<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
SCHEDULE 13D
(RULE 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE
13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a)
(AMENDMENT NO. ___)(1)
HOTEL RESERVATIONS NETWORK, INC.
(NAME OF ISSUER)
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
441451101
(CUSIP NUMBER)
BRIAN M. LIDJI, ESQ.
SAYLES & LIDJI,
A PROFESSIONAL CORPORATION
4400 RENAISSANCE TOWER
1201 ELM STREET
DALLAS, TEXAS 75270
(214) 939-8700
----------------------------------------
(NAME, ADDRESS AND TELEPHONE OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS)
FEBRUARY 24, 2000
--------------------------
(DATE OF EVENT WHICH REQUIRES FILING OF THIS STATEMENT)
IF THE FILING PERSON HAS PREVIOUSLY FILED A STATEMENT ON SCHEDULE 13G
TO REPORT THE ACQUISITION WHICH IS THE SUBJECT OF THIS SCHEDULE 13D, AND IS
FILING THIS SCHEDULE BECAUSE OF RULE 13d-1(e), 13d-1(f) OR 13d-1(g), CHECK THE
FOLLOWING BOX [ ].
- ------------------
(1) THE REMAINDER OF THIS COVER PAGE SHALL BE FILLED OUT FOR A
REPORTING PERSON'S INITIAL FILING ON THIS FORM WITH RESPECT TO THE SUBJECT CLASS
OF SECURITIES, AND FOR ANY SUBSEQUENT AMENDMENT CONTAINING INFORMATION WHICH
WOULD ALTER DISCLOSURES PROVIDED IN A PRIOR COVER PAGE.
THE INFORMATION REQUIRED ON THE REMAINDER OF THIS COVER PAGE SHALL NOT
BE DEEMED TO BE "FILED" FOR THE PURPOSE OF SECTION 18 OF THE SECURITIES EXCHANGE
ACT OF 1934 OR OTHERWISE SUBJECT TO THE LIABILITIES OF THAT SECTION OF THE ACT
BUT SHALL BE SUBJECT TO ALL OTHER PROVISIONS OF THE ACT (HOWEVER, SEE THE
NOTES).
<PAGE> 2
SCHEDULE 13D
Cusip No. 441451101 Page 2 of 8 Pages
- --------------------------------------------------------------------------------
1. Name of Reporting Person and
SS or I.R.S. Identification No. of Above Person:
TMF Liquidating Trust
- --------------------------------------------------------------------------------
2. Check the appropriate box if a member of a group (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3. SEC Use Only.
- --------------------------------------------------------------------------------
4. Source of Funds SC
- --------------------------------------------------------------------------------
5. Check box if disclosure of legal proceedings is required
pursuant to Items 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization Texas
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power 9,754,905
Shares
--------------------------------------------------------------
Beneficially 8. Shared Voting Power -0-
Owned by
--------------------------------------------------------------
Each 9. Sole Dispositive Power 9,754,905
Reporting
--------------------------------------------------------------
Person 10. Shared Dispositive Power -0-
With
- --------------------------------------------------------------------------------
11. Aggregate amount beneficially owned by each reporting
person 9,754,905
- --------------------------------------------------------------------------------
12. Check box if the aggregate amount in row (11) excludes
certain shares [ ]
- --------------------------------------------------------------------------------
13. Percent of class represented by amount in row (11) 45.1%
- --------------------------------------------------------------------------------
14. Type of Reporting Person 00
- --------------------------------------------------------------------------------
<PAGE> 3
SCHEDULE 13D
Cusip No. 441451101 Page 3 of 8 Pages
- --------------------------------------------------------------------------------
1. Name of Reporting Person and
SS or I.R.S. Identification No. of Above Person:
David Litman
- --------------------------------------------------------------------------------
2. Check the appropriate box if a member of a group (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3. SEC Use Only.
- --------------------------------------------------------------------------------
4. Source of Funds SC
- --------------------------------------------------------------------------------
5. Check box if disclosure of legal proceedings is required
pursuant to Items 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization United States
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power 4,379,952
Shares
--------------------------------------------------------------
Beneficially 8. Shared Voting Power 497,501
Owned by
--------------------------------------------------------------
Each 9. Sole Dispositive Power 4,379,952
Reporting
--------------------------------------------------------------
Person 10. Shared Dispositive Power 497,501
With
- --------------------------------------------------------------------------------
11. Aggregate amount beneficially owned by each reporting
person 4,877,453
- --------------------------------------------------------------------------------
12. Check box if the aggregate amount in row (11) excludes
certain shares [ ]
- --------------------------------------------------------------------------------
13. Percent of class represented by amount in row (11) 22.6%
- --------------------------------------------------------------------------------
14. Type of Reporting Person IN
- --------------------------------------------------------------------------------
<PAGE> 4
SCHEDULE 13D
Cusip No. 441451101 Page 4 of 8 Pages
- --------------------------------------------------------------------------------
1. Name of Reporting Person and
SS or I.R.S. Identification No. of Above Person:
Robert Diener
- --------------------------------------------------------------------------------
2. Check the appropriate box if a member of a group (a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3. SEC Use Only.
- --------------------------------------------------------------------------------
4. Source of Funds SC
- --------------------------------------------------------------------------------
5. Check box if disclosure of legal proceedings is required
pursuant to Items 2(d) or 2(e) [ ]
- --------------------------------------------------------------------------------
6. Citizenship or Place of Organization United States
- --------------------------------------------------------------------------------
Number of 7. Sole Voting Power 4,604,315
Shares
--------------------------------------------------------------
Beneficially 8. Shared Voting Power 273,138
Owned by
--------------------------------------------------------------
Each 9. Sole Dispositive Power 4,604,315
Reporting
--------------------------------------------------------------
Person 10. Shared Dispositive Power 273,138
With
- --------------------------------------------------------------------------------
11. Aggregate amount beneficially owned by each reporting
person 4,877,453
- --------------------------------------------------------------------------------
12. Check box if the aggregate amount in row (11) excludes
certain shares [ ]
- --------------------------------------------------------------------------------
13. Percent of class represented by amount in row (11) 22.6%
- --------------------------------------------------------------------------------
14. Type of Reporting Person IN
- --------------------------------------------------------------------------------
<PAGE> 5
Page 5 of 8 Pages
SCHEDULE 13D
ITEM 1. SECURITY AND ISSUER.
This statement relates to the class A common stock, par value $0.01 per
share, of Hotel Reservations Network, Inc., a Delaware corporation (the
"Issuer"), the principal executive offices of which are located at 8140 Walnut
Hill Lane, Suite 203, Dallas Texas 75231.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This statement is filed by TMF Liquidating Trust (the "Trust"),
David Litman and Robert Diener.
(b) The business address of the Trust is 5521 Greenville Ave., PMB 540,
Suite 104, Dallas, Texas 75206-2925. The business address of Messrs. Litman and
Diener is 8140 Walnut Hill Lane, Suite 203, Dallas, Texas 75231.
(c) The Trust was created solely for the purpose of liquidating certain
property for the benefit of its beneficiaries. Mr. Litman is a Director and the
Chief Executive Officer of the Issuer and Mr. Diener is a Director and the
President and Treasurer of the Issuer. The Issuer's address is 8140 Walnut Hill
Lane, Suite 203, Dallas, Texas 75231. Messrs. Litman and Diener are co-trustees
of the Trust and, together with certain trusts for the benefit of their
children, are beneficiaries of the Trust.
(d) During the last five years, neither the Trust, Mr. Litman nor Mr.
Diener has been convicted in a criminal proceeding (excluding traffic violations
or similar misdemeanors).
(e) During the last five years, neither the Trust, Mr. Litman nor Mr.
Diener has been a party to any civil proceeding of a judicial or administrative
body of competent jurisdiction the result of which either the Trust, Mr. Litman
or Mr. Diener was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting or mandating activities subject to Federal
or State securities laws or finding violations with respect to such laws.
(f) The Trust was organized under the laws of the State of Texas. Both
Messrs. Litman and Diener are citizens of the United States.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
In May 1999, the predecessors to the Trust sold substantially all their
assets and liabilities to the Issuer. Under the terms of the asset purchase
agreement, the predecessors to the Trust were entitled to stock of the Issuer in
the event of an initial public offering and contingent cash payments over a
three-year period following the acquisition. The amount of these contingent
payments depended on the Issuer's performance for the twelve month periods
ending March 31, 2000, 2001 and 2002, respectively. In February 2000, the Issuer
and the Trust entered into an amended and restated asset purchase agreement
pursuant to which the Issuer's contingent cash payment obligations for the
twelve month periods ending March 31, 2001 and 2002 were extinguished in
exchange for the Issuer's agreement to issue to the Trust additional shares of
the Issuer's class A common stock. A total of 9,999,900 shares of the class A
common stock of the Issuer were acquired by the Trust prior to the initial
public offering of the Issuer's class A common stock pursuant to the
<PAGE> 6
Page 6 of 8 Pages
amended and restated agreement. Pursuant to an arrangement with a third-party
and a predecessor to the Trust, the Trust agreed to transfer 244,995 of those
shares of the Issuer's class A common stock to such party, subject, however, to
being forfeited by the party upon the occurrence of certain events prior to the
first anniversary of the Issuer's initial public offering. If those events
occur, the Trust will be entitled to receive those shares from the third party.
Also pursuant to that arrangement, the Trust agreed to transfer 255,000 shares
of the Issuer's class A common stock to that third party on the fourth
anniversary of the Issuer's initial public offering, unless such party elects to
receive a specified cash payment in lieu of all or a portion of those class A
shares. As a result of these transactions, the Trust is the holder of a total of
9,754,905 shares of the Issuer's class A common stock as of the date of this
report. The shares received from the Issuer have not been registered under the
Securities Act of 1933, as amended, and the Trust does not have the right to
cause such shares to be registered until the fourth anniversary of the Issuer's
initial public offering. All of the shares received, including those transferred
to the third party, are subject to contractual restrictions on resale or
transfer. Generally, no sales or transfers are permitted during the first year
following the Issuer's initial public offering. After the first anniversary of
the initial public offering, certain transfers are permitted to the Trust
beneficiaries and members of their families, and sales or other transfers may
occur for up to 1,714,966 of the total number of shares held by the Trust and
the third party. After the second anniversary of the initial public offering,
sales or other transfers may occur for up to an additional 489,990 shares. After
the third anniversary of the initial public offering, sales or other transfers
may occur for up to an additional 489,990 shares. After the fourth anniversary
of the initial public offering, all restrictions expire and the Trust has a one
time right to demand registration of all of the class A shares initially issued
to the Trust. Neither Mr. Litman nor Mr. Diener beneficially own any securities
of the Issuer other than as beneficiaries of the Trust.
ITEM 4. PURPOSE OF TRANSACTION.
The Trust acquired an aggregate of 9,754,905 shares of the Issuer's
class A common stock as described in Item 3 above. These shares were acquired
for investment purposes. The Trust may from time to time purchase additional
shares of class A common stock, either in brokerage transactions, in the
over-the-counter market or in privately negotiated transactions. Any decision to
increase the holdings in the Issuer will depend, however, on numerous factors,
including without limitation the price of the shares of class A common stock,
the terms and conditions relating to their purchase and sale and the prospects
and profitability of the Issuer, and general economic conditions. Subject to the
restrictions on the transferability of the shares held by the Trust, which are
described in Item 3 above, the Trust may also determine to dispose of some or
all of the class A common stock, depending on various similar considerations.
Except as stated above, the Trust does not have any present plans or proposals
which relate to or would result in any of the events listed in Item 4(a) through
(j) of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) The Trust beneficially owns an aggregate of 9,754,905 shares of
class A common stock, or approximately 45.1% of the outstanding shares of class
A common stock (based upon the Issuer's Registration Statement on Form S-1
(Registration No. 333-90601), which became effective on February 24, 2000), and
has sole voting and dispositive power with respect to all those shares. The
Trust acquired the shares pursuant to the transaction described in Item 3 above.
(b) (i) Mr. Litman is a co-trustee of the Trust and, along with certain
trusts for the benefit of his children, are the beneficiaries of 50% of the
Trust's assets. Accordingly, Mr. Litman may be deemed to beneficially own
4,877,453 shares of the Issuer's class A common stock, or approximately 22.6% of
the
<PAGE> 7
Page 7 of 8 Pages
outstanding shares of class A common stock (based upon the Issuer's Registration
Statement on Form S-1 (Registration No. 333-90601), which became effective on
February 24, 2000), and has sole voting and dispositive power with respect to
4,379,952 of those shares and shares voting and dispositive power with respect
to 497,501 of those shares. Mr. Litman disclaims beneficial ownership of all
other securities held by the Trust and the securities attributable to the trusts
for the benefit of his children, and this report shall not be deemed an
admission that Mr. Litman is the beneficial owner of those securities for any
purpose.
(b) (ii) Mr. Diener is a co-trustee of the Trust and, along with
certain trusts for the benefit of his children, are the beneficiaries of 50% of
the Trust's assets. Accordingly, Mr. Diener may be deemed to beneficially own
4,877,453 shares of the Issuer's class A common stock, or approximately 22.6% of
the outstanding shares of class A common stock (based on the Issuer's
Registration Statement on Form S-1 (Registration No. 333-90601), which became
effective on February 24, 2000) and has sole voting and dispositive power with
respect to 4,604,315 of those shares and shares voting and dispositive power
with respect to 273,138 of those shares. Mr. Diener disclaims beneficial
ownership of all other securities held by the Trust and the securities
attributable to the trusts for the benefit of his children, and this report
shall not be deemed an admission that Mr. Diener is the beneficial owner of such
securities for any purpose.
(c) The Trust acquired 9,754,405 shares of the Issuer's class A common
stock pursuant to the transaction described in Item 3 above.
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
See Item 3 above.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 - Joint Filing Agreement
Exhibit 2 - Amended and Restated Asset Purchase Agreement
<PAGE> 8
Page 8 of 8 Pages
SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: March 3, 2000
TMF LIQUIDATING TRUST
By:/s/ David Litman
-------------------------
David Litman, Co-Trustee
By:/s/ Robert Diener
-------------------------
Robert Diener, Co-Trustee
/s/ David Litman
----------------------------
David Litman
/s/ Robert Diener
----------------------------
Robert Diener
<PAGE> 9
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
Exhibit 1 - Joint Filing Agreement
Exhibit 2 - Amended and Restated Asset Purchase Agreement
</TABLE>
<PAGE> 1
EXHIBIT 1
JOINT FILING AGREEMENT
The undersigned hereby agree to the joint filing of the Schedule 13D to
which this Agreement is attached.
Dated: March 3, 2000
TMF LIQUIDATING TRUST
By:/s/ David Litman
-------------------------
David Litman, Co-Trustee
By:/s/ Robert Diener
----------------------------
Robert Diener, Co-Trustee
/s/ David Litman
----------------------------
David Litman
/s/ Robert Diener
----------------------------
Robert Diener
<PAGE> 1
EXHIBIT 2
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
by and among
HRN, INC.,
USA NETWORKS, INC.,
TMF, INC.,
HRN MARKETING CORP.,
ROBERT DIENER
and
DAVID LITMAN
--------------------------------
February 2, 2000
--------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Sale of Assets..............................................................1
1.1 Assets to be Sold..................................................1
1.2 Excluded Assets....................................................2
2. Assumption of Liabilities...................................................2
2.1 Liabilities Assumed by the Buyer...................................2
2.2 Liabilities Not Assumed by the Buyer...............................3
3. Purchase Price and Payment..................................................3
3.1 Purchase Price.....................................................3
3.2 Payment of Purchase Price..........................................3
3.3 Purchase Price Adjustment..........................................4
3.4 Purchase Price Allocation..........................................5
4. Closing.....................................................................5
5. Representations and Warranties of the Sellers and Diener and Litman.........5
5.1 Due Incorporation and Qualification; Capitalization................5
5.2 Certificate of Incorporation and By-laws...........................6
5.3 Financial Statements...............................................6
5.4 No Material Adverse Change.........................................6
5.5 Tax Matters........................................................6
5.6 Compliance with Laws...............................................7
5.7 Authority to Execute and Perform Agreements; Consents..............7
5.8 Litigation.........................................................8
5.9 Agreements.........................................................8
5.10 Real Estate........................................................9
5.11 Accounts and Notes Receivable......................................9
5.12 Tangible Property..................................................9
5.13 Intangible Property...............................................10
5.14 Liens.............................................................10
5.15 Indebtedness......................................................10
5.16 Liabilities.......................................................10
5.17 Suppliers and Customers...........................................11
5.18 Pension and Benefit Plans and Compliance with ERISA...............11
5.19 Insurance.........................................................12
5.20 Officers, Directors and Employees.................................12
5.21 Operations of the Seller..........................................13
5.22 Potential Conflicts of Interest...................................14
5.23 Environmental.....................................................14
5.24 Investments.......................................................14
5.25 Projections.......................................................14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.26 Entire Investment in the Business; No Other Businesses............14
5.27 Full Disclosure...................................................15
5.28 No Broker.........................................................15
5.29 Representations and Warranties on Closing Date....................15
6. Representations and Warranties of the Buyer................................15
6.1 Due Incorporation.................................................15
6.2 Corporate Power of the Buyer......................................15
6.3 No Broker.........................................................15
6.4 Representations and Warranties on Closing Date....................15
7. Covenants and Agreements...................................................16
7.1 Conduct of Business...............................................16
7.2 Insurance.........................................................16
7.3 Preservation of Business..........................................16
7.4 Litigation........................................................16
7.5 Continued Effectiveness of Representations and Warranties of the..16
7.6 Corporate Examinations and Investigations.........................16
7.7 Expenses of Sale..................................................17
7.8 Further Assurances................................................17
7.9 Additional Purchase Price.........................................17
7.10 Quarterly Deferred Payment........................................18
7.11 Participation Payment.............................................20
7.12 USAi Guaranty.....................................................22
7.13 Buyer's Allocation of Affiliate Overhead; Affiliate Transaction...22
7.14 Obligations Regarding Acquired Businesses.........................23
7.15 2000 Initial Public Offering......................................23
8. Conditions Precedent to the Obligation of the Buyer to Close...............27
8.1 Representations and Covenants.....................................27
8.2 Governmental Permits and Approvals................................28
8.3 Third Party Consents..............................................28
8.4 Opinion of Counsel to the Sellers.................................28
8.5 Litigation........................................................28
8.6 Escrow Agreement..................................................28
8.7 Hart-Scott-Rodino.................................................28
8.8 Landlord Estoppel Certificate.....................................28
8.9 Assignment of Lease...............................................28
8.10 Tax Returns.......................................................29
8.11 FIRPTA Affidavit..................................................29
9. Conditions Precedent to the Obligation of the Sellers to Close.............29
9.1 Representations...................................................29
9.2 Opinion of Counsel to the Buyer...................................29
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
9.3 Litigation........................................................29
9.4 Hart-Scott-Rodino.................................................29
10. Covenants of Robert Diener and David Litman................................29
10.1 Covenants Against Competition.....................................29
10.2 Rights and Remedies Upon Breach...................................30
10.3 Severability of Covenants.........................................31
10.4 Blue-Pencilling...................................................31
10.5 Enforceability in Jurisdictions...................................31
10.6 Shareholder Guaranty..............................................31
11. Survival of Representations and Warranties of the Sellers..................32
12. Indemnification............................................................32
12.1 Obligation of the Sellers and Diener and Litman to Indemnify......32
12.2 Obligation of Buyer to Indemnify..................................33
12.3 Notice to Indemnifying Party......................................33
12.4 Escrow Fund.......................................................34
12.5 Limitation on Indemnification.....................................34
12.6 Set-Off Rights....................................................34
13. Termination of Agreement...................................................34
13.1 Termination.......................................................34
13.2 Survival After Termination........................................35
14. Miscellaneous..............................................................35
14.1 Certain Definitions...............................................35
14.2 Publicity.........................................................39
14.3 Notices...........................................................39
14.4 Entire Agreement..................................................41
14.5 Waivers and Amendments............................................41
14.6 Governing Law.....................................................41
14.7 Consent to Jurisdiction and Service of Process....................41
14.8 No Assignment.....................................................42
14.9 Usage.............................................................42
14.10 Counterparts......................................................42
14.11 Exhibits and Schedules............................................42
14.12 Headings..........................................................42
</TABLE>
-iii-
<PAGE> 5
EXHIBITS
Exhibit A Bill of Sale
Exhibit B Purchase Note
Exhibit C Escrow Agreement
Exhibit D Receipt and Release of Claims
Exhibit E Letter of Representations
SCHEDULES
Schedule 1.2 Excluded Assets
Schedule 5.1 Due Incorporation and Qualification: Capitalization
Schedule 5.5 Tax Matters
Schedule 5.6 Permits
Schedule 5.7 Authority to Execute and Perform Agreements; Consents
Schedule 5.8 Litigation
Schedule 5.9 Agreements
Schedule 5.10 Real Estate
Schedule 5.12 Tangible Property
Schedule 5.13 Intangible Property
Schedule 5.15 Indebtedness
Schedule 5.16 Liabilities
Schedule 5.17 Suppliers and Customers
Schedule 5.18 Pension and Benefit Plans and Compliance with ERISA
Schedule 5.19 Insurance
Schedule 5.20 Officers, Directors and Employees
Schedule 5.21 Operations of the Sellers
Schedule 5.22 Potential Conflicts of Interest
Schedule 5.23 Environmental
Schedule 5.24 Investments
Schedule 7.10 Target Adjusted Gross Profit
Schedule 7.11.5 Calculation Schedule
Schedule 14.1(xvii) Calculation of Gross Profit
Schedule 14.1 (xxiv) Calculation of Net Working Capital
-iv-
<PAGE> 6
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of February 2, 2000, by and among HRN, Inc., a
Delaware corporation (the "BUYER"), USA Networks, Inc., a Delaware corporation
("USAI"), TMF LIQUIDATING TRUST, a Texas Trust (the "Trust"), TMF, INC., a Texas
corporation, HRN Marketing Corp., a Florida corporation (collectively, the
"SELLERS"), Robert Diener ("DIENER") and David Litman ("LITMAN"; and together
with Diener the "SHAREHOLDERS").
