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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JANUARY 14, 2000
------------------------------
ASHFORD.COM, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-27357 76-0617905
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
3800 Buffalo Speedway, Suite 400, Houston, Texas 77098
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (713) 369-1300
-----------------------------
- --------------------------------------------------------------------------------
(Former name or Former Address, if Changed Since Last Report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 14, 2000, Ashford.com, Inc. (the "Company"), a Delaware
corporation, Ashford-Jasmin Fragrance Corporation ("Ashford-Jasmin"), a Delaware
corporation and wholly-owned subsidiary of Ashford.com, Inc., and Jasmin.com
Corporation ("Jasmin.com"), a Delaware corporation and Internet fragrance
retailer, executed an Agreement and Plan of Reorganization (the "Agreement")
whereas Jasmin.com shall be merged with and into Ashford-Jasmin with
Ashford-Jasmin continuing as the surviving corporation. Upon execution of the
Agreement, the aggregate purchase price totaled $5 million, including $738,902
cash and 330,354 shares of the Company's common stock. The Agreement also
provides for the issuance of additional shares of the Company's common stock to
Jasmin.com, not to exceed 736,514 shares, upon the resolution of certain
authorized dealer relationship contingencies as set forth in the Agreement. The
cash component of the aggregate purchase price was funded from the Company's
existing cash and cash equivalent balances. The acquisition is being treated as
a purchase for accounting purposes.
The principal assets acquired include an Internet domain name and
related trademarks, inventory and other tangible and intangible assets related
to Internet retail operations.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) - Financial Statements of Business Acquired.
Financial Statements for Jasmin.com will be filed under an
amendment to this report as soon as practicable but not
later than sixty days after the filing of this report.
(b) - Pro Forma Financial Information.
Pro forma financial information relative to the
acquisition will be filed under an amendment to this
report as soon as practicable but not later than sixty
days after the filing of this report.
(c) Exhibits:
Exhibit
Number Description
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+*2.4 Agreement and Plan of Reorganization dated
as of January 14, 2000 by and among the
Company, Ashford-Jasmin Fragrance Company
and Jasmin.com Corporation
**99.1 Text of Press Release dated January 17, 2000
* Confidential treatment requested as to certain portions of this
exhibit.
** Previously filed.
+ Pursuant to Item 601(b)(2) of Regulation SK, certain exhibits
to this Agreement and Plan of Reorganization have been omitted. Such exhibits
will be submitted to the Securities and Exchange Commission upon request.
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SIGNATURE
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.
ASHFORD.COM, INC.
Date: February 1, 2000 By: /s/ James Whitcomb
-------------------------------------
James Whitcomb
President
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EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
+* 2.4 Agreement and Plan of Reorganization dated as of January 14, 2000
by and among the Company, Ashford-Jasmin Fragrance Company and
Jasmin.com Corporation
**99.1 Text of Press Release dated January 17, 2000
* Confidential treatment requested as to certain portions of this exhibit.
+ Pursuant to Item 601(b)(2) of Regulation SK, certain exhibits to this
Agreement and Plan of Reorganization have been omitted. Such exhibits will be
submitted to the Securities and Exchange Commission upon request.
** Previously filed.
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EXHIBIT 2.4
AGREEMENT AND PLAN OF REORGANIZATION*
* Pursuant to Item 601(b)(2) of Regulation SK, certain exhibits to this
Agreement and Plan of Reorganization have been omitted. Such exhibits will be
submitted to the Securities and Exchange Commission upon request.
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AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
ASHFORD.COM, INC.,
ASHFORD-JASMIN FRAGRANCE CORPORATION
AND
JASMIN.COM CORPORATION
DECEMBER 29, 1999
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TABLE OF CONTENTS
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ARTICLE I THE MERGER......................................................................................2
1.1 The Merger.............................................................................2
1.2 Closing; Effective Time................................................................2
1.3 Effect of the Merger...................................................................3
1.4 Certificate of Incorporation; Bylaws...................................................3
1.5 Directors and Officers.................................................................3
1.6 Effect on Capital Stock................................................................3
1.7 Surrender of Certificates..............................................................9
1.8 No Further Ownership Rights in Target Capital Stock...................................12
1.9 Lost, Stolen or Destroyed Certificates................................................12
1.10 Tax Consequences......................................................................13
1.11 Exemption from Registration...........................................................13
1.12 Taking of Necessary Action; Further Action............................................13
1.13 Termination of Exchange Fund..........................................................13
1.14 No Liability..........................................................................14
ARTICLE II REPRESENTATIONS AND WARRANTIES OF TARGET AND THE PRINCIPAL STOCKHOLDERS........................14
2.1 Organization, Standing and Power......................................................14
2.2 Capital Structure.....................................................................15
2.3 Authority.............................................................................17
2.4 Financial Statements..................................................................18
2.5 Absence of Certain Changes............................................................18
2.6 Absence of Undisclosed Liabilities....................................................19
2.7 Accounts Receivable...................................................................19
</TABLE>
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2.8 Litigation............................................................................20
2.9 Restrictions on Business Activities...................................................20
2.10 Governmental Authorization............................................................21
2.11 Title to Property.....................................................................21
2.12 Intellectual Property.................................................................22
2.13 Environmental Matters.................................................................23
2.14 Taxes.................................................................................23
2.15 Employee Benefit Plans................................................................27
2.16 Employees and Consultants.............................................................27
2.17 Related-Party Transactions............................................................29
2.18 Insurance.............................................................................29
2.19 Compliance with Laws..................................................................30
2.20 Brokers' and Finders' Fees............................................................30
2.21 [Intentionally Left Blank]............................................................30
2.22 Vote Required.........................................................................30
2.23 Inventory.............................................................................30
2.24 Trade Relations.......................................................................31
2.25 Customers and Suppliers...............................................................31
2.26 Material Contracts....................................................................32
2.27 No Breach of Material Contracts.......................................................34
2.28 Third-Party Consents..................................................................34
2.29 Relationships.........................................................................35
2.30 Minute Books..........................................................................35
2.31 Complete Copies of Materials..........................................................35
2.32 Bank Accounts; Credit and Charge Cards................................................35
2.33 Year 2000 Compliance..................................................................35
</TABLE>
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2.34 [Intentionally left blank.............................................................36
2.35 Representations Complete..............................................................36
2.36 Investment Representation.............................................................37
2.37 GBH Agreement.........................................................................37
2.38 Knowledge Definition..................................................................38
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB......................................43
3.1 Organization, Standing and Power......................................................43
3.2 Capital Structure.....................................................................44
3.3 Authority.............................................................................46
3.4 SEC Documents; Financial Statements...................................................47
3.5 Litigation............................................................................48
3.6 Compliance with Laws..................................................................49
3.7 Absence of Changes....................................................................49
3.8 Compliance with the Hart-Scott-Rodino Act.............................................49
3.9 Brokers' and Finders' Fees............................................................49
3.10 Due Diligence Review..................................................................49
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................................................50
4.1 General Conduct of Business of Target.................................................50
4.2 Conduct of Business of Target.........................................................51
4.3 Notices...............................................................................54
ARTICLE V ADDITIONAL AGREEMENTS..........................................................................54
5.1 No Solicitation.......................................................................54
5.2 [Intentionally Left Blank]............................................................55
5.3 Stockholders Meeting or Consent Solicitation..........................................55
5.4 Access to Information.................................................................55
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5.5 [Intentionally Left Blank]............................................................56
5.6 Public Disclosure.....................................................................56
5.7 Consents; Cooperation.................................................................56
5.8 Update Disclosure Schedule; Breaches..................................................59
5.9 Stockholder Agreements................................................................60
5.10 Legal Requirements....................................................................60
5.11 Tax-Free Reorganization...............................................................61
5.12 Blue Sky Laws.........................................................................61
5.13 [Intentionally Left Blank]............................................................61
5.14 Escrow Agreement......................................................................61
5.15 Listing of Additional Shares..........................................................61
5.16 Additional Agreements; Best Efforts...................................................61
5.17 Employee Benefits.....................................................................62
5.19 No Further Discussions Regarding Merger Consideration.................................62
5.20 GBH Matters...........................................................................63
5.21 Support...............................................................................63
ARTICLE VI CONDITIONS TO THE MERGER.......................................................................65
6.1 Conditions to Obligations of Each Party to Affect the Merger..........................65
6.2 Additional Conditions to Obligations of Target........................................66
6.3 Additional Conditions to the Obligations of Acquiror..................................67
ARTICLE VII TERMINATION, EXPENSES, AMENDMENT AND WAIVER....................................................71
7.1 Termination...........................................................................71
7.2 Effect of Termination.................................................................73
7.3 Expenses and Termination Fees.........................................................74
7.4 Amendment.............................................................................74
7.5 Extension; Waiver.....................................................................74
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ARTICLE VIII ESCROW AND INDEMNIFICATION.....................................................................75
8.1 Survival of Representations, Warranties and Covenants.................................75
8.2 Indemnity.............................................................................76
8.3 Escrow Fund...........................................................................79
8.4 [Intentionally Left Blank]............................................................79
8.5 Escrow Period.........................................................................79
8.6 Claims Procedure. ...................................................................79
8.7 Objections to Claims..................................................................80
8.8 Resolution of Conflicts; Arbitration..................................................81
8.9 Stockholders' Agent...................................................................83
8.10 Distribution Upon Termination of Escrow Period;
Contingent Share Distribution.........................................................84
8.11 Actions of the Stockholders' Agent; Stockholder Payee Representative..................85
8.12 Third-Party Claims....................................................................86
8.13 Maximum Liability and Remedies........................................................86
ARTICLE IX GENERAL PROVISIONS.............................................................................87
9.1 Notices...............................................................................87
9.2 Interpretation........................................................................89
9.3 Counterparts..........................................................................90
9.4 Entire Agreement; No Third Party Beneficiaries........................................90
9.5 Severability..........................................................................90
9.6 Remedies Cumulative...................................................................91
9.7 Governing Law.........................................................................91
9.8 JURISDICTION..........................................................................91
9.9 Assignment............................................................................91
9.10 Rules of Construction.................................................................92
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SCHEDULES
Target Disclosure Schedule
Schedule 2.1 - Target Organization
Schedule 2.2 - Target Capital Structure
Schedule 2.5 - Absence of Certain Changes
Schedule 2.6 - Target Absence of Undisclosed Liabilities
Schedule 2.7 - Target Accounts Receivable
Schedule 2.8 - Target Litigation
Schedule 2.11 - Target Real Property
Schedule 2.12 - Target Intellectual Property
Schedule 2.16 - Existing Target Employment Agreements
Schedule 2.17 - Related Party Transactions
Schedule 2.20 - Target Broker's Fees
Schedule 2.23 - Inventory
Schedule 2.25(b) - Target Suppliers
Schedule 2.26 - Target List of Material Contracts
Schedule 2.27 - No Breach of Material Contracts
Schedule 2.28 - Target Third Party Consents
Schedule 2.29 - Target Relationships
Schedule 2.32 - Target Bank Accounts
Schedule 2.33 - Target Year 2000 Compliance
Other Schedules
Schedule 4.2(a) - Material Contracts
Schedule 4.2(c) - Permitted Issuance of Securities
Schedule 6.2(e) - Target Employees
Schedule 6.3(h) - Target Employment Agreement Terminations
EXHIBITS
Exhibit 1.1 - Certificate of Merger
Exhibit 1.6(c) - Consideration Payout Exhibit
Exhibit 1.6(c)(iii) - Contingent Share Exhibit
Exhibit 5.14 - Escrow Agreement
Exhibit 6.2(c) - Acquiror's Legal opinion
Exhibit 6.2(e) - Employment Agreements
Exhibit 6.3(e) - Target's Legal opinion
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INDEX/CROSS REFERENCE SHEET FOR DEFINED TERMS
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"1934 Act".......................................................................................................15
"Accredited Investor"............................................................................................43
"Acquiror Average Price...........................................................................................3
"Acquiror Common Stock"...........................................................................................1
"Acquiror Financial Statements"..................................................................................48
"Acquiror SEC Documents".........................................................................................48
"Acquiror"........................................................................................................1
"Added Escrow Shares".............................................................................................7
"Agreement".......................................................................................................1
"Antitrust Laws" ................................................................................................58
"Approvals"......................................................................................................58
"Basket".........................................................................................................78
"Blue Sky Laws"..................................................................................................61
"Cash Consideration"..............................................................................................5
"CERCLA".........................................................................................................23
"Certificate of Merger"...........................................................................................2
"Certificates"....................................................................................................9
"Closing Date Shares".............................................................................................5
"Closing Date"....................................................................................................2
"Closing".........................................................................................................2
"Code"............................................................................................................1
"Consent to Assignment"..........................................................................................35
"Consideration Payout Exhibit"....................................................................................5
"Contingent Share Account"........................................................................................6
"Contingent Share Escrow".........................................................................................7
"Contingent Share Exhibit"........................................................................................5
"Contingent Shares"...............................................................................................5
"Contracts Requiring Novation"...................................................................................35
"Damages"........................................................................................................76
"Delaware Law"....................................................................................................2
"Dissenting Shares"...............................................................................................5
"Dissenting Stockholder"..........................................................................................9
"Due Diligence Period"...........................................................................................72
"Due Diligence"..................................................................................................55
"Effective Date,".................................................................................................2
"Effective Time"..................................................................................................2
"Employee Obligation"............................................................................................29
"Employment Agreements"..........................................................................................67
"Environmental Laws".............................................................................................23
"ERISA"..........................................................................................................27
"Escrow Agent"...................................................................................................79
"Escrow Agreement"...............................................................................................61
"Escrow Fund"....................................................................................................79
"Escrow Joint Written Instruction"...............................................................................84
"Escrow Share Account"...........................................................................................79
"Escrow Shares"...................................................................................................7
"Excess Advance Amount"...........................................................................................4
"Exchange Act"...................................................................................................48
"Exchange Agent"..................................................................................................9
</TABLE>
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<TABLE>
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"Exchange Fund"...................................................................................................9
"Financial Statements"...........................................................................................18
"Former Target Stockholders".....................................................................................13
"Fulfillment Agreement"..........................................................................................57
"Fulfillment Suppliers"..........................................................................................42
"GAAP"...........................................................................................................18
"GBH Advance"....................................................................................................63
"GBH Agreement"..................................................................................................38
"GBH Deferral"...................................................................................................63
"GBH Waiver".....................................................................................................63
"GBH"........................................................................................................37, 38
"Governmental Entity"............................................................................................18
"Initial Escrow Shares"...........................................................................................7
"Initial Shares"..................................................................................................5
"Intellectual Property"..........................................................................................23
"IRCA"...........................................................................................................28
"Mark"...........................................................................................................23
"Material Adverse Effect"........................................................................................89
"Material Contracts".............................................................................................32
"MCS&W, LLP "....................................................................................................67
"Merger Sub Common Stock".........................................................................................7
"Merger Sub"......................................................................................................1
"Merger"..........................................................................................................1
"NASD"...........................................................................................................47
"Non Basket Losses"..............................................................................................78
"Officer's Certificate"..........................................................................................79
"Order"..........................................................................................................59
"Person".........................................................................................................11
"Principal Stockholders".........................................................................................38
"Purchaser Covered Action".......................................................................................78
"RCRA"...........................................................................................................23
"Relationships"..................................................................................................35
"Securities Act".................................................................................................13
"SEC"............................................................................................................47
"Sharing Agreement"...............................................................................................6
"Source Materials"...............................................................................................34
"Staff"..........................................................................................................64
"Stockholder Payee Representative"................................................................................6
"Stockholders' Agent"............................................................................................83
"Surviving Corporation."..........................................................................................2
"Takeover Proposal"..............................................................................................54
"Target Authorizations"..........................................................................................21
"Target Balance Sheet Date"......................................................................................18
"Target Balance Sheet"...........................................................................................19
"Target Capital Stock"............................................................................................1
"Target Common Stock".............................................................................................8
"Target Disclosure Schedule".....................................................................................14
"Target Intellectual Property"...................................................................................23
"Target Options"..................................................................................................7
</TABLE>
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<TABLE>
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"Target Preferred Stock".........................................................................................15
"Target Stockholders".............................................................................................1
"Target"......................................................................................................1, 27
"Target's Knowledge".............................................................................................38
"Tax Authority"..................................................................................................27
"Tax Returns"....................................................................................................24
"Tax Return".....................................................................................................24
"Taxable"........................................................................................................26
"Taxes"..........................................................................................................26
"Tax"............................................................................................................26
"Termination Date"...............................................................................................75
"to the knowledge of the Target,"................................................................................38
"Total Acquiror Shares"...........................................................................................4
"Transaction Documents"..........................................................................................17
"Ulta Cosmetics Vendor Letters"..................................................................................57
"Ulta Cosmetics".................................................................................................57
"Ulta"...........................................................................................................40
"Year 2000 Compliant"............................................................................................36
"Year-End Marketing Expense".....................................................................................63
</TABLE>
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and entered
into as of December 29, 1999, by and among Ashford.com, Inc., a Delaware
corporation ("ACQUIROR"), Ashford-Jasmin Fragrance Corporation a Delaware
corporation ("MERGER SUB") and Jasmin.com Corporation, a Delaware corporation
("TARGET"); and all of the holders of capital stock of the Target (including,
for purposes of the right to receive consideration in the merger described below
and the provisions of Article VIII below, Persons who own Target Capital Stock
at the Effective Time, the "TARGET STOCKHOLDERS").
RECITALS
A. The Boards of Directors of Target, Acquiror and Merger Sub
believe it is in the best interests of their respective companies and the
stockholders of their respective companies that Target and Merger Sub combine
into a single company through the statutory merger of Target with and into
Merger Sub (the "MERGER") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, each outstanding
share of capital stock of Target, $.01 par value ("TARGET CAPITAL STOCK"), shall
be converted into shares of common stock of Acquiror, $.001 par value ("ACQUIROR
COMMON STOCK"), in accordance with Exhibit 1.6(c) hereto.
C. Target, Acquiror and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
D. The parties intend, by executing this Agreement, to adopt a plan
of reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "CODE"), and to cause the
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Merger to qualify as a reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit 1.1 (the "CERTIFICATE OF MERGER") and the
applicable provisions of the Delaware General Corporation Law ("DELAWARE LAW"),
Target shall be merged with and into Merger Sub, the separate corporate
existence of Target shall cease and Merger Sub shall continue as the surviving
corporation. Merger Sub as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "SURVIVING CORPORATION."
1.2 Closing; Effective Time. The closing of the transactions
contemplated hereby (the "CLOSING") shall take place on (a) January 31, 2000; or
(b) as soon as practicable after the satisfaction or waiver of each of the
conditions set forth in Article VI hereof but not earlier than January 31, 2000
unless the parties hereto agree to such sooner date (the date on which the
Closing shall occur, the "CLOSING DATE"). The Closing shall take place at the
offices of Morrison Cohen Singer & Weinstein, LLP, 750 Lexington Avenue, New
York, New York 10022, or at such other location as the parties hereto agree. On
the Closing Date, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger, together with the required officers'
certificates, with the Secretary of State of the State of Delaware, in
accordance with the
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relevant provisions of Delaware Law (the time and date of such filing being the
"EFFECTIVE TIME" and the "EFFECTIVE DATE," respectively).
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Target shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Target shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation
of Merger Sub, as in effect immediately prior to the Effective Time, shall be
the Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such Certificate of Incorporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.5 Directors and Officers. At the Effective Time, the directors of
Merger Sub immediately prior to the Effective Time shall be the directors of the
Surviving Corporation, to hold office until such time as such directors resign,
are removed or their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, to hold office until such
time as such officers resign, are removed or their respective successors are
duly elected or appointed and qualified.
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1.6 Effect on Capital Stock.
(a) Acquiror Average Price. For purposes of this Agreement,
the term "ACQUIROR AVERAGE PRICE" shall equal the average of the closing price
for a share of Acquiror Common Stock as quoted on the Nasdaq National Market for
the twenty (20) trading days immediately preceding and ending on the trading day
immediately prior to the Closing Date; provided that, if that average is less
than the $12.00 per share, then the average will be deemed to be $12.00 per
share or if that average is greater than $22.00 per share, then the average will
be deemed to be $22.00 per share (in each case, as may be appropriately adjusted
pursuant to Section 1.6(i) below).
(b) Maximum Number of Shares of Acquiror Common Stock
Issuable as a Result of the Merger. The maximum number of shares of Acquiror
Common Stock to be issued in exchange for the acquisition by Acquiror of all
outstanding Target Capital Stock pursuant to the Merger shall be equal to the
number of shares of Acquiror Common Stock (the "TOTAL ACQUIROR SHARES") obtained
by dividing (i) the sum of (x) $12,500,000 and (y) the amount by which the GBH
Advance (as defined in Section 5.20 below) exceeds $800,000 (such excess, the
"EXCESS ADVANCE Amount") by (ii) the Acquiror Average Price; reduced as a result
of any Dissenting Shares (which Dissenting Shares shall be deducted from the
Closing Date Shares before being deducted from the Contingent Shares ). No
adjustment shall be made in the number of shares of Acquiror Common Stock issued
in the Merger as a result of (x) any increase or decrease in the market price of
Acquiror Common Stock prior to the Effective Time or (y) any cash proceeds
received by Target from the date hereof to the Closing Date pursuant to the
exercise of currently outstanding Target Options.
(c) Exchange for Target Capital Stock. At the Effective Time,
subject and pursuant to the terms and conditions of this Agreement and the
Certificate of Merger, by virtue of the Merger and without any action on the
part of the Acquiror, Merger Sub, Target or the holders of any of Target's
securities, the
4
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Target Capital Stock issued and outstanding immediately prior to the Effective
Time (other than shares of Target Capital Stock to be canceled pursuant to
Section 1.6(f) below and shares of Target Capital Stock, if any, held by persons
who had the right to but have not voted such shares for approval of the Merger
and with respect to which such persons shall become entitled to exercise
dissenters' rights in accordance with Delaware Law ("DISSENTING SHARES")) shall
be converted and exchanged for the following consideration in accordance with
Exhibit 1.6(c) hereto (the "CONSIDERATION PAYOUT EXHIBIT"):
(i) the number of shares of Acquiror Common Stock
obtained by dividing (A) the sum of (1) $3,000,000 and (2) the Excess Advance
Amount (if any) by (B) the Acquiror Average Price (such number of shares the
"CLOSING DATE SHARES");
(ii) cash (the "CASH CONSIDERATION") in an amount
equal to (A) $2,000,000 less (B) any Excess Advance Amount; and
(iii) the number of shares of Acquiror Common Stock
obtained by dividing up to an aggregate of $9,500,000 determined in accordance
with Exhibit 1.6 (c)(iii) hereto (the "CONTINGENT SHARE EXHIBIT") by the
Acquiror Average Price (the aggregate number of such Shares releaseable to the
Target Stockholders pursuant to the Contingent Share Exhibit, the "CONTINGENT
SHARES").
(d) Delivery of Consideration. Subject to Sections 1.6(a)
and 1.6(c) above:
(i) At the Effective Time, the holders of Target
Capital Stock shall receive, in accordance with the Consideration Payout
Exhibit, (A) the Closing Date Shares less the Initial Escrow Shares (as defined
below) (the "INITIAL SHARES") and (B) the Cash Consideration.
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(ii) The Contingent Shares shall be issued at the
Effective Time and held in the Escrow Fund in the Contingent Share Account,
subject to forfeiture and to restrictions set forth in the Contingent Share
Exhibit, the Consideration Payout Exhibit and this Section 1.6(d)(ii) and
Section 1.6(e) below, until the applicable restrictions lapse as to the
Contingent Shares upon the achievement of the milestones set forth on the
Contingent Share Exhibit. Upon initial issuance on the Closing Date, the
certificates for the Contingent Shares shall be deposited with the Escrow Agent
(as defined below) to be held in a separate account designated for the
Contingent Shares (the "CONTINGENT SHARE ACCOUNT") in accordance with the terms
of this Agreement and the Contingent Share Exhibit. Any new, substituted or
additional securities or other property issued with respect to the Contingent
Shares shall also be delivered by Acquiror to be held in escrow in accordance
with Contingent Share Exhibit.
(iii) Subject to the terms of this Section 1.6(d),
at the Effective Time the holders of the Target Capital Stock shall have full
rights of ownership with respect to the Closing Date Shares and the Contingent
Shares (including voting rights and rights arising from any stock splits,
dividends, recapitalizations or the like; it being understood that, in the case
of the Contingent Shares only to the extent the applicable restrictions
(including to the extent that ten percent (10%) of such shares are deposited in
the Escrow Share Account of the Escrow Fund) lapse).
