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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A*
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 27, 1999
GHS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-15586 52-1373960
(State or other (Commission (I.R.S.Employer
jurisdiction) File Number) Identification No.)
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704 Broadway, Second Floor, New York, New York 10003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 358-4028
2400 Research Boulevard, Suite 325, Rockville, Maryland 20850
(Former name and former address, if changed since last report)
* Amendment No. 1 to Form 8-K - This Amendment No. 1 to the Registrant's Form
8-K dated May 27, 1999 and filed with the Commission on June 11, 1999 is being
filed in order to file the Exhibits referenced herein in Item 7(c).
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Item 1 Changes in Control of Registrant
and
Item 2. Acquisition of Disposition of Assets
On May 27, 1999, GHS, Inc. ("GHS" or the "Company") acquired
all of the membership interests of Change Your Life.com, LLC, a Delaware limited
liability company ("CYL"), pursuant to a Contribution and Exchange Agreement
(the "Exchange Agreement") dated as of May 20, 1999 by and among the Company,
CYL, Anthony J. Robbins ("Robbins"), Robbins Research International Inc., a
corporation controlled by Robbins ("RRI"), and CYL Development Holdings, LLC
("Development Holdings"). CYL was founded by Robbins and is engaged in the
development of an online network for personal and professional improvement.
Pursuant to the Exchange Agreement, GHS issued an aggregate of 99,059.338 shares
of a newly-designated Series A Preferred Stock to the members of CYL in exchange
for all of the membership interests in CYL. The shares of Series A Preferred
Stock issued in connection with the Exchange are convertible into an aggregate
of 30,708,395 shares of the Company's Common Stock (the "Common Stock") and vote
on an as converted basis with the Common Stock. The Series A Preferred Stock is
automatically converted on the later of (i) the next business day following the
date of filing of a certificate of an amendment to the Company's Certificate of
Incorporation that increases the number of authorized shares of Common Stock to
a number sufficient to permit the conversion of all of the then outstanding
shares of Series A Preferred Stock into shares of the Common Stock or (ii) the
next business day following the record date for the spin-off dividend of the
Company's U.S. NeuroSurgical subsidiary (the "USN Spin-Off"). The Company plans
to spin-off its USN subsidiary to the holders of the Common Stock in the near
future, and to take such actions as are required in order to increase the
authorized shares of Common Stock.
Robbins is internationally recognized as a leader in peak
performance results coaching. He is an international best selling author of five
books and his "Personal Power" audio program is the number-one personal and
professional coaching system of all time with more than 30 million tapes being
used to transform lives worldwide. RRI, known as The Anthony Robbins Companies,
conducts training and coaching programs worldwide. Pursuant to a Content
Provider Agreement and License ("Content Provider Agreement") effective as of
April 23, 1999 between CYL, Robbins and RRI, CYL has exclusive rights to be the
online source for Robbins' training, courses, content and publications.
As part of the transactions contemplated by the Exchange
Agreement, the Board of Directors of the Company amended and restated the
By-Laws of the Company (the "Restated By-Laws").
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The Restated By-Laws provide that the Board of Directors shall consist of eight
members and the initial members of the Board of Directors following the
Company's acquisition of CYL shall be elected within 45 days of the CYL closing
date, PROVIDED that the three-person Board of Directors existing prior to the
closing date shall continue to exist until such time as all actions are taken
which are required by applicable law to effect such provisions. With respect to
such initial directors and at each subsequent election of Directors and for so
long as Anthony J. Robbins or any of his affiliates shall hold in the aggregate
at least 10% of the outstanding shares of Common Stock or Common Stock
equivalents, (i) Robbins or such affiliates shall have the right to nominate
three persons as Directors of the Company (the "Robbins Directors"), and (ii) a
Nominating Committee consisting of the Directors (other than the Robbins
Directors and the Company's Chief Executive Officer) and their respective
successors shall have the right to nominate four persons as Directors of the
Company and (iii) the eighth Director shall be the Company's Chief Executive
Officer. If any Director is unable to serve or, once having commenced to serve,
is removed or withdraws from the Board of Directors of the Company, the
replacement of such Director on the Board of Directors of the Company will be
nominated in accordance with the above-described procedures. In addition, the
Restated By-Laws provide that during the term of the Content Provider Agreement
referred to above, Robbins will have the right to approve of the selection of
the Chief Executive Officer of the Company by the Board of Directors, PROVIDED
that said right will expire if the entire interest in the Company (or successor
thereto) obtained by Robbins and RRI in connection with the Exchange Agreement
is transferred to any other party on an involuntary basis, e.g. through
bankruptcy proceedings or pursuant to a court order.
After giving effect to the issuance of the Series A Preferred
Stock in connection with the Exchange Agreement and the Series B Preferred Stock
and Series C Preferred Stock issued in connection with the private placement
described below (See Item 5) and the Concept Development and The Learning Annex
transactions, respectively, the Company will have outstanding 7,047,828 shares
of Common Stock and shares of preferred stock which are convertible into
33,051,708 shares of Common Stock and which vote on an as converted basis with
the Common Stock. As a result of such issuances by the Company, Robbins and his
affiliates, will own approximately 57.4% of the voting power of the Company and
Development Holdings will own approximately 19.1% of the voting power of the
Company.
On May 27, 1999, the Company acquired all of the outstanding
capital stock of Concept Development, Inc. ("Concept Development") through a
reverse triangular merger (the "Merger")
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pursuant to an Agreement and Plan of Reorganization dated as of May 27, 1999
among the Company, Concept Development, Concept Acquisition Corporation, a
wholly-owned subsidiary of the Company, William Zanker ("Zanker") and Debbie
Dworkin ("Dworkin"). Concept Development was formed in September 1996 to provide
on-line general-interest continuing education courses on the Internet. In
connection with the Merger, the Company issued an aggregate of 50,000 shares of
a newly-designated Series C Preferred Stock to Dworkin, the sole stockholder of
Concept Development (the "Merger Shares"), in exchange for all of the
outstanding capital stock of Concept Development. The shares of Series C
Preferred Stock issued in the Merger are convertible into an aggregate of
500,000 shares of the Common Stock and vote on an as converted basis with the
Common Stock. Each share of Series C Preferred Stock is automatically
convertible into ten shares of Common Stock on the day following the record date
for the USN Spin-Off.
On May 27, 1999, in connection with the Merger, the Company
entered into a Repurchase Agreement with Dworkin (the "Repurchase Agreement"),
the sole stockholder of Concept Development prior to the Merger. Pursuant to the
Repurchase Agreement, the Company has the right to repurchase the Merger Shares
(the "Repurchase Option") issued to Dworkin in connection with the Merger if
Zanker ceases to be employed by the Company, unless due to a Termination Without
Cause (as defined in the Employment Agreement dated as of May 27, 1999 between
the Company and Zanker) or in connection with a change in control of the Company
after the change in control described herein. Commencing August 31, 1999, the
number of Merger Shares subject to the Repurchase Option will be reduced, in
equal quarterly increments ending in the quarter ending May 31, 2002, ultimately
to zero.
Item 5. Other Events
On May 27, 1999, GHS completed a private placement of 178,582
shares (the "Shares") of a newly designated class of Series B Preferred Stock at
a purchase price of $90 per share, resulting in net proceeds of approximately
$15.1 million to the Company. Each share of Series B Preferred Stock is
automatically convertible into 10 shares of Common Stock on the day following
the record date for the USN Spin-Off.
The Company plans to use the proceeds from the private
placement to finance ongoing operations and for general corporate purposes. The
Company has agreed to file a registration statement under the Securities Act of
1933 as promptly as practicable following the closing of the private placement
covering the shares of common stock underlying the Series B
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Preferred Stock. The Shares were sold pursuant to an exemption from the
registration requirements of the Securities Act of 1933.
On May 27, 1999, the Company entered into an Option Agreement
(the "Option Agreement") with The Learning Annex (as defined below) pursuant to
which, among other things, the Company obtained the option to acquire The
Learning Annex (the "Option"). The Learning Annex is a leading provider of
continuing education courses in five cities in the United States and Canada. The
Option is exercisable, on the terms and subject to the conditions in the Option
Agreement, at any time from May 27, 1999 through May 27, 2004 at an exercise
price based on a pre-negotiated price structure. The Company paid $75,000 on May
27, 1999 for the first year of the Option and is required to pay $125,000,
$200,000, $500,000 and $750,000, respectively, to maintain the Option in each of
the subsequent four years. In addition, the Company entered into an exclusive
license agreement with The Learning Annex for the use of its intellectual
property and the exclusive sale of certain of its merchandise. As consideration
for the license, the Company paid cash and issued certain equity securities of
the Company to The Learning Annex. "The Learning Annex" consists of Seligman
Greer Communication Resources, Inc., a California corporation (d/b/a The
Learning Annex of San Francisco), SGS Communication Resources, Inc., a
California corporation (d/b/a The Learning Annex of Los Angeles), Seligman Greer
Sandberg Enterprises, Inc., a California corporation (d/b/a The Learning Annex
of San Diego), SGC Communication Resources LLC, a Delaware limited liability
company (d/b/a The Learning Annex of New York), and Learning Annex Interactive
LLC, a Delaware limited liability company (collectively "The Learning Annex").
On May 27, 1999, the Board of Directors elected Beth Polish as
President and Chief Operating Officer of the Company. Previously, from August
1998 through May 26, 1999, Ms. Polish, age 38, was a consultant to CYL. Prior to
joining CYL, Ms. Polish was managing director of KPMG's new media consulting
practice. From August 1995 through 1996, Ms. Polish was founding Chief Financial
Officer and Senior Vice President Corporate Development for iVillage, Inc, a
leading online women's network. For the three years prior, Ms. Polish was a Vice
President at Bannon & Co., an investment bank specializing in media,
entertainment and communications industries. Ms. Polish received an M.B.A. from
Harvard Business School and an A.B. from Franklin & Marshall College.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired
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Any financial statements required by this item shall be filed
by an amendment to this Form 8-K not later than 60 days after that this Form 8-K
was required to be filed.
(b) Pro Forma Financial Information
Any pro forma financial information required by this item
shall be filed by an amendment to this Form 8-K not later than 60 days after
that this Form 8-K was required to be filed.
(c) Exhibits
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Ex. No. Description
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2(a) Contribution and Exchange Agreement dated as of May 20, 1999 among the
Company, Change Your Life.com, LLC, Anthony J. Robbins, Robbins
Research International Inc. and CYL Development Holdings, LLC
2(b) Agreement and Plan of Reorganization dated as of May 27, 1999 among the
Company, Concept Acquisition Corporation, Concept Development, Inc.,
William Zanker and Debbie Dworkin*
2(c) Agreement of Merger dated as of May 27, 1999 between Concept
Acquisition Corporation and Concept Development, Inc.*
3(a) Certificate of Designations for Series A Preferred
Stock
3(b) Certificate of Designations for Series B Preferred
Stock
3(c) Certificate of Designations for Series C Preferred
Stock
3(d) Amended and Restated By-Laws
10(a) Content Provider Agreement and License effective as of April 23, 1999
between Change Your Life.com, LLC, Anthony J. Robbins and Robbins
Research International Inc.*
10(b) Escrow Agreement dated as of May 27, 1999 among the Company, Debbie
Dworkin and State Street Bank and Trust Company*
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10(c) Repurchase Agreement dated as of May 27, 1999 between the Company and
Debbie Dworkin*
10(d) Employment Agreement dated as of May 27, 1999 between the Company and
William Zanker
10(e) Exclusive License and Marketing Agreement dated as of May 27, 1999
among the Company, Seligman Greer Communication Resources, Inc.
("Seligman"), SGS Communication Resources, Inc., Seligman Greer
Sandberg Enterprises, Inc., SGC Communication Resources LLC and
Learning Annex Interactive LLC*
10(f) Option Agreement dated as of May 27, 1999 among the Company, Seligman
Greer Communication Resources, Inc., SGS Communication Resources, Inc.,
Seligman Greer Sandberg Enterprises, Inc., SGC Communication Resources
LLC and Learning Annex Interactive LLC and certain shareholders and
members, as applicable, of such entities other than the Company listed
therein*
10(g) Registration Rights Agreement dated as of May 27, 1999 among the
Company, Anthony J. Robbins, Robbins Research International Inc. and
CYL Development Holdings, LLC
10(h) Stockholders Agreement dated as of May 27, 1999 among the Company,
Anthony J. Robbins, Robbins Research International Inc. and CYL
Development Holdings, LLC
99(a) Press Release issued May 28, 1999
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GHS, INC.
By: /s/ Beth Polish
--------------------
Name: Beth Polish
Title: President
Dated: June 10, 1999
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Exhibit 2(a)
EXECUTION COPY
CONTRIBUTION AND EXCHANGE AGREEMENT
BY AND AMONG
GHS, INC.,
CHANGE YOUR LIFE.COM, LLC ("CYL")
AND THE CYL MEMBERS
May 20, 1999
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CONTRIBUTION AND EXCHANGE AGREEMENT dated as of May 20, 1999 (the
"Agreement"), by and among GHS, INC., a Delaware corporation ("GHS"), CHANGE
YOUR LIFE.COM, LLC, a Delaware limited liability company ("CYL"), and Anthony J.
Robbins ("Robbins"), Robbins Research International Inc., a Nevada corporation
("RRI" and together with Robbins, the "Robbins Group"), and CYL Development
Holdings, LLC ("Development Holdings" and collectively, with the Robbins Group,
the "CYL Members").
WHEREAS, CYL intends to harness the emotional and motivational power of
leaders in the personal and professional improvement industry and serve as the
hub and consistent interface for these personalities' online presence in order
to launch the world's first and leading site of personal and professional
improvement (the "Change Your Life Site");
WHEREAS, CYL has had discussions with GHS with a view towards
concluding an agreement by which CYL, through an exchange by its members of
units in CYL for securities in GHS, would become a wholly-owned subsidiary of
GHS;
WHEREAS, the parties hereto desire to reduce said arrangements to
written form;
WHEREAS, the respective Boards of Directors of GHS and CYL have each
determined that it is advisable and for the benefit and in the best interests of
their companies and their respective securityholders that CYL be acquired by GHS
by means of an exchange of CYL's membership units (the "Membership Units") for
shares of GHS's Series A Preferred Stock (the "GHS Preferred Stock"), par value
$.01 per share, having the terms for the Series A Preferred Stock described in
Exhibit 1.1 hereto (the "Preferred Stock Terms") and, subject to Section 2.1,
warrants (the "GHS Warrants") to acquire shares of GHS common stock, par value
$.01 per share (the "GHS Common Stock"), of like tenor (including cashless
exercise) with GHS's presently outstanding warrants, on the terms and conditions
hereinafter set forth (the "Exchange");
WHEREAS, GHS has entered into a letter of intent with Concept
Development, Inc. ("Concept") for the acquisition of Concept in exchange for
cash and GHS Common Stock;
WHEREAS, GHS shall sell certain of it voting equity securities to
private investors (the "Private Investors") in a private placement which
transaction will close at or prior to the closing of the Exchange;
WHEREAS, GHS, the CYL Members, Concept and the Private Investors
together have negotiated the terms of the resulting ownership of GHS and have
determined the rights of each party with respect to such ownership;
WHEREAS, for federal income tax purposes, it is intended that the
Exchange and the related private placement and acquisition of Concept be treated
as an integrated transaction
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which qualifies as a tax-free transaction under the provisions of Section 351 of
the United States Internal Revenue Code of 1986, as amended ("the "Code");
NOW, THEREFORE, in consideration of the premises, the mutual covenants,
representations and warranties herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto intending to be bound hereby agree as follows:
ARTICLE 1.
THE CONTRIBUTION AND EXCHANGE
SECTION 1.1. THE CONTRIBUTION AND EXCHANGE. Subject to the terms and
conditions hereof, on the Effective Date (as defined in Section 1.3), the
outstanding Membership Units shall be exchanged for shares of GHS Preferred
Stock and, subject to Section 2.1, into GHS Warrants in accordance with the
applicable provisions of this Agreement and the laws of the State of Delaware
("Delaware Law"). Following the Effective Date, CYL shall continue its limited
liability company existence under Delaware Law as a wholly-owned subsidiary of
GHS.
SECTION 1.2. BOARD OF DIRECTORS AND MEMBERS MEETING.
(a) CYL AND THE CYL MEMBERS. CYL and the CYL Members shall, as
soon as practicable, take all action necessary in accordance with applicable law
and its Certificate of Formation and Operating Agreement to approve the Exchange
and the transactions contemplated hereby.
(b) GHS. GHS shall, as soon as practicable, take all action
necessary in accordance with applicable law and its Certificate of Incorporation
and By-laws to approve the Exchange and the transactions contemplated hereby.
SECTION 1.3. CONSUMMATION OF THE EXCHANGE; EFFECTIVE DATE. The Exchange
shall become effective at such time (the "Effective Time") as the Closing shall
have occurred in accordance with Section 2.3 (the date on which the Effective
Time occurs, the "Effective Date").
ARTICLE 2.
EXCHANGE AND CANCELLATION
OF SECURITIES
SECTION 2.1. CONVERSION OF MEMBERSHIP UNITS. As of the Effective Date,
the CYL Members shall exchange all Membership Units issued and outstanding
immediately prior to the Effective Date for shares of GHS Preferred Stock and
GHS Warrants in such amounts as determined below. The GHS Preferred Stock issued
to the CYL Members hereby
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shall be convertible into shares of GHS Common Stock in an aggregate amount
which would represent 80% of the shares of GHS Common Stock outstanding as of
the Effective Date after giving effect to the Exchange in a manner as shall be
mutually acceptable to GHS and the CYL Members. The GHS Warrants issued to the
CYL Members hereby shall be exercisable for shares of GHS Common Stock in an
aggregate amount which would represent 80% of the shares of GHS Common Stock
issuable upon the exercise of warrants and options of GHS outstanding as of the
Effective Date after giving effect to the Exchange in a manner as shall be
mutually acceptable to GHS and the CYL Members; PROVIDED, HOWEVER, that, at
their discretion, the CYL Members may elect to receive on the Effective Date in
lieu of such GHS Warrants a number of shares of GHS Preferred Stock which is
convertible into the number of shares of Common Stock for which the GHS Warrants
would have been exercisable on a cashless basis. The calculations in the
preceding two sentences shall exclude all securities issued in connection with
the New Financing referred to in Section 9.1(c) and the Concept Transactions
referred to in Section 8.4. As a result of the Exchange, GHS will become the
sole holder of Membership Units of CYL. The GHS Preferred Stock and any GHS
Warrants issuable hereunder are sometimes collectively referred to hereinafter
as the "Exchange Consideration." Each Membership Unit so exchanged shall be
entitled to receive its pro rata portion (the "Pro Rata Portion") of the
Exchange Consideration.
SECTION 2.2. PAYMENT. As of the Effective Date, each holder of
Membership Units issued and outstanding on the Effective Date shall receive the
Pro Rata Portion of the Exchange Consideration for each Membership Unit as
provided in Section 2.1 hereof. In connection with such payment, any certificate
representing a Membership Unit shall be surrendered by each CYL Member.
SECTION 2.3. CLOSING. Subject to the satisfaction or waiver of all of
the conditions to closing contained in Article 9 hereof, the closing of the
transactions contemplated by this Agreement (the "Closing") shall take place,
unless the parties shall otherwise agree, at 10:00 a.m., New York City time, on
a date to be specified by the parties, which shall be no later than the business
day after the satisfaction or waiver of the conditions to Closing contained in
Article 9 (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the fulfillment or waiver of those conditions) at
the offices of Heller Ehrman White & McAuliffe, 711 Fifth Avenue, New York, New
York 10022, unless another date or place is mutually agreed to by the parties
(the "Closing Date").
ARTICLE 3.
ORGANIZATIONAL DOCUMENTS
SECTION 3.1. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT OF CYL.
As of the Effective Date, the Certificate of Formation and Operating Agreement
of CYL shall be in the forms attached hereto as Exhibit 3.1.
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SECTION 3.2. CERTIFICATE OF INCORPORATION AND BY-LAWS OF GHS. As of the
Effective Date, the Certificate of Incorporation and By-laws of GHS shall be in
the forms attached hereto as Exhibit 3.2.
SECTION 3.3. BOARD OF DIRECTORS; CORPORATE GOVERNANCE. In connection
with the execution of this Agreement, certain parties will enter into a
Stockholders Agreement in substantially the form of Exhibit 3.3 hereto (the
"Stockholders Agreement"). The parties shall take such reasonable actions as are
necessary to effect the agreements set forth in the Stockholders Agreement and
this Section 3.3 as soon as practicable following the Closing, including the
appointment of a new Board of Directors of the Company as provided in the
Stockholders Agreement.
ARTICLE 4.
CERTAIN PROVISIONS RELATING TO SHARES
SECTION 4.1. FRACTIONAL SHARES. Fractional shares of GHS Preferred
Stock may be issued by GHS in the Exchange. The GHS Warrants shall not be
exercisable for fractional shares of GHS Common Stock but shall be rounded to
the nearest whole share. Each CYL Member's Pro Rata Portion of the Exchange
Consideration is set forth on Schedule 4.1 hereto.
SECTION 4.2. TAKING OF NECESSARY ACTION; FURTHER ACTION. GHS, CYL and
the CYL Members shall each take all such action as may be necessary or
appropriate in order to effectuate the Exchange as promptly as possible, subject
to all of the terms and conditions hereof. If, at any time after the Effective
Date, any further action is necessary or desirable to carry out the purposes of
this Agreement GHS, CYL and the CYL Members agree to take, and shall take, all
such action.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF CYL AND THE CYL MEMBERS
Except as set forth in the Disclosure Schedule delivered by CYL to GHS
prior to the execution of this Agreement and attached hereto (the "CYL
Disclosure Schedule"), which shall identify exceptions by specific Section
references, CYL hereby represents and warrants to GHS that:
SECTION 5.1. ORGANIZATION AND QUALIFICATION; NO SUBSIDIARIES. CYL is a
limited liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware, has all requisite power and authority
to own, lease and operate its properties and to carry on its business as it is
now being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than
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where the failure to be so duly organized, validly existing and in good
standing, or to have such power and authority, or to be duly qualified and in
good standing, as the case may be, would not have a CYL Material Adverse Effect.
The term "CYL Material Adverse Effect" as used in this Agreement shall mean any
event, change or effect that, individually or when taken together with all other
such events, changes or effects, would be materially adverse to the condition
(financial or otherwise), prospects, business, properties, assets, or operations
of CYL. Except as disclosed in Section 5.1 of the CYL Disclosure Schedule, CYL
has no subsidiaries. Except as disclosed in Section 5.1 of CYL Disclosure
Schedule, there are no corporations, partnerships or joint venture arrangements
or other business entities in which CYL owns an equity interest.
SECTION 5.2. CERTIFICATE OF FORMATION AND OPERATING AGREEMENT. CYL is
not in violation of any of the provisions of its Certificate of Formation or
Operating Agreement.
SECTION 5.3 CAPITALIZATION.
(a) There are 100 Membership Units issued and outstanding,
all of which are duly subscribed for and fully paid. Except as described in
this Section 5.3 or in Section 5.3 of CYL Disclosure Schedule, as of the date
of this Agreement, no Membership Units are reserved for any other purpose.
Except as set forth in Section 5.3 of the CYL Disclosure Schedule, CYL has
not granted any options in, or any other rights to purchase, Membership Units
and there are no such options or rights outstanding. Each CYL Member is the
owner of record and beneficially of the number of Membership Units set forth
in Schedule 4.1, which total amount equals all outstanding Membership Units.
Set forth in Section 5.3 of the CYL Disclosure Schedule is a schedule showing
in sufficient detail the amounts expended to date by Development Holdings in
the organization of CYL, including a description of the uses of such expended
amounts, which schedule shall also be updated through and delivered at the
Closing.
(b) Except as set forth in Section 5.3(a) above or otherwise
contemplated hereby, as of the date of this Agreement, there are no options,
warrants or other rights (including registration rights), agreements,
arrangements or commitments of any character to which CYL is a party relating to
the issued or unissued Membership Units or other securities of CYL, or
obligating CYL to grant, issue or sell any Membership Units or other securities
of CYL, by sale, lease, license or otherwise. There are no obligations,
contingent or otherwise, of CYL to (x) repurchase, redeem or otherwise acquire
any Membership Units; or (y) provide funds to, or make any investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of CYL or any other person. As of the date of
this Agreement, CYL neither owns nor has agreed to purchase or otherwise
acquire, any capital stock of, or any interest convertible into or exchangeable
or exercisable for, any capital stock of any corporation, partnership, joint
venture or other business association or entity. Except as set forth in Section
5.3 of CYL Disclosure Schedule, there are no agreements, arrangements or
commitments of any character (contingent or otherwise) pursuant to which any
person is or may be entitled to receive any payment based on the revenues or
earnings, or calculated in accordance therewith, of CYL. There are no voting
trusts, proxies or other agreements or understandings to which CYL is a party or
relating to CYL with respect to the voting of Membership Units.
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SECTION 5.4. AUTHORITY. CYL has all requisite power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. Each CYL Member has the legal
right and capacity to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by CYL and the CYL Members and the consummation
by CYL of the transactions contemplated hereby have been duly authorized by all
necessary action and no other proceedings on the part of CYL are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
The holders of Membership Units have approved and adopted this Agreement and
have approved the Exchange. This Agreement has been duly executed and delivered
by CYL and the CYL Members and, assuming the due authorization, execution and
delivery thereof by GHS, constitutes the legal, valid and binding obligation of
CYL and the CYL Members, enforceable against CYL and the CYL Members in
accordance with its terms.
SECTION 5.5. NO CONFLICT; BUSINESS RELATIONSHIPS; REQUIRED FILINGS AND
CONSENTS.
(a) The execution and delivery of this Agreement by CYL
does not, and the performance of this Agreement by CYL and the CYL Members
will not (i) conflict with or violate the Certificate of Formation or
Operating Agreement, in each case as amended or restated, of CYL, (ii)
conflict with or violate any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment, arbitration award or decree
(collectively, "Laws") or CYL Permit (as hereinafter defined) in effect as of
the date of this Agreement and applicable to CYL or any CYL Member or by
which any of their respective properties is bound or subject to or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or require
payment under, or result in the creation of a lien or encumbrance on any of
the properties or assets of CYL or any CYL Member pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
order, decree, franchise or other instrument or obligation to which CYL or
any CYL Member is a party or by which CYL or any CYL Member or any of their
respective properties is bound or is subject.
(b) No supplier, dealer or creditor of CYL (the "Business
Relationships") has notified CYL, either orally or in writing, that such
Business Relationships may take action which is reasonably likely to materially
and adversely affect the condition (financial or otherwise), business,
properties, assets, or operations, including sales, of CYL.
(c) The execution and delivery of this Agreement by CYL and
each CYL Member does not, and the performance of this Agreement by CYL and each
CYL Member will not require CYL or any CYL Member to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any governmental or regulatory authority ("Governmental Entities").