The Buyer, USAi, the Sellers and the Shareholders are parties to an
Asset Purchase Agreement, dated as of April 13, 1999 (the "ASSET PURCHASE
AGREEMENT").
On May 10, 1999, the Sellers assigned all of their rights under the
Asset Purchase Agreement to the Trust and the Trust assumed all of the Sellers'
obligations under the Asset Purchase Agreement.
The Buyer, USAi, the Trust, the Sellers and the Shareholders wish to
hereby amend and restate the Asset Purchase Agreement, with the understanding
that the effective dates of the provisions hereof (other than Section 7.15)
shall be as of April 13, 1999.
The Buyer wishes to purchase from the Sellers, and the Sellers wish to
sell to the Buyer, substantially all of the assets, properties, rights and
business of the Sellers, subject to certain liabilities, upon the terms and
conditions of this Agreement. The Shareholders and trusts for the benefit of
their families are the sole holders of all the issued and outstanding capital
stock of the Sellers. As an inducement to the Buyer to enter into this
Agreement, each Shareholder has (i) approved this Agreement and (ii) agreed to,
jointly and severally, guarantee all the obligations of the Sellers hereunder on
the terms and conditions provided herein.
Accordingly, the parties agree as follows:
1. SALE OF ASSETS.
1.1 ASSETS TO BE SOLD. Except as otherwise provided in Section
1.2, at the closing provided for in Section 4 (the "CLOSING"), the Sellers shall
sell, assign, transfer and deliver to the Buyer all of the assets, properties,
rights and business of the Sellers of every type and description, real, personal
and mixed, tangible and intangible, wherever located and whether or not
reflected on the books and records of the Sellers (all of such assets,
properties, rights and business being hereinafter sometimes collectively called
the "PURCHASED ASSETS"), including, without limitation:
(i) those assets, properties and rights reflected
on the audited balance sheet of the Sellers as at December 31, 1998 referred to
in Section 5.3 (the "BALANCE SHEET") (subject to changes in the ordinary course
of business therein through the Closing Date (as hereinafter defined)) or
otherwise referred to in this Agreement or any Schedule hereto;
(ii) the Sellers' list of customers and
subscriptions;
(iii) the Sellers' right to use the name "Hotel
Reservations Network" and all variants thereof;
-1-
<PAGE> 7
(iv) all of the Sellers' interest in and claims and
rights under contracts and other agreements, Permits (as hereinafter defined),
titles, copyrights and applications therefor which are referred to in this
Agreement or any Schedule hereto (subject to changes therein through the Closing
Date);
(v) the books and records of the Sellers relating
to the Purchased Assets;
(vi) the Sellers' rights in all domain names used
by the Sellers;
(vii) the goodwill of the Sellers; and
(viii) all other assets, properties, rights, claims,
entitlements and business of every kind and nature owned or held by the Sellers,
or in which the Sellers have an interest, on the Closing Date, known or unknown,
fixed or unfixed, inchoate, accrued, absolute, contingent or otherwise, whether
or not specifically referred to in this Agreement.
In confirmation of the foregoing sale, assignment and transfer, the Sellers
shall execute and deliver to the Buyer at the Closing a Bill of Sale in the form
of EXHIBIT A.
1.2 EXCLUDED ASSETS. Notwithstanding the foregoing, the
following assets are not included among the Purchased Assets and are excluded
from the sale and transfer provided in this Agreement:
(i) any counterclaims the Sellers may have
relating to the Worldcom Litigation, the Westinghouse Litigation or the Frontier
Litigation (each as defined in SCHEDULE 5.8); and
(ii) the personal effects of Diener and Litman and
other assets of the Sellers, described on SCHEDULE 1.2.
2. ASSUMPTION OF LIABILITIES.
2.1 LIABILITIES ASSUMED BY THE BUYER. In partial payment
of the Purchase Price (as defined in Section 3.1), the Buyer shall, subject to
Section 2.2, assume, as of the Closing Date, the following liabilities and
obligations of the Sellers to the extent existing on the Closing Date:
(i) all liabilities of the Sellers reflected on
the Balance Sheet; and
(ii) all liabilities and obligations under
contracts and other agreements to which the Sellers are a party or by or to
which they or their assets, properties or rights are bound or subject but only
insofar as are reflected in SCHEDULES 5.9, 5.10, 5.12, 5.13, 5.16 or 5.18; and
(iii) all liabilities and obligations of the Sellers
assumed or undertaken by the Sellers from the Balance Sheet Date through the
Closing Date in the ordinary course of business without violation of the
provisions of Sections 5.21 and 7.1.
The specific liabilities to be assumed by the Buyer pursuant to this Agreement
are hereinafter sometimes collectively referred to as the "ASSUMED LIABILITIES."
-2-
<PAGE> 8
2.2 LIABILITIES NOT ASSUMED BY THE BUYER. Anything in
this Agreement to the contrary notwithstanding, the Buyer shall not assume, or
in any way be liable or responsible for, any liabilities or obligations of the
Sellers except as specifically provided in Section 2.1. Without limiting the
generality of the foregoing, the Buyer shall not assume the following:
(i) any liability or obligation of the Sellers
arising out of or in connection with the negotiation and preparation of this
Agreement and the consummation and performance of the transactions contemplated
hereby, including without limitation on the foregoing, any tax liability so
arising and the fee of Donaldson, Lufkin & Jenrette referred to in Section 5.28;
(ii) any liability or obligation under contracts
and other agreements to which the Sellers are a party or by or to which they or
their assets, properties or rights are bound or subject which are not described
in SCHEDULES 5.9, 5.10, 5.12, 5.13, 5.16 or 5.18 or which are not entered into
by the Sellers from the date hereof through the Closing Date in the ordinary
course of business or which are otherwise in violation of the provisions of
Section 5.21 or 7.1;
(iii) liabilities with respect to Taxes, including
any contractual liability with respect to Taxes of another person, for any
taxable period or portion thereof ending on or before the Closing Date;
(iv) any liability or obligation of the Sellers to
the Shareholders or to their respective affiliates;
(v) any liability or obligation of the Sellers
arising out of or relating to any breach of a representation, warranty, covenant
or agreement of the Sellers contained herein;
(vi) any liability or obligation relating to the
Worldcom Litigation, Westinghouse Litigation or the Frontier Litigation (each as
defined in SCHEDULE 5.8); or
(vii) any liability or obligation relating to any
severance payment, change of control payment or other payment or obligation any
employee of the Sellers becomes entitled to as a result of the transaction
contemplated hereby.
3. PURCHASE PRICE AND PAYMENT.
3.1 PURCHASE PRICE. The aggregate purchase price for the
Purchased Assets (the "PURCHASE PRICE") shall be an amount equal to (i) $150
million (as adjusted pursuant to Section 3.3 below); (ii) the Quarterly Deferred
Payments, if any, provided in Section 7.10; (iii) the Additional Purchase
Payment, if any, provided in Section 7.9; (iv) the Participation Payment, if
any, provided in Section 7.11 and (v) the aggregate amount of the Assumed
Liabilities on the Closing Date.
3.2 PAYMENT OF PURCHASE PRICE. The Buyer shall pay the
Purchase Price by (i) payment to the Sellers as hereinafter provided
(the "PURCHASE PAYMENT") and (ii) the assumption by the Buyer of the Assumed
Liabilities. The Purchase Payment shall be paid by the Buyer as follows:
(i) at the Closing, the Buyer shall pay to the
Sellers by delivery of a promissory note, in the form attached hereto as EXHIBIT
B, payable to the Sellers in the stated principal amount of $150
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million and bearing interest at the rate of 4.75% (the "PURCHASE NOTE"), with a
payment of$145 million due the day after the Closing Date ($5 million of which
shall be paid to the Escrow Agent as provided in paragraph (ii) below) and $5
million due on January 30, 2000 (which shall be paid to the Escrow Agent as
provided in paragraph (ii) below). The Purchase Note shall be subject to any
adjustments described in Section 3.3 below; and
(ii) the Buyer shall pay to the escrow agent
("ESCROW AGENT") under the Escrow Agreement referred to in Section 8.6, (i) on
the day following the Closing Date, an aggregate of $5 million of the cash
payment due under the Purchase Note on such date in cash, and (ii) on January
30, 2000 $5 million of the cash payment due under the Purchase Note on such date
in cash, such amounts to be held and dealt with as provided in the Escrow
Agreement. Any such payment due in cash shall be made by wire transfer of
immediately available funds to an account designated in writing by the Sellers
or the Escrow Agent, as the case may be, at least two Business Days prior to the
due date of such payment.
3.3 PURCHASE PRICE ADJUSTMENT. (a) As soon as practicable
but in any event within ninety (90) days after the Closing Date, the Buyer shall
deliver to the Sellers a balance sheet of the Purchased Assets and Assumed
Liabilities dated as of the Closing Date (the "CLOSING DATE BALANCE SHEET"),
which Closing Date Balance Sheet shall (i) have been prepared by the Buyer in
accordance with GAAP applied consistently with the Financials (as defined
herein), and (ii) set forth the Net Working Capital of the Sellers as of the
Closing Date. The Sellers and their representatives shall have the right, during
normal business hours and upon reasonable request, to review all work papers and
procedures used to prepare the Closing Date Balance Sheet and to have reasonable
access to the Buyer's financial employees and accountants involved in the
determination of the Closing Date Balance Sheet and shall have the right to
perform reasonable procedures necessary to confirm the accuracy thereof.
(b) The Closing Date Balance Sheet shall become
final and binding on the Sellers and Buyer unless the Sellers notify the Buyer
in writing thirty (30) days after delivery of the Closing Date Balance Sheet and
specify therein the basis and reason for the dispute and the amount which is in
dispute. During a period of fifteen (15) days following the delivery of such
notice, the Buyer and the Sellers shall attempt to resolve any such dispute. If,
at the end of such fifteen (15) day period, the Buyer and the Sellers shall have
failed to reach agreement with respect to such dispute, the unresolved disputed
matters (the "DISPUTED MATTERS") shall be referred to PricewaterhouseCoopers or
if such firm declines to act in such capacity, any such other firm of
independent nationally recognized accountants chosen and mutually accepted by
both parties (the "ARBITRATOR") for resolution. The Arbitrator shall be
instructed to use every reasonable effort to make its determination with respect
to the Disputed Matters (the "ARBITRATOR'S WC DETERMINATION") within thirty (30)
days of the submission to it of the Disputed Matters. The Buyer shall give the
Arbitrator, during normal business hours and upon reasonable request, access to
all work papers and procedures used to prepare the Buyer's determination of the
Closing Date Balance Sheet and to the Buyer's financial employees and
accountants. The Arbitrator shall deliver the Arbitrator's WC Determination to
the Buyer and the Sellers. The final determination of the Net Working Capital of
the Sellers as of the Closing Date (the "FINAL CLOSING NET WORKING CAPITAL")
shall be the Net Working Capital set forth in the Closing Balance Sheet as
adjusted by any disputes resolved by the parties and by the Arbitrator's WC
Determination, if any. Each of the parties shall bear all costs and expenses
incurred by it in connection with such arbitration, and the fees of the
arbitrator shall be shared equally by the Buyer and the Sellers. This provision
for arbitration shall be specifically enforceable by the parties and the
decision of the Arbitrator in accordance with the provisions hereof shall be
final and binding and there shall be no right of appeal therefrom.
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(c) Within 10 days after the determination of the
Final Closing Net Working Capital in accordance with Section 3.3(b):
(i) if the Final Closing Net Working Capital
is greater than -$750,000, the Buyer shall pay to the Sellers, in immediately
available funds, the amount by which (A) the Final Closing Net Working Capital
exceeds (B) -$750,000; or, alternatively
(ii) if the Final Closing Net Working Capital
is less than -$750,000, the Sellers shall pay to the Buyer, in immediately
available funds, the amount by which (A) -$750,000 exceeds (B) the Final Closing
Net Working Capital.
3.4 PURCHASE PRICE ALLOCATION.
(i) The Purchase Price and Assumed Liabilities
shall be allocated among the Purchased Assets (A) in accordance with the values
reflected for such Purchased Assets on the Closing Date Balance Sheet (as
adjusted by any disputes resolved by the parties and by the Arbitrator's WC
Determination, if any), (B) $1 million to the covenants against competition
described in Section 10.1 and (C) the balance to intangible assets and goodwill.
(ii) For all Tax purposes, the Buyer and the
Sellers agree (A) to report the transactions contemplated by this Agreement in a
manner consistent with the terms of this Agreement, and (B) that none of them
will take any position inconsistent therewith in any Tax Return.
4. CLOSING. The Closing of the sale and purchase of the Purchased
Assets shall take place at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019, at 10:00 a.m.
local time, on the first Business Day following the day on which all the
conditions, other than conditions to be satisfied on that day, set forth in
Articles 8 and 9 are satisfied or waived by the party entitled to waive such
condition or at such other time and place as the Buyer and the Sellers mutually
agree in writing. The date upon which the Closing occurs is herein called the
"CLOSING DATE."
5. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND DIENER AND
LITMAN. Each of the Sellers, Diener and Litman, jointly and severally (subject
to the limitation on liability contained in Section 12.5), represent and warrant
to the Buyer as follows:
5.1 DUE INCORPORATION AND QUALIFICATION; CAPITALIZATION.
Each of the Sellers is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
all requisite corporate power and lawful authority to own, lease and operate its
assets, properties and business and to carry on its business as now conducted.
Each of the Sellers is qualified to transact business and is in good standing in
each jurisdiction in which the nature of its business or location of its
properties requires such qualification and in which the failure so to qualify
would have a Sellers Material Adverse Effect. For purposes of this Agreement,
"SELLERS MATERIAL ADVERSE EFFECT" shall mean a circumstance, fact, change,
development or effect (i) that would or could reasonably be expected to be
materially adverse to the properties, business, prospects, results of operations
or condition (financial or otherwise) of the Sellers, taken as a whole, or (ii)
that adversely effects the ability of the Sellers or the Shareholders to
consummate the transactions contemplated by this Agreement or the Escrow
Agreement in any material respect or materially impairs or delays the ability of
the Sellers or the Shareholders to effect the Closing. Each of the Sellers does
not own or lease property in any jurisdiction other
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than its jurisdiction of incorporation and the jurisdictions set forth on
SCHEDULE 5.1. The Shareholders, directly or indirectly as set forth on SCHEDULE
5.1, own beneficially and of record all of the issued and outstanding capital
stock of the Sellers free and clear of any lien. There is no outstanding right,
subscription, warrant, call, unsatisfied preemptive right, option or other
agreement of any kind to purchase or otherwise to receive from either of the
Sellers any capital stock of the Sellers.
5.2 CERTIFICATE OF INCORPORATION AND BY-LAWS. The copies
of the Certificate of Incorporation and By-laws of each of the Sellers, and all
amendments to each, which have been delivered to the Buyer are true, correct and
complete and in effect as of the date hereof.
5.3 FINANCIAL STATEMENTS. The balance sheets of the
Sellers as at December 31, 1996, December 31, 1997 and December 31, 1998, and
the related statements of income, retained earnings and changes in financial
position for the years then ended, including the footnotes thereto, certified by
Grant Thornton LLP, independent certified public accountants, which have been
delivered to the Buyer, fairly present the financial position of the Sellers as
at such dates and the results of its operations and the changes in its retained
earnings and its financial position for the years then ended in accordance with
GAAP consistently applied. Without limiting the foregoing, the revenue and
expense recognition policies used in preparation of the Balance Sheet are fully
consistent with each Sellers' past practices with respect thereto. (The
foregoing financial statements of the Sellers as at December 31, 1998 and for
the year then ended being sometimes herein called the "FINANCIALS," the balance
sheet included in the Financials being sometimes herein called the "BALANCE
SHEET" and December 31, 1998 being sometimes herein called the "BALANCE SHEET
DATE.")
5.4 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet
Date, there has been no change, development or effect that, together with all
other changes, developments or effects, individually or in the aggregate has had
a Sellers Material Adverse Effect, and neither the Sellers nor the Shareholders
knows of any such change which is threatened, nor has there been any damage,
destruction or loss materially affecting the assets, properties, business or
condition of either of the Sellers, whether or not covered by insurance.