(iv) Notwithstanding anything to the contrary set
forth in this Agreement, Contingent Shares, Initial Shares and Cash
Consideration which Target Stockholders are entitled to receive pursuant to this
Agreement shall be furnished to the representative (the "STOCKHOLDER PAYEE
REPRESENTATIVE") designated by Ulta and the Principal Stockholders in writing to
Acquiror pursuant to that certain agreement (the "SHARING AGREEMENT") that will
be entered into among such Persons prior to the Effective Time (or in the event
no such designation is made, the Contingent Shares, Initial Shares and Cash
Consideration shall be paid to Ulta to be distributed in accordance with the
Consideration Payout Exhibit);
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and such consideration shall be deemed paid by Acquiror to the extent that the
Acquiror, the Exchange Agent and/or the Escrow Agent furnishes such
consideration to the Stockholders Payee Representative. Acquiror agrees to use
its commercially reasonable efforts to cooperate with the Stockholder Payee
Representative, based solely on the written instructions of the Stockholder
Payee Representative and to the extent not contrary to the escrow provisions of
this Agreement, to give effect to the Sharing Agreement.
(e) Escrow Shares. Of the Closing Date Shares, a number of
shares of Acquiror Common Stock equal to $500,000 divided by the Acquiror
Average Price (the "INITIAL ESCROW SHARES" and together with any and all Added
Escrow Shares (as defined below), collectively, "ESCROW SHARES") shall be held
in the Escrow Fund in the Escrow Share Account (as defined in Section 8.3 below
and subject to Article VIII below). Once the applicable restrictions on the
delivery of the Contingent Shares to the Target Stockholders lapse upon the
achievement of the milestones on the Achievement Dates as set forth on the
Contingent Share Exhibit, ten percent (10%) of the number of Contingent Shares
(such Contingent Shares, "ADDED ESCROW SHARES") to be delivered to the Target
Stockholders (the "CONTINGENT SHARE ESCROW") shall instead be released from the
Contingent Share Account and deposited and held in the Escrow Fund in the Escrow
Share Account in accordance with the terms set forth in Article VIII.
(f) Cancellation of Target Capital Stock Owned by Acquiror or
Target. At the Effective Time, all shares of Target Capital Stock that are owned
by Target as treasury stock, each share of Target Capital Stock owned by
Acquiror or any direct or indirect wholly owned subsidiary of Acquiror
immediately prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(g) Cancellation of Target Options. At the Effective Time,
each of the Target's then outstanding Target options (the "TARGET OPTIONS")
(whether or not exercisable at the Effective Time), by virtue of the Merger and
without any further action on the part of the holder thereof or any other
Person, shall
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be automatically cancelled and cease to exist from and after the Effective Time
to the extent not exercised for or exchanged into shares of Target Common Stock
prior to the Effective Time.
(h) Capital Stock of Merger Sub. At the Effective Time, each
share of Common Stock, $.01 par value, of Merger Sub ("MERGER SUB COMMON
STOCK"), issued and outstanding immediately prior to the Effective Time shall
remain outstanding without any change or modification thereto. At the Effective
Time, each stock certificate of Merger Sub evidencing ownership of any such
shares shall continue to evidence ownership of the Surviving Corporation.
(i) Adjustments to Exchange Ratios Set Forth in Consideration
Payout Exhibit. Subject to the Consideration Payout Schedule, the ratio of
Acquiror Common Stock payable in respect of the Common Stock of the Target, par
value $.01 per share (the "TARGET COMMON STOCK") and the Target Preferred Stock
(as defined in Section 2.2) shall be appropriately adjusted to reflect fully the
effect of any stock split, reverse split, stock dividend (including any dividend
or distribution on outstanding Acquiror Common Stock of securities convertible
into Acquiror Common Stock or Target Capital Stock), 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; it being understood that (i) such ratio differs with respect to Target
Common Stock and Target Preferred Stock and (ii) depending upon the extent to
which Contingent Shares are issued to holders of Target Capital Stock in
accordance with the Contingent Share Exhibit, such ratios shall be appropriately
further adjusted as between the Target Shareholders based upon the priorities
set forth in the Consideration Payout Exhibit.
(j) Fractional Shares. No fraction of a share of Acquiror
Common Stock will be issued, but in lieu thereof each holder of shares of Target
Capital Stock 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
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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) Acquiror Average Price.
(k) Dissenters' Rights. Any Dissenting Shares shall not be
converted into Acquiror Common Stock but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to Delaware Law. Target agrees that, except
with the prior written consent of Acquiror, or as required under 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 ("DISSENTING
STOCKHOLDER") who, pursuant to the provisions of Delaware law, becomes entitled
to payment of the fair value for shares of Target Capital Stock 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
certificate or certificates representing shares of Target Common Stock, the
number of shares of Acquiror Common Stock to which such stockholder would
otherwise be entitled under this Section 1.6 and the Agreement of Merger less
the number of shares allocable to such stockholder that have been or will be
deposited in the Escrow Fund in respect of such shares of Acquiror Common Stock
pursuant to Section 1.7(c) and Article VIII hereof.
1.7 Surrender of Certificates.
(a) Exchange Agent. Chase Mellon Stockholder Services, LLP
shall act as exchange agent (the "EXCHANGE AGENT") in the Merger.
(b) Acquiror to Provide Acquiror Common Stock and Cash.
Promptly after the Effective Time, Acquiror shall make available to the Exchange
Agent for exchange in accordance with this Article I, through such reasonable
procedures as Acquiror may adopt, in exchange for shares of Target Capital Stock
outstanding immediately prior to the Effective Time, (i) the Initial Shares,
(ii) the Cash Consideration and
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(iii) cash in an amount sufficient to permit payment of cash in lieu of
fractional shares pursuant to Section 1.6(g) ((i), (ii) and (iii), collectively
the "EXCHANGE FUND").
(c) Exchange Procedures.
(i) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "CERTIFICATES") which immediately prior to the Effective
Time represented outstanding shares of Target Capital Stock, whose shares were
converted into the right to receive shares of Acquiror Common Stock (and cash in
lieu of fractional shares) and Cash Consideration pursuant to Section 1.6, (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon receipt of the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Acquiror may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
representing shares of Acquiror Common Stock (and cash in lieu of fractional
shares) and Cash Consideration. Upon surrender of a Certificate for cancellation
to the Exchange Agent or to such other agent or agents as may be appointed by
Acquiror, together with such letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor (A) a certificate
representing the number of whole shares of Acquiror Common Stock comprising such
holder's share of the Initial Shares and (B) cash in an amount equal to (i) such
holder's share of the Cash Consideration and (ii) payment in lieu of fractional
shares which such holder has the right to receive pursuant to Section 1.6; and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Target Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Acquiror Common Stock
and an amount of Cash Consideration into which such shares of Target Capital
Stock shall have been so converted (and, in amplification of the foregoing, in
the case of Contingent Shares, are convertible for) and the right to receive an
amount in cash in lieu of the issuance of any fractional shares in accordance
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with Section 1.6.
(ii) As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 8.3 hereof,
Acquiror shall cause to be delivered to the Escrow Agent (as defined in Section
8.3 hereof) a certificate or certificates representing the Escrow Shares and the
Contingent Shares which shall be registered in the name of the Escrow Agent as
nominee for the holders of Certificates cancelled pursuant to this Section 1.7.
Such Escrow Shares shall be beneficially owned by such holders and shall be held
in escrow and shall be available to compensate Acquiror for certain damages as
provided in Article VIII. To the extent not used for such purposes, such Escrow
Shares shall be released, all as provided in Article VIII hereof. Escrow Agent
shall be required to release Contingent Shares in accordance with the Escrow
Agreement (as defined in Section 5.14 below) and the Contingent Share Exhibit.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Acquiror Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Acquiror Common Stock
represented thereby until the holder of record of such Certificate surrenders
such Certificate; and in no event shall interest or lost opportunity cost be
paid on any portion of the Cash Consideration and/or cash in lieu of fractional
shares. Subject to applicable law, following surrender of any such Certificate,
there shall be paid to the record holder of the certificates representing whole
shares of Acquiror Common Stock issued in exchange therefor, without interest,
at the time of such surrender, the amount of any such dividends or other
distributions with a record date after the Effective Time which would have been
previously payable (but for the provisions of this Section 1.7(d)) with respect
to such shares of Acquiror Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Acquiror Common Stock or cash portion of the Cash Consideration is to be issued
to any individual, firm, corporation, limited liability company, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, Governmental Entity (as defined below) or other entity of any kind, and
shall include any successor (by merger or otherwise) of such entity (each, a
"PERSON") other than that in which the Certificate surrendered
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in exchange therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered is properly endorsed and otherwise
in proper form for transfer and that the person requesting such exchange will
have paid to Acquiror or any agent designated by it any transfer or other taxes
required by reason of the issuance of a certificate for shares of Acquiror
Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Acquiror or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.7, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to any person for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(g) Dissenting Shares. The provisions of this Section 1.7
shall also apply to Dissenting Shares that lose their status as such, except
that the obligations of Acquiror under this Section 1.7 shall commence on the
date of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquiror Common
Stock to which such holder is entitled pursuant to Section 1.6 hereof.
1.8 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Target Capital Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Target Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates,
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upon the making of an affidavit of that fact by the holder thereof, such shares
of Acquiror Common Stock and Cash Consideration portion (and cash in lieu of
fractional shares) as may be required pursuant to Section 1.6; 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, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. No party shall take any action which would, to such party's knowledge,
cause the Merger to fail to qualify as a reorganization within the meaning of
Section 368 of the Code.
1.11 Exemption from Registration. The shares of Acquiror Common Stock
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under the Securities Act of 1933, as amended and the
rules and regulations promulgated thereunder (the "SECURITIES ACT"), by reason
of Section 4(2) thereof.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Target, the officers and directors of Target, Merger Sub and
the Surviving Corporation are fully authorized in the name of their respective
corporations or otherwise to take, and shall take, all such lawful and necessary
action, so long as such action is not inconsistent with this Agreement.
1.13 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the shareholders of Target six (6) months after
the Effective Time shall be delivered by Exchange Agent to Acquiror, and
thereafter upon demand from any former stockholders of the Target ("FORMER
TARGET STOCKHOLDERS") who have not theretofore complied with this Article I, the
appropriate
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amount of such portion(s) of the Escrow Fund shall be distributed to the Former
Target Stockholders only upon the receipt of proper Certificates or evidence
reasonably satisfactory in form and substance to the Acquiror.
1.14 No Liability. Neither the Exchange Agent, Acquiror, Merger Sub
nor the Target shall be liable to any holder of shares of Target Capital Stock
or Acquiror Common Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) of Acquiror Common Stock to be issued in
exchange for Target Capital Stock pursuant to this Article I, if, on or after
the expiration of twelve (12) months following the Effective Date (or, in the
case of Contingent Shares, 12 months after the later of (x) the first
anniversary of the Effective Date and (y) October 15, 2000), such shares are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF TARGET AND THE PRINCIPAL STOCKHOLDERS
Each of the Target and the Principal Stockholders (as
defined in Section 2.38) hereby jointly and severally represents and warrants to
Acquiror and Merger Sub that the statements contained in this Article II are
true and correct, except as set forth in the disclosure schedule delivered by
Target to Acquiror prior to the execution and delivery of (and attached to) this
Agreement (the "TARGET DISCLOSURE SCHEDULE"). The Target Disclosure Schedule
shall be arranged in paragraphs corresponding to the numbered and lettered
Sections and subsections and subclauses contained in this Article II, and
(absent a specific cross reference in the Target Disclosure Schedule to another
Section or subsection or subclause in this Article II) the disclosure in any
paragraph in the Target Disclosure Schedule shall qualify only the specific
Section or subsection or subclause under which such paragraph appears in this
Article II.
2.1 Organization, Standing and Power. Target is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization. Target has the corporate power to own its
properties and to carry on its business as now being conducted and as currently
proposed to be conducted
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and, except as set forth in Section 2.1 of the Target Disclosure Schedule, is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified and in good standing would have a Material
Adverse Effect (as defined herein) on Target. Target has delivered to Acquiror a
true and correct copy of the Certificate of Incorporation and Bylaws or other
charter documents, as applicable, of Target, each as amended to date. Target is
not in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent organizational documents. Target has no subsidiaries and
owns no economic interest or controls any voting power in any controlled
affiliate (as defined under the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated thereunder, collectively, the "1934 ACT")
or any joint venture entity. Target does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity. The Target
owns no "margin stock" as such term is defined in Regulation U, as amended (12
C.F. R. Part 221) of the Federal Reserve Board.
2.2 Capital Structure. The authorized capital stock of Target consists
of six million (6,000,000) shares of Common Stock and three million eight
hundred thousand (3,800,000) shares of Preferred Stock, of which there were
issued and outstanding as of the date of this Agreement, nine hundred thousand
(900,000) shares of Common Stock and one million (1,000,000) shares of Series A
Preferred Stock (the "TARGET PREFERRED STOCK"). Except as set forth in Section
2.2 of the Target Disclosure Schedule, there are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue any
shares of capital stock or voting securities after the date of this Agreement
other than pursuant to the exercise of options outstanding as of the date of
this Agreement under the Target Stock Option Plan. All outstanding shares of
Target Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof, and, except as set
forth in Section 2.2 of the Target Disclosure Schedule, are not subject to
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preemptive rights, rights of first refusal, rights of first offer or similar
rights created by statute, the Certificate of Incorporation or Bylaws of Target
or any agreement to which Target is a party or by which it is bound. As of the
date of this Agreement, Target has reserved (i) 1,000,000 shares of Common Stock
for issuance upon conversion of the Target Preferred Stock and (ii) 200,000
shares of Common Stock for issuance to employees, directors and consultants
pursuant to the Target Stock Option Plan, of which no shares have been issued
pursuant to option exercises or direct stock purchases, and 5,000 shares are
subject to the outstanding and unexercised options listed in Section 2.2 of the
Target Disclosure Schedule. Section 2.2 of the Target Disclosure Schedule
accurately sets forth the parties to which such options have been issued as of
the date hereof and a vesting schedule for such options. Except for (i) the
rights created pursuant to this Agreement and (ii) Target's right to repurchase
any unvested shares under the Target's employment and restricted stock
agreements, there are no other options, warrants, calls, rights, commitments or
agreements of any character to which Target is a party or by which it is bound
obligating Target to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of Target Capital
Stock or obligating Target to grant, extend, accelerate the vesting of, change
the price of, or otherwise amend or enter into any such option, warrant, call,
right, commitment or agreement. Except as set forth in Section 2.2 of the Target
Disclosure Schedule, there are no contracts, commitments or agreements relating
to the voting, purchase or sale of Target Capital Stock (i) between or among
Target and any of its stockholders and (ii) to the Target's knowledge, among any
Target Stockholder or between any of Target Stockholders and any third party,
except for the provisions of Section 5.9. Except as set forth in Section 2.2 of
the Target Disclosure Schedule, the terms of the Target Stock Option Plan (or
any other contractual arrangement applicable to the Target) do not provide for
acceleration of vesting of any options as a result of the execution and delivery
of this Agreement or the consideration of the transactions contemplated hereby.
True and complete copies of all agreements and instruments relating to or issued
under the Target Stock Option Plan have been made available to Acquiror, and
such agreements and instruments have not been amended, modified or supplemented,
and there are no agreements to amend, modify or supplement such agreements or
instruments
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from the form made available to Acquiror. All outstanding Common Stock and
Target Preferred Stock and options under the Target Stock Option Plan were
issued in material compliance with all applicable federal and state securities
laws.
2.3 Authority.
(a) Target has all requisite corporate power and authority to
enter into this Agreement, the Certificate of Merger, the Escrow Agreement and
all of the documents, instruments and agreements contemplated hereby and thereby
(collectively, the "TRANSACTION DOCUMENTS"), and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Target, subject only to the approval of the
Merger by Target Stockholders as contemplated by Section 6.1(a). This Agreement
and other Transaction Documents to the extent executed and delivered on the date
hereof have been (and to the extent executed and delivered after the date hereof
will have been) duly executed and delivered by Target and upon execution and
delivery shall constitute the valid and binding obligations of Target
enforceable against Target in accordance with their respective terms.
(b) The execution and delivery of this Agreement and the
other Transaction Documents by Target do (and will) not, and the consummation of
the transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit or result in the creation
of any lien or encumbrance against any of the Target's assets, properties,
contract rights or business under (i) any provision of the Certificate of
Incorporation or Bylaws of Target, as amended, or (ii) any Material Contract (as
defined in Section 2.26), permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Target
or any of its properties or assets.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing
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with, any court, administrative agency or commission or other governmental
authority or instrumentality ("GOVERNMENTAL ENTITY") or other Person is required
by or with respect to Target in connection with the execution and delivery of
this Agreement and the other Transaction Documents or the consummation of the
transactions contemplated hereby or thereby, except for (i) the filing of the
Agreement of Merger, together with the required officers' certificates, as
provided in Section 1.2; (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; and (iii)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on Target.
2.4 Financial Statements. Target has delivered to Acquiror its
unaudited financial statements (balance sheet, statement of operations,
statement of stockholders' equity and statement of cash flows) as at October 31,
1999 and for the period commencing May 11, 1999 through October 31, 1999
(collectively, the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles ("GAAP")
(except that the unaudited financial statements do not have notes thereto)
applied on a consistent basis throughout the periods indicated and with each
other. The Financial Statements fairly present the financial condition and
operating results of Target as of the dates, and for the periods, indicated
therein, subject, in the case of the unaudited financial statements, to normal
year-end audit adjustments which, to Target's knowledge, are not (and would not
be) reasonably likely to be material in the aggregate. Target maintains a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
2.5 Absence of Certain Changes. Except as set forth in Section 2.5 of
the Target Disclosure Schedule, since October 31, 1999 (the "TARGET BALANCE
SHEET DATE"), Target has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect (as defined
in Section 9.2) on Target; (ii) any acquisition, sale or transfer of any
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material asset of Target; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Target or any revaluation by Target of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Target, or any direct or indirect redemption, purchase or other
acquisition by Target of any of its shares of capital stock; (v) any Material
Contract entered into by Target, other than as provided to Acquiror, or any
material amendment or termination of, or default under, any Material Contract to
which Target is a party or by which it is bound; (vi) any amendment or change to
the Certificate of Incorporation or Bylaws of Target; (vii) any increase in or
modification of the compensation or benefits payable or to become payable by
Target to any of its directors, employees or consultants (viii) any negotiation
or agreement by Target to do any of the things described in the preceding
clauses (i) through (vii) (other than negotiations with Acquiror and its
representatives regarding the transactions contemplated by this Agreement).
2.7 Absence of Undisclosed Liabilities. Except as set forth in Section
2.6 of the Target Disclosure Schedule, Target has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other than
(i) those set forth or adequately provided for on the Balance Sheet for the
period ended October 31, 1999 (the "TARGET BALANCE SHEET"), (ii) those incurred
in the ordinary course of business consistent with past practice prior to the
Target Balance Sheet Date and not required to be set forth in the Target Balance
Sheet under GAAP (iii) those incurred in the ordinary course of business
consistent with past practice since the Target Balance Sheet Date in amounts
consistent with prior periods, and (iv) those incurred in connection with the
execution of this Agreement.
2.7 Accounts Receivable. The accounts receivable shown on the Target
Balance Sheet arose in the ordinary course of business consistent with past
practice. Allowances for doubtful accounts and returns are adequate and have
been prepared in accordance with the past practices of Target. The accounts
receivable of Target arising after the date of the Target Balance Sheet and
prior to the date hereof arose, and the accounts receivable arising prior to the
Effective Time will arise, in the ordinary course of business. Except as set
forth in Section 2.7 of the Target Disclosure Schedule, none of the accounts
receivable are subject to any material
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claim of offset or recoupment, or counterclaim and Target has no knowledge of
any specific facts that would be reasonably likely to give rise to any such
claim. Except as set forth in Section 2.7 of the Target Disclosure Schedule, no
material amount of accounts receivable are contingent upon the performance by
Target of any obligation. No agreement for deduction or discount has been made
with respect to any accounts receivable. Credits, returns and rebates shall not
constitute payment of accounts receivable. In determining whether there has been
any nonpayment of any account receivable, all payments received from any account
debtor shall, unless otherwise specified by such account debtor, be first
applied to the oldest outstanding account receivable of such account debtor
until all Accounts Receivable of such account debtor have been paid in full in
cash.
2.8 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Target, threatened
(including allegations that could form the basis for future action) against
Target or any of its properties or officers or directors (in their capacities as
such), nor, to Target's knowledge, is there any reason to expect that any such
activity, threat or allegation will be forthcoming. There is no judgment, decree
or order against Target, or, to the knowledge of Target, any of its directors or
officers (in their capacities as such), that could result in a Material Adverse
Effect on Target. All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in Section 2.8
of the Target Disclosure Schedule. Target does not have any plans to initiate
any litigation, arbitration or other proceeding against any third party.
2.9 Restrictions on Business Activities. There is no agreement,
judgment, injunction, order or decree binding upon Target that has or could
reasonably be expected to have the effect of prohibiting or impairing any
current or future business practice of Target, any acquisition of property by
Target or the conduct of business by Target as currently conducted or as
currently proposed to be conducted by Target.
2.10 Governmental Authorization. Target has obtained each federal,
state, county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to
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which Target currently operates or holds any interest in any of its properties
or (ii) that is required for the operation of Target's business or the holding
of any such interest ((i) and (ii) herein collectively called "TARGET
AUTHORIZATIONS"), and all of such Target Authorizations are in full force and
effect, except where the failure to obtain or have any such Target
Authorizations could not reasonably be expected to have a Material Adverse
Effect on Target.
2.11 Title to Property. Target has good and marketable title to all of
its properties, interests in properties and assets, real and personal, necessary
for the conduct of its business as presently conducted or which are reflected in
the Target Balance Sheet or acquired after the Target Balance Sheet Date (except
properties, interests in properties and assets sold or otherwise disposed of in
the ordinary course of business consistent with past practice since the Target
Balance Sheet Date), or with respect to leased properties and assets, valid
leasehold interests therein, in each case free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character whatsoever,
except (i) the lien of current taxes not yet due and payable, (ii) liens
securing debt that are reflected on the Target Balance Sheet, and (iii) minor
imperfections of title, if any, which do not substantially or materially detract
from the value or impair the use of the property subject thereto, or which do
not impair the operation of Target's business. The plant, property and equipment
of Target that are used in the operations of its business are in good operating
condition and repair. All properties used in the operations of Target are
reflected in the Target Balance Sheet to the extent GAAP requires the same to be
reflected. Section 2.11 of the Target Disclosure Schedule identifies each parcel
of real property owned by Target.
2.12 Intellectual Property.
(a) Except as set forth in Section 2.12 of the Target
Disclosure Schedule, Target is the sole and exclusive owner of all Target
Intellectual Property (defined below) free of all contingent and noncontingent
liens, restrictions, interests, rights of reversion or termination, and all
other encumbrances of any nature whatsoever, except where such restrictions,
interests, rights of revision, or termination or other encumbrances could not
reasonably be expected to have a Material Adverse Effect on the Target. The
conduct
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of Target's business as currently conducted will not infringe, misappropriate or
violate any Intellectual Property (defined below) of others. With respect to
patent rights, moral rights and Mark rights (defined below), the foregoing
representations and warranties of this paragraph are made only to Target's
knowledge.
(b) All Target Intellectual Property that is the subject of
any application, registration or issuance with or from any Governmental Entity
is identified in Section 2.12 of the Target Disclosure Schedule; all such
registered or issued Target Intellectual Property is valid and subsisting and is
free from any challenge (or, to Target's knowledge, threat thereof) and, to
Target's knowledge, Target is not aware of any specific basis therefor. All such
applications, registrations and issuances have been properly maintained. Target
has adequately protected all other Target Intellectual Property through the use
of confidentiality agreements and otherwise and Target is not aware of any use,
exercise or exploitation of any Target Intellectual Property, except as
authorized by Target in writing.
(c) Each current and former employee and contractor of Target
has executed and delivered (and to Target's knowledge, is in compliance with) an
enforceable agreement in substantially the form of Target's standard Proprietary
Information and Inventions Agreement (in the case of an employee) or Target's
standard Consulting Agreement (in the case of a contractor) (which agreement
provides valid written assignments of all title and rights to any Target
Intellectual Property conceived or developed thereunder or otherwise in
connection with his or her consulting or employment). A copy of Target's forms
of standard Proprietary Information and Inventions Agreement and Consulting
Agreement have been delivered to the Acquiror.
