee shall keep the Target Stockholders informed of all
material developments and events relating to such claim or Legal Proceeding; and
(iv) the Target Stockholders shall have the right to participate in the
defense of such claim or legal proceeding at their sole cost and expense; and
(v) the Indemnitee shall have the right to settle, adjust or compromise such
claim or Legal Proceeding with the written consent of the Target Stockholders;
provided, however, that the Target Stockholders shall not unreasonably withhold
such consent.
12.5 Indemnity Escrow. At the Effective Time, Acquiror shall not distribute to
Target Stockholders, but shall retain as the "Indemnity Escrow", ten percent
(10%) of the Acquiror Shares (the "Indemnity Escrow Holdback"). The Indemnity
Escrow Holdback shall be withheld on a pro rata basis from the Target
Stockholders who otherwise are entitled to such amounts at the Effective Time
and shall be governed by the terms set forth herein and in an escrow agreement
(the "Indemnity Escrow Agreement") in substantially the form attached hereto as
Exhibit B. The
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Indemnity Escrow shall be available to pay any Excess Target Transaction Costs,
compensate the Indemnitees for any loss, to the extent of the amount of Damages
that such Indemnitee has incurred and which are subject to indemnification
hereunder.
12.6 Stockholder Representative.
(a) By virtue of their approval of this Agreement, the Target Stockholders
will be deemed to have irrevocably constituted and appointed, effective as of
the Effective Time, Howard A. Tullman (the "Stockholder Representative"), as
their true and lawful agent and attorney-in-fact to enter into any agreement in
connection with the transactions contemplated by this Agreement or the Indemnity
Escrow Agreement, to exercise all or any of the powers, authority and discretion
conferred on him under any such agreement, to waive any terms and conditions of
any such agreement, to give and receive notices and communications, to authorize
delivery to Acquiror of the Indemnity Escrow Holdback or other property from the
Indemnity Escrow in satisfaction of claims by Acquiror, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Stockholder Representative for the
accomplishment of the foregoing. Such agency may be changed by the holders of a
majority in interest of the Indemnity Escrow from time to time upon not less
than ten (10) days' prior written notice to Acquiror. The Stockholder
Representative shall receive no compensation for his services. Notices or
communications to or from the Stockholder Representative shall constitute notice
to or from each of the Target Stockholders. This power of attorney is coupled
with an interest and is irrevocable.
(b) The Stockholder Representative shall not be liable for any act done or
omitted hereunder as Stockholder Representative while acting in good faith and
not in a manner constituting gross negligence, and any act done or omitted
pursuant to the advice of counsel shall be conclusive evidence of such good
faith. The Target Stockholders shall severally indemnify the Stockholder
Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence or bad faith on the part of such Stockholder
Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder.
13. Miscellaneous.
13.1 Governing Laws. It is the intention of the parties hereto that the
internal laws of the State of Delaware (irrespective of its choice of law
principles) shall govern the validity of this Agreement, the construction of its
terms, and the interpretation and enforcement of the rights and duties of the
parties hereto.
13.2 Binding upon Successors and Assigns. Subject to, and unless otherwise
provided in, this Agreement, each and all of the covenants, terms, provisions,
and agreements contained herein shall be binding upon, and inure to the benefit
of, the permitted successors, executors, heirs, representatives, administrators
and assigns of the parties hereto.
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13.3 Severability. If any provision of this Agreement, or the application
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other Persons
or circumstances shall be interpreted so as best to reasonably effect the intent
of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
which will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
13.4 Entire Agreement. This Agreement, the exhibits and schedules hereto, the
documents referenced herein, and the exhibits and schedules thereto, constitute
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and thereto. The
express terms hereof control and supersede any course of performance or usage of
the trade inconsistent with any of the terms hereof.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all of the parties reflected hereon as signatories.