5.5 TAX MATTERS.
(i) Each of the Sellers has timely filed or
caused to be filed all Tax Returns required to be filed with respect to each
Seller and has paid or provided for all deficiencies or other assessments of Tax
owed by it. All such Tax Returns are true, complete, and correct in all material
respects. Neither Seller's federal, state, or local Income Tax Returns have been
audited. No unassessed Tax deficiency has been proposed or threatened against
either Seller. Except as set forth on SCHEDULE 5.5, no audit of any Tax Return
of either Seller has been proposed, threatened, or is in progress. No extension
of time with respect to any date on which any Tax Return was or is to be filed
with respect to either Seller is in force, and no waiver or agreement by either
Seller is in force for the extension of time for the assessment or payment of
any Tax.
(ii) TMF, Inc. has properly elected under
section 1362(a) of the Code (and all similar provisions of state and local law)
to be treated as an S corporation, within the meaning of section 1361(a) of the
Code (and all similar provisions of state and local law) for all of its taxable
years from April 1, 1992 through December 31, 1993, and for all of its taxable
years beginning on or after December 31, 1996, and will continue to qualify as
an S corporation as described through the Closing Date. HRN Marketing Corp.
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has properly elected under section 1362(a) of the Code (and all similar
provisions of state and local law) to be treated as an S corporation, within the
meaning of section 1361(a) of the Code (and all similar provisions of state and
local law) for all of its taxable years beginning on or after August 17, 1998,
and will continue to qualify as an S corporation as described through the
Closing Date. Accordingly, the Sellers will have no liability for federal,
state, or local Income Taxes with respect to such periods, other than liability
under section 1374 of the Code (and all similar provisions of state and local
law) with respect to the transactions contemplated hereby.
(iii) During all taxable periods for which the
statute of limitations has not yet expired, (a) neither Seller was a member of
an affiliated group within the meaning of Treasury regulation Section 1.1502-1,
and (b) neither Seller's relevant taxable income was included in a consolidated,
combined, or unitary federal, state, local, or foreign Tax Return.
(iv) No claim has ever been made by a taxing
authority in a jurisdiction where the Sellers do not currently file Tax Returns
that the Sellers are or may be subject to taxation by such jurisdiction.
(v) The Sellers (a) are not required to make any
adjustment pursuant to section 481 of the Code (or similar provision of other
laws or regulations) by reason of a change in accounting method or otherwise,
(b) have no knowledge that the Internal Revenue Service or other taxing
authority has proposed any such adjustment or change in accounting method which
proposal is currently pending, and (iii) do not have an application pending with
any taxing authority requesting permission for any change in accounting methods
that relates to their business and operations.
(vi) Neither Seller has been a United States real
property holding corporation within the meaning of section 897(c)(2) of the Code
during the applicable period specified in section 897(c)(1)(A)(ii).
(vii) No payment that will, or may, be made by
either Seller to any employee, former employee, officer, director, or agent
thereof will be characterized as an "excess parachute payment" within the
meaning of section 280G of the Code.
(viii) Neither Seller has filed a consent under
section 341(f) of the Code or any comparable provision of state or other revenue
statutes.
5.6 COMPLIANCE WITH LAWS. The Sellers have complied with
all material federal, state, county, local and foreign laws, ordinances,
regulations and orders applicable to them or their business. Except as set forth
in SCHEDULE 5.6, no license, permit, order or approval of any governmental or
regulatory body (collectively the "PERMITS") is material to or necessary for the
conduct of the business of the Sellers. All Permits of the Sellers are set forth
on SCHEDULE 5.6 and are in full force and effect, no violations are or have been
recorded in respect of any Permit and no proceeding is pending, or to the
knowledge of the Sellers threatened, to revoke or limit any Permit.
5.7 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS;
CONSENTS. The Sellers have the full legal right and power and all authority and
approval required to enter into, execute and deliver this Agreement and the
Escrow Agreement and to perform fully the Sellers' obligations hereunder and
thereunder. Each of this Agreement and the Escrow Agreement has been duly
executed and delivered and
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constitutes the legally valid and binding obligation of the Sellers and the
Shareholders enforceable against the Sellers and the Shareholders in accordance
with its terms. No approval or consent of any foreign, federal, state, county,
local or other governmental or regulatory body, and, except as set forth on
SCHEDULE 5.7 hereto, no approval or consent of any other person is required in
connection with the execution and delivery by the Sellers and the Shareholders
of this Agreement and the Escrow Agreement and the consummation and performance
by the Sellers and the Shareholders of the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Escrow Agreement,
the consummation of the transactions contemplated under this Agreement and the
Escrow Agreement, and the performance by the Sellers and the Shareholders of
this Agreement and the Escrow Agreement in accordance with their respective
terms and conditions will not conflict with or result in the breach or violation
of any of the terms or conditions of, or constitute (or with notice or lapse of
time or both would constitute) a default under, (i) the Articles of
Incorporation or By-Laws of either of the Sellers; (ii) any instrument, contract
or other agreement by or to which either Seller or either Shareholder is a party
or by or to which it or their or its or their assets or properties are bound or
subject; (iii) any statute or any regulation, order, judgment or decree of any
court or governmental or regulatory body; or (iv) any Permit.
5.8 LITIGATION. Except as set forth on SCHEDULE 5.8, the
Sellers are not a party to, or to the Sellers' knowledge, threatened with, any
claim, action, suit, complaint, demand, litigation or judicial, administrative
or arbitration proceeding which would, or could reasonably be expected to, have
a Sellers Material Adverse Effect. Except as set forth on SCHEDULE 5.8, the
Sellers do not know of any dispute with any person under contract with the
Sellers which materially and adversely affects, or may cause a Sellers Material
Adverse Effect.
5.9 AGREEMENTS. SCHEDULE 5.9 sets forth all of the
following contracts and other agreements to which the Sellers are a party or by
or to which they or their assets or properties are bound or subject: (i)
contracts and other agreements with any current officer, director, employee,
consultant or shareholder; (ii) agreement with any labor union or association
representing any employee; (iii) contracts and other agreements for the sale of
hotel rooms or other materials, supplies, equipment, merchandise or services;
(iv) contracts and other agreements for the purchase, acquisition or allocation
of hotel rooms, materials, supplies, equipment, merchandise or services; (v)
copyright licenses, royalty agreements or similar contracts; (vi)
distributorship, depository, representative, management, marketing, sales
agency, printing or advertising agreements; (vii) contracts and other agreements
for the sale of any of its assets or properties other than in the ordinary
course of business or for the grant to any person of any preferential rights to
purchase any of its assets or properties; (viii) joint venture agreements
relating to the assets, properties or business of the Sellers or by or to which
it or its assets or properties are bound or subject; (ix) contracts or other
agreements under which it agrees to indemnify any party, to share the tax
liability of any party or to refrain from competing with any party; (x) any
contract or agreement containing any noncompete provision; (xi) any contract or
agreement providing the Sellers or any other person with a right to be the
exclusive provider of specified goods or services; (xii) any contract or
agreement containing any "most favored nation" type provision; (xiii) any
contract or agreement terminable, requiring a consent, or resulting in any
acceleration of rights thereunder upon a change of control of the Sellers; or
(xiv) any other material contract or other agreement whether or not made in the
ordinary course of business (other than those reflected on SCHEDULES 5.10, 5.12,
5.13 AND 5.18). All of the contracts and other agreements set forth on SCHEDULE
5.9 or elsewhere referred to in this Agreement are in full force and effect and
the Sellers have paid in full or accrued all amounts due thereunder and have
satisfied in full or provided for all of its liabilities and obligations
thereunder, and are not in default under any of them, nor, to either Seller's
knowledge, is any other party to any such contract or other agreement in default
thereunder, nor does any condition exist which
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with notice or lapse of time or both would constitute a default thereunder.
Except as separately identified on SCHEDULE 5.9, to Sellers' knowledge, neither
Seller is a party to or is bound by any contract or other agreement which either
individually or in the aggregate would cause a Sellers Material Adverse Effect
if either Seller were to be in default thereunder and any such default remained
uncured by either Seller or which was entered into other than in the ordinary
course of its business. Except as separately identified on SCHEDULE 5.9, other
than with respect to the contracts set forth on section (iv) of SCHEDULE 5.9, no
approval or consent of any person is needed in order that the contracts or other
agreements set forth on SCHEDULE 5.9 and other Schedules hereto continue in full
force and effect following the consummation of the transactions contemplated by
this Agreement. With respect to the contracts and agreements referred to in
Section 5.9(iv), except as separately identified on Schedule 5.9(iv), no
approval or consent of any person is needed in order that the contracts or other
agreements that comprise the top 20 (by revenue generated) of such contracts or
agreements continue in full force and effect following the consummation of the
transactions contemplated by this Agreement.
5.10 REAL ESTATE. Neither Seller owns any real property.
SCHEDULE 5.10 sets forth a list of (i) all leases, subleases or other agreements
and all amendments or modifications thereto (the "LEASES") under which either
Seller is lessor or lessee of any real property; (ii) all options held by either
Seller or contractual obligations on the part of either Seller to purchase or
acquire any interest in real property and all amendments or modifications
thereto; and (iii) all options granted by either Seller or contractual
obligations on the part of either Seller to sell or dispose of any interest in
real property and all amendments or modifications thereto (the options referred
to in clauses (ii) and (iii) above, collectively, the "OPTIONS"). The Sellers
are the lessee under the Leases or holder or grantor of the Options, as the case
may be, as set forth on SCHEDULE 5.10. The Leases are in full force and effect
and neither Seller has received any notice of any default thereunder, and no
termination event or condition exists thereunder. Each Seller has delivered to
Buyer true and correct copies of the Options and Leases. The Options are in full
force and effect subject to no lien or other encumbrance. The Sellers' leasehold
interests are subject to no lien, title defect, or other encumbrance and no
underlying mortgage, lease or other interest which is superior to Sellers'
interest to such leasehold exists other than landlord liens. Sellers have no
ownership or financial interest in the landlord under any Lease or the holders
of any Option. All of the land, buildings, or other improvements used by Sellers
in connection with the business of Sellers is included in the Leases. All water,
gas, electric, sanitary and sewage lines and systems and other similar systems
are sufficient to enable the real property leased under the Leases to be
operated as currently used and enter such property from an adjacent public
street or valid easement. The real property leased pursuant to the Leases have
direct access to a street.
5.11 ACCOUNTS AND NOTES RECEIVABLE. All accounts and notes
receivable reflected on the Balance Sheet and all accounts and notes receivable
arising subsequent to the Balance Sheet Date, have arisen in the ordinary course
of business, represent valid obligations to the Sellers and, subject only to
reserves for bad debts calculated consistent with past practice, have been
collected or are collectible in the aggregate recorded amounts thereof in
accordance with their terms. All items which are required by GAAP to be
reflected as accounts and notes receivable on the Financials and on the books of
the Sellers are so reflected.
5.12 TANGIBLE PROPERTY. SCHEDULE 5.12 sets forth all
interests owned or claimed by the Sellers (including, without limitation,
options) in or to the plant, machinery, equipment, furniture, leasehold
improvements, fixtures, vehicles, structures, any related capitalized items and
other tangible property, including, without limitation, all computer and
telecommunications equipment, material to the business of the Sellers and which
is treated by the Sellers as depreciable or amortizable property not reflected
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on the Balance Sheet and not sold or disposed of in the ordinary course of
business since the Balance Sheet Date ("TANGIBLE PROPERTY"). All material
leases, conditional sale contracts, franchises or licenses pursuant to which the
Sellers may hold or use any interest owned or claimed by it (including, without
limitation, options) in or to Tangible Property are in full force and effect
and, with respect to the Sellers' performance thereunder, there is no default or
event of default or event which with notice or lapse of time or both would
constitute a default. The Tangible Property of the Sellers is in good operating
condition and repair, and the Sellers have received no notice that any of it is
in violation of any existing law or any building, zoning, health, safety or
other ordinance, code or regulation. During the past three years there has not
been any significant interruption of the Sellers' operations due to inadequate
maintenance of the Tangible Property.
5.13 INTANGIBLE PROPERTY. SCHEDULE 5.13 sets forth all
patents, trademarks, service marks, trade names, internet assets (including, but
not limited to, the Sellers' websites), trade secrets, domain names, software
and franchises and other proprietary rights, all applications for any of the
foregoing, and all permits, grants and licenses or other rights running to or
from the Sellers relating to any of the foregoing which are material to its
business. Except as set forth on SCHEDULE 5.13, the rights of the Sellers in the
property set forth on SCHEDULE 5.13 are free and clear of any liens or other
encumbrances. Except as set forth on SCHEDULE 5.13, the Sellers have no notice
of any adversely held patent, invention, trademark, service mark or trade name
of any other person or notice of any claim of any other person relating to any
of the property set forth on SCHEDULE 5.13 or any process or confidential
information of the Sellers, and the Sellers do not know of any basis for any
such charge or claim.
5.14 LIENS. The Sellers own outright and have good and
marketable title to all of their assets and properties, including, without
limitation, all of the assets and properties reflected on the Balance Sheet, in
each case free and clear of any lien or other encumbrance, except for (i) assets
and properties disposed of, or subject to purchase or sales orders, in the
ordinary course of business since the Balance Sheet Date; (ii) liens or other
encumbrances securing taxes, assessments, governmental charges or levies, or the
claims of materialmen, carriers, landlords and like persons, which are not yet
due and payable; or (iii) minor liens or other encumbrances of a character which
do not substantially impair the assets or properties of the Sellers or
materially detract from its business.
5.15 INDEBTEDNESS. All Indebtedness (as herein defined)
of the Sellers as at the Balance Sheet Date is set forth in the Financials.
SCHEDULE 5.15 sets forth a true and correct aged list of all accounts payable of
the Sellers as of the end of the month prior to the date hereof in excess of
$50,000 to any one payee. No account payable of the Sellers which has arisen
subsequent to the end of the month prior to the date hereof has exceeded
$50,000. All Indebtedness reflected in the Financials or on SCHEDULE 5.15 or
which has arisen after the Balance Sheet Date has arisen in the ordinary course
of business and represents valid Indebtedness of the Sellers. As used herein,
the term "INDEBTEDNESS" means all items which, in accordance with GAAP, would be
reflected on a balance sheet of the Sellers created during the existence of such
item.
5.16 LIABILITIES. As at the Balance Sheet Date, except as
set forth on SCHEDULE 5.16, the Sellers do not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, known or unknown, fixed or unfixed, inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise,
including, without limitation, liabilities on account of Taxes, other
governmental charges or lawsuits brought, whether or not of a kind required by
GAAP to be set forth on a financial statement, ("LIABILITIES"), which were not
fully and adequately reflected on the Financials or SCHEDULE 5.16. Except as
listed on SCHEDULE 5.16, the Sellers do not
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have any Liabilities, other than (i) Liabilities fully and adequately reflected
on the Financials and (ii) those incurred since the Balance Sheet Date in the
ordinary course of business. The Sellers have no knowledge of any circumstances,
conditions, events or arrangements which may hereafter give rise to any
Liabilities of the Sellers or any successor to the business of the Sellers
except in the ordinary course of business or as otherwise set forth on SCHEDULE
5.16.
5.17 SUPPLIERS AND CUSTOMERS. No single supplier, customer
or distributor (including travel agents, travel clubs and affiliate's websites)
is of material importance to the business of the Sellers. The relationships of
the Sellers with its suppliers, customers and distributors are good commercial
working relationships and, except as set forth on SCHEDULE 5.17, no supplier,
customer or distributor of the Sellers has canceled or otherwise terminated, or
threatened in writing to cancel or otherwise terminate, its relationship with
the Sellers or has during the last 12 months decreased materially, or threatened
to decrease or limit materially, its services, supplies or materials to the
Sellers or its usage of the Sellers' services or products, as the case may be.
The Sellers do not have any notice that any such supplier, customer or
distributor intends to cancel or otherwise modify its relationship with the
Sellers or to decrease materially or limit its services, supplies or materials
to the Sellers or its usage of the services or products of the Sellers, and the
acquisition of the Purchased Assets by the Buyer will not, to the best of
Sellers' knowledge, adversely affect the relationship of the Buyer (as successor
to the business of the Sellers) with any such supplier, customer or distributor.
5.18 PENSION AND BENEFIT PLANS AND COMPLIANCE WITH ERISA.
(a) SCHEDULE 5.18 identifies each employment,
severance or similar contract or arrangement and each plan, policy, fund,
program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance coverage (including any self-insured arrangements) health or medical
benefits, disability benefits, worker's compensation, supplemental unemployment
benefits, severance benefits and post-employment or retirement benefits
(including compensation, pension, health, medical or life insurance or other
benefits) under which the Sellers have or in the future could have any liability
("BENEFIT PLANS"). There is no Benefit Plan which (i) is a multiemployer plan
(within the meaning of Section 3(37) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), (ii) is a plan, other than a multiemployer
plan, subject to Title IV of ERISA (a "TITLE IV PLAN") or (iii) is maintained in
connection with any trust described in section 501(c)(9) of the Code.
(b) The Sellers have furnished to the Buyer
copies of the Benefit Plans (and, if applicable, related trust agreements) and
all amendments thereto and written interpretations thereof together with the
most recent annual report (Form 5500 including, if applicable, Schedule B
thereto), the most recent actuarial valuation report prepared in connection with
any Benefit Plan, and the most recent IRS determination letter received with
respect to any Benefit Plan.
(c) No transaction prohibited by Section 406 of
ERISA or section 4975 of the Code, has occurred with respect to any employee
benefit plan or arrangement which is covered by Title I of ERISA which
transaction has or will cause the Sellers or any of its subsidiaries to incur
any liability under ERISA, the Code or otherwise, excluding transactions
effected pursuant to and in compliance with a statutory or administrative
exemption.
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(d) Each Benefit Plan that is intended to be
qualified under section 401(a) of the Code is so qualified and has been so
qualified during the period since its adoption; each trust created under any
such Plan is exempt from tax under section 501(a) of the Code and has been so
exempt since its creation. Each Benefit Plan has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations, including but not limited to
ERISA and the Code.
(e) Neither of the Sellers has any current or
projected liability in respect of post- employment or post-retirement health or
medical or life insurance benefits for retired, former or current employees of
the Sellers, except as required under applicable law.
(f) There is no contract, plan or arrangement
(written or otherwise) covering any employee or former employee of either Seller
that, individually or collectively, could give rise to the payment of any amount
that would not be deductible pursuant to the terms of section 280G of the Code.
(g) Except as set forth on SCHEDULE 5.18, no
employee or former employee of either Seller or any subsidiary will become
entitled to any bonus, retirement, severance, job security or similar benefit or
enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby.
(h) There are no unfunded obligations under any
Benefit Plan which are not fully reflected on the most recent Financials of the
Sellers.
5.19 INSURANCE. SCHEDULE 5.19 sets forth all policies or
binders of fire, liability, workmen's compensation, vehicular or other insurance
held by or on behalf of the Sellers (specifying the insurer, the policy number
or covering note number with respect to binders, and describing each pending
claim thereunder). Such policies and binders are in full force and effect.