(d) "INTELLECTUAL PROPERTY" means patent rights; trade name,
trademark, service mark and similar rights ("MARK" rights); copyrights; mask
work rights; sui generis database rights; trade secret rights; moral rights; and
all other intellectual and industrial property rights of any sort throughout the
world, and all applications, registrations, issuances and the like with respect
thereto. "TARGET INTELLECTUAL PROPERTY" means all Intellectual Property that has
been, is, or is proposed to be owned by Target, or used,
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exercised, or exploited, or otherwise necessary for, Target's business as
currently conducted.
2.13 Environmental Matters. Target is and has at all times operated
its business in material compliance with all Environmental Laws (defined below)
and to Target's knowledge, no material expenditures are or will be required in
order to comply with such Environmental Laws. "ENVIRONMENTAL LAWS" means all
applicable statutes, rules, regulations, ordinances, orders, decrees, judgments,
permits, licenses, consents, approvals, authorizations, and governmental
requirements or directives or other obligations lawfully imposed by governmental
authority under federal, state or local law pertaining to the protection of the
environment, protection of public health, protection of worker health and
safety, the treatment, emission and/or discharge of gaseous, particulate and/or
effluent pollutants, and/or the handling of hazardous materials, including
without limitation, the Clean Air Act, 42 U.S.C.ss.7401, et seq., the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C.ss.9601, et seq., the Federal Water Pollution Control Act,
33 U.S.C.ss.1321, et seq., the Hazardous Materials Transportation Act, 49
U.S.C.ss.1801, et seq., the Resource Conservation and Recovery Act, 42
U.S.C.ss.6901, et seq. ("RCRA"), and the Toxic Substances Control Act, 15
U.S.C.ss.2601, et seq.
2.14 Taxes. All Tax returns, statements, reports, declarations and
other forms and documents (including without limitation estimated Tax returns
and reports and material information statements, returns and reports) required
to be filed with any Tax authority on or before the Effective Time with respect
to any Taxable period ending on or before the Effective Time, by or on behalf of
Target (collectively, "TAX RETURNS" and individually a "TAX RETURN"), have been
or will be completed and filed when due (including any extensions of such due
date) and all amounts shown due on such Tax Returns filed on or before the
Effective Time have been or will be paid on or before such date. The Target
Balance Sheet included in the Financial Statements (i) fully accrues all actual
and contingent liabilities for Taxes with respect to all periods through the
Target Balance Sheet Date to the extent required by GAAP and Target has not and
will not incur any Tax liability in excess of the amount reflected on such
Target Balance Sheet with respect to such periods
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(excluding any amount thereof that reflects timing differences between the
recognition of income for purposes of GAAP and for Tax purposes), and (ii)
properly accrues in accordance with GAAP all material liabilities for Taxes
payable after the Target Balance Sheet Date with respect to all transactions and
events occurring on or prior to such date. All information set forth in the
notes to the Target Financial Statements relating to Tax matters is true,
complete and accurate in all material respects. No material Tax liability since
the Target Balance Sheet Date has been or will, through the Effective Date, be
incurred by Target other than in the ordinary course of business, and adequate
provision has been made by Target for all Taxes since the Target Balance Sheet
Date in accordance with GAAP on at least a quarterly basis.
Target has previously provided or made available to Acquiror true and
correct copies of all Tax Returns filed by it. Target has withheld and paid to
the applicable financial institution or Tax authority all Taxes or other amounts
required to be withheld and remitted. Target (or any member of any affiliated or
combined group of which Target has been a member) has not granted any extension
or waiver of the limitation period applicable to any Tax Returns that is still
in effect. There is no material claim, audit, action, suit, proceeding, or (to
the knowledge of Target) investigation now pending or (to the knowledge of
Target) threatened against or with respect to Target in respect of any Tax or
assessment. No notice of deficiency or similar document of any Tax authority has
been received by Target, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax authority that could, if determined adversely to Target,
materially and adversely affect the liability of Target for Taxes. There are no
liens for Taxes (other than for current Taxes not yet due and payable) upon the
assets of Target. Target has never been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code. Target is in full
compliance with all the terms and conditions of any Tax exemptions or other
Tax-sharing agreement or order of a foreign government and the consummation of
the Merger will not have any adverse effect on the continued validity and
effectiveness of any such Tax exemption or other Tax-sharing agreement or order.
Neither Target nor any person on behalf of Target has entered into or will enter
into any agreement or consent
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pursuant to the collapsible corporation provisions of Section 341(f) of the Code
(or any corresponding provision of state, local or foreign income tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding provision of
state, local or foreign income tax law) apply to any disposition of any asset
owned by Target. Target has never been a party (either as a distributing
corporation as a corporation that has been distributed) to any transaction
intended to qualify under Section 355 of the Code or any corresponding provision
of state law. Target has not participated in (and will not participate in) an
international boycott within the meaning of Section 999 of the Code. No Target
Stockholder is other than a United States person within the meaning of the Code.
Target does not have and has not had a permanent establishment in any foreign
country, as defined in any applicable tax treaty or convention between the
United States of America and such foreign country and Target has not engaged in
a trade or business within any foreign country. Target has never elected to be
treated as an S-corporation under Section 1362 of the Code or any corresponding
provision of federal or state law. All material elections with respect to
Target's Taxes made, if any, during the fiscal years ending, December 31, 1995,
1996 and 1997 are reflected on the Target Tax Returns (to the extent Target or
any of its predecessors operated during such periods) for such periods, copies
of which have been provided or made available to Acquiror. Target is not party
to any joint venture, partnership, or other arrangement or contract which could
be treated as a partnership for federal income tax purposes; provided that
Target's predecessor was a "partnership" for Tax purposes. Target is not
currently and never has been subject to the reporting requirements of Section
6038A of the Code. There is no agreement, contract or arrangement to which
Target is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G,
162(a) (by reason of being unreasonable in amount), 162 (b) through (p) or 404
of the Code (without regard to the timing of any such deduction). Target is not
a party to or bound by any Tax indemnity, Tax sharing or Tax allocation
agreement (whether written or unwritten or arising under operation of federal
law as a result of being a member of a group filing consolidated Tax returns,
under operation of certain state laws as a result of being a member of a unitary
group, under operation of law as a result of being a transferee of property from
any
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third party, or under comparable laws of other states or foreign jurisdictions)
which includes a party other than Target nor does Target owe any amount under
any such Agreement; provided that Target may be liable for Taxes of Jasmin.com,
LLC (Target's predecessor) pursuant to the agreement pursuant to which such
predecessor was merged into Target (which Taxes, if any, the Acquiror and
Surviving Corporation shall be indemnified for pursuant to Section 8.2(b)
below). Target is not, and has not been, a United States real property holding
corporation (as defined in Section 897(c)(2) of the Code) during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code. Other than by reason
of the Merger, Target has not been and will not be required to include any
material adjustment in Taxable income for any Tax period (or portion thereof)
pursuant to Section 481 or 263A of the Code or any comparable provision under
state or foreign Tax laws as a result of transactions, events or accounting
methods employed prior to the Merger.
For purposes of this Agreement, the following terms have the following
meanings: "TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") means any
and all taxes including, without limitation, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax governmental fee
or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "TAX AUTHORITY") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other person. As used in
this Section 2.14, the term "TARGET" means Target and any entity included in, or
required under GAAP to be included in, any of the Target Financial Statements.
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2.15 Employee Benefit Plans.
(a) Target does not maintain or contribute to, and has never
maintained or contributed to any employee benefit plan, as defined in section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.16 Employees and Consultants.
(a) Target has provided Acquiror with a true and complete
list of all individuals employed by or rendering consulting services to Target
as of the date hereof and the position and base compensation (and
bonus/incentive amounts) payable to each such individual. Section 2.16 of the
Target Disclosure Schedule contains a description of any written or oral
employment agreements, consulting agreements or termination or severance
agreements to which Target is a party.
(b) Target is not a party to or subject to a labor union or a
collective bargaining agreement or arrangement and is not a party to any labor
or employment dispute.
(c) The consummation of the transactions contemplated hereby
will not result in (i) any amount becoming payable by Target, the Acquiror,
Merger Sub or the Surviving Corporation, to any employee, director or
independent contractor of Target except as provided herein or in any Transaction
Document, (ii) except as set forth in Section 2.16 of the Target Disclosure
Schedule, the acceleration of payment or vesting of any benefit, option or right
to which any employee, director or independent contractor of Target may be
entitled, (iii) the forgiveness of any indebtedness of any employee, director or
independent contractor of Target or (iv) any cost becoming due or accruing to
Target or the Acquiror with respect to any employee, director or independent
contractor of Target.
(d) Target is not obligated and upon consummation of the
Merger will not be obligated to make any payment or transfer any property that
would be considered a "parachute payment" under section 280G(b)(2) of the Code.
(e) To the knowledge of Target, no employee of Target has
been injured in the work place or in the course of his or her employment except
for injuries which are covered by insurance or for
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which a claim has been made under workers' compensation or similar laws.
(f) Target has complied in all material respects with the
verification requirements and the record-keeping requirements of the Immigration
Reform and Control Act of 1986 ("IRCA"); to the knowledge of Target, the
information and documents on which Target relied to comply with IRCA are true
and correct; and there have not been any discrimination complaints filed against
Target pursuant to IRCA, and to the knowledge of Target, there is no basis for
the filing of such a complaint.
(g) To Target's knowledge, Target has not received or been
notified of any complaint by any employee, applicant, union or other party of
any discrimination or other conduct forbidden by law or contract, nor to the
knowledge of Target, is there a basis for any complaint. (8) To Target's
knowledge, Target's action in complying with the terms of this Agreement will
not violate any agreements with any of Target's employees.
(h) Target has filed all required reports and information
with respect to its employees that are due prior to the Closing Date and
otherwise has complied in its hiring, employment, promotion, termination and
other labor practices with all applicable federal and state law and regulations,
including without limitation those within the jurisdiction of the United States
Equal Employment Opportunity Commission, United States Department of Labor and
state and local human rights or civil rights agencies. Target has filed and
shall file any such reports and information that are required to be filed prior
to the Closing Date.
(j) Except as set forth in Section 2.16 of the Target
Disclosure Schedule, to Target's knowledge, none of Target's employees or
contractors is obligated under any agreement, commitments, judgment, decree,
order or otherwise (an "EMPLOYEE OBLIGATION") that could reasonably be expected
to interfere with the use of his or her best efforts to promote the interests of
Target or that could reasonably be expected to conflict with any of Target's
business as conducted or currently proposed to be conducted. Neither the
execution nor delivery of this Agreement nor the conduct of Target's business as
conducted or currently proposed, will, to Target's knowledge, conflict with or
result in a breach of the terms, conditions
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or provisions of, or constitute a default under, any Employee Obligation.
2.17 Related-Party Transactions. Except as set forth in Section 2.17
of the Target Disclosure Schedule, no employee, officer, or director of Target
or member of his or her immediate family is indebted to Target, nor is Target
indebted (or committed to make loans or extend or guarantee credit) to any of
them. To the Target's knowledge, none of such persons has any direct or indirect
ownership interest in any firm, company or corporation with which Target is
affiliated or with which Target has a business relationship, or any firm,
company or corporation that competes with Target, except to the extent that
employees, officers, or directors of Target and members of their immediate
families own stock in publicly traded companies that may compete with the
Target. No member of the immediate family of any officer or director of Target
is directly or indirectly interested in any Material Contract (as defined below)
with Target.
2.18 Insurance. Target has policies of insurance and bonds of the type
and in amounts customarily carried by persons conducting businesses or owning
assets similar to those of Target. There is no material claim pending under any
of such policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Target is otherwise
in material compliance with the terms of such policies and bonds. Target has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
2.19 Compliance with Laws. Target has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for such violations or failures to comply as would not result in a Material
Adverse Effect on Target.
2.20 Brokers' and Finders' Fees. Except as set forth in Section 2.20
of the Target Disclosure Schedule, Target has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or investment bankers' fees or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
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2.21 [INTENTIONALLY LEFT BLANK].
2.22 Vote Required. The affirmative vote of the holders of a majority
of each class of the shares of Target Capital Stock outstanding on the record
date set for the meeting of Target Stockholders entitled to vote on the approval
of this Agreement and the Merger or the date of the written consent of such
stockholders with respect to the approval of this Agreement and the Merger is
the only vote of the holders of any of Target's Capital Stock necessary to
approve this Agreement and the transactions contemplated hereby.
2.23 Inventory. The inventories shown on the Target Balance Sheet or
thereafter acquired by Target, consisted of items of a quantity and quality
usable or salable in the ordinary course of business. Since Target's inception,
Target has continued to replenish inventories in a normal and customary manner
consistent with Target's past practices. Except as set forth in Section 2.23 of
the Target Disclosure Schedule, Target has not received written or, to Target's
knowledge, oral notice that it will experience in the foreseeable future any
difficulty in obtaining, in the desired quantity and quality and at a reasonable
price and upon reasonable terms and conditions, the raw materials, supplies or
component products required for the manufacture, assembly or production of its
products. The values at which inventories are carried reflect the inventory
valuation policy of Target, the specific identification method of valuing
inventory which is consistent with its past practice and in accordance with
GAAP. Since Target's inception, due provision was made on the books of Target in
the ordinary course of business consistent with past practices to provide for
all slow-moving, obsolete, or unusable inventories to their estimated useful or
scrap values and such inventory reserves are adequate to provide for such
slow-moving, obsolete or unusable inventory and inventory shrinkage.
2.24 Trade Relations. Since Target's inception, Target has not within
the past three years terminated its relationship with or refused to ship
products to any dealer, distributor, OEM, third party marketing entity or
customer. All of the prices charged by Target in connection with the marketing
or sale of any products or services have been in compliance with all applicable
laws and regulations. No claims have
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been communicated or, to Target's knowledge, threatened against Target with
respect to wrongful termination of any dealer, distributor or any other
marketing entity, discriminatory pricing, price fixing, unfair competition,
false advertising, or any other material violation of any laws or regulations
relating to anti-competitive practices or unfair trade practices of any kind,
and, to Target's knowledge, no specific situation, set of facts, or occurrence
provides any valid basis for any such claim.
2.25 Customers and Suppliers.
(a) As of the date hereof, no customer which individually
accounted for more than 1% of Target's gross revenues since Target's inception,
and no supplier of Target, has canceled or otherwise terminated, or made any
threat to Target to cancel or otherwise terminate its relationship with Target
for any reason including, without limitation the consummation of the
transactions contemplated hereby, or has at any time since Target's inception,
decreased materially its services or supplies to Target in the case of any such
supplier, or its usage of the services or products of Target in the case of such
customer, and to Target's knowledge, no such supplier or customer intends to
cancel or otherwise terminate its relationship with Target or to decrease
materially its services or supplies to Target or its usage of the services or
products of Target, as the case may be. Target has not knowingly breached, so as
to provide a benefit to Target that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any
customer or supplier of Target.
(b) Section 2.25(b) of the Target Disclosure Schedule sets
forth for the three-month period ended November 30, 1999 (i) a list of the top
20 suppliers of the Target based on the aggregate value of goods and services
ordered by Target from such suppliers during such period and (ii) the products
and services purchased from such supplier and the amount for which each such
supplier was invoiced during such period. The Target has not received any
written notice or, to the Target's knowledge, oral notice, and, to Target's
knowledge, does not have any reason to believe that any such supplier (x) has
ceased, or will cease, to provide the products, goods or services, (y) has
materially reduced or will materially reduce, the availability of products,
goods or services or (z) has sought, or is seeking, to materially increase the
price it
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will charge for products, goods or services.
2.26 Material Contracts. Except for the material contracts described
on Section 2.26 of the Target Disclosure Schedule (collectively, the "MATERIAL
CONTRACTS"), Target is not a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $20,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option
of any person other than the Target so as to expire more than one year after the
date of this Agreement;
(d) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of the type
required to be capitalized in accordance with GAAP;
(e) any contract for capital expenditures in excess of
$20,000 in the aggregate;
(f) any contract limiting the freedom of the Target to engage
in any line of business or to compete with any other Person as that term is
defined in the Securities Exchange Act of 1934, as defined herein, or any
confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which Target leases any real
property;
(h) any contract pursuant to which the Target is a lessor of
any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property;
(i) any contract with any person with whom the Target does
not deal at arm's length within the meaning of the Code;
(j) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or otherwise) or
indebtedness of any other Person;
(k) any license, sublicense or other agreement to which Target
is a party (or by which
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it or any Target Intellectual Property is bound or subject) and pursuant to
which any person has been or may be assigned, authorized to Use, or given access
to any Target Intellectual Property other than (A) access to or Use of standard
object code product pursuant to a customary non-exclusive end-user, object code,
internal-use software license and support/maintenance agreements entered into in
the ordinary course of business or (B) access provided in the ordinary course of
business under a customary nondisclosure/nonuse agreement;
(l) any license, sublicense or other agreement pursuant to
which Target has been or may be assigned or authorized to Use, or has or may
incurred any obligation in connection with, (i) any third party Intellectual
Property that is incorporated in or form a part of any current or proposed
product, service or Intellectual Property offering of Target or (ii) any Target
Intellectual Property;
(m) any agreement pursuant to which Target has deposited
or is required to deposit with an escrow holder or any other person or entity,
all or part of the source code (or any algorithm or documentation contained in
or relating to any source code) of any Target Intellectual Property ("SOURCE
MATERIALS"); and
(n) any agreement to indemnify, hold harmless or defend any
other person with respect to any assertion of personal injury, damage to
property or Intellectual Property infringement, misappropriation or violation or
warranting the lack thereof orders/purchase agreements/product licenses end user
licenses arising in the ordinary course of business.
2.27 No Breach of Material Contracts. The Target has performed, in all
material respects, all of the obligations required to be performed by it and is
entitled to all benefits under, and is not alleged to be in default in respect
of any Material Contract. Each of the Material Contracts is in full force and
effect, unamended (except as provided in Section 2.27 of the Target Disclosure
Schedule), and there exists no default or event of default or event, occurrence,
condition or act, with respect to Target or to Target's knowledge with respect
to the other contracting party, or otherwise that, with or without the giving of
notice, the lapse of the time or the happening of any other event or conditions,
could reasonably be expected to (i) become a default
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or event of default under any Material Contract, which default or event of
default could reasonably be expected to have a Material Adverse Effect on Target
or (ii) result in the loss or expiration of any right or option by Target (or
the gain thereof by any third party) under any Material Contract except where
such loss or expiration could not reasonably be expected to have a Material
Adverse Effect on the Target or (iii) the release, disclosure or delivery to any
third party of any part of the Source Materials (as defined in Section 2.26(m)).
True, correct and complete copies of all Material Contracts have been delivered
to the Acquiror.
2.28 Third-Party Consents. Section 2.28 of the Target Disclosure
Schedule lists all contracts that require a novation or consent to assignment,
as the case may be, prior to the Effective Time so that Acquiror shall be made a
party in place of Target or as assignee (the "CONTRACTS REQUIRING NOVATION" or
"CONSENT TO ASSIGNMENT"). Such list is complete and accurate.
2.29 Relationships. Section 2.29 of the Target Disclosure Schedule
lists all of the Target's direct relationships with brand manufacturers whereby
Target purchases inventory directly ("RELATIONSHIPS"). The Target has taken all
necessary action to transfer the Relationships to Acquiror and/or, after the
consummation of the Merger, the Surviving Corporation.
2.30 Minute Books. The minute books of Target made available to
Acquiror contain a complete and accurate summary of all meetings of directors
and stockholders or actions by written consent since the time of incorporation
of Target through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.31 Complete Copies of Materials. Target has delivered or made
available true and complete copies of each document which has been requested by
Acquiror or its counsel in connection with their legal and accounting review of
Target.
2.32 Bank Accounts; Credit and Charge Cards. Section 2.32 of the
Target Disclosure Schedule contains a true and complete list as of the date
hereof (a) of all banks, trust companies and savings and loan associations in
which the Target maintains an account (and the account number thereof) or safe
deposit vault
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and the names of all Persons authorized to draw thereon and the balances on such
accounts as of November 30, 1999; and (b) of all credit and charge cards issued
in the name of the Target or any of its employees, officers or directors and for
which the Target has any liability and the outstanding balances on each such
card as of December 15, 1999.
2.33 Year 2000 Compliance. All computer software or hardware owned or
used by the Target or licensed by the Target, as licensor or as licensee, other
than any shrinkwrap software available to retail customers generally, is "YEAR
2000 COMPLIANT", except where failure to be so compliant could not have a
Material Adverse Effect on the Target and except as disclosed in Section 2.33 of
the Target Disclosure Schedule. As used herein "YEAR 2000 COMPLIANT" shall mean
(i) all such software or hardware shall operate in four-digit year format,
without errors in the recognition, calculation and processing of date data
relating to century recognition, leap years, single and multi-century formulae,
date values and interfaces of date-related functionalities; (ii) all date
processing shall be conducted in a four-digit year format and all date sorting
that includes a "year field" or "year category" shall be based upon a four-digit
year format; and (iii) any date arithmetic programs or calculators in the
software or hardware shall operate in accordance with the related user
documentation in the Year 2000, and the years following, without degrading
functionality or performance.
2.34 [INTENTIONALLY LEFT BLANK.]
2.35 Representations Complete. No financial statement, Exhibit, Target
Disclosure Schedule section or document required by this Agreement to be
prepared or furnished by or on behalf of the Target or any Principal Stockholder
to the Acquiror and/or Merger Sub in connection with this Agreement or any
agreement contemplated hereby or delivered pursuant hereto contained or contains
any material misstatement of fact or omits to state any material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Target and the Principal Stockholders, and
each of them, shall notify the Acquiror and, after the Merger, the Surviving
Corporation promptly of the
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occurrence of any event or the discovery of any fact to the contrary. The
representations and warranties set forth in this Article II in the aggregate (a)
are true and correct even without the materiality exceptions or qualifications
(other than the exceptions and qualifications set forth in the Target Disclosure
Schedule) contained therein except for such exceptions and qualifications which,
in the aggregate, for all such representations and warranties, are not and could
not reasonably be expected to result in a Material Adverse Effect on the Target
and (b) do not contain any material misstatement of fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
2.36 Investment Representations. All material requested by each of the
Target Stockholders regarding Acquiror has been furnished to each Target
Stockholder prior to the date of the execution and delivery of this Agreement
and has been carefully reviewed by each of Target Stockholders. Each of the
Target Stockholders has carefully reviewed all of the Acquiror's SEC Documents
(as defined below) and has been granted the opportunity (i) to ask questions of,
and receive answers from, representatives and management of Acquiror concerning
the affairs and business of Acquiror, and (ii) to obtain additional information
which the Acquiror possesses or can acquire without unreasonable effort or
expense that is necessary or desirable to verify the accuracy of the material
furnished to each such stockholder regarding Acquiror. The Target and the Target
Stockholders are familiar with the affairs, business and prospects of Acquiror.
Each of the Target Stockholders understands that the shares of Acquiror's Common
Stock have not been registered under the Securities Act, or any Blue Sky Laws,
and are being offered and sold under an exemption from registration provided by
Section 4(2) of the Securities Act and exemptions for private offerings under
Blue Sky Laws. Such shares are being acquired by the Target Stockholders solely
for their own account, for investment purposes only, and are not being purchased
with a view to, or in connection with, any resale, distribution, subdivision or
fractionalization. Each of the Target Stockholders shall bear the economic risk
of the investment in the shares of Acquiror Common Stock for an indefinite
period of time because of the limitations on transfer under applicable
securities laws (including, without limitation, Rule 144
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promulgated under the Securities Act). 1.1
2.37 GBH Agreement. No notice to and no consent, approval or
authorization, which as of the date hereof has not already been obtained, is
required from Giorgio Beverly Hills, Inc., a Delaware corporation ("GBH") in
connection with or as a result of the execution and delivery of this Agreement
and the other Transaction Documents and the consummation of the transactions
contemplated hereby or thereby. The execution and delivery of this Agreement and
the other Transaction Documents and the consummation of the transaction
contemplated hereby and thereby will not conflict with, or result in any
violation of, or default under, or give rise to a right of termination or
cancellation under the agreement (the "GBH AGREEMENT") between Target and GBH,
dated April 23, 1999, as amended by the Amendment thereto dated August 12, 1999.
