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EXECUTION COPY
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
REGISTER.COM, INC.,
RCOM ACQUISITION CORP. II,
AFTERNIC.COM, INC.,
EXTRAACTIVE INCORPORATED
and
THE STOCKHOLDERS OF AFTERNIC.COM, INC. IDENTIFIED
ON SCHEDULE 1 HERETO
Dated as of September 15, 2000
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.............................................................................................2
SECTION 1.01 Certain Defined Terms.......................................................................2
ARTICLE II THE MERGER.............................................................................................9
SECTION 2.01 The Merger .................................................................................9
SECTION 2.02 Closing ...................................................................................10
SECTION 2.03 Effective Time ............................................................................10
SECTION 2.04 Effect of the Merger.......................................................................10
SECTION 2.05 Certificate of Incorporation; Bylaws; Directors and Officers of Surviving Corporation......10
ARTICLE III CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES...................................................11
SECTION 3.01 Conversion of Shares.......................................................................11
SECTION 3.02 Exchange of Shares Other than Treasury Shares..............................................12
SECTION 3.03 Stock Transfer Books.......................................................................13
SECTION 3.04 Anti-Dilution Adjustments..................................................................13
SECTION 3.05 Lost, Stolen or Destroyed Certificates.....................................................14
SECTION 3.06 No Fractional Share Certificates...........................................................14
SECTION 3.07 Assumption of Change of Control Bonus Payments.............................................14
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPANY AND THE STOCKHOLDERS.......................................15
SECTION 4.01 Organization and Qualification; No Subsidiaries............................................15
SECTION 4.02 Certificate of Incorporation and Bylaws....................................................15
SECTION 4.03 Capitalization ............................................................................15
SECTION 4.04 Authority Relative to This Agreement.......................................................16
SECTION 4.05 No Conflict; Required Filings and Consents.................................................17
SECTION 4.06 Permits; Compliance with Laws..............................................................17
SECTION 4.07 Financial Statements.......................................................................18
SECTION 4.08 Absence of Certain Changes or Events.......................................................18
SECTION 4.09 Employee Benefit Plans; Labor Matters......................................................19
SECTION 4.10 Employee Matters...........................................................................22
SECTION 4.11 Affiliates, Advertisers and Partners.......................................................22
SECTION 4.12 Contracts .................................................................................23
SECTION 4.13 Litigation ................................................................................24
SECTION 4.14 Environmental Matters......................................................................24
SECTION 4.15 Intellectual Property......................................................................24
SECTION 4.16 Taxes .....................................................................................27
SECTION 4.17 Insurance .................................................................................29
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SECTION 4.18 Properties ................................................................................30
SECTION 4.19 Affiliates ................................................................................30
SECTION 4.20 Brokers ...................................................................................31
SECTION 4.21 Certain Business Practices.................................................................31
SECTION 4.22 Section 912 of the NYBCL Not Applicable....................................................31
SECTION 4.23 Business Activity Restriction..............................................................31
SECTION 4.24 Accounts Receivable........................................................................31
SECTION 4.25 Financial Projections......................................................................32
SECTION 4.26 Representations and Warranties Complete....................................................32
SECTION 4.27 Confirmation of Representations and Warranties.............................................32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB................................................32
SECTION 5.01 Organization and Qualification; Subsidiaries...............................................32
SECTION 5.02 Certificate of Incorporation and Bylaws....................................................33
SECTION 5.03 Capitalization ............................................................................33
SECTION 5.04 Authority Relative to this Agreement.......................................................33
SECTION 5.05 No Conflict; Required Filings and Consents.................................................34
SECTION 5.06 SEC Filings; Financial Statements..........................................................34
SECTION 5.07 Brokers ...................................................................................35
SECTION 5.08 Tax .......................................................................................35
SECTION 5.09 Exemption from Registration................................................................35
SECTION 5.10 Representations Complete...................................................................36
ARTICLE VI COVENANTS.............................................................................................36
SECTION 6.01 Conduct of Business by Company Pending the Closing.........................................36
SECTION 6.02 Notices of Certain Events..................................................................38
SECTION 6.03 Access to Information; Confidentiality.....................................................38
SECTION 6.04 No Solicitation of Transactions............................................................39
SECTION 6.05 Tax-Free Transaction.......................................................................39
SECTION 6.06 Further Action; Consents; Filings..........................................................39
SECTION 6.07 Tax Information............................................................................40
SECTION 6.08 Non-Competition and Non-Solicitation.......................................................40
SECTION 6.09 Dissolution of EAI and Afternic NJ.........................................................41
SECTION 6.10 Indemnification of Certain Stockholders....................................................41
SECTION 6.11 Assignment and Transfer from EAI and Afternic NJ...........................................41
SECTION 6.12 Payment of Company Obligations to EAI......................................................42
SECTION 6.13 Obligations of Merger Sub..................................................................42
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ARTICLE VII ADDITIONAL AGREEMENTS................................................................................42
SECTION 7.01 Public Announcements.......................................................................42
SECTION 7.02 Employee Benefit Matters...................................................................42
SECTION 7.03 Merger Consideration.......................................................................43
SECTION 7.04 Legend ....................................................................................43
ARTICLE VIII CONDITIONS TO THE MERGER............................................................................44
SECTION 8.01 Conditions to the Obligations of Each Party to Consummate the Merger.......................44
SECTION 8.02 Conditions to the Obligations of Company...................................................44
SECTION 8.03 Conditions to the Obligations of Parent....................................................45
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.....................................................................47
SECTION 9.01 Termination ...............................................................................47
SECTION 9.02 Effect of Termination......................................................................48
SECTION 9.03 Amendment .................................................................................48
SECTION 9.04 Expenses ..................................................................................48
ARTICLE X INDEMNIFICATION AND ESCROW.............................................................................48
SECTION 10.01 Indemnification...........................................................................48
SECTION 10.02 Damage Threshold; Limitation on Liability.................................................49
SECTION 10.03 Procedures ...............................................................................50
SECTION 10.04 Escrow Fund ..............................................................................51
SECTION 10.05 Escrow Period ............................................................................52
SECTION 10.06 Claims for Indemnification................................................................53
SECTION 10.07 Claims Upon Escrow Fund; Valuation of Shares..............................................53
ARTICLE XI GENERAL PROVISIONS....................................................................................54
SECTION 11.01 Duration of Survival of Representations and Warranties....................................54
SECTION 11.02 Notices ..................................................................................54
SECTION 11.03 Severability .............................................................................55
SECTION 11.04 Assignment; Binding Effect; Benefit.......................................................56
SECTION 11.05 Incorporation of Exhibits.................................................................56
SECTION 11.06 Governing Law ............................................................................56
SECTION 11.07 Waiver of Jury Trial......................................................................56
SECTION 11.08 Headings; Interpretation..................................................................56
SECTION 11.09 Counterparts .............................................................................57
SECTION 11.10 Entire Agreement..........................................................................57
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SCHEDULES
SCHEDULE 1 List of Stockholders
COMPANY DISCLOSURE SCHEDULE
PARENT DISCLOSURE SCHEDULE
ANNEXES
ANNEX A Form of Stockholder Consent
ANNEX B Form of Registration Rights Agreement
ANNEX C Form of Opinion of Company Counsel
ANNEX D Form of Employment Agreement
ANNEX E-1 Form of Lock-Up Agreement (Managing Stockholders)
ANNEX E-2 Form of Lock-Up Agreement (Non-Managing Stockholders)
ANNEX F List of Escrow Participants
ANNEX G Parent - Company Confidentiality Agreement
ANNEX H Form of Change of Control Bonus Payment Letter
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of
September 15, 2000 (as amended, supplemented or otherwise modified from time to
time, this "Agreement"), by and among REGISTER.COM, INC., a Delaware corporation
("Parent"), AFTERNIC.COM, INC., a New York corporation ("Company"), RCOM
ACQUISITION CORP. II, a Delaware corporation and direct wholly owned subsidiary
of Parent ("Merger Sub"), eXtraActive Incorporated, a New York corporation and
affiliate of Company ("EAI"), and each of the stockholders of Company identified
on Schedule 1 hereto (collectively, the "Stockholders"):
W I T N E S S E T H:
WHEREAS, the boards of directors of Parent and Company have
determined that it is advisable and in the best interests of their respective
companies and stockholders to enter into a business combination by means of the
merger of Company with and into Merger Sub (the "Merger") and have approved and
adopted this Agreement;
WHEREAS, by virtue of their execution of the stockholder
consent in the form attached hereto as Annex A (the "Stockholder Consent"), the
Stockholders have unanimously approved the Merger and this Agreement in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the New York Business Corporation Law (the "NYBCL");
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the DGCL and the NYBCL, Parent will acquire all
of the common stock of Company through the Merger; and
WHEREAS, for United States federal income tax purposes, it is
intended that the Merger shall qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code of 1986, as amended (together with
the rules and regulations promulgated thereunder, the "Code"), and that this
Agreement is intended to be adopted as a plan of reorganization for purposes of
Section 368 of the Code;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms
Unless the context otherwise requires, the following terms,
when used in this Agreement, shall have the respective meanings specified below
(such meanings to be equally applicable to the singular and plural forms of the
terms defined):
"affiliate" shall mean, with respect to any person, any other
person that controls, is controlled by or is under common control with the first
person.
"Afternic NJ" shall mean Afternic.com Inc., a New Jersey
corporation.
"Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Benefit Plans" shall have the meaning set forth in Section
4.09.
"Blue Sky Laws" shall mean state securities or "blue sky"
laws.
"Bonus Recipients" shall have the meaning set forth in Section
8.03.
"Business of Company" shall have the meaning set forth in
Section 6.07.
"Business day" shall mean any day on which banks are open for
business in New York, New York.
"Capitalization Adjustment" shall have the meaning set forth
in Section 3.04.
"Cash Consideration" shall have the meaning set forth in
Section 3.01.
"Cash Exchange Ratio" shall have the meaning set forth in
Section 3.01.
"Change of Control Bonus Payment Letters" shall mean those
letters issued by the Company and EAI to certain EAI employees pursuant to which
such employees will be entitled to receive a bonus payment as specified therein,
payable in cash and/or shares of Parent Common Stock, upon consummation of the
Merger. Section 1.01 of the Company Disclosure Schedule sets forth the names of
the EAI employees entitled to such payments and the amounts of cash and number
of shares of Parent Common Stock payable under such letters, which mix of cash
and shares is subject to adjustment by Parent in its sole discretion.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section
2.02.
"COBRA" shall have the meaning set forth in Section 4.09.
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"Code" shall have the meaning set forth in the recitals to
this Agreement.
"Company" shall have the meaning set forth in the first
paragraph of this Agreement.
"Company Benefit Plans" shall have the meaning set forth in
Section 4.09.
"Company Certificates" shall have the meaning set forth in
Section 3.02.
"Company Common Stock" shall mean the common stock, no par
value per share, of Company.
"Company Disclosure Schedule" shall mean the disclosure
schedule delivered by Company to Parent prior to the execution of this Agreement
and forming a part hereof.
"Company ERISA Affiliate" shall have the meaning set forth in
Section 4.09.
"Company Financial Statements" shall have the meaning set
forth in Section 4.07.
"Company Intellectual Property" shall mean all patents
(including, without limitation, all U.S. and foreign patents, patent
applications, patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, re-examinations and extensions thereof), design
rights, trademarks, trade names and service marks (whether or not registered),
trade dress, Internet domain names, copyrights (whether or not registered) and
any renewal rights therefor, databases and data collections and all rights
therein throughout the world (including, without limitation, sui generis
database rights), statistical models, technology, inventions, supplier lists,
customer lists and data, trade secrets, know-how, computer software programs or
applications in both source and object code form, technical documentation of
such software programs ("Technical Documentation"), registrations and
applications for any of the foregoing and all other tangible or intangible
proprietary information or materials that were material to Company's business or
are currently used in Company's business in any product, technology or process
(i) currently being or formerly manufactured, published or marketed by Company
or (ii) previously or currently under development for possible future
manufacturing, publication, marketing or other use by Company.
"Company Interim Financial Statements" shall have the meaning
set forth in Section 4.07.
"Company Licensed Intellectual Property" shall have the
meaning set forth in Section 4.15.
"Company Material Adverse Effect" shall mean any change in or
effect on the business of Company that, individually or in the aggregate (taking
into account all other such changes or effects), is, or is reasonably likely to
be, materially adverse to the business, assets, liabilities, financial condition
or results of operations of Company.
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"Company Owned Software" shall have the meaning set forth in
Section 4.15.
"Company Permits" shall have the meaning set forth in Section
4.06.
"Company Promissory Letters" shall mean those original
promissory letters delivered by Company to certain EAI employees as set forth on
Section 1.01 of the Company Disclosure Schedule.
"Company Representatives" shall have the meaning set forth in
Section 6.04.
"Company Software Programs" shall have the meaning set forth
in Section 4.15.
"Company Year End Financial Statements" shall have the meaning
set forth in Section 4.07.
"Competing Transaction" shall mean any of the following
involving Company or EAI (other than the Merger):
(i) any issuance of additional securities of Company or EAI;
(ii) any merger, consolidation, share exchange, business
combination or other similar transaction;
(iii) any person having acquired beneficial ownership or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed
that beneficially owns, or has the right to acquire beneficial
ownership of, 10% or more of the outstanding voting securities of
Company or EAI;
(iv) any public announcement of a proposal, plan or intention
to do any of the foregoing or any agreement to engage in any of the
foregoing.
(v) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of 10% or more of the assets of Company and its
subsidiaries, taken as a whole, or EAI, in a single transaction or
series of transactions;
(vi) any solicitation in opposition to the approval of this
Agreement by the Stockholders; or
(vii) any tender offer or exchange offer for 10% or more of
the outstanding voting securities of Company or EAI or the filing of a
registration statement under the Securities Act in connection
therewith;
"Continuing Employee" shall have the meaning set forth in
Section 7.02.
"Cybersquatting" shall have the meaning set forth in Section
4.15.
"Damages" shall have the meaning set forth in Section 10.01.
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"DE Certificate of Merger" shall have the meaning set forth in
Section 2.03.
"DGCL" shall have the meaning set forth in the recitals to
this Agreement.
"$" shall mean United States Dollars.
"EAI" shall have the meaning set forth in the first paragraph
of this Agreement.
"EAI Obligations" shall have the meaning set forth in Section
6.12.
"Effective Time" shall have the meaning set forth in Section
2.03.
"Environmental Law" shall mean any Law and any enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect as
of the date hereof.
"Environmental Permit" shall mean any permit, approval,
identification number, license or other authorization required under or issued
pursuant to any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"Escrow Fund" shall have the meaning set forth in Section
3.02.
"Escrow Notice Period" shall have the meaning set forth
Section 10.06.
"Escrow Participants" shall have the meaning set forth in
Section 3.01.
"Escrow Period" shall have the meaning set forth in Section
10.05.
"Escrow Shares" shall have the meaning set forth in Section
3.01.
"Excess Shares" shall have the meaning set forth in Section
3.01.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, together with the rules and regulations promulgated thereunder.
"Exchange Agent" shall have the meaning set forth in Section
3.02.
"Exchange Ratio" shall have the meaning set forth in Section
3.01.
"Expenses" shall mean, with respect to any party hereto, all
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by such party or on its behalf in connection
with or related to the authorization, preparation, negotiation, execution and
performance of its obligations pursuant to this Agreement and the consummation
of the Merger, including due diligence investigations of such parties, and all
other matters related to the transactions contemplated hereby and the Closing of
the Merger.
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"Fully Diluted Shares" shall mean the number of shares of
Company Common Stock outstanding at the Effective Time.
"Governmental Entity" shall mean any United States federal,
state or local or any foreign governmental, regulatory or administrative
authority, agency or commission or any court, tribunal or arbitral body.
"Governmental Order" shall mean any order, writ, judgment,
injunction, decree, stipulation, determination or award entered by or with any
Governmental Entity.
"Hazardous Material" shall mean (i) any petroleum, petroleum
products, by-products or breakdown products, radioactive materials,
asbestos-containing materials or polychlorinated biphenyls or (ii) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law.
"Indemnified Person" shall have the meaning set forth in
Section 10.01.
"Indemnifying Party" shall have the meaning set forth in
Section 10.03.
"Indemnity Claim Certificate" shall have the meaning set forth
in Section 10.06.
"IRS" shall mean the United States Internal Revenue Service.