SECTION 5.6. PERMITS; COMPLIANCE. CYL is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents,
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certificates, approvals and orders required to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "CYL Permits"), and, to the knowledge of CYL, there is no
action, proceeding or investigation pending or threatened regarding suspension
or cancellation of any CYL Permits, except where the failure to possess, or the
suspension or cancellation of, such CYL Permits would not have a CYL Material
Adverse Effect. CYL is not in conflict with, or in default or violation of (a)
any Law, including but not limited to, Laws pertaining to the environment,
occupational safety, employment matters and licensing or (b) any of CYL Permits,
except for any such conflicts, defaults or violations which would not have a CYL
Material Adverse Effect. CYL has not received from any Governmental Entity any
written notification that CYL is in conflict with, or has defaulted or violated
any Law or CYL Permit. For purposes of Section 5.6, an event or state of facts
which would require CYL to pay for any purpose or incur as an obligation $25,000
(or $100,000 in the aggregate) is deemed to result in a "CYL Material Adverse
Effect."
SECTION 5.7. FINANCIAL STATEMENTS. CYL and its subsidiaries have not
prepared any financial statements.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth
in Section 5.8 of the CYL Disclosure Schedule, during the period commencing
April 21, 1999 and ending on the date of this Agreement, CYL and its
subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been: (i)
any material damage, destruction or loss (not covered by insurance) with respect
to any material assets of CYL; (ii) any declaration, setting aside or payment of
any dividends or distributions in respect of Membership Units or any redemption,
purchase or other acquisition of, or issuance or sale of, any of CYL's
securities; (iii) any increase in the benefits under, or the establishment or
amendment of, any bonus, insurance, severance, deferred compensation, pension,
retirement, profit sharing, stock option, stock purchase or other employee
benefit plan, or any increases in the compensation payable or to become payable
to directors, officers, employees or consultants of CYL (including the payment
of any bonuses), except for increases in salaries or wages payable or to become
payable in the ordinary course of business and consistent with past practice;
(iv) sale, assignment or transfer of any material portion of its assets, except
in the ordinary course of business, or cancellation of any material debts or
claims, (v) incurring of any capital expenditures or any commitment therefor
binding upon CYL which would cause the aggregate amount of all actual
expenditures for CYL to exceed $100,000; or (vi) a CYL Material Adverse Effect.
SECTION 5.9. ABSENCE OF LITIGATION. Except as disclosed in Section 5.9
of the CYL Disclosure Schedule, there is no claim, action, suit, litigation,
proceeding, arbitration or, to the knowledge of CYL, investigation of any kind,
at law or in equity (including actions or proceedings seeking injunctive
relief), pending or, to the knowledge of CYL, threatened in writing against CYL
or any properties or rights of CYL (except for claims, actions, suits,
litigations, proceedings, arbitrations, or investigations which, individually or
in the aggregate, would not reasonably be expected to have a CYL Material
Adverse Effect) nor, to the knowledge of CYL, does there exist any basis
therefor, and CYL is not subject to any continuing order of, consent decree,
settlement agreement or other similar written continuing investigation by, or
any
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judgment, order, writ, injunction, decree or award of, any Governmental Entity,
court or arbitrator, including, without limitation, cease-and-desist or other
orders, except for matters which, individually or in the aggregate, would not
have a CYL Material Adverse Effect. For purposes of this Section 5.9, "CYL
Material Adverse Effect" is deemed to include any claim, action, suit,
litigation, proceeding, arbitration or investigation which if decided against
CYL would require the payment of $25,000 individually and $100,000 in the
aggregate.
SECTION 5.10. EMPLOYEE MATTERS.
(a) Except as set forth in Section 5.10 of the CYL Disclosure
Schedule, CYL is not a party to any collective bargaining agreement, employment
agreement, retirement plans (whether qualified or non-qualified), deferred
compensation or severance (except to the extent that accrued vacation and
accrued sick days may be deemed to be severance under applicable law) agreement,
consulting or advisory agreement, confidentiality agreement or covenant not to
compete (except as set forth in this Agreement) relating to its employees or
otherwise relating to its business.
(b) CYL has complied in all material respects with all
applicable laws, rules and regulations affecting the employment of labor,
including, but not limited to, those relating to wages, hours, discrimination
and the payment of social security, withholding and similar taxes, and is not
liable for any arrears of wages or any penalties for failure to comply with any
of the foregoing. There are no controversies pending or threatened between CYL
and any of its employees, or any labor unions or collective bargaining unit
representing or purporting to represent any of its employees.
SECTION 5.11. TAXES. CYL has accurately prepared and timely filed all
Returns (as defined in Section 12.3) which are required to be filed, except
where the time to file has been extended and has paid, or made provision for the
payment of, all Taxes (as defined in Section 12.3) which have become due
pursuant to said Returns or pursuant to any assessment which has been received
by it and except where the failure to do so would not have a CYL Material
Adverse Effect. All such Returns are true and correct in all material respects.
No Tax deficiency is outstanding against CYL.
SECTION 5.12. TAX MATTERS. Neither CYL nor, to the knowledge of CYL,
any of its affiliates has taken or agreed to take any action that would prevent
the Exchange from qualifying under the provisions of Section 351 of the Code.
SECTION 5.13. NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 5.13 of the CYL Disclosure Schedule, neither CYL nor any of its
subsidiaries has any obligation or liability (whether accrued, absolute,
contingent, unliquidated or otherwise, whether due or to become due) involving
in excess of $25,000 in the aggregate, except liabilities under contracts or
commitments described in Section 5.15 of the CYL Disclosure Schedule (but not
liabilities for breaches thereof involving in excess of $25,000 in the
aggregate).
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SECTION 5.14. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of CYL.
SECTION 5.15. MATERIAL CONTRACT AND ABSENCE OF DEFAULTS. Except as
listed in Section 5.15 of the CYL Disclosure Schedule ("Material Contracts"),
CYL does not have outstanding:
(a) Any single contract providing for an expenditure by CYL in
excess of $10,000 for the purchase of any real property, machinery, equipment or
other items which are in the nature of capital investment or for the purchase of
raw materials, supplies, component parts or other items which are in the nature
of inventory;
(b) Any contract, bid or offer to sell products or to provide
services to third parties which (A) is pursuant to terms or conditions that CYL
does not reasonably expect to satisfy or fulfill in its entirety, or (B) which
involves more than $10,000, or which, together with all other contracts, bids or
offers to or with the same party or any affiliates parties involves more than
$25,000;
(c) Any lease of any personal property under which CYL is
lessor requiring aggregate annual payments in excess of $10,000;
(d) Any revocable or irrevocable power of attorney to any
person, firm or corporation for any purpose whatsoever;
(e) Any loan agreement, indenture, promissory note,
conditional sales agreement, guarantee or other similar type of agreement that
involves $10,000 or more; or
(f) Any other material contract or commitment which is not
cancelable on thirty (30) or less days' notice without further obligation on
the part of CYL.
CYL has provided to GHS true, correct and complete copies of all
Material Contracts. CYL is not, nor has it received any notice that it is, or
has any knowledge that any other party is, in default in any respect under any
such Material Contract; and there has not occurred any event that with the lapse
of time or the giving of notice or both would constitute such a default. CYL's
Material Contracts comply with all applicable Laws.
SECTION 5.16. CORPORATE AND MEMBERS APPROVAL. The Board of Directors of
CYL, at a meeting duly called and held, has by unanimous vote of those directors
present (who constituted 100% of the Directors then in office) or by unanimous
written consent thereof, and the CYL Members, have approved the terms of this
Agreement and the transactions contemplated hereby, including the Exchange.
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SECTION 5.17. BOOKS AND RECORDS. The books of account and other
financial records of CYL are in all material respects complete and correct, are
maintained in accordance with good business practices and all Laws applicable to
CYL. The minute books of CYL contain accurate records of all meetings, and
accurately reflect all other corporate action of the shareholders and directors
of CYL.
SECTION 5.18. PROPERTIES. Except as disclosed in Section 5.18 of the
CYL Disclosure Schedule, CYL (i) has good, clear and marketable title to all of
its properties and assets which are, individually or in the aggregate, material
to CYL's business (except properties sold or otherwise disposed of since the
date thereof in the ordinary course of business), free and clear of all liens
except statutory liens securing payments of Taxes or other liens as do not
materially affect the use of the properties or assets subject thereto or
affected thereby or otherwise materially impair business operations at such
properties and (ii) is the lessee of all leasehold estates reflected in Section
5.18 of the CYL Disclosure Schedule or acquired after the date thereof which are
material to its business on a consolidated basis and is in possession of the
properties purported to be leased thereunder, and each such lease is valid
without default thereunder by the lessee or, to CYL's knowledge, the lessor and
no event has occurred or fact exists which permit a lessor, now or with the
passage of time, notice or an opportunity to cure, to seek a remedy under a
lease and CYL is entitled to quiet enjoyment to its premises. CYL does not own
any real property.
SECTION 5.19 ENVIRONMENTAL MATTERS. There has been no (a) release or
threatened release of any hazardous substance, pollutant or contaminant as each
such term presently is defined by the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, resulting from any activity by or on
behalf of CYL, including but not limited to, the generation, handling, storage,
treatment, transportation or disposal of any hazardous substance, pollutant or
contaminant from any location operated by CYL; (b) to the knowledge of CYL, past
or future action taken or to be taken by any federal, state or local entity or
by any private party under any federal, state or local statute, rule, regulation
or guideline concerning the release of any hazardous substance, pollutant or
contaminant into the soil, air, surface or subsurface waters or the environment
in general from any location operated by CYL; and (c) claims or actions brought
or which may be brought by any third party for damages occurring at or outside
of any location operated by CYL resulting from the alleged release or threatened
release of any hazardous substance, pollutant or contaminant by CYL or any
predecessor in interest, including but not limited to, claims for health effects
to persons, property damage and/or damage to natural resources; nor does CYL
have any knowledge of any basis for any of the foregoing.
SECTION 5.20. INTELLECTUAL PROPERTY. Except as disclosed in Section
5.20 of the CYL Disclosure Schedule, CYL has sufficient title and ownership or
other rights to all patents, trademarks, trade names, service marks, copyrights,
trade secrets and other proprietary rights ("Intellectual Property Rights")
necessary for or used in the conduct of its business as it is presently
conducted and as proposed to be conducted without any conflict with or
infringement of the rights of others. CYL has not received any communication
alleging that
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the Company has violated Intellectual Property Rights of any other person or
entity. CYL and each CYL Member has no knowledge of any conflicting use of any
of such Intellectual Property Rights.
SECTION 5.21. DEALINGS WITH AFFILIATES. Section 5.21 of the CYL
Disclosure Schedule sets forth a complete list, including the parties of all
oral or written agreements and arrangements to which CYL is, will be or has been
a party, at any time prior to the Effective Time, and to which any affiliate is
also a party ("Related Party Transaction"). All Related Party Transactions are
on terms no less favorable to CYL than what CYL could obtain on an arms' length
basis from an unrelated party.
SECTION 5.22. INSURANCE. Through the Closing Date, CYL will have
adequate insurance contracts or policies in full force and effect which provide
for coverages that are usual and customary as to the amount and scope in the
business of CYL, except where failure to have such insurance policies or
contracts would not have a CYL Material Adverse Effect.
SECTION 5.23. DISCLOSURE. No representation or warranty of CYL in this
Agreement or any document, certificate or statement issued in connection
herewith contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein and
therein, in the light of the circumstances in which they were made, not
misleading.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF GHS
Except as set forth in the Disclosure Schedule delivered by GHS to CYL
prior to the execution of this Agreement and attached hereto (the "GHS
Disclosure Schedule"), which shall identify exceptions by specific Section
references, GHS hereby represents and warrants to CYL that:
SECTION 6.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. Each of GHS
and its subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation or
organization and has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and GHS
and each subsidiary is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where the failure to be so duly organized, validly existing and in good
standing, or to have such power and authority, or to be duly qualified and in
good standing, as the case may be, would not have an GHS Material Adverse
Effect. The term "GHS Material Adverse Effect" as used in this Agreement shall
mean any event, change or effect that, individually or when taken together with
all other such events, changes or effects, would be materially adverse to the
condition (financial or otherwise),
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prospects, business, properties, assets or operations of GHS and its
subsidiaries, taken as a whole. Disclosed in Section 6.1 of GHS Disclosure
Schedule are all corporations, partnerships or joint venture arrangements or
other business entities in which GHS owns an equity interest.
SECTION 6.2. CERTIFICATE OF INCORPORATION AND BY-LAWS. GHS has
heretofore furnished to CYL complete and correct copies of the Certificate of
Incorporation and By-Laws, as amended or restated, of GHS. GHS is not in
violation of any of the provisions of its Certificate of Incorporation or
By-Laws.
SECTION 6.3. CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of GHS consists of (a) 25,000,000 shares of GHS Common
Stock and (b) 1,000,000 shares of preferred stock, par value $.01 per share
("GHS Preferred Shares"). As of date hereof: (i) 6,979,160 shares of GHS Common
Stock were issued and outstanding, all of which are duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, GHS's Certificate of Incorporation or By-Laws or any
agreement to which GHS is a party or is bound; (ii) no shares of GHS Common
Stock were held in treasury and (iii) 659,000 shares of GHS Common Stock were
reserved for future issuance pursuant to outstanding stock options and warrants
issued to certain officers, employees, directors and other persons. Except as
set forth in Section 6.3 of the GHS Disclosure Schedule, as of the date of this
Agreement, there are no options, warrants or other rights (including
registration rights), agreements, arrangements or commitments of any character
to which GHS is a party relating to the issued or unissued capital stock or
other securities of GHS, or obligating GHS to grant, issue or sell any capital
stock or other securities of GHS, by sale, lease, license or otherwise. As of
the date of this Agreement, no GHS Preferred Shares were issued and outstanding.
Each of the outstanding shares of capital stock of, or other equity interests
in, each of GHS's subsidiaries is duly authorized and validly issued and, if
applicable, fully paid and nonassessable. The shares of GHS Preferred Stock to
be issued pursuant to the Exchange have been duly authorized and, when issued in
accordance with the Exchange, will be validly issued, fully paid and
nonassessable, provided that GHS and CYL are aware that GHS does not have
sufficient number of authorized unissued shares of GHS Common Stock for issuance
upon the conversion of all of the GHS Preferred Stock. The GHS Warrants to be
issued pursuant to the Exchange will, prior to the Closing, have been duly
authorized and, when the GHS Warrants are exercised in accordance with the terms
thereof, the shares of Common Stock issuable upon exercise thereof will be
validly issued, fully paid and nonassessable.
SECTION 6.4. AUTHORITY. GHS has all requisite corporate power and
authority to execute and deliver this Agreement to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by GHS and the consummation by GHS of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action, and no other corporate proceedings on the part of GHS are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by GHS
and, assuming the due authorization, execution and delivery thereof by CYL,
constitutes a legal, valid and binding obligation of GHS enforceable against GHS
in accordance with its terms.
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SECTION 6.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by GHS
does not, and the performance of this Agreement by GHS and the consummation
of the transactions contemplated hereby will not (i) conflict with or violate
the Certificate of Incorporation or By-Laws, or the equivalent organizational
documents, in each case as amended or restated, of GHS or any of GHS's
subsidiaries, (ii) conflict with or violate any Laws or GHS Permits (as
hereafter defined) applicable to GHS or any of GHS's subsidiaries or by which
any of their respective properties is bound or (iii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of GHS
or any of GHS's subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, order, decree,
franchise or other instrument or obligation to which GHS, or any of GHS's
subsidiaries is a party or by which GHS or any of GHS's subsidiaries or any
of their respective properties is bound or subject to, except for any such
conflicts or violations described in clause (ii) or breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation or
liens or encumbrances described in clause (iii) that would not have an GHS
Material Adverse Effect.
(b) The execution and delivery of this Agreement by GHS and
the consummation by GHS of the transactions contemplated hereby do not, and the
performance of this Agreement by GHS will not require GHS to obtain any consent,
approval, authorization or permit of, or to make any filing with or notification
to, any Governmental Entities, except, with respect to the USN Spin-off
contemplated by Section 7.3(c) and the change in the members of the Board of
Directors pursuant to Section 3.3, for applicable requirements, if any, of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities or blue
sky laws ("Blue Sky Laws").
SECTION 6.6. PERMITS; COMPLIANCE. Each of GHS and its subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, identification
numbers, approvals and orders (collectively, the "GHS Permits") necessary to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and there is no action, proceeding or investigation pending or,
to the knowledge of GHS, threatened regarding suspension or cancellation of any
of the GHS Permits, except where the failure to possess, or the suspension or
cancellation of, such GHS Permits would not have an GHS Material Adverse Effect.
Neither GHS nor any of its subsidiaries is, or has been since January 1, 1996,
in conflict with, or in default or violation of (a) any Law by which any of them
or any of their respective properties is bound or subject to or (b) any of the
GHS Permits, except for any such conflicts, defaults or violations which would
not have an GHS Material Adverse Effect.
SECTION 6.7. GHS REPORTS; FINANCIAL STATEMENTS.
(a) Since January 1, 1996, GHS and its subsidiaries have
timely filed (i) all forms, reports, statements and other documents required to
be filed with (A)
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the SEC, including, without limitation (1) all Annual Reports on Form 10-K, (2)
all Quarterly Reports on Form 10-Q, (3) all proxy statements relating to
meetings of stockholders (whether annual or special), (4) all Current Reports on
Form 8-K, (5) all other reports or registration statements and (6) all
amendments and supplements to all such reports and registration statements
(collectively, the "GHS SEC Reports") and (B) any other applicable state
securities authorities and (ii) all forms, reports, statements and other
documents required to be filed with any other applicable federal or state
regulatory authorities, except where the failure to file any such forms,
reports, statements or other documents would not have an GHS Material Adverse
Effect (all such forms, reports, statements and other documents in clauses (i)
and (ii) of this Section 6.7(a) being referred to herein, collectively, as the
"GHS Reports"). The GHS Reports, including all GHS Reports filed after the date
of this Agreement and prior to the Effective Date (x) were or will be prepared
in all material respects in accordance with the requirements of applicable Law
(including, with respect to the GHS SEC Reports, the Securities Act and the
Exchange Act, as the case may be, and the rules and regulations of the
Securities and Exchange Commission ("SEC") thereunder applicable to such GHS SEC
Reports) and (y) did not at the time they were filed, or will not at the time
they are filed, contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the GHS SEC Reports filed
prior to, on or after the date of this Agreement (i) have been or will be
prepared in accordance with the published rules and regulations of the SEC and
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except, with respect to GHS SEC Reports filed
prior to the date of this Agreement, as may be indicated in the notes thereto)
and (ii) fairly present or will fairly present the consolidated financial
position of GHS and its subsidiaries as of the respective dates thereof and the
consolidated results of operations and cash flows for the periods indicated,
except that any unaudited interim financial statements were or will be subject
to normal and recurring year-end adjustments.
(c) Except as disclosed in the GHS SEC Reports filed prior to
the date of this Agreement, as contemplated by this Agreement and as disclosed
in Section 6.8 of the GHS Disclosure Schedule, since December 31, 1998, GHS and
its subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been: (i)
any material damage, destruction or loss (not covered by insurance) with respect
to any material assets of GHS or any subsidiary; (ii) any declaration, setting
aside or payment of any dividends or distributions in respect of GHS Common
Stock or any redemption, purchase or other acquisition of, or issuance or sale
of, any of GHS's securities; (iii) any increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase
or other employee benefit plan, or any increases in the compensation payable or
to become payable to directors, officers, employees or consultants of GHS
(including the payment of any bonuses), except for increases in salaries or
wages payable or to become payable in the ordinary course of business and
consistent with past practice; (iv) sale, assignment or
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transfer of any material portion of its assets, except in the ordinary course of
business, or cancellation of any material debts or claims; or (v) a GHS Material
Adverse Effect
SECTION 6.8. ABSENCE OF LITIGATION. Except as disclosed in the GHS SEC
Reports filed prior to the date of this Agreement, there is no claim, action,
suit, litigation, proceeding, arbitration or, to the knowledge of GHS,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the knowledge of GHS, threatened in
writing against GHS or any of its subsidiaries or any properties or rights of
GHS or any of its subsidiaries (except for claims, actions, suits, litigations,
proceedings, arbitrations or investigations which, individually or in the
aggregate, would not reasonably be expected to have an GHS Material Adverse
Effect), and neither GHS nor any of its subsidiaries is subject to any
continuing order of, consent decree, or, to the knowledge of GHS, continuing
investigation by, or any judgment, order, writ, injunction, decree or award of,
any Governmental Entity, court or arbitrator, including, without limitation,
cease-and-desist or other orders, except for such matters which would not
reasonably be expected to have an GHS Material Adverse Effect.
SECTION 6.9. TAX MATTERS. To the knowledge of GHS, neither GHS nor any
of its affiliates has taken or agreed to take any action that would prevent the
Exchange from constituting a tax free transaction qualifying under the
provisions of Section 351 of the Code.
SECTION 6.10. TAXES. Except for such matters that would not have an GHS
Material Adverse Effect and except as disclosed in Section 6.10 of the GHS
Disclosure Schedule, (a) GHS and its subsidiaries have timely filed or will
timely file all Returns or reports required to be filed by any of them with any
taxing authority with respect to Taxes for any period ending on or before the
Effective Date, taking into account any extension of time to file, granted to or
obtained on behalf of GHS or its subsidiaries, (b) such Returns and reports are
true and correct, (c) all Taxes shown to be payable on such Returns or reports
and all other Taxes of GHS or any of its subsidiaries that are due prior to the
Effective Date have been paid or will be paid when due, (d) as of the date
hereof, no deficiency for any Tax of a material amount has been asserted or
assessed by a taxing authority against GHS or its subsidiaries, (e) all
liability for Taxes of GHS or its subsidiaries that are or will become due or
payable with respect to periods or partial periods covered by the financial
statements referred to in Section 6.7(b) hereof have been timely paid or are
being contested in good faith and are adequately reserved for on such financial
statements and (f) no Tax Return or reports of GHS or any of its subsidiaries
have been or are under current or pending examination and neither GHS nor any of
its subsidiaries has received notice of any threatened examination. GHS has been
with its subsidiaries a member of a group filing consolidated or combined
Returns. Neither GHS nor any subsidiary has any liability for Taxes of any other
person under Treasury regulations section 1.1502-6, as a transferee or
successor, by contract or otherwise.
SECTION 6.11. BROKERS. Except as set forth in Section 6.11 of the GHS
Disclosure Schedule, no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of GHS.
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SECTION 6.12. BOOKS AND RECORDS. The books of account and other
financial records of GHS and its subsidiaries are in all material respects
complete and correct, are maintained in accordance with good business practices
and all Laws applicable to GHS, and are accurately reflected in the consolidated
financial statements of GHS contained in the GHS SEC Reports. The minute books
of GHS contain accurate records of all meetings, and accurately reflect all
other corporate action of the shareholders and directors of GHS.
SECTION 6.13. NO UNDISCLOSED LIABILITIES. To the knowledge of GHS,
there are no liabilities of GHS or any of its subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, other than:
(a) Liabilities disclosed or provided for in the consolidated
financial statements contained in the GHS SEC Reports; and
(b) Liabilities incurred in the ordinary course of business
consistent with past practice since December 31, 1998.
SECTION 6.14. RELATED PARTY TRANSACTIONS. Except as disclosed in the
GHS SEC Reports filed prior to the date of this Agreement, since January 1, 1996
there have been no oral or written agreements, arrangements or transactions
between GHS or any of its subsidiaries on the one hand, and any affiliate of GHS
or any of its subsidiaries on the other hand ("GHS Related Party Transactions").
All GHS Related Party Transactions are on terms no less favorable to GHS than
what GHS could obtain on an arms' length basis from an unrelated party
SECTION 6.15. DISCLOSURE. To the knowledge of GHS, no representation or
warranty of GHS in this Agreement or in any document, certificate or statement
issued in connection herewith contains any untrue statement of a material fact,
or omits to state any material fact necessary in order to make the statements
contained herein and therein in light of the circumstances in which they were
made, not misleading.
ARTICLE 7.
COVENANTS
SECTION 7.1. AFFIRMATIVE COVENANTS OF CYL.
(a) CYL hereby covenants and agrees that, during the period
commencing on the date hereof and continuing until the Effective Time unless
otherwise expressly contemplated by this Agreement or consented to in writing by
GHS, it will:
(i) operate its business only in the usual and ordinary course
consistent with past practices;
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(ii) use its best efforts to preserve substantially intact its
business organizations, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers, and
otherwise operate its business in a manner that breaches no Material
Contract (as defined);
(iii) use its best efforts to maintain and keep its business
relationships intact and unimpaired, and its properties and assets in
as good repair and condition as at present, ordinary wear and tear
excepted;
(iv) use its best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage that is usual and
customary for businesses of the type in which CYL is engaged, except
where failure to have such insurance would not have a CYL Material
Adverse Effect; PROVIDED, HOWEVER, that in the event CYL deems it
necessary to take certain actions that would otherwise be proscribed by
clauses (i) - (iv) of this Section 7.1, CYL shall consult with GHS
which shall consider in good faith CYL's request to take such action
and not unreasonably withhold its consent for such action; and
(v) promptly advise GHS of the commencement or threat (to the
extent that such threat comes to its knowledge) of any claim, action,
suit, proceeding or investigation against, relating to or involving it
or any of its directors, officers, employees, agents or consultants in
connection with its business or the transactions contemplated hereby.
(b) CYL will make its membership records and lists available
to the extent reasonably necessary to effectuate the intent of this Agreement.
SECTION 7.2. NEGATIVE COVENANTS OF CYL. Except as expressly
contemplated by this Agreement, or otherwise consented to in writing by GHS,
from the date of this Agreement until the Effective Date, CYL will not do any of
the following:
(a) (i) Increase the compensation payable to or to become
payable to any director or officer (by making a bonus payment or otherwise),
(ii) grant any severance or termination pay (other than pursuant to the normal
severance policy of CYL or its subsidiaries as in effect on the date of this
Agreement and disclosed in writing to GHS) to, or enter into any employment or
severance agreement with, any director, officer or employee (other than on a
case by case basis with a limited number of employees who are not directors or
officers and in no event with employees generally and other than employment
agreements entered into with the consent of GHS, which consent shall not be
unreasonably withheld); or (iii) establish, adopt, enter into or amend any
employee benefit plan or arrangement except as may be required by applicable
Law;
(b) Declare or pay any distribution in respect of outstanding
Membership Units;
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(c) (i) Redeem, purchase or otherwise acquire any Membership
Units or any securities or obligations convertible into or exchangeable for any
Membership Units, or any options, warrants or conversion or other rights to
acquire any Membership Units or any such securities or obligations; (ii) effect
any reorganization or recapitalization; or (iii) split, combine or reclassify
any of its or its respective subsidiaries' securities or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for, its securities;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any Membership Units or other securities, any
securities convertible into or exercisable or exchangeable for any such shares,
or any rights, warrants or options to acquire, any such Membership Units; or
(ii) amend or otherwise modify the terms of any such rights, warrants or options
the effect of which shall be to make such terms more favorable to the holders
thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of assets
from suppliers or vendors in the ordinary course of business and consistent with
past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the ordinary
course of business;
(g) propose or adopt any amendments to its Certificate of
Formation or, as to its Operating Agreement, any amendments except as
contemplated hereby;
(h) change any of its methods of accounting in effect, or make
or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the amount
of such settlements or controversies, individually or in the aggregate, does not
exceed $25,000);
(i) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except in the ordinary course of business consistent with past
practice, provided that CYL informs GHS promptly of any increases in borrowings;
(j) enter into any material arrangement, agreement or contract
with any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on CYL or
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substantially less advantageous to CYL than arrangements, agreements or
contracts existing on the date hereof; or
(k) agree in writing or otherwise to do any of the foregoing.