2.38 Knowledge Definition. As used in this Agreement, "TO THE
KNOWLEDGE OF THE TARGET," "TARGET'S KNOWLEDGE" and like phrases shall mean and
include:
(a) actual knowledge; and
(b) that knowledge which a prudent businessperson (including
the officers, directors and other key employees of the Target) would have
obtained in the management of his or her business affairs after reviewing the
Article II in detail and making due inquiry and exercising reasonable diligence
with respect thereto. In connection therewith, the knowledge (both actual and
constructive) of any of (i) Dale Dewey, Herbert Pirquet and Antony Pirquet
("PRINCIPAL STOCKHOLDERS") and (ii) the officers and directors of the Target
shall be imputed to be the knowledge of the Target.
ARTICLE IIA
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL STOCKHOLDERS
Each of the Principal Stockholders hereby represents and warrants to
Acquiror and Merger Sub with
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respect to himself only that the statements contained in this Article IIA are
true and correct.
2A.1 Authority; No Consents. Each Principal Stockholder has the
requisite capacity and authority to execute, deliver and perform the Transaction
Documents to which he is a party. This Agreement and the other Transaction
Documents to which each Principal Stockholder is a party have been (and to the
extent executed and delivered after the date hereof will have been) duly and
validly executed and delivered by him and are, and will be, the valid and
binding obligations of such Principal Stockholder, enforceable against him in
accordance with their respective terms.
2A.2 No Conflicts. The execution and delivery of this Agreement and
the other Transaction Documents by the Principal Stockholders do (and will) not,
and the consummation of the transactions contemplated hereby and thereby will
not, (i) conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit or result in the creation of any lien or encumbrance against any
Principal Stockholder's or the Target's assets, properties, contract rights or
business.
2A.3 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or other
Person is required by or with respect to a Principal Stockholder in connection
with the execution and delivery of this Agreement and the other Transaction
Documents or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the Certificate of Merger, together with
the required officers' certificates, as provided in Section 1.2; (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on a Principal Stockholder or the
Target.
2A.4 Brokers. Except as set forth in Section 2.20 of the Target
Disclosure Schedule, no Principal Stockholder has employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated by the Transaction Documents.
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2A.5 Investment Representations. All material requested by each of the
Principal Stockholders regarding Acquiror has been furnished to each Principal
Stockholder prior to the date of the execution and delivery of this Agreement
and has been carefully reviewed by each Principal Stockholder. Each of the
Principal Stockholders has carefully reviewed all of the Acquiror's SEC
Documents and has been granted the opportunity (i) to ask questions of, and
receive answers from, representatives and management of Acquiror concerning the
affairs and business of Acquiror, and (ii) to obtain additional information
which the Acquiror possesses or can acquire without unreasonable effort or
expense that is necessary or desirable to verify the accuracy of the material
furnished to each such stockholder regarding Acquiror. The Principal
Stockholders are familiar with the affairs, business and prospects of Acquiror.
Each of the Principal Stockholders understands that the shares of Acquiror's
Common Stock have not been registered under the Securities Act, or any Blue Sky
Laws, and are being offered and sold under an exemption from registration
provided by Section 4(2) of the Securities Act and exemptions for private
offerings under Blue Sky Laws. Such shares are being acquired by the Principal
Stockholders solely for their own account, for investment purposes only, and are
not being purchased with a view to, or in connection with, any resale,
distribution, subdivision or fractionalization. Each of the Principal
Stockholders shall bear the economic risk of the investment in the shares of
Acquiror Common Stock for an indefinite period of time because of the
limitations on transfer under applicable securities laws (including, without
limitation, Rule 144 promulgated under the Securities Act).
ARTICLE IIB
REPRESENTATIONS AND WARRANTIES OF ULTA
Ulta Internet Holdings, Inc. ("ULTA") represents and warrants to
Acquiror and Merger Sub that the statements contained in this Article IIB are
true and correct.
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2B.1 Authority. Ulta has all requisite corporate power and authority to
enter into this Agreement and all of the other Transaction Documents to which it
is a party, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the other Transaction Documents
to which Ulta is a party and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of Ulta, subject only to the approval of the Merger by Target
Stockholders as contemplated by Section 6.1(a). This Agreement and other
Transaction Documents to which Ulta is a party to the extent executed and
delivered on the date hereof have been (and to the extent executed and delivered
after the date hereof will have been) duly executed and delivered by Ulta and
upon execution and delivery shall constitute the valid and binding obligations
of Ulta enforceable against Ulta in accordance with their respective terms.
2B.2 Conflicts. The execution and delivery of this Agreement and the
other Transaction Documents to which Ulta is a party by Ulta do (and will) not,
and the consummation of the transactions contemplated hereby and thereby will
not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit or result in the creation of any lien or encumbrance against any of
Ulta's or Target's assets, properties, contract rights or business.
2B.3 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity or other
Person is required by or with respect to Ulta in connection with the execution
and delivery of this Agreement and the other Transaction Documents to which Ulta
is a party, or the consummation of the transactions contemplated hereby or
thereby, except for (i) the filing of the Certificate of Merger, together with
the required officers' certificates, as provided in Section 1.2; (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any foreign country; and (iii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a Material Adverse Effect on Target or Ulta.
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2B.4 Brokers. Except as set forth in Section 2.20 of the Target
Disclosure Schedule, Ulta has not employed any broker or finders or incurred any
liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated in the Transaction Documents.
2B.5 Suppliers.
(a) As of the date hereof, Ulta Cosmetics (as defined in
Section 5.7(a)) has the right to fulfill orders under the Fulfillment Agreement
(as defined in Section 5.7) from the suppliers set forth on Exhibit 1B to the
Contingent Share Exhibit that have been identified with a "status" of "1",
without any further qualification (the "FULFILLMENT SUPPLIERS").
(b) As of the date hereof, Ulta Cosmetics has not received any
written notice nor, to its actual knowledge, has it received any other notice
from any Fulfillment Supplier that such supplier (i) has decreased materially
its services or supplies to Ulta Cosmetics, (ii) has canceled or otherwise
terminated its services or supplies to Ulta Cosmetics or (iii) intends to or has
overtly threatened to do any of the foregoing.
2B.6 Investment Representations. All materials requested by Ulta
regarding Acquiror have been furnished to Ulta prior to the date of the
execution and delivery of this Agreement and have been carefully reviewed by
Ulta. Ulta has carefully reviewed all of the Acquiror's SEC Documents and has
been granted the opportunity (i) to ask questions of, and receive answers from,
representatives and management of Acquiror concerning the affairs and business
of Acquiror, and (ii) to obtain additional information which the Acquiror
possesses or can acquire without unreasonable effort or expense that is
necessary or desirable to verify the accuracy of the material furnished to Ulta
regarding Acquiror. Ulta understands that the shares of Acquiror's Common Stock
have not been registered under the Securities Act, or any Blue Sky Laws, and are
being offered and sold under an exemption from registration provided by Section
4(2) of the Securities Act and exemptions for private offerings under Blue Sky
Laws. Such shares are being acquired by Ulta solely for their own account, for
investment purposes only, and are not being purchased with a view to, or in
connection with, any resale, distribution, subdivision or fractionalization.
Ulta shall bear the economic risk of the investment in the shares of Acquiror
Common Stock for an indefinite period of time because of the
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limitations on transfer under applicable securities laws (including, without
limitation, Rule 144 promulgated under the Securities Act).
Ulta is an "Accredited Investor" as the term is defined in Rule 501 of
Regulation D promulgated under the Securities Act. Ulta is able to bear the
economic risk of the purchase of the Acquiror Common Stock acquired pursuant to
the terms of this Agreement, including a complete loss of such stockholder's
investment in the Acquiror Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND MERGER SUB
Acquiror and Merger Sub represent and warrant to Target that the
statements contained in this Article III are true and correct.
3.1 Organization, Standing and Power. Each of Acquiror and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of Acquiror
and its subsidiaries has the corporate power to own its properties and to carry
on its business as now being conducted and as currently proposed to be conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Acquiror. Acquiror has delivered a true and
correct copy of the Certificate of Incorporation and Bylaws or other charter
documents, as applicable, of Acquiror and Merger Sub, each as amended to date,
to Target. Neither Acquiror nor Merger Sub (or any other subsidiary) is in
violation of any of the provisions of its Certificate of Incorporation or Bylaws
or equivalent organizational documents. Acquiror is the owner of all outstanding
shares of capital stock of each of its subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such subsidiary are owned by Acquiror free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such subsidiary, or otherwise obligating
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Acquiror or any such subsidiary to issue, transfer, sell, purchase, redeem or
otherwise acquire any such securities.
3.2 Capital Structure.
(a) Subject to Section 3.2(b) below, as of September 30, 1999,
the authorized capital structure of the Acquiror consists of 100,000,000 shares
of Acquiror Common Stock, $.001 par value, and 10,000,000 shares of Preferred
Stock, $.001 par value, of which 36,864,429 and no shares, respectively, were
issued and outstanding as of the close of business on September 30, 1999. At
September 30, 1999, there are no other outstanding shares of capital stock or
voting securities of Acquiror other than 11,974,750 shares of Acquiror Common
Stock reserved for issuance upon (i) the exercise of options issued under the
Acquiror 1998 Stock Incentive Plan, and the Acquiror 1999 Equity Incentive Plan
(collectively, the "ACQUIROR STOCK OPTION PLANS") or (ii) the exercise of
subscription rights outstanding as of such date under the Acquiror Employee
Stock Purchase Plan (the "ACQUIROR ESPP") and 414,930 shares of Acquiror Common
Stock reserved for issuance under outstanding warrants. The authorized capital
stock of Merger Sub consists of 200 shares of Acquiror Common Stock, $.001 par
value, all of which 10 shares are issued and outstanding and are held by
Acquiror. All outstanding shares of Acquiror have been duly authorized, validly
issued, fully paid and are nonassessable and free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof and are not subject to preemptive rights, rights of first refusal or
other similar rights created by statute, the Certificate of Incorporation or
Bylaws of Acquiror or Merger Sub or any agreement to which Acquiror or Merger
Sub is a party or by which it is bound. At September 30, 1999 Acquiror had
reserved (i) 11,024,750 shares of Common Stock for issuance to employees,
directors and independent contractors pursuant to the Acquiror Stock Option
Plans, of which approximately 1,852,500 shares have been issued pursuant to
option exercises, and approximately 3,623,322 shares are subject to outstanding,
unexercised options, and (ii) 950,000 shares of Acquiror Common Stock for
issuance to employees pursuant to the Acquiror ESPP, of which no shares have
been issued.
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(b) After September 30, 1999, Acquiror acquired, on October
26, 1999, the TimeZone.com and paris1925.com Internet domain names as well as
the related trademarks and content. Acquiror paid, for the purchase of
Timezone.com and paris1925.com Internet domain names, an aggregate purchase
price consisting of cash and 332,500 shares of Acquiror's Common Stock. On
November 17, 1999, Acquiror and Harris Grey Company executed an Asset Purchase
Agreement pursuant to which the Acquiror purchased certain assets of Harris Grey
for an aggregate purchase price consisting of cash and the issuance of 22,309
shares of Acquiror Common Stock. On November 29, 1999, Acquiror, Amazon.com,
Inc. and Amazon.com Advertising Services NV, Inc., executed a Stock Purchase
Agreement pursuant to which Acquiror has agreed to sell 707,964 shares of the
Acquiror's Common Stock to Amazon.com, Inc. and Amazon.com Advertising Services
NV, Inc for cash. In addition, Acquiror will issue to Amazon.com, Inc. and
Amazon.com Advertising Services NV, Inc a number of shares equal to
approximately 19.9% of the Acquiror's outstanding stock as of one trading day
prior to closing, less the 707,964 shares, in exchange for advertising
placements by the Acquiror. During the period from October 1, 1999 through
November 30, 1999, Acquiror entered into certain distribution and marketing
agreements with luxury goods brand owners and representatives. Pursuant to these
agreements, Acquiror issued the brand owners warrants to purchase an aggregate
of 56,000 shares of Acquiror Common Stock for a weighted average purchase price
of $9.76 per share. Acquiror also has issued options to employees, directors and
independent consultants in the ordinary course of business under the Acquiror
Stock Option Plans and the Acquiror ESPP pursuant to the terms of such plans
(the "PLANS"). Certain options granted to employees, directors and independent
consultants have been forfeited in the ordinary course of business under the
Plans. Other than (i) as set forth above, (ii) the commitment to issue shares of
Acquiror Common Stock pursuant to this Agreement, there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Acquiror or Merger Sub is a party or by which either of them is bound obligating
Acquiror or Merger Sub to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Acquiror or Merger Sub or obligating Acquiror or Merger Sub to
grant, extend or enter into
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any such option, warrant, call, right, commitment or agreement. The shares of
Acquiror Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable, will not be subject
to any preemptive or other statutory right of stockholders, will be issued in
compliance with applicable U.S. Federal and state securities laws and will be
free of any liens or encumbrances other than any liens or encumbrances created
by or imposed upon the holders thereof. There are no contracts, commitments or
agreements relating to voting, registration, purchase or sale of Acquiror's
capital stock (i) between or among Acquiror and any of its stockholders or (ii)
to the best of Acquiror's knowledge, between or among any of Acquiror's
stockholders or between any of Acquiror's stockholders and any third party.
3.3 Authority.
(a) Each of Acquiror and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and the other
Transaction Documents and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the other Transaction
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of each of Acquiror and Merger Sub. This Agreement and the other Transaction
Documents to the extent executed and delivered on the date hereof have been (and
to the extent executed and delivered after the date hereof will have been) duly
executed and delivered by each of Acquiror and Merger Sub and upon execution and
delivery shall constitute the valid and binding obligations of each of Acquiror
and Merger Sub enforceable against such Person in accordance with their
respective terms.
(b) The execution and delivery of this Agreement and the
other Transaction Documents do (and will) not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of a benefit or result in the creation of any lien or
encumbrance against any of the Acquiror's assets, properties, contract rights or
business under (i) any provision of the Certificate of Incorporation or Bylaws
of Acquiror or any of its
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subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instruments, material agreement, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Acquiror and its subsidiaries the
violation of which would result in Material Adverse Effect on the Acquiror.
(c) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, is required
by or with respect to Acquiror or any of its subsidiaries in connection with the
execution and delivery of this Agreement or the other Transaction Documents by
Acquiror or the consummation by Acquiror of the transactions contemplated hereby
or thereby, except for (i) the filing of the Agreement of Merger, together with
the required officers' certificates, as provided in Section 1.2, (ii) the filing
of a Form 8-K with the Securities and Exchange Commission (the "SEC") and
National Association of Securities Dealers ("NASD") within 15 days after the
Closing Date, (iii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, (iv) the filing
with the Nasdaq National Market of a Notification Form for Listing of Additional
Shares with respect to the shares of Acquiror Common Stock issuable upon
conversion of the Target Capital Stock in the Merger and upon exercise of the
options under the Target Stock Option Plan assumed by Acquiror, and (v) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on Acquiror and
would not prevent, materially alter or delay any of the transactions
contemplated by this Agreement or the other Transaction Documents.
3.4 SEC Documents; Financial Statements. Acquiror has furnished to
Target a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act), and other filing filed with the SEC by Acquiror since September
23, 1999 and, prior to the Effective Time, Acquiror will have furnished Target
with true and complete copies of any additional documents filed with the SEC by
Acquiror prior to the Effective Time (collectively, the "ACQUIROR SEC
DOCUMENTS"). In addition, Acquiror has made available to Target all exhibits to
the Acquiror SEC
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Documents filed prior to the date hereof, and will promptly make available to
Target all exhibits to any additional Acquiror SEC Documents filed prior to the
Effective Time. All documents required to be filed as exhibits to the Acquiror
SEC Documents have been so filed, and all material contracts so filed as
exhibits are in full force and effect, except those which have expired in
accordance with their terms, and neither Acquiror nor any of its subsidiaries is
in default thereunder. As of their respective filing dates, the Acquiror SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") and the
Securities Act, and none of the Acquiror SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Acquiror SEC Document. The financial
statements of Acquiror, including the notes thereto, included in the Acquiror
SEC 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 SEC with respect thereto as of their respective
dates, and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The 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).
3.5 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Acquiror or any of its
subsidiaries, threatened against Acquiror or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on Acquiror.
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There is no judgment, decree or order against Acquiror or any of its
subsidiaries or, to the knowledge of Acquiror or any of its subsidiaries, any of
their respective directors or officers (in their capacities as such) that could
reasonably be expected to have a Material Adverse Effect on Acquiror.
3.6 Compliance with Laws. Each of Acquiror and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a Material Adverse Effect on Acquiror.
3.7 Absence of Changes. Since the date of the financial statements
included in Acquiror's most recent Quarterly Report on Form 10-Q, the Acquiror
has not suffered a Material Adverse Effect.
3.8 Compliance with the Hart-Scott-Rodino Act. The Merger is not
subject to the notification, filing and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, Section 7A of
the Clayton Act, 15 U.S.C.ss.18A, and the regulations promulgated hereunder.
3.9 Brokers' and Finders' Fees. Neither the Acquiror nor Merger Sub has
incurred, nor will either incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or investment bankers' fees or
any similar charges in connection with the Agreement or any transaction
contemplated hereby.
3.10 Due Diligence Review. The Acquiror is currently conducting a
commercial and financial due diligence review of the Target and, as of the date
hereof, has no actual knowledge of a breach of any of the representations and
warranties contained in Article II.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 General Conduct of Business of Target. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement and the Effective Time, Target agrees (except to the extent
expressly contemplated by this Agreement or as consented to in writing by the
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Acquiror), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted. Target further agrees to
(i) pay debts and Taxes when due subject to good faith disputes over such debts
or Taxes, (ii) subject to Acquiror's consent to the filing of material Tax
Returns if applicable, pay or perform other obligations when due, and (iii) use
all commercially reasonable efforts consistent with past practice and policies
to preserve intact its present business organizations, keep available the
services of its and its subsidiaries' present officers and key employees and
contractors and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target agrees to promptly notify Acquiror of any event or
occurrence not in the ordinary course of its or its subsidiaries' business, and
of any event which could have a Material Adverse Effect on Target. Without
limiting the foregoing, except as expressly contemplated by this Agreement,
Target shall not cause or permit any of the following without the prior written
consent of the Acquiror:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws other than an amendment (pursuant to
Section 6.3(m) below) to the Certificate of Incorporation reflecting the terms
and provisions set forth in Section 1.6; and
(b) Dividends; Changes in Capital Stock. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it;
(c) Other. Take, or agree in writing or otherwise to
take, any of the actions described in Sections 4.1(a) and (b) above, or any
action which would make any of its representations or warranties
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contained in this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants hereunder.
4.2 Conduct of Business of Target. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, except as expressly contemplated by this
Agreement, Target shall not do, cause or permit any of the following without the
prior written consent of Acquiror:
(a) Material Contracts. Except as set forth in Schedule
4.2(a), enter into any material contract, agreement, license or commitment, or
violate, amend or otherwise modify or waive any of the terms of any of its
Material Contracts other than in the ordinary course of business consistent with
past practice;
(b) Stock Option Plans, etc. Authorize cash payments in
exchange for any options or other rights granted under any stock plans; or
(c) Issuance of Securities. Except as set forth in Section
4.2(c) of the Target Disclosure Schedule, issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or other
convertible securities, other than the issuance of shares of its Common Stock
pursuant to the exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
(d) Intellectual Property. Transfer or license to any person
or entity or otherwise extend, amend or modify any rights to its Intellectual
Property other than (i) the grant of non-exclusive licenses in the ordinary
course of business consistent with past practice, or (ii) without Target's
knowledge, the incorporation of Target's Intellectual Property rights.
(e) Exclusive Rights. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing, manufacturing
or other exclusive rights of any type or scope with respect to any of its
products or technology;
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(f) Dispositions. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material, individually or
in the aggregate, to its business;
(g) Indebtedness. Incur or commit to incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others in excess of $25,000 in
the aggregate;
(h) Leases. Enter into any operating lease requiring payments
in excess of $10,000;
(i) Payment/Insurance of Obligations. Pay, discharge or
satisfy in an amount in excess of $10,000 in any one case or $25,000 in the
aggregate, any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the ordinary course
of business, other than the payment, discharge or satisfaction of liabilities
reflected or reserved against in the Target Financial Statements;
(j) Capital Expenditures. Incur or commit to incur any capital
expenditures in excess of $10,000 in the aggregate, other than the upgrade of
Target's existing Interworld software at a cost to Target of not more than
$20,000 in the aggregate;
(k) Insurance. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
(l) Termination or Waiver. Terminate or waive any right of
substantial value, other than in the ordinary course of business consistent with
past practice;
(m) Employee Benefits; Severance. Take any of the following
actions: (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
non-officer employees in the ordinary course of business and in accordance with
past practices, (ii) grant any additional severance or termination pay to, or
enter into any employment or severance agreements with, any officer or employee,
(iii) enter into any collective bargaining agreement, or (iv) establish, adopt,
enter into or amend in any material respect any bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment,
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termination, severance or other plan, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(n) Lawsuits. Commence a lawsuit or arbitration proceeding
other than (i) for the routine collection of bills, (ii) in such cases where it
in good faith determines that failure to commence suit would result in the
material impairment of a valuable asset of its business, provided that it
consults with Acquiror prior to the filing of such a suit, or (iii) for a breach
of this Agreement;
(o) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to its business;
(p) Taxes. Make any material Tax election other than in the
ordinary course of business and consistent with past practice, change any
material Tax election, adopt any Tax accounting method other than in the
ordinary course of business and consistent with past practice, change any Tax
accounting method, file any Tax return (other than any estimated tax returns,
immaterial information returns, payroll tax returns (including Forms W-2 and
1099) or sales tax returns) or any amendment to a Tax return (other than any
estimated tax returns, immaterial information returns, payroll tax returns
(including Forms W-2 and 1099) or sales tax returns), enter into any closing
agreement, settle any Tax claim or assessment or consent to any Tax claim or
assessment provided that Acquiror shall not unreasonably withhold or delay
approval of any of the foregoing actions;
(q) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business consistent with past
practice; or
(r) Other. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.2(a) through (q) above, or any action
which would make any of its representations or warranties
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contained in this Agreement untrue or incorrect or prevent it from performing or
cause it not to perform its covenants hereunder.
4.3 Notices. Target shall give all notices and other information
required to be given to the employees of Target, any collective bargaining unit
representing any group of employees of Target, and any applicable government
authority under the National Labor Relations Act, the Internal Revenue Code, the
Consolidated Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this Agreement.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 No Solicitation.
(a) From and after the date of this Agreement until the
Effective Time, Target shall not, directly or indirectly, through any officer,
director, employee, representative or agent, (i) solicit, initiate, or encourage
any inquiries or proposals that constitute, or could reasonably be expected to
lead to, a proposal or offer for a merger, consolidation, business combination,
sale of all or substantially all of the assets, sale of shares of capital stock
(including without limitation by way of a tender offer) or similar transactions
involving Target, other than the transactions contemplated by this Agreement
(any of the foregoing inquiries or proposals being referred to in this Agreement
as a "TAKEOVER PROPOSAL"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Takeover Proposal, or (iii) agree to, approve or recommend any
Takeover Proposal.
(b) Target shall notify Acquiror immediately (and no later
than 24 hours) after receipt by Target (or its advisors or agents) of any
Takeover Proposal or any request for information in connection with a Takeover
Proposal 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 Takeover Proposal. Such notice shall be
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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.
5.2 [INTENTIONALLY LEFT BLANK]
5.3 Stockholders Meeting or Consent Solicitation. Target shall promptly
after the date hereof take all actions necessary to either (i) call a meeting of
its stockholders to be held for the purpose of voting upon this Agreement and
the Merger or (ii) commence a consent solicitation to obtain such approvals on
or prior to January 31, 1999 or as soon thereafter as is practicable. Target
will, through its Board of Directors, recommend to its stockholders approval of
such matters as soon as practicable after the date hereof. Target shall use all
reasonable efforts to solicit from its stockholders proxies or consents in favor
of such matters as soon as practicable after the date hereof.
5.4 Access to Information.
(a) Target shall afford Acquiror and its accountants, counsel
and other representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of Target's properties, books,
contracts, commitments and records, and (ii) all other information concerning
the business, properties and personnel of Target and its subsidiaries as
Acquiror may reasonably request. For purposes of this Agreement, all
investigations and inspections pursuant to this Section 5.4 and pursuant to
Section 5.7 shall constitute "DUE DILIGENCE". Target agrees to provide to
Acquiror and its accountants, counsel and other representatives copies of
internal financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Acquiror and Target shall confer on a
regular and frequent basis with one or more representatives of the other party
to report operational matters of materiality and the general status of ongoing
operations.