13.6 Expenses. Except as provided to the contrary herein, each party shall pay
all of its own costs and expenses incurred with respect to the negotiation,
execution and delivery of this Agreement and the exhibits hereto. In the event
the Merger is consummated, all Target Transaction Costs in excess of $1,500,000
("Excess Transaction Costs") shall be deemed to be expenses of the Target
Stockholders, shall be borne by the Target Stockholders, but shall be paid by
Acquiror. Target shall present a good faith estimate of such Target Transaction
Costs prior to the closing of the Acquisition. Any Excess Target Transaction
Costs may be deducted as a claim against the Indemnity Escrow.
13.7 Other Remedies. Except as otherwise provided herein, any and all remedies
herein expressly conferred upon a party shall be deemed cumulative with and not
exclusive of any other remedy conferred hereby or by law on such party, and the
exercise of any one remedy shall not preclude the exercise of any other.
13.8 Amendment and Waivers. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof for default in payment of any amount due hereunder or
default in the performance hereof shall not be deemed to constitute a waiver of
any other default or any succeeding breach or default.
13.9 Survival of Agreements. All covenants, agreements, representations and
warranties made
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herein shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
notwithstanding any investigation of the parties hereto.
13.10 No Waiver. The failure of any party to enforce any of the provisions
hereof shall not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
13.11 Attorneys' Fees. Should suit be brought to enforce or interpret any part
of this Agreement, the prevailing party shall be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including without limitation, costs, expenses and fees on
any appeal). The prevailing party shall be the party entitled to recover its
costs of suit, regardless of whether such suit proceeds to final judgment. A
party not entitled to recover its costs shall not be entitled to recover
attorneys' fees. No sum for attorneys' fees shall be counted in calculating the
amount of a judgment for purposes of determining if a party is entitled to
recover costs or attorneys' fees.
13.12 Notices. Any notice provided for or permitted under this Agreement will be
treated as having been received (a) when delivered personally, (b) when sent by
confirmed telex or telecopy, (c) one (1) day following when sent by commercial
overnight courier with written verification of receipt, or (d) three (3) days
following when mailed postage prepaid by certified or registered mail, return
receipt requested, to the party to be notified, at the address set forth below,
or at such other place of which the other party has been notified in accordance
with the provisions of this Section:
Target or the Tunes.com Inc.
Stockholder 640 North LaSalle Street Suite 560
Representative: Chicago, IL 60610
Facsimile: (312) 654-1099
Attention: President
With copy to: Freeborn & Peters
311 South Wacker Drive
Chicago, IL 60606
Facsimile: (312) 360-6575
Attention: Richard R. Dennerline
Acquiror or Sub: Emusic.com Inc.
1991 Broadway, 2nd Floor
Redwood City, CA 94036
Facsimile: (650) 216-1610
Attention: President
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With copy to: Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Facsimile: (650) 327-3699
Attention: Andrew Zeif
13.13 Time. Time is of the essence of this Agreement.
13.14 Construction of Agreement. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof shall not
be construed for or against any party. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole.
13.15 No Joint Venture. Nothing contained in this Agreement shall be deemed or
construed as creating a joint venture or partnership between any of the parties
hereto. No party is by virtue of this Agreement authorized as an agent, employee
or legal representative of any other party. No party shall have the power to
control the activities and operations of any other and their status is, and at
all times, will continue to be, that of independent contractors with respect to
each other. No party shall have any power or authority to bind or commit any
other. No party shall hold itself out as having any authority or relationship in
contravention of this Section.
13.16 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
13.17 Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instruments, documents and agreements and to
give such further written assurances, as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
13.18 Absence of Third Party Beneficiary Rights. No provisions of this
Agreement are intended, nor shall be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner of any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof shall be personal solely between the parties
to this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
EMUSIC.COM INC. TUNES.COM INC.
By: /s/ Gene Hoffman, Jr. By: /s/ Howard A. Tullman
-------------------------- --------------------------
Name: Gene Hoffman, Jr. Name: Howard A. Tullman
Title: President and Chief Title: Chairman and CEO
Executive Officer
GNB CORPORATION
By: /s/ Gene Hoffman, Jr.
--------------------------
Name: Gene Hoffman, Jr.
Title: President and Chief
Executive Officer
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
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