SECTION 7.3. AFFIRMATIVE COVENANTS OF GHS.
(a) GHS hereby covenants and agrees that, during the period
commencing on the date hereof and continuing until the Effective Time unless
otherwise expressly contemplated by this Agreement or consented to in writing by
CYL, it will:
(i) operate its business and otherwise take any actions only
in the usual and ordinary course consistent with past practices;
(ii) use its best efforts to preserve substantially intact its
business organizations, maintain its rights and franchises, retain the
services of its respective officers and key employees and maintain its
relationships with its respective customers and suppliers, and
otherwise operate its business in a manner that breaches no Material
Contract (as defined);
(iii) use its best efforts to maintain and keep its business
relationships intact and unimpaired, and its properties and assets in
as good repair and condition as at present, ordinary wear and tear
excepted;
(iv) use its best efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to that currently
maintained; PROVIDED, HOWEVER, that in the event GHS deems it necessary
to take certain actions that would otherwise be proscribed by clauses
(i) - (iv) of this Section 7.3, GHS shall consult with CYL which shall
consider in good faith GHS's request to take such action and not
unreasonably withhold its consent for such action; and
(v) promptly advise CYL of the commencement or threat (to the
extent that such threat comes to its knowledge) of any claim, action,
suit, proceeding or investigation against, relating to or involving it
or any of its directors, officers, employees, agents or consultants in
connection with its business or the transactions contemplated hereby.
(b) GHS will make its stock transfer records and stockholder
lists available to the extent reasonably necessary to effectuate the intent of
this Agreement.
(c) GHS will effect the spin-off to its stockholders of the
assets and liabilities of its gamma-knife stereotactic radiosurgery business
presently conducted by its wholly-owned subsidiary, U.S. NeuroSurgical, Inc.
("USN", and such spin-off, the "USN Spin-off"). GHS expects that the USN
Spin-off will be effected with a record date prior to the Effective Time. The
USN Spin-off will be effected in the form of a dividend of GHS's shares in
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USN or shares of another wholly owned subsidiary of GHS into which USN will be
transferred (the "USN Spin-off Shares"). As promptly as practicable after the
execution of this Agreement, GHS shall prepare and file with the SEC a
Registration Statement relating to the USN Spin-off registering the issuance of
the USN Spin-off Shares under the Securities Act (or, if permitted under
applicable law, an Information Statement and Form 10 under the Exchange Act) and
such other documents required pursuant to the Securities Act, the Exchange Act
and the rules and regulations thereunder to effect the USN Spin-off
(collectively, the "Spin-off SEC Filings"). GHS (i) shall cause the Spin-off SEC
Filings to comply as to form in all material respects with the applicable
provisions of the Securities Act, the Exchange Act and the rules and regulations
thereunder, (ii) shall use commercially reasonable efforts to have the USN
Spin-off effected as promptly as practicable, and (iii) shall take all or any
action required under any applicable federal or state securities laws in
connection with the USN Spin-off. GHS, CYL and the CYL Members shall furnish to
the other all information concerning GHS, CYL and the CYL Members as may be
reasonably required in connection with the preparation of the documents referred
to herein.
(d) In connection with the USN Spin-off and prior to the
Effective Time, GHS will obtain the release of GHS from the corporate guaranties
(the "Guaranties") delivered by GHS (and any security interest thereby created)
in favor of DVI Financial Services, Inc. originally issued in connection with
equipment financings by USN.
SECTION 7.4. NEGATIVE COVENANTS OF GHS. Except as disclosed in Section
7.4 of the GHS Disclosure Schedule, expressly contemplated by this Agreement or
otherwise consented to in writing by CYL, from the date of this Agreement until
the Effective Time, GHS will not do, and will not permit any of its subsidiaries
to do, any of the following:
(a) (i) Increase the compensation payable to or to become
payable to any director or officer (by making a bonus payment or otherwise),
(ii) grant any severance or termination pay (other than pursuant to the normal
severance policy of GHS or its subsidiaries as in effect on the date of this
Agreement and disclosed in writing to CYL) to, or enter into any employment or
severance agreement with, any director, officer or employee (other than on a
case by case basis with a limited number of employees who are not directors or
officers and in no event with employees generally and other than employment
agreements entered into with the consent of CYL, which consent shall not be
unreasonably withheld); or (iii) establish, adopt, enter into or amend any
employee benefit plan or arrangement except as may be required by applicable
Law;
(b) amend any of the material terms or provisions of the GHS
Preferred Stock;
(c) declare or pay any cash dividend on outstanding shares of
its capital stock;
(d) (i) Redeem, purchase or otherwise acquire any shares of
its capital stock or equity interest or any securities or obligations
convertible into or exchangeable for any shares of its capital stock or equity
interest, or any options, warrants or conversion or
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other rights to acquire any shares of its capital stock or any such securities
or obligations; (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its or its respective subsidiaries' capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock;
(e) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its capital stock
or other securities (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any such shares, or any
rights, warrants or options to acquire, any such shares, except for issuance
pursuant to options, warrants or other commitments outstanding on the date
hereof; or (ii) amend or otherwise modify the terms of any such rights, warrants
or options the effect of which shall be to make such terms more favorable to the
holders thereof;
(f) acquire or agree to acquire or be acquired, by merging or
consolidating with, by purchasing an equity interest in or a portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets of any other person (other than the
purchase of assets from suppliers or vendors in the ordinary course of business
and consistent with past practice and other than the Concept Transactions
described in Section 8.4 hereof);
(g) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets other than in the ordinary
course of business and in connection with the USN Spin-off;
(h) propose or adopt any amendments to its Certificate of
Incorporation or, as to its By-Laws, any amendments except as contemplated
hereby;
(i) change any of its methods of accounting in effect, or make
or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes (except where the amount
of such settlements or controversies, individually or in the aggregate, does not
exceed $25,000) ;
(j) incur any obligation for borrowed money or purchase money
indebtedness, whether or not evidenced by a note, bond, debenture or similar
instrument, except in the ordinary course of business consistent with past
practice, provided that GHS informs CYL promptly of any increases in borrowings;
(k) enter into any material arrangement, agreement or contract
with any third party (other than customers in the ordinary course of business)
which provides for an exclusive arrangement with that third party or is
substantially more restrictive on GHS or
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substantially less advantageous to GHS than arrangements, agreements or
contracts existing on the date hereof; or
(l) agree in writing or otherwise to do any of the foregoing.
SECTION 7.5. ACCESS AND INFORMATION. Each of CYL and GHS shall: (i)
afford to other party and its officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively, the
"Representatives") access upon reasonable prior notice to its officers,
employees, agents, properties, offices and other facilities and its subsidiaries
and to the books and records thereof; and (ii) furnish promptly to the other
party and its Representatives such information concerning the business,
properties, contracts, records and personnel of it and its subsidiaries
(including, without limitation, financial, operating and other data and
information) as may be requested, from time to time, by the other party.
SECTION 7.6 CONFIDENTIALITY.
(a) Except as may be necessary to carry out this Agreement and
the transactions contemplated hereby, each of GHS and CYL shall, and shall
require their respective officers, directors, employees and authorized
representatives to, hold in confidence prior to the Effective Time and for two
years from any termination of this Agreement all data and information obtained
by them from the other party (unless required to disclose such information by
judicial or administrative process, as otherwise required by Law, or unless such
information (i) is or becomes generally available to the public other than as a
result of a disclosure by such party, any subsidiary of such party or any of
their authorized representatives, (ii) is independently acquired or developed by
such party, any subsidiary of such party or any of their representatives, or
(iii) is or becomes available to such party, any subsidiary of such party or any
of their authorized representatives from a source other than the other party,
provided that such source is not known to be bound by a confidentiality
agreement with the other party or by any other legal, contractual or fiduciary
duty not to disclose such information) and shall not, and shall use reasonable
efforts to cause such officers, directors, employees and authorized
representatives not to, disclose such information to others without the prior
written consent of the other party.
(b) If this Agreement is terminated, each of GHS and CYL
shall, if so requested by the other party, promptly return every document
furnished to them or their affiliates in connection with the transactions
contemplated hereby and any copies of such documents that may have been made
and shall use reasonable efforts to cause the representatives to whom such
documents were furnished promptly to return such documents and any copies of
such documents, other than documents filed with the SEC or otherwise publicly
available.
ARTICLE 8.
ADDITIONAL AGREEMENTS
SECTION 8.1. APPROPRIATE ACTION; CONSENTS; FILINGS.
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(a) CYL and GHS shall each use their best efforts to: (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, (ii) obtain from any Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by GHS or CYL or any of their subsidiaries in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the transactions contemplated herein, including, without
limitation, the Exchange, (iii) make all necessary filings, and thereafter make
any other required submissions, with respect to this Agreement and the Exchange
(including the USN Spin-off required by Section 7.3(c)) required under (A) the
Securities Act and the Exchange Act and the rules and regulations thereunder,
and any other applicable federal or state securities laws, (B) the
Hart-Scott-Rodino Act ("HSR Act") and (C) any other applicable Law; PROVIDED
that GHS and CYL shall cooperate with each other in connection with the making
of all such filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if requested, to accept
all reasonable additions, deletions or changes suggested in connection
therewith. CYL and GHS shall furnish all information required for any
application or other filing to be made pursuant to the rules and regulations of
any applicable Law in connection with the transactions contemplated by this
Agreement.
(b) Each of CYL and GHS agree to cooperate and use their best
efforts vigorously to contest and resist any action, including administrative or
judicial action, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) (an "Order") that is in effect and that restricts, prevents or
prohibits the consummation of the Exchange or any other transactions
contemplated by this Agreement, including, without limitation, by vigorously
pursuing all available avenues of administrative and judicial appeal; PROVIDED,
HOWEVER, that in no event shall either party take, or be required to take, any
action that would have a CYL or an GHS Material Adverse Effect.
(c) Each of CYL and GHS shall give (or shall cause their
respective subsidiaries to give) any notices to third parties, and use, and
cause their respective subsidiaries to use, its best efforts to obtain any third
party consents: (i) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement; (ii) disclosed or required to be
disclosed in the CYL Disclosure Schedule or the GHS Disclosure Schedule, as the
case may be; (iii) otherwise required under any contracts, licenses, leases or
other agreements in connection with the consummation of the transactions
contemplated herein; or (iv) required to prevent a CYL Material Adverse Effect
from occurring prior to or after the Effective Time or an GHS Material Adverse
Effect from occurring prior to or after the Effective Time.
(d) In the event that either party shall fail to obtain any
third party consent described in subsection (c) above, such party shall use its
best efforts, and shall take any such actions reasonably requested by the other
party hereto, to minimize any adverse effect upon CYL and GHS, their respective
subsidiaries, and their respective businesses
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resulting, or which could reasonably be expected to result, after the Effective
Date, from the failure to obtain such consent.
SECTION 8.2. STOCKHOLDERS; TAX TREATMENT. CYL will advise its members
of the resale restrictions imposed by federal securities laws on the shares of
GHS Preferred Stock and any GHS Warrants received by them pursuant to the
Exchange, and the shares of GHS Common Stock issuable upon conversion of the GHS
Preferred Stock or exercise of the GHS Warrants. Each party hereto shall use its
best efforts to cause the Exchange to qualify, and will not take any actions
which could prevent the Exchange from qualifying under the provisions of Section
351 of the Code.
SECTION 8.3. PUBLIC ANNOUNCEMENTS. Unless otherwise required by
applicable Law or stock exchange requirements (and in that event only if time
does not permit), GHS and CYL shall consult with each other before issuing any
press release or otherwise making any public statements with respect to the
Exchange and the transactions contemplated thereby and shall not issue any such
press release or make any such public statement prior to such consultation.
SECTION 8.4. TRANSACTIONS WITH CONCEPT DEVELOPMENT, ETC. GHS and CYL
acknowledge that GHS had entered into two Letters of Intent (the "LOI's") each
dated April 13, 1999 with Concept and with Seligman/Greer Communication
Resources, Inc. each attached as Exhibit 8.4 hereto relating, among other
things, to the proposed acquisition by GHS of Concept on the terms and
conditions set forth therein. Notwithstanding anything contained in this
Agreement, GHS shall be permitted to consummate the transactions contemplated in
the LOI's on substantially the terms described in the LOI's (the "Concept
Transactions") without the consent of CYL. The consummation of the Concept
Transactions shall not be deemed to result in a GHS Material Adverse Effect.
SECTION 8.5. ROBBINS' APPROVAL RIGHTS. Following the Effective Time,
the parties agree to the following:
(a) During the term of the Content Provider Agreement and
License referred to in Section 9.1(f) and notwithstanding the terms thereof,
Robbins will have the right to approve the general look, feel and functionality
of the Change Your Life Site and any substantial modifications thereto; PROVIDED
that such approval is timely given in accordance with the production policies
and schedules reasonably established by CYL. CYL will submit to Robbins a
request in writing for approval of the initial general look, feel and
functionality of the Change Your Life Site and any modifications thereto. Said
decision shall be communicated directly by Robbins in writing, and not through
his intermediaries, to CYL's Chief Executive Officer, Chief Operating Officer or
their designee. If Robbins elects not to approve said request, then Robbins will
indicate in writing the specific reasons why said approval is denied. If Robbins
is unable to respond to approval requests presented to him under this Section
8.5 in accordance with the production policies and schedules reasonably
established by CYL, the CYL Chief Executive Officer, Chief Operating Officer or
their designee may proceed with such look, feel and functionality of the Change
Your Life Site and any modifications thereto.
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(b) (i) Prior to offering or soliciting any offers, or
accepting any unsolicited offers, with respect to any new or any extensions of
existing non-Internet marketing or distribution agreements or arrangements
(other than the existing arrangements with Guthy-Renker and successors thereto
with respect to infomercials and the QVC channel) for Robbins Group Content or
Robbins Group Products, as those terms are defined in the Content Provider
Agreement and License Agreement referred in Section 9.1(f) ("Distribution
Rights") which agreements or arrangements can reasonably be anticipated by the
Robbins Group to generate annual gross revenues of at least $1,500,000, the
Robbins Group shall give prior written notice of such offers to CYL, together
with such additional information as is necessary, or reasonably requested by
CYL, to evaluate such proposed offers (the "Offer Notice"). The Offer Notice
shall constitute an invitation to CYL to submit a proposal to obtain the
Distribution Rights that are the subject of the Offer Notice.
(ii) Upon receipt of an Offer Notice pursuant to Section 6(a)
above, CYL shall have a period of 10 business days (the "Offer Period") within
which to submit a proposal (each, a "Proposal") to the Robbins Group to acquire
the Distribution Rights that are the subject of such Offer Notice. The Robbins
Group shall give due consideration to evaluate the Proposal in light of its
economic terms and conditions and the ability of CYL to perform the tasks
envisioned and respond promptly to the Proposal.
(iii) If the Robbins Group accepts the Proposal, the Robbins
Group and CYL shall each use commercially reasonable efforts to consummate the
transaction in accordance with such Proposal as promptly as practicable.
(iv) If the Robbins Group in its sole discretion rejects the
Proposal or if CYL fails to submit a Proposal during the Offer Period, the
Robbins Group shall be free to enter into an agreement for the Distribution
Rights that are the subject of the Offer Notice in any manner and with any
Person.
SECTION 8.6. GHS CHARTER AMENDMENT. Promptly following the Effective
Time, GHS shall take such action as is necessary to amend its Certificate of
Incorporation in order to increase the number of authorized shares of GHS Common
Stock to allow the conversion of all of the issued GHS Preferred Stock and
exercise of all of the GHS Warrants. The parties acknowledge that there is
currently an insufficient number of authorized unissued shares of GHS Common
Stock to allow such conversion and exercise and that such amendment to the GHS
Certificate of Incorporation is not a condition to Closing.
SECTION 8.7. GHS BOARD OF DIRECTORS. Promptly following the Effective
Time, GHS shall take all actions that are necessary to reconfigure the GHS Board
of Directors in accordance with the provisions of the By-laws attached hereto as
Exhibit 3.2 and in accordance with the Stockholders Agreement as provided in
Section 3.3 and, in connection therewith, shall take all actions required to be
taken pursuant to Rule 14f-1 of the Exchange Act.
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ARTICLE 9.
CLOSING CONDITIONS
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF EACH PARTY UNDER THIS
AGREEMENT. The respective obligations of each party to effect the Exchange and
the other transactions contemplated herein shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the extent permitted by applicable
Law:
(a) CONSENTS AND APPROVALS. All material consents, approvals
and authorizations legally required to be obtained to consummate the Exchange
shall have been obtained from and made with all required Governmental Entities
or any other third party.
(b) NO ORDER. No Governmental Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which has the effect of making the Exchange illegal or otherwise prohibiting
consummation of the Exchange.
(c) NEW EQUITY FINANCING. GHS shall have closed a new equity
financing resulting in net proceeds to GHS of at least $7,000,000 on terms
reasonably satisfactory to GHS and the CYL Members (the "New Financing").
(d) LITIGATION SETTLEMENT. The litigation presently pending in
the United District Court for the District of Maryland, Southern Division
bearing Case No. AW-97-1791 involving GHS shall have been settled on the terms
set forth in that certain Agreement of Settlement attached hereto as Exhibit
9.1(d).
(e) HSR ACT. Any applicable waiting period under the HSR Act
shall have expired or been terminated.
(f) CONTENT PROVIDER AGREEMENT. CYL will have entered into a
Content Provider Agreement and License pursuant to which the Robbins Group will
provide an exclusive, perpetual arrangement regarding internet programming,
promotion, products and services. The terms and provisions of such arrangement
are set forth in the Content Provider Agreement and License attached hereto as
Exhibit 9.1(f) (the "Content Provider Agreement").
(g) STOCKHOLDERS AGREEMENT. The Stockholders Agreement shall
have been executed and delivered by the parties thereto.
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(h) LETTER AGREEMENT. A letter agreement pertaining to the
reimbursement of certain business expenses incurred by Robbins shall be executed
in a form mutually acceptable to GHS and the Robbins Group.
(i) REGISTRATION RIGHTS AGREEMENT. GHS and the CYL Members
will have entered into a Registration Rights Agreement in the form attached
hereto as Exhibit 9.1(i).
SECTION 9.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF GHS. The
obligations of GHS to effect the Exchange and the other transactions
contemplated herein are also subject to the satisfaction, on or prior to the
Closing Date, of each of the following conditions (any of which may be waived by
GHS in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of CYL contained in this Agreement shall be true
and correct as of the Effective Date (without regard to any materiality, CYL
Material Adverse Effect or similar qualifications thereto), as though made on
and as of the Effective Date, except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date, PROVIDED that if the aggregate effect of breaches of such
representations and warranties of CYL does not result in a CYL Material Adverse
Effect or materially adversely affect the transactions contemplated hereby, this
condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. CYL shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it, in all material respects, on or prior to the
Effective Date.
(c) NO LIABILITIES OF CYL. A the Effective Time, there shall
be no liabilities at CYL, other than its obligations under the Content Provider
Agreement or for Expenses which shall be borne by Development Holdings pursuant
to Section 10.5(a) and except as otherwise agreed to by GHS.
(d) CERTIFICATES. GHS shall have received such certificates
from officers and representatives of CYL as it shall have reasonably requested.
SECTION 9.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF CYL. The
obligations of CYL to effect the Exchange and the other transactions
contemplated in this Agreement are also subject to the satisfaction, on or prior
to the Closing Date, of each of the following conditions (any of which may be
waived by CYL in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of GHS contained in this Agreement shall be true
and correct as of the Effective Date (without regard to any materiality, GHS
Material Adverse Effect or similar qualifications thereto), as though made on
and as of the Effective Date, except that those
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representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date, PROVIDED that if the
aggregate effect of breaches of such representations and warranties of GHS does
not result in a GHS Material Adverse Effect or materially adversely affect the
transactions contemplated hereby, this condition shall be deemed satisfied.
(b) AGREEMENTS AND COVENANTS. GHS shall have performed or
complied with all agreements and covenants required by this Agreement to be
performed or complied with by it, in all material respects, on or prior to the
Effective Date.
(c) RELEASES FROM GUARANTIES. GHS shall have been released
from the Guaranties and all security interests or other liens therefor.
(d) GHS WORKING CAPITAL. At the Effective Time, GHS shall have
at least $3,000,000 in cash or cash equivalents in its bank or other accounts
(less amounts advanced relating to CYL's operations, including amounts paid
relating to a new New York City rental property, and less the expenses,
including legal fees, and consideration payable in connection with the
acquisition and funding contemplated by the Concept Transactions), free and
clear of all liens or encumbrances, PROVIDED that such $3,000,000 amount, as the
same may be reduced, shall be exclusive of the net proceeds to the Company from
the New Financing.
(e) USN SPIN-OFF. GHS shall have authorized the USN Spin-off
in accordance with the provisions of Section 7.3(c). In addition, all operating
assets and all liabilities of any type of GHS and its subsidiaries (other than
USN) shall have been transferred to USN in anticipation of the USN Spin-off, and
at the Effective Time there shall be no other liabilities at GHS or its
subsidiaries (other than USN) except liabilities contemplated by this Agreement,
including any fees and expenses payable by GHS in consummating the transactions
contemplated by this Agreement, liabilities resulting from Concept Transactions
and as otherwise agreed to by the CYL Members. GHS and USN shall have entered
into such agreements concerning the allocation of assets and liabilities between
them, indemnification and such other matters as shall be reasonably acceptable
to GHS and the CYL Members.
(f) TAX MATTERS. The CYL Members shall be satisfied, in their
reasonable judgment, that the transactions contemplated hereby in their entirety
would qualify as a tax-free transaction under Section 351 or other relevant
sections of the Code.
(g) AMENDMENT TO GHS'S BY-LAWS. GHS shall take such actions as
are necessary to amend and restate its By-Laws in the form referred to in
Section 3.2.
(h) CERTIFICATES. CYL shall have received such certificates
from officers and representatives of GHS as it shall have reasonably requested.
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ARTICLE 10.
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of this Agreement
and the Exchange by the stockholders of each of GHS and members of CYL:
(a) by mutual consent of GHS and the CYL Members;
(b) by GHS, upon a breach of any representation, warranty,
covenant or agreement on the part of CYL or the CYL Members set forth in this
Agreement, or if any representation or warranty of CYL or the CYL Members shall
have become untrue, in either case such that the conditions set forth in Section
9.2(a) or Section 9.2(b) would not be satisfied;
(c) by the CYL Members, upon breach of any representation,
warranty, covenant or agreement on the part of GHS set forth in this Agreement,
or if any representation or warranty of GHS shall have become untrue, in either
case such that the conditions set forth in Section 9.3(a) or Section 9.3(b)
would not be satisfied;
(d) by either GHS or the CYL Members, if there shall be any
Order which is final and nonappealable preventing the consummation of the
Exchange, except if the party relying on such Order has not complied with its
obligations under Section 8.1(b);
(e) by either GHS or the CYL Members, if the Exchange shall
not have been consummated before May 31, 1999; and
(f) by GHS or the CYL Members at any time prior to the
Effective Date if (i) in the case of termination by GHS, any of the conditions
specified in Section 9.2 shall not have been met in all material respects or
waived prior to such time as such condition can no longer be satisfied or (ii)
in the case of termination by the CYL Members, any of the conditions specified
in Section 9.3 shall not have been met in all material respects or waived prior
to such time as such condition can no longer be satisfied.
The right of any party hereto to terminate this Agreement pursuant to
this Section 10.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 10.2. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to Section 10.1, this Agreement shall forthwith become
void, there shall be no liability on the part of GHS or CYL or any of their
respective officers, directors or members to the other and all rights and
obligations of any party hereto shall cease, and except that nothing herein
shall relieve any party of liability for any willful breach of any
representation or warranty or failure to perform or comply with any obligation
under this Agreement prior to
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the termination hereof and except that Section 7.6, 10.2, 10.5 and Articles 12
shall survive such termination.
SECTION 10.3. AMENDMENT. This Agreement may be amended by the parties
hereto, in the case of GHS or CYL by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 10.4. WAIVER. At any time prior to the Effective Time, any
party hereto may: (i) extend the time for the performance of any of the
obligations or other acts of the other party hereto; (ii) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto; and (iii) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by the party or parties to be bound thereby.
SECTION 10.5. FEES, EXPENSES AND OTHER PAYMENTS.
(a) Except as provided in Section 10.5(c), all Expenses (as
defined in paragraph (b) of this Section 10.5) incurred by the parties hereto
shall be borne solely and entirely by the party which has incurred such
Expenses, PROVIDED that the Expenses borne by CYL through the Closing shall be
borne solely by Development Holdings.
(b) "Expenses" as used in this Agreement shall include all
reasonable out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and consultants to
a party hereto and its affiliates) incurred by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, and all other matters related to
the closing of the transactions contemplated herein.
(c) If this Agreement shall be terminated by the CYL Members
pursuant to Section 10.1(c) or by GHS pursuant to Section 10.1(b) (in each case,
the "Non-Breaching Party"), then the other party shall pay to the Non-Breaching
Party, in consideration of the time, effort and resources expended in connection
herewith, all of the Non-Breaching Party's Expenses. This shall be in addition
to any other rights the Non-Breaching Party shall have.
(d) Any payment required to be made pursuant to Section
10.5(c) shall be made to the Non-Breaching Party entitled to receive such
payment not later than two business days after delivery to the other party of
notice of demand for payment and an itemization setting forth in reasonable
detail all Expenses of the Non-Breaching Party, if any, and shall be made by
wire transfer of immediately available funds to an account designated by the
Non-Breaching Party in the notice of demand for payment delivered pursuant to
this Section 10.5(d).
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ARTICLE 11.
INTENTIONALLY LEFT BLANK
ARTICLE 12.
GENERAL PROVISIONS
SECTION 12.1. EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of CYL and GHS in this Agreement shall expire at
the Effective Time.
SECTION 12.2. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered, mailed or transmitted, and shall be
effective upon receipt, if delivered personally, mailed by registered or
certified mail (postage prepaid, return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like changes of address) or sent by electronic transmission to the telecopier
number specified below:
(a) If to GHS:
GHS, Inc.