(c) No information or knowledge obtained in any investigation
pursuant to this Section 5.4 shall affect or be deemed to modify, amend or waive
any representation or warranty contained herein or any condition to the
obligations of the parties to consummate the Merger.
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5.5 [INTENTIONALLY LEFT BLANK]
5.6 Public Disclosure.
(a) Unless otherwise permitted by this Agreement, Acquiror,
Merger Sub and Target shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the others (which approval shall not be
unreasonably withheld), except as may be required by Acquiror to comply with the
rules and regulations of the SEC or any obligations pursuant to any listing
agreement with any national securities exchange or with the NASD.
(b) The Acquiror, Merger Sub, and Target (and, in the case of
clause (ii) below, Ulta)have agreed to the substance, form and language of (i)
the joint press release with respect to the execution and delivery of this
Agreement and the transactions contemplated by this Agreement and the other
Transaction Documents, (ii) the Ulta Cosmetics Vendor Letters (as defined
below), and (iii) the vendor notices to be issued by Dale Dewey on behalf of the
Target to each of Target's vendors regarding the transactions contemplated by
the Transaction Documents.
5.7 Consents; Cooperation
(a) Target shall promptly apply for or otherwise seek, and use
its reasonable best efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Merger and shall use its reasonable
best efforts to (i) obtain all necessary consents, waivers and approvals under
the Material Contracts (including, without limitation, the consent of Ulta
Salon, Cosmetics and Fragrances, Inc. (collectively, "ULTA COSMETICS") under
Section 13(e) of the Fulfillment Agreement dated May 12, 1999, between Ulta
Cosmetics and Target (the "FULFILLMENT AGREEMENT") (which Ulta agrees to cause
Ulta Cosmetics to grant) in connection with the Merger for the assignment
thereof , as proposed to be amended
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prior to the Effective Time pursuant to Section 2.27 of the Target Disclosure
Schedule, or otherwise and (ii) cause Ulta Cosmetics (and Ulta agrees to cause
Ulta Cosmetics) to send letters, in the form previously furnished to Acquiror on
the date hereof (the "ULTA COSMETICS VENDOR LETTERS"), as soon as practicable
after the date hereof, asking Ulta Cosmetic's vendors for permission to fulfill
orders made by Acquiror or Surviving Corporation. Ulta hereby agrees to cause
Ulta Cosmetics from the date hereof through the earlier of (i) the Second
Achievement Date (as defined in the Contingent Share Exhibit), (ii) the delivery
of all of the Contingent Shares (excluding any Contingent Shares allocated and
deposited in the Escrow Share Account in the Escrow Fund in accordance with the
Contingent Share Exhibit and Section 8.10(b)) to the Former Target Stockholders
pursuant to the acceleration provisions of the Contingent Share Exhibit and
(iii) October 15, 2000, not, directly or indirectly, to solicit or attempt to
solicit (on Ulta Cosmetics' own behalf or on the behalf of any other Person) any
vendor of Ulta Cosmetics for the purpose of (A) damaging, impairing,
undermining, destroying or interfering with the Acquiror's, Target's or
Surviving Corporation's relationship with such vendor (whether such relationship
is a direct relationship or an indirect relationship maintained through Ulta
Cosmetics) or (B) encouraging such vendor to terminate or materially decrease
supply under its relationship (whether such relationship is a direct
relationship or an indirect relationship maintained through Ulta Cosmetics) with
the Acquiror, Target or the Surviving Corporation; provided, however, Ulta
Cosmetics shall not be prohibited from taking such actions with respect to its
vendors for its own account or for the accounts of its subsidiaries that are
consistent with its past practices in the ordinary course of business,
notwithstanding any effects such actions may have on such relationship of such
suppliers with the Target, Surviving Corporation, or Acquiror so long as such
actions are not taken for the purpose of damaging, impairing, undermining,
destroying or interfering with such relationship with the Target, Surviving
Corporation, or Acquiror. The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another, in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to any federal or state antitrust
or fair trade law. Ulta further
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covenants and agrees that it shall (and shall cause Ulta Cosmetics to), during
the Due Diligence Period, cooperate with (and make appropriate employees and
representatives of Ulta Cosmetics and Ulta available to Acquiror during normal
business hours) Acquiror in Acquiror's Due Diligence as such Due Diligence
relates to the Fulfillment Suppliers; provided that, (x) if the Due Diligence
requires disclosure by Ulta Cosmetics of trade secrets or other proprietary
information which is subject to confidentiality agreements between Ulta
Cosmetics and third parties, Ulta Cosmetics shall not be required to disclose
such information to Acquiror and (y) absent a breach by Ulta of a specific
covenant, representations and/or warranty under this Agreement, such Due
Diligence shall not result in a direct claim or cause of action by Acquiror or
Merger Sub against Ulta or any of its affiliates (other than Target or any
Principal Stockholder).
(b) Each of Acquiror and Target shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by this
Agreement under the Sherman Act, as amended, the Clayton Act, as amended, the
Federal Trade Commission Act, as amended, and any other Federal, state or
foreign statutes, rules, regulations, orders or decrees that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, "ANTITRUST LAWS" and the
resolution of any such objections "APPROVALS"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, each of Acquiror and Target shall cooperate and
use all commercially reasonable efforts vigorously to contest and resist any
such action or proceeding and to have vacated, lifted, reversed, or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent (each an "ORDER"), that is in effect and that prohibits, prevents,
or restricts consummation of the Merger or any such other transactions, unless
by mutual agreement Acquiror and Target decide that litigation is not in their
respective best interests. Notwithstanding the provisions of the immediately
preceding sentence, it is expressly understood and agreed that Acquiror shall
have no obligation to litigate or contest
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any administrative or judicial action or proceeding or any Order beyond the
earlier of (i) February 1, 2000 and (ii) the date of a ruling preliminarily
enjoining the Merger issued by a court of competent jurisdiction. Each of
Acquiror and Target shall use all commercially reasonable efforts to take such
action as may be required to cause the expiration of the notice periods under
the Antitrust Laws with respect to such transactions as promptly as possible
after the execution of this Agreement.
(c) Notwithstanding the foregoing, neither Acquiror nor Target
shall be required to agree, as a condition to any Approval, to divest itself of
or hold separate any subsidiary, division or business unit which is material to
the business of such party and its subsidiaries, taken as a whole, or the
divestiture or holding separate of which would be reasonably likely to have a
Material Adverse Effect on (i) of such party or (ii) the benefits intended to be
derived as a result of the Merger.
5.8 Update Disclosure Schedule; Breaches. From and after the date of
this Agreement until the Effective Time, each party hereto shall promptly notify
the other parties, in writing of (i) the occurrence or non-occurrence of any
event which would be likely to cause any condition to the obligations of any
party to affect the Merger and the other transactions contemplated by this
Agreement not to be satisfied, or (ii) the failure of Target, any Target
Stockholder, or Acquiror, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied. The delivery of any notice
pursuant to this Section 5.8 shall not cure any breach of any representation,
warranty or covenant requiring disclosure of such matter prior to the date of
this Agreement or otherwise limit or affect the remedies available hereunder to
the party receiving such notice.
5.9 Stockholder Agreements. Each Target Stockholder hereby agrees that
at any meeting of the Target Stockholders, however called, or in any action by
written consent of the Target's stockholders, such Target Stockholder shall: (i)
vote all of the Target Capital Stock owned or controlled by such stockholder in
favor of this Agreement, the Certificate of Merger, the other Transaction
Documents and the Merger and
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the other transactions contemplated hereby and thereby; provided that the Board
of Directors of the Target shall have approved such Merger on or prior to the
date hereof; and (ii) until the termination of this Agreement pursuant to
Article VII, vote such Target Capital Stock against any (A) merger,
consolidation, share exchange, business combination or other similar transaction
pursuant to which control of the Target would be transferred to any Person other
than Acquiror or Merger Sub, or (B) sale, lease, exchange, mortgage, pledge,
transfer or other disposition of twenty percent (20)% or more of the assets or
business of the Target in a single transaction or in a series of transactions.
5.10 Legal Requirements. Each of Acquiror and Target will, and will
cause their respective subsidiaries to, take all reasonable actions necessary to
comply promptly with all legal requirements which may be imposed on them with
respect to the consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon such other party
in connection with the consummation of the transactions contemplated by this
Agreement and will take all reasonable actions necessary to obtain (and will
cooperate with the other parties hereto in obtaining) any consent, approval,
order or authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.11 Tax-Free Reorganization. Neither Target, Acquiror nor Merger Sub
will, either before or after consummation of the Merger, take any action which,
to the knowledge of such party, would cause the Merger to fail to constitute a
"reorganization" within the meaning of Code Section 368.
5.12 Blue Sky Laws. Acquiror shall take such steps as may be necessary
to comply with the securities and blue sky laws ("BLUE SKY LAWS") of all
jurisdictions which are applicable to the issuance of the Acquiror Common Stock
in connection with the Merger. Target shall use its best efforts to assist
Acquiror as may be necessary to comply with the securities and Blue Sky Laws of
all jurisdictions which are applicable in connection with the issuance of
Acquiror Common Stock in connection with the Merger.
5.13 [INTENTIONALLY LEFT BLANK]
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5.14 Escrow Agreement. On or before the Effective Time, the Escrow
Agent and the Stockholders' Agent (as defined in Article VIII hereto) will
execute the Escrow Agreement contemplated by Article VIII in the form attached
hereto as Exhibit 5.14 ("ESCROW AGREEMENT").
5.15 Listing of Additional Shares. Prior to the Effective Time,
Acquiror shall file with Nasdaq a Notification Form for Listing of Additional
Shares with respect to the Total Acquiror Shares.
5.16 Additional Agreements; Best Efforts. Each of the parties agrees to
use their commercially reasonable efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, subject to the appropriate vote of
Target Stockholders described in Section 5.3, including cooperating fully with
the other party, including by provision of information. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement or to vest the Surviving Corporation with
full title to all properties, assets, rights, approvals, immunities and
franchises, the proper officers and directors of each party to this Agreement
shall take all such necessary action.
5.17 Employee Benefits. All Target employees shall be entitled to
participate in all employee benefit plans and programs of Acquiror that are
available to other similarly situated employees of Acquiror or its subsidiaries
in comparable positions. In the case of medical and health insurance coverage,
Acquiror shall cause the Surviving Corporation to either continue to insure
Target employees under Target's existing insurance plans or provide medical and
health insurance to Target employees under Acquiror's current employee benefit
plans and programs that are available to similarly situated employees of
Acquiror. All Target Options assumed shall be given full credit for vesting to
date.
5.18 Directors' and Officers' Insurance and Indemnification.
(a) From and after the Effective Time, the Acquiror and the
Surviving Corporation (or any successor to the Surviving Corporation) shall
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date of this Agreement or who becomes prior to the Effective
Time,
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an officer, director or employee of Target in respect of acts or omissions
occurring on or prior to the Effective Time to the extent provided under
Target's Certificate of Incorporation and Bylaws (each as in effect on the date
hereof) and indemnification agreements in effect as of the Effective Time;
provided that such indemnification shall be subject to any limitation imposed
from time to time under applicable law.
(b) From and after the Effective Time, Acquiror will use its
commercially reasonable efforts to cause the Surviving Corporation to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons of Target who become officers or directors in the Surviving
Corporation.
5.19 No Further Discussions Regarding Merger Consideration. The Target,
the Target Stockholders, the Merger Sub, and the Acquiror agree that there shall
be no further discussion regarding the Acquiror Common Stock and Cash
Consideration issuable in the Merger or the number of shares such stock to be
held in the Escrow Fund.
5.20 GBH Matters. Target agrees that it shall use its commercially
reasonable efforts to cause the deferral from December 31, 1999 to the time
immediately preceding the Effective Time of any then unspent portion of the
$2,500,000 required to be spent on advertising and marketing by Target (such
then unspent portion, the "YEAR-END MARKETING EXPENSE") in support of GBH
pursuant to Section IVA of the GBH Agreement (such deferral to be pursuant to a
written amendment to the GBH Agreement executed and delivered by the parties
thereto on or before December 31, 1999 in form and substance satisfactory to
Acquiror in its sole discretion, the "GBH DEFERRAL"); provided that if Target is
unable to obtain the GBH Deferral on or before December 31, 1999, Target shall
use its commercially reasonable efforts to obtain GBH's waiver, from the period
commencing on December 31, 1999 and until the time immediately preceding the
Effective Time, of any rights of GBH under the GBH Agreement to assert a breach
of contract claim based on Target's failure to make the Year-End Marketing
Expense pursuant to Section IVA of the GBH Agreement (the "GBH WAIVER").
Acquiror hereby agrees that in the event that (a) the GBH Deferral or the GBH
Waiver is obtained, (b) the GBH Deferral or the GBH Waiver is in full force and
effect at the Effective
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Time and (c) at the Effective Time, Target does not have sufficient working
capital available to fund the Year-End Marketing Expense, then Acquiror shall
either advance to Target (or contribute to the capital of the Merger Sub) (the
"GBH ADVANCE") up to $2,500,000 to be used by the Surviving Corporation to make
the Year-End Marketing Expense on the Effective Date.
5.21 Support. Acquiror shall provide to the Surviving Corporation from
the Effective Date until the earlier of (i) the Second Achievement Date (as
defined in the Contingent Share Exhibit), (ii) the delivery of all of the
Contingent Shares (excluding any Contingent Shares allocated and deposited in
the Escrow Share Account in the Escrow Fund in accordance with the Contingent
Share Exhibit and Section 8.10(b)) to the Former Target Stockholders and (iii)
October 15, 2000, operational and marketing support based on and in accordance
with the following terms and limitations:
(a) Staffing. Acquiror shall use its commercially reasonable
efforts to provide fragrance account management, editorial, technical, marketing
and design (HTML) staff (collectively the "STAFF") to Surviving Corporation on a
comparable basis consistent with other Acquiror product lines (but, no less
favorable to Surviving Corporation as such services, from a functional point of
view, as are available to Target as of the date hereof) and with employees of
similar level of skill and performance as, at any given time, are employed and
available to the Acquiror. To the extent such services are not available or
obtainable on commercially reasonable terms, Acquiror shall use its commercially
reasonable efforts to provide Surviving Corporation with the most comparable
staffing that is available on commercially reasonable terms and shall make
available on a commercially reasonable basis its own employees, if available, to
optimize the operations and expansion of Surviving Corporation's business. To
the extent Acquiror's own employees are not available and appropriate employees
are not available on commercially available terms in the marketplace, Acquiror
shall be under no obligation to provide the Staff to Target. In the event that
Surviving Corporation requests specific staffing assistance, Acquiror will use
its commercially reasonable efforts to provide Surviving Corporation with the
requested staffing assistance (but only to the extent such staffing is in
replacement of lost employees or consultants of the Surviving Corporation),
provided that such staffing
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assistance shall be available to the Acquiror, and if not available, obtainable
on commercially reasonable terms.
(b) Marketing. Acquiror shall use its commercially reasonable
efforts to promote Surviving Corporation's business through Acquiror's
advertising, marketing, and promotions at levels commensurate to other business
units of Acquiror. Acquiror shall have the right to fulfill its commitments with
respect to any of the foregoing in any commercially reasonable manner.
Notwithstanding anything contained to the contrary in this Section 5.21(b),
Acquiror shall permit the Stockholders' Agent to consult with Acquiror with
respect to the marketing decisions made by Acquiror in connection with the
Surviving Corporation and Acquiror's fragrance operations. Acquiror shall also
make available to Surviving Corporation an additional marketing budget not in
excess of $500,000 in the aggregate which may be used by Surviving Corporation
for additional activities specific to the fragrance business including (i) coop
advertising and advertising in Surviving Corporation's industry publications,
(ii) general public relations activities and events and (iii) the participation
of the Surviving Corporation in industry conferences and seminars.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Affect the Merger. The
respective obligations of each party to this Agreement to consummate and affect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger
shall have been approved and adopted by the holders of at least ninety percent
(90%) of the shares of Target Capital Stock and Target Preferred Stock
outstanding as of the record date set for the Target Stockholders Meeting or
solicitation of stockholder consents, and any agreements or arrangements that
may result in the payment of any amount that
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would not be deductible by reason of Section 280G of the Code shall have been
approved by such number of Target Stockholders as is required by the terms of
Section 280G(b)(5)(B).
(b) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees to use its
reasonable diligent efforts to have such injunction or other order lifted.
(c) Governmental Approval. Acquiror and Target and their
respective subsidiaries shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act, and under state Blue Sky Laws.
(d) Listing of Additional Shares. The filing with the Nasdaq
National Market of a Notification Form for Listing of Additional Shares with
respect to the shares of Acquiror Common Stock issuable upon conversion of the
Target Capital Stock in the Merger.
(e) Escrow Agreement. Acquiror, Target, Ulta, Escrow Agent and
the Stockholder's Agent (as defined in Article VIII hereto) shall have entered
into the Escrow Agreement.
6.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
Target:
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(a) Representations, Warranties and Covenants. Except as
disclosed in the Acquiror Disclosure Schedule, (i) the representations and
warranties of Acquiror in this Agreement shall be true and correct in all
respects on and as of the Effective Time as though such representations and
warranties were made on and as of such time (except for those representations
and warranties provided as of a specified date which shall be true and correct
as at such date) and (ii) Acquiror shall have performed and complied in all
material respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the Effective
Time.
(b) Certificate of Acquiror. Target shall have been provided
with a certificate executed on behalf of Acquiror by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by
Acquiror under this Agreement are true and complete in all material respects;
and
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Acquiror on or before such date have been so
performed in all material respects.
(c) Legal Opinion. Target shall have received a legal opinion
from Acquiror's legal counsel, Morrison Cohen Singer & Weinstein, LLP ("MCS&W,
LLP")substantially in the form attached as Exhibit 6.2(c) hereto.
(d) No Material Adverse Changes. There shall not have occurred
any material adverse change in the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations, results of operations or prospects of Acquiror and its subsidiaries,
taken as a whole.
(e) Employment and Non-Competition Agreements. The Surviving
Corporation shall have entered into Employment and Non-Competition Agreements
with the employees of Target set forth on Schedule 6.2(e) in the form attached
hereto as Exhibit 6.2(e) (the "EMPLOYMENT AGREEMENTS").
(f) Tax Opinion. MCS&W, LLP shall have provided to Acquiror a
tax opinion in form and substance reasonably satisfactory to Acquiror: (i) which
shall not be a "reasoned" opinion, (ii) to the
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effect that the Merger will be treated for Federal income tax purposes as a
reorganization within the meaning of Section 368 of the Code, (iii) describing
the material tax consequences of the Merger (including the effects on the Target
Stockholders) and (iv) upon which Ulta shall have been entitled to rely (either
separately in writing or pursuant to such opinion).
6.3 Additional Conditions to the Obligations of Acquiror. The
obligations of Acquiror to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Acquiror; provided, however, that any waiver of a
condition shall not be deemed a waiver of any breach of any representation,
warranty, agreement, term or covenant or of any misrepresentation by the Target
or any Target Stockholder:
(a) Representations, Warranties and Covenants. Except as
disclosed in the Target Disclosure Schedule, (i) the representations and
warranties of Target and the Target Stockholders in this Agreement shall be true
and correct in all respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time (except for
those representations and warranties provided as of a specified date which shall
be true and correct as at such date) and (ii) Target shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Effective Time.
(b) Certificate of Target and Target Stockholders. Acquiror
shall have been provided with a certificate executed on behalf of Target by its
President and Chief Financial Officer and by each of the Target Stockholders to
the effect that, as of the Effective Time:
(i) all representations and warranties made by Target
and Target Stockholders under this Agreement are true and complete in all
material respects;
(ii) all covenants, obligations and conditions of
this Agreement to be performed by Target on or before such date have been so
performed in all material respects;
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(iii) all action necessary to authorize the
execution, delivery and performance of the Transaction Documents by each
non-natural Target Stockholder, and the consummation of the transactions
contemplated hereby and thereby, shall have been duly and validly taken by each
such Target Stockholder and the Acquiror shall have received copies of all
resolutions evidencing same certified by the Secretary of such Target
Stockholder.
(c) Third Party Consents; GBH Deferral. Acquiror shall have
been furnished with evidence satisfactory to it of the consent or approval of
those Persons whose consent or approval shall be required in connection with the
Merger under the contracts of Target set forth in Section 2.28 of the Target
Disclosure Schedule. The Ulta Cosmetics Vendor Letters shall have been delivered
and either the GBH Deferral or the GBH Waiver shall have occurred and be in full
force and effect.
(d) Injunctions or Restraints on Merger and Conduct of
Business. No proceeding brought by any Governmental Entity, domestic or foreign,
seeking to prevent the consummation of the Merger shall be pending. In addition,
no temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Acquiror's conduct or operation of
the business of Target following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be pending.
(e) Legal Opinion. Acquiror shall have received a legal
opinion from Target's legal counsel MF LLP, in substantially the form attached
hereto as Exhibit 6.3(e).
(f) No Material Adverse Changes. There shall not have occurred
any Material Adverse Change in the prospects of Target.
(g) Termination of Other Agreements. Acquiror shall have
received written terminations of the Purchase Agreement, the Stockholders
Agreement, and the Registration Rights Agreement, each dated May 12, 1999 among
Target, Ulta, and the Principal Stockholders.
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(h) Employment Agreements. Acquiror shall have received
written terminations of the Target employment agreements set forth on Schedule
6.3(h) hereto in form and substance satisfactory to Acquiror; and the Employment
Agreements shall have been executed and delivered by the employees thereunder.
(i) Goodstanding Certificates. Target shall have furnished
Acquiror with a certificate of the appropriate officials of the due organization
and good standing to do business and tax standing of the Target in Delaware and
in each jurisdiction wherein the conduct of its business or the ownership of
operation of assets requires the Target to maintain qualification as a foreign
corporation; in each case dated the Closing Date.
(j) Secretary's Certificate. The Acquiror shall have received
a certificate from the Target, in form and substance reasonably satisfactory to
the Acquirors, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Target, certifying as to the incumbency of the
Target's officers and that the copies of the Certificate of Incorporation,
By-laws and resolutions of the Board of Directors and the Target Stockholders
approving this Agreement and each of the other Transaction Documents to which
the Target is a party and the transactions contemplated hereby and thereby, and
attached thereto, are all true, complete and correct and remain unamended and in
full force and effect.
(k) Other Documents. The Acquiror shall have received true,
complete and correct copies of such agreements, schedules, exhibits,
certificates, documents, financial information and filings (executed by the
Target, its officers or otherwise) as it may request in connection with or
relating to the transactions contemplated hereby, including, but not limited to,
the assignment to (or, at the discretion of Dale Dewey, the subletting to) the
Target of the lease for 15 Locust Avenue, all in form and substance satisfactory
to Acquiror and its counsel.
(l) Tax Opinion. Acquiror shall have received an opinion in
form and substance satisfactory to Acquiror from MCS&W, LLP, to the effect that
the Merger will be treated for Federal income tax purposes as a reorganization
within the meaning of Section 368 of the Code. In connection with such
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opinion, MCS&W, LLP shall be entitled to rely upon reasonable assumptions and
certain representations of Acquiror, Target, Target Stockholders and Merger Sub
which to the extent reasonably required shall be made by such Persons.
(m) Amendment to Certificate of Incorporation. Prior to the
Effective Time, Target shall have filed an amendment to its Certificate of
Incorporation reasonably acceptable to the Acquiror reflecting the terms and
provisions in Section 1.6 and any other document evidencing the consideration
sharing arrangements among the holders of Target Capital Stock.
(n) Target Stock Options. Prior to the Effective Time, each of
Target's then outstanding Target Options (as set forth in Exhibit 1.6(c)) shall
have been exercised or shall by virtue of the Merger, be automatically cancelled
and cease to exist from and after the Effective Time to the extent not exercised
into shares of Target Common Stock prior to the Effective Time.