Neither Seller is in default with respect to any provision contained in any such
policy or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Except for claims set
forth on SCHEDULE 5.19, there are no outstanding unpaid claims under any such
policy or binder. Except as set forth on Schedule 5.19 the Sellers have not made
any claims under any such policy or binder during the last two years. The
Sellers have not received a notice of cancellation or non-renewal of any such
policy or binder. The Sellers have no knowledge of any inaccuracy in any
application for such policies or binders, any failure to pay premiums when due
or any similar state of facts which might form the basis for termination of any
such insurance.
5.20 OFFICERS, DIRECTORS AND EMPLOYEES. (a) SCHEDULE 5.20
sets forth the name and total compensation of each officer, director, employee,
consultant or agent of each Seller who is among the top twenty (20) highest
compensated officers, directors, employees, consultants and agents of each
Seller.
(b) SCHEDULE 5.20 lists as the date hereof the
number of employees of the Sellers in the aggregate, the number of full-time
personnel and the number of contract workers of the Sellers. None of the
employees of the Sellers is represented by a union, and no union organizing
efforts have been conducted within the last five years or are now being
conducted. The Sellers have not had at any time during the last five years, nor
to the knowledge of the Sellers is there now threatened, a strike, picket, work
stoppage, work slowdown or other labor dispute.
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5.21 OPERATIONS OF THE SELLERS. Except as set forth on
SCHEDULE 5.21, from the Balance Sheet Date through the date hereof the neither
Seller has:
(i) amended Articles of Incorporation or By-Laws
or merged with or into or consolidated with any other person, or changed or
agreed to change in any manner the character of business;
(ii) entered into or amended any employment
agreement, entered into any agreement with any labor union or association
representing any employee or entered into or amended any Benefit Plan;
(iii) incurred any indebtedness for borrowed money;
(iv) declared or paid any dividends or declared or
made any distributions of any kind or any other payments to the Shareholders;
(v) reduced its cash or short-term investments or
their equivalent, other than to meet cash needs arising in the ordinary course
of business, consistent with past practices;
(vi) waived any right of material value to its
business;
(vii) made any change in its accounting methods or
practices or made any change in depreciation or amortization policies or rates
adopted by it;
(viii) materially changed any of its business
policies, including, without limitation, advertising, marketing, pricing,
purchasing, personnel, sales, returns, budget or product acquisition policies;
(ix) other than in the ordinary course of business
and consistent with past practice, made any wage or salary increase or bonus, or
increase in any other direct or indirect compensation, for or to any officer,
director, employee, consultant or agent of either Seller, or any accrual for or
commitment or agreement to make or pay the same, other than to persons not
officers, directors or shareholders of the Sellers made in the ordinary course
of business;
(x) made any loan or advance to any of its
officers, directors, employees, consultants, agents or shareholders, other than
travel advances made in the ordinary course of business;
(xi) made any payment or commitment to pay any
severance or termination pay to any of its officers, directors, employees,
consultants or agents, other than to persons not officers, directors or
shareholders of the Sellers made in the ordinary course of business;
(xii) except in the ordinary course of business,
entered into any lease (as lessor or lessee); sold, abandoned or made any other
disposition of any of its assets or properties; granted or suffered any lien or
other encumbrance on any of its assets or properties; entered into or amended
any contract or other agreement to which it is a party or by or to which it or
its assets or properties are bound or subject or pursuant to which it agrees to
indemnify any party or refrain from competing with any party;
(xiii) except in the ordinary course of business,
incurred or assumed any debt, obligation or liability (whether absolute or
contingent and whether or not currently due and payable);
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(xiv) except for inventory or equipment acquired in
the ordinary course of business, made any acquisition of all or any part of the
assets, properties, capital stock or business of any other person; or
(xv) except in the ordinary course of business,
entered into, amended, modified or canceled any other material contract or other
agreement or other material transaction.
5.22 POTENTIAL CONFLICTS OF INTEREST. Except as disclosed
on SCHEDULE 5.22, neither Shareholder, nor any Shareholder Relative (as defined
below) nor any officer or director of the Sellers nor their respective
affiliates (i) owns, directly or indirectly, any interest in (excepting not more
than 1% stock holdings for investment purposes in publicly traded securities),
or is an officer, director, employee or consultant of any person which is a
competitor, lessor, lessee, customer or supplier of the Sellers; (ii) owns,
directly or indirectly, in whole or in part, any copyright, trademark, trade
name, service mark, franchise, patent, invention, permit, license or secret or
confidential information or any other property which the Sellers are using or
the use of which is necessary or in the ordinary course of business useful for
the business of the Sellers; or (iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Sellers, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued benefits
under Benefit Plans and similar matters and agreements existing on the date
hereof. Except as disclosed on SCHEDULE 5.22, there are no contracts, licenses,
leases or other agreements of any nature between the Sellers, on the one hand,
and either of the Shareholders, or any Shareholder Relative, on the other hand.
"SHAREHOLDER RELATIVE" means any parent, grandparent, child, grandchild, niece,
nephew, or spouse or former spouse or any of their respective affiliates of
either Shareholder or any entity controlled by, or established for the benefit
of, one or more of the foregoing.
5.23 ENVIRONMENTAL. Except as disclosed on SCHEDULE 5.23,
each Seller (i) is and has been in compliance with all applicable Safety and
Environmental Laws; (ii) there is no Environmental Claim pending or threatened
against either Seller and there is no civil, criminal or administrative judgment
or notice of violation against either Seller pursuant to Safety and
Environmental Laws or principles of common law relating to pollution, protection
of the Environment or health and safety; and (iii) there are no past or present
events, conditions, circumstances, activities, practices, incidents, agreements,
actions or plans which may prevent compliance with Safety and Environmental
Laws, or which have given rise to or will give rise to an Environmental Claim or
to environmental compliance costs.
5.24 INVESTMENTS. Set forth on SCHEDULE 5.24 hereto is a
complete and accurate list of all Investments held by the Sellers showing the
amount, obligor or issuer and maturity, if any thereof. Except as set forth on
SCHEDULE 5.24, the Sellers do not own any interest in any other person.
5.25 PROJECTIONS. The projections relating to operations
of the Sellers during the fiscal year ending December 31, 1999 (the
"PROJECTIONS"), heretofore delivered by the Sellers to the Buyer and dated March
17, 1999, have been prepared in good faith on a reasonable basis. Nothing has
come to the attention of the Sellers or either of the Shareholders to indicate
that the Projections or the assumptions upon which they are based are not
reasonable.
5.26 ENTIRE INVESTMENT IN THE BUSINESS; NO OTHER
BUSINESSES. The Purchased Assets constitute all the rights, interests and other
assets necessary to conduct the business of the Sellers in substantially the
same manner as it has been heretofore conducted. The Sellers have never been
involved in any other business other than the direct marketing of hotel rooms to
consumers through
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<PAGE> 20
telephonic orders and internet access (the "BUSINESS") and except for the
Investments listed on SCHEDULE 5.24, has never owned any asset, conducted any
business or incurred any liability, not directly related to the Business.
5.27 FULL DISCLOSURE. This Agreement and the Schedules
hereto and the Escrow Agreement are to the Sellers' knowledge after due inquiry
true, complete and authentic; and all contracts and other agreements or
instruments included thereunder are valid, subsisting and binding on the parties
thereto in accordance with their terms. This Agreement and the Schedules hereto
and the Escrow Agreement do not contain any untrue statement of a material fact
and do not omit to state any material fact necessary to make the statements
made, in the context in which made, not false or misleading. There is no fact
which the Sellers have not disclosed to the Buyer in this Agreement or the
Schedules hereto which would or could reasonably be expected to cause a Sellers
Material Adverse Effect.
5.28 NO BROKER. Except for Donaldson, Lufkin & Jenrette,
whose fees and expenses shall be the sole responsibility of the Sellers, no
broker, finder, agent or similar intermediary has acted for or on behalf of the
Sellers in connection with this Agreement or the transactions contemplated
hereby, and no broker, finder, agent or similar intermediary is entitled to any
broker's, finder's or similar fee or other commission in connection therewith
based on any agreement, arrangement or understanding with the Sellers or any
action taken by the Sellers.
5.29 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties contained in this Section 5 shall be true and
complete on and as of the Closing Date with the same force and effect as though
such representations and warranties had been made on and as of the Closing Date.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer
represents and warrants to the Sellers as follows:
6.1 DUE INCORPORATION. The Buyer is duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and lawful authority to own its assets and
properties and to carry on its business as now conducted.
6.2 CORPORATE POWER OF THE BUYER. The Buyer has the full
legal right and power and all authority and approval required to enter into,
execute and deliver this Agreement and the Escrow Agreement, and to perform
fully its obligations under this Agreement and the Escrow Agreement. Each of
this Agreement and the Escrow Agreement has been duly executed and delivered and
is the valid and binding obligation of the Buyer enforceable in accordance with
its terms.
6.3 NO BROKER. No broker, finder, agent or similar
intermediary has acted for or on behalf of the Buyer in connection with this
Agreement or the transactions contemplated hereby, and no broker, finder, agent
or similar intermediary is entitled to any broker's, finder's, or similar fee or
other commission in connection therewith based on any agreement, arrangement or
understanding with the Buyer or any action taken by the Buyer.
6.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The
representations and warranties contained in this Section 6 shall be true and
complete on and as of the Closing
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<PAGE> 21
Date with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date
7. COVENANTS AND AGREEMENTS. The parties covenant and agree as
follows:
7.1 CONDUCT OF BUSINESS. From the date hereof through the
Closing Date, the Sellers shall conduct their business in the ordinary course
consistent with past practice and, without the prior written consent of the
Buyer, (i) shall not take or agree or commit to take any of the actions
specified in Section 5.21 or (ii) make (including by extension or rollover) any
new Investment. Notwithstanding the foregoing, the Sellers may declare and pay
dividends to the Shareholders and the Trusts prior to the Closing.
7.2 INSURANCE. From the date hereof through the Closing
Date, the Sellers shall maintain in force (including necessary renewals thereof)
the insurance policies listed on Schedule 5.19 hereto, except to the extent that
they may be replaced with equivalent policies appropriate to insure the assets,
properties and business of the Sellers to the same extent as currently insured
at the same or lower rates or at rates approved by the Buyer.
7.3 PRESERVATION OF BUSINESS. From the date hereof
through the Closing Date, the Sellers shall use their best efforts to preserve
their business organizations intact, keep available the services of their
present officers, employees, consultants and agents, maintain their present
suppliers and customers and preserve and enhance their goodwill and the
Shareholders shall not take any action inconsistent with the foregoing.
7.4 LITIGATION. The Sellers shall promptly notify the
Buyer of any lawsuits, claims, proceedings or investigations which after the
date hereof are threatened or commenced against the Sellers or against any
officer, director, employee, consultant, agent or shareholder with respect to
the affairs of the Sellers.
7.5 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND
WARRANTIES OF THE SELLERS. From the date hereof through the Closing Date, the
Sellers shall conduct its business in such a manner so that the representations
and warranties contained in Section 5 shall continue to be true and correct on
and as of the Closing Date as if made on and as of the Closing Date, and the
Buyer shall promptly be given notice of any event, condition or circumstance
occurring from the date hereof through the Closing Date which would constitute a
violation or breach of this Agreement.
7.6 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to
the Closing Date, the Buyer shall be entitled, through its employees and
representatives, including, without limitation, Ernst & Young LLP and Paul,
Weiss, Rifkind, Wharton & Garrison, to make such investigation of the property
and plant and such examination of the books, records and financial condition of
the Sellers as the Buyer reasonably desires. Any such investigation and
examination shall be conducted at reasonable times and under reasonable
circumstances and the Sellers shall cooperate fully therein. No investigation by
the Buyer shall, however, diminish or obviate in any way any of the
representations, warranties, covenants or agreements of the Sellers under this
Agreement. In order that the Buyer may have full opportunity to make such
business, accounting and legal review, examination or investigation as it may
wish of the business and affairs of the Sellers, the Sellers shall furnish the
representatives of the Buyer during such period with all such information
concerning the affairs of the Sellers as such representatives may reasonably
request and cause its officers, employees, consultants, agents, accountants and
attorneys to cooperate fully with such
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<PAGE> 22
representatives in connection with such review and examination and to make full
disclosure to the Buyer of all material facts affecting the financial condition
and business operations of the Sellers. If this Agreement terminates, the Buyer
and its affiliates shall keep confidential and shall not use in any manner any
information obtained from the Sellers concerning its assets, properties,
operations and business, unless readily ascertainable from public or published
information, or trade sources, or already known or subsequently developed by the
Buyer independently of any investigation of the Sellers, or received from a
third party not under an obligation to the Sellers to keep such information
confidential. Notwithstanding the foregoing, the Buyer shall not contact any
customers, hotels, or other vendors of the Sellers regarding the Business
without the advance approval of the Sellers, which approval shall not be
unreasonably withheld or delayed.
7.7 EXPENSES OF SALE. The Sellers and the Buyer agree
that each of them shall bear its own direct and indirect expenses incurred in
connection with the negotiation and preparation of this Agreement and the
consummation and performance of the transactions contemplated hereby. All
transfer, documentary, gross receipts, sales and use taxes and similar
liabilities, if any, resulting from the sale, assignment, transfer and delivery
hereunder of the Purchased Assets shall be paid by the Sellers.
7.8 FURTHER ASSURANCES. Each of the parties shall
execute, prior to and following the Closing, such documents and other papers and
perform such further acts as may be reasonably required or desirable to carry
out the provisions hereof and the transactions contemplated hereby, including,
without limitation, notification and report forms with respect to the
transactions contemplated by this Agreement under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, and the rules and regulations promulgated
thereunder (the "HSR ACT"). Each such party shall use its reasonable best
efforts to fulfill or obtain the fulfillment of the conditions to the Closing,
including, without limitation, the execution and delivery of any documents or
other papers, the execution and delivery of which are conditions precedent to
the Closing.
7.9 ADDITIONAL PURCHASE PRICE.
7.9.1 DETERMINATION OF ADJUSTED EBT AND ADJUSTED
GROSS PROFIT. As soon as practicable, but in any event not more than ninety (90)
days after the Closing Date, with respect to the twelve-month period ending
March 31, 1999, and not more than ninety (90) days after the end of the
twelve-month period ending on each of March 31, 2000, 2001 and 2002, the Buyer
shall deliver to the Sellers a statement, setting forth the Adjusted EBT and
Adjusted Gross Profit for the Business for the year then ended (the "BUYER'S
DETERMINATION"), together with the unaudited financial statements for such
period. The Adjusted EBT of the Business for the twelve-month periods ending on
March 31, 1999, 2000, 2001 and 2002 shall be referred to herein as the "1998
ADJUSTED EBT," "1999 ADJUSTED EBT," "2000 ADJUSTED EBT" and "2001 ADJUSTED EBT,"
respectively, and the Adjusted Gross Profit of the Business for the twelve-month
periods ending on March 31, 1999, 2000, 2001 and 2002 shall be referred to
herein as the "1998 ADJUSTED GROSS PROFIT," "1999 ADJUSTED GROSS PROFIT," "2000
ADJUSTED GROSS PROFIT" and "2001 ADJUSTED GROSS PROFIT," respectively. The
Sellers and its representatives shall have the right, during normal business
hours and upon reasonable request, to review all work papers and procedures used
to prepare the Buyer's Determination and to have reasonable access to the
Buyer's financial employees and accountants involved in the preparation thereof
and shall have the right to perform reasonable procedures necessary to confirm
the accuracy thereof. The Buyer's Determination shall become final and binding
on the Sellers and the Buyer unless the Sellers give written notice of their
disagreement, including a reasonably detailed description of the basis for such
disagreement and the Sellers' determination (the "SELLERS' DETERMINATION") of
the relevant amounts of Adjusted EBT or Adjusted Gross Profit, as the case may
be (a "NOTICE OF DISAGREEMENT"), to the Buyer within thirty (30) days following
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receipt by the Sellers of the statement setting forth the Buyer's Determination.
During a period of fifteen (15) days following the aforesaid thirty (30) day
period, the Buyer and the Sellers shall attempt to resolve any differences which
they may have with respect to any matter specified in any Notice of
Disagreement. If at the end of such fifteen (15) day period, the Buyer and the
Sellers shall have failed to reach written agreement with respect to all of such
matters, the Buyer and the Sellers shall retain PricewaterhouseCoopers or if
such firm declines to act in such capacity, any such other firm of independent
nationally recognized accountants chosen and mutually accepted by both parties
(the "REFEREE") to make a determination (the "REFEREE DETERMINATION") of the
disputed Adjusted EBT or Adjusted Gross Profit, as the case may be. The Buyer
and Sellers shall request the Referee to act promptly to prepare the Referee
Determination, and in any event to render the Referee Determination within 30
days after the commencement of its engagement. The Buyer shall give the Referee,
during normal business hours and upon reasonable request, access to all work
papers and procedures used to prepare the Buyer's Determination and to the
Buyer's financial employees and accountants involved in the preparation thereof.
The Referee shall deliver the Referee Determination to the Buyer and the
Sellers. The final amount of the Adjusted EBT or Adjusted Gross Profit, as the
case may be, for the relevant period shall be the average of the two closest
determinations between the Buyer's Determination, the Sellers' Determination and
the Referee Determination. In the event the difference between the Buyer's
Determination and the Referee Determination equals the difference between the
Referee Determination and the Sellers' Determination, the Referee determination
shall be binding.
7.9.2 1999 ADDITIONAL PURCHASE PRICE PAYMENT.
Subject to Section 7.9.5 below, within fifteen (15) days following the final
determination of the 1999 Adjusted EBT and Adjusted Gross Profit in accordance
with paragraph 7.9.1 above, the Buyer shall pay to the Sellers, by wire transfer
of immediately available funds, an amount equal to the greater of (i) the
product of (x) the amount, if any, by which the 1999 Adjusted EBT exceeds 1998
Adjusted EBT times (y) 2.5, and (ii) if 1999 Adjusted Gross Profit is at least
50% greater than 1998 Adjusted Gross Profit, (x) the amount by which the 1999
Adjusted Gross Profit exceeds 1998 Adjusted Gross Profit times (y) 1.44.
7.9.3 2000 ADDITIONAL PURCHASE PRICE PAYMENT.
Subject to Section 7.9.5 below, within fifteen (15) days of the final
determination of the 2000 Adjusted EBT and Adjusted Gross Profit in accordance
with paragraph 7.9.1 above, the Buyer shall pay to the Sellers, by wire transfer
of immediately available funds, an amount equal to the greater of (i) the
product of (x) the amount, if any, by which the 2000 Adjusted EBT exceeds the
greater of (A) 1999 Adjusted EBT and (B) 1998 Adjusted EBT times (y) 2, and (ii)
if 2000 Adjusted Gross Profit is at least 35% greater than the greater of (A)
1999 Adjusted Gross Profit and (B) 1998 Adjusted Gross Profit, (x) the amount by
which the 2000 Adjusted Gross Profit exceeds the greater of (A) 1999 Adjusted
Gross Profit and (B) 1998 Adjusted Gross Profit times (y) 1.18.
7.9.4 2001 ADDITIONAL PURCHASE PRICE PAYMENT.