"knowledge of Company" or "Company knowledge" or any phrase of
similar import shall mean that either of Jon Whelan or Chris Maroney is actually
aware of a fact or other matter. This definition shall also apply to the concept
of "knowledge of EAI" or "EAI knowledge."
"knowledge of Parent" or "Parent knowledge" or any phrase of
similar import shall mean that any of Richard Forman, Ron Fried, Jack Levy or
Alan Breitman is actually aware of a fact or other matter, or should have become
aware of a fact or other matter, based upon due inquiry of the responsible
persons within Parent who would reasonably be expected to have knowledge with
respect to the fact or matter in question.
"Law" shall mean any federal, state, foreign or local statute,
law, ordinance, regulation, rule, code, order, judgment, decree, other
requirement or rule of law of the United States or any other jurisdiction, and
any other similar act or law.
"Legal Expenses" shall have the meaning set forth in Section
10.01.
"License Agreement" shall have the meaning set forth in
Section 4.15.
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"Managing Stockholders" shall mean Jon Whelan and Chris
Maroney.
"Material Contracts" shall have the meaning set forth in
Section 4.12.
"Merger" shall have the meaning set forth in the recitals to
this Agreement.
"Merger Sub" shall have the meaning set forth in the first
paragraph of this Agreement.
"NNM" shall mean The Nasdaq National Market.
"NY Certificate of Merger" shall have the meaning set forth in
Section 2.03.
"NYBCL" shall have the meaning set forth in the recitals to
this Agreement.
"Officer's Certificate" shall have the meaning set forth in
Section 10.06.
"Parent" shall have the meaning set forth in the first
paragraph of this Agreement.
"Parent Certificates" shall have the meaning set forth in
Section 3.02.
"Parent Common Stock" shall mean common stock, par value
$0.0001 per share, of Parent.
"Parent Disclosure Schedule" shall mean the disclosure
schedule delivered by Parent to Company prior to the execution of this Agreement
and forming a part hereof.
"Parent Indemnitee" shall have the meaning set forth in
Section 10.01.
"Parent Material Adverse Effect" shall mean any change in or
effect on the business of Parent that, individually or in the aggregate (taking
into account all other such changes or effects), is, or is reasonably likely to
be, materially adverse to the business, assets, liabilities, financial condition
or results of operations of Parent and the Parent Subsidiaries, taken as a
whole; provided, however, that in no event shall a decrease, in and of itself,
in the trading price of Parent Common Stock be considered a Parent Material
Adverse Effect.
"Parent Reports" shall have the meaning set forth in Section
5.06.
"Parent Stock Option" shall have the meaning set forth in
Section 5.03.
"Parent Stock Plans" shall mean Parent's 1997 Stock Option
Plan, 1999 Stock Option Plan, 2000 Stock Incentive Plan and Employee Stock
Purchase Plan.
"Parent Stock Price" shall mean the average closing price of
Parent Common Stock on the NNM for the ten (10) consecutive trading days ending
on the third trading day immediately prior to the Closing Date.
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"Parent Subsidiaries" shall have the meaning set forth in
Section 5.01.
"person" shall mean an individual, corporation, partnership,
limited partnership, limited liability company, limited liability partnership,
syndicate, person (including, without limitation, a "person" as defined in
Section 13(d)(3) of the Exchange Act), trust, association, entity or government
or political subdivision, agency or instrumentality of a government.
"Promissory Letter Release" shall have the meaning set forth
in Section 8.03(k).
"Representatives" shall have the meaning set forth in Section
6.03.
"Response Notice" shall have the meaning set forth Section
10.06.
"Securities Act" shall mean the Securities Act of 1933, as
amended, together with the rules and regulations promulgated thereunder.
"Stock Consideration" shall have the meaning set forth in
Section 3.01.
"Stock Exchange Ratio" shall have the meaning set forth in
Section 3.01.
"Stockholder" shall have the meaning set forth in the first
paragraph of this Agreement.
"Stockholder Consent" shall have the meaning set forth in the
recitals to this Agreement.
"Stockholder Indemnitee" shall have the meaning set forth in
Section 10.01.
"subsidiary" shall mean, with respect to any person, any
corporation, partnership, limited partnership, limited liability company,
limited liability partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary of such
person) owns, directly or indirectly, a majority of the stock or other equity
interests, the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity.
"Surviving Corporation" shall have the meaning set forth in
Section 2.01.
"Tax" shall mean (i) any and all taxes, fees, levies, duties,
tariffs, imposts and other charges of any kind (together with any and all
interest, penalties, additions to tax and additional amounts imposed with
respect thereto) imposed by any Governmental Entity or taxing authority,
including, without limitation, taxes or other charges on or with respect to
income, franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers' compensation,
unemployment compensation or net worth; taxes or other charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value-added or gains taxes;
license, registration and documentation fees; and customers' duties, tariffs and
similar charges; (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, combined,
consolidated or unitary group for any taxable period; and (iii) any liability
for the payment of amounts of the type described in (i) or (ii) as a result of
being a transferee of, or a successor in interest to, any person or as a result
of an express or implied obligation to indemnify any person.
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"Tax Authority" shall have the meaning set forth in Section
4.16.
"Tax Reporting Documentation" shall have the meaning set forth
in Section 10.04.
"Tax Return" shall mean any return, statement or form
(including, without limitation, any estimated tax report or return, withholding
tax report or return and information report or return) required to be filed with
respect to any Taxes.
"Terminating Company Breach" shall have the meaning set forth
in Section 9.01.
"Terminating Parent Breach" shall have the meaning set forth
in Section 9.01.
"Termination Date" shall have the meaning set forth in Section
6.01.
"Trademark Assignment--NJ" shall mean the Trademark Assignment
entered into between Afternic NJ and Company.
"Trademark Assignment--NY" shall mean the Trademark Assignment
to be entered into between Company and Merger Sub.
"Trafficking" shall have the meaning set forth in Section
4.15.
"Transfer" shall have the meaning set forth in Section 7.03.
"U.S. GAAP" shall mean United States generally accepted
accounting principles.
"Valid Consents" shall have the meaning set forth in Section
4.15.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the DGCL and the NYBCL, at the Effective Time,
Company shall be merged with and into Merger Sub. As a result of the Merger, the
separate corporate existence of Company shall cease and Merger Sub shall
continue as the surviving corporation of the Merger as a wholly owned subsidiary
of Parent (the "Surviving Corporation").
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SECTION 2.02 Closing
Unless this Agreement shall have been terminated and the
Merger herein contemplated shall have been abandoned pursuant to Section 9.01
and subject to the satisfaction or waiver of the conditions set forth in Article
VIII, the consummation of the Merger shall take place as promptly as practicable
(and in any event within three business days) after satisfaction or waiver of
the conditions set forth in Article VIII (the "Closing Date"), at a closing (the
"Closing") to be held at the offices of Brobeck, Phleger & Harrison LLP, 1633
Broadway, New York, New York 10019, unless another date, time or place is agreed
to by Parent and Company.
SECTION 2.03 Effective Time
The parties shall cause the Merger to be consummated by filing
on the Closing Date (i) a certificate of merger (the "DE Certificate of Merger")
with the Secretary of State of the State of Delaware in such form as required
by, and executed in accordance with the relevant provisions of, the DGCL, and
(ii) a certificate of merger (the "NY Certificate of Merger") and related
filings with the Secretary of State of the State of New York in such form as
required by, and executed in accordance with the relevant provisions of, the
NYBCL. Subject to and in accordance with the laws of the State of Delaware and
the State of New York, the Merger will become effective at the later of the date
and time the DE Certificate of Merger is filed with and accepted by the office
of the Secretary of State of the State of Delaware and the NY Certificate of
Merger is filed with and accepted by the office of the Secretary of State of the
State of New York, or at such later time or date as may be specified in the DE
Certificate of Merger and the NY Certificate of Merger (the "Effective Time").
Each of the parties will use its best efforts to cause the Merger to be
consummated as soon as practicable following the fulfillment or waiver of the
conditions specified in Article VIII hereof.
SECTION 2.04 Effect of the Merger
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of the DGCL and the NYBCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all the property, rights, privileges,
powers and franchises of Company and Merger Sub shall vest in Merger Sub as the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of Merger Sub as the
Surviving Corporation.
SECTION 2.05 Certificate of Incorporation; Bylaws; Directors
and Officers of Surviving Corporation
Unless otherwise agreed by Parent and Company before the
Effective Time, at the Effective Time:
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(a) the Certificate of Incorporation and the Bylaws of Merger
Sub in effect immediately prior to the Effective Time shall be the Certificate
of Incorporation and Bylaws, respectively of the Surviving Corporation, until
thereafter amended as provided by Law and such Certificate of Incorporation or
Bylaws; provided, however, that Article I of the Certificate of Incorporation of
the Surviving Corporation shall be amended to read as follows: "The name of the
corporation is Afternic.com, Inc."
(b) the officers of Merger Sub immediately prior to the
Effective Time shall serve as the officers of the Surviving Corporation from and
after the Effective Time, in each case until their respective successors are
elected or appointed and qualified or until their resignation or removal; and
(c) the directors of Merger Sub immediately prior to the
Effective Time shall serve as the directors of the Surviving Corporation from
and after the Effective Time, in each case until their successors are elected or
appointed and qualified or until their resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 3.01 Conversion of Shares
At the Effective Time, by virtue of the Merger, and without
any action on the part of Parent, Merger Sub, Company or the Stockholders:
(a) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (excluding any shares held in the
treasury of Company or owned by Parent), except as otherwise provided in this
Section 3.01, shall be converted into and represent the right to receive (i) a
number of shares of Parent Common Stock equal to $47,318,001.58, divided by the
product derived by multiplying the Fully Diluted Shares and the Parent Stock
Price (the "Stock Exchange Ratio") and (ii) an amount of cash equal to
$5,459,421.32 divided by the Fully Diluted Shares (the "Cash Exchange Ratio"
and, together with the Stock Exchange Ratio, the "Exchange Ratio"). On the
Closing Date, a number of shares of Parent Common Stock issuable to the Managing
Stockholders equal to $7,500,000, at the Parent Stock Price, shall be taken from
that portion of the Stock Consideration which is subject to the forty-eight (48)
month lock-up restrictions set forth in the lock-up agreements for the Managing
Stockholders provided for in Section 8.03(h), substantially in the form attached
hereto as Annex E-1 (the "Escrow Shares"), shall be held in escrow pursuant to
Article X hereof and shall be allocated on a pro rata basis between the Managing
Stockholders (together, "Escrow Participants").
(b) Notwithstanding the foregoing, if the aggregate number of
shares of Parent Common Stock that would become issuable pursuant to the Stock
Exchange Ratio to the holders of Company Common Stock exceeds 2,500,000 shares
(such shares in excess of 2,500,000 being referred to as "Excess Shares"),
Parent shall have the option, at its sole discretion, to pay in cash, at the
Parent Stock Price, the value of all or a portion of such Excess Shares,
provided that the value of the Parent Common Stock paid in the Merger based on
the Parent Stock Price shall equal or exceed 51% of the total consideration
payable in the Merger (such total cash consideration and total stock
consideration payable pursuant to this Section 3.01(a) being referred to
respectively as the "Cash Consideration" and the "Stock Consideration").
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SECTION 3.02 Exchange of Shares Other than Treasury Shares
(a) Exchange Agent. Parent or an exchange agent designated by
Parent shall act as exchange agent for the Merger (the "Exchange Agent").
(b) Parent to Provide Common Stock and Cash. As promptly as
practicable after the Effective Time, Parent shall make available to the
Exchange Agent, for the benefit of the Stockholders (i) certificates of Parent
Common Stock ("Parent Certificates") representing the number of whole shares of
Parent Common Stock issuable pursuant to Section 3.01(a) in exchange for shares
of Company Common Stock outstanding immediately prior to the Effective Time less
the number of shares of Parent Common Stock to be deposited in the escrow fund
(the "Escrow Fund") pursuant to the requirements of Article X hereof and (ii)
(1) sufficient funds to permit payment of any cash payable to the Stockholders
pursuant to Section 3.01(a), and (2) any cash payment in lieu of fractional
shares pursuant to Section 3.06.
(c) Company Certificates Exchange Procedures. The Exchange
Agent shall deliver to each holder of record of certificates of Company Common
Stock ("Company Certificates") whose shares were converted into the right to
receive shares of Parent Common Stock (and cash in lieu of fractional shares) as
promptly as practicable after the Effective Time: (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Company Certificates shall pass, only upon receipt of the Company
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Parent may reasonably specify); and (ii) instructions for
use in effecting the surrender of the Company Certificates in exchange for
Parent Certificates, the portion of the Cash Consideration payable to such
holder pursuant to this Article III, and cash payable in lieu of fractional
shares. Upon surrender of a Company Certificate for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Parent, together
with such letter of transmittal, duly completed and validly executed, and such
other documents as may be reasonably required by the Exchange Agent, the holder
of such Company Certificate shall be entitled to receive in exchange therefor a
Parent Certificate representing the number of whole shares of Parent Common
Stock and the portion of the Cash Consideration payable to such holder pursuant
to this Article III and, in the case of the Managing Stockholders, less the
holder's pro rata portion of the Escrow Shares to be deposited in the Escrow
Fund on such holder's behalf pursuant to Article X hereof (and payment of cash
in lieu of fractional shares which such holder has the right to receive pursuant
to Section 3.06), and the Company Certificate so surrendered shall forthwith be
canceled. Until so surrendered, each outstanding Company Certificate that, prior
to the Effective Time, represented shares of Company Common Stock will be deemed
from and after the Effective Time, for all corporate purposes other than the
payment of dividends and distributions, to evidence the ownership of the number
of full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive a portion of the
Cash Consideration and an amount in cash in lieu of the issuance of any
fractional shares in accordance with Section 3.06. Notwithstanding any other
provision of this Agreement, no interest will be paid or will accrue on any cash
payable to holders of Company Certificates pursuant to the provisions of this
Article III.
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(d) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Company Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of record of such Company Certificate
shall surrender such Company Certificate. Subject to the effect of applicable
escheat or similar laws, following surrender of any such Company Certificate,
there shall be paid to the record holder of the Parent Certificates 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 theretofore payable (but for the provisions of this Section
3.02(e)) with respect to such shares of Parent Common Stock.
(e) Transfer of Ownership. If any Parent Certificate is to be
issued in a name other than that in which the Company Certificate surrendered in
exchange therefor is registered, it will be a condition of the issuance thereof
that the Company Certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a Parent Certificate for
shares of Parent Common Stock in any name other than that of the registered
holder of the Company Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 3.02, none of the Exchange Agent, Parent, the Surviving Corporation
or any party hereto shall be liable to any person in respect of any shares of
Parent Common Stock delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
SECTION 3.03 Stock Transfer Books
(a) At the Effective Time, the stock transfer book of Company
shall be closed, and there shall be no further registration of transfers of
shares of Company Common Stock thereafter on the records of any such stock
transfer books. In the event of a transfer of ownership of shares of Company
Common Stock that is not registered in the stock transfer records of Company at
the Effective Time, a certificate or certificates representing the number of
full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been converted shall be issued to the transferee together with
the portion of the Cash Consideration payable to such transferee pursuant to
this Article III, a cash payment in lieu of fractional shares, if any, in
accordance with Section 3.06 hereof, and a cash payment in the amount of
dividends, if any, in accordance with Section 3.02(e) hereof, if the certificate
or certificates representing such shares of Company Common Stock is or are
surrendered as provided in Section 3.02(c) hereof, accompanied by all documents
required to evidence and effect such transfer and by evidence of payment of any
applicable stock transfer tax.
SECTION 3.04 Anti-Dilution Adjustments
If between the date of this Agreement and the Effective Time,
the outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number of shares by reason of any reclassification,
recapitalization, split-up, combination or exchange of shares, or any dividend
payable in stock or other securities shall be declared thereon with a record
date within such period (each, a "Capitalization Adjustment"), then the Exchange
Ratio and the Excess Shares established pursuant to the provisions of Section
3.01 shall be adjusted accordingly to provide to Parent, the Stockholders and
the Bonus Recipients the same economic effect as contemplated by this Agreement
prior to such reclassification, recapitalization, split-up, combination,
exchange, dividend or increase.
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SECTION 3.05 Lost, Stolen or Destroyed Certificates
In the event any Company Certificates shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Company Certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock (and cash in
lieu of fractional shares) as may be required pursuant to Section 3.01(a);
provided, however, that Parent may, in its reasonable discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Company Certificates alleged to have been lost, stolen or destroyed.