ARTICLE VII
TERMINATION, EXPENSES, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the Target Stockholders, this Merger may be abandoned and the Agreement may
be terminated
(a) by mutual consent duly authorized by the Board of
Directors of Acquiror and Target;
(b) by either Acquiror or Target, if, without fault of the
terminating party, the Closing shall not have occurred on or before February 15,
2000 (provided, a later date may be agreed (but there shall be no obligation so
to agree) upon in writing by the parties hereto, and provided further that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been the cause or
resulted in the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement);
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(c) by Acquiror, if (i) Target shall breach any
representation, warranty, obligation or agreement hereunder, and such breach
shall have resulted in (or evidence) a Material Adverse Effect on Target
(provided that for purposes of this Section 7.1(c), the definition of the term
Material Adverse Effect shall not include the word "prospects") and such breach
shall not have been cured within five (5) business days of receipt by Target of
written notice of such breach, provided that the right to terminate this
Agreement by Acquiror under this Section 7.1(c)(i) shall not be available to
Acquiror where Acquiror is at that time in material breach of this Agreement,
(ii) the Board of Directors of Target shall have withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to Acquiror
or shall have resolved to do any of the foregoing, provided that the right to
terminate this Agreement by Acquiror under this Section 7.1(c)(ii) shall not be
available to Acquiror where Acquiror is at that time in material breach of this
Agreement, or (iii) for any reason Target fails to call and hold the Target
Stockholders Meeting or commence solicitation of stockholder consents by January
10 , 2000, provided that the right to terminate this Agreement by Acquiror under
this Section 7.1(c)(iii) shall not be available to Acquiror where Acquiror is at
that time in material breach of this Agreement or (iv) if during the period (the
"DUE DILIGENCE PERIOD") commencing with the date hereof and ending five (5)
business days from the date of this Agreement Acquiror shall have determined in
its sole discretion, exercised in good faith, that the Acquiror observations
during its Due Diligence have revealed (i) a substantial liability, contingent
or otherwise or (ii) a material adverse condition for the account of Acquiror
(or the Surviving Corporation) after the Effective Time which in the case of
each of (i) and (ii) (excluding any information in the due diligence materials
presented to Acquiror by letter dated December 17, 1999 and by fascimile dated
December 22, 1999 and copied to MCS&W, LLP, which materials shall be reviewed
during the Due Diligence Period) was not known by, or fully quantified or
accurately described to, Acquiror as of the date of this Agreement.
(d) by Target, if Acquiror shall breach any representation,
warranty, obligation or agreement hereunder, such breach shall have resulted in
(or evidence) a Material Adverse Effect on Acquiror (provided that for purposes
of this Section 7.1(d), the definition of the term Material Adverse Effect shall
not
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include the word "prospects", and such breach shall not have been cured within
five (5) days following receipt by Acquiror of written notice of such breach,
provided that the right to terminate this Agreement by Target under this Section
7.1(d) shall not be available to Target where Target is at that time in material
breach of this Agreement;
(e) by Acquiror if (i) any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable or (ii) if any required
approval of the Target Stockholders shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of stockholders or at any adjournment thereof;
(f) by Target if (i) any permanent injunction or other order
of a court or other competent authority preventing the consummation of the
Merger shall have become final and nonappealable or (ii) if any required
approval of the Target Stockholders shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held meeting
of stockholders or at any adjournment thereof; or
(g) By Acquiror if events occur which render impossible
compliance with one or more of the conditions set forth in Sections 6.1 or 6.3
hereof and such conditions are not waived by the Acquiror, provided that such
events did not result from any action or omission by the Acquiror which was
within its control and which the Acquiror was not expressly permitted to take or
omit by the terms of this Agreement.
7.2 Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall forthwith become void
and there shall be no liability or obligation on the part of Acquiror or Target
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 7.3 (Expenses and Termination Fees) and
this Section 7.2 shall remain in full force and effect and survive any
termination of this Agreement. Notwithstanding the foregoing, this Section 7.2
shall not relieve any party from liability in connection with
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an intentional or willful material breach of this Agreement prior to its
termination and it is expressly agreed and understood that the terminating
party's right to pursue all legal remedies for breach of contract or otherwise
shall survive such termination unimpaired.
7.3 Expenses and Termination Fees.
(a) Whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of
advisers, accountants and legal counsel) shall be paid by the party incurring
such expense; provided, however, that in the event that the Merger is
consummated, any out-of-pocket expenses incurred by Target (whether on behalf of
Target or a Target Stockholder) in excess of $175,000 in the aggregate for fees
and expenses of legal counsel plus any other expenses, including, without
limitation, fees and expenses of financial advisors and accountants, if any,
shall remain an obligation of the Target Stockholders. If Acquiror or the
Surviving Corporation receives any invoices for amounts in excess of said
amounts, it may, with Acquiror's written approval, pay such fees; provided,
however, that such payment shall, if not promptly reimbursed by the Target
Stockholders at Acquiror's request, constitute "DAMAGES" recoverable under the
Escrow Agreement and such Damages shall not be subject to the Basket.
(b) If this Agreement is terminated by Acquiror or Merger Sub
pursuant to Section 7.1(c)(iv), the Acquiror agrees to pay the Target, within
sixty (60) days, $325,000 as liquidated damages, for the lost opportunity of
Target; it being understood that absent a breach of this Agreement by Acquiror
or Merger Sub (in which case Acquiror or Merger Sub may have liability for
Damages arising therefrom), the aggregate liability of Acquiror and Merger Sub
for Damages arising from such termination shall not exceed $325,000.
7.4 Amendment. All of the Target Stockholders together with the boards
of directors of the Target and the Acquiror may cause this Agreement to be
amended at any time by execution of an instrument in writing signed on behalf of
all the Principal Stockholders, Ulta and the Acquiror; provided that an
amendment may be entered into on behalf of all the Principal Stockholders by the
Stockholders' Agent.
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7.5 Extension; Waiver. At any time prior to the Effective Time any
party hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein in each case, which waiver may, if designated by the
waiving party, be deemed to be a waiver solely for purposes of satisfaction of
the applicable closing conditions under this Agreement, but may nonetheless
evidence or result in "Damages" recoverable under the Escrow Agreement and
Article VIII below). Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE VIII
ESCROW AND INDEMNIFICATION
8.1 Survival of Representations, Warranties and Covenants.
Notwithstanding any investigation conducted before or after the Closing Date,
and notwithstanding any actual or implied knowledge or notice of any facts or
circumstances which Acquiror or Target may have as a result of such
investigation or otherwise, Acquiror and Target will be entitled to rely upon
the other party's representations, warranties and covenants set forth in this
Agreement. The representations and warranties of Acquiror will terminate upon
the Closing. Except as otherwise specifically provided herein, all statements,
representations, warranties and covenants of the Target shall survive the
Closing for two (2) years (the "TERMINATION DATE"), at which time, subject to
Section 8.5, such respective representations, warranties and covenants of Target
set forth in this Agreement and any liability of the holders of the Former
Target Stockholders with respect to those representations, warranties and
covenants will, subject to the terms of the Escrow Agreement and Article VII
below, terminate; provided that the representations, warranties and covenants
set forth in (a) Sections 2.3 and 2.21 shall survive indefinitely and remain in
effect continuously after the Closing and (b) Sections 2.14, 2.15
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and 2.16 shall survive and remain in effect continuously after the Closing for
the lesser of (i) seven (7) years and (ii) the statute of limitations applicable
to the subject representation, warranty or covenant. None of the Acquiror,
Merger Sub, Target or Target Stockholders shall be liable or bound in any manner
by representations, warranties, covenants or agreements pertaining to the
subject matter of this Agreement, whether express or implied, or any other
matter whatsoever, which are made or furnished by any Person representing or
purporting to represent the Acquiror, Merger Sub, Target or Target Stockholders
unless and only to the extent that such representations, warranties, covenants,
or agreements are expressly and specifically set forth in this Agreement or the
Exhibits or Schedules hereto or in any certificate or other agreement, document
or instrument delivered pursuant to the provisions of this Agreement.
8.2 Indemnity. From and after the first to occur of the termination of
this Agreement pursuant to Article VII hereof and the Effective Time of the
Merger, and subject to the provisions of Section 8.1, Acquiror and the Surviving
Corporation (on or after the Closing Date) shall be indemnified and held
harmless by the Former Target Stockholders (and, in the case the Closing does
not occur,(x) the Target and the Target Stockholders, in the case of the
Principal Stockholders, on a joint and several basis and, (y) in the case of
Ulta, on a several and not joint basis (but only in respect of clause (a) below
and clause (e) below as it relates to clause (a) below), whether or not the
Closing occurs against, and reimbursed for, any actual liability, damage, loss,
obligation, demand, judgment, fine, penalty, cost or expense other than any such
damages resulting from injunctive relief granted as to an intellectual property
claim, but including reasonable attorneys' fees and expenses, and the costs of
investigation incurred in defending against or settling such liability, damage,
loss, cost or expense or claim therefor and any amounts paid in settlement
thereof) (collectively the "DAMAGES") imposed on or reasonably incurred by
Acquiror or the Surviving Corporation as a result of:
(a) any misrepresentation contained in or breach of or failure
to perform any representation, warranty, covenant or agreement of Target, Ulta
or a Principal Stockholder contained in this Agreement or in any other
Transaction Document, certification, Schedule (including the Target Disclosure
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Schedule), Exhibit or writing delivered pursuant hereto, or in connection
herewith (in each case only with respect to the representations, warranties,
covenants and agreements made by each such Person), provided that (i) in the
case of Ulta only with respect to the representations and warranties set forth
in Article IIB and the specific covenants and agreements by Ulta in this
Agreement and (ii) the Principal Stockholders shall be deemed to have made the
covenants and agreements of Target for the purposes of this Article VIII;
(b) any Taxes of Target (and Target's predecessors) with
respect to any Tax year or portion thereof ending on or before the Closing Date
to the extent such Taxes are not reflected in a reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Target Balance
Sheet and do not constitute Taxes in respect of the income, operations or
property of the Target derived or incurred in the ordinary course of its
business between the Target Balance Sheet Date and the Closing less Taxes paid
subsequent to the Target Balance Sheet Date, as well as the unpaid Taxes of any
Person (other than Target) for which Target is liable under Treasury
Regulationss.1.1502-6 (or any similar provision of state, local, or foreign law)
as a transferee or successor, by contract, or otherwise in respect of a Tax year
(or portion thereof) ending on or before the Effective Time;
(c) the commencement and/or prosecution of any action brought
against the Acquiror by any Person who held at anytime, but no longer holds, any
equity interest in the Target or material asset currently owned by the Target,
or any predecessor or successor thereof, or any direct or indirect
securityholder of any of the foregoing arising out of or relating to the
purchase of all or a portion of such Person's interests in Target) (other than
in respect of, and to the extent that such claims are based upon, Acquiror's
breach of its representations, warranties or agreements contained herein);
(d) the actual or threatened (in writing) commencement of any
proceeding, suit or action against Target, Acquiror or any Affiliate thereof, or
any director, officer or employee of any of them (specifically excluding normal
obligations to repair, replace or return products sold by Target in the ordinary
course of business consistent with past practice, or which are subject to normal
warranty claims) arising out
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of actions taken, or omitted to be taken, or state of facts existing, prior to
the date hereof, which, if determined adversely thereto (regardless of the
actual determination thereof) would result in Damages which would be
indemnifiable under the provisions of this Section 8.2(a), (b), and/or (c) above
(any such pending or threatened suit or action being a "PURCHASER COVERED
ACTION"); and/or
(e) any and all actions, suits, proceedings, claims or demands
incident to any of the foregoing or such indemnifications; provided, however,
(1) if the Closing occurs, no amount shall be paid in respect of Damages until
the aggregate amount of all Damages exceeds $100,000 (the "BASKET"), whereupon
the Former Target Stockholders shall pay Damages in excess of the Basket;
provided further; however, the Former Target Stockholders (and the Target
Stockholders in the event the Closing does not occur) shall be obligated to pay
all amounts of Non-Basket Losses (as defined below) whether or not the aggregate
of all Damages exceeds the Basket, (2) the indemnification obligation of (A)
Principal Stockholders shall be joint and several with respect to any
representation or warranty in Article II as it pertains to the Target's business
or condition and (B) the Target Stockholders shall be several (and not joint) in
respect of the representations and warranties in Articles IIA and IIB, (3)
claims which would have constituted a breach of a representation or warranty
contained in Article II, IIA and/or IIB, but for the fact that the
representation or warranty was qualified based upon materiality, Target's
knowledge, other Person's knowledge, or constituting a Material Adverse Effect,
shall nevertheless constitute Damages for which indemnification is required
hereunder as if such qualifying language was absent from this Agreement, and (4)
Damages shall count towards the Basket regardless of which Person's (other than
Acquiror and Merger Sub) breach gave rise to same. "NON BASKET LOSSES" means
Damages arising from: (A) intentional and knowing breaches of any of the
representations and warranties of Target or any Target Stockholder, (B)
intentional breaches of any covenant of Target or any Target Stockholder and (C)
Damages arising from a breach of the representations and warranties set forth in
Section 2.37.
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Notwithstanding anything contained to the contrary in this Section 8.2,
the Acquiror and the Surviving Corporation shall not be indemnified by the
Former Target Stockholders for Damages imposed on or reasonably incurred by
Acquiror or Surviving Corporation if a breach of Section 2.37 occurs as a result
of a failure by GBH to provide, pursuant to the GBH Agreement, the GBH brands to
the Acquiror and the Surviving Corporation after the date hereof (unless such
failure is caused by or results from the action or inaction of Target prior to
the Effective Time (unless such action or inaction is at the direction of the
Acquiror)).
8.3 Escrow Fund. As security for the indemnity provided for in Section
8.2 hereof, the Initial Escrow Shares, as of the Closing Date, and the Added
Escrow Shares shall be deposited by Acquiror, in the escrow share account (the
"ESCROW SHARE ACCOUNT") and the Contingent Share Escrow, respectively, with
Chase Mellon Shareholder Services, L.L.C. (the "ESCROW AGENT"). Such deposits
shall constitute an escrow fund (the "ESCROW FUND") to be governed by the terms
set forth in this Agreement and the provisions of an Escrow Agreement to be
executed and delivered pursuant to Section 5.14. Upon compliance with the terms
hereof and subject to the provisions of this Article VIII, Acquiror and the
Surviving Corporation shall be entitled to obtain indemnity from the Escrow Fund
for Damages covered by the indemnity provided for in Section 8.2 of this
Agreement.
8.4 [INTENTIONALLY LEFT BLANK]
8.5 Escrow Period. Subject to Section 8.10, the escrow period with
respect to the Escrow Shares shall terminate on the Termination Date.
8.6 Claims Procedure.
(a) Upon receipt by the Escrow Agent on or before the
Termination Date of a certificate signed by the chief financial or chief
executive officer of Acquiror (an "OFFICER'S CERTIFICATE"):
(i) stating that Acquiror or the Surviving
Corporation has incurred, paid or properly accrued (in accordance with GAAP) or
knows of facts giving rise to a reasonable probability that
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it will have to incur, pay or accrue (in accordance with GAAP) Damages in an
aggregate stated amount with respect to which Acquiror or the Surviving
Corporation is entitled to payment from the Escrow Shares in the Escrow Fund
pursuant to this Agreement; and
(ii) specifying in reasonable detail the individual
items of Damages included in the amount so stated, the date each such item was
incurred, paid or properly accrued (in accordance with GAAP, or the basis for
such anticipated liability, the specific nature of the breach to which such item
is related, the Escrow Agent shall, subject to the provisions of Section 8.7 of
this Agreement, deliver to Acquiror shares of Acquiror Common Stock in an amount
necessary to indemnify Acquiror for the Damages claimed provided, however, that
no shares of Acquiror Common Stock shall be delivered to Acquiror, as a result
of a claim based upon an accrual or upon a reasonable probability) of having to
incur, pay or accrue Damages until such time as the Acquiror has actually
incurred or paid Damages. All Escrow Shares subject to such claims shall remain
in the Escrow Fund until Damages are actually incurred or paid or the Acquiror
determines in its reasonably good faith judgment that no Damages (or further
Damages) will be required to be incurred or paid (in which event such remaining
Escrow Shares shall be distributed to the Former Target Stockholders in
accordance with Section 8.10 below).
(b) For the purpose of compensating Acquiror for its Damages
pursuant to this Agreement, the Acquiror Common Stock in the Escrow Fund shall
be valued at the Acquiror Average Price.
8.7 Objections to Claims. At the time of delivery of any Officer's
Certificate to the Escrow Agent, a duplicate copy of such Officer's Certificate
shall be delivered to Ulta and the Stockholders' Agent (defined in Section 8.9
below) and for a period of forty-five (45) days after such delivery to the
Escrow Agent, the Escrow Agent shall make no delivery of Escrow Shares or other
property pursuant to Section 8.6 hereof unless the Escrow Agent shall have
received written authorization from Ulta and the Stockholders' Agent to make
such delivery. After the expiration of such forty-five (45) day period, the
Escrow Agent shall make delivery of the subject Escrow Shares or other property
in the Escrow Fund in accordance with Section 8.6 hereof, provided that no such
payment or delivery may be made if Ulta or the Stockholders'
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Agent shall object in a written statement to the claim made in the Officer's
Certificate, and such statement shall have been delivered to the Escrow Agent
and to Acquiror prior to the expiration of such forty-five (45) day period.
8.8 Resolution of Conflicts; Arbitration.
(a) In case that the Stockholders' Agent or Ulta shall so
object in writing to any claim or claims by Acquiror made in any Officer's
Certificate, the Stockholders' Agent, Ulta and Acquiror shall attempt in good
faith for sixty (60) days to agree upon the rights of the respective parties
with respect to each of such claims. If the Stockholders' Agent, Ulta and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by such parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the subject Escrow Shares or other property from the Escrow Fund in
accordance with the terms thereof.
(b) With respect to an objection arising out of Sections 8.3,
8.5, 8.6, 8.7 and this Section 8.8, if no agreement can be reached, after good
faith negotiation in a 60- day period, either Acquiror, Ulta or the
Stockholders' Agent may, by written notice to the other parties, demand
arbitration only with respect to objections and disputes arising from Sections
8.3, 8.5, 8.6, 8.7 and this Section 8.8, unless the amount of the Damages is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or Ulta, the Stockholders'
Agent and Acquiror agree to arbitration; and in either such event the matter
shall be settled by arbitration conducted by three arbitrators as selected in
accordance with this Section 8.8(b). Within fifteen (15) days after such written
notice is sent, Acquiror (on the one hand) and the Stockholders' Agent and Ulta
(on the other hand) shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator; provided that, if the Stockholders'
Agent and Ulta cannot agree on the selection of the arbitrator to be selected
jointly by them, then the arbitrator selected by Acquiror shall be the sole
arbitrator under this Section 8.8 for the resolution of conflicts under and in
accordance with this Article VIII. The decision of a majority of the arbitrators
shall constitute the determination of a dispute under this Section 8.8.
Promptly, but not later than thirty (30) days after the
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acceptance of their appointment, the arbitrators shall determined (based solely
on presentations by Acquiror, Ulta and the Stockholders' Agent to the
arbitrators and not be independent review) only those items in dispute and shall
render a report as to their resolution of such items and the resulting Damages,
if any, for which indemnification is required. In resolving any disputed items,
the arbitrators may not assign a value greater than the greatest value claimed
by either party or less than the lowest value claimed by any party. Subject to
Section 8.8(c) below, the Acquiror, on the one hand, and the Former Target
Stockholders, on the other hand, shall share equally all costs and fees related
to such determination by the arbiters, including without limitation, the costs
relating to any negotiations with arbiters with respect to the terms and
conditions of such arbiters' engagement; and each shall be severally liable for
one-half (1/2) of any amounts paid as a result of any indemnification required
by the arbiters as a condition to its engagement or the performance of such
engagement. The arbiters' determination shall be (1) in writing, (2) furnished
to the Acquiror, Ulta and Stockholders' Agent as soon as practicable after the
items in dispute have been referred to the arbiters, (3) made in accordance with
GAAP consistent with the provisions of this Agreement, and (4) nonappealable and
incontestable by the Acquiror, the Former Target Stockholders, or any of their
respective Affiliates and not subject to collateral attack for any reason.
Notwithstanding anything in Section 8.6 hereof, the Escrow Agent shall be
entitled to act in accordance with such decision and make or withhold payments
out of the Escrow Shares in the Escrow Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Harris County, Texas, under the commercial rules then in effect of the American
Arbitration Association. For purposes of this Section 8.8, in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Acquiror shall be deemed to be the Non-Prevailing Party
unless the arbitrators award Acquiror more than one-half (1/2) of the amount in
dispute, plus any amounts not in dispute; otherwise, the Target Stockholders for
whom shares of Target Capital Stock otherwise issuable to them have been
deposited in the Escrow Fund shall be deemed to be the Non-Prevailing Party. The
Non-Prevailing Party to an arbitration shall pay its own
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expenses, the fees of each arbitrator, the administrative fee of the American
Arbitration Association, and the expenses, including without limitation,
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration.
8.9 Stockholders' Agent.
(a) Herbert Pirquet shall be constituted and appointed as
agent ("STOCKHOLDERS' AGENT") for and on behalf of all Target Stockholders (and,
after the Effective Time, the Former Target Stockholders), but not Ulta, under
this Agreement and to give and receive notices and communications, to authorize
delivery to Acquiror of Escrow Shares from the Escrow Fund in satisfaction of
claims by Acquiror against any Target Stockholder or Former Target Stockholder
(in each case, other than Ulta), 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
Stockholders' Agent for the accomplishment of the foregoing. Such agency may be
changed by the holders of a majority in interest of the Former Target
Stockholders (other than Ulta) (based upon the former ownership of Target) from
time to time upon not less than 10 days' prior written notice to Acquiror. The
Stockholder's Agent may resign upon thirty (30) days notice to the parties to
this Agreement and the Former Target Stockholders. No bond shall be required of
the Stockholders' Agent, and the Stockholders' Agent shall receive no
compensation for his/her/its services. Notices or communications to or from the
Stockholders' Agent shall constitute notice to or from each of the Former Target
Stockholders (other than Ulta).
(b) The Stockholders' Agent shall not be liable for any act
done or omitted hereunder as Stockholders' Agent while acting in good faith and
in the exercise of reasonable judgment, and any act done or omitted pursuant to
the advice of counsel shall be conclusive evidence of such good faith. The
Former Target Stockholders (other than Ulta) shall severally indemnify the
Stockholders' Agent and hold the Stockholders' Agent harmless against any loss,
liability or expense incurred without gross negligence or bad
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faith on the part of the Stockholders' Agent and arising out of or in connection
with the acceptance or administration of the Stockholders' Agent's duties
hereunder.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Stockholders' Agent shall treat confidentially and
not disclose any nonpublic information from or about Target to anyone (except on
a need to know basis to individuals who agree to treat such information
confidentially).
(d) The Stockholder Payee Representative ( on behalf of all
Former Target Stockholders) shall be entitled to a distribution from the Escrow
Shares in the Escrow Fund (based on the Consideration Payout Exhibit) equal to
any such indemnity claim which has not been satisfied; provided, however, that
no such distribution shall be made until all claims of Acquiror set forth in any
Officer's Certificate delivered to the Escrow Agent on or prior to the
Termination Date have been resolved.
8.10 Distribution Upon Termination of Escrow Period; Contingent Share
Distribution.
(a) Within five (5) business days following the Termination
Date, and upon the receipt by the Escrow Agent of a written instruction signed
by Ulta and the Stockholders' Agent identifying the number of Escrow Shares and
the parties to whom such Escrow Shares shall be delivered and assigned (the
"ESCROW JOINT WRITTEN INSTRUCTION"), the Escrow Agent shall deliver to the
Stockholder Payee Representative (on behalf of all Former Target Stockholders)
all of the Escrow Shares in the Escrow Fund in excess of any amount of such
Escrow Shares reasonably necessary to satisfy any unsatisfied or disputed claims
for Damages specified in any Officer's Certificate delivered to the Escrow Agent
on or before the Termination Date. As soon as all such claims have been
resolved, the Escrow Agent shall, upon receipt of the Escrow Joint Written
Instruction, deliver to the Stockholder Payee Representative (on behalf of all
Former Target Stockholders) all Escrow Shares remaining in the Escrow Fund and
not required to satisfy such claims.
(b) Within five (5) business days following each Achievement
Date (as defined in the Contingent Share Exhibit) and upon the receipt by the
Escrow Agent of a written instruction signed by Ulta,
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the Stockholders' Agent, and the Acquiror, identifying the number of Contingent
Shares to be delivered and assigned (including any shares to be transferred to
the Escrow Share Account), the Escrow Agent shall deliver to the Stockholder
Payee Representative the Contingent Shares required to be released to the
Stockholder Payee Representative on such Achievement Date pursuant to the
Contingent Share Exhibit; provided that ten percent (10%) of the Contingent
Shares to which Ulta and/or the other Former Target Stockholders have become
entitled to on such Achievement Date shall remain with the Escrow Agent and
shall be transferred by the Escrow Agent from the Contingent Share Account and
deposited in the Escrow Share Account until the Termination Date upon which
date, such Contingent Shares shall be, in accordance with Section 8.10(a), be
delivered to the Stockholder Payee Representative. Any Contingent Shares not
required to be so disbursed on the Achievement Date shall be retained by the
Escrow Agent in the Contingent Share Account until the Second Achievement Date
(as defined in the Contingent Share Exhibit) upon which date the Escrow Agent
shall follow the terms and procedures of this Section 8.10(b); provided that any
Contingent Shares not required to be released, delivered and assigned (based on
the Contingent Share Exhibit) to the Stockholder Payee Representative or placed
into the Escrow Share Account of the Escrow Fund on the Second Achievement Date
shall be promptly returned to Acquiror.