Subject to Section 7.9.5 below, within fifteen (15) days of the final
determination of the 2001 Adjusted EBT and Adjusted Gross Profit in accordance
with 7.9.1 above, the Buyer shall pay to the Sellers, by wire transfer of
immediately available funds, an amount equal to the greater of (i) the product
of (x) the amount, if any, by which the 2001 Adjusted EBT exceeds the greater of
(A) 2000 Adjusted EBT, (B) 1999 Adjusted EBT and (C) 1998 Adjusted EBT times (y)
1.5, and (ii) if 2001 Adjusted Gross Profit is at least 20% greater than the
greater of (A) 2000 Adjusted Gross Profit, (B) 1999 Adjusted Gross Profit and
(C) 1998 Adjusted Gross Profit, (x) the amount by which 2001 Adjusted Gross
Profit exceeds the greater of (A) 2000 Adjusted Gross Profit, (B) 1999 Adjusted
Gross Profit and (C) 1998 Adjusted Gross Profit times (y) .87.
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7.9.5 CERTAIN MATTERS EFFECTING ADDITIONAL PURCHASE
PRICE PAYMENT. In the event the amount determined by the calculation in
paragraph 7.9.2, 7.9.3 or 7.9.4 above results in a negative number, no amount
shall be paid by the Buyer to the Sellers under such paragraph. The amounts due
from Buyer to Sellers under 7.9.2, 7.9.3, and 7.9.4 shall accrue interest from
and after June 29, 2000, 2001 and 2002, respectively, at USAi's then applicable
Cost of Funds
7.10 QUARTERLY DEFERRED PAYMENT.
7.10.1 QUARTERLY DEFERRED PAYMENT.
(a) Not more than 30 days after the end of
the fiscal quarter of the Business ended March 31, 1999, the Sellers shall
prepare and deliver to the Buyer a statement of the Adjusted Gross Profit of the
Business for such fiscal quarter.
(b) Not more than 30 days after the end of
each of the fiscal quarters of the Business ended June 30, 1999, September 30,
1999 and December 31, 1999, the Buyer shall prepare and deliver to the Sellers a
statement of the Adjusted Gross Profit of the Business for such fiscal quarter.
(c) Within 10 days after the determination
of the Adjusted Gross Profit for each fiscal quarter pursuant to Section
7.9.1(a) and (b) above, if the Adjusted Gross Profit for such fiscal quarter as
so determined exceeds 25% of the Target Adjusted Gross Profit for such quarter
as reflected on Schedule 7.10 attached hereto (the "TARGET ADJUSTED GROSS
PROFIT"), the Buyer shall pay to the Sellers by wire transfer of immediately
available funds, an amount equal to (x) $12.5 million times (y) the Deferred
Payment Adjuster (as defined below) (the "DEFERRED PAYMENT"). Notwithstanding
the above, in the event the Deferred Payment with respect to any fiscal quarter
is due in accordance with the provisions of Section 7.10.1(c) prior to the
Closing, such Deferred Payment shall be made, without interest, by wire transfer
of immediately available funds, at the Closing.
(d) The "DEFERRED PAYMENT ADJUSTER" shall
be a percentage (which in no event shall be greater than 100) equal to the (x)
Target Percentage (as defined below) minus (y) the lesser of (i) 100% minus the
Target Percentage and (ii) 25%. "TARGET PERCENTAGE" shall be the Adjusted Gross
Profit of the Business for the relevant period divided by the Target Adjusted
Gross Profit for such period.
7.10.2 ANNUAL DEFERRED PAYMENT RECONCILIATION.
(a) As soon as practicable, but in any event
not more than 90 days after the end of the fiscal year ending December 31, 1999,
Buyer shall prepare and deliver to the Sellers a statement setting forth the
Adjusted Gross Profit of the Business for the year then ended (the "ANNUAL
ADJUSTED GROSS PROFIT"), together with the unaudited financial statements of the
Business for such period. The final Annual Adjusted Gross Profit shall be
determined in accordance with the procedures set forth in Section 7.9 applicable
to the determination of the final 1999 Adjusted Gross Profit.
(b) Within 15 days after the determination
of the final Annual Adjusted Gross Profit,
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(i) In the event the Total Deferred
Payment (as defined below) is less than the Annualized Deferred Payment (as
defined below), Buyer shall pay to Sellers, by wire transfer of immediately
available funds, an amount equal to the Annualized Deferred Payment minus the
Total Deferred Payment; or
(ii) In the event the Total Deferred
Payment is greater than the Annualized Deferred Payment, Sellers shall pay to
Buyer by wire transfer of immediately available funds, an amount equal to the
Total Deferred Payment minus the Annualized Deferred Payment.
(c) "TOTAL DEFERRED PAYMENT" means the sum
of the Deferred Payments made by the Buyer each quarter pursuant to Section
7.10.1(c). "ANNUALIZED DEFERRED PAYMENT" means an amount equal to (x) $50
million times (y) the Deferred Payment Adjuster.
7.11 PARTICIPATION PAYMENT.
7.11.1 2004 PAYOUT AND PARTICIPATION MULTIPLIER.
(a) Unless a payment has been made under
Section 7.11.2 or 7.11.3, as soon as practicable, but in any event not more than
ninety (90) days, after the end of the twelve-month period ending March 31,
2004, the Buyer shall deliver to the Sellers a statement setting forth the
Adjusted EBT for the Buyer for the twelve-month periods ending March 31, 2001,
2002, 2003 and 2004 (the "2000 ADJUSTED EBT," "2001 ADJUSTED EBT," "2002
ADJUSTED EBT" and "2003 ADJUSTED EBT," respectively), and the EBT for the
twelve-month period ending March 31, 2004 (the "2003 EBT") together with the
unaudited financial statements for such periods. The final determination of the
2000, 2001, 2002 and 2003 Adjusted EBT and 2003 EBT shall be made in accordance
with the procedures set forth in Section 7.9.1 with respect to the 2000 Adjusted
EBT. Within 15 days of the final determination of the 2000, 2001, 2002 and 2003
Adjusted EBT and 2003 EBT in accordance with the provisions of Section 7.9.1
hereof, Buyer shall pay to the Sellers, by wire transfer of immediately
available funds, an amount equal to the product of (x) (i) The Participation
Multiplier (as defined below) times 2003 EBT minus (ii) Net Debt Capital (as
defined hereafter) times (y) 10% (the "2003 PAYOUT"). "NET DEBT CAPITAL" means
an amount equal to the enterprise value (including the net debt assumed), as
reasonably determined in good faith by the Buyer and the Sellers, of any
Acquired Business, other than, with respect to this Section 7.11.1 only, any
Acquired Business acquired during the twelve-month period ending March 31, 2004,
at the time of the consummation of such acquisition together with an amount
equal to the interest on such amount from the time of such acquisition through
the calculation date, at an annual rate of 12% compounded annually. In the event
the Buyer and the Sellers are unable to determine the enterprise value of any
Acquired Business, either party may, by written notice to the other party,
require a nationally recognized investment bank mutually acceptable to the Buyer
and the Sellers to be retained to determine the enterprise value of such
Acquired Business. The fees and expenses of such investment bank shall be borne
equally by the Buyer and the Sellers.
(b) The Participation Multiplier shall be as
follows:
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<PAGE> 26
<TABLE>
<CAPTION>
AVERAGE ANNUAL ADJUSTED
EBT GROWTH (AS DEFINED PARTICIPATION
BELOW) MULTIPLIER
----------------------- -------------
<S> <C>
20% or less 10
Greater than 20%-30% 11
Greater than 30%-40% 12
Greater than 40%-50% 13
Greater than 50%-60% 14
Greater than 60% 15
</TABLE>
"AVERAGE ANNUAL ADJUSTED EBT GROWTH" shall mean the average of the annual
percentage growth (or reduction) in Adjusted EBT during the twelve-month periods
ending March 31, 2002, 2003 and 2004.
7.11.2 SALE OF THE BUSINESS.
(a) If, prior to the payment of the 2004
Payout by the Buyer pursuant to Section 7.11.1 above and the consummation of the
IPO of the Buyer referred to in Section 7.11.3, all or substantially all of the
equity interests in the Buyer are sold, or the Buyer sells all or substantially
all of its assets (including as a result of a merger, consolidation or
reorganization) (each a "SALE OF THE BUSINESS"), the Sellers shall receive a
portion of the consideration received in respect of the Sale of the Business
(the "SALE CONSIDERATION") equal to (x) (i) the total value of the Sale
Consideration as reasonably determined by the Buyer and the Sellers plus the
aggregate value of all cash dividends paid by the Buyer to its shareholders
following the Closing minus (ii) the Net Debt Capital (calculated including any
Acquired Business acquired during the twelve-month period ending March 31, 2004)
multiplied by (y) 10% (the "SALE OF BUSINESS PAYMENT"). The Sale of Business
Payment shall be paid to the Sellers (i) at the same time and in the same form
as the Sale Consideration received by the Buyer or its affiliates upon the Sale
of the Business and (ii) shall be subject to the terms and conditions of the
agreements entered into with respect to the Sale of the Business, including,
without limitation, any escrow or indemnification obligations. In the event the
Buyer and the Sellers are unable to determine the total value of the Sale
Consideration, either party may, by written notice to the other party, require a
nationally recognized investment bank mutually acceptable to the Buyer and the
Sellers to be retained to determine the total value of the Sale Consideration.
The fees and expenses of such investment bank shall be borne equally by the
Buyer and the Sellers
(b) Notwithstanding the provisions of
paragraph 7.11.2(a) above, the Sellers shall not be entitled to any payment in
the event of a Sale of the Business to an affiliate of the Buyer.
(c) The Buyer and the Sellers acknowledge
that the provisions of Section 7.11.2 shall not apply to transactions that do
not constitute a Sale of the Business including a partial sale of equity
interests in the Buyer or a partial asset sale (including as a result of a
merger, consolidation or reorganization) of the Buyer (a "NON-QUALIFYING SALE").
In the event of a Non-Qualifying Sale (other than a Non-Qualifying Sale in the
ordinary course of business), the Sellers and the Buyer shall negotiate in good
faith to determine what, if any, arrangements should be made with respect to the
Sellers' participation in such Non-Qualifying Sale in light of the circumstances
of such Non-Qualifying Sale.
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<PAGE> 27
7.11.3 PARTICIPATION IN EVENT OF IPO. If, prior to
the payment of the 2004 payout by the Buyer pursuant to Section 7.11.1 or a
payment in connection with the sale of the Business of the Buyer pursuant to
Section 7.11.2 above, the Buyer consummates an initial public offering of shares
of its common stock (an "IPO"), the Buyer shall issue to the Sellers a number of
shares of common stock of the Buyer having an aggregate value (based on the
price per share in the IPO) equal to the product of (x) (i) the total issued and
outstanding shares of the Buyer immediately prior to the IPO (which shall
include the shares issued under Section 7.15 simultaneous with the IPO) times
the IPO price minus (ii) the Net Debt Capital multiplied by (y) 10%. Sellers
hereby agree to enter into "lock up" indemnity or other customary agreements
reasonably requested by the underwriters in connection with an IPO.
Simultaneously with the issuance of the shares to be issued to the Sellers
pursuant to this Section 7.11.3, the Sellers shall execute and deliver to the
Buyer a Representations Letter (substantially in the form attached hereto as
Exhibit E) with respect to such shares.
7.11.4 TERMINATION OF PARTICIPATION PAYMENT. Upon
the payment or distribution to the Sellers under any of Sections 7.11.1, 7.11.2
or 7.11.3, the other provisions of this Section 7.11 shall immediately terminate
and no further payment or obligation shall be due the Sellers thereunder;
PROVIDED THAT the payment provided in 7.11.1 cannot be made earlier than
provided in that section without the written consent of the Sellers.
7.11.5 CALCULATION SCHEDULE. Attached as
SCHEDULE 7.11.5 is a spreadsheet outlining examples of the calculations of the
Additional Purchase Price, Quarterly Deferred Payment and Participation Payment.
7.12 USAI GUARANTY. USA hereby irrevocably,
unconditionally and completely guarantees the full and timely payment and
performance of all the Buyer's obligations under this Agreement, subject to the
provisions and limitations set forth herein. The obligations and liabilities
under this guaranty constitute primary obligations and liabilities of USA and
shall not be affected by the absence of any action to enforce obligations of, or
proceedings first against, the Buyer or the inability of the Buyer to pay due to
bankruptcy or otherwise.
7.13 BUYER'S ALLOCATION OF AFFILIATE OVERHEAD; AFFILIATE
TRANSACTIONS.
(a) The Buyer hereby agrees that no corporate
overhead expenses of any affiliate of the Buyer not directly related to the
Business, shall be included in the calculation of Adjusted EBT or Adjusted Gross
Profit of the Business for the purposes of determining the Adjusted EBT and
Adjusted Gross Profit of the Business pursuant to Sections 7.9, 7.10 and 7.11.
Notwithstanding the foregoing, expenses incurred by affiliates of the Buyer
directly related to the Business (i.e. employee benefits and insurance premiums)
shall be allocated to the Business for the purposes of determining the Adjusted
EBT and Adjusted Gross Profit of the Business pursuant to Sections 7.9, 7.10 and
7.11.
(b) The Buyer hereby agrees that the cost and
expenses related to the purchase of any goods or services from any affiliate of
the Buyer (an "Affiliate Transaction") shall not, without the consent of the
Sellers, be included in the calculation of Adjusted EBT or Adjusted Gross Profit
of the Business for the purposes of determining the Adjusted EBT and Adjusted
Gross Profit of the Business pursuant to Sections 7.9, 7.10 and 7.11 unless such
Affiliate Transaction is with respect to goods and services
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<PAGE> 28
historically used by the Business and on arms length market terms and conditions
which, in the case of advertising services, is currently 5% of the revenues
generated by such advertising.
7.14 OBLIGATIONS REGARDING ACQUIRED BUSINESSES.
(a) The Buyer shall not acquire any person, asset
or business engaged primarily in a business other than the Company Business (as
defined in Section 10.1) without the prior consent of the Sellers; PROVIDED,
HOWEVER, that the Buyer may purchase a person, asset or business engaged
primarily in a business other than the Company Business without the prior
consent of the Sellers, if the Buyer agrees at the time of such acquisition that
such Acquired Business will not be included in the calculation of Adjusted EBT
and Adjusted Gross Profit of the Business for the purposes of determining the
Adjusted EBT and Adjusted Gross Profit of the Business pursuant to Sections 7.9,
7.10 and 7.11. The Buyer may acquire any person, asset or business in the
Company Business without the consent of the Sellers.
(b) Notwithstanding anything in this agreement to
the contrary, the Sellers and the Shareholders agree that the Buyer and its
affiliates shall have no obligation whatsoever to purchase any person, asset or
business, whether or not such person, asset or business is, directly or
indirectly, related to the Company Business, and the Buyer and its affiliates
shall have no obligation whatsoever to contribute any person, asset or business,
owned or purchased by any affiliate of the Buyer, to the Buyer, including,
without limitation, a person, asset or business, directly or indirectly, related
to the Company Business. Nothing in this Agreement shall, in any way, prohibit,
restrict, limit or effect in any way the ability of any affiliate of the Buyer
to make any acquisition of any person, asset or business.
7.15 2000 INITIAL PUBLIC OFFERING. If the initial closing
of the proposed initial public offering (the "2000 IPO") of the Class A Common
Stock, par value $0.01 per share (the "CLASS A COMMON STOCK"), of the Buyer
occurs prior to March 31, 2000, the following provisions shall apply:
7.15.1 Simultaneously with the initial closing of
the 2000 IPO:
(i) In full satisfaction of its obligations
under Sections 7.9.3 and 7.9.4, the Buyer shall issue to the Trust the number of
shares (the "SECTION 7.15 SHARES") of Class A Common Stock equal to the number
that can be found by dividing (x) $81.6 million dollars by (y) the price at
which each share of Class A Common Stock is initially sold to the public in the
2000 IPO (the"IPO PRICE"); PROVIDED THAT, (i) if the IPO Price is less than
$11.00 per share, the price used for purposes of this clause (y) shall be $11.00
and (ii) if the IPO Price is greater than $16.25 per share, the price used for
purposes of this clause (y) shall be $16.25. The issuance of the Section 7.15
Shares shall result in a share-for-share reduction in the number of Class B
Common Stock, par value$0.01 per share (the "CLASS B COMMON STOCK"), of the
Buyer to be issued to USA in the recapitalization of the Buyer that will occur
immediately prior to the completion of the 2000 IPO;
(ii) The Sellers and the Trust shall execute
and deliver to the Buyer a written Receipt and Release of Claims substantially
in the form attached hereto as EXHIBIT D;
(iii) The obligations of USA under
Section 7.12 hereof (as such section relates to USA's guaranty of the Buyer's
obligations) shall be deemed to be of no further force or effect upon (i) the
issuance of the Section 7.15 Shares, (ii) the issuance of the Section
7.11.3 Shares, (iii) the payment of all amounts due under Section 7.9.2, if any,
in respect of the twelve month period ended March 31, 2000, and
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<PAGE> 29
(iv) the payment of all amounts due under Section 7.10 in respect of the quarter
ended December 31, 1999 and the fiscal year ended December 31, 1999;
(iv) For purposes of the calculation of the
number of shares of Class A Common Stock that the Trust will receive pursuant to
Section 7.11.3 hereof (the "SECTION 7.11.3 SHARES," and together with the
Section 7.15 Shares, the "2000 IPO SHARES"), the reference in Section 7.11.3
hereof to "the total issued and outstanding shares of the Buyer immediately
prior to the IPO" shall include in such issued and outstanding shares of the
Buyer the number of Section 7.15 Shares provided above; and
(v) The Trust shall execute and deliver to
the Buyer a written Representations Letter with respect to the 2000 IPO Shares
substantially in the form attached hereto as EXHIBIT E.
17.5.2 Without the advance written consent of Buyer
(to be given or withheld in its sole discretion and, approved by its board of
directors), the Trust shall not directly or indirectly sell, assign, transfer,
gift, exchange or otherwise dispose of, or grant a lien, encumbrance, pledge or
other security interest in (each, a "TRANSFER") any of the 2000 IPO Shares until
after the fourth anniversary of the initial closing of the 2000 IPO, subject to
the following exceptions:
(vi) The Trust may Transfer (i) after the
first anniversary of the initial closing of the 2000 IPO, all or any portion of
the 2000 IPO Shares to (x) a Shareholder, an immediate family member of a
Shareholder, which shall include only the spouse (except for a spouse with whom
such Shareholder has entered into any divorce or separation agreement), or a
child of such Shareholder (collectively, the "FAMILY"), or (y) a trust, all of
the beneficial interests in which shall be held by such Shareholder or one or
more members of such Shareholder's Family, and (ii) up to 5% of the number of
Section 7.11.3 Shares and 5% of the number of Section 7.15 shares originally
issued to the Trust to a former executive of the Sellers consistent with the
terms of a letter agreement dated May 7, 1999, from TMF, Inc. to that former
executive (a copy of which the Trust has delivered to the Buyer) in each case
provided that such transferee delivers a written instrument, reasonably
acceptable to the Buyer, agreeing to be bound by the terms of this Agreement to
the same extent as the transferor. All persons and entities to whom the Trust
may Transfer Class A Stock under this Section 7.15.2(a) are hereinafter referred
to as "PERMITTED TRANSFEREES."