SECTION 3.06 No Fractional Share Certificates
No scrip or fractional share Parent Certificate shall be
issued upon the surrender for exchange of Company Certificates, and an
outstanding fractional share interest shall not entitle the owner thereof to
vote, to receive dividends or to any rights of a stockholder of Parent or of
Surviving Corporation with respect to such fractional share interest. As
promptly as practicable following the Effective Time, Parent shall deposit with
the Exchange Agent an amount in cash sufficient for the Exchange Agent to pay
each holder of Company Common Stock an amount in cash equal to the product
obtained by multiplying (a) the fractional share interest to which such holder
would otherwise be entitled (after taking into account all shares of Company
Common Stock held at the Effective Time by such holder) by (b) the closing price
for a share of Parent Common Stock on the NNM on the first business day
immediately following the Effective Time. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Company
Common Stock with respect to any fractional share interests, the Exchange Agent
shall make available such amounts, net of any required withholding Taxes, to
such holders of Company Common Stock.
SECTION 3.07 Assumption of Change of Control Bonus Payments
At the Effective Time, Parent shall assume each of the Change
of Control Bonus Payment Letters and such Change of Control Bonus Payment
Letters shall represent the right to receive the cash and/or shares of Parent
Common Stock on the terms and subject to the conditions as provided therein,
which payments Parent shall deliver promptly following the Effective Time,
subject to applicable withholding Taxes.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
COMPANY AND THE STOCKHOLDERS
Company and each Managing Stockholder jointly and severally
hereby represent and warrant to Parent all of the representations and warranties
set forth in this Article IV, subject to the exceptions specifically disclosed
in writing in the Company Disclosure Schedule, all such exceptions to be
referenced to a specific representation set forth in this Article IV. Each
Stockholder who is not a Managing Stockholder hereby severally (and not jointly)
represents and warrants to Parent, subject to the exceptions specifically
disclosed in writing in the Company Disclosure Schedule, all such exceptions to
be referenced to a specific representation set forth in this Article IV, with
respect to the representations and warranties set forth in Sections 4.04, 4.05
and 4.20 below, but only to the extent that such representations and warranties
are in respect of such non-Managing Stockholder or the Company Common Stock held
of record by or on behalf of such non-Managing Stockholder. EAI hereby
represents and warrants to Parent all of the representations and warranties set
forth in Sections 4.03(b), 4.04, 4.05, 4.06, 4.09, 4.10, 4.12, 4.13, 4.14, 4.16,
4.18, 4.19, 4.20, 4.21 and 4.23 below, subject to the exceptions specifically
disclosed in writing in the Company Disclosure Schedule, all such exceptions to
be referenced to a specific representation set forth in this Article IV.
SECTION 4.01 Organization and Qualification; No Subsidiaries
(a) Company has been duly organized and is validly existing
and in good standing under the laws of the jurisdiction of its organization and
has the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Company is
duly qualified or licensed to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in good
standing that could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect.
(b) Company does not own an equity interest in any
corporation, partnership or joint venture arrangement or other business entity.
SECTION 4.02 Certificate of Incorporation and Bylaws
Company has delivered to Parent true, complete and correct
copies of Company's Certificate of Incorporation and bylaws, each as amended
through the date hereof. Such Certificate of Incorporation and bylaws are in
full force and effect. Company is not in violation of any of the provisions of
its Certificate of Incorporation or bylaws.
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SECTION 4.03 Capitalization
(a) The authorized capital stock of Company consists of 200
shares of Company Common Stock, all of which are issued and outstanding, duly
authorized, validly issued, fully paid and nonassessable. Except for the Company
Promissory Letters, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which Company is a party or by
which Company is bound relating to the issued or unissued capital stock of
Company or obligating Company to issue or sell any shares of capital stock of,
or other equity interests in, Company. Each share of capital stock of Company
owned by each Stockholder is free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
such Stockholder's voting rights, charges and other encumbrances of any nature
whatsoever. There are no outstanding contractual obligations of Company to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or
other securities of Company. There are no material outstanding contractual
obligations of Company to provide funds to, or make any material investment (in
the form of a loan, capital contribution or otherwise) in, any other person.
Section 4.03(a) of the Company Disclosure Schedule sets forth a true and
complete list of each holder of Company Common Stock and each Bonus Recipient,
and the number of securities held by or allocated to such holders.
(b) The authorized capital stock of EAI consists of 1,000
shares of Common Stock of EAI, 200 shares of which are issued and outstanding,
duly authorized, validly issued, fully paid and nonassessable. There are no
options, warrants or other rights, agreements, arrangements or commitments of
any character to which EAI is a party or by which EAI is bound relating to the
issued or unissued capital stock of EAI or obligating EAI to issue or sell any
shares of capital stock of, or other equity interests in, EAI. Each outstanding
share of capital stock of EAI is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges and other encumbrances of any nature
whatsoever. There are no outstanding contractual obligations of EAI to
repurchase, redeem or otherwise acquire any shares of Common Stock of EAI or
other securities of EAI. There are no material outstanding contractual
obligations of EAI to provide funds to, or make any material investment (in the
form of a loan, capital contribution or otherwise) in, any other person. Section
4.03(b) of the Company Disclosure Schedule sets forth a true and complete list
of each holder of Common Stock of EAI and the number of securities held by or
allocated to such holders.
SECTION 4.04 Authority Relative to This Agreement
Each of Company, EAI and the Stockholders has all necessary
power and authority to execute and deliver this Agreement, to perform its or his
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by each of Company, EAI and the
Stockholders, and the consummation by Company and EAI of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
action, and no other proceedings on the part of Company, EAI or the Stockholders
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby (other than the filing, recordation and approval of the DE
Certificate of Merger as required by the DGCL and the NY Certificate of Merger
as required by the NYBCL). This Agreement has been duly executed and delivered
by each of Company, EAI and the Stockholders and, assuming the due
authorization, execution and delivery by the other parties hereto, constitutes a
legal, valid and binding obligation of each of Company, EAI and the
Stockholders, enforceable against each of them in accordance with its terms,
except as such enforceability may be limited by (a) limitations on the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities; (b) the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
rights of creditors; and (c) the effect of general equitable principles
(regardless of whether such enforceability is considered in a proceeding at law
or in equity).
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SECTION 4.05 No Conflict; Required Filings and Consents
(a) The execution and delivery of this Agreement by each of
Company, EAI and the Stockholders do not, and the performance by them of their
respective obligations hereunder and the consummation of the Merger will not,
(i) conflict with or violate any provision of the Certificate of Incorporation
or bylaws of Company or EAI, (ii) assuming that all consents, approvals,
authorizations and permits described in Section 4.05(b) have been made, conflict
with or violate any Law applicable to Company or EAI or by which any property or
asset of Company or EAI is bound or affected or (iii) except as set forth in
Section 4.05(a) of the Company Disclosure Schedule, result in any breach of or
constitute a default (or an event that with the giving of notice or lapse of
time or both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or other encumbrance on any property or asset
of Company, EAI or any Stockholder pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Company or EAI is a party or by which any
material property or asset of Company or EAI is bound or affected.
(b) The execution and delivery of this Agreement by each of
Company, EAI and the Stockholders do not, and the performance by each of them of
their respective obligations hereunder and the consummation of the Merger will
not, require any consent, approval, authorization or permit of, or filing by
Company, EAI or any Stockholder with or notification by Company, EAI or any
Stockholder to, any Governmental Entity, except for the filing and recordation
of the DE Certificate of Merger as required by the DGCL and the NY Certificate
of Merger as required by the NYBCL.
SECTION 4.06 Permits; Compliance with Laws
Company is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
approvals and orders of any Governmental Entity necessary for Company to own,
lease and operate its properties or to offer, perform, develop, produce,
distribute and market its services or otherwise to conduct its business as it is
now being conducted (collectively, the "Company Permits"). None of the Company
Permits are held by EAI. None of the Company Permits has been suspended or
cancelled nor is any such suspension or cancellation pending or, to the
knowledge of Company, threatened. Company is not in any material respect in
conflict with, or in default or violation of, (i) any Law applicable to Company
or by which any property or asset of Company is bound or affected or (ii) any
Company Permits. Section 4.06 of the Company Disclosure Schedule sets forth, as
of the date of this Agreement, all actions, proceedings, investigations or
surveys pending or, to the knowledge of Company, threatened against Company that
could reasonably be expected to result in the suspension or cancellation of any
other Company Permit. Company has not received from any Governmental Entity any
written notification with respect to possible conflicts, defaults or violations
of Laws. The Merger will not result in the suspension or cancellation of any
Company Permit.
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SECTION 4.07 Financial Statements
(a) Company is not subject to the periodic reporting
requirements of the Exchange Act and is not required to file any form, report or
other document with the SEC, the NNM, any other stock exchange or any other
comparable Governmental Entity.
(b) Section 4.07 of the Company Disclosure Schedule includes
copies of (i) the unaudited balance sheets of Company at December 31, 1999,
together with the related statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1999, and the notes thereto (the
"Company Year End Financial Statements") and (ii) the unaudited interim balance
sheet of Company at June 30, 2000, together with the related unaudited
statements of operations for the six-month period then ended, and summary
financial information of Company at July 31, 2000 and August 31, 2000 and for
the one-month periods then ended (collectively, the "Company Interim Financial
Statements" and, together with the Company Year End Financial Statements, the
"Company Financial Statements"). The Company Financial Statements, including the
notes thereto: (A) were prepared in accordance with U.S. GAAP applied on a
consistent basis throughout the periods covered thereby; (B) present fairly the
financial position, results of operations and cash flows of Company as of such
dates and for the periods then ended (subject, in the case of the Company
Interim Financial Statements, to normal year-end audit adjustments consistent
with prior periods); and (C) are complete, are, in all material respects,
correct and can be reconciled with the books of account and records of Company.
Company maintains and will continue to maintain an adequate system of internal
controls established and administered in accordance with U.S. GAAP.
(c) Except as and to the extent set forth or reserved against
on the balance sheets of Company as reported in the Company Financial
Statements, including the notes thereto, Company does not have any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on a balance sheet or in notes
thereto prepared in accordance with U.S. GAAP, except for immaterial liabilities
or obligations incurred in the ordinary course of business consistent with past
practice since December 31, 1999.
SECTION 4.08 Absence of Certain Changes or Events
Since January 1, 2000, Company has conducted its businesses
only in the ordinary course consistent with past practice and, since such date,
there has not been (a) any Company Material Adverse Effect, (b) any event that
could reasonably be expected to prevent or materially delay the performance of
Company's obligations pursuant to this Agreement or the consummation of the
Merger by Company, (c) except as set forth on Section 4.08 of the Company
Disclosure Schedule, any change by Company in its accounting methods, principles
or practices, (d) any declaration, setting aside or payment of any dividend or
distribution in respect of the shares of Company Common Stock or any redemption,
purchase or other acquisition of any of Company's securities, (e) except for the
Company Promissory Letters, any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other employee
benefit plan, or any other increase in the compensation payable or to become
payable to any employees, officers, consultants or directors of Company or EAI,
(f) any issuance or sale of any stock, notes, bonds or other securities, or
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entering into any agreement with respect thereto, (g) any amendment to Company's
Certificate of Incorporation or bylaws, (h) other than in the ordinary course of
business consistent with past practice, any (1) purchase, sale, assignment or
transfer of Company Intellectual Property or Company Software Programs or
equipment, (2) mortgage, pledge or existence of any lien, encumbrance or charge
on any material assets or properties, tangible or intangible, except for liens
for Taxes not yet delinquent and such other liens, encumbrances or charges which
do not, individually or in the aggregate, have a Company Material Adverse
Effect, or (3) waiver of any rights of material value or cancellation or any
material debts or claims, (i) any incurrence of any liability in excess of
$25,000 (absolute or contingent), except for current liabilities and obligations
incurred in the ordinary course of business consistent with past practice, (j)
any incurrence of any damage, destruction or similar loss, whether or not
covered by insurance, materially affecting the business or properties of
Company, or (k) any negotiation or agreement by Company to do any of the things
described in the preceding clauses (a) through (j) (other than negotiations with
Parent and its representatives and other actions regarding the transactions
contemplated by this Agreement).
SECTION 4.09 Employee Benefit Plans; Labor Matters
(a) Section 4.09 of the Company Disclosure Schedule lists each
employee benefit fund, plan, program, arrangement and contract (including,
without limitation, any "pension" plan, fund or program, as defined in Section
3(2) of ERISA, and any "employee benefit plan," as defined in Section 3(3) of
ERISA and any plan, program, arrangement or contract providing for severance;
medical, dental or vision benefits; life insurance or death benefits; disability
benefits, sick pay or other wage replacement; vacation, holiday or sabbatical;
pension or profit-sharing benefits; stock options or other equity compensation;
bonus or incentive pay or other material fringe benefits), whether written or
not ("Benefit Plans"), maintained, sponsored or contributed to or required to be
contributed to by Company or EAI or under which either of them may reasonably be
expected to incur any liability (the "Company Benefit Plans"). With respect to
each Company Benefit Plan, Company or EAI, as applicable, has delivered to
Parent a true, complete and correct copy of (i) such Company Benefit Plan (or,
if not written, a written summary of its material terms) and the most recent
summary plan description, if any, related to such Company Benefit Plan, (ii)
each trust agreement or other funding arrangement relating to such Company
Benefit Plan, (iii) the most recent annual report (Form 5500) filed with the IRS
with respect to such Company Benefit Plan (and, if the most recent annual report
is a Form 5500R, the most recent Form 5500C filed with respect to such Company
Benefit Plan), (iv) the most recent actuarial report or financial statement
relating to such Company Benefit Plan and (v) the most recent determination
letter or opinion letter, if any, issued by the IRS with respect to such Company
Benefit Plan and any pending request for such a determination letter. Neither
Company, nor to the knowledge of Company, any other person or entity, has any
express or implied commitment, whether legally enforceable or not, to modify,
change or terminate any Company Benefit Plan, other than with respect to a
modification, change or termination required by ERISA or the Code.
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(b) Each Company Benefit Plan has been administered in all
material respects in accordance with its terms and all applicable laws,
including ERISA and the Code, and contributions required to be made under the
terms of any of the Company Benefit Plans as of the date of this Agreement have
been timely made or, if not yet due, have been properly reflected on the most
recent consolidated balance sheet filed or incorporated by reference in the
Company Financial Statements prior to the date of this Agreement. With respect
to the Company Benefit Plans, no event has occurred and, to the knowledge of
Company and EAI, there exists no condition or set of circumstances in connection
with which Company or EAI could be subject to any material liability (other than
for routine benefit liabilities) under the terms of, or with respect to, such
Company Benefit Plans, ERISA, the Code or any other applicable Law.
(c) Each of Company and EAI, on behalf of itself and each
Company ERISA Affiliate hereby represents that: (i) each Company Benefit Plan
(and related trust or other funding arrangement) intended to qualify under
Section 401(a), Section 401(k), Section 401(m), Section 501(a) or Section
4975(e)(6) of the Code has been established using a standardized master
prototype plan adoption agreement that is the subject of a favorable opinion
letter from the IRS as to its qualified status, and to Company's and EAI's
knowledge no fact or event has occurred that could adversely affect the
qualified status of any such Company Benefit Plan or the exempt status of any
such trust; (ii) to Company's and EAI's knowledge there has been no prohibited
transaction (within the meaning of Section 406 of ERISA or Section 4975 of the
Code and other than a transaction that is exempt under a statutory or
administrative exemption) with respect to any Company Benefit Plan that could
result in liability to Company or a Company ERISA Affiliate and (iii) the terms
of each Company Benefit Plan allow for future amendment, termination or
discontinuance after the Effective Time, without liability (other than (A)
liability for ordinary administrative expenses typically incurred in a
termination event or (B) if the Company Benefit Plan is a pension benefit plan
subject to Part 2 of Title I of ERISA, liability for the accrued benefits as of
the date of such termination (if and to the extent required by ERISA) to the
extent that either there are sufficient assets set aside in a trust or insurance
contract to satisfy such liability or such liability is reflected on the most
recent balance sheet included in the Company Financial Statements prior to the
date of this Agreement). No suit, administrative proceeding, action or other
litigation has been brought, or to the knowledge of Company or EAI is
threatened, against or with respect to any such Company Benefit Plan, including
any audit or inquiry by the IRS or United States Department of Labor (other than
routine benefits claims).