8.11 Actions of the Stockholders' Agent; Stockholder Payee
Representative.
(a) A decision, act, consent or instruction of the
Stockholders' Agent shall constitute a decision of all Former Target
Stockholders other than Ulta (and, prior to the Effective Time, all Principal
Stockholders hereunder) for whom shares of Acquiror Common Stock otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each such Target Stockholder and Former Target Stockholder,
and the Escrow Agent and Acquiror may rely upon any decision, act, consent or
instruction of the Stockholders' Agent as being the decision, act, consent or
instruction of each and every such Target Stockholder and Former Target
Stockholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Stockholders' Agent.
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(b) The Contingent Shares and Escrow Shares shall be deemed
paid by Acquiror, the Exchange Agent and/or the Escrow Agent when such party
furnishes such consideration to the Stockholders Payee Representative. Acquiror,
Exchange Agent and/or the Escrow Agent shall be relieved from any liability to
any person for payment of the Contingent Shares, Initial Shares and Cash
Consideration once such consideration has been delivered to the Stockholder
Payee Representative.
8.12 Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim that Acquiror believes may result in a demand against the
Escrow Shares in the Escrow Fund, Acquiror shall notify the Former Target
Stockholders of such claim, and the Former Target Stockholders shall be
entitled, at his or her expense, to participate in any defense of such claim.
Acquiror shall have the right in its sole discretion to settle any such claim;
provided, however, that Acquiror may not effect the settlement of any such claim
without the consent of the Stockholders' Agent and Ulta, which consent shall not
be unreasonably withheld. In the event that the Stockholders' Agent and Ulta
have consented to any such settlement, the Stockholders' Agent and Ulta shall
have no power or authority to object under Section 8.6 or any other provision of
this Article VIII to the amount of any claim by Acquiror against the Escrow
Shares in the Escrow Fund for indemnity with respect to such settlement.
8.13 Maximum Liability and Remedies. Notwithstanding anything to the
contrary herein, in the event the Merger occurs, the aggregate liability of the
Former Target Stockholders for Damages shall not exceed the Escrow Shares, and
the rights of the Acquiror to make claims upon the Escrow Shares in the Escrow
Fund in accordance with this Article VIII shall be the sole and exclusive remedy
of Acquiror and the Surviving Corporation after the Closing with respect to any
representation, warranty, covenant or agreement made by Target or any Target
Stockholder under this Agreement and no former stockholder, optionholder,
warrantholder, director, officer, employee or agent of Target shall have any
personal liability to Acquiror or the Surviving Corporation after the Closing in
connection with the Merger; provided, however, that nothing herein limits any
potential remedies (at law, in equity or otherwise) and liabilities of Acquiror
or the Surviving Corporation, arising under applicable state and federal laws
with respect to any intentional or
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fraudulent breaches of the representations, warranties or covenants of Target
made in or pursuant to this Agreement. Nothing in this Agreement shall limit the
liability of Target or any Target Stockholder for any breach of any
representation, warranty or covenant made by such party if the Merger does not
close.
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally-recognized overnight courier or by registered or certified
mail, postage prepaid, return receipt requested or by telecopier, with
confirmation as provided above addressed as follows:
(a) if to Acquiror or Merger Sub, to:
Ashford.com, Inc.
3800 Buffalo Speedway, Suite 400
Houston, Texas 77098
Attention: Gary Paranzino, General Counsel
and Vice President
Facsimile No.: (713) 629-5631
Telephone No.: (713) 369-1300
with a copy to:
Morrison Cohen Singer & Weinstein, LLP
750 Lexington Avenue
New York, New York 10022
Attention: Robert Londin, Esq.
Facsimile No.: (212) 735-8708
Telephone No.: (212) 735-8600
(b) if to Target, to:
Jasmin.com Corporation
87 Main Street
New Canaan, CT 06840
Attention: President
Facsimile No.: (203) 966-7597
Telephone No.: (203) 966-6400
with a copy to:
Morrison Foerster LLP
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1290 Avenue of the Americas
New York, NY 10104
Attention: Joseph W. Bartlett, Esq.
Facsimile No.: (212) 468-7900
Telephone No.: (212) 468-8000
(c) if to Ulta, to:
Ulta Internet Holdings, Inc.
c/o Ulta Salon, Cosmetics & Fragrances, Inc.
1135 Arbor Drive, Windham Lakes Business Park
Romeoville, Illinois 60446
Attention: Terry Hanson
Facsimile No.: (630) 226-8203
Telephone No.: (630) 226-8219
with copy to:
Baker & Hosteller
3200 National City Center
1900 E. 9th. Street
Cleveland, Ohio 44114-3485
Fax: (216) 696-0740
Tel: (216) 621-0200
Attention: Robert G. Markey, Esq.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be received: (a) in the case of personal
delivery or telecopy, on the date of such delivery; (b) in the case of
nationally- recognized overnight courier, on the next business day after the
date when sent; and (c) in the case of mailing, on the third business day
following the date on which the piece of mail containing such communication was
posted.
9.2 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to
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any entity or group of entities means any material event, change, condition or
effect related to the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations, prospects or
results of operations of such entity or group of entities. In this Agreement,
any reference to a "MATERIAL ADVERSE EFFECT" with respect to any Person means
any event, change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations, prospects or results of operations of such
entity and its subsidiaries (if any), taken as a whole or which could materially
impair the ability of such Person to execute, deliver and consummate the
transactions contemplated by the Transaction Documents. The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to be
made available. The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to December 29, 1999. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; No Third Party Beneficiaries. This Agreement, the
other Transaction Documents and the documents and instruments and other
agreements specifically referred to herein or delivered pursuant hereto,
including the Exhibits, the Schedules (including the Target Disclosure Schedule
and the Acquiror Disclosure Schedule) (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement
dated October 25, 1999 between Acquiror and Target, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms and (b) are not intended to confer
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upon any other Person any rights or remedies hereunder, except for the rights of
the Former Target Stockholders not party hereto to receive Acquiror Common Stock
in accordance herewith (subject to the escrow provisions of this Agreement).
9.5 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof. The parties hereto further agree to replace such
invalid, illegal or unenforceable provision of this Agreement with a valid,
legal and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid, illegal or unenforceable
provision.
9.6 Remedies Cumulative. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be deemed to be made in and in
all respects shall be interpreted, construed and governed by and in accordance
with the laws of the State of New York (as permitted by Section 5-1401 of the
New York General Obligations Law (or any similar successor provision)) without
giving effect to any choice or conflicts of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of New York to the rights and duties of the parties, except that such
provisions of this Agreement which by their terms implicate the provisions of
Delaware Law, shall be interpreted, construed and governed in accordance with
the same.
9.8 JURISDICTION. THE PARTIES HEREBY CONSENT TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF TRAVIS, STATE OF TEXAS AND
IRREVOCABLY AGREE THAT, SUBJECT TO ACQUIROR'S ELECTION, ALL ACTIONS OR
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PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. THE PARTIES ACCEPT FOR EACH OF THEMSELVES/ITSELF AND IN CONNECTION
WITH THEIR/ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREE TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT.
9.9 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and permitted assigns.
9.10 Rules of Construction. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Target, Acquiror and Merger Sub have caused this
Agreement to be executed and delivered by their respective officers thereunto
duly authorized, all as of the date first written above.
JASMIN.COM CORPORATION
By: /s/ DALE DEWEY
--------------------------------------
Name: Dale Dewey
------------------------------------
Title: President and CEO
-----------------------------------
ASHFORD.COM, INC.
By: /s/ KENNY KURTZMAN
--------------------------------------
Name: Kenny Kurtzman
------------------------------------
Title: CEO
-----------------------------------
ASHFORD-JASMIN FRAGRANCE CORPORATION
By: /s/ DAVID GOW
--------------------------------------
Name: David Gow
------------------------------------
Title: President
-----------------------------------
ULTA INTERNET HOLDINGS, INC.
By: /s/ TERRY HANSON
--------------------------------------
Name: Terry Hanson
Title: President
/s/ BRET PIRQUET
- -----------------------------------------
BRET PIRQUET
/s/ DALE DEWEY
- -----------------------------------------
DALE DEWEY
/s/ ANTONY PIRQUET
- -----------------------------------------
ANTONY PIRQUET
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EXHIBIT 6.2(e)
[FORM OF]
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of ___________, 2000 by and between
[ ] (the "EMPLOYEE") and ASHFORD-JASMIN FRAGRANCE CORPORATION (the "COMPANY").
In consideration of the mutual covenants and agreements set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows, effective as of the date
hereof:
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) Position. For the term of his employment under this Agreement
("EMPLOYMENT"), the Company agrees to employ Employee in the position of [FOR
MR. DEWEY: SENIOR] Vice President-Marketing or in such other comparable position
consistent with the Employee's experience, stature, and Base Compensation (as
defined below), as the Company may subsequently assign to Employee. Subject to
normal and customary travel requirements (including, without limitation,
business travel from time to time to the Company's affiliates' offices), the
Company agrees that during the first year of the employment term, it shall not
require Employee to move his principal place of work to any location more than
25 miles away from the Company's current principal office in New Canaan, CT.
After the first year of the Employment term, the Company shall be free to
require Employee to relocate. Should Employee be required to relocate, the
Company shall pay reasonable relocation expenses. All taxable benefits in
connection with these relocation expenses will be grossed up so as not to result
in a taxable event to Employee.
(b) Term of Employment. Unless Employment otherwise terminates in
accordance with this Agreement, the term of Employment under this Agreement
shall be for an initial term of two (2) years from the date of this Agreement
and shall be automatically terminated without further action by either party,
unless written notice of the Company's intention to renew this Agreement for a
successive twelve-month period (at the end of the initial term or any renewal
term, as the case may be) has been given to the Employee at least forty-five
(45) days prior to the expiration of such initial two-year period or the
then-current twelve-month period extension thereof in which event the term of
Employment shall then be extended for another 12-month period. Notwithstanding
any of the foregoing to the contrary, such term shall in no way alter Employee's
obligations under Section 4 or 5 of this Agreement or Employee's at-will status
(as a result of which such term may be earlier terminated).
(c) Obligations. During the term of his Employment, Employee shall devote
his full business efforts and time to the Company and shall not render business
services to any other person or entity whether on a compensated or
non-compensated basis ("OTHER EMPLOYMENT") without the express prior approval of
the Company's Chief Executive Officer. [FOR MR. DEWEY: THE COMPANY EXPRESSLY
ACKNOWLEDGES AND AGREES THAT EMPLOYEE MAY CONTINUE EMPLOYEE'S EMPLOYMENT AND
INVOLVEMENT WITH CATHERINE'S FINE ACCESSORIES, INC. ("CFAI") BUT AT NO
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TIME SHALL EMPLOYEE'S EMPLOYMENT OR INVOLVEMENT WITH CFAI EXCEED TWO (2) HOURS
PER WEEK DURING NORMAL BUSINESS HOURS (IT BEING UNDERSTOOD EMPLOYEE SHALL BE
FREE TO DEVOTE TIME TO CFAI (EXCLUDING IT'S SUCCESSORS AND ASSIGNS) OUTSIDE
NORMAL BUSINESS HOURS).] The Employee shall serve as [FOR MR. DEWEY: SENIOR]
Vice President of Marketing of the Company and shall have the usual and
customary duties, responsibilities and authority of a Vice President subject to
the power of the board of directors of the Company (the "BOARD"), the Company's
Chief Executive Officer ("CEO"), or any duly designated Ashford.com, Inc., a
Delaware corporation and parent of the Company ("Ashford") executive ("ASHFORD
EXECUTIVE")(i) to expand or limit such duties, responsibilities and authority
and (ii) to override the actions of the Employee. The Employee shall report to
the Board and the CEO, and shall perform his duties and responsibilities to the
best of his abilities in a diligent and professional manner. Employee represents
and warrants to the Company that he is under no contractual commitments
inconsistent with his obligations under this Agreement [FOR MR. DEWEY: (OTHER
THAN HIS OBLIGATIONS TO CFAI)].
(d) Employment Commencement. Employee shall commence full-time employment
with the Company immediately.
2. CASH AND INCENTIVE COMPENSATION.
(a) Salary. The Company shall pay Employee as compensation for his services
a starting base salary at a rate of $12,500 per month (subject to annual
increases as shall be determined by the Board of Director's) ("BASE
COMPENSATION"). Such salary shall be payable in accordance with the Company's
standard payroll procedures.
(b) On or before January 12, 1999, Ashford shall have granted to the
Employee 150,000 options ("STOCK OPTIONS") to purchase an aggregate of 150,000
shares of Ashford Common Stock, at an exercise price not exceeding the closing
price of Ashford's Common Stock on the NASDAQ on the date of grant (the "OPTION
EXERCISE PRICE"). The Stock Options shall have been granted pursuant to
Ashford's 1999 Equity Incentive Plan (the "PLAN"), and in accordance with the
terms and provisions of the Stock Option Agreement between Ashford and the
Employee set forth on Exhibit A hereto (the "STOCK OPTION AGREEMENT"). The Stock
Option Agreement shall provide that the 150,000 of the Employee's Stock Options
vest in twenty four (24) equal monthly installments of 6,250 Stock Options on
each monthly anniversary of the date of grant over a two year period from the
date of grant and such other terms and conditions as are set forth in the Stock
Option Agreement and this Agreement. However, notwithstanding such vesting
schedule, all options granted pursuant to this paragraph 2(b) shall immediately
vest and become exercisable upon the Employee's termination without Cause (as
defined below) by the Company.
(c) Benefits. Employee shall be eligible to participate in such benefit
programs offered by the Company, such as health, dental, life insurance, vision,
employee stock purchase plan, vacations and 401(k), as are offered to
similarly-situated employees and in each case no more favorable than the terms
of benefits generally available to the employees of Ashford (based on seniority
and salary level), subject in each case to the generally applicable terms and
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conditions of the plan in question. The Company agrees that during the
Employment Term it will provide to Employee, at its own expense, a level of
indemnification and coverage under any applicable Officer's and Director's
liability guidelines, bylaws or insurance policies commensurate with Employee's
actions as an officer of the Company.
(d) Business Expenses. During the term of his Employment, Employee shall be
authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse Employee for such expenses upon presentation of an itemized account
and appropriate supporting documentation, all in accordance with the Company's
(and/or Ashford's) generally applicable policies.
(e) Bonuses and Other Incentives. The Employee shall be entitled to
participate in any bonuses or other incentive programs made available by the
Company to similarly situated employees as the Board of Directors may determine
to award in its sole discretion.
3. AT WILL EMPLOYMENT.
(a) Basic Rule. The Company agrees to employ the Employee and Employee
agrees to commence employment with the Company, from the time set forth in
Section 1(d). Employee's Employment with the Company shall be "at will." This
means that either Employee or the Company may terminate the Employee's
Employment at any time for any reason, with or without Cause (as defined below).
Any contrary representations which may have been made to the Employee shall be
superseded by this Agreement. This Agreement shall constitute the full and
complete agreement between the Employee and the Company on the "at will" nature
of the Employee's Employment, which may only be changed in an express written
agreement signed by the Employee and the CEO.
(b) Rights Upon Termination.
(i) Upon Employee's voluntary termination of employment or the
Company's termination of Employee's Employment for Cause, Employee shall only be
entitled to the compensation, benefits and reimbursements described in Sections
1 and 2 for the period preceding the effective date of the termination and no
other benefits.
(ii) In the event the Company terminates Employee's Employment without
Cause during the initial two-year term of Employment as provided in Section 1
above, the Company shall be obligated to pay Employee (A) his then current Base
Compensation for the remainder of the initial two-year term, plus (B) all
accrued but unpaid amounts payable to Employee pursuant to Section 2(d) of this
Agreement (other than Base Compensation). Base Compensation payable under this
subsection shall be payable, at the Company's option, either (i) in accordance
with the payroll practices of the Company or (ii) in a single lump sum payment
equal to the present value of such Base Compensation payments, payable as soon
as practicable following the date of such termination. For purposes of the
previous sentence, present value shall be calculated on the basis of the
applicable short-term federal interest rate (applicable to loans with monthly
compounding) as determined for the month of such termination pursuant to
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<PAGE> 105
Section 1274(d) of the Internal Revenue Code of 1986, as amended. In addition,
upon such termination, the Company shall also continue to provide Employee with
all insured (including self-insured) medical and disability benefits, subject to
the terms, conditions and restrictions of the specific plans, through the end of
the Employment Term. The Company shall arrange for and pay for group or private
health insurance and disability benefits similar to those which Employee was
receiving immediately prior to the termination. If Employee meets eligibility
terms, conditions and restrictions of COBRA, the Company will pay the COBRA
premiums for Employee and, if covered prior to the termination, Employee's
dependents. Insured benefits otherwise receivable by Employee pursuant to this
Section 3(b)(ii) will be reduced to the extent comparable benefits are actually
received by Employee during such period from another source. Thereafter, the
Company shall have no obligation to make any further payments to or to provide
any further benefits hereunder to Employee.
(iii) In the event that Employee, due to physical or mental disability
or incapacity ("Disability"), is unable to perform substantially Employee's
essential duties hereunder for a period of three (3) or more consecutive months,
or a total period of six (6) months in any period of twelve (12) consecutive
months, then, to the extent permitted by law, the Company shall have the right
to terminate this Agreement and Employee's employment hereunder upon thirty (30)
days prior written notice. During such period of Disability, up to a maximum of
the lesser of (A) eighteen (18) months and (B) the remainder of the initial term
of Employment hereunder, the Company shall pay to or on behalf of Employee all
benefits and compensation as provided for prior to such Disability, less any
payments received by Employee from any disability policy held by the Company.
Thereafter, the Company's responsibility to make such payments to such Employee
shall cease, except that the Company shall either assign to Employee, or pay to
or on behalf of Employee, any and all monies paid to the Company under any
disability insurance policy covering Employee, and the Company shall continue to
maintain any insurance on the life of Employee which it had in effect prior to
such disability. Nothing in this Section shall affect Employee's rights under
any applicable Company disability plan.
(c) Cause. "CAUSE" as used herein shall mean Employee's (i) commission of
an act which might be construed as common law fraud, embezzlement or a felony,
an act of moral turpitude, or of any tortious or unlawful act causing harm to
the Company's business, standing or reputation, (ii) act of dishonesty or fraud
with respect to the Company, (iii) breach of his/her duty of loyalty or care to
the Company, (iv) other misconduct that is materially detrimental to the
Company; (v) ongoing refusal or failure to perform Employee's duties other than
as a result of Disability after receiving written notice describing his
non-performance and being given a reasonable opportunity to cure such
non-performance; (vi) deliberate and consistent refusal to conform to or follow
any reasonable policy adopted by the Company's Board or lawful instructions of
the CEO or an Ashford Executive after receiving written notice describing
his/her non-compliance and being given a five (5) business days opportunity to
cure (to the extent curable) such non-compliance; or (vii) material breach of
this Agreement, the Proprietary Information and Inventions Agreement between
Employee and the Company.
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<PAGE> 106
4. NON-COMPETITION.
(a) General Terms. The parties acknowledge that it would be detrimental to
the Company if Employee were to compete with the Company in any part of the
Business (as defined below). In addition, the parties agree that, prior to this
Agreement, the Employee was engaged in a global Internet business. (This shall
hereafter be referred to as the "GEOGRAPHIC SCOPE OF EMPLOYEE'S BUSINESS.") The
parties further agree that the Company plans to assume and conduct such business
in all parts of the Geographic Scope of Employee's Business. As a result of the
foregoing, the parties expressly acknowledge that the intention of the
non-competition provisions contained in this Agreement are so that such
provisions shall be enforceable pursuant to the provisions of Texas law.
(b) Non-Competition During Employment. Employee agrees that during his
Employment with the Company, Employee will not engage in Other Employment unless
Employee receives the Company's prior written approval therefor (as evidenced
solely by a duly adopted Board resolution).
(c) Non-Competition Following Termination of Employment. Subject to and
except as set forth in Section 4(d), for purposes of this Section 4, the
restricted period shall be, the period of Employment plus the period commencing
with the date of termination of Employment and ending on (i) in the case of a
termination of Employee's Employment by the Company for Cause or a termination
of the Employee's Employment for any reason by Employee (other than Disability),
a period of two (2) years following such termination, and (ii) in the event of a
termination of the Employee's Employment by the Company for any reason other
than for Cause, a period of one (1) year following such termination (the
"RESTRICTED PERIOD"). During the Restricted Period, Employee shall not, as an
employee, agent, consultant, advisor, independent contractor, general partner,
officer, director, stockholder, investor, lender or guarantor of any
corporation, partnership or other entity (or as a sole proprietorship or by way
of another business), or in any other capacity, directly or indirectly:
(i) (A) Participate or engage in any business in which the Company or
Ashford is engaged (namely, the sale of luxury goods (including, without
limitation, watches, writing instruments, leather accessories, sunglasses,
fragrances, diamonds and jewelry) via the Internet) or any business in which the
Company or Ashford engages in during the term of Employment or, as at the
termination of the term of Employment, is then actively preparing to engage
(collectively, the "BUSINESS") in the Geographic Scope of Employee's Business;
(ii) Permit the name of Employee to be used in connection with a
competitive Business.
(d) Exceptions. Notwithstanding Subsection (c) above:
(i) Employee may engage in a business that relates to the Business if
Employee receives the prior written approval of the Board (as evidenced by a
duly adopted Board resolution) to do so. Such written approval will not be
unreasonably withheld if such outside employment business or activity would not
in any way be competitive with the Business.
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<PAGE> 107
(ii) Employee may own, directly or indirectly, solely as an
investment, up to one percent (1%) of any class of "publicly traded securities"
of any person or entity which owns a business that relates to the Business. For
the purposes of this paragraph, the term "publicly traded securities" shall mean
securities that are traded on a national securities exchange or listed on the
Nasdaq Stock Market or SmallCap Markets.
(iii) Employee shall not be prohibited from competing with the
Business, if the Company and Ashford and their respective successors, and any
entity deriving title to their goodwill or shares, cease to carry on a like
Business therein.
(iv) [FOR MR. DEWEY: EMPLOYEE SHALL NOT BE PROHIBITED FROM CONTINUING
HIS EMPLOYMENT AND INVOLVEMENT WITH CFAI (EXCLUDING ITS SUCCESSORS AND ASSIGNS),
BUT AT NO TIME DURING THE RESTRICTED PERIOD SHALL EMPLOYEE'S EMPLOYMENT OR
INVOLVEMENT WITH CFAI EXCEED TWO (2) HOURS PER WEEK DURING NORMAL BUSINESS HOURS
(IT BEING UNDERSTOOD EMPLOYEE SHALL BE FREE TO DEVOTE TIME TO CFAI (EXCLUDING
IT'S SUCCESSORS AND ASSIGNS) OUTSIDE NORMAL BUSINESS HOURS).]
5. NON-SOLICITATION AND NON-DISCLOSURE.
(a) Non-Solicitation. During the period commencing on the date of this
Agreement and continuing until the first anniversary of the date when Employee's
Employment terminates (for any reason), Employee shall not directly or
indirectly, personally or through others, solicit or attempt to solicit (on
Employee's own behalf or on the behalf of any other person or entity) (i) any
employee or independent contractor of the Company or any of the Company's
affiliates to cease performing work or services for the Company or to perform
work or services for any other party, (ii) any customer, supplier, licensee, or
other business relations of the Company or Ashford (and/or its affiliates) for
purpose of encouraging them to terminate their relationship with the Company or
Ashford (and/or its affiliates) or in any way interfere with the relationship
between such customer, supplier, licensee, or business relationship, on the one
hand, and the Company or Ashford (and/or its affiliates), on the other hand, or
(iii) any person who was an employee or independent contractor of the Company or
Ashford (on any of its affiliates) within one (1) year after Employee's
Employment was terminated.
(b) Non-Disclosure. Employee shall enter into a Proprietary Information and
Inventions Agreement with the Company, which is attached hereto as Exhibit B.