(vii) The Trust (and its Permitted
Transferees) may Transfer in the aggregate a number of Section 7.11.3 Shares not
to exceed the following percentages of the number of Section 7.11.3 Shares
originally issued to the Trust (adjusted for any stock splits, stock dividends,
or similar recapitalization), after the dates indicated:
<TABLE>
<S> <C>
After first anniversary of the 2000 IPO 40%
After second anniversary of the 2000 IPO An additional 10%
After third anniversary of the 2000 IPO An additional 10%
After fourth anniversary of the 2000 IPO All remaining
</TABLE>
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<PAGE> 30
Section 7.11.3 Shares
(viii) After the first anniversary of the
initial closing of the 2000 IPO, if USA or any of its affiliates (which for this
purpose shall not include any officer or director of USA or the Buyer) desire to
Transfer to an unaffiliated third party in a single transaction or series of
related transactions more than 7.5% of the number of shares of the Buyer's
common stock owned by USA and its affiliates on the date of the initial closing
of the 2000 IPO, the Trust and its Permitted Transferees shall have the right,
in the aggregate, to include in such Transfer, on the same terms and conditions
as the transferring stockholder, a number of shares of the Buyer's common stock
equal to the product of (x) the aggregate number of shares of common stock
proposed to be transferred and (y) a fraction, the numerator of which is equal
to the total number of shares of common stock owned at that time by the Trust
and its Permitted Transferees and the denominator of which is the number of
shares owned at that time by the Trust and its Permitted Transferees and by USA
and its affiliates. If such Transfer by a transferring stockholder is to be made
under an effective registration statement filed by the Buyer with the Securities
and Exchange Commission, the Buyer shall offer the Trust and its Permitted
Transferees the opportunity to participate in such registration in the same
manner as the transferring stockholder to the extent necessary to permit such
persons to exercise their tag along rights hereunder.
(ix) (i) The restrictions on Transfers
described above shall terminate on the death or permanent disability or
termination of employment by the Buyer without "cause" (each of which is
referred to as a "restriction terminating event") of either Shareholder as to a
number of shares held by that Shareholder and his Permitted Transferees equal to
the lesser of (x) the total number of shares then held by that Shareholder and
that Shareholder's Permitted Transferees and (y) fifty percent (50%) of the
total number of 2000 IPO shares originally issued to the Trust; PROVIDED,
HOWEVER, that (a) in the case of a restriction terminating event, the
restriction on sale or transfers shall not be eliminated prior to the first
anniversary of the 2000 IPO and (b) such Shareholder and his Permitted
Transferees shall not Transfer shares released by reason of a restriction
terminating event on any day a number of shares in excess of twenty-five
percent(25%) of the trailing thirty day average daily trading volume of the
Buyer's common stock.
(ii) Notwithstanding the foregoing 25%
limitation, upon a restriction terminating event caused by the death of a
Shareholder, the estate and the Family Permitted Transferees of such Shareholder
shall be permitted to sell in a single block trade transaction at the then
current market price such number of shares as the estate represents and warrants
in writing to the Buyer are necessary to be sold in order to result in net
proceeds sufficient to pay the applicable estate taxes resulting from such
death (provided the net proceeds from such sale are used solely to pay such
estate taxes). If requested by the holders of the shares to be sold under the
circumstances described in the previous sentence, the Buyer shall effect a
demand registration covering the sale of such shares in the manner described in
Section 7.15.3.
(iii) "Cause" shall mean: (A) the plea of
guilty or nolo contendre to, or conviction for, the commission of a felony or
any other offense involving moral turpitude by such Shareholder; (B) a material
breach by such Shareholder of a fiduciary duty owed to the Buyer; (C) a material
breach by such Shareholder of any of the covenants made by him in any agreement
with the Buyer; or (D) the willful or gross neglect by such Shareholder in the
performance of his duties or responsibilities consistent with his position with
the Buyer at such time.
7.15.3 The Trust and its Permitted Transferees,
acting by a written request of a majority in interest, shall have the one time
right after the fourth anniversary of the initial public offering, to cause the
Buyer to register all, or such lessor portion as requested, of the shares of
Buyer held by the Trust or its Permitted Transferees, under the Securities Act
of 1933, as amended, at the expense of the Buyer and
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<PAGE> 31
upon customary terms and conditions. The foregoing right shall be subject to the
right of the Buyer to select the underwriter, if any, to be used and the
agreement by the holders of shares included in such registration pursuant to a
demand under this Section 7.15.3 to enter into any customary lockup agreement
requested by the underwriter. Upon the receipt of such a request, Buyer shall
take such steps as are reasonably necessary to register such shares for sale in
accordance with applicable federal securities laws (i) subject to the right of
the Buyer to suspend or delay a registration demanded hereunder for any period
because of material developments the disclosure of which the Board of Directors
of the Buyer determines in good faith would be detrimental or (b) due to
regulatory reasons and (ii) the limitation that no demand right shall be
exercisable during a period when the Buyer is subject to an underwriter's
lockup. The Buyer shall not be obligated to so effect a demand registration if
in the opinion of counsel to the Buyer the selling stockholder otherwise is able
to effect a sale of the shares under Rule 144(k).
7.15.4 All Transfers shall be made in full compliance
with applicable law. Except as otherwise permitted by Section 7.15.5,each stock
certificate for 2000 IPO Shares and each stock certificate issued upon the
direct or indirect Transfer of any such 2000 IPO Shares shall be stamped or
otherwise imprinted with the following legends:
(i) THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN
MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT AND SUCH LAWS.
(ii) HRN, INC. (THE "COMPANY"), IS A
DELAWARE CORPORATION, AND THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
DIRECTLY OR INDIRECTLY, SOLD, GIVEN, TRANSFERRED, ASSIGNED, CHARGED, MORTGAGED,
HYPOTHECATED, PLEDGED OR ENCUMBERED OR OTHERWISE DISPOSED OF (WHETHER BY
OPERATION OF LAW OR OTHERWISE) WITHOUT COMPLIANCE WITH THE PROVISIONS OF THAT
CERTAIN ASSET PURCHASE AGREEMENT DATED AS OF APRIL 13, 1999, AMONG THE COMPANY
AND CERTAIN OTHER PARTIES, AS AMENDED. COPIES OF THE ABOVE-REFERENCED AGREEMENT
AND AMENDMENT ARE ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. THE COMPANY
WILL NOT REGISTER THE TRANSFER OF SUCH SHARES ON THE REGISTER OF STOCKHOLDERS OF
THE COMPANY UNLESS AND UNTIL THE TRANSFER HAS BEEN MADE IN COMPLIANCE WITH THE
TERMS OF SUCH ASSET PURCHASE AGREEMENT.
7.15.5 Notwithstanding the foregoing, the Trust or
Permitted Transferee may require the Buyer to issue stock certificates for
2000IPO Shares, in each case:
(i) without the legend required under
Section 7.15.4(a) hereof if either (i) such 2000 IPO Shares have been registered
for resale under the Securities Act of 1933 (the "Securities Act") or (ii) the
Trust or Permitted Transferee has delivered to the Buyer an opinion of legal
counsel (from a firm reasonably satisfactory to the Buyer) which opinion shall
be addressed to the Buyer and be reasonably satisfactory in form and substance
to the Buyer's counsel, to the effect that such registration is not required
with respect to such 2000 IPO Shares; and
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<PAGE> 32
(ii) without the legend required under
Section 7.15.4(b) hereof if either (i) the Trust and the Permitted Transferees
Transfer such 2000 IPO Shares pursuant to Section 7.15.2(b) hereof or (ii) the
fourth anniversary of the initial closing of the 2000 IPO has passed.
7.15.6 The Trust (and each Permitted Transferee by
accepting the shares to be held by it) acknowledge and agree that the transfer
restrictions set forth in Section 7.15.2 prohibiting the Transfer of any
interest in the 2000 IPO Shares unless such Transfer is expressly permitted
hereunder, are an integral part of the Buyer's willingness to issue the 2000 IPO
Shares on the terms described herein and that the Buyer would be irreparably
harmed if such provisions were not strictly complied with by the Trust and its
Permitted Transferees. Without limiting the foregoing, the Trust (and each
Permitted Transferee) agrees that it shall not take any action to circumvent
such restrictions on Transfer, including, without limitation, by reducing or
transferring in any manner its economic interest in any portion of the 2000 IPO
Shares through means of any hedging, derivative or other synthetic transaction
or through any other means. The Trust (and each Permitted Transferee)
acknowledge that damages are inadequate to compensate the Buyer for the
Trust's (or a Permitted Transferee's) breach of this Agreement and therefore the
Buyer shall be entitled to specific performance of this Agreement. If the Buyer
elects to institute any action specifically to enforce the Trust's (or a
Permitted Transferee's) performance, the Trust (and such Permitted Transferee)
agrees to waive any claim or defense that the Buyer has an adequate remedy at
law, and agrees not to interpose any opposition legally or otherwise to the
propriety of specific performance.
7.15.7 As soon as practicable after February 1,2000,
the Trust and the parent company of the Buyer will file a notification and
report form under the HSR Act with respect to the acquisition of the 2000 IPO
Shares and shall request early termination of the waiting period under the HSR
Act. In the event that the initial closing of the 2000 IPO occurs prior to the
expiration or earlier termination of the waiting period under the HSR Act, the
2000 IPO Shares shall consist of a class of non-voting capital stock of the
Buyer that is in all other respects (other than voting rights) the same as the
Class A Common Stock and shall automatically convert into shares of Class A
Common Stock upon the expiration or early termination of the HSR Act waiting
period. In consideration of Section 7.15, the Sellers and the Trust agree to
promptly reimburse the Buyer for one-half of the fees associated with any
filings under the HSR Act; PROVIDED, THAT, if the 2000 IPO does not occur by
March 31, 2000, the Sellers and the Trust shall promptly reimburse the Buyer for
the full amount of any such fees.
8. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO CLOSE.
The obligation of the Buyer to enter into and complete the Closing is subject,
at its option, to the fulfillment on or prior to the Closing Date of the
following conditions, any one or more of which may be waived by it:
8.1 REPRESENTATIONS AND COVENANTS. The representations
and warranties of the Sellers contained in this Agreement shall be true on and
as of the Closing Date with the same force and effect as though made on and as
of the Closing Date. Furthermore, the representations and warranties of the
Sellers contained in this Agreement shall be true and correct (without regard to
any Material Adverse Effect or materiality qualifier) except for all such
violations which taken together would not constitute a Sellers Material Adverse
Effect. The Sellers shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by the
Sellers on or prior to the Closing Date. The Sellers shall have delivered to the
Buyer a certificate, dated the Closing Date and signed by the Sellers, to the
foregoing effect and stating that all conditions to the Buyer's obligations
hereunder have been satisfied.
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<PAGE> 33
8.2 GOVERNMENTAL PERMITS AND APPROVALS. Any and all
permits and approvals from any governmental or regulatory body required for the
lawful consummation of the Closing shall have been obtained.
8.3 THIRD PARTY CONSENTS. All consents, permits and
approvals from parties to any contracts or other agreements with the
Sellers (other than contracts and agreements with hotels referred to in Section
5.9(iv))which may be required in connection with the performance by the Sellers
of its obligations under this Agreement or the continuance of such contracts or
other agreements after the Closing and all consents and approvals required with
respect to the contracts and agreements with hotels which are indicated on
Schedule 5.9(iv) as requiring consent or approval shall have been obtained.
8.4 OPINION OF COUNSEL TO THE SELLERS. The Buyer shall
have received the favorable opinion of Sayles & Lidji, counsel to the Sellers,
dated the Closing Date, addressed to the Buyer, in a form reasonably
satisfactory to the Buyer.
8.5 LITIGATION. No action, suit or proceeding shall have
been instituted before any court or governmental body or instituted or
threatened by any governmental agency or body to restrain or prevent the
carrying out of the transactions contemplated hereby, or which has or may have
in the opinion of the Buyer, a materially adverse effect on the assets,
properties, business or condition, financial or otherwise, of the Sellers.
8.6 ESCROW AGREEMENT. Simultaneously with the Closing,
the Buyer and the Sellers shall enter into an Escrow Agreement in the form of
EXHIBIT C.
8.7 HART-SCOTT-RODINO. Any person required in connection
with the transactions contemplated under this Agreement to file a notification
and report form in compliance with the HSR Act shall have filed such form and
the waiting period specified in the HSR Act, including any extensions thereof,
shall have expired.
8.8 LANDLORD ESTOPPEL CERTIFICATE. The Buyer shall have
received, at the Sellers' expense, a current estoppel certificate from the
landlord under each Lease stating (i) that such Lease is in full force and
effect and has not been amended, modified or supplemented other than as set
forth on SCHEDULE 5.10; (ii) that all rent and other sums and charges payable
under such Lease are current, and setting forth the date through which such
payments have been made; (iii) the amount of any tenant security or other
similar deposit held by or on behalf of such landlord under such Lease; (iv)
that no notice of default on the part of the Sellers, as the case may be, or
termination notice has been served under such Lease which remains outstanding;
and (v) that, to the knowledge of such landlord, no uncured default or
termination event or condition exists under such Lease, and that no event has
occurred or condition exists which, with the giving of notice or the lapse of
time or both, would constitute such a default or termination event or condition;
and (vi) that the consummation of the transactions contemplated in this
Agreement will not constitute a default under such Lease or grounds for the
termination thereof or for the exercise of any other right or remedy adverse to
the interests of the tenant thereunder.
8.9 ASSIGNMENT OF LEASE. The Buyer shall have received
an assignment of each Lease, in a form reasonably satisfactory to the Buyer.
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8.10 TAX RETURNS. Buyer shall have received any and all
real property transfer tax returns and other similar filings required by law in
connection with this Agreement, all duly and properly executed and acknowledged.
Sellers shall also execute such affidavits in connection with such filings as
shall have been required by law or reasonably requested by Buyer.
8.11 FIRPTA AFFIDAVIT. Buyer shall have received an
affidavit of an officer of each Seller sworn to under penalty of perjury,
setting forth such Seller's name, address and Federal tax identification number
and stating that such Seller is not a "FOREIGN PERSON" within the meaning of
Section 1445 of the Code.
9. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SELLERS TO
CLOSE. The obligation of the Sellers to enter into and complete the Closing is
subject, at the option of the Sellers, to the fulfillment of the following
conditions, any one or more of which may be waived:
9.1 REPRESENTATIONS. The representations and warranties
of the Buyer contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date. The Buyer shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with it on or
prior to the Closing Date. The Buyer shall have delivered to the Sellers a
certificate, dated the Closing Date and signed by an officer of the Buyer, to
the foregoing effect and stating that all conditions to the Sellers' obligations
hereunder have been satisfied.
9.2 OPINION OF COUNSEL TO THE BUYER. The Sellers shall
have received the favorable opinion of Paul, Weiss, Rifkind, Wharton & Garrison,
counsel to the Buyer, dated the Closing Date, addressed to the Sellers, in a
form reasonably satisfactory to the Sellers.
9.3 LITIGATION. No action, suit or proceeding shall have
been instituted before any court or governmental or regulatory body or
instituted or threatened by any governmental or regulatory body to restrain or
prevent the carrying out of the transactions contemplated hereby.
9.4 HART-SCOTT-RODINO. Any person required in connection
with the transactions contemplated under this Agreement to file a notification
and report form in compliance with the HSR Act shall have filed such form and
the waiting period specified in the HSR Act, including any extensions thereof,
shall have expired.
10. COVENANTS OF ROBERT DIENER AND DAVID LITMAN.
10.1 COVENANTS AGAINST COMPETITION. Each Shareholder
acknowledges that (i) the principal business of the Sellers is the direct
marketing and selling of hotel rooms to consumers through telephonic orders and
internet access (the "COMPANY BUSINESS"); (ii) he is one of the limited number
of persons who has developed such business; (iii) the business of the Sellers is
national and international in scope; (iv) his work for the Sellers has brought
him and his work for the Buyer will continue to bring him into close contact
with many confidential affairs not readily available to the public; and (v) the
Buyer would not purchase the Purchased Assets but for the agreements and
covenants of the Shareholder contained in this Section 10. Accordingly, as a
material inducement to the Buyer to enter into this Agreement and consummate the
transactions referred to herein, each Shareholder covenants and agrees, with
respect to himself, that:
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(a) NON-COMPETE. During the term of the
Shareholder's employment with the Buyer as successor in interest to the business
of the Sellers or with any affiliate of the Buyer, and for a period of five
years following the termination (whether for cause or otherwise) of the
Shareholder's employment with the Buyer or any of its affiliates (the
"RESTRICTED PERIOD"), the Shareholder shall not in the United States of America
or in any foreign country, directly or indirectly, (i) engage in the Company
Business for the Shareholder's own account; (ii) engage in any business that
constitutes part of the Buyer's, or any affiliate of the Buyer for which the
Shareholder has significant management responsibility, business at the time of
the termination of such Shareholder's employment with the Buyer; (iii) enter the
employ of, or render any services to, any person engaged in such activities;
or (iv) become interested in any such person as an individual, partner,
shareholder, officer, director, principal, agent, employee, trustee, consultant
or in any other relationship or capacity; PROVIDED, HOWEVER, the Shareholder may
own, directly or indirectly, solely as an investment, securities of any person
which are traded on any national securities exchange if the Shareholder (a) is
not an officer, director, consultant, employee or a controlling person of, or a
member of a group which controls, such person or (b) does not, directly or
indirectly, own 5% or more of any class of securities of such person.
(b) CONFIDENTIAL INFORMATION. During and after
the Restricted Period, the Shareholder shall keep secret and retain in strictest
confidence, and shall not use for the benefit of himself or others except in
connection with the business and affairs of the Buyer and its affiliates, all
confidential matters relating to the Company Business and to the Buyer and its
affiliates, including without limitation, trade know-how, secrets, customer
lists, subscription lists, subscription lists, details of author or consultant
contracts, pricing policies, operational methods, marketing plans or strategies,
produce development techniques or plans, business acquisition plans, new
personnel acquisition plans, methods of manufacture, technical processes,
designs and design projects, inventions and research projects and other business
affairs relating to the Company Business and to the Buyer and its affiliates
learned by the Shareholder heretofore or hereafter, and shall not disclose them
to anyone outside of the Buyer and its affiliates, either during or after
employment by the Buyer or any of its affiliates, except as required in the
course of performing duties hereunder or with the Buyer's express written
consent.
(c) PROPERTY OF THE BUYER. All memoranda, notes,
lists, records and other documents (and all copies thereof) made or compiled by
the Shareholder or made available to the Shareholder concerning the Company
Business or the Buyer or any of its affiliates shall be the Buyer's property and
shall be delivered to the Buyer promptly upon the termination of the
Shareholder's employment with the Buyer or any of its affiliates or at any other
time on request.
(d) EMPLOYEES OF THE BUYER. During the Restricted
Period, the Shareholder shall not, directly or indirectly, hire, solicit or
encourage to leave the employment of the Buyer or any of its affiliates, any
employee of the Buyer or any of its affiliates or hire any such employee who has
left the employment of the Buyer or any of its affiliates within one year of the
termination of such employee's employment with the Buyer or any of its
affiliates.