(d) No Company Benefit Plan is a multiemployer pension plan
(as defined in Section 3(37) of ERISA) or other pension plan subject to Title IV
of ERISA and neither Company nor any other trade or business (whether or not
incorporated) that is under "common control" with Company (within the meaning of
ERISA Section 4001) or with respect to which Company could otherwise incur
liability under Title IV of ERISA (a "Company ERISA Affiliate") has sponsored or
contributed to or been required to contribute to a multiemployer pension plan or
other pension plan subject to Title IV of ERISA. No material liability under
Title IV of ERISA has been incurred by Company or any Company ERISA Affiliate
that has not been satisfied in full, and no condition exists that presents a
material risk to Company or any Company ERISA Affiliate of incurring or being
subject (whether primarily, jointly or secondarily) to a material liability
thereunder. None of the assets of Company or any Company ERISA Affiliate is, or
may reasonably be expected to become, the subject of any lien arising under
ERISA or Section 412(n) of the Code.
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(e) No Company Benefit Plan is subject to Title IV or Part 3
of Title I of ERISA or Section 412 of the Code.
(f) Company has delivered or caused EAI to deliver to Parent
true, complete and correct (i) copies of (A) all employment agreements with
officers and all consulting agreements of Company or EAI, (B) all severance
plans, agreements, programs and policies of Company or EAI with or relating to
its employees, directors or consultants, and (C) all plans, programs, agreements
and other arrangements of Company or EAI with or relating to their respective
employees, directors or consultants which contain "change of control" provisions
and (ii) written summaries of any such agreements, plans, programs, policies or
other arrangements that are not in writing. No payment or benefit which may be
required to be made by Company or EAI or which otherwise may be required to be
made under the terms of any Company Benefit Plan or other arrangement will
constitute a parachute payment under Section 280(G)(1) of the Code, and the
consummation of the transactions contemplated by this Agreement will not, alone
or in conjunction with any other possible event (including termination of
employment), (A) entitle any current or former employee or other service
provider of Company or EAI to severance benefits or any other payment,
compensation or benefit (including forgiveness of indebtedness), except as
expressly provided by this Agreement, or (B) accelerate the time of payment or
vesting, or increase the amount of compensation or benefit due any such employee
or service provider.
(g) Neither Company nor EAI is a party to, or does not have
any obligations under or with respect to, any collective bargaining or other
labor union contract applicable to persons employed by Company or EAI and no
collective bargaining agreement is being negotiated by Company or EAI or any
person or entity that may obligate Company or EAI thereunder. As of the date of
this Agreement, there is no labor dispute, strike, union organizing activity or
work stoppage pending or, to the knowledge of Company, threatened against
Company or EAI. As of the date of this Agreement, to the knowledge of Company
and EAI, none of Company, EAI or any of their respective representatives or
employees has committed any unfair labor practice in connection with the
operation of the businesses of Company, and there is no charge or complaint
filed against Company or EAI by or with the National Labor Relations Board or
any comparable Governmental Entity pending or threatened in writing.
(h) Except as required by Law, no Company Benefit Plan
provides any of the following retiree or post-employment benefits to any person:
medical, disability or life insurance benefits. To Company's and EAI's
knowledge, Company, EAI and the Company ERISA Affiliates are in compliance in
all material respects with (i) the requirements of the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and the regulations (including
proposed regulations) thereunder and (ii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996, as amended, and the
regulations (including the proposed regulations) thereunder.
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SECTION 4.10 Employee Matters
Since inception, Company has not had any employees other than
those individuals supplied to it by EAI, which individuals are or were employed
by EAI. Section 4.10 of the Company Disclosure Schedule contains a true and
complete list of Company's and EAI's employees as of the date of execution of
this Agreement. Each of Company and EAI is in compliance in all material
respects with all currently applicable Laws and regulations respecting
employment, discrimination in employment, terms and conditions of employment,
wages, hours and occupational safety and health and employment practices, and is
not engaged in any unfair labor practice. Company or EAI has withheld all
amounts required by Law or by agreement to be withheld from the wages, salaries,
and other payments to employees; and is not liable for any arrears of wages or
any Taxes or any penalty for failure to comply with any of the foregoing.
Neither Company nor EAI is liable for any payment to any trust or other fund or
to any Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no claims pending against Company or EAI under any
workers compensation plan or policy or for long term disability. There are no
controversies pending or, to the knowledge of Company and each Stockholder,
threatened, between Company, EAI and any past or present employees, which
controversies have or could reasonably be expected to result in an action, suit,
proceeding, claim, arbitration or investigation before Governmental Entity.
Neither Company nor EAI is a party to any collective bargaining agreement or
other labor union contract nor does Company or any Stockholder know of any
activities or proceedings of any labor union to organize any Company or EAI
employees. To Company's and each Stockholder's knowledge, no employees of
Company or EAI are in violation of any term of any employment contract,
non-disclosure agreement, noncompetition agreement or any restrictive covenant
to a former employer relating to the right of any such employee to be employed
by Company or EAI because of the nature of the business conducted or presently
proposed to be conducted by Company or to the use of trade secrets or
proprietary information of others. No employees of Company or EAI have given
notice to Company or EAI, nor is Company otherwise aware, that any such employee
intends to terminate his or her employment with Company or EAI.
SECTION 4.11 Affiliates, Advertisers and Partners
No affiliate, advertiser or marketing partner that
individually accounted for more than 10% of Company's gross revenues during the
12-month period preceding the date hereof, (a) has canceled or otherwise
terminated, (b) made any written threat to Company to cancel or otherwise
terminate or decrease its relationship with Company, or (c) has decreased
materially its relationship with Company or its usage of the services or
products of Company, as the case may be.
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SECTION 4.12 Contracts
Except for the contracts and agreements described in Section
4.12 of the Company Disclosure Schedule (collectively, the "Material
Contracts"), neither Company nor EAI is a party to or bound by any material
contract or agreement, including without limitation:
(a) any sales, advertising or agency contract in excess of
$25,000 over the life of the contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such contact more
than $10,000 over the life of the contract;
(c) any contract that expires or may be renewed at the option
of any person other than Company or EAI 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 U.S. GAAP;
(e) any contract for capital expenditures in excess of $10,000
in the aggregate;
(f) any contract limiting the freedom of Company or EAI to
engage in any line of business or to compete with any other corporation,
partnership, limited liability company, trust, individual or other entity, or
any confidentiality, secrecy or non-disclosure contract;
(g) any contract pursuant to which Company or EAI is a lessor
of any machinery, equipment, motor vehicles, office furniture, fixtures or other
personal property, pursuant to which payments in excess of $10,000 remain
outstanding;
(h) any contract with any person with whom Company or EAI does
not deal at arm's length or any of Company's or EAI's officers or directors or
stockholders beneficially owning 5% or more of the outstanding securities of
Company or EAI;
(i) 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;
(j) any distribution contract; or
(k) any employment contract, arrangement or policy (including
without limitation any collective bargaining contract or union agreement) which
may not be immediately terminated without penalty (or any augmentation or
acceleration of benefits).
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Except as set forth in Section 4.12 of the Company Disclosure
Schedule, each of Company and EAI 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 valid and binding and in full force and effect
and, except as set forth in Section 4.12 of the Company Disclosure Schedule,
there exists no default or event of default or event, occurrence, condition or
act, with respect to Company or EAI, as applicable, or, to Company's knowledge,
with respect to the other contracting party, which, with the giving of notice,
the lapse of the time or the happening of any other event or conditions, would
become a default or event of default under any Material Contract. True, correct
and complete copies of all Material Contracts have been delivered to Parent.
SECTION 4.13 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 Company, threatened
against Company or EAI or any of their respective properties or any of their
respective officers or directors (in their capacities as such). Company is not
aware of any facts or circumstances which could reasonably be expected to result
in the denial of insurance coverage under policies issued to Company or EAI in
respect of such suits, claims, actions, proceedings and investigations. There is
no judgment, decree or order against Company or EAI or, to the knowledge of
Company, any of its directors or officers (in their capacities as such), that
could reasonably be expected to prevent, enjoin, materially alter or delay any
of the transactions contemplated by this Agreement, or that could reasonably be
expected to have a Company Material Adverse Effect. Section 4.13 of the Company
Disclosure Schedule lists all litigation that Company or EAI has pending against
other parties. Company or EAI, as applicable, has provided Parent with all
correspondence and other written records, including all emails, relating to such
scheduled litigation, other than documents that are subject to attorney-client
privilege.
SECTION 4.14 Environmental Matters
Each of Company and EAI is in compliance in all material
respects with all applicable Environmental Laws and all Company Permits required
by Environmental Laws. All past noncompliance, if any, of Company or EAI with
Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability. Neither Company nor
EAI has released a Hazardous Material at, or transported a Hazardous Material to
or from, any real property currently or formerly owned, leased or occupied by
Company or EAI, in violation of any Environmental Law.
SECTION 4.15 Intellectual Property
(a) Section 4.15(a) of the Company Disclosure Schedule
contains a true and complete list of Company's patents, patent applications,
trademarks (registered and unregistered), trademark registration applications,
trade names, service marks (registered and unregistered), service mark
registration applications, Internet domain names, copyright registrations and
applications and other filings and formal actions made or taken pursuant to
federal, state, local and foreign laws by Company to protect its interests in
Company Intellectual Property, and includes details of all due dates for further
filings, maintenance, payments, renewals or other actions falling due in respect
of Company Intellectual Property within 12 months of the Effective Time. All of
Company's patents, patent applications, registered trademarks and service marks,
trademark and service mark registration applications and registered copyrights
remain in good standing with respect to all fees and filings due as of the date
hereof.
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(b) Company has received Valid Consents from all persons who
have provided personal information, on a website or otherwise, which are
sufficient to give Company the right to use such personal information for the
purposes of conducting Company's current activities. For the purposes of this
Section 4.15(b), "Valid Consents" shall mean consents obtained by Company by
which the persons providing personal information have indicated their consent by
agreeing to be subject to Company's privacy policy and user and access
agreement, which signifies his or her desire to have his or her personal
information registered with the website and used by Company. Company has not
used any personal information without or beyond the scope of a Valid Consent.
Company has not collected, maintained, used or disclosed the personally
identifiable information of individuals residing in the United States in
violation of any applicable U.S. law, rule or regulation and Company has
conducted its business and has collected, maintained, used and/or disclosed such
data at all times in accordance with accepted industry practice. In addition,
Company does not maintain any facilities or processing capabilities with respect
thereto outside the United States.
(c) Company Intellectual Property contains only those items
and rights which are: (i) owned by Company; (ii) in the public domain; or (iii)
rightfully used by Company pursuant to a valid and enforceable license or other
agreement (the "Company Licensed Intellectual Property"), each such license or
other agreement (each, a "License Agreement") being set forth in Section 4.15(c)
of the Company Disclosure Schedule. Company has all rights in Company
Intellectual Property that are necessary to carry out Company's current
activities and Company's future activities to the extent such future activities
are already planned, including without limitation, rights to make, use, sell,
offer for sale, reproduce, modify, adopt, create derivative works based on,
translate, distribute (directly and indirectly), transmit, display and perform
publicly, license, rent and lease and, other than with respect to Company
Licensed Intellectual Property, assign and sell, Company Intellectual Property.
To the best of Company's knowledge, Company and its affiliates have not
infringed and are not infringing on the trademark or service mark rights of any
third party, and Company and its affiliates have not and are not engaged in, or
knowingly or willingly actively facilitating, the practice of Cybersquatting.
For purposes of this Section 4.15, "Cybersquatting" shall mean the practice of
registering, Trafficking in or using a domain name which may be confusingly
similar to, and with bad-faith intent to profit from the goodwill of a trademark
or service mark belonging to another party. For purposes of this Section 4.15,
"Trafficking" shall mean transactions which include, but are not limited to,
sales, purchases, loans, pledges, licenses, exchanges of currency, and any other
transfer for consideration or receipt in exchange for consideration. Attached as
Section 4.15(c) to the Company Disclosure Schedule is a true and correct summary
of Company's current practices and procedures for addressing instances of
alleged Cybersquatting. Company makes no warranties as to any domain name that
is listed by, sold or offered for sale on behalf of third parties.
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(d) To the best of Company's knowledge, the reproduction,
manufacturing, distribution, licensing, sublicensing, sale or any other exercise
of rights in any Company Intellectual Property, product, work, technology or
process as now used or offered or proposed for use, licensing or sale by Company
does not infringe on any proprietary or personal right of any person including,
without limitation, patent right, design right, trademark, trade name, service
mark, trade dress, Internet domain name, copyright, database right, statistical
model, technology, invention, supplier list, trade secret, know-how, computer
software program or application of any person, anywhere in the world. Company
has not received notice of any pending or threatened claims (including offers to
grant licenses) (i) challenging the validity, effectiveness or, other than with
respect to Company Licensed Intellectual Property, ownership by Company of any
Company Intellectual Property, or (ii) to the effect that the use, distribution,
licensing, sublicensing, sale or any other exercise of rights in any product,
work, technology or process as now used or offered or proposed for use,
licensing, sublicensing or sale by Company or its agents or use by its customers
infringes or will infringe on or misappropriate any intellectual property or
other proprietary or personal right of any person. Except as set forth in
Section 4.15(d) of the Company's Disclosure Schedule, no such claims have been
threatened by any person, nor are there any valid grounds for any bona fide
claim of any such kind. All of the rights within Company Intellectual Property
are enforceable and subsisting. Company has no knowledge of any unauthorized
use, infringement or misappropriation of any Company Intellectual Property by
any third party, employee or former employee.
(e) Except as set forth in Section 4.15(e) of the Company
Disclosure Schedule, all personnel, including agents, consultants and
contractors, who have contributed to or participated in the conception and
development of Company Intellectual Property on behalf of Company, or who may do
so in connection with Company business, and all employees of Company or EAI,
have executed nondisclosure agreements and either (i) have been a party to an
enforceable agreement with Company in accordance with applicable national and
state law that accords Company full, effective, exclusive and original ownership
of all tangible and intangible property as "works-for-hire," arising from the
efforts of such personnel, and (ii) have executed appropriate instruments of
assignment in favor of Company that have conveyed or will convey to Company
full, effective and exclusive ownership of all tangible and intangible property
arising from the efforts of such personnel.
(f) Company is not, nor as a result of the execution or
delivery of this Agreement, or performance of Company's obligations hereunder,
will Company be, in violation of any license, sublicense, agreement or
instrument to which Company is a party or otherwise bound, nor will execution or
delivery of this Agreement, or performance of Company's obligations hereunder,
cause the diminution, termination or forfeiture of any Company Intellectual
Property.
(g) Section 4.15(g) of the Company Disclosure Schedule
contains a true and complete list of all of Company's software programs (the
"Company Software Programs"). Company owns full and unencumbered right and good,
valid and marketable title to such Company Software Programs that it owns (the
"Company Owned Software"), free and clear of all mortgages, pledges, liens,
security interests, conditional sales agreements, encumbrances or charges of any
kind. Company has full and unrestricted rights to use the Company Software
Programs that it licenses, subject to the terms of the license agreements listed
in Section 4.15(g) of the Company Disclosure Schedule. The source code and
system documentation relating to the Company Owned Software have been maintained
in strict confidence and (i) have been disclosed by Company or EAI only to those
of its employees and consultants who have a "need to know" the contents thereof
in connection with the performance of their duties to Company and who have
executed nondisclosure agreements with Company; and (ii) have been disclosed to
only those third parties who have executed nondisclosure agreements with
Company.
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(h) Company has taken commercially reasonable steps, as
described in Section 4.15(h) of the Company Disclosure Schedule, to preserve and
maintain complete notes and records relating to Company Intellectual Property to
cause the same to be readily identified and available.
(i) The Company Intellectual Property owned by Company, and
the use of the Company Licensed Intellectual Property, is free and clear of any
and all mortgages, pledges, liens, security interests, conditional sale
agreements, encumbrances or charges of any kind.
(j) Except as set forth in Section 4.15(j) of the Company
Disclosure Schedule, Company does not owe nor will owe any royalties or other
payments to third parties in respect of Company Intellectual Property. All
royalties or other payments that have accrued prior to the Effective Time have
been paid.
(k) To Company's knowledge, the Company Software Programs and
other Company Intellectual Property contain no "viruses." For the purposes of
this Agreement, "virus" means any computer code designed to disrupt, disable or
harm in any manner the operation of any software or hardware including, without
limitation, worms, bombs, backdoors, clocks, timers, or other disabling device
code, designs or routines which causes the software to be erased, inoperable, or
otherwise incapable of being used, either automatically or upon command by any
party.