[THE ASHFORD FORM WILL BE REQUIRED.]
6. MISCELLANEOUS PROVISIONS.
(a) Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or three days after deposit in the U.S. registered mail,
return receipt requested and postage prepaid. In the case of Employee, mailed
notices shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the
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<PAGE> 108
attention of its Secretary; with copy to Ashford.com Inc., 3800 Buffalo
Speedway, Suite 400, Houston, Texas 77098, Attention: Secretary and General
Counsel and to Morrison Cohen Singer & Weinstein, LLP, 750 Lexington Avenue, New
York, New York 10022, Attention: Robert Londin, Esq.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by Employee and by an authorized officer of the Company (other than
Employee). No waiver by either party of any breach of, or of compliance with,
any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.
(c) Whole Agreement; Modifications. Except for the Proprietary Information
and Inventions Agreement, no other agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof (it being understood that Employee's
covenants in Sections 4 and 5 (collectively, the "Restrictive Covenants")
constitute a material inducement for the Company (and Ashford) to enter into
that certain Agreement and Plan of Reorganization dated as of December, 1999
which such entities would not do absent Employee's agreements to be bound by the
Restrictive Covenants; it being further understood that no portion of the
consideration payable to Employee under such Agreement in respect of
shareholdings in the Company's predecessor has been attributed to or paid in
respect of Employee's agreement to be bound by the Restrictive Covenants).
Subject to the immediately preceding parenthetical statement, this Agreement and
the Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. A
modification of this Agreement shall be valid only if it is made in writing and
executed by both parties hereto.
(d) Withholding Taxes. All payments made under this Agreement shall be
subject to reduction to reflect taxes or other charges required to be withheld
by law.
(e) CHOICE OF LAW. THE VALIDITY, INTERPRETATION, CONSTRUCTION AND
PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
TEXAS (EXCEPT THE CHOICE AND CONFLICTS OF LAW PROVISIONS OF SUCH STATE).
(f) Severability. If any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof. The parties hereto further agree to replace such
invalid, illegal or unenforceable provision of this Agreement with a valid,
legal and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such invalid, illegal or unenforceable
provision.
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(g) JURISDICTION. THE EMPLOYEE HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF TRAVIS, STATE OF TEXAS AND
IRREVOCABLY AGREES THAT, SUBJECT TO COMPANY'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. THE EMPLOYEE ACCEPTS FOR EACH OF HIMSELF AND IN CONNECTION WITH THE
EMPLOYEE'S PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION
OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND
IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION
WITH THIS AGREEMENT.
(h) No Assignment.
(i) Company's Successors. This Agreement shall be binding upon any
successor (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company's business and/or assets. For all purposes under this Agreement, the
term "COMPANY" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(ii) Employee's Successors. This Agreement and all rights of Employee
may not be transferred or assigned by Employee at any time without the prior
written consent of the Company authorized by a duly adopted Board resolution;
and shall inure to the benefit of, and be enforceable by, Employee's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(j) Joint Participation in Preparation of Agreement. The parties hereto
participated jointly in the negotiation and preparation of this Agreement and
each party has had the opportunity to obtain the advice of legal counsel and to
review, comment upon, and redraft this Agreement. Accordingly, it is agreed that
no rule of construction shall apply against any party in favor of any party.
This Agreement shall be construed as if the parties jointly prepared it, and any
uncertainty or ambiguity shall not be interpreted against any one party and in
favor of the other.
(k) Remedies.
(1) In the event of a breach or threatened breach by Employee of any
of the provisions of any Restrictive Covenant, the Company shall be entitled to
an injunction restraining the Employee from such breach and/or from rendering
any services to any person, firm, corporation, association, or other entity
receiving (or to receive) the benefit of such breach, since the remedy at law
would be inadequate and insufficient.
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<PAGE> 110
(2) In addition, the Company shall be entitled to such damages as it
can show it has sustained by reason of such breach. As among themselves, the
parties agree that the Employee shall bear the Company's costs and expenses of
enforcing the provisions of the Restrictive Covenants. Nothing herein contained
shall be construed as prohibiting the Company from pursuing any other remedies
available for such breach or threatened breach or any other breach of this
Agreement at law or in equity or otherwise. Employee acknowledges that the
agreements contained in the Restrictive Covenants constitute a material
inducement for the Company to enter into this Agreement. This Section 6(k) shall
survive the completion of the services under and any termination of this
Agreement.
(3) IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
(4)
------------------------------------
[EMPLOYEE]
ASHFORD-JASMIN FRAGRANCE CORPORATION
BY:
---------------------------------
NAME:
------------------------------
TITLE:
------------------------------
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EXHIBIT A
STOCK OPTION AGREEMENT
ASHFORD.COM, INC. 1999 EQUITY INCENTIVE PLAN
NOTICE OF STOCK OPTION GRANT
You have been granted the following option to purchase Common
Stock of Ashford.com, Inc. (the "Company"):
Name of Optionee: [ ]
-------------------------------
Total Number of Shares Granted: 150,000
Type of Option: [INCENTIVE STOCK OPTIONS]
[NON-STATUTORY STOCK OPTION]
[SEE NEXT PAGE]
Exercise Price Per Share: $
Date of Grant: January [12], 2000
Vesting Commencement Date: January [12], 2000
Vesting Schedule: This option becomes exercisable with
respect to 1/24th of the Shares
subject to this option when you
complete each month of continuous
service following the Vesting
Commencement Date.
Expiration Date: [JANUARY [12], 2010]
By your signature and the signature of the Company's representative below, you
and the Company agree that this option is granted under and governed by the
terms and conditions of the 1999 Equity Incentive Plan (the "Plan") and the
Stock Option Agreement, both of which are attached to and made a part of this
document.
OPTIONEE: ASHFORD.COM, INC.
By:
- ------------------------------------
Title:
- ------------------------------------
Print Name
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<PAGE> 112
MCS&W, LLP
DRAFT 12/22/99
ASHFORD.COM, INC. 1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
TAX TREATMENT This option is [AN INCENTIVE STOCK OPTION
-- TO THE EXTENT PERMISSIBLE, UP TO $100,000 IN
VALUE PER OPTIONEE)] [THE BALANCE OF THE OPTIONS
SHALL BE A NON-STATUTORY STOCK OPTION]
VESTING This option becomes exercisable in installments, as
shown in the Notice of Stock Option Grant. In
addition, this option becomes exercisable in full
and vested in full in the event that you are
terminated from your employment without Cause (as
defined in your employment agreement (the
"Employment Agreement")) with a subsidiary of the
Company). Except as set forth above, no additional
shares become exercisable after your service as an
employee, consultant or director of the Company or
a subsidiary of the Company has terminated for any
reason.
TERM This option expires in any event at the close of
business at Company headquarters on the day before
the 10th anniversary of the Date of Grant, as shown
in the Notice of Stock Option Grant. (It will
expire earlier if your service terminates, as
described below.)
REGULAR If your service as an employee, consultant or
TERMINATION director of the Company or a subsidiary of the
Company terminates for any reason (except if you
die or you become disabled), then this option will
expire at the close of business at Company
headquarters on the date three months after your
termination date. The Company determines when your
service terminates for this purpose.
DEATH If you die as an employee, consultant or director
of the Company or a subsidiary of the Company, then
this option will expire at the close of business at
Company headquarters on the date 12 months after
the date of death.
DISABILITY If your service as an employee, consultant or
director of the Company or a subsidiary of the
Company terminates because of your disability, then
this option will expire at the close of business at
Company headquarters on the date six months after
your termination date. For all purposes under this
Agreement, "disability" has the meaning set forth
in the Employment Agreement.
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<PAGE> 113
LEAVES OF ABSENCE For purposes of this option, your service does not
terminate when you go on a military leave, a sick
leave or another bona fide leave of absence, if the
leave was approved by the Company in writing and if
continued crediting of service is required by the
terms of the leave or by applicable law. But your
service terminates when the approved leave ends,
unless you immediately return to active work. In
addition, at the discretion of the Company, the
vesting and exercisability of your option may be
suspended during a leave of absence, in accordance
with the Company's general policies, which may be
amended from time to time.
RESTRICTIONS ON The Company will not permit you to exercise this
EXERCISE option if the issuance of shares at that time would
violate any law or regulation.
NOTICE OF EXERCISE When you wish to exercise this option, you must
notify the Company by filing the proper "Notice of
Exercise" form at the address given on the form.
Your notice must specify how many shares you wish
to purchase. Your notice must also specify how your
shares should be registered (in your name only or
in your and your spouse's names as community
property or as joint tenants with right of
survivorship). The notice will be effective when it
is received by the Company. If someone else wants
to exercise this option after your death, that
person must prove to the Company's satisfaction
that he or she is entitled to do so.
FORM OF PAYMENT When you submit your notice of exercise, you must
include payment of the option exercise price for
the shares you are purchasing. Payment may be made
in one (or a combination of two or more) of the
following forms:
o Your personal check, a cashier's check or a
money order.
o Certificates for shares of Company stock that
you own, along with any forms needed to effect a
transfer of those shares to the Company. The value
of the shares, determined as of the effective date
of the option exercise, will be applied to the
option exercise price. Instead of surrendering
shares of Company stock, you may attest to the
ownership of those shares on a form provided by the
Company and have the same number of shares
subtracted from the option shares issued to you.
However, you may not surrender, or attest to the
ownership of, shares of Company stock in payment of
the exercise price if your action would cause the
Company to recognize compensation expense (or
additional compensation expense) with respect to
this option for financial reporting purposes.
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<PAGE> 114
o Irrevocable directions to a securities broker
approved by the Company to sell all or part of your
option shares and to deliver to the Company from
the sale proceeds an amount sufficient to pay the
option exercise price and any withholding taxes.
(The balance of the sale proceeds, if any, will be
delivered to you.) The directions must be given by
signing a special "Notice of Exercise" form
provided by the Company.
o Irrevocable directions to a securities broker
or lender approved by the Company to pledge option
shares as security for a loan and to deliver to the
Company from the loan proceeds an amount sufficient
to pay the option exercise price and any
withholding taxes. The directions must be given by
signing a special "Notice of Exercise" form
provided by the Company.
WITHHOLDING TAXES AND You will not be allowed to exercise this option
STOCK WITHHOLDING unless you make arrangements acceptable to the
Company to pay any withholding taxes that may be
due as a result of the option exercise. These
arrangements may include withholding shares of
Company stock that otherwise would be issued to you
when you exercise this option. The value of these
shares, determined as of the effective date of the
option exercise, will be applied to the withholding
taxes.
RESTRICTIONS ON By signing this Agreement, you agree not to sell
RESALE any option shares at a time when applicable laws,
Company policies or an agreement between the
Company and its underwriters prohibit a sale. This
restriction will apply as long as your option has
not expired.
TRANSFER OF OPTION Prior to your death, only you may exercise this
option. You cannot transfer or assign this option.
For instance, you may not sell this option or use
it as security for a loan. If you attempt to do any
of these things, this option will immediately
become invalid. You may, however, dispose of this
option in your will or a beneficiary designation.
Regardless of any marital property settlement
agreement, the Company is not obligated to honor a
notice of exercise from your former spouse, nor is
the Company obligated to recognize your former
spouse's interest in your option in any other way.
RETENTION RIGHTS Your option or this Agreement do not give you the
right to be retained by the Company or a subsidiary
of the Company in any capacity. The Company and its
subsidiaries reserve the right to terminate your
service at any time, with or without cause.
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<PAGE> 115
STOCKHOLDER RIGHTS You, or your estate or heirs, have no rights as a
stockholder of the Company until you have exercised
this option by giving the required notice to the
Company and paying the exercise price. No
adjustments are made for dividends or other rights
if the applicable record date occurs before you
exercise this option, except as described in the
Plan.
ADJUSTMENTS In the event of a stock split, a stock dividend or
a similar change in Company stock, the number of
shares covered by this option and the exercise
price per share may be adjusted pursuant to the
Plan.
APPLICABLE LAW This Agreement will be interpreted and enforced
under the laws of the State of Delaware (without
regard to their choice-of-law provisions).
THE PLAN AND The text of the Plan is incorporated in this
OTHER AGREEMENTS Agreement by reference. This Agreement and the Plan
constitute the entire understanding between you and
the Company regarding this option. In the event of
a conflict between the terms of this Agreement and
the Plan, the terms of this Agreement shall govern
the terms of your option; in all other instances,
the terms of the Plan shall govern the terms of
your option. Any prior agreements, commitments or
negotiations concerning this option are superseded.
This Agreement may be amended only by another
written agreement, signed by both parties.
BY SIGNING THE COVER SHEET OF THIS AGREEMENT, YOU AGREE TO ALL OF THE TERMS AND
CONDITIONS DESCRIBED ABOVE AND IN THE PLAN.
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<PAGE> 116
EXHIBIT B
PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT
15
<PAGE> 117
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION
This Amendment No. 1 to the Agreement and Plan of Reorganization
by and among Ashford.com, Inc., Ashford - Jasmin Fragrance Corporation,
Jasmin.com Corporation, and certain shareholders of Jasmin.com Corporation dated
December 29, 1999 (the "Merger Agreement") is dated as of the date set forth on
the signature page below.
The Merger Agreement is hereby amended by deleting the date
"January 12, 1999" in Section 2(b) of Exhibit 6.2(e) to the Merger Agreement and
replacing such date with the following: "the date hereof".
Article IX of the Merger Agreement is hereby incorporated by
reference as if set forth in full herein; provided that the term "Agreement"
therein shall refer to this Amendment No. 1 and other capitalized terms therein
shall have the respective meanings set forth in the Merger Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 118
IN WITNESS WHEREOF, the undersigned have caused this Amendment No. 1 to
be executed and delivered all as of January ___, 2000.
JASMIN.COM CORPORATION
By: /s/ Dale Dewey
Name: Dale Dewey
Title: President and CEO
ASHFORD.COM, INC.
By: /s/ Kenny Kurtzman
Name: Kenny Kurtzman
Title: CEO
ASHFORD-JASMIN FRAGRANCE CORPORATION
By: /s/ David Gow
Name: David Gow
Title: President
ULTA INTERNET HOLDINGS, INC.
By: /s/ Terry Hanson
Name: Terry Hanson
Title: President
/s/ Bret Pirquet
HERBERT PIRQUET
/s/ Dale Dewey
DALE DEWEY
/s/ Antony Pirquet
ANTONY PIRQUET
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EXHIBIT 1.6(C)
CONSIDERATION PAYOUT EXHIBIT
At the Effective Time, subject and pursuant to the terms and conditions
of the Agreement to which this Consideration Payout Exhibit is attached (the
"Agreement") and the Certificate of Merger, by virtue of the Merger and without
any action on the part of the Acquiror, Merger Sub, Target or the holders of any
of Target's securities:
1. GENERAL. Subject to (1) Section 3 below and (2) Section 1.6 and
Article VIII of the Agreement,
(a) Each share of Target Preferred Stock issued and outstanding at the
Effective Time will be converted into and represent (i) the right to receive
cash equal to the Cash Exchange Ratio (as defined in Section 2 of this
Consideration Payout Exhibit), (ii) a number of shares of Acquiror Common Stock
equal to the Closing Share Exchange Ratio (as defined in Section 2 of this
Consideration Payout Exhibit), (iii) subject to the terms of the Contingent
Share Exhibit, a number of shares of Acquiror Common Stock equal to the Class A
Contingent Exchange Ratio (as defined in Section 2 of this Consideration Payout
Exhibit) and (iv) subject to the terms of the Contingent Share Exhibit, a number
of shares of Acquiror Common Stock equal to the Class C Contingent Exchange
Ratio (as defined in Section 2 of this Consideration Payout Exhibit).
(b) Each share of Target Common Stock issued and outstanding at the
Effective Time will be converted into and represent a number of shares of
Acquiror Common Stock equal to the Class B Contingent Exchange Ratio (as defined
in Section 2 of this Consideration Payout Exhibit).
(c)
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2. Definitions; Exchange Ratios. For purposes of this Consideration Payout
Exhibit, the following terms are defined as follows:
(a) "Cash Exchange Ratio" shall equal the number obtained (rounded to the
nearest hundredth of a dollar) by dividing (i) the Cash Consideration by (ii)
the number of shares of Target Preferred Stock issued and outstanding at the
Effective Time;
(b) "Closing Exchange Ratio" shall equal the number obtained (rounded to the
nearest ten thousandth of a share) by dividing (i) the Closing Date Shares by
(ii) the number of shares of Target Preferred Stock issued and outstanding at
the Effective Time;
(c) "Class A Contingent Exchange Ratio" shall equal the number obtained
(rounded to the nearest ten thousandth of a share) by dividing (i) the quotient
obtained by dividing $2,250,000 by the Acquiror Average Price by (ii) the number
of shares of Target Preferred Stock issued and outstanding at the Effective
Time;
(d) "Class B Contingent Exchange Ratio" shall equal the number obtained
(rounded to the nearest ten thousandth of a share) by dividing (i) the quotient
obtained by dividing $5,000,000 by the Acquiror Average Price by (ii) the number
of shares of Target Common Stock issued and outstanding at the Effective Time;
and
(e) "Class C Contingent Exchange Ratio" shall equal the number obtained
(rounded to the nearest ten thousandth of a share) by dividing (i) the quotient
obtained by dividing $2,250,000 by the Acquiror Average Price by (ii) the number
of shares of Target Preferred Stock issued and outstanding at the Effective
Time;
3. Priority of Contingent Shares To the extent that Contingent Shares are
released in accordance with the Contingent Share Exhibit, subject to Section 1.6
and Article VIII of the Agreement and Section 4 of this Consideration Payout
Exhibit, the Contingent Shares shall be released to the Stockholder Payee
Representative and shall be allocated among the Target Stockholders as follows:
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(a) the first $2,250,000 in value (based on the Acquiror Average Price) to
the holders of Target Preferred Stock issued and outstanding immediately prior
to the Effective Time (for purposes of this Consideration Payout Exhibit,
"Ulta"), pro rata in accordance with their respective ownership of the Target
Preferred Stock immediately prior to the Effective Time;
(b) the next $5,000,000 in value (based on the Acquiror Average Price) to
the holders of Target Common Stock issued and outstanding immediately prior to
the Effective Time, pro rata in accordance with their respective ownership of
the Target Common Stock immediately prior to the Effective Time; and
(c) the last $2,250,000 in value (based on the Acquiror Average Price) to
Ulta.
4. Escrow. For purposes of this Consideration Payout Exhibit and the
Agreement to which this Consideration Payout Exhibit is attached, any Contingent
Shares placed in the Escrow Share Account of the Escrow Fund shall be deemed
"released" to the Stockholder Payee Representative (for the benefit of the
Target Stockholders) and those shares will be held for the benefit of Acquiror
under Article VIII of the Agreement and the Escrow Agreement regardless of which
holder of Target Capital Stock, but for the provisions of Section 1.6 of the
Agreement, would have otherwise been entitled to same.
5. Capitalized Terms. Capitalized terms used in this Consideration Payout
Exhibit shall have the respective meanings set forth in the Agreement.
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EXHIBIT 1.6(C)(III)
CONTINGENT SHARE EXHIBIT
1. First Achievement Date. As soon as practicable, on or after May 15, 2000 (the
"First Achievement Date"), the number of Contingent Shares determined in
accordance with Section 3 below shall be released from the Contingent Share
Account of the Escrow Fund and shall be delivered/released to the Stockholder
Payee Representative in accordance with Section 1.6 and Article VIII of the
Agreement to which this Contingent Share Exhibit is attached (the "Agreement").
1. Second Achievement Date. As soon as practicable, on or after October 15, 2000
(the "Second Achievement Date", and together with the First Achievement Date,
collectively, the "Achievement Dates" or individually, each an "Achievement
Date"), the number of Contingent Shares determined in accordance with Section 3
below shall be released from the Contingent Share Account of the Escrow Fund and
shall be delivered/released to the Stockholder Payee Representative in
accordance with Section 1.6 and Article VIII of the Agreement.
2.
3. Released Contingent Shares
a. The number of Contingent Shares to be released (without duplication on the
Second Achievement Date of any Contingent Shares released on the First
Achievement Date) on each Achievement Date shall equal the number of shares of
Acquiror Common Stock obtained by dividing (i) the sum of (A) the aggregate
Payout Amounts (if any) set forth on Exhibit 1A attached to this Contingent
Share Exhibit corresponding to all of the High-tier Corporate Groups which, as
at such Achievement Date, have been Achieved (as defined below), (B) the
aggregate Payout Amounts (if any) set forth on Exhibit 1A attached to this
Contingent Share Exhibit corresponding to all of the Medium-tier Corporate
Groups which, as at such Achievement Date, have been Achieved, and (C) the
aggregate Payout Amounts (if any) set forth on Exhibit 1A attached to this
Contingent Share Exhibit corresponding to all of the Low-tier Corporate Groups
which, as at such Achievement Date, have been Achieved by (ii) the Acquiror
Average Price.
b. For purposes of this Contingent Share Exhibit, a Corporate Group shall be
"Achieved" when all (and not less than all (but excluding any fragrance which,
before an Achievement Date is not generally available in the United States)) of
the brands (and fragrances under such brands)
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comprising such Corporate Group (as identified on Exhibit 1B to this Contingent
Share Exhibit) (i) have been shipped (in amounts no less in quantity than
amounts ordered by Target consistent with Target's ordinary course of business
consistent with the reasonable inventory needs of the Surviving Corporation
after the Effective Time) to the Surviving Corporation by the manufacturer or
distributor of such brand after the Effective Time pursuant to an order placed
by the Acquiror or Surviving Corporation after the Effective Time and (ii) prior
to such Achievement Date, the Acquiror or Surviving Corporation shall have
received invoice(s) from such distributor or manufacturer addressed to the
Acquiror or Surviving Corporation and clearly identifying the shipped brands and
fragrances (the occurrence of (i) and (ii) with respect to a brand or a
fragrance under a brand means that such brand or fragrance has been
"Fulfilled"); provided that (1) to the extent a Corporate Group is not so
Achieved, such Corporate Group may be substituted for with a substitute
Corporate Group or Designer Group (a "Substitute Group") therefor in accordance
with Exhibits 1A and 1C attached hereto if all of the brands and fragrances
(excluding fragrances which are not generally available in the United States as
at an Achievement Date) within such Substitute Group are Fulfilled, in which
event the Corporate Group which has been so substituted for shall be deemed
Achieved (it being understood that upon Achievement of a Corporate Group (other
than by substitution) previously substituted for by an Achieved Substitute
Group, then (X) the Achieved Substitute Group may be substituted for a Corporate
Group (in accordance with Exhibits 1A and 1C hereto) that had not then been
directly Achieved and (Y) the subject Corporate Group then Achieved (by reason
other than substitution) shall remain to be deemed Achieved), (2) no Contingent
Shares shall be released on any Achievement Date pursuant to this Section 3 with
respect to the High-tier Corporate Group, the Medium-tier Corporate Group, or
the Low-tier Corporate Group until and unless all of that Corporate Group's
brands and fragrances (excluding fragrances which are not generally available in
the United States as at an Achievement Date) have then been Fulfilled (it being
understood that Contingent Shares in respect of one Corporate Group may be
released if that Corporate Group has been Achieved even if other Corporate
Group's have then not been Achieved), and (3) if, after the 90th day following
the Closing Date, Acquiror sells a fragrance on its website (or any of its
affiliates' website(s)), then (i) the Corporate Group of which such fragrance is
a part shall be deemed Achieved and (ii) if such fragrance is a part of a
Substitute Group, then one Corporate Group which such Substitute Group is
substitutable for shall be deemed Achieved, in each case without any requirement
of substitution therefor.
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c. Notwithstanding anything to the contrary set forth above, Acquiror agrees
that if (i) Acquiror sells or disposes of the Surviving Corporation (or all or
substantially all of the Surviving Corporation's assets or businesses) or the
assets, businesses and divisions comprising Acquiror's fragrance business as an
entirety or (ii) discontinues the operations of the Surviving Corporation's
fragrance business, in each case, whether or not Acquiror files a Form 8-K with
the SEC to disclose such disposition or discontinuance of such fragrance
businesses, then all Corporate Groups shall be deemed Achieved for purposes of
this Contingent Share Exhibit.
d.
4. Return of the Contingent Shares if Corporate Groups not Achieved. Promptly
after the Second Achievement Date, any Contingent Shares not required to be
released in accordance with Sections 2 and 3 above shall be returned to
Acquiror.
5.
6. Capitalized Terms. Capitalized terms used herein without definition have the
respective meanings set forth in the Agreement.
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EXHIBIT 1A
*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED.