10.2 RIGHTS AND REMEDIES UPON BREACH. If the Shareholder
breaches, or threatens to commit a breach of, any of the provisions of
Section 10.1 (the "RESTRICTIVE COVENANTS"), the Buyer shall have the following
rights and remedies, each of which rights and remedies shall be independent of
the other and severally enforceable, and all of which rights and remedies shall
be in addition to, and not in lieu of, any other rights and remedies available
to the Buyer under law or in equity:
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(a) SPECIFIC PERFORMANCE. The right and remedy to
have the Restrictive Covenants specifically enforced by any court having equity
jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to the Buyer and that money
damages will not provide adequate remedy to the Buyer.
(b) ACCOUNTING. The right and remedy to require
the Shareholder to account for and pay over to the Buyer all compensation,
profits, monies, accruals, increments or other benefits
(collectively, "BENEFITS") derived or received by the Shareholder as the result
of any transactions constituting a breach of any of the Restrictive Covenants,
and the Shareholder shall account for and pay over such Benefits to the Buyer.
10.3 SEVERABILITY OF COVENANTS. If any court determines
that any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions.
10.4 BLUE-PENCILLING. If any court determines that any of
the Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
10.5 ENFORCEABILITY IN JURISDICTIONS. The Buyer and the
Shareholders intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Buyer and the Shareholders that
such determination not bar or in any way affect the Buyer's right to the relief
provided above in the courts of any other jurisdiction within the geographical
scope of such Covenants, as to breaches of such Covenants in such other
respective jurisdictions, such Covenants as they relate to each jurisdiction
being, for this purpose, severable into diverse and independent covenants.
10.6 SHAREHOLDER GUARANTY. The Shareholders, and their
respective spouses (Malia Litman with respect to Litman and Michelle Diener with
respect to Diener), jointly and severally, hereby irrevocably, unconditionally
and completely guarantee the full and timely payment and performance of all of
the Sellers' obligations under this Agreement, subject to the provisions and
limitations set forth herein; PROVIDED, HOWEVER, each Shareholder's, and such
Shareholder's Spouse's, liability under this Section 10.6 or Section 12 shall
not exceed 50% of the Purchase Price. Each of the Zachary Charles Litman Exempt
GS-Trust, Katherine Elizabeth Litman Exempt GS-Trust, the Anne Marie Litman
Exempt GS-Trust, the Alison Diener Exempt GS-Trust and the Brianna Diener Exempt
GS-Trust (collectively, the "Trusts"), jointly and severally, hereby
irrevocably, unconditionally and completely guarantee the full and timely
payment and performance of all of the Sellers' obligations under this Agreement,
subject to the provisions and limitations set forth herein; provided, however,
each such Trust's liability under this Section 10.6 or Section 12 shall not
exceed the percentage of the Purchase Price distributed to such Trust, including
upon liquidation, by the Sellers. The obligations and liabilities under this
guaranty constitute primary obligations and liabilities of the Shareholders and
the Trusts and shall not be affected by the absence of any action to enforce
obligations of, or proceedings first against, the Sellers or the inability of
the Sellers to pay because of the Sellers' bankruptcy or otherwise.
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11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
Notwithstanding any right of the Buyer fully to investigate the affairs of the
Sellers and notwithstanding any knowledge of facts determined or determinable by
the Buyer pursuant to such investigation or right of investigation, the Buyer
has the right to rely fully upon the representations, warranties, covenants and
agreements of the Sellers contained in this Agreement or in any document
delivered to the Buyer by the Sellers or any of its representatives, in
connection with the transactions contemplated by this Agreement. All such
representations, warranties, covenants and agreements shall survive the
execution and delivery hereof and the Closing hereunder. Except for those
representations and warranties in Sections 5.1, 5.2 and 5.7 (all of which
representations and warranties shall survive without limitation), all
representations and warranties shall terminate and expire with respect to any
theretofore unasserted (i) General Claim (as herein defined), on the second
anniversary of the Closing Date, (ii) any Tax Claim (as herein defined), 30 days
after assessment of the liability to which any such Tax Claim may relate is
barred by all applicable statutes of limitations (taking into account any
applicable waivers or extensions) and (iii) any Safety and Environmental Claim
(as herein defined), on the fifth anniversary of the Closing Date and (iv) any
ERISA Claim (as herein defined) on the date upon which the liability to which
any such ERISA Claim may relate is barred by applicable statutes. As used in
this Agreement, the following terms have the following meanings:
(i) "ERISA CLAIM" means any claim based upon, arising out of
or otherwise in respect of any inaccuracy in or any breach of representation or
warranty of the Sellers contained in Section 5.18.
(ii) "GENERAL CLAIM" means any claim arising out of or based
on otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Sellers contained in this
Agreement that is not a Tax Claim.
(iii) "SAFETY AND ENVIRONMENTAL CLAIM" means any claim based
upon, arising out of or otherwise in respect of any inaccuracy in or any breach
of any representation or warranty of the Sellers contained in this Agreement
related to Safety and Environmental Laws.
(iv) "TAX CLAIM" means any claim arising out of or otherwise
in respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of the Sellers contained in this Agreement related to
Taxes.
12. INDEMNIFICATION.
12.1 OBLIGATION OF THE SELLERS AND DIENER AND LITMAN TO
INDEMNIFY. Subject to the limitations contained in Section 12.5, the Sellers and
the Shareholders, jointly and severally, agree to indemnify, defend and hold
harmless the Buyer (and any of its officers, directors, employees, affiliates,
successors and assigns) from and against any losses, liabilities, damages,
judgments, assessments, fines, costs, expenses or deficiencies (including
interest, penalties, fees, expenses and disbursements of attorneys, experts,
personnel and consultants incurred by the indemnified party) ("LOSSES") based
upon, arising out of or due to or otherwise in respect of:
(i) any inaccuracy in or any breach of any
representation or warranty of the Sellers or the Shareholders contained in this
Agreement or in any document or other writing delivered pursuant hereto;
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(ii) any breach of any covenant or agreement of
the Sellers or the Shareholders contained in this Agreement; and
(iii) any liability or obligation not assumed by
the Buyer pursuant to Sections 2.1 and 2.2, including, without limitation, any
liability to which it may become subject as a result of the fact that the
transactions contemplated by this Agreement are being effected, at the request
of the Sellers, without compliance with the provisions of any Bulk Sales Act or
any similar statute as enacted in any jurisdiction, domestic or foreign.
12.2 OBLIGATION OF BUYER TO INDEMNIFY. The Buyer shall
indemnify, defend and hold harmless the Sellers from and against any Losses
arising out of or due to (i) any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Buyer contained in this
Agreement or in any document or other writing delivered pursuant hereto; and
(ii) any liability or obligation assumed by the Buyer pursuant to Section 2.1.
12.3 NOTICE TO INDEMNIFYING PARTY.
(a) NOTICE OF ASSERTED LIABILITY. The party
making a claim under this Article 13 is referred to as the "INDEMNITEE," and the
party against whom such claims are asserted under this Article 12 is referred to
as the "INDEMNIFYING PARTY." All claims by any Indemnitee under this Article
12 shall be asserted and resolved as follows: Promptly after receipt by the
Indemnitee of notice of any claim or circumstances which, with the lapse of
time, would or might give rise to a claim or the commencement (or threatened
commencement) of a claim for indemnification under this Article 12, including
any action, proceeding or investigation (an "ASSERTED LIABILITY") that may
result in a Loss, the Indemnitee shall give notice thereof (the "CLAIMS
NOTICE") to the Indemnifying Party; PROVIDED, THAT, the failure to give notice
shall not effect the Indemnifying Party's obligations hereunder except to the
extent it is materially prejudiced thereby. The Claims Notice shall describe the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary, and to the extent feasible) of the Loss that has been
or may be suffered by the Indemnitee.
(b) OPPORTUNITY TO DEFEND. The Indemnifying Party
may elect to compromise or defend, at its own expense and by its own counsel,
any Asserted Liability arising from any third party claim. If the Indemnifying
Party elects to compromise or defend such Asserted Liability, it shall within 30
days (or sooner, if the nature of the Asserted Liability so requires) notify the
Indemnitee of its intent to do so, and the Indemnitee shall cooperate, at the
expense of the Indemnifying Party, in the compromise of, or defense against,
such Asserted Liability. If the Indemnifying Party elects not to compromise or
defend the Asserted Liability, fails to notify the Indemnitee of its election as
herein provided or contests its obligation to indemnify under this Agreement,
the Indemnitee may pay, compromise or defend such Asserted Liability.
Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnitee
may settle or compromise any Asserted Liability over the objection of the other;
PROVIDED, HOWEVER, consent to settlement or compromise shall not be unreasonably
be withheld. In any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of such Asserted Liability. If
the Indemnifying Party chooses to defend any Asserted Liability, the Indemnitee
shall make available to the Indemnifying Party any books, records or other
documents within its control that are necessary or appropriate for such defense.
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12.4 ESCROW FUND. The obligation of the Sellers and the
Shareholders under Section 12.1 shall be satisfied first from the Escrow Fund
and, if the Escrow Fund is inadequate to provide indemnification to the Buyer as
provided in the Escrow Agreement, then from the Sellers and the Shareholders as
provided in Section 12.1.
12.5 LIMITATION ON INDEMNIFICATION. Anything in this
Agreement to the contrary notwithstanding, no indemnification payment shall be
made to the Buyer pursuant to this Section 12.1(i) of Agreement, except those
based upon, arising out of or otherwise in respect of Sections 5.5, 5.18 and
Article 10, or in respect of Taxes, whether from the Escrow Fund or otherwise,
until the amounts which the Buyer would otherwise be entitled to receive as
indemnification under this Agreement aggregate at least $200,000 (the "Basket
Amount"), at which time the Buyer shall be entitled to receive the amount of any
such payments in excess of the Basket Amount. Indemnification in respect of
Taxes shall include the amount of such Tax, interest, penalties, fees and
disbursements of attorneys, experts, personnel and consultants incurred by the
indemnified party but shall not include any other consequential damages.
Anything in this Agreement to the contrary notwithstanding, the liability of the
Sellers shall in no event exceed the Purchase Price received by the
Sellers pursuant to this Agreement (including any amount distributed or which
may later be distributed to the Sellers pursuant to the Escrow Agreement).
Anything in this Agreement to the contrary notwithstanding, the liability of
each Shareholder, other than such Shareholder's liability pursuant to Article
10, shall in no event exceed 50% of the Purchase Price.
12.6 SET-OFF RIGHTS. Each of the Sellers and the
Shareholders agrees that the Buyer shall have the right, but not the
obligation, to set-off against any of its payment obligations hereunder or under
the Purchase Note, the full amount of any Losses required to be paid by such
Sellers pursuant to Section 12.1 if such Losses are not otherwise paid within
thirty (30) days after the Buyer has requested payment. If Buyer elects to
exercise its set-off rights here under against any payment obligation under this
Agreement or the Purchase Note, it will give to the Sellers written notice of
such election which includes the amount to be set off and, upon giving such
notice, the amount of the obligations under this Agreement or the Purchase Note,
as the case may be, shall automatically be reduced by the amount set forth in
such Notice. In the event there is a final determination by a court of competent
jurisdiction that the Buyer was not entitled to indemnification under this
Article 12 with respect to the set-off amount, the Buyer shall promptly
thereafter pay to the Sellers all such amounts which are so determined to have
been incorrectly set-off plus interest thereon at a rate per annum equal to USAi
Cost of Funds in effect during the period from such set-off to such repayment,
which interest shall be calculated on the basis of a 365-day year and shall
accrued from the date the Buyer exercises its right of set-off hereunder to the
date of such repayment. For purposes of this Section 12.6, a determination shall
be final if any and all appeals therefrom shall have been resolved or if thirty
days shall have passed from the rendering of such determination (or of any
determination on appeal there from) and no party shall have commenced any such
appeal therefrom.
13. TERMINATION OF AGREEMENT.
13.1 TERMINATION. This Agreement may be terminated
prior to the Closing as follows:
(i) at the election of the Sellers, if the Buyer
has breached any material representation, warranty, covenant or agreement
contained in this Agreement and such breach is either not capable of being cured
prior to September 30, 1999 or, if such breach is capable of being cured, is not
so cured within a reasonable amount of time;
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(ii) at the election of the Buyer, if the Sellers
have breached any material representation, warranty, covenant or agreement
contained in this Agreement and such breach is either not capable of being cured
prior to September 30, 1999 or, if such breach is capable of being cured, is not
so cured within a reasonable amount of time;
(iii) at the election of the Sellers or the Buyer,
if any legal proceeding is commenced or threatened by any governmental agency or
other person directed against the consummation of the Closing or any other
transaction contemplated under this Agreement and either the Sellers or the
Buyer, as the case may be, reasonably and in good faith deems it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof;
(iv) at any time on or prior to the Closing Date,
by mutual written consent of the Sellers and the Buyer;
(v) at the election of the Buyer if the Closing
has not occurred by September 30, 1999 (other than a failure of the Closing to
occur due to a breach of this Agreement by the Buyer); or
(vi) at the election of the Sellers if the Closing
has not occurred by September 30, 1999 (other than a failure of the Closing to
occur due to a breach of this Agreement by the Sellers); or
13.2 SURVIVAL AFTER TERMINATION. If this Agreement
terminates pursuant to Section 13.1 and the transactions contemplated here under
are not consummated, this Agreement shall be null and void and have no further
force or effect, except that any such termination shall be without prejudice to
the rights of any party on account of the nonsatisfaction of the conditions set
forth in Articles 8 and 9 resulting from the intentional or willful breach or
violation of the representations, warranties, covenants or agreements of another
party under this Agreement. Notwithstanding anything in this Agreement to the
contrary, the provisions of Article 14 shall survive any termination of this
Agreement.
14. MISCELLANEOUS.
14.1 CERTAIN DEFINITIONS. As used in this Agreement, the
following terms have the following meanings unless the context otherwise
requires:
(i) "ACQUIRED BUSINESS" is any person or business
acquired by the Buyer after the Closing through a purchase of assets or stock,
or a contribution to the capital of the Buyer, other than the Purchased Assets
and other assets or Investments purchased in the ordinary course of business of
the Buyer.
(ii) "ACQUIRED EBT" is (a) the amount of EBT of the
Acquired Business for the twelve-month period ending on the last day of the
month immediately prior to the date of the acquisition of such Acquired Business
by the Buyer divided by 52 times (b) the number of weeks (rounded to the nearest
whole) during the relevant period for which EBT is being calculated that the
Acquired Business was owned by the Buyer.
(iii) "ACQUIRED GROSS PROFIT" is the Gross Profit
attributable to, or contributed by, any Acquired Business during the relevant
period.
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(iv) "ADJUSTED EBT" means (A) subject to paragraph
(B) below, EBT adjusted (a) to exclude Acquired EBT (as defined above) for the
period, (b) to exclude expenses related to the transaction contemplated by the
Agreement, any expenses incurred by the Buyer relating to disputes under this
Agreement and any amortization of goodwill, (c) to exclude an amount equal to
Base Cost of Capital, (d) to exclude interest earned on the proceeds of any
equity issued by the Company, (e) to exclude interest paid to the Sellers by the
Company under the Purchase Note, (f) to exclude salary expenses in excess of
$37,500 payable to either Diener or Litman during any fiscal year, (g) to
exclude additional charges incurred in connection with the attempted public
offering (including in connection with the preparation and filing of the SEC
registration statement filed on November 9, 1999) of the stock of HRN, such as
filing fees, blue sky expenses, attorneys' fees, accounting fees, printing
expenses and road show expenses. and (h) to include an amount equal to the
Imputed Interest. Notwithstanding the foregoing, for the purposes of determining
the Adjusted EBT for the year ended March 31, 2004 in Section 7.11 only, all EBT
attributable to, or contributed by, any Acquired Business acquired during such
period shall be excluded and the calculation of Base Cost of Capital shall not
include any Acquired Business acquired during such period.
(B) Notwithstanding paragraph (A) above, if
HRN issues warrants or other similar convertible securities to third parties in
connection with the provision of goods and services ("THIRD PARTY WARRANTS"),
then for purposes of determining the effect of the Third Party Warrants on
Adjusted EBT, notwithstanding anything to the contrary contained in this
Agreement, the following principles shall apply:
(i) for the purposes of calculating
Adjusted EBT, the charge to earnings attributable to the Third Party Warrants
shall equal 50% of the actual accounting charges taken by HRN in accordance with
GAAP in respect of such Third Party Warrants; and
(ii) following the point at which the
product of (x) 50% of the actual accounting charges taken by HRN in accordance
with GAAP in respect of such Third Party Warrants and (y) the applicable
multiplier of the growth in Adjusted EBT for the relevant period pursuant to
clause (c) of Section 7.9.2, 7.9.3 and/or 7.9.4 of this Agreement as to any
years regarding which a payment is made based on Adjusted EBT rather than
Adjusted Gross Profit, EQUALS or exceeds $1 million, then for purposes of
Adjusted EBT, the charges to earnings attributable to the Third Party Warrants
shall be determined by HRN in accordance with GAAP.
The term "Third Party Warrants" shall not include any options or other
securities issued to officers, directors, employees and/or advisors of HRN
pursuant to plans adopted by HRN.
(v) "ADJUSTED GROSS PROFIT" means Gross Profit
for a period of time, adjusted to exclude any Acquired Gross Profit.
(vi) "AFFILIATE," with respect to any person,
means and includes any person controlling, controlled by or under common control
with such person.
(vii) "BASE COST OF CAPITAL" shall be an amount
equal to 12% per annum applied to the enterprise value (including debt (less
cash) assumed), as reasonably determined by the Buyer and the Sellers, of any
Acquired Business, compounded annually from the date such Acquired Business was
acquired by the Buyer. As an example if an Acquired Business is purchased for $1
million and the Buyer assumes $500,000 of the Acquired Business' debt, the
enterprise value of such Acquired Business shall be
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$1.5 million. In the event the Buyer and Sellers are unable to determine the
enterprise value of any Acquired Business, a nationally recognized investment
bank mutually acceptable to the Buyer and the Sellers shall be retained to
determine the enterprise value of such Acquired Business.
(viii) "BUSINESS" means the business of the Sellers
as conducted prior to the Closing and the business of the Buyer as conducted
after the Closing.
(ix) "BUSINESS DAY," means any day which is not a
federal, state or local holiday and on which the banks generally are open in New
York, New York for the conduct of business.
(x) "CODE" shall mean the Internal Revenue code
of 1986, as amended, and the applicable Treasury regulations promulgated
thereunder.
(xi) "CONTRACTS AND OTHER AGREEMENTS" means and
includes all contracts, agreements, indentures, bonds, leases, mortgages,
franchises, licenses, commitments or binding arrangements, express or implied.
(xii) "DOCUMENT OR OTHER PAPERS" means and includes
any document, agreement, instrument, certificate, notice, consent, affidavit,
letter, telegram, telex, statement, schedule (including any Schedule to this
Agreement), exhibit (including any Exhibit to this Agreement) or any other paper
whatsoever.