(l) Company has implemented commercially reasonable steps
which are known in the information systems industry in the physical and
electronic protection of its information assets from unauthorized disclosure,
use or modification. As set forth on Section 4.15(l) of the Company Disclosure
Schedule, Company has disclosed to Parent breaches of security known by Company,
known consequences, and the steps Company has taken to remedy any such breaches.
SECTION 4.16 Taxes
(a) Neither Company nor any of its affiliates has taken or
agreed to take any action (other than actions contemplated by this Agreement)
that could reasonably be expected to prevent the Merger from constituting a
"reorganization" under Section 368(a) of the Code. There is no agreement or plan
to which Company or any of its affiliates is a party or other circumstances
relating to Company or any of its affiliates that could reasonably be expected
to prevent the Merger from so qualifying as a reorganization under Section
368(a) of the Code.
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(b) Company, and any consolidated, combined, unitary or
aggregate group for Tax purposes of which Company is or has been a member, has,
except as set forth on Section 4.16(b) of the Company Disclosure Schedule, (i)
properly completed and timely filed all Tax Returns required to be filed by them
and all such Tax Returns are true, correct and complete in all material
respects, and (ii) duly paid in full or made adequate accruals in accordance
with generally accepted accounting principles in the Company Financial
Statements for the payment of all Taxes that are due and payable for all periods
ending on or before the date hereof. Company has not had any material liability
for unpaid Taxes accruing after the date of the Company Financial Statements.
(c) There is (i) no material claim for Taxes that is a lien
against the property or assets of Company or is being asserted in writing
against Company other than liens for Taxes not yet due and payable, (ii) no
audit, administrative proceeding or court proceeding with respect to any Taxes
or Tax Returns of Company is being conducted and no Governmental Entity
responsible for the imposition of any Tax (a "Tax Authority") has asserted
against Company any deficiency or claim for Taxes; (iii) no extension of the
statute of limitations on the assessment of any Taxes granted by Company and
currently in effect, and (iv) no agreement, contract or arrangement to which
Company is a party that may result in the payment of any amount that would not
be deductible by reason of Sections 162(m), 280G or 404 of the Code.
(d) No claim or notice has ever been submitted to Company or
any of the Stockholders by a Tax Authority in a jurisdiction where Company has
not filed Tax Returns indicating that Company is or may be subject to taxation
by that jurisdiction.
(e) There has been no change in ownership of Company that has
caused the utilization of any losses of Company to be limited pursuant to
Section 382 of the Code, and any loss carryovers reflected on the Company
Financial Statements are properly computed and reflected.
(f) Company has not been 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, nor has it taken any action that would require it
to make any such adjustment.
(g) Company has not filed any consent to have the provisions
of Section 341(f)(2) of the Code (or comparable provisions of any state Tax
laws) apply to Company.
(h) Except as set forth in Section 4.16(h) of the Company
Disclosure Schedule, Company is not party to any Tax sharing or Tax allocation
agreement nor does Company have any liability or potential liability to another
party under any such agreement, and has not incurred any liability for Taxes of
any person under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
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(i) Company or EAI has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
(j) No power of attorney has been granted by Company with
respect to any matters relating to Taxes that is currently in effect.
(k) Company has not settled any claim, audit or administrative
or court proceeding with respect to Taxes.
(l) Company is a cash basis taxpayer.
(m) Company has not filed any disclosures under Section 6662
of the Code or comparable provisions of state, local or foreign law to prevent
the imposition of penalties with respect to any Tax reporting position taken on
any Tax Return.
(n) Company has no subsidiaries, has never had a subsidiary
and has never been a member of a consolidated, combined or unitary group.
(o) Company has in its possession receipts for any Taxes paid
to foreign Tax authorities. Company has never been a "United States real
property holding corporation" within the meaning of Section 897 of the Code.
(p) All transactions between Company and its affiliates or
related parties (within the meaning of Section 482 of the Code) contained terms
consistent with the results that would have been obtained if either of such
parties engaged in the same transaction with an unrelated person.
(q) The Company properly and timely elected to be treated as
an S corporation, as defined in Section 1361 of the Code, for federal income tax
purposes and for all state and local income tax purposes to the extent that such
an election is required to be made to achieve such status, in all cases for all
taxable years beginning on or after January 1, 2000 and ending on or prior to
the Closing Date, and the Company has at all times during such taxable years
qualified to be treated as an S corporation for all federal and state income tax
purposes.
SECTION 4.17 Insurance
Section 4.17 of the Company Disclosure Schedule contains a
true and complete list of all of Company's insurance policies. As of the date
hereof, no claims or notices of claims have been filed with respect to any such
insurance policy. The policies of fire, theft, liability and other insurance
maintained with respect to the assets or businesses of Company provide adequate
coverage against loss. There is no material claim pending under any of such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies. Company has heretofore furnished to Parent a
complete and correct list as of the date hereof of all insurance policies
maintained by Company, and has made available to Parent complete and correct
copies of all such policies, together with all riders and amendments thereto.
All such policies are in full force and effect and all premiums due thereon have
been paid to the date hereof. Company has complied in all material respects with
the terms of such policies. Company has no knowledge of any threatened
termination of, or material premium increase with respect to, any of such
policies.
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SECTION 4.18 Properties
Except as set forth in Section 4.18 of the Company Disclosure
Schedule, each of Company and EAI has good and marketable title, free and clear
of all material mortgages, liens, pledges, charges or other encumbrances to all
its properties and assets, whether tangible or intangible, real, personal or
mixed, reflected in the Company Financial Statements for the fiscal year ended
December 31, 1999, as being owned by Company or EAI and as of the date thereof
or, in the case of leased properties and assets, valid leasehold interests in,
free and clear of all mortgages, liens, pledges, charges or other encumbrances,
other than (a) any properties or assets that have been sold or otherwise
disposed of in the ordinary course of business since the date of such financial
statements, (b) liens disclosed in the notes to such financial statements and
(c) liens arising in the ordinary course of business after the date of such
financial statements. All properties used in Company's operations are reflected
in the balance sheets included in the Company Financial Statements to the extent
U.S. GAAP require the same to be reflected. All buildings, and all fixtures,
equipment and other property and assets that are material to its business on a
consolidated basis, held under leases or sub-leases by Company or EAI are held
under valid instruments enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable laws of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and the
availability of equitable remedies, including specific performance, that are
subject to the discretion of the court before which any proceeding therefor may
be brought and except as indemnification may be limited by public policy.
Substantially all of Company's or EAI's equipment in regular use has been
reasonably maintained and is in serviceable condition, reasonable wear and tear
excepted. Company or EAI owns or has the valid and subsisting right to use all
assets and properties material to operating Company's business in the manner
presently conducted and as proposed to be conducted in the projections described
in Section 4.25.
SECTION 4.19 Affiliates
Section 4.19 of the Company Disclosure Schedule sets forth the
names and addresses of each person who is, in Company's reasonable judgment, an
affiliate of Company. Except as set forth in Section 4.19 of the Company
Disclosure Schedule, neither Company nor EAI is indebted to, nor does it owe any
contractual commitment or arrangement to, with or for the benefit of, any
director, officer, employee, affiliate or agent of Company or EAI (except for
amounts due as normal salaries and bonuses and in reimbursement of ordinary
expenses). Except for normal salaries and bonuses and reimbursement of ordinary
expenses, since December 31, 1999, neither Company nor EAI has made any
payments, loans or advances of any kind, or paid any dividends or distributions
of any kind, to or for the benefit of the Stockholders or Company's or EAI's
employees, or any of their respective affiliates, associates or family members.
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SECTION 4.20 Brokers
No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
based upon arrangements made by or on behalf of Company, EAI or any Stockholder.
SECTION 4.21 Certain Business Practices
None of Company, EAI or any director, officer, agent or
employee of Company or EAI (in their capacities as such) has (a) used any funds
for unlawful contributions, gifts, entertainment or other unlawful expenses
relating to political activity; (b) made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic political
parties or campaigns or violated any provision of the Foreign Corrupt Practices
Act of 1977, as amended or (c) made any other unlawful payment.
SECTION 4.22 Section 912 of the NYBCL Not Applicable
The Board of Directors of Company has approved the Merger and
this Agreement, and such approval is sufficient to render inapplicable to the
Merger and this Agreement, and the transactions contemplated by this Agreement,
the provisions of Section 912 of the NYBCL. No other state takeover statute or
similar statute or regulation applies or purports to apply to the Merger, this
Agreement or the transactions contemplated by this Agreement.
SECTION 4.23 Business Activity Restriction
Except as set forth in Section 4.23 of the Company Disclosure
Schedule, there is no non-competition or exclusivity agreement, or other similar
agreement, commitment, judgment, injunction, order or decree to which Company or
EAI is a party or is subject to that has or could reasonably be expected to have
the effect of prohibiting or impairing the conduct of business by Company. Other
than this Agreement, Company has not entered into any agreement under which
Company is restricted from selling, licensing or otherwise distributing any of
its technology to, or providing services to, customers or potential customers or
any class of customers, in any geographic area, during any period of time or in
any segment of the market or line of business.
SECTION 4.24 Accounts Receivable
Subject to any reserves set forth in the Company Financial
Statements, the accounts receivable shown on the Company Financial Statements
represent and will represent bona fide claims against debtors for sales and
other charges, and are not subject to discount except for normal cash and
immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the Company Financial Statements was calculated in
accordance with U.S. GAAP and in a manner consistent with prior periods and is
sufficient to provide for any losses which may be sustained on realization of
the receivables.
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SECTION 4.25 Financial Projections
The financial projections included in Section 4.25 of the
Company Disclosure Schedule were prepared by Company on a reasonable basis and
in good faith, based upon Company's limited operating history and certain stated
assumptions of the Managing Stockholders derived from their knowledge of the
industry. The assumptions used in the preparation of such projections are those
Company believes are significant in forecasting the financial results of
Company, but may not be accurate predictors of Company's future performance.
SECTION 4.26 Representations and Warranties Complete
None of the representations or warranties made by the
Stockholders or Company herein or in any Company Disclosure Schedule hereto, or
certificate furnished by the Stockholders or Company pursuant to this Agreement,
when all such documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
SECTION 4.27 Confirmation of Representations and Warranties
Each of the Managing Stockholders has made due inquiry of the
applicable employees of EAI to confirm the representations and warranties
contained in this Article IV.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent hereby represents and warrants to Company and the
Stockholders, subject to the exceptions specifically disclosed in the Parent
Disclosure Schedule, all such exceptions to be referenced to a specific
representation set forth in this Article V, that:
SECTION 5.01 Organization and Qualification; Subsidiaries
Except as set forth in Section 5.01 of the Parent Disclosure
Schedule, Parent and each directly and indirectly owned subsidiary of Parent
(the "Parent Subsidiaries") has been duly organized and is validly existing and
in good standing (to the extent applicable) under the laws of the jurisdiction
of organization and has the requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now being
conducted. Each of Parent and the Parent Subsidiaries is duly qualified or
licensed to do business, and is in good standing (to the extent applicable), in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, except for such failures to be so qualified or licensed and
in good standing that could not reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect.
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SECTION 5.02 Certificate of Incorporation and Bylaws
The copies of each of Parent's and Merger Sub's Certificate of
Incorporation and bylaws previously provided to Company by Parent are true,
complete and correct copies thereof. Such Certificates of Incorporation and
bylaws are in full force and effect.
SECTION 5.03 Capitalization
The authorized capital stock of Parent consists of 200,000,000
shares of Parent Common Stock and 5,000,000 shares of preferred stock. As of
August 31, 2000, (a) 32,210,087 shares of Parent Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable, (b)
no shares of Parent Common Stock are held in the treasury of Company, (c) no
shares of Parent Common Stock are held by the Parent Subsidiaries, (d)
13,244,067 shares of Parent Common Stock are authorized for issuance pursuant to
the Parent Stock Plans and warrants to purchase Parent Common Stock ("Parent
Stock Option"), and (e) no shares of Parent preferred stock are issued and
outstanding. Except for the shares of Parent Common Stock issuable pursuant to
the Parent Stock Plans and warrants to purchase 5,894,067 shares of Parent
Common Stock, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which Parent is a party or by
which Parent is bound relating to the issued or unissued capital stock of Parent
or any Parent Subsidiary or obligating Parent or any Parent Subsidiary to issue
or sell any shares of capital stock of, or other equity interests in, Parent or
any Parent Subsidiary. All shares of Parent Common Stock issuable in connection
with the Merger, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable. There are no
outstanding contractual obligations of Parent or any Parent Subsidiary to
repurchase, redeem or otherwise acquire any shares of Parent Common Stock or any
capital stock of any Parent Subsidiary. Each outstanding share of capital stock
of each Parent Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by Parent or another Parent Subsidiary
is free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on Parent's or such other
Parent Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, of which all shares are issued and outstanding as of the date
of this Agreement and owned of record and beneficially by Parent.
SECTION 5.04 Authority Relative to this Agreement
Each of Parent and Merger Sub has all necessary corporate
power and authority to execute and deliver this Agreement, to perform its
respective obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by each of Parent and
Merger Sub and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Parent or
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby (other than the filing, recordation and
approval of the DE Certificate of Merger as required by the DGCL and the NY
Certificate of Merger as required by the NYBCL). This Agreement has been duly
executed and delivered by each of Parent and Merger Sub and, assuming the due
authorization, execution and delivery by Company and the Stockholders,
constitutes legal, valid and binding obligations of each of Parent and Merger
Sub enforceable against each of them in accordance with its terms, except as
such enforceability may be limited by (a) limitations on the enforceability of
provisions requiring indemnification in connection with the offering, issuance
or sale of securities; (b) the effect of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors; and (c) the
effect of general equitable principles (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
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SECTION 5.05 No Conflict; Required Filings and Consents
(a) Except as set forth in Section 5.05 of the Parent
Disclosure Schedule, the execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance by Parent and Merger Sub of their
respective obligations hereunder and the consummation of the Merger will not,
(i) conflict with or violate any provision of the certificate of incorporation
or bylaws of Parent or Merger Sub or any equivalent organizational documents of
any Parent Subsidiary, (ii) assuming that all consents, approvals,
authorizations and permits described in Section 5.05(b) have been obtained and
all filings and notifications described in Section 5.05(b) have been made,
conflict with or violate any Law applicable to Parent or any other Parent
Subsidiary or by which any property or asset of Parent or any Parent Subsidiary
is bound or affected or (iii) result in any breach of or constitute a default
(or an event which with the giving of notice or lapse of time or both could
reasonably be expected to become a default) under, or give to others any right
of termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of Parent or
any Parent Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Parent or any Parent Subsidiary is a Party or by which any
material assets or properties of Parent and any Parent Subsidiary are bound or
affected.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub do not, and the performance by Parent and Merger Sub of their
obligations hereunder and the consummation of the Merger will not, require any
consent, approval, authorization or permit of, or filing by Parent with or
notification by Parent to, any Governmental Entity, except for the filing and
recordation of the Certificate of Merger as required by the DGCL.
SECTION 5.06 SEC Filings; Financial Statements
(a) Parent has timely filed all forms, reports, statements and
documents that are required to be filed by it (i) with the SEC and the NNM since
March 2, 2000 (collectively, with Parent's registration statement on Form S-1
filed on December 23, 1999, as amended, and any such forms, reports, statements
and documents Parent may file subsequent to the date hereof until the Closing,
the "Parent Reports") and (ii) with any other Governmental Entities. Each Parent
Report (A) was prepared in accordance with the requirements of the Securities
Act, the Exchange Act or the NNM, as the case may be, and (B) did not at the
time it was filed contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. Each form, report, statement and document
referred to in clause (i) of this paragraph was prepared in all material
respects in accordance with the requirements of applicable Law. No Parent
Subsidiary is subject to the periodic reporting requirements of the Exchange Act
or required to file any form, report or other document with the SEC, the NNM,
any other stock exchange or any other comparable Governmental Entity.
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(b) Except as is provided in the Parent Reports, each of the
consolidated financial statements (including, in each case, any notes thereto)
contained in the Parent Reports (i) was prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the periods indicated (except as may be
indicated in the notes thereto), (ii) presented fairly, in all material
respects, the consolidated financial position, results of operations and cash
flows of Parent and the consolidated Parent Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to normal
and recurring immaterial year-end adjustments) and (iii) was complete in all
material respects.