2400 Research Boulevard
Rockville, Maryland 20850
Attention: Mr. Alan Gold
Telecopier No.: (301) 308-3254
with a copy to:
Heller Ehrman White & McAuliffe
711 Fifth Avenue
New York, NY 10022
Attention: Peter DiIorio, Esq.
Telecopier No.: (212) 832-3353
(b) If to CYL:
Change Your Life.com, LLC
704 Broadway
New York, New York 10003
Attention: Beth Polish, Chief Operating Officer
Telecopier No.(212) 358-4066
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with a copy to:
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, NY 10019
Attention: Frank E. Morgan II, Esq.
Telecopier No.: (212) 259-6333
(c) If to the Robbins Group:
Robbins Research International Inc.
9191 Town Center Drive, Suite 600
San Diego, California 92122
Attention: Sam Georges
Telecopier No.: (619) 535-6300
with a copy to:
Loeb & Loeb, LLP
Suite 1800, 1000 Wilshire Blvd.
Los Angeles, CA 90017-2475
Attention: David L. Ficksman, Esq.
Telecopier No.: (213) 688-3460
SECTION 12.3. CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person and shall be deemed to include
directors and executive officers of a person;
(b) "business day" means any day other than a day on which
banks in the State of New York are authorized or obligated to be closed;
(c) "control" (including the terms "controlled", "controlled
by" and "under common control with") means the possession, directly or
indirectly or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise;
(d) "knowledge" shall mean, with respect to any matter in
question, with respect to CYL, if an executive officer of CYL or a CYL Member
or, with respect
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to GHS, if an executive officer of GHS, as the case may be, has actual knowledge
of such matter, after due inquiry;
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d) of the Exchange Act);
(f) "Returns" mean all tax returns, statements, reports, forms
(including estimated tax or information returns and reports, or filing
extensions with respect thereto) required to be filed with any taxing authority
in connection with the determination or administration of any tax;
(g) "subsidiary" or "subsidiaries" of CYL, GHS or any other
person, means any corporation, partnership, joint venture or other legal entity
of which CYL, GHS or such other person, as the case may be (either alone or
through or together with any other subsidiary), controls or owns, directly or
indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity or, which by
contract or agreement, has the power to control such corporation or other legal
entity, or which otherwise constitutes a "subsidiary" as defined in Regulation
S-X Sections 210.1-02(w).
(h) "Tax" or "Taxes" shall mean any and all taxes, charges,
fees or levies, payable to any federal, state, local or foreign taxing authority
or agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, AD VALOREM, value added,
sales, use, service, real or personal property, capital stock, license, payroll,
withholding disability, employment, social security, workers compensation,
unemployment compensation, utility, severance, excise, stamp, windfall profits,
transfer and gains taxes, (ii) customs duties, imposts, charges, levies or other
similar assessments of any kind, and (iii) interest, penalties and additions to
tax imposed with respect thereto.
SECTION 12.4. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 12.5. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
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SECTION 12.6. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits and Schedules hereto) constitute the entire agreement of the parties
and supersede all prior agreements and undertakings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof.
SECTION 12.7. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 12.8. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 12.9. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive of, any rights or
remedies otherwise available.
SECTION 12.10. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 12.11. DISPUTE RESOLUTION. (a) In the event of any dispute,
controversy or claim arising out of or relating to this Agreement,
representatives of the parties shall meet in New York, NY, San Diego, CA or such
other city as may be mutually agreeable to the parties involved as soon as
reasonably possible (but not later than ten (10) days after written notice from
one party to the other of such dispute) and shall enter into good faith
negotiations aimed at resolving the dispute. If they are unable to resolve the
dispute in a mutually satisfactory manner within thirty (30) days from the date
of such notice, the matter may be submitted by any involved party to arbitration
as provided for below.
(b) Any dispute, controversy or claim between or among any of
the parties arising out of or relating to this Agreement or the breach,
termination or invalidity thereof, including any dispute as to whether any
dispute is subject to arbitration, which has not been resolved after good faith
negotiations pursuant to Section 12.11(a) hereof shall be settled by binding
arbitration administered by the American Arbitration Association in accordance
with its then current Commercial Arbitration Rules except as provided herein.
(c) Any arbitration shall be conducted by a three person
arbitration panel. The three person arbitration panel shall consist of one party
arbitrator selected by CYL, one party arbitrator selected by GHS, each of whom
shall be named within ten (10) days of the
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demand for arbitration, and one neutral arbitrator selected by the first two
arbitrators. If the two party appointed arbitrators cannot agree on the neutral
arbitrator within ten (10) days of the selection of the last party appointed
arbitrator, the American Arbitration Association shall appoint the neutral
arbitrator, who shall act as chairperson. In the event of a vacancy with respect
to an arbitrator, the vacancy shall be filled within ten (10) days of notice of
the vacancy in the same manner and subject to the same requirements as are
provided for in the original appointment to that position. If the vacancy is not
filled within ten (10) days, the American Arbitration Association shall make the
appointment. Unless otherwise mutually agreed, the place of arbitration shall be
New York, NY or San Diego, CA, as selected by the party receiving the request
for arbitration.
(d) The law applicable to the validity of the arbitration
clause, the conduct of the arbitration, including the resort to a court for
interim relief, enforcement of the award or any other question of arbitration
law or procedure shall be the United States' Federal Arbitration Act, 9
U.S.C. Section 1 ET SEQ. The involved parties shall be entitled to engage in
reasonable discovery including requests for the production of all relevant
documents and a reasonable number of depositions. The arbitration panel shall
have the sole discretion to determine the reasonableness of any requested
document production or deposition. It is the intent of the parties that a
substantive hearing be held within sixty (60) days of the appointment of the
neutral arbitrator or the rejection of a challenge thereto, whichever shall
occur later. A stenographic record of every hearing shall be made. The
presentation of evidence shall be governed by the federal Rules of Evidence.
(e) Any award, including any interim award, made shall be made
by a majority of the arbitrators applying the substantive law of New York and
shall (i) be in writing and state the arbitration panel's findings of fact and
conclusions of law; (ii) be made promptly, and in any event within sixty (60)
days after the conclusion of the arbitration hearing; and (iii) be binding
against the parties involved and may be entered for enforcement in any court of
competent jurisdiction.
(f) The costs of any arbitration proceeding (e.g.,
arbitrators, court reporter and room rental fees) shall be equally divided
between CYL and GHS. However, each party shall pay its own expense, including
attorneys' and other professionals' fees and disbursements.
(g) The arbitration provision set forth in this Section 12.11
shall be a complete defense to any suit, action or proceeding instituted in any
court with respect to any matter arbitrable under this Agreement, except that
judicial intervention may be sought in accordance with Section 12.12 hereof.
SECTION 12.13. SPECIFIC PERFORMANCE. The parties acknowledge that the
failure of any party or its affiliates to substantially perform its material
obligations and covenants under this Agreement may result in a significant
frustration of the respective business objectives of the parties and that
remedies at law may be inadequate to protect the
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rights and interests of the other party. Accordingly, the parties, in addition
to the remedies provided in this Agreement or otherwise available for the
enforcement of this Agreement, expressly consent to an order for specific
performance of such obligations and covenants of a party or its affiliates or an
order granting other substantially equivalent remedies calculated to require
performance of any such obligations or covenants.
SECTION 12.14. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, GHS, CYL and the CYL Members have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
GHS, INC. CHANGE YOUR LIFE.COM, LLC
By:/s/ Alan Gold By:/s/ David Roy
--------------------------- ----------------------------
Name: Alan Gold Name: David Roy
Title: President Title: Vice President
CYL MEMBERS:
/s/ Anthony J. Robbins
----------------------------
Anthony J. Robbins
ROBBINS RESEARCH
INTERNATIONAL INC.
By:/s/ Anthony J. Robins
--------------------------
Name: Anthony J. Robbins
Title: Chairman
CYL DEVELOPMENT
HOLDINGS, LLC
By:/s/ David Roy
--------------------------
Name: David Roy
Title: Manager
37
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LIST OF EXHIBITS AND SCHEDULES TO
CONTRIBUTION AND EXCHANGE AGREEMENT
LIST OF EXHIBITS
1.1 GHS Preferred Stock Terms
3.1 CYL Certificate of Formation and Operating Agreement
3.2 GHS Certificate of Incorporation and By-Laws
3.3 Stockholders Agreement
8.4 Concept Development and Seligman/Greer Letters of Intent
9.1(d) Settlement Agreement
9.1(f) CYL Content Provider Agreement and License
9.1(i) Registration Rights Agreement
LIST OF SCHEDULES
4.1 CYL Members and Pro Rata Portion
CYL Disclosure Schedule
GHS Disclosure Schedule
<PAGE>
Exhibit 2(b)
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
- - --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
DATED AS OF
MAY 27, 1999
AMONG
GHS, INC.
CONCEPT ACQUISITION CORPORATION
CONCEPT DEVELOPMENT, INC.
AND
THE SOLE STOCKHOLDER OF CONCEPT DEVELOPMENT, INC.
- - --------------------------------------------------------------------------------
<PAGE>
SCHEDULES
Schedule 2.2(b) Escrow Shares
Schedule 3.1(ee) Officers and Directors
Schedule 9.5 Stockholder Address
EXHIBITS
Exhibit A Form of Agreement of Merger
Exhibit B Form of Escrow Agreement
Exhibit C Form of Employment Agreement
Exhibit D Form of Repurchase Agreement
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION dated
as of May 27, 1999 among GHS, INC., a
Delaware corporation ("Parent"), CONCEPT
ACQUISITION CORPORATION, a Delaware
corporation and a direct, wholly-owned
subsidiary of Parent ("Acquisition Sub") and
CONCEPT DEVELOPMENT, INC., a Delaware
corporation (the "Company"), WILLIAM ZANKER
and DEBBIE DWORKIN (the "Founders") and
DEBBIE DWORKIN (the "Stockholder").
The Boards of Directors of Parent, Acquisition Sub and the Company have
each duly approved and adopted this Agreement, the Agreement of Merger in
substantially the form of EXHIBIT A attached hereto (the "Agreement of Merger")
and the proposed merger of Acquisition Sub with and into the Company in
accordance with this Agreement, the Agreement of Merger and the Delaware General
Corporation Law (the "Delaware Statute"), whereby, among other things, the
issued and outstanding shares of common stock, no par value, of the Company (the
"Company Common Stock"), will be exchanged and converted into the right to
receive cash and shares of Series C preferred tock, $.01 par value, of Parent
(the "Parent Preferred Stock") in the manner set forth in Article II hereof and
in the Agreement of Merger, upon the terms and subject to the conditions set
forth in this Agreement and the Agreement of Merger.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the Agreement of Merger and the representations,
warranties, covenants, agreements, conditions and promises contained herein and
therein, the parties hereby agree as follows:
ARTICLE 1
GENERAL
1.1 THE MERGER. In accordance with the provisions of this Agreement,
the Agreement of Merger and the Delaware Statute, Acquisition Sub shall be
merged with and into the Company (the "Merger"), which at and after the
Effective Time shall be, and is sometimes herein referred to as, the "Surviving
Corporation". Acquisition Sub and the Company are sometimes referred to as the
"Constituent Corporations".
1.2 THE EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, the Agreement of Merger shall be executed and delivered to and filed
with the Secretary of State of the State of Delaware by each of the Constituent
Corporations on the Closing Date in the manner provided under Section 251 of the
Delaware Statute. The Merger shall become effective (the "Effective Time") upon
the filing of the Agreement of Merger with the Secretary of State of the State
of Delaware and the issuance of a certificate of merger by the Secretary of
State of the State of Delaware.
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<PAGE>
1.3 EFFECT OF MERGER. At the Effective Time the separate existence of
Acquisition Sub shall cease and Acquisition Sub shall be merged with and into
the Surviving Corporation, and the Surviving Corporation shall possess all of
the rights, privileges, powers and franchises of a public as well as of a
private nature, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations as provided in Section 251 of the
Delaware Statute.
1.4 CHARTER AND BY-LAWS OF SURVIVING CORPORATION. From and after the
Effective Time and pursuant to the Agreement of Merger: (i) the Charter of
Acquisition Sub shall be the Charter of the Surviving Corporation, unless and
until altered, amended or repealed as provided in the Delaware Statute or the
Charter, (ii) the by-laws of Acquisition Sub shall be the by-laws of the
Surviving Corporation, unless and until altered, amended or repealed as provided
in the Delaware Statute, the Charter or such by-laws, (iii) the directors of
Acquisition Sub shall be the directors of the Surviving Corporation, unless and
until removed, or until their respective terms of office shall have expired, in
accordance with the Delaware Statute, the Charter and the by-laws of the
Surviving Corporation, as applicable and (iv) the officers of Acquisition Sub
shall be the officers of the Surviving Corporation, unless and until removed, or
until their terms of office shall have expired, in accordance with the Delaware
Statute, the Charter and the by-laws of the Surviving Corporation, as
applicable.
1.5 TAKING OF NECESSARY ACTION. Prior to the Effective Time, the
parties hereto shall do or cause to be done all such acts and things as may be
necessary or appropriate in order to effectuate the Merger as expeditiously as
reasonably practicable, in accordance with this Agreement, the Agreement of
Merger and the Delaware Statute.
1.6 TAX-FREE REORGANIZATIONS. For Federal income tax purposes, the
parties intend that the merger be treated as a tax-free reorganization within
the meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of Section 368(a)(2)(E) of the Code.
1.7 CLOSING. Unless this Agreement shall have been terminated and the
transactions contemplated by this Agreement abandoned pursuant to the provisions
of Article VIII, and subject to the provisions of Article V, the closing of the
Merger (the "Closing") will take place at 10:00 a.m. (Eastern Standard Time) on
a date (the "Closing Date") to be mutually agreed upon by the parties, which
date shall be not later than the third Business Day after all the conditions set
forth in Article V shall have been satisfied (or waived in accordance with
Section 10.10, to the extent the same may be waived), unless another date is
agreed to in writing by the parties. The Closing shall take place at the offices
of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York
10103, unless another place is agreed to in writing by the parties. As used
herein, the term "Business Day" shall mean any day other than a Saturday, Sunday
or day on which banks are permitted to close in the State of New York.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
3
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2.1 TOTAL CONSIDERATION; EFFECT ON CAPITAL STOCK. The entire
consideration payable by Parent with respect to all outstanding shares of
capital stock of the Company and for all options, warrants, rights, calls,
commitments, agreements or arrangements of any character to which the Company is
a party or by which it is bound calling for the issuance of shares of capital
stock of the Company or any securities convertible into or exercisable or
exchangeable for, or representing the right to purchase or otherwise receive,
directly or indirectly, any such capital stock, or other arrangement to acquire,
at any time or under any circumstance, capital stock of the Company or any such
other securities (hereinafter collectively referred to as the "Fully Diluted
Company Shares,") other than any capital stock of the Company owned or held by
Parent or any Affiliate of Parent, shall be an aggregate of [*] (the "Aggregate
Cash Consideration") in cash (the Aggregate Cash Consideration, together with
the Total Parent Share Amount, being sometimes hereinafter collectively referred
to as the "Aggregate Purchase Price"). For purposes of the calculation of the
exchange ratio for Parent Preferred Stock under Section 2.1(c)(i) hereof, it is
assumed that the number of Fully Diluted Company Shares is one (1) (the "Fully
Diluted Company Share Amount"). At the Effective Time, subject and pursuant to
the terms and conditions of this Agreement and the Agreement of Merger, by
virtue of the Merger and without any action on the part of the Constituent
Corporations or the holders of the capital stock or options to purchase capital
stock of the Constituent Corporations:
(a) CAPITAL STOCK OF ACQUISITION SUB. Each issued and
outstanding share of common stock, par value $.01 per share, of Acquisition Sub
shall be converted into one share of common stock, par value $.01 per share, of
the Surviving Corporation.
(b) CANCELLATION OF CERTAIN SHARES OF COMPANY COMMON STOCK.
Each share of capital stock of the Company that is authorized but unissued shall
cease to exist and no Parent Preferred Stock or other consideration shall be
delivered in exchange therefor.
(c) EXCHANGE OF COMPANY COMMON STOCK. Subject to Section 2.2,
each share of Company Common Stock issued and outstanding at the Effective Time,
including all accrued and unpaid dividends thereon, shall be exchanged and
converted into the right to receive:
(i)[*]; and
(ii)[*].
For convenience of reference, the shares of Parent Preferred Stock to be issued
upon the exchange and conversion of Company Common Stock in accordance with this
Section 2.1(c) are sometimes hereinafter collectively referred to as the "Merger
Shares". All calculations under Section 2.1 shall be rounded to the nearest one
billionth (.000000001).
(d) SHARES FOR DISSENTING STOCKHOLDERS. Each issued and
outstanding share of Company Common Stock held by a Dissenting Stockholder, if
any, shall not be exchanged and converted as described in Section 2.1(c) but
shall become the right to receive such consideration as may be determined to be
due to such Dissenting Stockholder pursuant to the Delaware Statute; PROVIDED,
HOWEVER, that each share of Company Common Stock issued and outstanding at the
Effective Time and held by a Dissenting Stockholder who or which shall, after
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the Effective Time, withdraw his or its demand for appraisal or lose or fail to
perfect his or its right of appraisal as provided in the Delaware Statute shall
be deemed, as of the Effective Time, to be exchanged and converted into Parent
Preferred Stock as provided in Section 2.1(c), without interest. After the
Effective Time, as provided in Section 262 of the Delaware Statute, no
Dissenting Stockholder will be entitled to vote the shares of Company Common
Stock subject to such Dissenting Stockholder's demand for appraisal for any
purpose or be entitled to the payment of dividends or other distributions on
such shares. The Company shall give Parent prompt notice of any demands received
by the Company for fair value of such Company Common Stock, and Parent shall
have the right to participate in all the negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, make any payment (except to the extent that any such payment
is pursuant to a court order) with respect to, or settle or offer to settle, any
such demands
2.2 ESCROW DEPOSIT; EXCHANGE OF CERTIFICATES.
(a) ESCROW AGREEMENT. Reference is made to the Escrow
Agreement to be dated as of the Effective Time among the Stockholder, Parent and
a mutually agreeable escrow agent (the "Escrow Agent") in the form of EXHIBIT B
hereto (the "Escrow Agreement"). The Escrow Agreement is to be entered into for
the purpose of securing the indemnification obligations of the Stockholders
under Article VII.
(b) ESCROW DEPOSIT. At the Effective Time, Parent shall cause
to be deposited with the Escrow Agent (i) [*] ("Escrow Shares"), and (ii) three
stock power duly endorsed in blank for transfer on behalf of the Stockholder,
and the Stockholder by her execution and delivery of this Agreement, hereby
authorizes and directs Parent to make such deposit on her behalf.
(c) PROCEDURE FOR EXCHANGE. Immediately following the
Effective Time, Parent shall deliver to the Stockholder, other than Parent or
any subsidiary of Parent, of a certificate or certificates which immediately
prior to the Effective Time represented issued and outstanding shares of Company
Common Stock (each, an "Old Certificate") a certificate (a "New Certificate")
representing that number of Merger Shares (other than the Escrow Shares) which
such holder has the right to receive pursuant to Section 2.1(c)(i) with respect
to such Old Certificate against receipt by Parent of (i) such Old Certificate
for cancellation and (ii) an executed letter of transmittal, and the Old
Certificate so surrendered shall forthwith be canceled (the certificates
representing the Escrow Shares having therefore been deposited on behalf of the
Stockholder into escrow as contemplated by Section 2.2(b) hereof). In the event
of a transfer of ownership of shares of Company Common Stock which is not
registered on the transfer records of the Company, a New Certificate
representing the proper number of shares of Parent Preferred Stock may be issued
to a transferee if the Old Certificate representing such Company Common Stock is
presented to Parent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock or other transfer
taxes have been paid. Until surrendered as contemplated by this Section 2.2,
each Old Certificate shall be deemed, on and after the Effective Time, to
represent only the right to receive upon such surrender, New Certificates
representing Merger Shares (other than the Escrow Shares) as contemplated by
Section 2.1(c)(i), without interest. All Escrow Shares shall be held by, and
distributed in accordance with, the terms and provisions of the Escrow
Agreement.
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(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All
shares of Parent Preferred Stock issued upon the surrender or exchange of shares
of Company Common Stock in accordance with the terms of this Article II shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. If, after the Effective Time, any Old
Certificate is presented to the Surviving Corporation for any reason, such Old
Certificate shall be canceled and exchanged as provided in this Article II.
(e) NO LIABILITY. None of Parent, Acquisition Sub or the
Company shall be liable to any holder of shares of Company Common Stock or
Parent Preferred Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) of Parent Preferred Stock to be issued in
exchange for Company Common Stock pursuant to this Section 2.2, if, on or after
the expiration of six months following the Effective Time, such shares are
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(f) LOST, STOLEN OR DESTROYED COMPANY CERTIFICATES. In the
event any Old Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit to that effect by the person claiming such Old
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may reasonably direct
as indemnity against any claim that may be made against it with respect to such
Old Certificate, Parent will issue in exchange for such lost, stolen or
destroyed Old Certificate the Merger Shares and cash in lieu of fractional
shares deliverable in respect thereof pursuant to this Agreement.
(g) AUTHORIZATION OF THE MERGER, THIS AGREEMENT, THE AGREEMENT
OF MERGER, THE ESCROW AGREEMENT AND THE ESCROW AGENT. In the event the Merger
shall be approved by the stockholders of the Company, as required by the
Delaware Statute and as contemplated by this Agreement, such approval shall
constitute approval andratification by the stockholders of the Company of the
(i) Merger, as required by the Delaware Statute, (ii) provisions of this
Agreement and the Agreement of Merger and (iii) designation of the Escrow Agent
and the approval and ratification by the stockholders of the Company of the
terms and provisions of the Escrow Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company and the
Stockholder jointly and severally represent and warrant to Parent and
Acquisition Sub that, except as disclosed in the disclosure schedule dated the
date hereof, certified by the Chief Executive Officer of the Company and
delivered by the Company to Parent and Acquisition Sub simultaneously herewith
(which disclosure schedule shall contain specific references to the
representations and warranties to which the disclosures contained therein
relate) (the "Company Disclosure Schedule"):
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. The
Company (i) is a corporation duly organized, validly existing and in good
standing under the
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laws of the State of Delaware, (ii) has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted, and as proposed to be conducted, to enter
into this Agreement, the Agreement of Merger and the Related Agreements (as
defined below) to which the Company is a party, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby and (iii) is duly qualified and in good standing to do business in
those jurisdictions listed in Section 3.1(a) of the Company Disclosure Schedule
and in all other jurisdictions in which the failure to be so qualified and in
good standing could reasonably be expected to have a material adverse effect on
the Company or its business, properties, condition (financial or otherwise),
assets, Liabilities, operations, results of operations, prospects or affairs of
the Company (a "Company Material Adverse Effect" ). The Company has delivered to
Parent true and complete copies of the Charter and by-laws of the Company, in
each case as amended to the date hereof. As used herein, "Charter" shall mean,
with respect to any corporation, those instruments that at the time constitute
its corporate charter as filed or recorded under the general corporation law of
the jurisdiction of its incorporation, including the articles or certificate of
incorporation or organization, and any amendments thereto, as the same may have
been restated, and any amendments thereto (including any articles or
certificates of merger or consolidation, certificate of correction or
certificates of designation or similar instruments which effect any such
amendment) which became effective after the most recent such restatement.
(b) EQUITY INVESTMENTS. The Company has never had, nor does it
currently have, any subsidiaries, nor has it ever owned, nor does it currently
own, any capital stock or other proprietary interest, directly or indirectly, in
any corporation, association, trust, partnership, joint venture or other entity.
There are no options, warrants, rights, calls, commitments or agreements of any
character to which the Company is a party or by which it is bound calling for
the issuance of shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for, or representing the right
to purchase or otherwise receive, any such capital stock, or other arrangement
to acquire, at any time or under any circumstance, capital stock of the Company
or any such other securities. As used herein, a "subsidiary" of any corporation
means another corporation an amount of whose voting securities sufficient to
elect at least a majority of its Board of Directors is owned directly or
indirectly by such corporation.
(c) CAPITAL STOCK; SECURITIES. The authorized capital stock of
the Company consists of (i) 1,500 shares of Company Common Stock, of which one
(1) share is outstanding. The outstanding share of Company Common Stock is
validly issued and outstanding, fully paid and non-assessable and not subject to
preemptive rights. There are no voting trusts, voting agreements, proxies, first
refusal rights, first offer rights, co-sale rights, options, transfer
restrictions or other agreements, instruments or understandings (whether written
or oral, formal or informal) with respect to the voting, transfer or disposition
of Company Common Stock to which the Company is a party or by which it is bound,
or, to the best knowledge of the Company and the Stockholders, among or between
any persons other than the Company.
(d) AUTHORITY; NO CONSENTS. The execution, delivery and
performance by the Company of this Agreement, the Agreement of Merger and the
Related Agreements to which it is a party and the consummation of the
transactions contemplated hereby
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and thereby have been duly and validly authorized by all necessary corporate
action on the part of the Company; and this Agreement and the Related Agreements
to which it is a party have been, and the Agreement of Merger when executed and
delivered by the Company will be, duly and validly executed and delivered by the
Company; and this Agreement and the Related Agreements to which it is a party
are the valid and binding obligations of the Company, enforceable against the
Company in accordance with their respective terms and the Agreement of Merger
when executed and delivered by the Company will be, enforceable against the
Company in accordance with its terms. Neither the execution, delivery and
performance of this Agreement, the Related Agreements to which it is a party or
the Agreement of Merger nor the consummation by the Company of the transactions
contemplated hereby or thereby nor compliance by the Company with any provision
hereof or thereof will in any material respect (A) conflict with, (B) result in
any violations of, (C) cause a default under (with or without due notice, lapse
of time or both), (D) give rise to any right of termination, amendment,
cancellation or acceleration of any obligation contained in or the loss of any
material benefit under or (E) result in the creation of any Encumbrance on or
against any assets, rights or property of the Company under any term, condition
or provision of (x) any instrument, contract or agreement to which the Company
is a party, or by which the Company or any of its properties, assets or rights
may be bound, (y) any law, statute, rule, regulation, order, writ, injunction,
decree, permit, concession, license or franchise of any Governmental Authority
applicable to the Company or any of its properties, assets or rights or (z) the
Company's Charter or by-laws. Except as set forth on Section 3.1(d) of the
Company Disclosure Schedule, no permit, authorization, consent or approval of or
by, or any notification of or filing with, any Governmental Authority or other
person is required in connection with the execution, delivery and performance by
the Company of this Agreement, the Agreement of Merger or the Related Agreements
or the consummation by the Company of the transactions contemplated hereby or
thereby, except for (i) the distribution of the Stockholders' Materials with
respect to the adoption by the Stockholders of this Agreement, the Merger and
the transactions contemplated hereby, (ii) the filing of the Agreement of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business and (iii) such other consents, waivers, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
Company Material Adverse Effect or materially impair the ability of the Company
and the Stockholders to consummate the transactions contemplated by this
Agreement or the Agreement of Merger, including, without limitation, the Merger
(each of which actions reflected in clauses (i) and (ii) above is to be taken by
the Company on a timely basis).