(xiii) "EBT" means for the relevant period, as to
the Business, the net income of such business before deduction for federal,
state or local Income Taxes, all determined in accordance with GAAP consistently
applied; PROVIDED, HOWEVER, that the 2003 EBT in Section 7.11 shall not include
the EBT attributable to, or contributed by, any Acquired Business acquired
during such period. Expenses incurred, directly or indirectly, by the Company as
a result of its being a public company, to the extent provided by GAAP, shall be
included in the determination of EBT.
(xiv) "ENVIRONMENT" means navigable waters, waters
of the contiguous zone, ocean waters, natural resources, surface waters, ground
water, drinking water supply, land surface, subsurface strata, ambient air, both
inside and outside of buildings and structures, man-made buildings and
structures, and plant and animal life on earth.
(xv) "ENVIRONMENTAL CLAIMS" means any notification,
whether direct or indirect, formal or informal, written or oral, pursuant to
Safety and Environmental Laws or principles of common law relating to pollution,
protection of the Environment or health and safety, that any of the current or
past operations of the Sellers, or any by-product thereof, or any of the
property currently or formerly owned, leased or operated by the Sellers, or the
operations or property of any predecessor of the Sellers, is or may be
implicated in or subject to any claim, order, hearing, notice, agreement or
evaluation by any governmental body or any other person.
(xvi) "GAAP" means generally accepted accounting
principles of the U.S. consistently applied.
(xvii) "GROSS PROFIT" means for the relevant period
total revenue (other than interest and dividend income, net income resulting
from the sale of marketable securities and other non-
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<PAGE> 43
operating activity generated income) calculated in accordance with SCHEDULE 14.1
reduced by the Cost of Sales calculated in accordance with SCHEDULE 14.1 related
to such revenue, all in accordance with GAAP consistently applied.
(xviii) "HAZARDOUS SUBSTANCE" means any toxic
waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous
waste, special waste, industrial substance or waste, petroleum or
petroleum-derived substance or waste, radioactive substance or waste, or any
constituent of any such substance or waste, or any other substance regulated
under or defined by any Safety and Environmental Law.
(xix) "INCOME TAXES" means any federal, state,
local, or foreign Tax (including any interest, penalties, or additions to Tax
attributable to such Tax) (i) based upon, measured by, or calculated with
respect to, net income or net receipts, proceeds, or profits (including, but not
limited to, any capital gains Taxes, minimum Taxes, and any Taxes on items of
Tax preference, but not including sales, use, real or personal property
transfer, or similar Taxes), or (ii) based upon, measured by, or calculated with
respect to multiple bases (including, but not limited to, corporate franchise or
occupation Taxes) if one or more of the bases on which such Tax may be based,
measured by, or calculated with respect to is described in (i) above.
(xx) "IMPUTED INTEREST" means an amount equal to
the interest rate USA earns on its short term cash deposits, as adjusted
quarterly, applied to (a) the amount of any cash dividends, distributions or
advances by the Buyer, and (b) the amount of any payments made to the Sellers
under Section 7.9 and 7.10 and pursuant to the Purchase Note which are paid by
the Company in each case, compounded annually from the date of such cash
dividend or distribution.
(xxi) "INVESTMENT" means any loan or advance to
any person, any purchase or other acquisition of any capital stock or other
ownership or profit interest, warrant, right, option, obligation or other
securities of such person, any capital contribution to such person or any other
investment in such person.
(xxii) "KNOWLEDGE" means, with respect to the
Buyer or Sellers, the actual knowledge of any officer, director or shareholder
of such person.
(xxiii) "LIEN OR OTHER ENCUMBRANCE" means and
includes any lien, pledge, mortgage, security interest, claim, lease, charge,
option, right of first refusal, easement or any other encumbrance whatsoever.
(xxiv) "NET WORKING CAPITAL" means the current
assets of the Sellers acquired by Buyer at Closing minus the current liabilities
of the Sellers assumed by Buyer at Closing, all determined in accordance with
GAAP consistently applied. Schedule 14.1 sets forth the Net Working Capital of
the Sellers as of December 31, 1998.
(xxv) "PERSON" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization or other entity.
(xxvi) "PROPERTY" means real, personal or mixed
property.
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<PAGE> 44
(xxvii) "SAFETY AND ENVIRONMENTAL LAWS" means all
Laws and Orders relating to pollution, protection of the Environment, public or
worker health and safety, or the emission, discharge, release or threatened
release of Hazardous Substances into the Environment or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
ET SEQ., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 ET
SEQ., the Toxic Substances Control Act, 15 U.S.C. Section 2601ET SEQ., the
Federal Water Pollution Control Act, 33 U.S.C. Section 1251 ETSEQ., the Clean
Air Act, 42 U.S.C. Section 7401 ET SEQ., the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 121 ET SEQ., the Occupational Safety and
Health Act, 29 U.S.C. Section 651 ET SEQ., the Asbestos Hazard Emergency
Response Act, 15 U.S.C. Section 2601 ET SEQ., the Safe Drinking Water Act, 42
U.S.C. Section 300f ET SEQ., the Oil Pollution Act of 1990, 33U.S.C. Section
2701 ET SEQ., and analogous state acts.
(xxviii) "TAX RETURN" means all returns,
declarations, reports, forms, estimates, information returns, and statements
required to be filed in respect of any Taxes or to be supplied to a taxing
authority in connection with any Taxes.
(xxix) "TAXES" means all taxes of any kind,
charges, fees customs, duties, imposts, levies, or other assessments, including,
without limitation, all net income, gross receipts, ad valorem, value added,
transfer, gains, franchise, profits, inventory, net worth, capital stock, asset,
sales, use, license, estimated, withholding, payroll, transaction, capital,
employment, social security, workers compensation, unemployment, excise,
severance, stamp, occupancy, and property taxes, together with any interest,
penalties, additions to tax, or additional amounts imposed by any taxing
authority (domestic or foreign) and shall include any transferee liability in
respect of Taxes.
(xxx) "USA COST OF FUNDS" means the interest rate
charged USA pursuant to its senior credit facility in existence at such time.
14.2 PUBLICITY. No publicity release or announcement
concerning this Agreement or the transactions contemplated hereby shall be
issued without advance approval of the form and substance thereof by the Sellers
and the Buyer.
14.3 NOTICES. Any notice or other communication required
or which may be given hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, or sent by facsimile transmission or, if mailed, five days
after the date of deposit in the United States mails, as follows:
(i) if to the Buyer or USA, to it:
c/o USA Networks, Inc.
152 West 57th Street
42nd Floor
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 314-7329
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<PAGE> 45
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Robert B. Schumer, Esq.
Facsimile: (212) 757-3990
(ii) if to the Sellers, to it:
c/o Hotel Reservations Network
8140 Walnut Hill Lane
Suite 203
Dallas, Texas 75231
Attention: David Litman
Facsimile: (214) 265-0975
with a copy to:
Sayles & Lidji
1201 Elm Street
44th Floor
Dallas, Texas 75270
Attention: Brian M. Lidji, Esq.
Facsimile: (214) 939-8787
(iii) if to the Shareholders, to it:
David Litman
5001 Swiss Avenue
Dallas, Texas 75214
Facsimile: (214) 826-1917
and
Robert Diener
8877 Collins Avenue, PHA
Surfside, Florida 33154
Facsimile: (305) 868-4922
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<PAGE> 46
with a copy to:
Sayles & Lidji
1201 Elm Street
44th Floor
Dallas, Texas 75270
Attention: Brian M. Lidji, Esq.
Facsimile: (214) 939-8787
14.4 ENTIRE AGREEMENT. This Agreement (including the
Exhibits and Schedules hereto) contains the entire agreement among the parties
with respect to the purchase of the Purchased Assets and related transactions
and supersedes all prior agreements, written or oral, with respect thereto.
14.5 WAIVERS AND AMENDMENTS. This Agreement may be
amended, modified, superseded canceled, renewed or extended, and the terms and
conditions hereof may be waived only by a written instrument signed by the
parties or, in the case of a waiver, the party waiving compliance. No delay on
the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder. The rights and remedies herein provided are cumulative and are
nonexclusive of any rights or remedies which any party may otherwise have at law
or in equity. The rights and remedies of any party arising out of or otherwise
in respect of any inaccuracy in or breach of any representation, warranty,
covenant or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation, warranty, covenant or agreement contained in
this Agreement (or in any other agreement between the parties) as to which there
is no inaccuracy or breach.
14.6 GOVERNING LAW. This Agreement shall be governed and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely within such State.
14.7 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. Any
claim arising out of or relating to this Agreement, the Purchase Note or the
Escrow Agreement or the transactions contemplated hereby and thereby may be
instituted in any Federal Court of the Southern District of New York or any
state court located in New York County, State of New York, and each party agrees
not to assert, by way of motion, as a defense or otherwise, in any such claim,
any claim it is not subject personally to the jurisdiction of such Court, that
the claim is brought in an inconvenient forum, that the venue of the claim is
improper or that this Agreement, the Purchase Note or the Escrow Agreement or
the subject matter hereof or thereof may not be enforced in or by such Court.
Each party further irrevocably submits to the jurisdiction of such Court in any
such claim. Any and all service of process and any other notice of any such
claim shall be effective against the party if given personally or by registered
or certified mail, return receipt requested, or by any other means of mail that
requires a signed receipt, postage prepaid, mailed to such party as herein
provided. Nothing herein contained shall be deemed to affect the right of any
party to serve process in any matter permitted by law or to commence legal
proceedings or otherwise proceed against any other party in any other
jurisdiction.
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<PAGE> 47
14.8 NO ASSIGNMENT. This Agreement shall inure to
the benefit of and be binding upon the successors and permitted assigns and
permitted transferees of the parties hereto. This Agreement is not assignable
except by operation of law; PROVIDED THAT Sellers may assign all or part of the
Promissory Note, Additional Purchase Payment, Deferred Payment or Participation
Payment to the Shareholders in connection with the partial or complete
liquidation of the Sellers. The Shareholders may then assign without limit or
reservation any of his or its rights (but not his or its obligations) to any
family member or trust, whether charitable or for the benefit of any family
member; provided, such family member or trust agrees in writing to be bound by
the obligations of the Shareholders hereunder, including without limitation, the
indemnification obligations pursuant to Article 12 and the guaranty obligations
pursuant to Section 10.6. Except as provided in Article 12, no other person
other than the parties hereto and their successors and permitted assigns
is intended to be a beneficiary of this Agreement.
14.9 USAGE. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require. All terms defined in this Agreement in
their singular or plural forms have correlative meanings when used herein in
their singular or plural forms, respectively. Unless otherwise expressly
provided, the words "include," "includes" and "including" do not limit the
preceding words or terms and shall be deemed to be followed by the words
"without limitation."
14.10 COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which shall be deemed an
original but all of which together shall constitute one and the same instrument.
14.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules
to this Agreement are hereby made a part of this Agreement as if set forth in
full herein.
14.12 HEADINGS. The headings in this Agreement are intended
solely for convenience of reference and shall be given no effect in the
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HRN, INC.
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Chief Executive Officer
USA NETWORKS, INC.
By /s/ Deirdre Stanley
--------------------------------
Name: Deirdre Stanley
Title: Assistant Secretary and
Deputy General Counsel
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<PAGE> 48
TMF LIQUIDATING TRUST
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Trustee
TMF, INC.
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Chief Executive Officer
HRN MARKETING CORP.
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Vice President
/s/ David Litman
----------------------------------
David Litman
/s/ Malia Litman
----------------------------------
Malia Litman
/s/ Robert Diener
----------------------------------
Robert Diener
/s/ Michelle Diener
----------------------------------
Michelle Diener
The Zachary Charles Litman Exempt
G-S Trust
By /s/ Frank D. Connery
--------------------------------
Name: Frank D. Connery
Title: Trustee
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<PAGE> 49
The Katherine Elizabeth Litman
Exempt G-S Trust
By /s/ Frank D. Connery
--------------------------------
Name: Frank D. Connery
Title: Trustee
The Anna Marie Litman Exempt G-S
Trust
By /s/ Frank D. Connery
--------------------------------
Name: Frank D. Connery
Title: Trustee
The Allison Diener Exempt
G-S Trust
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Trustee
The Brianna Diener Exempt G-S
Trust
By /s/ David Litman
--------------------------------
Name: David Litman
Title: Trustee
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<PAGE> 50
EXHIBIT D
RECEIPT AND RELEASE OF CLAIMS
Reference herein is made to the Amended and Restated Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of April 13, 1999,as amended
(as further amended on February 2, 2000) among HRN, Inc., a Delaware corporation
(the "Buyer"), USA Networks, Inc., a Delaware corporation, TMF, INC., a Texas
corporation, HRN Marketing Corp., a Florida corporation, TMF Liquidating Trust,
a __________ trust (the "Trust"), Robert Diener and David Litman. Capitalized
terms used but not otherwise defined herein shall have the meanings ascribed to
them in the Asset Purchase Agreement.
In consideration of the Buyer's performance of its obligations under
Section 7.11.3 and Section 7.15 of the Asset Purchase Agreement, the undersigned
hereby agree and acknowledge that all of the payment and other obligations of
the Buyer under Sections 7.9.3, 7.9.4 and 7.11 of the Asset Purchase Agreement
have been fulfilled. The undersigned hereby release (a) the Buyer from all
claims, suits and other causes of action arising from, in connection with or
relating to, Sections 7.9.3, 7.9.4 and 7.11 and (b) USA from all claims, suits
and other causes of action arising from, in connection with or relating to
Section 7.12 of the Asset Purchase Agreement (as such Section relates to its
guaranty of the Buyer's obligations under Sections 7.9.3, 7.9.4 and 7.11),
Upon payment by the Buyer of the amounts, if any, due under Section 7.10 in
respect of the quarter ended December 31, 1999 and 7.9.2 in respect of the
twelve months ended March 31, 2000, the undersigned shall execute and deliver a
release substantially in this form with respect to the Buyer's obligations under
Section 7.9.2, 7.10, 7.13 and 7.14 and USA's obligations under Section 7.12 (as
such section relates to its guaranty the Buyer's obligations under
Sections 7.9.2, 7.10, 7.13 and 7.14).
The undersigned hereby acknowledge the Trust's receipt from the Buyer
of:
15. ________________ shares of Class A Common Stock of the
Buyer, par value $0.01 per share.
Dated this ___ day of ____________, _____
TMF, INC.
By
--------------------------------
Name:
Title:
HRN MARKETING CORP.
By
--------------------------------
Name:
Title:
<PAGE> 51
TMF LIQUIDATING TRUST
By
--------------------------------
Name:
Title:
----------------------------------
Robert Diener
----------------------------------
David Litman
<PAGE> 52
EXHIBIT E
LETTER OF REPRESENTATIONS
[Date]
HRN, Inc.
c/o USA Networks, Inc.
152 West 57th Street
42nd Floor
New York, New York 10019
Attention: General Counsel
To whom it may concern:
Reference herein is made to the Amended and Restated Asset Purchase
Agreement (the "Asset Purchase Agreement") dated as of April 13, 1999,as amended
(as further amended on February 2, 2000) among HRN, Inc., a Delaware
corporation, USA Networks, Inc., a Delaware corporation, TMF, INC., a Texas
corporation, HRN Marketing Corp., a Florida corporation, TMF Liquidating Trust,
a _________ trust, Robert Diener and David Litman. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to them in the
Asset Purchase Agreement.
In consideration of the issuance of [describe shares being issued by
Buyer] (the "Subject Shares"), the undersigned hereby:
1. Acknowledges that the undersigned or the undersigned's
representative has had access to the same kind of information concerning the
Buyer that is required by Schedule A of the Securities Act, to the extent that
the Buyer possesses such information;
2. Represents and warrants that the undersigned has such knowledge and
experience in financial and business matters that the undersigned is capable of
utilizing the information that is available to the undersigned concerning the
Buyer to evaluate the risks of investment in the Buyer;
3. Represents and warrants that it qualifies as an"accredited investor"
under Rule 501(a)(7) under the Securities Act.
4. Acknowledges that the undersigned has been advised that the Subject
Shares have not been registered under the Securities Act and, accordingly, that
the undersigned may not be able to sell or otherwise dispose of the Subject
Shares when the undersigned wishes to do so;
5. Represents and warrants that the Subject Shares are being purchased
by the undersigned for the undersigned's own sole benefit and account for
investment and not with a view to, or for resale in connection with, a public
offering or distribution thereof;
6. Agrees that the Subject Shares will not be resold (a) without
registration thereof under the Securities Act (unless an exemption from such
registration is available) or (b) in violation of any law;
7. Consents that the certificate or certificates representing the
Subject Shares may be impressed with a legend indicating that the Subject Shares
are not registered under the Securities Act and reciting that transfer
thereof is restricted; and
<PAGE> 53
8. Consents that stop transfer instructions in respect of the Subject
Shares may be issued to any transfer agent, transfer clerk or other agent at any
time acting for the Buyer.
Yours sincerely,
TMF LIQUIDATING TRUST
By
--------------------------------
Name:
Title:
<PAGE> 54
Schedule 7.10
<TABLE>
<CAPTION>
Target
Adjusted
Fiscal Quarter Ending Gross Profit
- --------------------- ------------
(in thousandths)
<S> <C>
March 31, 1999 $ 5,938.7
June 30, 1999 8,858.2
September 30, 1999 11,555.6
December 31, 1999 18,383.7
---------
Total for 12 month period ending
December 31, 1999 $44,736.2
</TABLE>
<PAGE> 55
SCHEDULE 14.1(XVII)
GROSS PROFIT
REVENUE:
Total revenue (including the items listed below) other than interest and
dividend income, net income resulting from the sale of marketable securities and
other non-operating activity generated income
Hotel Reservation Revenue by Source:
Call center previous customer
Call center referral
Total call center reservations
-------------------
Internet - automated charge process
Internet - old site booking
Internet booking by phone
Internet travel network
Total Internet reservations
-------------------
Newspaper/Magazine
Other or unknown
Travel agents
Travel clubs
Other or unknown
TOTAL HOTEL RESERVATION REVENUE
-------------------
Forfeitures
Penalties
Refunds & Adjustments
Rebates
Commissions
TOTAL REVENUE
-------------------
COST OF SALES
Hotel reservations (including room charges, taxes)
Add, update & delete
Travel agent commissions
Internet commissions
Other commissions
Charge backs
Uninvoiced accounts payable
-------------------
TOTAL COST OF SALES
-------------------
GROSS PROFIT
-------------------
<PAGE> 56
SCHEDULE 14.1(XXIV)
NET WORKING CAPITAL
<TABLE>
<CAPTION>
12/31/98 CLOSING
-------- -------
<S> <C> <C>
CURRENT ASSETS:
Cash & Equivalents
Investment Account (marketable securities)
Chargebacks in process
Commissions Receivable
Accrued Interest
Amounts Due From Employee
Prepaid Expenses
Prepaid Advertising
Security Deposits
Prepaid Hotel Inventory
Accounts Receivable (other)
Total Current Assets
CURRENT LIABILITIES:
Customer Deposits
Hotel Accounts Payable
Corporate (non-hotel) Accounts Payable
Commissions Payable
Accrued Payroll
Total Current Liabilities
TOTAL NET WORKING CAPITAL
</TABLE>