(c) Except as and to the extent set forth or reserved against
on the consolidated balance sheet of Parent and the Parent Subsidiaries as
reported in the Parent Reports, including the notes thereto, none of Parent or
any Parent Subsidiary has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) that would be required to be
reflected on a balance sheet or in notes thereto prepared in accordance with
U.S. GAAP, except for liabilities or obligations incurred in the ordinary course
of business consistent with past practice since January 1, 2000 that have not
had and could not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect.
SECTION 5.07 Brokers
No broker, finder or investment banker, other than Legg Mason
Wood Walker Incorporated, is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of Parent.
SECTION 5.08 Tax
Parent intends to cause the Surviving Corporation to continue
the historic business of Company or to use a significant portion of the historic
business assets of Company in a business.
SECTION 5.09 Exemption from Registration
Assuming the accuracy of certain representations and
warranties of the Stockholders made to Parent, the shares of Parent Common Stock
to be issued in connection with the Merger will be issued in a transaction
exempt from registration under the Securities Act, by reason of Section 4(2)
thereof and/or Regulation D thereunder, and from any applicable Blue Sky Laws.
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SECTION 5.10 Representations Complete
None of the representations or warranties made by Parent
herein or in any Parent Disclosure Schedule hereto, or certificate furnished by
Parent pursuant to this Agreement, when all such documents are read together in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
ARTICLE VI
COVENANTS
SECTION 6.01 Conduct of Business by Company Pending the
Closing
Company and each of the Stockholders agree that, between the
date of this Agreement and the earlier of the Effective Time or the termination
of this Agreement pursuant to Section 9.01 hereof (the "Termination Date"),
unless Parent shall otherwise agree in writing, (x) the businesses of Company
and EAI shall be conducted only in, and Company shall not take any action except
in, the ordinary course of business consistent with past practice and (y)
Company shall use all commercially reasonable efforts to keep available the
services of such of the current officers, significant employees and consultants
of Company or EAI and to preserve the current relationships of Company with such
of the corporate partners, customers, suppliers and other persons with which
Company has significant business relations in order to preserve substantially
intact its business organization. By way of amplification and not limitation,
Company and EAI shall not, and the Stockholders shall not cause, between the
date of this Agreement and the Effective Time, directly or indirectly, do, or
agree to do, any of the following without the prior written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation
or bylaws or equivalent organizational documents of either Company or EAI;
(b) issue, sell, pledge, dispose of, grant, transfer, lease,
license, guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of (i) any shares of
capital stock of Company or EAI of any class, or securities convertible into or
exchangeable or exercisable for any shares of such capital stock, or any
options, warrants or other rights of any kind to acquire any shares of such
capital stock, or any other ownership interest (including, without limitation,
any phantom interest), of Company or EAI or (ii) any property or assets of
Company or EAI except sales of inventory in the ordinary course of business
consistent with past practice;
(c) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or person or any division
thereof; (ii) except as set forth in Section 6.01 of the Company Disclosure
Schedule, incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money or make any
loans or advances material to the business, assets, liabilities, financial
condition or results of operations of Company; (iii) terminate, cancel or
request any material change in, or agree to any material change in, any Company
Material Contract or other License Agreement; (iv) except as set forth in
Section 6.01 of the Company Disclosure Schedule, make or authorize any capital
expenditure, other than capital expenditures in the ordinary course of business
consistent with past practice that have been budgeted for the year ended
December 31, 2000 and disclosed in writing to Parent and that are not, in the
aggregate, in excess of $25,000 for Company; or (v) enter into or amend any
contract, agreement, commitment or arrangement that, if fully performed, would
not be permitted under this Section 6.01(c);
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(d) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to any
of its capital stock;
(e) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(f) amend the terms of, repurchase, redeem or otherwise
acquire, any of its securities or any securities or propose to do any of the
foregoing;
(g) increase the compensation payable or to become payable to
its or EAI's directors, officers, consultants or employees, grant any rights to
severance or termination pay to, or enter into any employment or severance
agreement which provides benefits upon a change in control of Company that would
be triggered by the Merger with, any director, officer, consultant or other
employee of Company or EAI who is not currently entitled to such benefits from
the Merger, establish, adopt, enter into or amend any collective bargaining,
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the benefit of
any director, officer, consultant or employee of Company or EAI, except to the
extent required by applicable Law or the terms of a collective bargaining
agreement, or enter into or amend any contract, agreement, commitment or
arrangement between Company and any of Company's or EAI's directors, officers,
consultants or employees;
(h) except as set forth in Section 6.01 of the Company
Disclosure Schedule, pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or otherwise)
in excess of $25,000, other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against on the balance sheet of Company dated as of August
31, 2000 previously presented to Parent and only to the extent of such reserves;
(i) make any change with respect to Company's accounting
policies, principles, methods or procedures, including, without limitation,
revenue recognition policies;
(j) make any material Tax election or settle or compromise any
material Tax liability; or
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(k) authorize or enter into any formal or informal agreement
or otherwise make any commitment to do any of the foregoing or to take any
action which would make any of the representations or warranties of Company or
EAI contained in this Agreement untrue or incorrect or prevent Company or EAI
from performing or cause Company not to perform its covenants hereunder or
result in any of the conditions to the Merger set forth herein not being
satisfied.
SECTION 6.02 Notices of Certain Events
From and after the date hereof and until the earlier of the
Effective Time or the Termination Date, each of Company and the Stockholders, on
the one hand, and Parent and Merger Sub, on the other hand, shall give prompt
notice to the other parties of (a) any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the Merger; (b) any notice or other communication from any
Governmental Entity in connection with the Merger; (c) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting Parent, Merger Sub or
Company, or that relate to the consummation of the Merger; (d) the occurrence of
a default or event that, with the giving of notice or lapse of time or both,
will become a default under any Company Material Contract; and (e) any change
that could reasonably be expected to have a Parent Material Adverse Effect or a
Company Material Adverse Effect, or to delay or impede the ability of Parent,
Merger Sub or Company to perform their respective obligations pursuant to this
Agreement and to effect the consummation of the Merger.
SECTION 6.03 Access to Information; Confidentiality
Except as required pursuant to any confidentiality agreement
or similar agreement or arrangement to which Parent or Company or any of the
Parent Subsidiaries is a party or pursuant to applicable Law or the regulations
or requirements of any stock exchange or other regulatory organization with
whose rules a party hereto is required to comply, from the date of this
Agreement until the earlier of the Effective Time or the Termination Date,
Company or EAI shall (i) provide or cause to be provided to Parent (and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, "Representatives")) access at
reasonable times upon prior notice to its officers, employees, agents,
properties, offices and other facilities and, on an as needed basis, to those of
EAI and to the books and records of Company and, as directly applicable, of EAI,
and (ii) promptly furnish or cause to be furnished such information concerning
Company's business, properties, contracts, assets, liabilities and personnel
(and such of EAI as are directly applicable) as Parent or its Representatives
may reasonably request. Parent's right of access and inspection shall be
exercised in such a manner as not to unreasonably interfere with the operations
of Company's or EAI's business and shall be coordinated with the President of
Company. From the date of this Agreement until the earlier of the Effective Time
or the Termination Date, neither Parent nor any of its Representatives shall
meet (telephonically or in person) with any Company employee or agent without
one of the Managing Stockholders being present; provided, however, that the
Managing Stockholders shall make themselves available for such meetings as
requested by Parent. Each of Parent and the Stockholders shall (and shall cause
its Representatives to) abide by, the terms of that certain confidentiality
agreement dated March 21, 2000 by and between Parent and Company, a copy of
which is attached hereto as Annex G. No investigation conducted pursuant to this
Section 6.03 shall affect or be deemed to modify any representation or warranty
made in this Agreement.
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SECTION 6.04 No Solicitation of Transactions
From and after the date hereof and until the earlier of the
Effective Time or the Termination Date, none of Company, EAI, its respective
directors, officers, employees, stockholders, consultants, advisors,
representatives (including accountants and attorneys) or agents (collectively,
"Company Representatives") shall, directly or indirectly, initiate, encourage or
solicit any offers, bids or indications of interest, conduct negotiations or
discussions with any person other than Parent with respect to any Competing
Transaction. Furthermore, from and after the date hereof and until the earlier
of the Effective Time or the Termination Date, neither Company, EAI nor any
Company Representatives shall (i) disclose any information not customarily
disclosed to any person concerning Company or EAI and that such party reasonably
believes could be used for the purpose of formulating an offer or proposal to
enter into a Competing Transaction; (ii) cooperate with any person to make any
proposal to purchase all or any part of Company or EAI (directly or indirectly)
other than inventory or nonessential or excess assets sold in the ordinary
course of business; (iii) agree to or endorse any Competing Transaction; or (iv)
authorize or permit any Company Representative to take any of the foregoing
actions. Company shall notify Parent within 24 hours of any proposal or offer
(written or otherwise) regarding, or any inquiry or contact with any person with
respect to, a Competing Transaction. Such notice shall include the identity of
the person proposing such Competing Transaction and the terms thereof, and
Company shall keep Parent apprised, on a current basis, of the status of any
such Competing Transaction and of any modifications to the terms thereof. From
and after the date hereof and until the earlier of the Effective Time or the
Termination Date, Company and EAI shall immediately cease all existing
discussions or negotiations with any parties with respect to a Competing
Transaction. From and after the date hereof and until the earlier of the
Effective Time or the Termination Date, Company shall not release any third
party from, or waive any provision of, any confidentiality or standstill
agreement to which it is a party.
SECTION 6.05 Tax-Free Transaction
From and after the date of this Agreement, each party hereto
shall use all reasonable efforts to cause the Merger to qualify, and shall not
knowingly take any actions or cause or permit any actions to be taken that it
believes could reasonably be expected to prevent the Merger from qualifying as a
"reorganization" under Section 368(a) of the Code. This Agreement shall be, and
hereby is, adopted as a plan of reorganization for purposes of Section 368 of
the Code.
SECTION 6.06 Further Action; Consents; Filings
(a) Upon the terms and subject to the conditions hereof, from
and after the date hereof and until the earlier of the Effective Time or the
Termination Date, each of the parties hereto shall use all reasonable efforts to
(i) take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the Merger, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or Company in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger and (iii) make all necessary filings, and
thereafter make any other required or appropriate submissions, with respect to
this Agreement and the Merger required under (A) the rules and regulations of
the NNM, (B) the Securities Act, the Exchange Act and any other applicable
federal or state securities Laws, and (C) any other applicable Law. The parties
hereto shall cooperate and consult with each other in connection with the making
of all such filings, including by providing copies of all such documents to the
nonfiling parties and their advisors prior to filing, and none of the parties
shall file any such document if any of the other parties shall have reasonably
objected to the filing of such document. No party shall consent to any voluntary
extension of any statutory deadline or waiting period or to any voluntary delay
of the consummation of the Merger at the behest of any Governmental Entity
without the consent and agreement of the other parties hereto, which consent
shall not be unreasonably withheld or delayed.
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(b) From and after the date hereof and until the earlier of
the Effective Time or the Termination Date, each of Company and Parent will give
any notices to third persons, and use reasonable efforts to obtain any consents
from third persons necessary, proper or advisable (as determined in good faith
by Parent with respect to such notices or consents to be delivered or obtained
by Company) to consummate the transactions contemplated by this Agreement.
SECTION 6.07 Tax Information
Company shall provide the following information to Parent not
later than two weeks after the date of this Agreement: (a) a complete list of
the types of Tax Returns being filed by Company in each taxing jurisdiction
together with the year of commencement of filing of each such type of Tax
Return, (b) a list of all closed years with respect to each such type of Tax
Return filed in each jurisdiction, (c) a list of all material Tax elections
filed in each jurisdiction by Company, (d) the tax basis of the assets of
Company, (e) the accumulated earnings and profits and any deferred losses or
loss carryovers of Company, and (f) receipts for any Taxes paid to foreign Tax
authorities. Company shall provide Parent and its accountants, counsel and other
representatives reasonable access, during normal business hours during the
period prior to the Effective Time, to all of Company's Tax Returns and other
records and workpapers relating to Taxes. Company will not file any consent to
have the provisions of Section 341(f)(2) of the Code (or comparable provisions
of any state Tax laws) apply to Company.
SECTION 6.08 Non-Competition and Non-Solicitation
For a period of two years from the Closing Date, none of the
Stockholders may, without the prior written consent of Parent, directly or
indirectly, individually or as an owner, partner, stockholder (other than a
holder of 1% or less of any class of publicly traded securities), joint
venturer, corporate officer, director, employee, independent contractor,
consultant, principal, agent, trustee or licensor, or in any other capacity
whatsoever of or for any person, firm, partnership, company or corporation
(other than Company or Parent) (a) engage in or participate in the ownership,
management, operation, sales, control or other activities of any business
competitive with the Business of Company or, in the case of the Managing
Stockholders, any business in which Company, Parent or the Surviving Company
enters into during such two-year period, in each case in any geographic
territory in which Company does business or (b) entice, solicit or encourage any
employee of Company or EAI to leave the employ of Company or EAI or any
independent contractor to sever its engagement with Company or EAI; or (c)
entice, solicit or encourage any customer or prospective customer of Company to
cease doing business with Company, reduce its relationship with Company or
refrain from establishing or expanding a relationship with Company. "Business of
Company" shall mean the brokering, reselling, auctioning or otherwise
facilitating the sale or transfer of a domain name registration and all products
and services offered relating to any of the foregoing or to the secondary market
for domain name registrations.
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SECTION 6.09 Dissolution of EAI and Afternic NJ
The Board of Directors and the stockholders of EAI shall have
signed all necessary consents or other instruments and taken all other requisite
action to cause the dissolution of EAI by April 5, 2001, or such later date as
Parent may request. Company shall cause the Board of Directors and the
stockholders of Afternic NJ, to sign all necessary consents or other instruments
and to take all other requisite action to cause the dissolution of Afternic NJ
by December 31, 2000.
SECTION 6.10 Indemnification of Certain Stockholders
Parent and/or Merger Sub shall use their commercially
reasonable efforts to promptly remove and, if required pursuant to Company's
merchant account, to replace, if applicable, the personal guaranties of Thomas
Whelan in connection with Company's merchant account. To the extent that Thomas
Whelan's personal guaranties in connection with Company's merchant account or
Jon Whelan's personal guaranties in connection with EAI's office lease remain in
force and effect following the consummation of the Merger, Parent shall
indemnify Tom Whelan and Jon Whelan, as the case may be, for the amounts of any
losses or claims actually incurred by them arising thereunder. The
indemnification obligations set forth in this Section 6.10 shall not be subject
to the provisions of Article X.
SECTION 6.11 Assignment and Transfer from EAI and Afternic NJ
Each of EAI and Afternic NJ shall duly assign all contracts,
permits and other instruments and transfer all assets (including all
intellectual property), other than the assets listed on Section 6.11(a) of the
Company Disclosure Schedule, to Company, so as to enable the Surviving
Corporation at Closing to own, lease and operate its properties and offer,
perform, develop, produce, distribute and market its services or otherwise
conduct its business as it is now being conducted and currently proposed to be
conducted by Company on or prior to Closing. All of the domain names owned by
the Managing Stockholders, EAI or any affiliate of the Managing Stockholders
that pertain to the domain name industry, are identified on Section 6.11(b) of
the Company Disclosure Schedule and shall be assigned to the Surviving
Corporation within a reasonable time following the Closing and in no event later
than November 3, 2000.
SECTION 6.12 Payment of Company Obligations to EAI
At the Effective Time, Parent shall pay to EAI in cash the
aggregate amount required to satisfy the outstanding obligations of Company to
EAI set forth on Section 6.12 of the Company Disclosure Schedule (the "EAI
Obligations"). Upon such payments, EAI shall deliver to Parent proper evidence
of the satisfaction of the EAI Obligations.
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SECTION 6.13 Obligations of Merger Sub
Parent shall guaranty the obligations of Merger Sub set forth
in the Agreement and the Annexes thereto.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.01 Public Announcements
None of Company and the Stockholders, on the one hand, and
Parent and Merger Sub, on the other hand, shall, without the other parties'
prior written approval, issue a press release or make any other public
announcement or disclosure to any third party regarding the Agreement or the
Merger, except as required by Law.