(e) FINANCIAL INFORMATION.
(i)The Company has previously delivered to Parent the
Company Returns (as defined below); and
(ii)The Company Returns (A) are in accordance with
the books and records of the Company, (B) fairly present the financial condition
of the Company as at the respective dates indicated and the results of
operations of the Company for the respective periods indicated.
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(f) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 3.1(f) of the Company Disclosure Schedule, on the date hereof the
Company has no liability or obligation of any nature (whether known or unknown,
matured or unmatured, fixed or contingent, secured or unsecured, accrued,
absolute or otherwise ("Liability" )). There were no material loss contingencies
(as such term is used in Statement of Financial Accounting Standards No. 5
issued by the Financial Accounting Standards Board in March, 1975 ("FAS No. 5"
)).
(g) ABSENCE OF CHANGES. Since the Company's inception the
Company has been operated in the ordinary course, consistent with past practice,
and there has not been any material adverse change in the business, assets,
properties, Liabilities, operations, results of operations, condition (financial
or otherwise), prospects or affairs (a "Material Adverse Change ") of the
Company;
(h) TAX MATTERS. The Company and each other corporation (if
any) included in any consolidated or combined tax return in which the Company
has been included (i) have filed and will file, in a timely and proper manner,
consistent with applicable laws, all Federal, state and local Tax returns and
Tax reports required to be filed by them through the Closing Date (the "Company
Returns" ) with the appropriate governmental agencies in all jurisdictions in
which Company Returns are required to be filed and have timely paid or will
timely pay all amounts shown thereon to be due; (ii) have paid and shall timely
pay all Taxes of the Company (or such other corporation) required to have been
paid by the Company (or such other corporation) on or before the Closing Date;
and (iii) currently are not the beneficiary of an extension of time within which
to file any Tax return or Tax report. All such Company Returns were and will be
correct and complete at the time of filing. All Taxes of the Company
attributable to periods up to and including the Closing Date, to the extent not
required to have been previously paid, have been adequately provided for on and
disclosed on Schedule 3.1(h). The Company has not been notified by the Internal
Revenue Service or any state, local or foreign taxing authority that any issues
have been raised (and are currently pending) in connection with any Company
Return, and no waivers of statutes of limitations have been given with respect
to the Company that are still in effect. Except as contested in good faith and
disclosed in Section 3.1(h) of the Company Disclosure Schedule, any deficiencies
asserted or assessments (including interest and penalties) made as a result of
any examination by the Internal Revenue Service or by any other taxing
authorities of any Company Return have been fully paid and the Company has
received no notification that any proposed additional Taxes have been asserted.
The Company (i) has not made an election to be treated as a "consenting
corporation" under Section 341(f) of the Code and (ii) is not a "personal
holding company" within the meaning of Section 542 of the Code. The Company has
not agreed to, nor is it required to, make any adjustment under Section 481(a)
of the Code by reason of a change in accounting method or otherwise. The Company
will not incur a Tax Liability resulting from the Company ceasing to be a member
of a consolidated or combined group that had previously filed consolidated,
combined or unitary Tax returns. The Company is not a party to any agreement or
contract with any "disqualified individual" (as defined in Section 280G(c) of
the Code) that, by reason of the transactions contemplated hereby and occurring
on or prior to the Closing Date or taking into account any other agreements or
contracts currently in effect between the Company and such disqualified
individual, will result in the disallowance of any deduction for any payment
under such agreement or contract as an "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code).
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As used in this Agreement, "Tax" means any of the Taxes and "Taxes"
means, with respect to any entity, (A) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such entity and (B) any
liability for the payment of any amount of the type described in the immediately
preceding clause (A) as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable law) of another entity or a
member of an affiliated or combined group.
(i) TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED
MATTERS. Except as set forth on Schedule 3.1(i) of the Company Disclosure
Schedule, the Company has good and valid title to all of its assets, properties
and interests in properties, real, personal or mixed, all of which is described
on Schedule 3.1(i) of the Company Disclosure Schedule (except (A) inventory or
other property sold or otherwise disposed of since the Company Reviewed Balance
Sheet Date in the ordinary course of business and (B) accounts receivable and
notes receivable paid in full subsequent to the Company Reviewed Balance Sheet
Date), or not so reflected therein but used or useful in the conduct or
operation of the Company's business, free and clear of all Encumbrances, of any
kind or character, except for (i) those Encumbrances set forth in Section 3.1(i)
of the Company Disclosure Schedule, (ii) liens for current taxes not yet due and
payable and (iii) statutory mechanics and materialmen's liens. The assets,
properties and interests in properties of the Company are in good operating
condition and repair in all material respects (ordinary wear and tear excepted).
The assets, properties and interests in properties of the Company to be owned,
leased or licensed by the Surviving Corporation at the Effective Time shall
include all assets, properties and interests in properties (real, personal and
mixed, tangible and intangible) and all rights, leases, licenses and other
agreements necessary to enable the Surviving Corporation to carry on the
business of the Company as presently conducted by the Company or as proposed to
be conducted. The Company does not own or lease any personal and/or mixed
property. As used herein, the term "Encumbrances" shall mean and include
security interests, mortgages, liens, pledges, guarantees, charges, easements,
reservations, restrictions, clouds, equities, rights of way, options, rights of
first refusal and all other encumbrances, whether or not relating to the
extension of credit or the borrowing of money.
(j) REAL PROPERTY-OWNED OR LEASED. The Company does not
currently own or lease, nor has it or any of its predecessors ever owned or
leased, any real property.
(k) INTELLECTUAL PROPERTY.
(i) The Company has good and valid title to, and owns
free and clear of all Encumbrances, has the right to use, sell, transfer,
license (or sublicense), transmit, broadcast, deliver (electronically or
otherwise) and dispose of, and has the right to bring actions for the
infringement of, all Intellectual Property Rights necessary or required for
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the conduct of its business as currently conducted and as proposed to be
conducted (collectively, the "Company Rights"). The Company has not granted any
rights to third parties with respect to its Intellectual Property Rights and no
third party holds any rights in or to the current business plan of the Company.
(ii) The execution, delivery and performance of this
Agreement and the Related Agreements and the consummation of the Merger and the
consummation of the other transactions contemplated hereby, will not breach,
violate or conflict with any instrument or agreement governing any Company
Rights, will not cause the forfeiture or termination or give rise to a right of
forfeiture or termination of any Company Right or in any way impair the right of
the Company or the Surviving Corporation to use, sell, license (or sublicense),
transmit, broadcast, deliver (electronically or otherwise) or dispose of, or to
bring any action for the infringement of, any Company Right or portion thereof.
(iii) There are no royalties, honoraria, fees or
other payments payable by the Company to any person by reason of the ownership,
use, license (or sublicense), transmission, broadcast, delivery (electronically
or otherwise), sale, or disposition of the Company Rights, other than sales
commissions paid in the ordinary course of business.
(iv) The Company does not manufacture, market,
license (or sublicense), sell, transmit, deliver (electronically or otherwise),
or use any product or service nor does it have any product or service under
development.
(v) All current and past officers, employees and
consultants of or to the Company have, or will have at Closing, executed and
delivered to and in favor of the Company an agreement regarding the protection
of confidential and proprietary information and the assignment to the Company of
all Intellectual Property Rights arising from the services performed for the
Company by such persons (collectively, the "Confidentiality Agreements" , the
form of which is attached to Section 3.1(k)(iv) of the Company Disclosure
Schedule). The Company has taken and will continue through the Effective Time to
take all steps necessary, appropriate or desirable to safeguard and maintain the
secrecy and confidentiality of, and its proprietary rights in, all Company
Rights.
(vi) All works that were created, prepared or
delivered by consultants, independent contractors or other third parties for or
on behalf of Company (including any materials and elements created, prepared or
delivered by such parties in connection therewith) (A) are and shall constitute
"works made for hire" specially ordered or commissioned by the Company within
the meaning of United States' copyright law, or (B) all right, title and
interest therein (including any materials and elements created, prepared or
delivered by such parties in connection therewith) have been assigned to the
Company.
(vii) No licenses or rights have been granted by the
Company, or by any employee, consultant, officer, director, agent or affiliate
of the Company or by anyone other than the foregoing, to distribute the source
code of, or to use source code to create Derivative Works, of, any product
currently marketed by, commercially available from or under development by the
Company for which the Company possesses the source code. As used herein,
"Derivative Work" shall mean a work that is based upon one or more preexisting
works,
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such as a revision, enhancement, modification, abridgment, condensation,
expansion or any other form in which such preexisting works may be recast,
transformed or adapted, and which, if prepared without authorization of the
owner of the copyright in such preexisting work, would constitute a copyright
infringement. For purposes herein, a "Derivative Work" shall also include any
compilation that incorporates such a preexisting work as well as translations
from one type of code to another.
(viii) No person has any marketing rights to any of
the Intellectual Property Rights of the Company (excluding Intellectual Property
Rights licensed to the Company by third parties).
(ix) Section 3.1(k)(ix) of the Company Disclosure
Schedule contains a true and complete list of all (A) of the Company's patents,
patent applications, trademarks, trademark applications, trade names, service
marks, service mark applications, copyrights, copyright registrations and
copyright applications and Internet domain names and applications therefor and
(B) other filings and formal actions made or taken pursuant to Federal, state,
local and foreign laws by the Company to perfect or protect its interest
therein.
(x) Section 3.1(k)(x) of the Company Disclosure
Schedule contains a true and complete list of all options, licenses or other
agreements of any kind by which Intellectual Property Rights have been granted
to the Company from, or granted by the Company to, any other person (except for
those licenses identified in Section 3.1(l)(i) of the Company Disclosure
Schedule).
(xi) As used herein, the term "Intellectual Property
Rights" shall mean all industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights, trademarks,
trademark applications, trade names, service marks, service mark applications,
copyrights, copyright registrations, copyright applications, franchises,
licenses, databases, "URL's" and Internet domain names and applications therefor
(and all interest therein), computer programs and other computer software
(including, but not limited to, the Software), user interfaces, know-how, trade
secrets, customer lists, proprietary technology, processes and formulae, source
code, object code, algorithms, architecture, structure, display screens,
layouts, development tools, instructions, templates, marketing materials,
inventions, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing.
(l) COMPANY SOFTWARE. The Company has not designed or
developed, nor does the Company have under development by employees of the
Company or by consultants on the Company's behalf, any software programs,
systems or applications, nor has the Company licensed any such software from any
third party.
(m) AGREEMENTS, ETC. Schedule 3.1(m) to the Company Disclosure
Schedule sets forth a true and complete list of all written and oral contracts,
agreements, instruments, understandings or arrangements to which the Corporation
is a party or by which it is bound.
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(n) NO DEFAULTS. The Company has in all material respects
performed all the obligations required to be performed by it to date and is not
in default or alleged to be in default under (i) its Charter or by-laws or
(ii) any material agreement, lease, license, contract, commitment, instrument or
obligation to which the Company is a party or by which any of its properties,
assets or rights are or may be bound or affected, and there exists no event,
condition or occurrence which, with or without due notice or lapse of time, or
both, would constitute such a default by it of any of the foregoing.
(o) LITIGATION, ETC. Except as set forth on Schedule 3.1(n) of
the Company Disclosure Schedule, there are no (i) actions, suits, claims,
investigations or legal or administrative or arbitration proceedings
(collectively, "Actions" ) pending, or to the best knowledge of the Company and
the Stockholders, threatened against the Company nor, to the best knowledge of
the Company and the Stockholders , any basis therefor, whether at law or in
equity, or before or by any Federal, state, local, municipal, foreign or other
governmental court, department, commission, board, bureau, agency or
instrumentality ("Governmental Authority" ), (ii) judgments, decrees,
injunctions or orders of any Governmental Authority or arbitrator against the
Company or (iii) disputes with customers or vendors. There are no Actions
pending or, to the best knowledge of the Company and the Stockholders,
threatened, nor, to the best knowledge of the Company and the Stockholders, any
basis therefor, with respect to (A) the current employment by, or association
with, the Company, or future employment by, or association with, Parent or the
Surviving Corporation, of any of the present officers or employees of or
consultants to the Company (collectively, the "Designated Persons" ) or (B) the
use, in connection with any business presently conducted or proposed to be
conducted by the Company or the Surviving Corporation, of any information,
techniques or processes presently utilized or proposed to be utilized by the
Company, Parent, the Surviving Corporation or any of the Designated Persons,
that the Company, Parent, the Surviving Corporation or any of the Designated
Persons are or would be prohibited from using as the result of a violation or
breach of, or conflict with any agreements or arrangements between any
Designated Person and any other person, or any legal considerations applicable
to unfair competition, trade secrets or confidential or proprietary information.
The Company has delivered to Parent all material documents and correspondence
relating to such matters referred to in Section 3.1(o) of the Company Disclosure
Schedule (including, in the case of clause (iii) of the first sentence of this
Section 3.1(o), any correspondence evidencing material customer dissatisfaction
with the Company or its products or services).
(p) ACCOUNTS AND NOTES RECEIVABLE. There are no accounts
receivable or notes receivable owing to the Company as of the date hereof.
(q) ACCOUNTS AND NOTES PAYABLE. There are no accounts payable
or notes payable by the Company to third parties as of the date hereof. As of
the Closing, all accounts payable and notes payable by the Company to third
parties will have arisen in the ordinary course of business, and, except as set
forth in Section 3.1(q) of the Company Disclosure Schedule, there is no such
account payable or note payable delinquent in its payment, except those
contested in good faith and already disclosed in Section 3.1(q) of the Company
Disclosure Schedule.
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(r) COMPLIANCE; GOVERNMENTAL AUTHORIZATIONS. The Company has
complied and is presently in compliance in all material respects with all
Federal, state, local or foreign laws, ordinances, regulations and orders
applicable to it or its business (including, without limitation, laws,
ordinances, regulations and orders applicable to labor, employment and
employment practices, terms and conditions of employment and wages and hours).
The Company has all Federal, state, local and foreign governmental
authorizations, consents, approvals, licenses and permits necessary in the
conduct of its business as presently conducted or as proposed to be conducted,
such authorizations, consents, approvals, licenses and permits are in full force
and effect, no violations are or have been recorded in respect of any thereof
and no proceeding is pending or, to the best knowledge of the Company and the
Stockholders, threatened to revoke or limit any thereof. Section 3.1(r) of the
Company Disclosure Schedule contains a true and complete list of all such
governmental licenses, authorizations, consents, approvals, permits, orders,
decrees and other compliance agreements under which the Company is operating or
bound, the Company is not in default or alleged to be in default under any
thereof and the Company has furnished to Parent true and complete copies
thereof. None of such authorizations, consents, approvals, licenses and permits
shall be affected in any material respect by the Merger or the transactions
contemplated hereby.
(s) ENVIRONMENTAL MATTERS. The Company currently is and at all
times has been in material compliance with all Federal, state and local laws,
ordinances, regulations and orders relating to the protection of the environment
applicable to its properties, facilities or operations.
(t) LABOR RELATIONS; EMPLOYEES.
(i) Except for the Founders, there are currently no,
and since the Company's inception there have not been any, employees of the
Company.
(u) EMPLOYEE BENEFIT PLANS AND CONTRACTS.
(i) There are no "employee benefit plans", as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA" ), or any other written or formal plans or agreements involving direct
or indirect compensation (including any employment agreements entered into
between the Company and any Employee, but excluding workers' compensation,
unemployment compensation, other government-mandated programs and the Company's
salary and wage arrangements) currently or previously maintained, contributed to
or entered into by the Company or any ERISA Affiliate thereof for the benefit of
any Employee or former Employee under which the Company or any ERISA Affiliate
thereof has any present or future material obligation or liability (the
"Employee Plans" ). For purposes of the preceding sentence, "ERISA Affiliate"
shall mean any entity which is a member of (A) a "controlled group of
corporations", as defined in Section 414(b) of the Code, (B) a group of entities
under "common control", as defined in Section 414(c) of the Code or (C) an
"affiliated service group", as defined in Section 414(m) of the Code or treasury
regulations promulgated under Section 414(o) of the Code, any of which includes
the Company. For purposes of Section 3.1(u), "Employee" means any common law
employee, consultant or director of the Company.
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(ii) There are no employment, severance or other similar
contracts, arrangements or policies or plans or arrangements (written or oral)
providing for insurance coverage (including any self-insured arrangements),
workers' benefits, vacation benefits, retirement benefits, deferred
compensation, profit-sharing, bonuses, stock options, stock appreciation or
other forms of incentive compensation or post-retirement insurance, compensation
or benefits entered into, maintained or contributed to, as the case may be, by
the Company on behalf of any Employee or covering any Employee or former
Employee or under which the Company or any ERISA Affiliate has any present or
future obligation or liability.
(v) INSURANCE. The Company does not and has not since its
inception maintained or held any policies of liability, theft, fidelity, fire,
product liability, errors and omissions, workmen's compensation, indemnification
of directors and officers or other similar forms of insurance.
(w) BANK ACCOUNTS; POWERS OF ATTORNEY. Section 3.1(w) of the
Company Disclosure Schedule sets forth a true and complete list of (i) all bank
accounts and safe deposit boxes of the Company and all persons who are
signatories thereunder or who have access thereto and (ii) the names of all
persons, firms, associations, corporations or business organizations holding
general or special powers of attorney from the Company and a summary of the
terms thereof.
(x) BROKERS. The Company has not, nor have any of its
officers, directors, securityholders or employees, employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
(y) RELATED TRANSACTIONS. Except as set forth on Schedule
3.1(x) of the Company Disclosure Schedule, no current or former director,
officer or securityholder of the Company that is an affiliate of the Company or
any associate (as defined in the rules promulgated under the Exchange Act)
thereof, is now, or has been since the inception of the Company, a party to any
transaction with the Company (including, but not limited to, any contract,
agreement or other arrangement providing for the furnishing of services by, or
rental of real or personal property from, or borrowing money from, or otherwise
requiring payments to, any such director, officer or affiliated stockholder of
the Company or associate thereof), or the direct or indirect owner of an
interest in any corporation, firm, association or business organization which is
a present or potential competitor, supplier or customer of the Company (other
than non-affiliated holdings in publicly-held companies), nor does any such
person receive income from any source other than the Company which relates to
the business of, or should properly accrue to, the Company.
(z) CUSTOMERS. Since its inception, the Company has not had
any customers.
(aa) MINUTE BOOKS. The minute books of the Company provided to
Parent for review contain a complete summary of all meetings of and actions by
directors and stockholders of the Company from the time of its incorporation to
the date of such review and reflect all actions referred to in such minutes
accurately in all material respects.
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(bb) BUSINESS GENERALLY. There have been no events or
transactions, or information which has come to the attention of the Company or
any officer, director, incorporator or key employee thereof that could
reasonably be expected to have a Company Material Adverse Effect, and the
Company is not obligated under any contractor agreement or subject to any
Charter or other corporate restriction which could have a Company Material
Adverse Effect.
(cc) BOARD APPROVAL. The Board of Directors of the Company has
unanimously (i) approved this Agreement, the Merger and each of the Related
Agreements to which the Company is a party and the transactions contemplated
hereby and thereby, (ii) determined that the Merger is in the best interests of
the stockholders of the Company and is on terms that are fair to such
stockholders of the Company and (iii) recommended that the stockholders of the
Company approve the Merger in accordance with the Agreement of Merger and the
Delaware Statute.
(dd) BUSINESS PLAN. Attached hereto as Schedule 3.1(dd) is a
copy of the current business plan of the Company (the "Business Plan").
(ee) VOTE REQUIRED. The affirmative vote of at least a
majority of the outstanding shares of Company Common Stock approving this
Agreement, the Merger and the Agreement of Merger is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the Agreement of Merger and the
transactions contemplated hereby and thereby.
(ff) INFORMATION SUPPLIED. None of the information supplied or
to be supplied by the Company or the Stockholder for inclusion or incorporation
by reference in the Stockholders' Materials will, at the dates mailed to the
Stockholder and at the effective date of the Stockholder Action, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Stockholders'
Materials will comply as to form in all material respects with the provisions of
all applicable laws, rules and regulations of all Governmental Authorities.
(gg) DISCLOSURE. Neither Section 3.1 of this Agreement
(including the Company Disclosure Schedule) nor any document, written
information, statement, financial statement, certificate or exhibit furnished or
to be furnished to Parent or Acquisition Sub by or on behalf of the Company or
any securityholder pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
the statements or facts contained herein and therein not misleading in light of
the circumstances under which they were made.
(hh) KNOWLEDGE DEFINITION. As used in this Article III, the
term "best knowledge" and like phrases shall mean and include (i) actual
knowledge and (ii) that knowledge which a prudent business person (including the
officers, directors, and key employee) could have obtained in the management of
his or her business affairs after making due inquiry and exercising due
diligence with respect thereto. In connection therewith, the knowledge (both
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actual and constructive) of any officer, director, or key employee of the
Company shall be imputed to be the knowledge of the Company.
3.2 SEVERAL REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. The
Stockholder represents and warrants to Parent, Acquisition Sub and the Company
with respect to herself as follows:
(a) TITLE; ABSENCE OF CERTAIN AGREEMENTS. The Stockholder is
the lawful and record and beneficial owner of, and has good and marketable title
to all of the shares of Company Common Stock, with the full power and authority
to vote such Company Common Stock and transfer and otherwise dispose of such
Company Common Stock, and any and all rights and benefits incident to the
ownership thereof free and clear of all Encumbrances, and there are no
agreements or understandings between the Stockholder and the Company and/or any
other person with respect to the voting, sale or other disposition of Company
Common Stock or any other matter relating to Company Common Stock.
(b) AUTHORITY - GENERAL. The Stockholder has full and absolute
power and authority to enter into this Agreement and, if applicable, each
Related Agreement being executed and delivered by the Stockholder simultaneously
herewith and this Agreement and each Related Agreement to which the Stockholder
is a party; and this Agreement and each Related Agreement to which the
Stockholder is a party has been duly executed and delivered by the Stockholder,
and is the valid and binding obligation of the Stockholder, enforceable against
the Stockholder in accordance with its terms. Neither the execution, delivery
and performance of this Agreement and each Related Agreement to which the
Stockholder is a party, nor the consummation of the transactions contemplated
hereby or thereby nor compliance by the Stockholder with any of the provisions
hereof or thereof will (i) (A) conflict with, (B) result in any violations of,
(C) cause a default under (with or without due notice, lapse of time or both),
(D) give rise to any right of termination, amendment, cancellation or
acceleration of any obligation contained in or the loss of any material benefit
under or (E) result in the creation of any Encumbrance upon or against any
assets, rights or property of the Company (or against any Company Common Stock,
Parent capital stock or common stock of the Surviving Corporation), under any
term, condition or provision of (x) any agreement or instrument to which the
Stockholder is a party, or by which the Stockholder or any of his or its
properties, assets or rights may be bound or (y) any law, statute, rule,
regulation, order, writ, injunction, decree, permit, concession, license or
franchise of any Governmental Authority applicable to the Stockholder or any of
his or its properties, assets or rights, which conflict, breach, default or
violation or other event would prevent the consummation of the transactions
contemplated by this Agreement, the Agreement of Merger or any Related Agreement
to which the Stockholder is a party. Except as set forth in Section 3.2(c) of
the Company Disclosure Schedule (which, if so disclosed shall have been
effectively made or obtained (as the case may be) on or prior to the Closing,
unless otherwise waived by Parent) no permit, authorization, consent or approval
of or by, or any notification of or filing with, any Governmental Authority or
other person is required in connection with the execution, delivery and
performance by the Stockholder of this Agreement, each Related Agreement to
which the Stockholder is a party or the consummation by the Stockholder of the
transactions contemplated hereby or thereby.
(c) INVESTMENT REPRESENTATIONS. The Stockholder:
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(i) is acquiring the Merger Shares being issued to
the Stockholder for investment and for the Stockholder's own account and not as
a nominee or agent for any other person and with no present intention of
distributing or reselling such shares or any part thereof in any transactions
that would be in violation of the Securities Act or any state securities or
"blue-sky" laws;
(ii) understands (A) that the Merger Shares to be
issued to her have not been registered for sale under the Securities Act or any
state securities or "blue-sky" laws in reliance upon exemptions therefrom, which
exemptions depend upon, among other things, the bona fide nature of the
investment intent of such Stockholder as expressed herein, (B) that such Merger
Shares must be held indefinitely and not sold until such shares are registered
under the Securities Act and any applicable state securities or "blue-sky" laws,
unless an exemption from such registration is available, (C) that Parent is
under no obligation to so register such Merger Shares and (D) that the
certificates evidencing such Merger Shares will be imprinted with a legend in
the form set forth in Section 7.2(b) that prohibits the transfer of such shares,
except as provided in Section 7.2;
(iii) has been furnished with, and has read and
reviewed, the Parent SEC Documents;
(iv) has had an opportunity to ask questions of and
has received satisfactory answers from the officers of Parent or persons acting
on Parent's behalf concerning Parent and the terms and conditions of an
investment in Parent Preferred Stock or Parent Common Stock issuable upon
conversion thereof;
(v) is aware of Parent's business affairs and
financial condition and has acquired sufficient information about Parent to
reach an informed and knowledgeable decision to acquire the Merger Shares to be
issued to her;
(vi) can afford to suffer a complete loss of her
investment in such Merger Shares;
(vii) is familiar with the provisions of Rule 144
promulgated under the Securities Act which, in substance, permits limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
circumstances which require among other things: (A) the availability of certain
public information about the issuer, (B) the resale occurring not less than one
year after the party has purchased, and made full payment for, within the
meaning of Rule 144, the securities to be sold; and, in the case of an
affiliate, or of a non-affiliate who has held the securities less than two
years, the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable and (C) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Exchange Act);
(viii) understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding
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the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its
opinion that persons proposing to sell private placement securities other than
in a registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden of proof in establishing that an exemption from registration
is available for such offers or sales, and that such persons and their
respective brokers who participate in such transactions do so at their own risk;
(ix) has either alone or together with the
Stockholder's "Purchaser Representative" (as such term is defined in Rule
501(h), as promulgated under the Securities Act) as to each such Purchaser, a
"Purchaser Representative"), such knowledge and experience in financial and
business matters that she is capable of evaluating the merits and risks of
acquiring and holding shares of Parent Preferred Stock or Parent Common Stock
issuable upon conversion thereof; and
(x) the Stockholder is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act or if the Stockholder
has identified that such Stockholder is being advised by a Purchaser
Representative in connection with the transactions contemplated hereby.
(d) BROKERS. No Stockholder has, nor have any of their
officers, directors, securityholders or employees (if any) employed any broker
or finder or incurred any liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby.