SECTION 7.02 Employee Benefit Matters
Section 7.02 of the Company Disclosure Schedule sets forth the
names of the individuals who are employed by EAI as of the Effective Time and
shall be offered at-will employment with Parent and/or the Surviving Corporation
effective immediately after the Effective Time (the "Continuing Employees"). To
the extent permitted by applicable Law, Parent shall (a) waive all limitations
as to preexisting conditions, exclusions and waiting periods with respect to
participation and coverage requirements applicable to Continuing Employees under
any welfare benefit plans in which the Continuing Employees may be eligible to
participate after the Effective Time, other than limitations or waiting periods
that are already in effect with respect to the Continuing Employees and that
have not been satisfied as of the Effective Time under any welfare benefit plan
maintained for the Continuing Employees immediately prior to the Effective Time
and (b) provide each Continuing Employee credit for any co-payments and
deductibles paid prior to the Effective Time in satisfying any applicable
deductible or out-of-pocket requirements under any welfare benefit plans in
which the continuing Employees are eligible to participate after the Effective
Time. Company and EAI shall take all action necessary to terminate, or cause to
terminate, immediately before the Effective Time, any Company Benefit Plan that
is a 401(k) plan or other defined contribution retirement plan. Parent shall
have the right to consult with EAI, and to review any actions taken or to be
taken, in connection with any Company Benefit Plan that is a 401(k) plan or
other defined contribution retirement plan.
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SECTION 7.03 Merger Consideration
(a) Each Stockholder understands that the shares of Parent
Common Stock issued in the Merger will not be registered under the Securities
Act nor qualified under the Blue Sky Laws of any state and that the Parent
Common Stock is being offered and sold to the Stockholders pursuant to an
exemption from such registration and qualification based in part upon the
representations of such Stockholder contained herein.
(b) Each Stockholder represents and warrants to Parent that he
is an "accredited investor," as defined in Rule 501 under the Securities Act.
(c) Each Stockholder acknowledges and agrees with Parent that
he has received and reviewed this Agreement and has received and reviewed all
further information, if any, regarding Parent necessary to make an informed
investment decision to invest in the Parent Common Stock, including information
requested to verify other information received, and has received, all
information that he has requested from Parent, and has been afforded a
reasonable opportunity to ask questions about Parent, the Parent Common Stock
and the terms and conditions of this Agreement, and has received satisfactory
answers to all such questions.
(d) Each Stockholder acknowledges to Parent that he is fully
aware of the applicable transfer restrictions of the Parent Common Stock to be
issued in the Merger, recognizes that it may be necessary to hold the Parent
Common Stock indefinitely and can bear the economic risk of his investment in
the Parent Common Stock (including a complete loss of the investment).
(e) Each Stockholder acknowledges and agrees with Parent that
he is acquiring the Parent Common Stock issued in the Merger for investment for
his own account and not with a view to, or for resale in connection with, the
distribution or other disposition thereof. Each Stockholder agrees with Parent
that he will not, directly or indirectly, offer, transfer, sell, assign, pledge,
hypothecate or otherwise dispose of (each, a "Transfer") any of the Parent
Common Stock issued in the Merger unless (i) the Transfer is pursuant to an
effective registration statement under the Securities Act or (ii) counsel for
such Stockholder (which counsel shall be reasonably acceptable to Parent) shall
have furnished Parent with an opinion, satisfactory in form and substance to
Parent, to the effect that no such registration is required because of the
availability of an exemption from registration under the Securities Act.
SECTION 7.04 Legend
Each Parent Certificate Stock shall bear the following
legends:
(a) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF (i) AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR
(ii) AN OPINION OF COMPANY COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED."
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(b) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO AN AGREEMENT PURSUANT TO WHICH THEY MAY NOT BE, DIRECTLY OR
INDIRECTLY, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF, EXCEPT IN CERTAIN
LIMITED CIRCUMSTANCES."
ARTICLE VIII
CONDITIONS TO THE MERGER
SECTION 8.01 Conditions to the Obligations of Each Party to
Consummate the Merger
The obligations of the parties hereto to consummate the Merger
are subject to the satisfaction or, if permitted by applicable Law, waiver of
the following conditions:
(a) no court of competent jurisdiction shall have issued or
entered any order, writ, injunction or decree, and no other Governmental Entity
shall have issued any order, which is then in effect and has the effect of
making the Merger illegal or otherwise prohibiting its consummation; and
(b) all consents, approvals and authorizations legally
required to be obtained to consummate the Merger shall have been obtained from
all Governmental Entities, except where the failure to obtain any such consent,
approval or authorization could not reasonably be expected to result in a Parent
Material Adverse Effect or a Company Material Adverse Effect.
SECTION 8.02 Conditions to the Obligations of Company
The obligations of Company to consummate the Merger, or to
permit the consummation of the Merger are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following further conditions:
(a) each of the representations and warranties of Parent
contained in this Agreement shall be true, complete and correct in all material
respects (other than representations and warranties subject to "materiality" or
"material adverse effect" qualifiers, which shall be true, complete and correct
in all respects to the extent so qualified) both when made and on and as of the
Effective Time as if made at and as of the Effective Time (other than
representations and warranties which address matters only as of a certain date
which shall be so true, complete and correct as of such certain date), and
Company shall have received a certificate of the Senior Financial Officer of
Parent to such effect;
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(b) Parent shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time and Company shall have
received a certificate of the Senior Financial Officer of Parent to such effect;
(c) McDermott, Will & Emery, counsel to Company, shall have
issued its opinion, dated on the date of the Closing, addressed to and
reasonably satisfactory to Company, based upon customary representations and
certificates thereto of Company, Parent and Merger Sub and customary
assumptions, to the effect that the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, which opinion shall not have
been withdrawn or modified in any material respect; provided, however, that if
such firm does not render such opinion, this condition shall nonetheless be
deemed satisfied if such opinion, dated as of the date of the Closing, is
rendered to Company by Brobeck, Phleger & Harrison LLP, counsel to Parent; and
(d) Parent shall have entered into a registration rights
agreement with the Stockholders in substantially the form attached as Annex B
hereto.
SECTION 8.03 Conditions to the Obligations of Parent
The obligations of Parent to consummate the Merger are subject
to the satisfaction or waiver of the following further conditions:
(a) each of the representations and warranties of Company and
the Stockholders contained in this Agreement (including those set forth in
Section 7.03) shall be true, complete and correct in all material respects
(other than representations and warranties subject to "materiality" or "material
adverse effect" qualifiers, which shall be true, complete and correct in all
respects to the extent so qualified) both when made and on and as of the
Effective Time as if made at and as of the Effective Time (other than
representations and warranties which address matters only as of a certain date
which shall be so true, complete and correct as of such certain date), and
Parent shall have received a certificate of the President and Treasurer of
Company and of the Stockholders to such effect;
(b) Company and the Stockholders shall have performed or
complied in all material respects with all covenants required by this Agreement
to be performed or complied with by them on or prior to the Effective Time and
Parent shall have received a certificate of the President and Treasurer of
Company and of the Stockholders to such effect;
(c) Brobeck, Phleger & Harrison LLP, counsel to Parent, shall
have issued its opinion, dated on the date of the Closing, addressed to and
reasonably satisfactory to Parent, based upon customary representations and
certificates thereto of Company, Parent and Merger Sub and customary
assumptions, to the effect that the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, which opinion shall not have
been withdrawn or modified in any material respect;
(d) Parent shall have received a legal opinion from McDermott,
Will & Emery, counsel to Company and the Stockholders, containing the opinions
set forth in Annex C hereto;
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(e) There shall have been no Company Material Adverse Effect
since the date of this Agreement;
(f) Parent shall have been furnished evidence satisfactory to
it of the consent or approval of those third parties whose consent or approval
may be required as a result of the Merger pursuant to the terms of any Material
Contract;
(g) Each of Jon Whelan and Chris Maroney shall have accepted
employment with Parent and shall have entered into employment and
non-competition agreements with Parent substantially in the form attached hereto
as Annex D;
(h) The Managing Stockholders of Company shall have executed
lock-up agreements in substantially the form attached hereto as Annex E-1, and
the Stockholders that are not Managing Stockholders shall have executed lock-up
agreements in substantially in the form attached hereto as Annex E-2;
(i) All of the Continuing Employees shall have accepted offers
of employment with Parent and/or the Surviving Corporation and shall have
entered into mutually acceptable offer letters with Parent and/or the Surviving
Corporation effective as of the Effective Time;
(j) Each of EAI and Afternic NJ shall have duly assigned all
contracts, permits and other instruments and transferred all assets (including
all intellectual property), other than assets listed on Section 6.11 of the
Company Disclosure Schedule, to Company prior to Closing, so as to enable the
Surviving Corporation at Closing to own, lease and operate its properties and
offer, perform, develop, produce, distribute and market its services or
otherwise conduct its business as it is now being conducted and currently
proposed to be conducted by Company;
(k) Each of the EAI employees listed in Section 8.03 of the
Company Disclosure Schedule (the "Bonus Recipients") shall have executed and
delivered a Change of Control Bonus Payment Letter substantially in the form
attached hereto as Annex H;
(l) All Continuing Employees shall have entered into (i)
Parent's standard confidentiality agreement, (ii) Parent's standard
non-competition agreement and (iii) Parent's standard employee inventions and
assignment agreement;
(m) Each of Company's net worth and Company's working capital
balance at the time of Closing shall equal or exceed $100 (after giving effect
to the payments by Parent as provided in Section 6.12) as determined in
accordance with U.S. GAAP and consistent with the practices used to prepare
Company's financial statements certified by Company's independent accountants;
and
(n) Unless Parent has consented otherwise in writing, Company
shall have terminated, immediately before the Effective Time, any Company
Benefit Plan that is a 401(k) plan or other defined contribution retirement
plan.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.01 Termination
This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time, notwithstanding any requisite
adoption and approval of this Agreement, as follows:
(a) by mutual written consent duly authorized by the boards of
directors of each of Parent and Company;
(b) by either Parent or Company, if the Effective Time shall
not have occurred on or before September 30, 2000; provided, however, that the
right to terminate this Agreement under this Section 9.01(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement shall have caused, or resulted in, the failure of the Effective Time
to occur on or before such date;
(c) by either Parent or Company, if any Governmental Order,
writ, injunction or decree preventing the consummation of the Merger shall have
been entered by any court of competent jurisdiction and shall have become final
and nonappealable;
(d) by Parent, upon a breach of any covenant or agreement on
the part of Company or any Stockholder set forth in this Agreement, or if any
representation or warranty of Company or any Stockholder shall have become
untrue, incomplete or incorrect, in either case such that the conditions set
forth in Section 8.03 would not be satisfied (a "Terminating Company Breach");
provided, however, that if such Terminating Company Breach is curable by Company
or any Stockholder through the exercise of its reasonable efforts within 10 days
and for so long as Company or any Stockholder continues to exercise such
reasonable efforts, Parent may not terminate this Agreement under this Section
9.01(d); and provided, further that the preceding proviso shall not in any event
be deemed to extend any date set forth in paragraph (b) of this Section 9.01; or
(e) by Company, upon breach of any covenant or agreement on
the part of Parent set forth in this Agreement, or if any representation or
warranty of Parent shall have become untrue, incomplete or incorrect, in either
case such that the conditions set forth in Section 8.02 would not be satisfied
(a "Terminating Parent Breach"); provided, however, that if such Terminating
Parent Breach is curable by Parent through the exercise of its reasonable
efforts within 10 days and for so long as Parent continues to exercise such
reasonable efforts, Company may not terminate this Agreement under this Section
9.01(e); and provided, further that the preceding proviso shall not in any event
be deemed to extend any date set forth in paragraph (b) of this Section 9.01.
The right of any party hereto to terminate this Agreement pursuant to this
Section 9.01 will remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
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SECTION 9.02 Effect of Termination
Except as provided in Section 9.05, in the event of
termination of this Agreement pursuant to Section 9.01, this Agreement shall
forthwith become void, there shall be no liability under this Agreement on the
part of any party hereto or any of its affiliates or any of its or their
officers or directors, and all rights and obligations of each party hereto shall
cease; provided, however, that nothing herein shall relieve any party hereto
from liability for the breach of any provisions of this Agreement prior to its
termination; and provided, further that the provisions of Section 6.03
(Confidentiality), this Section 9.02, Section 9.04 (Expenses) and Article XI,
shall remain in full force and effect and survive any termination of this
Agreement.
SECTION 9.03 Amendment
This Agreement may not be amended except by an instrument in
writing signed by Company, Parent, Merger Sub and holders of at least a majority
percentage interest in Company as of the date hereof, provided that such
amendment may not adversely affect the rights of any Stockholder unless such
Stockholder consents in writing to such amendment.
SECTION 9.04 Expenses
Except with respect to fees for filings with the Delaware and
New York Secretaries of State, which filing fees shall be borne by Parent,
Parent and Merger Sub shall bear their own Expenses, and the Stockholders shall
bear their own Expenses and the Expenses of Company, in each case in connection
with such party's respective due diligence and the negotiation, preparation,
execution and delivery of this Agreement and the consummation of the Merger.
ARTICLE X
INDEMNIFICATION AND ESCROW
SECTION 10.01 Indemnification
(a) Subject to the limitations set forth in this Article X,
the Managing Stockholders will, jointly and severally, indemnify and hold
harmless Parent, Merger Sub and the Surviving Corporation and each of their
officers, directors, advisors, affiliates, agents, employees, and each person,
if any, who controls or may control Parent within the meaning of the Securities
Act (each hereinafter referred to individually as a "Parent Indemnitee" and
collectively as "Parent Indemnitees") from and against any and all losses,
damages, judgments, settlements, claims, liabilities, costs and expenses,
including, without limitation, Legal Expenses (collectively, "Damages") arising
out of, based upon or resulting from (i) any misrepresentation or breach of or
default in connection with any representations, warranties, covenants and
agreements given or made by any of Company, the Managing Stockholders or EAI in
this Agreement, the Company Disclosure Schedules or any Annex to this Agreement
or certificate delivered by or on behalf of Company or any Managing Stockholder
pursuant to this Agreement and (ii) any action or inaction by EAI, whether such
Damages relate to the operation of its business, Claims by its employees, its
dissolution or otherwise (other than Claims based on any misrepresentation or
breach of or default in connection with any representations, warranties,
covenants and agreements given or made by or with respect to EAI in this
Agreement, the Company Disclosure Schedules or any Annex to this Agreement or
certificate delivered by or on behalf of Company or any Managing Stockholder
pursuant to this Agreement, which Claims shall be covered by Section
10.01(a)(i)).
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(b) Subject to the limitations set forth in this Article X,
each Stockholder who is not a Managing Stockholder will indemnify and hold
harmless the Parent Indemnitees from and against any and all Damages arising out
of, based upon or resulting from any misrepresentation or breach of, or default
in connection with, any representations, warranties, covenants and agreements
given or made by such non-Managing Stockholder in this Agreement.
(c) Subject to the limitations set forth in this Article X,
Parent and the Merger Sub, jointly and severally, will indemnify and hold
harmless the Stockholders and each of their advisors, affiliates, agents, heirs,
successors, executors and administrators (each hereinafter referred to
individually as a "Stockholder Indemnitee" and collectively as "Stockholder
Indemnitees") from and against any and all Damages arising out of, based upon or
resulting from any misrepresentation or breach of, or default in connection
with, any representations, warranties, covenants and agreements given or made by
Parent or the Merger Sub in this Agreement, the Parent Disclosure Schedules or
any Annex to this Agreement or certificate delivered by or on behalf of Parent
or the Merger Sub pursuant to this Agreement.
(d) "Legal Expenses" for purposes of this Article X shall mean
any and all reasonable out-of-pocket fees, costs and expenses of any kind
incurred by a Parent Indemnitee or Stockholder Indemnitee, as the case may be
(each an "Indemnified Person" and collectively, the "Indemnified Persons"), and
its or his counsel in investigating, preparing for, defending against or
providing evidence, producing documents or taking other action with respect to
any threatened or asserted claim of a third party or Governmental Entity.
(e) Nothing in this Agreement shall limit the liability of the
Stockholders, Parent or Merger Sub for any willful breach of any representation,
warranty or covenant.
SECTION 10.02 Damage Threshold; Limitation on Liability
Except for any claims for Damages pursuant to Sections
10.01(a)(ii) and 10.01(e) above, which claims shall not be subject to any of the
limitations set forth in this Section 10.02, neither the Stockholders, on the
one hand, nor Parent and the Merger Sub, on the other hand, shall have any
obligation to pay any claims for indemnification hereunder unless and until the
aggregate amount of such claims exceeds $100,000. In the case of claims for
indemnification pursuant to Section 10.01(a) above, payment shall be made first
using Escrow Shares withdrawn from the Escrow Fund in accordance with the
provisions of Section 10.06 below (or the proceeds thereof), and thereafter by
the Managing Stockholder(s). In the event the aggregate amount of all claims for
which an Indemnified Person seeks indemnification hereunder exceeds $100,000,
then the Managing Stockholders, the non-Managing Stockholders, or Parent and the
Merger Sub, as the case may be, shall be liable for the entire indemnity amount
with respect to such aggregated claims, including the initial $100,000, up to a
maximum of $20,000,000; provided, however, that claims for indemnification
pursuant to Sections 10.01(a)(ii) and 10.01(e) above shall not be subject to any
damage threshold or limitation on liability. In determining the amount of any
Damage attributable to a breach, any materiality standard contained in a
representation, warranty or covenant of the Stockholders or Company shall be
disregarded.
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SECTION 10.03 Procedures
Promptly after receipt by any Indemnified Person of notice of
the commencement of any action or administrative proceeding in respect of which
the Indemnified Person will seek indemnification hereunder, the Indemnified
Person shall provide to the party or parties from whom indemnification is sought
(each, an "Indemnifying Party" and, collectively, the "Indemnifying Parties") a
written notice specifying the nature of the claim and the amount or estimated
amount thereof and giving notice of any fact upon which such Indemnified Party
intends to base a claim for indemnification hereunder. Any failure by the
Indemnified Person to provide such notice shall not relieve the Indemnifying
Party from any liability that it may have to the Indemnified Person except to
the extent the Indemnifying Party shall be materially prejudiced by such
failure.
(a) The Indemnifying Party shall be entitled to participate in
the defense of such action and to assume control of such defense with counsel
reasonably acceptable to the Indemnified Person; provided, however, that:
(i) the Indemnified Person shall be entitled to
participate in the defense of such claim and to employ counsel at its own
expense to assist in the handling of such claim;
(ii) the Indemnifying Party shall obtain the prior
written approval of the Indemnified Person before entering into any settlement
of such claim or ceasing to defend against such claim, if, pursuant to or as a
result of such settlement or cessation, injunctive or other equitable relief
would be imposed against the Indemnified Person or would otherwise restrict the
future activity or conduct of the Indemnified Person, which approval shall not
be unreasonably withheld; and
(iii) the Indemnifying Party shall not consent to the
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to each
Indemnified Person of a release from all liability in respect of such claim.
(b) After written notice by the Indemnifying Party to the
Indemnified Person of its election to assume control of the defense of any such
action, the Indemnifying Party shall not, except where there may be specific
defenses available to it that are different from or additional to those
available to the Indemnifying Party or that such claim involves or could have an
effect upon matters beyond the scope of the indemnity agreement contained in
Section 10.01 above, be liable to such Indemnified Person hereunder for any
Legal Expenses subsequently incurred by such Indemnified Person in connection
with the defense thereof. In such case, only that portion of such Legal Expenses
reasonably related to matters covered by Section 10.01 shall be borne by the
Indemnifying Parties.
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(c) If the Indemnifying Party does not assume control of the
defense of such claims by promptly notifying the Indemnified Person of such
assumption, the Indemnified Person shall have the right to defend such claim in
such manner as it may deem appropriate at the cost and expense of the
Indemnifying Party, and the Indemnifying Party will promptly reimburse the
Indemnified Person therefor in accordance with the terms hereof; provided that
the Indemnified Party shall not settle such claim without first obtaining the
written consent of the Indemnifying Parties, which consent shall not be
unreasonably withheld. The reimbursement of fees, costs and expenses required by
this Section 10.03 shall be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred.
(d) No claim for indemnification hereunder shall be made by an
Indemnified Party in respect of a material breach by an Indemnifying Party of
any provision of this Agreement that is capable of being cured until such
breaching party shall have had a ten (10) day period from the date of such
breach or alleged breach in which to cure such breach, provided that the
Indemnified Party is not materially prejudiced thereby.
SECTION 10.04 Escrow Fund
(a) As soon as practicable after the Effective Time, Parent
shall deposit a stock certificate or stock certificates representing the Escrow
Shares, into the Escrow Fund. The Escrow Fund shall be governed by the terms set
forth herein. The Escrow Fund shall be available to compensate the Parent
Indemnitees pursuant to the indemnification obligations of the Managing
Stockholders set forth in Section 10.01(a) above. Notwithstanding the foregoing,
and subject to the provisions of Section 10.02 above, the parties expressly
agree that the Escrow Fund shall not limit the remedies of the Parent
Indemnitees in connection with any breach of any representation, warranty,
covenant or agreement made by Company or the Managing Stockholders under this
Agreement or in connection with the conduct of the business of EAI. The number
of Escrow Shares beneficially owned by each Managing Stockholder, the percentage
interest of each Stockholder in the Escrow Fund, the address of each Managing
Stockholder and the taxpayer identification of each Managing Stockholder are set
forth on Annex F attached hereto.
(b) Parent shall hold and safeguard the Escrow Shares during
the Escrow Period on behalf of the Managing Stockholders, shall not treat such
Escrow Shares as the property of Parent, and shall hold and dispose of the
Escrow Shares only in accordance with the terms hereof.
(c) The Escrow Shares shall be voted by Parent in accordance
with the instructions received by Parent from the Managing Stockholders who are
the beneficial owners of such Escrow Shares. Should Parent not receive such
instructions at least three (3) business days prior to the date set for a
stockholder meeting or vote, Parent shall prompt notify the Managing
Stockholders either in person, via facsimile or by nationally recognized courier
service, informing them of the need to provide Parent with voting instructions.
If, after providing such notice, Parent still has not received voting
instructions from the Managing Stockholders, Parent shall be under no obligation
to vote such Escrow Shares.
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(d) As promptly as practicable following the termination of
the Escrow Period, Parent (i) shall deposit with Parent's stock transfer agent
(which is currently American Stock Transfer and Trust Company) the Escrow Shares
then remaining in the Escrow Fund, less the amount of Escrow Shares, if any,
necessary to satisfy any unsatisfied claims specified in any Indemnity Claim
Certificate delivered to the Managing Stockholders prior to termination of the
Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period, and (ii) shall cause such transfer agent to
transfer such Escrow Shares to the Managing Stockholders in the percentage set
forth on Annex F. As soon as all such claims against the Escrow Shares have been
resolved, Parent shall cause its transfer agent to deliver to such Managing
Stockholders all of the Escrow Shares remaining in the Escrow Fund that are not
required to satisfy such claims and expenses. Each Managing Stockholder shall
receive that number of Escrow Shares equivalent to such Managing Stockholder's
percentage interest in the Escrow Fund as set forth in Annex F hereto.
(e) Any cash dividends, dividends payable in securities or
other distributions of any kind (but excluding any shares of Parent capital
stock received upon a stock split or stock dividend) shall be distributed as
promptly as practicable by Parent to the beneficial holder of the Escrow Shares
to which such distribution relates, by check mailed via first class mail, to the
Managing Stockholders at their respective addresses, and in the percentage
interests, set forth in Annex F. Any shares of Parent Common Stock issuable upon
a stock split in respect of any securities in the Escrow Fund shall be added to
the Escrow Fund and become a part thereof. Any provision of this Article X shall
be adjusted to appropriately reflect any stock split or reverse stock split.
(f) Each Managing Stockholder agrees to provide Parent, within
thirty (30) days after the date hereof, certified tax identification numbers by
furnishing an appropriate form W-9 and other forms and documents that Parent may
reasonably request (collectively, "Tax Reporting Documentation"). The parties
hereto understand that, if such Tax Reporting Documentation is not so certified
to Parent, Parent may be required by the Internal Revenue Code, as it may be
amended from time to time, to withhold a portion of the Escrow Fund or any
interest or other income earned on the investment of monies or other property
held by Parent pursuant to this Article X.
SECTION 10.05 Escrow Period
Parent shall release to the Managing Stockholders on a pro
rata basis any Escrow Shares remaining in the Escrow Fund on the date which is
eighteen (18) months following the Effective Time (the "Escrow Period");
provided, however, that the portion of the Escrow Shares that is necessary to
satisfy any unresolved claims on the Escrow Fund prior to termination of the
Escrow Period with respect to facts and circumstances existing prior to
expiration of the Escrow Period shall remain in the Escrow Fund until such
claims have been resolved.
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SECTION 10.06 Claims for Indemnification
(a) If an Indemnified Person shall have a claim for Damages
pursuant to Section 10.01 above, then such Indemnified Person shall deliver an
indemnity claim certificate signed, in the case of a Parent Indemnitee, by any
officer of such Parent Indemnitee or, in the case of a Stockholder Indemnitee,
by such Stockholder Indemnitee (an "Indemnity Claim Certificate"). Such
Indemnity Claim Certificate:
(i) shall state that the Damages threshold specified
in Section 10.02 above has been exceeded;
(ii) shall specify in reasonable detail the
individual items of such Damages included in the amount so stated, the date each
such item was paid, or properly accrued or arose, and the specific nature of the
misrepresentation or breach of representation, warranty, covenant or agreement
under this Agreement; and
(iii) if such claim is to be asserted against the
Escrow Fund, shall be delivered on or prior to the expiration of the Escrow
Period.
SECTION 10.07 Claims Upon Escrow Fund; Valuation of Shares
(a) If, within thirty (30) days from the date the Managing
Stockholders receive the Indemnity Claim Certificate (the "Escrow Notice
Period"), Parent has not received a written notice from the Managing
Stockholders objecting to and/or disputing the validity of the Damages set forth
in the Indemnity Claim Certificate (a "Response Notice"), then Parent shall
remove, for its benefit, or the benefit of the other Parent Indemnitees, such
Parent Common Stock held in the Escrow Fund having a value equal to the Damages
specified in the Indemnity Claim Certificate.
(b) Should Parent, however, receive a Response Notice from the
Managing Stockholders within the requisite Escrow Notice Period, then Parent
shall be allowed to remove from the Escrow Fund only such Parent Common Stock
having a value equal to the Damages set forth in the Indemnity Claim Certificate
as are not disputed by the Managing Stockholders, if any.
(c) In no circumstance shall Parent remove any Parent Common
Stock from the Escrow Fund, either for its benefit, or the benefit of the other
Parent Indemnitees, to satisfy any Damages set forth in a timely filed Indemnity
Claim Certificate which are disputed by the Managing Stockholders hereunder,
unless and until, the earlier of:
(i) Parent's receipt of a written authorization
executed by the requisite Parent Indemnitee(s) and one or all of the Managing
Stockholder(s), as the case may be; or
(ii) the resolution of such dispute by a court of
competent jurisdiction and, in the case of appeal, a court of last resort.
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(d) For the purpose of compensating the Parent Indemnitees
from the Escrow Shares held in the Escrow Fund, such Parent Common Stock shall
be valued at the average closing price per share of the Parent Common Stock on
the NNM for the ten (10) trading days immediately preceding the date any Escrow
Shares are removed from the Escrow Fund for the payment of such Damages.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.01 Duration of Survival of Representations and
Warranties
The representations and warranties set forth in Articles IV
and V and Section 7.04, other than Sections 4.09 (Employee Benefit Plans; Labor
Matters), 4.10 (Employee Matters), 4.14 (Environmental Matters) and 4.16 (Taxes)
which shall survive until the expiration of the applicable statute of
limitations, will survive until the last day of the eighteenth month following
the Effective Time. This Section 11.01 shall not limit any covenant or agreement
of the parties hereto that by its terms contemplates performance after the
Effective Time.
SECTION 11.02 Notices
All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or facsimile, by registered or certified mail (postage prepaid, return receipt
requested) or by a nationally recognized courier service to the respective
parties at the following addresses (or at such other address for a party as
shall be specified in a notice given in accordance with this Section 11.02):
(a) if to Company, the Managing Stockholders or EAI:
Afternic.com, Inc.
416 West 14th Street, Suite 403
New York, New York 10018
Attention: Chris Maroney and Jon Whelan
Telecopier: (212) 898-9064
with a copy to:
McDermott, Will & Emery
28 State Street, 33rd Floor
Boston, Massachusetts 02109-1775
Attention: Adolfo R. Garcia, P.C.
Telecopier: (617) 535-3800
(b) if to David W. Sampson:
72 Pye Brook Lane
Boxford, Massachusetts 01921
Telecopier: (978) 750-4538
with a copy to:
McDermott, Will & Emery
28 State Street, 33rd Floor
Boston, Massachusetts 02109-1775
Attention: Adolfo R. Garcia, P.C.
Telecopier: (617) 535-3800
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(c) if to Thomas V. Whelan:
18 Jersey Avenue
Spring Lake, New Jersey 07762
Telecopier: (732) 974-0730
(d) if to Parent or Merger Sub:
Register.com, Inc.
575 Eighth Avenue, Eleventh Floor
New York, New York 10018
Attention: Jack S. Levy, General Counsel
Telecopier: (212) 594-9448
with a copy to:
Brobeck, Phleger & Harrison LLP
1633 Broadway, 47th Floor
New York, New York 10019
Attention: Scott L. Kaufman, Esq.
Telecopier: (212) 586-7878
SECTION 11.03 Severability
If any term or other provision of this Agreement is deemed
invalid, illegal or incapable of being enforced by any rule of Law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the Merger is not affected in any manner materially adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner to the fullest extent
permitted by applicable Law in order that the Merger may be consummated as
originally contemplated to the fullest extent possible.
SECTION 11.04 Assignment; Binding Effect; Benefit
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 hereto. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Notwithstanding anything contained
in this Agreement to the contrary, other than Section 7.02 and Article X,
nothing in this Agreement, expressed or implied, is intended to confer on any
person other than the parties hereto or their respective successors and
permitted assigns any rights or remedies under or by reason of this Agreement.
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SECTION 11.05 Incorporation of Exhibits
The Parent Disclosure Schedule, the Company Disclosure
Schedule and all Annexes attached hereto and referred to herein are hereby
incorporated herein and made a part of this Agreement for all purposes as if
fully set forth herein.
SECTION 11.06 Governing Law
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of New York other than
conflict of laws principles thereof. Courts within the County of New York in the
State of New York will have jurisdiction over all disputes between the parties
hereto arising out of or relating to this agreement and the agreements,
instruments and documents contemplated hereby. The parties hereby consent to and
agree to submit to the jurisdiction of such courts. Each of the parties hereto
waives, and agrees not to assert in any such dispute, to the fullest extent
permitted by applicable law, any claim that (a) such party is not personally
subject to the jurisdiction of such courts, (b) such party and such party's
property is immune from any legal process issued by such courts or (c) any
litigation commenced in such courts is brought in an inconvenient forum.
SECTION 11.07 Waiver of Jury Trial
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL
BY JURY IN ANY PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION OR AGREEMENT
CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY HERETO IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
SECTION 11.08 Headings; Interpretation
The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties, and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any provisions of this Agreement.
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SECTION 11.09 Counterparts
This Agreement may be executed and delivered (including by
facsimile transmission) in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed and
delivered shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
SECTION 11.10 Entire Agreement
This Agreement (including the Annexes, the Parent Disclosure
Schedule and the Company Disclosure Schedule), the Trademark Agreement--NJ, the
Trademark Agreement--NY and any other agreements contemplated hereby constitute
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by Company, Parent, Merger Sub and each of the Stockholders.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement and Plan of Merger and Reorganization to be duly executed as of the
date first written above.
PARENT:
REGISTER.COM, INC.
By:/s/ Jack S. Levy
----------------------------------------
Name: Jack S. Levy
Title: General Counsel and Secretary
COMPANY:
AFTERNIC.COM, INC.
By:/s/ Jon Whelan
----------------------------------------
Name: Jon Whelan
Title: Co-CEO and President
MERGER SUB:
RCOM ACQUISITION CORP. II
By:/s/ Jack S. Levy
----------------------------------------
Name: Jack S. Levy
Title: General Counsel and Secretary
EXTRAACTIVE INCORPORATED
By:/s/ Chris Maroney
----------------------------------------
Name: Chris Maroney
Title: Co-CEO and President
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STOCKHOLDERS:
/s/ Jon Whelan
-------------------------------------------
Jon Whelan
/s/ Chris Maroney
-------------------------------------------
Chris Maroney
/s/ Thomas Whelan
-------------------------------------------
Thomas Whelan
/s/ David Sampson
-------------------------------------------
David Sampson
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