(e) ABSENCE OF CLAIMS. The Stockholder hereby represents and
warrants that in her capacity as a stockholder she has no knowledge of any
claims that she may have against the Released Parties (as defined in Section 5.2
hereof).
(f) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
To the best knowledge of the Stockholder, the representations and warranties of
the Company set forth in Section 3.1 are true, correct and complete in all
material respects and the Company is not in breach or violation thereof.
(g) REPRESENTATION BY LEGAL COUNSEL. The Stockholder has been
advised by legal counsel in connection with the negotiation, execution and
delivery of this Agreement and the Related Agreements and the performance of the
transactions contemplated hereby an thereby.
3.3 SEVERAL REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS. Each of the
Founders severally (and not jointly) represents and warrants to Parent,
Acquisition Sub and the Company, with respect to himself or herself, as follows:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Such Founder has carefully read and reviewed this Agreement and the Schedules
and Exhibits hereto and to the best knowledge of such Founder, all
representations and warranties of the Company set forth in Section 3.1 hereof
are true, correct and complete in all material respects and the Company is not
in breach or violation thereof.
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(b) EMPLOYMENT OF FOUNDERS. Neither the (i) current employment
by, or association with, the Company, or future employment by, or association
with, Parent or the Surviving Corporation of such Founder, or (ii) use, in
connection with any business presently conducted or proposed to be conducted by
the Company, Parent or the Surviving Corporation, of any information or
techniques presently utilized or proposed to be utilized by the Company, Parent,
the Surviving Corporation or such Founders, violates, conflicts with, breaches
or is prohibited under, or would violate, conflict with, breach or be prohibited
under, any agreements or arrangements between such Founder and any other person
obtained on a confidential basis from third parties, trade secrets or
confidential or proprietary information.
3.4 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB.
Parent and Acquisition Sub represent and warrant to the Company as follows:
(a) ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. Each
of Parent and Acquisition Sub (i) is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and (ii)
has all requisite corporate power and authority to own, lease and operate its
properties and assets and to carry on its business as now being conducted, to
enter into this Agreement and each of the Related Agreements to which it is a
party, to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. Parent has delivered to the
Company true and complete copies of the Charter and by-laws of each of Parent
and Acquisition Sub.
(b) CAPITAL STOCK. Parent's Quarterly Report on Form 10-Q
filed with the SEC with respect to the fiscal quarter ended March 31, 1999 (the
"Form 10-Q" ), sets forth a true and complete description of the authorized and
outstanding shares of capital stock of Parent as of such date. Parent has duly
authorized and reserved for issuance the Merger Shares, and, when issued in
accordance with the terms of Article II, the Merger Shares will be validly
issued, fully paid and nonassessable and free of preemptive rights (other than
any Parent Rights which may be issued). Parent owns all the outstanding shares
of capital stock of Acquisition Sub, and all of such shares are validly issued,
fully paid and nonassessable and not subject to preemptive rights.
(c) AUTHORITY. The execution, delivery and performance by
Parent of this Agreement and each of the Related Agreements to which it is a
party and the execution, delivery and performance of this Agreement and the
Agreement of Merger by Acquisition Sub and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Parent and Acquisition Sub, respectively. This
Agreement and each of the Related Agreements to which Parent is a party are
valid and binding obligations of Parent, enforceable against Parent in
accordance with their respective terms; and this Agreement and the Agreement of
Merger are the valid and binding obligations of Acquisition Sub, enforceable
against Acquisition Sub in accordance with their respective terms. Neither the
execution, delivery and performance by Parent of this Agreement and the Related
Agreements to which Parent is a party, the execution, delivery and performance
of this Agreement and the Agreement of Merger by Acquisition Sub, nor the
consummation of the transactions contemplated hereby or thereby, will in any
material respect (A) conflict with, (B) result in any material violations of,
(C) cause a material default under (with or without due notice, lapse of time or
both), (D) give rise to any material right of termination, amendment,
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cancellation or acceleration of any obligation contained in or the loss of any
material benefit under, (E) result in the creation of any material Encumbrance
on or against any assets, rights or property of Parent or Acquisition Sub, as
the case may be, under any term, condition or provision of (x) any material
instrument or agreement to which Parent or Acquisition Sub is a party, or by
which Parent or Acquisition Sub or any of their respective properties, assets or
rights may be bound, (y) any material law, statute, rule, regulation, order,
writ, injunction, decree, permit, concession, license or franchise of any
Governmental Authority applicable to Parent or Acquisition Sub or any of their
respective properties, assets or rights or (z) Parent's or Acquisition Sub's
Charter or by-laws, as amended through the date hereof, respectively, in each
case, which conflict, breach, default or violation or other event would prevent
the consummation of the transactions contemplated by this Agreement, the
Agreement of Merger or any Related Agreement to which Parent or Acquisition Sub
is a party. Except as contemplated by this Agreement, no permit, authorization,
consent or approval of or by, or any notification of or filing with, any
Governmental Authority or other person is required in connection with the
execution, delivery and performance by Parent or Acquisition Sub of this
Agreement, the Agreement of Merger (in the case of Acquisition Sub) or the
Related Agreements to which they are a party or the consummation of the
transactions contemplated hereby or thereby, other than (i) the filing with the
SEC of such reports and information under the Securities and Exchange Act of
1934, as amended (the "Exchange Act" ), and the rules and regulations
promulgated by the SEC thereunder, as may be required in connection with this
Agreement and the transactions contemplated hereby, (ii) the filing of such
documents with, and the obtaining of such orders from, various state securities
and blue-sky authorities as are required in connection with the transactions
contemplated hereby, (iii) the filing of the Agreement of Merger with the
Secretary of State of the State of Delaware and (iv) such other consents,
waivers, authorizations, filings, approvals and registrations which if not
obtained or made would materially impair the ability of Parent or Acquisition
Sub to consummate the transactions contemplated by this Agreement, including,
without limitation, the Merger (each of the actions reflected in clauses (i),
(ii) and (iii) to be taken by Parent).
(d) SEC DOCUMENTS.
(i) Parent has furnished or made available to the
Company a correct and complete copy of the Form 10-Q, Parent's Annual Report on
Form 8-K for the year ended December 31, 1998 and each report, schedule,
registration statement and definitive proxy statement filed by Parent with the
SEC on or after the date of filing of the Form 10-Q which are all the documents
(other than preliminary material) that Parent was required to file (or otherwise
did file) with the SEC in accordance with Sections 13, 14 and 15(d) of the
Exchange Act on or after the date of filing with the SEC of the Form 10-Q
(collectively, the "Parent SEC Documents" ). As of their respective filing
dates, or in the case of registration statements, their respective effective
dates, none of the Parent SEC Documents (including all exhibits and schedules
thereto and documents incorporated by reference therein) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and the Parent SEC
Documents complied when filed, or in the case of registration statements, as of
their respective effective dates, in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations promulgated by the SEC thereunder.
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(ii) The financial statements (including the notes
thereto) of Parent included in the Form 10-Q for the fiscal quarter then ended,
complied as to form in all material respects with the then applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with GAAP during the periods involved
(except as may have been indicated in the notes thereto) and fairly present the
financial position of Parent as at the dates thereof and the results of their
operations, stockholders' equity and cash flows for the period then ended.
(e) BROKERS. Neither Parent, Acquisition Sub, nor any of their
respective officers, directors or employees have employed any broker or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
ARTICLE 4
RELATED AGREEMENTS
4.1 RELATED AGREEMENTS. Simultaneously with the execution and delivery
of this Agreement, the following agreements (such agreements, being herein
collectively referred to as the "Related Agreements" ) are being executed and
delivered by the respective parties thereto:
(a) ESCROW AGREEMENT. Each of Parent, the Stockholder and the
Escrow Agent are entering into the Escrow Agreement.
(b) EMPLOYMENT AGREEMENT. The Company is entering into an
Employment Agreement with William Zanker in the form of EXHIBIT C attached
hereto,, pursuant to which, among other things, William Zanker will become an
employee of Parent or the Surviving Corporation.
(c) REPURCHASE AGREEMENT. The Company is entering into a
Repurchase Agreement with the Stockholder in the form of EXHIBIT D attached
hereto,, pursuant to which, among other things, the Company will have the option
to repurchase the Merger Shares under circumstances set forth therein.
ARTICLE 5
STOCKHOLDER AND FOUNDER AGREEMENTS
5.1 AFFILIATE AGREEMENT.
(a) The Stockholder may be deemed to be an "affiliate" of the
Company within the meaning of Rule 145 promulgated under the Securities Act of
1933, as amended (the "Securities Act"), and Accounting Series Release No. 130,
as amended, Accounting Series Release No. 135 and Staff Accounting Bulletin No.
76 of the Securities and Exchange Commission (the "SEC"), although nothing
contained herein should be construed as an admission thereof. If the Stockholder
were to be deemed an "affiliate" of the Company, the Stockholder's ability to
sell, exchange, transfer, pledge or otherwise dispose of Merger Shares may be
restricted unless such transaction is registered under the Securities Act or an
exemption
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from such registration is available. The Stockholder understands that
such exemptions are limited and has obtained advice of counsel as to the nature
and conditions of such exemptions, including information with respect to the
applicability to the transfer of such securities of Rules 144 and 145(d)
promulgated under the Securities Act.
(b) The Stockholder hereby covenants and agrees that the
Stockholder shall not offer, sell, exchange, transfer, pledge or otherwise
dispose of any Merger Shares, or any securities that may be paid as a dividend
or otherwise distributed thereon or with respect thereto or issued or delivered
in exchange or substitution therefor (all such shares and other securities of
Parent being herein sometimes collectively referred to as "RESTRICTED
SECURITIES"), or any option, right or other interest with respect to any
Restricted Securities unless at such time either:
(i) such transaction shall be permitted pursuant to
the provisions of Rule 144 or Rule 145, as applicable, promulgated under the
Securities Act;
(ii) counsel representing the Stockholder, reasonably
satisfactory to Parent, shall have advised Parent in a written opinion letter
reasonably satisfactory to Parent, that no registration under the Securities Act
is required in connection with the proposed transaction;
(iii) a registration statement under the Securities
Act covering the Merger Shares proposed to be sold, exchanged, transferred or
otherwise disposed of, describing the manner and terms of the proposed sale,
transfer, exchange or other disposition, and containing a current prospectus,
shall have been filed with the SEC and become effective under the Securities
Act; or
(iv) an authorized representative of the SEC shall
have rendered written advice to the Stockholder (sought in writing by the
Stockholder or counsel to the Stockholder, with copies thereof and of all other
related communications delivered to Parent) to the effect that the SEC would
take no action, or that the staff of the SEC would not recommend that the SEC
take action, with respect to the proposed sale, transfer or other disposition of
such Merger Shares if consummated.
(c) The Stockholder also understands and agrees that Parent,
at its discretion, may cause stop transfer orders to be placed with its transfer
agent with respect to certificates for Merger Shares owned by the Stockholder
but not as to certificates for such Merger Shares as to which the legend set
forth in Section 7 is no longer required.
(d) The Stockholder shall observe and comply with the
Securities Act and the rules and regulations promulgated by the SEC thereunder
as now in effect or hereafter enacted or promulgated, and as from time to time
amended, in connection with any offer, sale, exchange, transfer, pledge or other
disposition of Merger Shares beneficially owned by the Stockholder.
(e) From and after the Effective Time and for so long as
necessary in order to permit the Stockholder to sell Merger Shares pursuant to
Rule 145 and, to the extent applicable, Rule 144 under the Securities Act,
Parent shall use reasonable efforts to file on a timely basis all reports
required to be filed by it pursuant to Section 13 of the Securities
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Exchange Act of 1934, as amended, referred to in paragraph (c)(1) of Rule 144
promulgated by the SEC under the Securities Act (or, if applicable, Parent shall
use reasonable efforts to make publicly available the information regarding
itself referred to in paragraph (c)(2) of Rule 144), in order to permit the
Stockholder to sell, pursuant to the terms and conditions of Rule 145 and the
applicable provisions of Rule 144, Merger Shares beneficially owned by the
Stockholder.
5.2 STOCKHOLDER RELEASE. Effective as of the Effective Time and for
good and valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the Stockholder (the "Releasor") on her behalf and on behalf of
her (i) heirs, executors, administrators, agents, successors and assigns,
attorneys, employees, (the "Releasor Persons"), as applicable, hereby releases,
waives and discharges the Company, Parent and Acquisition Sub and their
respective officers, directors, stockholders, agents, successors and assigns
(collectively, the "Released Parties"), from any and all actions, causes of
action, suits, debts, dues, sums of money, accounts, bonds, bills, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever, known or unknown, in law
or equity (each a "Claim" and collectively, the "Claims") arising from the
Releasor's relationship with the Company prior to and including the date hereof
or the Releasor's status as a stockholder, director, officer or employee of the
Company prior to and including the date hereof; PROVIDED, HOWEVER, that the
Releasor does not release the Released Parties from any claims in connection
with any breach by the Released Parties of this Agreement or the Related
Agreements.
ARTICLE 6
CLOSING ACTIONS; DELIVERABLES
6.1 ACTIONS BEING TAKEN AT OR PRIOR TO CLOSING. The following actions
are being taken at or prior to the Closing:
(a) STOCKHOLDER APPROVAL; AGREEMENT OF MERGER. This Agreement
and the Merger shall have been duly and validly approved and adopted by the
stockholders of the Company in accordance with the Delaware Statute and the
Company's Charter and By-laws, and the Agreement of Merger shall have been
executed and delivered by Acquisition Sub and the Company and filed with and
accepted by the Secretary of State of the State of Delaware.
(b) APPROVALS. All authorizations, consents, orders or
approvals of, or declarations or filings with or expiration of waiting periods
imposed by any Governmental Authority necessary for the consummation of the
transactions contemplated hereby shall have been obtained or made or shall have
occurred.
(c) LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any Federal or state court or other
Governmental Authority and remain in effect.
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(d) LEGISLATION. No Federal, state, local or foreign statute,
rule or regulation shall have been enacted which prohibits, restricts or delays
the consummation of the transactions contemplated by this Agreement.
6.2 DELIVERABLES TO PARENT AND ACQUISITION SUB. The following documents
and other items are being delivered to Parent and Acquisition Sub at the
Closing:
(a) DELIVERY OF CERTIFICATES. The Old Certificates,
in the manner and otherwise in accordance with Section 2.2 hereof, are being
delivered to Parent.
(b) OPINION OF THE COMPANY'S COUNSEL. A favorable
opinion dated the Closing Date is being delivered by Swidler, Berlin, Shereff
Freidman LLP, counsel to the Company, in favor of Parent and Acquisition Sub, in
form and substance reasonably satisfactory to Parent and Acquisition Sub.
(c) CONSENTS AND APPROVALS. Duly executed copies of
all consents and approvals contemplated by this Agreement or the Company
Disclosure Schedule, in form and substance satisfactory to Parent and
Acquisition Sub, are being delivered by the Company.
(d) GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. Copies
of all consents, authorizations, orders or approvals of, and filings or
registrations with, any Governmental Authority which are required for or in
connection with the execution and delivery by the Company and the Stockholders
of this Agreement, the Agreement of Merger and the Related Agreements and the
consummation by the Company and the Stockholder of the transactions contemplated
hereby, are being delivered by the Company.
(e) COMPANY EXPENSES. A true, correct and complete
schedule (the "Schedule of Expenses") of all Company Expenses paid or incurred
by or on behalf of the Company through the Closing Date, accompanied by a
certificate signed by the Chief Financial Officer of the Company certifying the
accuracy and completeness thereof, is being delivered by the Company; and the
Company is furnishing evidence satisfactory to Parent and Acquisition Sub that
the Company has paid the amount of Company Expenses.
(f) COMPANY EXPENSES RELEASE. A written instrument
in form and substance reasonably satisfactory to Parent and Acquisition Sub is
being delivered by each third party identified on the Schedule of Expenses (i)
acknowledging that upon receipt by each such party in the ordinary course
following the Effective Time after presentation of detailed statements thereof
of the respective amounts set forth therein (each, a "Stated Amount"), such
payment will constitute full payment of all fees and expenses of such party
constituting Company Expenses and (ii) releasing Parent, Acquisition Sub, the
Surviving Corporation and their Affiliates from any liabilities or obligations
in respect of the payment of any fees and expenses that are or may be
characterized as Company Expenses other than the Stated Amounts (and
concurrently with the payment of the Stated Amounts all liability with respect
thereto shall be deemed so released).
(g)RESIGNATION OF DIRECTORS. Resignations are being
delivered by each of the directors and officers of the Company immediately prior
to the Effective Time, effective as of the Effective Time.
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(h) OFFICER'S CERTIFICATES. Certain officers'
certificates are being delivered by the Company.
6.3 DELIVERABLES TO COMPANY. The following documents and other items
are being delivered to the Company at the Closing:
(a) GOVERNMENT CONSENTS, AUTHORIZATIONS, ETC. Copies
of all consents, authorizations, orders or approvals of, and filings or
registrations with, any Governmental Authority which are required for or in
connection with the execution and delivery by Parent and Acquisition Sub of this
Agreement, the Agreement of Merger and the Related Agreements and the
consummation by Parent and Acquisition Sub of the transactions contemplated
hereby or thereby, are being delivered by Parent.
(b) PURCHASE PRICE. The delivery of the New
Certificates (representing the Merger Shares (other than the Escrow Shares)) and
the cash consideration deliverable at the Effective Time in the manner and
otherwise in accordance with Article II hereof (and concurrent delivery of
Escrow Shares to the Escrow Agent in accordance with Section 2.2 hereof), are
being made by Parent.
(c) RELATED AGREEMENTS. Each of the Related
Agreements is being delivered by Parent to the extent that it is required or
contemplated by the parties hereto to be a party to any Related Agreement.
ARTICLE 7
ADDITIONAL AGREEMENTS
7.1 RESTRICTION ON TRANSFER.
(a) The shares of Parent Preferred Stock to be issued
to each Stockholder at the Effective Time pursuant to the Merger and any shares
of capital stock or other securities received with respect thereto
(collectively, the "Restricted Securities") shall not be sold, transferred,
assigned, pledged, encumbered or otherwise disposed of (each, a "Transfer")
except upon the conditions specified in this Section 7.1, which conditions are
intended to insure compliance with the provisions of the Securities Act. Each
Stockholder shall observe and comply with the Securities Act and the rules and
regulations promulgated by the SEC thereunder as now in effect or hereafter
enacted or promulgated, and as from time to time amended, in connection with any
Transfer of Restricted Securities beneficially owned by the Stockholder.
(b) Each certificate representing Restricted
Securities issued to a Stockholder andeach certificate for such securities
issued to subsequent transferees of any such certificate shall (unless otherwise
permitted by the provisions of Sections 7.1(c) and 7.1(d) hereof) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS.
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THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED,
ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION
OR AN EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE
SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTIONS 5.1 AND
7.2 OF THE AGREEMENT AND PLAN OF REORGANIZATION AMONG GHS, INC.,
CONCEPT ACQUISITION CORPORATION AND CONCEPT DEVELOPMENT, INC. AND THE
OTHER SIGNATORIES THERETO AND NO TRANSFER OF THESE SECURITIES SHALL BE
VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED. UPON THE
FULFILLMENT OF CERTAIN OF SUCH CONDITIONS, GHS HAS AGREED TO DELIVER TO
THE HOLDER HEREOF A NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE
SECURITIES REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER
HEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF GHS, INC."
(c) Each Stockholder agrees, prior to any Transfer of
Restricted Securities, to give written notice to Parent of such Stockholder's
intention to effect such Transfer and to comply in all other respects with the
provisions of this Section 7.2. Each such notice shall describe the manner and
circumstances of the proposed Transfer and shall be accompanied by the written
opinion, addressed to Parent, of counsel for the holder of such Restricted
Securities, stating that in the opinion of such counsel (which opinion and
counsel (if other than Swidler, Berlin, Shereff Friedman LLP) shall be
reasonably satisfactory to Parent) such proposed transfer does not involve a
transaction requiring registration or qualification of such Restricted
Securities under the Securities Act. The holder thereof shall thereupon, with
the written consent of Parent, be entitled to Transfer such Restricted
Securities in accordance with the terms of the notice delivered by it to Parent.
Each certificate or other instrument evidencing the securities issued upon the
Transfer of any such Restricted Securities (and each certificate or other
instrument evidencing any untransferred balance of such Restricted Securities)
shall bear the legend set forth in Section 7.1(b) unless (x) in such opinion of
counsel of Parent registration of any future Transfer is not required by the
applicable provisions of the Securities Act or (y) Parent shall have waived the
requirement of such legends. No Stockholder shall Transfer any Restricted
Securities until such opinion of counsel has been given (unless waived by Parent
or unless such opinion is not required in accordance with the provisions of this
Section 7.1(c)).
(d) Notwithstanding the foregoing provisions of this
Section 7.1, the restrictions imposed by this Section 7.1 upon the
transferability of Restricted Securities shall cease and terminate when (i) any
such shares are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act or as otherwise contemplated by
Section 7.1(c) and, pursuant to Section 7.1(c), the securities so transferred
are not required to bear the legend set forth in Section 7.1(c) or (ii) the
holder of such Restricted Securities has met the requirements for Transfer of
such Restricted Securities pursuant to Rule 144 or Rule 145, as applicable.
Whenever the restrictions imposed by this Section 7.1 shall terminate, as herein
provided, the holder of Restricted Securities as to which such restrictions have
terminated shall
27
<PAGE>
be entitled to receive from Parent, without expense, a new certificate not
bearing the restrictive legend set forth in Section 7.1(b) and not containing
any other reference to the restrictions imposed by this Section 7.1.
(e) Each Stockholder understands and agrees that
Parent, at its discretion, may cause stop transfer orders to be placed with its
transfer agent with respect to certificates for Restricted Securities owned by
such Stockholder but not as to certificates for such shares of Parent Preferred
Stock as to which the legend set forth in paragraph (b) of this Section 7.1 is
no longer required because one or more of the conditions set forth in Section
7.1(d) shall have been satisfied.
7.2 DISCLOSURE OF INFORMATION; NON-COMPETITION. Each of the Founders
and the Stockholder acknowledges and recognizes that the Subject Business has
been conducted or is currently planned to be conducted by the Company throughout
the world, and further acknowledges and recognizes the highly competitive nature
of the industry in which the Subject Business is involved and that, accordingly,
in consideration of the premises contained herein, the consideration to be
received hereunder and the direct and indirect benefits to each of the Founders
and the Stockholder of the transactions contemplated hereby, and in
consideration of and as an inducement to Parent and Acquisition Sub to enter
into to this Agreement and to consummate the transactions contemplated hereby:
(a) From and after the date hereof, no Founder or
Stockholder shall use or disclose to any Person, except as required by law or
judicial process, any Confidential Information (as defined below), for any
reason or purpose whatsoever, nor shall he or she make use of any of the
Confidential Information for his or her own purposes or for the benefit of any
Person except Parent and the Surviving Corporation. For purposes of this
Agreement, "Confidential Information" shall mean Intellectual Property Rights of
the Company, the Surviving Corporation or Parent or its Affiliates or the
Subject Business and the terms and provisions of this Agreement (other than
information that is in the public domain at the time of receipt thereof by such
Stockholder, or otherwise becomes public other than as a result of the breach by
such Stockholder of his or her agreement hereunder or is rightfully received
from a third party without any obligation of confidentiality to Parent or the
Company or is independently developed by such Stockholder). As used herein, the
term "Subject Business" shall mean any business conducted anywhere in the world
of the type and character of business engaged in by Parent or the Surviving
Corporation.
(b) Each of the Founders and the Stockholder shall
not during the three-year period commencing at the Effective Time within the
United States or any other country in which Parent or a licensee of Parent is
then operating or preparing to operate, directly or indirectly, own, manage,
operate, join, control, be employed by, perform consulting services for, or
participate in the ownership, management, operation or control of, or be
connected in any manner with, any business or operation (other than by way of
working for an affiliate of any such business or operation which is not itself
involved in any such business or operation) of the type, character and content
engaged in by the Company.
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ARTICLE 8
INDEMNIFICATION
8.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
(a) "AFFILIATE" as to any person means any entity,
directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with such person.
(b) "EVENT OF INDEMNIFICATION" shall mean the
following:
(i) the untruth, inaccuracy or breach of any
representation or warranty of the Company, the Stockholder or the Founders
(including the fact and circumstances underlying such untruth, inaccuracy or
breach) contained in Sections 3.1, 3.2 and 3.3 of this Agreement, or in the
Company Disclosure Schedule, any Exhibit or Schedule hereto or any document
delivered in connection herewith;
(ii) the breach of any agreement or covenant
of the Company or the Stockholders contained in this Agreement, the Related
Agreements or in the Company Disclosure Schedule, any Exhibit hereto or any
document delivered in connection herewith;
(iii) any claim, demand, liability or
obligation of any nature whatsoever, which arose or was incurred on or before
the Closing Date, or which was based on events occurring on or before the
Closing Date, or which was based on products sold or services performed by the
Company or the Stockholders on or before the Closing Date (in each case, other
than claims, demands, liabilities or obligations approved by Parent in writing
prior to the date hereof), notwithstanding that the date on which the claim,
demand, liability or obligation may arise or become manifest is after the
Closing Date, other than liabilities or obligations of the Company arising after
the Closing Date under contracts and agreements entered into prior to the
Closing Date that are disclosed on the Company Disclosure Schedule; or
(iv) any claim, demand, liability or
obligation sustained or suffered by the Company, Parent or the Surviving
Corporation, or any of them, arising from or in connection with (A) the action
of the Stockholders required to approve the transactions contemplated by this
Agreement, the Agreement and the Related Agreements, or (B) any assertion of
impropriety by any Stockholder against the Company, Parent or the Surviving
Corporation, or any of them, with respect to any actions or transactions of or
involving the Company prior to or at the Effective Time (including, without
limitation, the actions and transactions contemplated by this Agreement, the
Agreement of Merger and the Related Agreements).
(c) "INDEMNIFIED PERSONS" shall mean and include
Parent, Acquisition Sub and the Surviving Corporation and their respective
Affiliates, successors and assigns, and the respective officers and directors of
each of the foregoing.
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(d) "INDEMNIFYING PERSONS" shall mean and include (A)
prior to Closing, the Company and each of the Stockholders and its or his
respective successors, assigns, heirs and legal representatives and estates, as
the case may be and (B) on and after the Closing, each of the Stockholders and
its or his respective successors, assigns, heirs and legal representatives and
estates, as the case may be.
(e) "LOSSES" shall mean any and all losses, claims,
shortages, damages, liabilities, expenses (including reasonable attorneys' and
accountants' fees), assessments, Taxes (including interest or penalties thereon)
sustained, suffered or incurred by any Indemnified Person arising from or in
connection with any such matter that is the subject of indemnification under
Section 8.2 hereof.
8.2 INDEMNIFICATION GENERALLY. The Indemnifying Persons shall severally
indemnify the Indemnified Persons from and against any and all Losses arising
from or in connection with any Event of Indemnification.
8.3 ASSERTION OF CLAIMS. No claim shall be brought under Section 8.2
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give the Stockholder (a) written notice of the
existence of any such claim, specifying the nature and basis of such claim and
the amount thereof, to the extent known or (b) written notice pursuant to
Section 8.4 of any third party claim, the existence of which might give rise to
such a claim but the failure so to provide such notice to the Stockholder will
not relieve the Indemnifying Persons from any liability which they may have to
the Indemnified Persons under this Agreement or otherwise (unless and only to
the extent that such failure results in the loss or compromise of any rights or
defenses of the Indemnifying Persons and they were not otherwise aware of such
action or claim). Upon the giving of such written notice as aforesaid, the
Indemnified Persons, or any of them, shall have the right to commence legal
proceedings prior or subsequent to the Survival Date for the enforcement of
their rights under Section 8.2 hereof.
8.4 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim" ) shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give
written notice to the Stockholders' Committee of any Third Party Claim that
might give rise to any Loss by the Indemnified Persons, stating the nature and
basis of such Third Party Claim, and the amount thereof to the extent known.
Such notice shall be accompanied by copies of all relevant documentation with
respect to such Third Party Claim, including, without limitation, any summons,
complaint or other pleading that may have been served, any written demand or any
other document or instrument. Notwithstanding the foregoing, the failure to
provide notice as aforesaid to the Stockholders' Committee will not relieve the
Indemnifying Persons from any liability which they may have to the Indemnified
Persons under this Agreement or otherwise (unless and only to the extent that
such failure results in the loss or compromise of any rights or defenses of the
Indemnifying Person and they were not otherwise aware of such action or claim).
(b) The Indemnified Persons shall defend any Third
Party Claims with counsel of their own choosing, and shall act reasonably and in
accordance with their good faith
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<PAGE>
business judgment in handling such Third Party Claims. The Stockholders'
Committee and the Indemnifying Persons, on the one hand, and the Indemnified
Persons, on the other hand, shall make available to each other and their counsel
and accountants all books and records and information relating to any Third
Party Claims, keep each other fully apprised as to the details and progress of
all proceedings relating thereto and render to each other such assistance as may
be reasonably required to ensure the proper and adequate defense of any and all
Third Party Claims.
8.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the further
provisions of this Section 8.5, the representations and warranties of the Parent
and Acquisition Sub shall be deemed to be a condition to the Merger and shall
survive the Effective Time for one year and the representations and warranties
made by the Company in Section 3.1, the Stockholders in Section 3.2 and the
Founders in Section 3.3 hereof shall survive the Effective Time for one year;
PROVIDED, HOWEVER, that the representations and warranties set forth in Section
3.1(h) (Tax Matters) shall survive for period of the applicable statute of
limitations. For convenience of reference, the date upon which any
representation and warranty contained herein shall terminate is referred to
herein as the "Survival Date." Anything contained herein to the contrary
notwithstanding, the representations and warranties of the Company contained in
this Agreement (including, without limitation, the Company Disclosure Schedule)
(i) are being given by the Company on behalf of the Stockholders and for the
purpose of binding the Stockholders to the terms and provisions of this Article
VIII and the Escrow Agreement, and as an inducement to Parent and Acquisition
Sub to enter into this Agreement and to approve the Merger (and the Company
acknowledges that Parent and Acquisition Sub have expressly relied thereon) and
(ii) are solely for the benefit of the Indemnified Persons and each of them.
Accordingly, no third party (including, without limitation, the Stockholders or
anyone acting on behalf of any thereof) other than the Indemnified Persons, and
each of them, shall be a third party or other beneficiary of such
representations and warranties and no such third party shall have any rights of
contribution against the Company or the Surviving Corporation with respect to
such representations or warranties or any matter subject to or resulting in
indemnification under this Article VIII or otherwise.
ARTICLE 9
MISCELLANEOUS
9.1 EXPENSES. As used in this Agreement, "Transaction Costs" shall
mean, with respect to any party, all actual, out-of-pocket expenses incurred by
such party to third parties, in connection with this Agreement, the Merger and
all other transactions provided for herein and therein; but shall not in any
event include general overhead; the time spent by employees of such party
internally; postage, telephone, telecopy, photocopy and delivery expenses of
such party; permit and filing fees; and other non-material expenses that are
incidental to the ordinary course of business. Each party hereto shall bear its
own fees and expenses in connection with the transactions contemplated hereby;
PROVIDED, HOWEVER, that in the event the Merger shall be consummated, Parent and
Acquisition Sub shall bear all Transaction Costs of Parent and Acquisition Sub
and the Stockholders shall bear all Transaction Costs of the Company, whether or
not such fees and expenses have been paid by the Company on or before the
Closing Date and whether or not such fees and expenses are reflected in the
Company Disclosure Schedule or the
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Schedule of Expenses (such Transaction Costs of the Company being herein
collectively referred to as the "Company Expenses").
9.2 ENTIRE AGREEMENT. This Agreement (including the Company Disclosure
Schedule and the Exhibits attached hereto) and the other writings referred to
herein contain the entire agreement among the parties hereto with respect to the
transactions contemplated hereby and supersede all prior agreements or
understandings, written or oral, among the parties with respect thereto
including, but not limited to, the Original Reorganization Agreement.
9.3 DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
9.4 PUBLIC ANNOUNCEMENTS. The parties hereto agree that, to the maximum
extent feasible, but subject, in the case of Parent, to its public disclosure
and, as to all parties, other legal and regulatory obligations, they shall
advise and confer with each other prior to the issuance (and provide copies to
the other party prior to issuance) of any public announcements, reports,
statements or releases pertaining to the Merger; PROVIDED that the parties shall
not disclose the purchase price of the Merger in any such public announcements.
9.5 NOTICES.
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
nationally-recognized overnight courier or by registered or certified mail,
postage prepaid, return receipt requested or by telecopier, with confirmation as
provided above addressed as follows:
(a) if to Parent or Acquisition Sub, to:
GHS, Inc.
2400 Research Blvd.
Rockville, Maryland 20850
Attention:
Telecopier: (301) 308-3254
with copies to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Martin H. Levenglick, Esq.
Telecopier: (212) 506-5151;
(b) if to the Company, to:
Concept Development, Inc.
20 Taconic Road
Millwood, New York 10546
Attention: William Zanker
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Telecopier: (212) 967-6256;
with a copy to:
Swidler, Berlin, Shereff Friedman LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Morris Orens, Esq.
Telecopier: (212) 891-9507
(c) if to the Founders, to:
20 Taconic Road
Millwood, New York 10546
Attention: William Zanker and Debbie Dworkin
Telecopier: (212) 967-6256;
(d) if to the Stockholder, at her address set
forth on SCHEDULE 10.5 attached hereto;
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be received (a) in the case of personal
delivery or telecopy, on the date of such delivery, (b) in the case of
nationally-recognized overnight courier, on the next business day after the date
when sent and (c) in the case of mailing, on the third business day following
the date on which the piece of mail containing such communication was posted.
9.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
9.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly therein (without regard to principles of conflicts of
laws) except for those terms and conditions that specifically relate to Merger
as described in Article I hereof, which shall be governed by and construed in
accordance with the General Corporation Law of the State of Delaware (without
regard to principles of conflicts of laws).
9.8 BENEFITS OF AGREEMENT. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
9.9 PRONOUNS. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
9.10 AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be
altered or otherwise amended except pursuant to (a) an instrument in writing
signed by Parent and the Company prior to the Effective Date, if Article VII is
not affected by such alteration or
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amendment and (b) an instrument in writing signed by (i) Parent, (ii) the
Company and (iii) the Stockholders, if Article VII is affected thereby or the
alteration or amendment occurs subsequent to the Effective Date; PROVIDED,
HOWEVER, that after the approval and adoption of this Agreement and the Merger
by the Stockholders, no amendment of this Agreement shall be made which pursuant
to the Delaware Statute or other law requires the further approval of the
Stockholders; PROVIDED FURTHER, HOWEVER, that any party to this Agreement may
waive any obligation owed to it by any other party under this Agreement. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement and Plan of Reorganization to be executed on its behalf as of the day
and year first above written.
GHS, INC.
By:/s/ Alan Gold
---------------------------
Name: Alan Gold
Title: President
CONCEPT ACQUISITION CORPORATION
By:/s/ Beth Polish
---------------------------
Name: Beth Polish
Title: President
CONCEPT DEVELOPMENT, INC.
By:/s/ William Zanker
---------------------------
Name: William Zanker
Title: President
FOUNDERS:
/s/ William Zanker
------------------------------
William Zanker
/s/ Debbie Dworkin
---------------------------
Debbie Dworkin
STOCKHOLDER:
/s/ Debbie Dworkin
---------------------------
Debbie Dworkin
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SCHEDULE 2.2(B)
ESCROW SHARES
[*]
SCHEDULE 3.2
STOCKHOLDER SHARES
1 SHARE OF COMPANY COMMON STOCK OWNED BY D. DWORKIN
SCHEDULE 4.1(a)
COMPANY AFFILIATES
D. DWORKIN
W. ZANKER
SCHEDULE 6.2(e)
CONTINUING EMPLOYEES
W. ZANKER
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SCHEDULE 10.5
STOCKHOLDERS' ADDRESSES
20 TACONIC ROAD
MILLWOOD, NEW YORK 10546
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<PAGE>
EXHIBIT A
FORM OF AGREEMENT OF MERGER
EXHIBIT B
FORM OF ESCROW AGREEMENT
EXHIBIT C
FORM OF EMPLOYMENT AGREEMENT
EXHIBIT D
FORM OF REPURCHASE AGREEMENT
<PAGE>
Exhibit 2(c)
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
AGREEMENT OF
MERGER dated as of May 27,
1999, between CONCEPT
ACQUISITION CORPORATION, a
Delaware corporation
("Acquisition Sub"), and
CONCEPT DEVELOPMENT, INC.,
a Delaware corporation (the
"Company").
The Boards of Directors of Acquisition Sub and the Company have each
duly approved and adopted this Agreement, the Agreement and Plan of
Reorganization dated as of May 27, 1999, (the "Reorganization Agreement"),
among, GHS, Inc. a Delaware corporation ("Parent"), Acquisition Sub, a
wholly-owned subsidiary of Parent, the Company and the other parties thereto and
the proposed merger of Acquisition Sub with and into the Company in accordance
with this Agreement, the Reorganization Agreement and the Delaware General
Corporation Law (the "Delaware Statute"), whereby, among other things, the
issued and outstanding shares of common stock, no par value, of the Company (the
"Company Common Stock"), will be exchanged and converted into the right to
receive cash and shares of Series C preferred stock, $.01 par value, of Parent
(the "Parent Preferred Stock") in the manner set forth in this Agreement and the
Reorganization Agreement, upon the terms and subject to the conditions set forth
in this Agreement and the Reorganization Agreement.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the Reorganization Agreement and the representations,
warranties, covenants, agreements, conditions and promises contained herein and
therein, the parties hereby agree as follows:
ARTICLE I
THE MERGER
Section 1. THE MERGER. In accordance with the provisions of this
Agreement, the Reorganization Agreement and the Delaware Statute, Acquisition
Sub shall be merged with and into the Company (the "Merger"), which at and after
the Effective Time (as defined in Article I, Section 2 hereof) shall be, and is
sometimes herein referred to as, the "Surviving Corporation". Acquisition Sub
and the Company are sometimes referred to as the "Constituent Corporations".
Section 2. THE EFFECTIVE TIME OF THE MERGER. Subject to the provisions
of the Reorganization Agreement, this Agreement shall be executed and delivered
to and filed with the Secretary of State of the State of Delaware by each of the
Constituent Corporations on the Closing Date in the manner provided under
Section 251 of the Delaware Statute. The Merger shall become effective (the
"Effective Time") upon the filing of this Agreement with the Secretary of State
of the State of Delaware and the issuance of a certificate of merger by the
Secretary of State of the State of Delaware.
<PAGE>
Section 3. EFFECT OF MERGER. At the Effective Time the separate
existence of Acquisition Sub shall cease and Acquisition Sub shall be merged
with and into the Surviving Corporation, and the Surviving Corporation shall
possess all of the rights, privileges, powers and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations as provided in Section 251 of the
Delaware Statute.
Section 4. CHARTER AND BY- LAWS OF SURVIVING CORPORATION. From and
after the Effective Time, (i) the Charter of Acquisition Sub shall be the
Charter of the Surviving Corporation, unless and until altered, amended or
repealed as provided in the Delaware Statute or the Charter, (ii) the by-laws of
Acquisition Sub shall be the by-laws of the Surviving Corporation, unless and
until altered, amended or repealed as provided in the Delaware Statute, the
Charter or such by-laws, (iii) the directors of Acquisition Sub shall be the
directors of the Surviving Corporation, unless and until removed, or until their
respective terms of office shall have expired, in accordance with the Delaware
Statute, the Charter and the by-laws of the Surviving Corporation, as applicable
and (iv) the officers of the Acquisition Sub shall be the officers of the
Surviving Corporation, unless and until removed, or until their terms of office
shall have expired, in accordance with the Delaware Statute, the Charter and the
by-laws of the Surviving Corporation, as applicable.
Section 5. TAKING OF NECESSARY ACTION. Prior to the Effective Time, the
parties hereto shall do or cause to be done all such acts and things as may be
necessary or appropriate in order to effectuate the Merger as expeditiously as
reasonably practicable, in accordance with this Agreement, the Reorganization
Agreement and the Delaware Statute.
Section 6. TAX FREE REORGANIZATIONS. For Federal income tax purposes,
the parties intend that the Merger be treated as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), by reason of Section 368(a)(2)(E) of the Code.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 1. TOTAL CONSIDERATION; EFFECT ON CAPITAL STOCK. The entire
consideration payable by Parent with respect to all outstanding shares of
capital stock of the Company and for all options, warrants, rights, calls,
commitments, agreements or arrangements of any character to which the Company is
a party or by which it is bound calling for the issuance of shares of capital
stock of the Company or any securities convertible into or exercisable or
exchangeable for, or representing the right to purchase or otherwise receive,
directly or indirectly, any such capital stock, or other arrangement to acquire,
at any time or under any circumstance, capital stock of the Company or any such
other securities (hereinafter collectively referred to as the "Fully Diluted
Company Shares,") other than any capital stock of the Company owned or held by
Parent or any Affiliate of Parent, shall be an aggregate of (A) [*] (the "Total
Parent Share Amount") and (B) [*], (the "Aggregate Cash Consideration") in cash
(the Aggregate Cash Consideration, together with the Total Parent Share Amount,
being sometimes hereinafter
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collectively referred to as the "Aggregate Purchase Price"). For purposes of the
calculation of the exchange ratio for Parent Preferred Stock under Article II,
Section 1(c)(i), it is assumed that the number of Fully Diluted Company Shares
is one (1) (the "Fully Diluted Company Share Amount"). At the Effective Time,
subject and pursuant to the terms and conditions of this Agreement and the
Reorganization Agreement, by virtue of the Merger and without any action on the
part of the Constituent Corporations or the holders of the capital stock or
options to purchase capital stock of the Constituent Corporations:
(a) CAPITAL STOCK OF ACQUISITION SUB. Each issued and
outstanding share of common stock, $.01 par value per share, of Acquisition Sub
shall be converted into one share of common stock, $.01 par value per share, of
the Surviving Corporation;
(b) CANCELLATION OF CERTAIN SHARES OF COMPANY STOCK. Each
share of capital stock of the Company that is authorized but unissued shall
cease to exist and no Parent Preferred Stock or other consideration shall be
delivered in exchange therefor.
(c) EXCHANGE OF COMPANY STOCK. Subject to Article II, Section
2 hereof, each share of Company Common Stock issued and outstanding at the
Effective Time, including all accrued and unpaid dividends thereon, shall be
exchanged and converted into the right to receive:
(i) [*]which are deliverable at the Closing and are
subject to the repurchase rights set forth in the Repurchase Agreement; and
(ii) [*]
For convenience of reference, the shares of Parent Preferred Stock to be issued
upon the exchange and conversion of Company Common Stock in accordance with this
Section 2.1(c) are sometimes hereinafter collectively referred to as the "Merger
Shares".
(d) SHARES OF DISSENTING SHAREHOLDERS. Each issued and
outstanding share of Company Stock held by a Dissenting Stockholder, if any,
shall not be exchanged and converted as described in Article II, Section 1(c)
hereof but shall become the right to receive such consideration as may be
determined to be due to such Dissenting Stockholder pursuant to the Delaware
Statute; provided, however, that each share of Company Stock issued and
outstanding at the Effective Time and held by a Dissenting Stockholder who or
which shall, after the Effective Time, withdraw his or its demand for appraisal
or lose or fail to perfect his or its right of appraisal as provided in the
Delaware Statute shall be deemed, as of the Effective Time, to be exchanged and
converted into Parent Preferred Stock as provided in Article II, Section 2(d),
without interest. After the Effective Time, as provided in Section 262 of the
Delaware Statute, no Dissenting Stockholder will be entitled to vote the shares
of Company Common Stock subject to such Dissenting Stockholder's demand for
appraisal for any purpose or be entitled to the payment of dividends or other
distributions on such shares. The Company shall give Parent prompt notice of any
demands received by the Company for fair value of such Company Stock, and Parent
shall have the right to participate in all the negotiations and proceedings with
respect to such demands. The Company shall not, except with the prior written
consent of Parent, make
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any payment (except to the extent that any such payment is pursuant to a court
order) with respect to, or settle or offer to settle, any such demands.
Section 2. ESCROW DEPOSIT; EXCHANGE OF CERTIFICATES.
(a) ESCROW AGREEMENTS. At the Effective Time, the Stockholder,
Parent and State Street Bank and Trust Company (the "Escrow Agent") shall enter
into an escrow agreement in the form of Exhibit B to the Reorganization
Agreement (the "Escrow Agreement"). The Escrow Agreement is being entered into
for the purpose of securing the indemnification obligations of the Stockholders
under Article VII of the Reorganization Agreement.
(b) ESCROW DEPOSIT. At the Effective Time, Parent shall cause
to be deposited with the Escrow Agent (i) [*] ("Escrow Shares") and (ii) three
stock powers duly endorsed in blank for transfer on behalf of the stockholder,
and the stockholder by her execution and delivery of the Reorganization
Agreement authorizes and directs Parent to make such deposit on her behalf.
(c) PROCEDURE FOR EXCHANGE. Immediately following the
Effective Time, Parent shall deliver to the Stockholder, other than Parent or
any subsidiary of Parent, of a certificate or certificates which immediately
prior to the Effective Time represented issued and outstanding shares of Company
Common Stock (each, an "Old Certificate") a certificate (a "New Certificate")
representing that number of Merger Shares (other than the Escrow Shares) which
such holder has the right to receive pursuant to Article II, Section 1(c)(i)
with respect to such Old Certificate against receipt by Parent of (i) such Old
Certificate for cancellation and (ii) an executed letter of transmittal, and the
Old Certificate so surrendered shall forthwith be canceled (the certificates
representing the Escrow Shares having therefore been deposited on behalf of the
Stockholder into escrow as contemplated by Article II, Section 2(b). In the
event of a transfer of ownership of shares of Company Common Stock which is not
registered on the transfer records of the Company, a New Certificate
representing the proper number of shares of Parent Preferred Stock may be issued
to a transferee if the Old Certificate representing such Company Common Stock is
presented to Parent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock or other transfer
taxes have been paid. Until surrendered as contemplated by Article II, Section
2, each Old Certificate shall be deemed, on and after the Effective Time, to
represent only the right to receive upon such surrender, New Certificates
representing Merger Shares (other than the Escrow Shares) as contemplated by
Article II, Section 1(c)(i), without interest. All Escrow Shares shall be held
by, and distributed in accordance with, the terms and provisions of the Escrow
Agreement.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY STOCK. All Shares
of Parent Preferred Stock issued upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms of this Article II shall be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Company Common Stock. If, after the Effective Time, any Old
Certificate is presented to the Surviving Corporation for any reason, such Old
Certificate shall be canceled and exchanged as provided in this Article II.
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(e) NO LIABILITY. None of Parent, Acquisition Sub or the
Company shall be liable to any holder of shares of Company Common Stock or
Parent Preferred Stock, as the case may be, for shares (or dividends or
distributions with respect thereto) of Parent Preferred Stock to be issued in
exchange for Company Common Stock pursuant to this Article II, Section 2, if, on
or after the expiration of six months following the Effective Time, such shares
are delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(f) LOST, STOLEN OR DESTROYED COMPANY CERTIFICATES. In the
event any Old Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit to that effect by the person claiming such Old
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may reasonably direct
as indemnity against any claim that may be made against it with respect to such
Old Certificate, Parent will issue in exchange for such lost, stolen or
destroyed Old Certificate the Merger Shares and cash in lieu of fractional
shares deliverable in respect thereof pursuant to this Agreement.
ARTICLE III
MISCELLANEOUS
Section 1. ENTIRE AGREEMENT. This Agreement and the Reorganization
Agreement (including the Company Disclosure Schedule and the Exhibits attached
thereto) and the other writings referred to therein contain the entire agreement
among the parties hereto with respect to the transactions contemplated hereby
and supersede all prior agreements or understandings, written or oral, among the
parties with respect thereto including, but not limited to, the Original
Reorganization Agreement.
Section 2. NOTICES. All notices or other communications which are
required or permitted hereunder shall be in writing and sufficient if delivered
personally or sent by nationally-recognized overnight courier or by registered
or certified mail, postage prepaid, return receipt requested or by telecopier,
with confirmation as provided above addressed as follows:
(i) if to Parent or Acquisition Sub, to:
GHS, Inc.
2400 Research Blvd.
Rockville, Maryland 20850
Attention:
Telecopier: (301) 308-3254
with copies to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Martin H. Levenglick, Esq.
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Telecopier: (212) 506-5151;
(b) if to the Company, to:
Concept Development, Inc.
20 Taconic Road
Millwood, New York 10546
Attention: William Zanker
Telecopier: (212) 967-6256;
with a copy to:
Swidler, Berlin, Shereff Friedman LLP
919 Third Avenue
New York, New York 10022-9998
Attention: Morris Orens, Esq.
Telecopier: (212) 891-9507
Section 3. COUNTERPARTS. This Agreement may be executed in any number
of counterparts by original or facsimile signature, each such counterpart shall
be an original instrument, and all such counterparts together shall constitute
one and the same agreement.
Section 4. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed wholly therein (without regard to principles
of conflicts of laws) except for those terms and conditions that specifically
relate to Merger as described in Article I of the Reorganization Agreement,
which shall be governed by and construed in accordance with the General
Corporation Law of the State of Delaware (without regard to principles of
conflicts of laws).
Section 5. AMENDMENT, MODIFICATION AND WAIVER. The Reorganization
Agreement shall not be altered or otherwise amended except pursuant to (a) an
instrument in writing signed by Parent and the Company prior to the Effective
Date, if Article VII of the Reorganization Agreement is not affected by such
alteration or amendment and (b) an instrument in writing signed by (i) Parent,
(ii) the Company and (iii) the Stockholders, if Article VII of the
Reorganization Agreement is affected thereby or the alteration or amendment
occurs subsequent to the Effective Date; provided, however, that after the
approval and adoption of this Agreement and the Merger by the Stockholders, no
amendment of this Agreement shall be made which pursuant to the Delaware Statute
or other law requires the further approval of the Stockholders; provided
further, however, that any party to the Reorganization Agreement may waive any
obligation owed to it by any other party under the Reorganization Agreement. The
waiver by any party hereto of a breach of any provision of the reorganization
Agreement shall not operate or be construed as a waiver of any subsequent
breach.
[Remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement of Merger to be executed and delivered on its behalf as of the date
first above written.
CONCEPT ACQUISITION CORPORATION
By:/s/ Beth Polish
--------------------------
Name: Beth Polish
Title: President
CONCEPT DEVELOPMENT, INC.
By:/s/ William Zanker
--------------------------
Name: William Zanker
Title: President
<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES A PREFERRED STOCK
OF
GHS, INC.
Pursuant to Section 151 of
the Delaware General Corporation Law
GHS, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
That, pursuant to the authority vested in the Board of
Directors of the Corporation by Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation, and pursuant to the provisions of
Section 151 of the Delaware General Corporation Law, the Board of Directors of
the Corporation, at a meeting duly convened on May 19, 1999 duly adopted the
following resolution:
RESOLVED that, pursuant to the authority vested in the Board
of Directors of the Corporation by Article FOURTH of the Corporation's Restated
Certificate of Incorporation, as amended, of the Preferred Stock, par value $.01
per share, of the Corporation ("Preferred Stock"), there shall be designated a
series of 100,000 shares which shall be issued in and constitute a single series
to be known as "Series A Preferred Stock" (hereinafter called the "Series A
Preferred Stock"). The shares of Convertible Preferred Stock shall have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
I. VOTING RIGHTS AND PREEMPTIVE RIGHTS
(a) Except as otherwise provided by law, the holders of the
Convertible Preferred Stock shall be entitled to vote at or participate in any
meeting of stockholders, and to participate in any action proposed to be taken
by written consent, in each case with the holders of the Common Stock and with
the holders of any other series of convertible Preferred Stock having the right
to vote on an as converted basis, voting or acting together as one class on an
as converted basis, and to receive notice of any such meeting or any such
proposed action in the same manner as notice is provided to holders of the
Common Stock.
(b) The holders of the Convertible Preferred Stock shall have no
preemptive rights or other subscription rights unless otherwise granted by the
Corporation.
<PAGE>
II. LIQUIDATION
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, before any
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of the Common Stock or any other stock
of the Corporation having rights or preferences as to assets junior to the
rights and preferences of the Convertible Preferred Stock, the holders of the
Convertible Preferred Stock shall be entitled to the payment in cash of $1.00
per share.
(b) If, upon any such liquidation, dissolution or winding up, the
assets of the Corporation distributable among the holders of the Convertible
Preferred Stock shall be insufficient to pay to them in full the preferential
amounts specified above, then such assets, or the proceeds thereof, shall be
distributed among the holders of the Convertible Preferred Stock ratably in
proportion to the amounts which would be payable to them respectively, if such
preferential amounts were paid to them in full.
(c) In addition to the amount set forth in paragraph (a) of this
Section II the holders of the Convertible Preferred Stock shall also be entitled
to such amount per share of the Convertible Preferred Stock as would have been
payable had each share been converted to Common Stock immediately prior to such
liquidation, dissolution or winding up of the Company.
III. CONVERSION
The holders of the Convertible Preferred Stock shall have the following
conversion rights (the "Conversion Rights"):
(a) CONVERSION. Each share of Convertible Preferred shall be
automatically converted on the later of (i) the next business day following the
date of filing of a certificate of an amendment to the Corporation's Certificate
of Incorporation that increases the number of authorized shares of Common Stock
to a number sufficient to permit the conversion of all of the then outstanding
shares of Convertible Preferred Stock into shares of Common Stock or (ii) the
next business day following the record date for the spin-off dividend of the
Corporation's U.S. NeuroSurgical subsidiary (the "USN Spin-Off"). In either
case, the Convertible Preferred Stock shall be converted into that number of
fully paid and non-assessable shares of the Common Stock determined by dividing
310 by the Conversion Ratio (as defined below). The numerator of the Conversion
Ratio (the "Numerator") shall initially be one; the denominator of the
Conversion Ratio (the "Denominator") shall initially be one; and each shall be
subject from time to time to adjustment as herein set forth..
(b) EXCHANGE OF CERTIFICATE. Upon surrender of any certificate or
certificates representing Convertible Preferred Stock, thereupon the Corporation
shall promptly issue and deliver at such office to such holder of Convertible
Preferred Stock a certificate or certificates for the number of shares of the
Common Stock to which he shall be entitled as aforesaid. Such
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conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Convertible Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of the Common Stock on
such date.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation
shall, at any time or from time to time after the date of issuance of the
Convertible Preferred Stock, effect a subdivision of the outstanding Common
Stock, the Denominator of the Conversion Ratio then in effect immediately before
that subdivision shall be proportionately increased, and conversely if the
Corporation shall at any time or from time to time after the date of issuance of
the Convertible Preferred Stock combine the outstanding shares of the Common
Stock, the Denominator of the Conversion Ratio then in effect immediately before
the combination shall be proportionately decreased. Any adjustment under this
subparagraph (c) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(d) COMMON STOCK DIVIDENDS. In the event the Corporation at any time,
or from time to time after the date of issuance of the Convertible Preferred
Stock, shall make or issue, or fix a record date for the determination of
stockholders entitled to receive, a dividend or other distribution payable in
additional shares of the Common Stock, then and in each such event, the
Conversion Ratio then in effect shall be adjusted as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by (i) multiplying the Numerator of the
Conversion Ratio then in effect by the total number of shares of the Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and (ii) multiplying the Denominator
of the Conversion Ratio then in effect by the total number of shares of the
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of the Common Stock issuable in payment of such dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Ratio shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Ratio shall be
adjusted pursuant to this subparagraph (d) as of the time of actual payment of
such dividends or distributions.
(e) OTHER DIVIDENDS. In the event the Corporation at any time or from
time to time after the date of issuance of the Convertible Preferred Stock shall
make or issue, or fix a record date (other than a record date for the USN
Spin-Off) for the determination of stockholders entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of the Common Stock, then and in each such event provision shall be made so that
the holders of Convertible Preferred Stock shall receive upon conversion thereof
in addition to the number of shares of the Common Stock receivable thereupon,
the amount of securities of the Company which they would have received had their
Convertible Preferred Stock been converted into the Common Stock on the date of
such event and had they thereafter, during the term from the date of such event
to and including the date of conversion, retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during
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such period under this Section III with respect to the rights of the holders of
the Convertible Preferred Stock.
(f) REORGANIZATIONS, ETC. If the Common Stock issuable upon the
conversion of the Convertible Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares, stock dividend, reorganization, merger, consolidation or
sale of assets, provided for elsewhere in this Section III), then and in each
such event the holder of each share of Convertible Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other exchange, by holders of the number of shares of the
Common Stock into which such share of Convertible Preferred Stock might have
been converted immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(g) OTHER REORGANIZATIONS. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section III) or merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Convertible Preferred Stock shall thereafter be entitled to
receive upon conversion of the Convertible Preferred Stock, the number of shares
of stock or other securities or property of the Corporation, or of the successor
corporation resulting from such merger or consolidation, to which a holder of
that number of shares of Common Stock deliverable upon conversion of the
Convertible Preferred Stock would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
III with respect to the rights of the holders of the Convertible Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section III (including adjustment of the Conversion Ratio
then in effect and number of shares purchasable upon conversion of the
Convertible Preferred Stock) shall be applicable after the event as nearly
equivalent as may be practicable.
(h) COMPUTATION OF ADJUSTMENT. In each case of an adjustment of the
Conversion Ratio or the number of shares of the Common Stock or other securities
issuable upon conversion of the Convertible Preferred Stock, the Corporation, at
its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall send said certificate to each registered holder of the
Convertible Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment is based.
(i) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution (other than for the USN Spin-Off),
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or (ii) any capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any transfer of all or
substantially all of the assets of the Corporation to any other corporation or
to any other entity or person, any consolidation or merger involving the
Corporation and any other corporation, or any liquidation or winding up of the
Corporation, the Corporation shall send to each holder of Convertible Preferred
Stock, not more than 60 nor less than 30 days prior to the date specified
therein, a notice specifying (A) the date on which any such record is to be
taken for the purpose of such dividend or distribution, (B) the date on which
any such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and (C)
the time, if any, that is to be fixed, as to when the holders of record of the
Common Stock (or other securities, including the Convertible Preferred Stock)
shall be entitled to exchange their shares of the Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(j) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issued upon conversion of the Convertible Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the fair market value of one share of the Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(k) AUTHORIZED COMMON STOCK. The Corporation shall take all actions
necessary to authorize, and at all times thereafter take all actions to reserve
and keep available out of its authorized but unissued shares of the Common Stock
solely for the purpose of effecting the conversion of the shares of the
Convertible Preferred Stock, such number of its shares of the Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Convertible Preferred Stock; and if at any time the
number of authorized but unissued shares of the Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Convertible Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of the Common Stock to such number of shares as shall be
sufficient for such purpose.
(l) DELIVERY OF NOTICE. Any notice required by the provisions of this
Section III to be given to the holders of shares of the Convertible Preferred
Stock shall be given by either hand-delivery, telecopy, overnight mail or
certified or registered mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation and shall be
deemed received, if hand-delivered, upon delivery, if telecopied, upon
confirmation of receipt, and if mailed (whether by overnight, certified or
registered mail), upon receipt.
(m) NO AVOIDANCE. The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out all such
action as may be
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<PAGE>
reasonably necessary or appropriate in order to protect the conversion rights of
the holders of the Convertible Preferred Stock against dilution or other
impairment.
IV. CONVERTIBLE PREFERRED STOCK RESTRICTIONS ON CORPORATE ACTION
Without the consent of the holders of record of a majority of the
shares of Convertible Preferred Stock at the time outstanding, given in writing
or by vote at any regular or special meeting of stockholders, the Corporation
shall not amend, alter or remove any of the provisions of the Corporation's
certificate of incorporation or authorize any reclassification of the
Convertible Preferred Stock, in either case so as to affect adversely the
preferences, special rights or powers of the Convertible Preferred Stock, either
directly or indirectly, or through a merger or consolidation with any
corporation, or authorize any shares of the Corporation ranking, either as to
the payment of dividends or upon liquidation, dissolution or winding up, prior
to the Convertible Preferred Stock.
V. CONVERTIBLE PREFERRED STOCK DIVIDENDS
When and as dividends are declared on the Common Stock, the holders of
the Convertible Preferred shall be entitled to share in such dividends with the
holders of the Common Stock together as one class on an as converted basis.
VI. CONVERTIBLE PREFERRED STOCK PAYMENTS AND NOTICES
All notices and all payments with respect to the Convertible Preferred
Stock shall be sent to the holders thereof at their respective addresses, as the
same shall appear on the books of the Corporation.
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IN WITNESS WHEREOF, this Certificate of Designation has been
executed by the Corporation by its President, Alan Gold, this 24th day of May,
1999.
GHS, INC.
By: /s/ Alan Gold
------------------------------------------
Alan Gold
President
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CERTIFICATE OF DESIGNATIONS
OF
SERIES B PREFERRED STOCK
OF
GHS, INC.
Pursuant to Section 151 of
the Delaware General Corporation Law
GHS, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
That, pursuant to the authority vested in the Board of
Directors of the Corporation by Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation, and pursuant to the provisions of
Section 151 of the Delaware General Corporation Law, the Board of Directors of
the Corporation, at a meeting duly convened on May 19, 1999 duly adopted the
following resolution:
RESOLVED that, pursuant to the authority vested in the Board
of Directors of the Corporation by Article FOURTH of the Corporation's Restated
Certificate of Incorporation, as amended, of the Preferred Stock, par value $.01
per share, of the Corporation ("Preferred Stock"), there shall be designated a
series of 200,000 shares which shall be issued in and constitute a single series
to be known as "Series B Preferred Stock" (hereinafter called the "Convertible
Preferred Stock"). The shares of Convertible Preferred Stock shall have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
I. VOTING RIGHTS AND PREEMPTIVE RIGHTS
(a) Except as otherwise provided by law, the holders of the
Convertible Preferred Stock shall be entitled to vote at or participate in any
meeting of stockholders, and to participate in any action proposed to be taken
by written consent, in each case with the holders of the Common Stock and with
the holders of any other series of convertible Preferred Stock having the right
to vote on an as converted basis, voting or acting together as one class on an
as converted basis, and to receive notice of any such meeting or any such
proposed action in the same manner as notice is provided to holders of the
Common Stock.
(b) The holders of the Convertible Preferred Stock shall have no
preemptive rights or other subscription rights unless otherwise granted by the
Corporation.
<PAGE>
II. LIQUIDATION
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, before any
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of the Common Stock or any other stock
of the Corporation having rights or preferences as to assets junior to the
rights and preferences of the Convertible Preferred Stock, the holders of the
Convertible Preferred Stock shall be entitled to the payment in cash of $1.00
per share.
(b) If, upon any such liquidation, dissolution or winding up, the
assets of the Corporation distributable among the holders of the Convertible
Preferred Stock shall be insufficient to pay to them in full the preferential
amounts specified above, then such assets, or the proceeds thereof, shall be
distributed among the holders of the Convertible Preferred Stock ratably in
proportion to the amounts which would be payable to them respectively, if such
preferential amounts were paid to them in full.
(c) In addition to the amount set forth in paragraph (a) of this
Section II the holders of the Convertible Preferred Stock shall also be entitled
to such amount per share of the Convertible Preferred Stock as would have been
payable had each share been converted to Common Stock immediately prior to such
liquidation, dissolution or winding up of the Company.
III. CONVERSION
The holders of the Convertible Preferred Stock shall have the following
conversion rights (the "Conversion Rights"):
(a) CONVERSION. Each share of Convertible Preferred shall be
automatically converted on the next business day following the record date for
the spin-off dividend of the Corporation's U.S. NeuroSurgical subsidiary (the
"USN Spin-Off"). In either case, the Convertible Preferred Stock shall be
converted into that number of fully paid and non-assessable shares of the Common
Stock determined by dividing 10 by the Conversion Ratio (as defined below). The
numerator of the Conversion Ratio (the "Numerator") shall initially be one; the
denominator of the Conversion Ratio (the "Denominator") shall initially be one;
and each shall be subject from time to time to adjustment as herein set forth.
(b) EXCHANGE OF CERTIFICATE. Upon surrender of any certificate or
certificates representing Convertible Preferred Stock, thereupon the Corporation
shall promptly issue and deliver at such office to such holder of Convertible
Preferred Stock a certificate or certificates for the number of shares of the
Common Stock to which he shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the shares of the
Common Stock issuable upon such
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<PAGE>
conversion shall be treated for all purposes as the record holder or holders of
such shares of the Common Stock on such date.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation
shall, at any time or from time to time after the date of issuance of the
Convertible Preferred Stock, effect a subdivision of the outstanding Common
Stock, the Denominator of the Conversion Ratio then in effect immediately before
that subdivision shall be proportionately increased, and conversely if the
Corporation shall at any time or from time to time after the date of issuance of
the Convertible Preferred Stock combine the outstanding shares of the Common
Stock, the Denominator of the Conversion Ratio then in effect immediately before
the combination shall be proportionately decreased. Any adjustment under this
subparagraph (c) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(d) COMMON STOCK DIVIDENDS. In the event the Corporation at any time,
or from time to time after the date of issuance of the Convertible Preferred
Stock, shall make or issue, or fix a record date for the determination of
stockholders entitled to receive, a dividend or other distribution payable in
additional shares of the Common Stock, then and in each such event, the
Conversion Ratio then in effect shall be adjusted as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by (i) multiplying the Numerator of the
Conversion Ratio then in effect by the total number of shares of the Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and (ii) multiplying the Denominator
of the Conversion Ratio then in effect by the total number of shares of the
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of the Common Stock issuable in payment of such dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Ratio shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Ratio shall be
adjusted pursuant to this subparagraph (d) as of the time of actual payment of
such dividends or distributions.
(e) OTHER DIVIDENDS. In the event the Corporation at any time or from
time to time after the date of issuance of the Convertible Preferred Stock shall
make or issue, or fix a record date (other than a record date for the USN
Spin-Off) for the determination of stockholders entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of the Common Stock, then and in each such event provision shall be made so that
the holders of Convertible Preferred Stock shall receive upon conversion thereof
in addition to the number of shares of the Common Stock receivable thereupon,
the amount of securities of the Company which they would have received had their
Convertible Preferred Stock been converted into the Common Stock on the date of
such event and had they thereafter, during the term from the date of such event
to and including the date of conversion, retained such securities receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section III with respect to the rights
of the holders of the Convertible Preferred Stock.
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<PAGE>
(f) REORGANIZATIONS, ETC. If the Common Stock issuable upon the
conversion of the Convertible Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares, stock dividend, reorganization, merger, consolidation or
sale of assets, provided for elsewhere in this Section III), then and in each
such event the holder of each share of Convertible Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other exchange, by holders of the number of shares of the
Common Stock into which such share of Convertible Preferred Stock might have
been converted immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(g) OTHER REORGANIZATIONS. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section III) or merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Convertible Preferred Stock shall thereafter be entitled to
receive upon conversion of the Convertible Preferred Stock, the number of shares
of stock or other securities or property of the Corporation, or of the successor
corporation resulting from such merger or consolidation, to which a holder of
that number of shares of Common Stock deliverable upon conversion of the
Convertible Preferred Stock would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
III with respect to the rights of the holders of the Convertible Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section III (including adjustment of the Conversion Ratio
then in effect and number of shares purchasable upon conversion of the
Convertible Preferred Stock) shall be applicable after the event as nearly
equivalent as may be practicable.
(h) COMPUTATION OF ADJUSTMENT. In each case of an adjustment of the
Conversion Ratio or the number of shares of the Common Stock or other securities
issuable upon conversion of the Convertible Preferred Stock, the Corporation, at
its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall send said certificate to each registered holder of the
Convertible Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment is based.
(i) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution (other than for the USN Spin-Off), or (ii) any
capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any transfer of all or
substantially all of the assets of the Corporation to any other corporation or
to any other entity or person, any consolidation or
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<PAGE>
merger involving the Corporation and any other corporation, or any liquidation
or winding up of the Corporation, the Corporation shall send to each holder of
Convertible Preferred Stock, not more than 60 nor less than 30 days prior to the
date specified therein, a notice specifying (A) the date on which any such
record is to be taken for the purpose of such dividend or distribution, (B) the
date on which any such reorganization, reclassification, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (C) the time, if any, that is to be fixed, as to when the
holders of record of the Common Stock (or other securities, including the
Convertible Preferred Stock) shall be entitled to exchange their shares of the
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up.
(j) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issued upon conversion of the Convertible Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the fair market value of one share of the Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(k) AUTHORIZED COMMON STOCK. The Corporation shall take all actions
necessary to authorize, and at all times thereafter take all actions to reserve
and keep available out of its authorized but unissued shares of the Common Stock
solely for the purpose of effecting the conversion of the shares of the
Convertible Preferred Stock, such number of its shares of the Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Convertible Preferred Stock; and if at any time the
number of authorized but unissued shares of the Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Convertible Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of the Common Stock to such number of shares as shall be
sufficient for such purpose.
(l) DELIVERY OF NOTICE. Any notice required by the provisions of this
Section III to be given to the holders of shares of the Convertible Preferred
Stock shall be given by either hand-delivery, telecopy, overnight mail or
certified or registered mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation and shall be
deemed received, if hand-delivered, upon delivery, if telecopied, upon
confirmation of receipt, and if mailed (whether by overnight, certified or
registered mail), upon receipt.
(m) NO AVOIDANCE. The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out all such
action as may be reasonably necessary or appropriate in order to protect the
conversion rights of the holders of the Convertible Preferred Stock against
dilution or other impairment.
IV. CONVERTIBLE PREFERRED STOCK RESTRICTIONS ON CORPORATE ACTION
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<PAGE>
Without the consent of the holders of record of a majority of the
shares of Convertible Preferred Stock at the time outstanding, given in writing
or by vote at any regular or special meeting of stockholders, the Corporation
shall not amend, alter or remove any of the provisions of the Corporation's
certificate of incorporation or authorize any reclassification of the
Convertible Preferred Stock, in either case so as to affect adversely the
preferences, special rights or powers of the Convertible Preferred Stock, either
directly or indirectly, or through a merger or consolidation with any
corporation, or authorize any shares of the Corporation ranking, either as to
the payment of dividends or upon liquidation, dissolution or winding up, prior
to the Convertible Preferred Stock.
V. CONVERTIBLE PREFERRED STOCK DIVIDENDS
When and as dividends are declared on the Common Stock, the holders of
the Convertible Preferred shall be entitled to share in such dividends with the
holders of the Common Stock together as one class on an as converted basis.
VI. CONVERTIBLE PREFERRED STOCK PAYMENTS AND NOTICES
All notices and all payments with respect to the Convertible Preferred
Stock shall be sent to the holders thereof at their respective addresses, as the
same shall appear on the books of the Corporation.
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<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation has been executed
by the Corporation by its President, Alan Gold, this 24th day of May, 1999.
GHS, INC.
By: /s/ Alan Gold
------------------------------------------
Alan Gold
President
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<PAGE>
CERTIFICATE OF DESIGNATIONS
OF
SERIES C PREFERRED STOCK
OF
GHS, INC.
Pursuant to Section 151 of
the Delaware General Corporation Law
GHS, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), hereby certifies as follows:
That, pursuant to the authority vested in the Board of
Directors of the Corporation by Article FOURTH of the Restated Certificate of
Incorporation, as amended, of the Corporation, and pursuant to the provisions of
Section 151 of the Delaware General Corporation Law, the Board of Directors of
the Corporation, at a meeting duly convened on May 19, 1999 duly adopted the
following resolution:
RESOLVED that, pursuant to the authority vested in the Board
of Directors of the Corporation by Article FOURTH of the Corporation's Restated
Certificate of Incorporation, as amended, of the Preferred Stock, par value $.01
per share, of the Corporation ("Preferred Stock"), there shall be designated a
series of 60,000 shares which shall be issued in and constitute a single series
to be known as "Series C Preferred Stock" (hereinafter called the "Convertible
Preferred Stock"). The shares of Convertible Preferred Stock shall have the
voting powers, designations, preferences and other special rights, and
qualifications, limitations and restrictions thereof set forth below:
I. VOTING RIGHTS AND PREEMPTIVE RIGHTS
(a) Except as otherwise provided by law, the holders of the
Convertible Preferred Stock shall be entitled to vote at or participate in any
meeting of stockholders, and to participate in any action proposed to be taken
by written consent, in each case with the holders of the Common Stock and with
the holders of any other series of convertible Preferred Stock having the right
to vote on an as converted basis, voting or acting together as one class on an
as converted basis, and to receive notice of any such meeting or any such
proposed action in the same manner as notice is provided to holders of the
Common Stock.
(b) The holders of the Convertible Preferred Stock shall have no
preemptive rights or other subscription rights unless otherwise granted by the
Corporation, PROVIDED that if the Company commences a rights offering to the
holders of its Common Stock generally, the holders
<PAGE>
of the Convertible Preferred Stock shall have the right to participate therein
on an as converted basis.
II. LIQUIDATION
(a) In the event of any liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary, before any
distribution of the assets of the Corporation (whether capital or surplus) shall
be made to or set apart for the holders of the Common Stock or any other stock
of the Corporation having rights or preferences as to assets junior to the
rights and preferences of the Convertible Preferred Stock, the holders of the
Convertible Preferred Stock shall be entitled to the payment in cash of $1.00
per share.
(b) If, upon any such liquidation, dissolution or winding up, the
assets of the Corporation distributable among the holders of the Convertible
Preferred Stock shall be insufficient to pay to them in full the preferential
amounts specified above, then such assets, or the proceeds thereof, shall be
distributed among the holders of the Convertible Preferred Stock ratably in
proportion to the amounts which would be payable to them respectively, if such
preferential amounts were paid to them in full.
(c) In addition to the amount set forth in paragraph (a) of this
Section II the holders of the Convertible Preferred Stock shall also be entitled
to such amount per share of the Convertible Preferred Stock as would have been
payable had each share been converted to Common Stock immediately prior to such
liquidation, dissolution or winding up of the Company.
III. CONVERSION
The holders of the Convertible Preferred Stock shall have the following
conversion rights (the "Conversion Rights"):
(a) CONVERSION. Each share of Convertible Preferred shall be
automatically converted on the earlier to occur of (i) the next business day
following the record date for the spin-off dividend of the Corporation's U.S.
NeuroSurgical subsidiary (the "USN Spin-Off") and (ii) the date which is six
months following the original date of issuance of the Convertible Preferred
Stock. In either case, the shares of Convertible Preferred Stock shall be
converted into that number of fully paid and non-assessable shares of the Common
Stock determined by dividing 10 by the Conversion Ratio (as defined below), and
then multiplying such quotient by the number of shares of Convertible Preferred
Stock converted. The numerator of the Conversion Ratio (the "Numerator") shall
initially be one; the denominator of the Conversion Ratio (the "Denominator")
shall initially be one; and each shall be subject from time to time to
adjustment as herein set forth.
(b) EXCHANGE OF CERTIFICATE. Upon surrender of any certificate or
certificates representing Convertible Preferred Stock, thereupon the Corporation
shall promptly issue and deliver at such office to such holder of Convertible
Preferred Stock a certificate or certificates for the number of shares of the
Common Stock to which he shall be entitled as aforesaid. Such
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<PAGE>
conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Convertible Preferred
Stock to be converted, and the person or persons entitled to receive the shares
of the Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of the Common Stock on
such date.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the Corporation
shall, at any time or from time to time after the date of issuance of the
Convertible Preferred Stock, effect a subdivision (split) of the outstanding
Common Stock, the Denominator of the Conversion Ratio then in effect immediately
before that subdivision shall be proportionately increased, and conversely if
the Corporation shall at any time or from time to time after the date of
issuance of the Convertible Preferred Stock combine the outstanding shares of
the Common Stock, the Denominator of the Conversion Ratio then in effect
immediately before the combination shall be proportionately decreased, so that,
for instance, if the Company splits its Common Stock on a 2-for-1 basis, each
share of Convertible Preferred Stock shall be entitled to convert into 20 shares
of Common Stock. Any adjustment under this subparagraph (c) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(d) COMMON STOCK DIVIDENDS. In the event the Corporation at any time,
or from time to time after the date of issuance of the Convertible Preferred
Stock, shall make or issue, or fix a record date for the determination of
stockholders entitled to receive, a dividend or other distribution payable in
additional shares of the Common Stock, then and in each such event, the
Conversion Ratio then in effect shall be adjusted as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by (i) multiplying the Numerator of the
Conversion Ratio then in effect by the total number of shares of the Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and (ii) multiplying the Denominator
of the Conversion Ratio then in effect by the total number of shares of the
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of the Common Stock issuable in payment of such dividend or distribution;
PROVIDED, HOWEVER, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Ratio shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Ratio shall be
adjusted pursuant to this subparagraph (d) as of the time of actual payment of
such dividends or distributions.
(e) OTHER DIVIDENDS. In the event the Corporation at any time or from
time to time after the date of issuance of the Convertible Preferred Stock shall
make or issue, or fix a record date (other than a record date for the USN
Spin-Off) for the determination of stockholders entitled to receive, a dividend
or other distribution payable in securities of the Corporation other than shares
of the Common Stock, then and in each such event provision shall be made so that
the holders of Convertible Preferred Stock shall receive upon conversion thereof
in addition to the number of shares of the Common Stock receivable thereupon,
the amount of securities of the Company which they would have received had their
Convertible Preferred Stock been converted into the Common Stock on the date of
such event and had they thereafter, during the term from
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the date of such event to and including the date of conversion, retained such
securities receivable by them as aforesaid during such period, giving
application to all adjustments called for during such period under this Section
III with respect to the rights of the holders of the Convertible Preferred
Stock.
(f) REORGANIZATIONS, ETC. If the Common Stock issuable upon the
conversion of the Convertible Preferred Stock shall be changed into the same or
different number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (other than a subdivision or
combination of shares, stock dividend, reorganization, merger, consolidation or
sale of assets, provided for elsewhere in this Section III), then and in each
such event the holder of each share of Convertible Preferred Stock shall have
the right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification or other exchange, by holders of the number of shares of the
Common Stock into which such share of Convertible Preferred Stock might have
been converted immediately prior to such reorganization, reclassification or
change, all subject to further adjustment as provided herein.
(g) OTHER REORGANIZATIONS. If at any time or from time to time there
shall be a capital reorganization of the Common Stock (other than a subdivision,
combination, reclassification or exchange of shares provided for elsewhere in
this Section III) or merger or consolidation of the Corporation with or into
another corporation, or the sale of all or substantially all of the Company's
properties and assets to any other person, then, as a part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the holders of the Convertible Preferred Stock shall thereafter be entitled to
receive upon conversion of the Convertible Preferred Stock, the number of shares
of stock or other securities or property of the Corporation, or of the successor
corporation resulting from such merger or consolidation, to which a holder of
that number of shares of Common Stock deliverable upon conversion of the
Convertible Preferred Stock would have been entitled on such capital
reorganization, merger, consolidation, or sale. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
III with respect to the rights of the holders of the Convertible Preferred Stock
after the reorganization, merger, consolidation or sale to the end that the
provisions of this Section III (including adjustment of the Conversion Ratio
then in effect and number of shares purchasable upon conversion of the
Convertible Preferred Stock) shall be applicable after the event as nearly
equivalent as may be practicable.
(h) COMPUTATION OF ADJUSTMENT. In each case of an adjustment of the
Conversion Ratio or the number of shares of the Common Stock or other securities
issuable upon conversion of the Convertible Preferred Stock, the Corporation, at
its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall send said certificate to each registered holder of the
Convertible Preferred Stock at the holder's address as shown in the
Corporation's books. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment is based.
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<PAGE>
(i) NOTICE OF CERTAIN EVENTS. In the event of (i) any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution (other than for the USN Spin-Off), or (ii) any
capital reorganization of the Corporation, any reclassification or
recapitalization of the capital stock of the Corporation, any transfer of all or
substantially all of the assets of the Corporation to any other corporation or
to any other entity or person, any consolidation or merger involving the
Corporation and any other corporation, or any liquidation or winding up of the
Corporation, the Corporation shall send to each holder of Convertible Preferred
Stock, not more than 60 nor less than 30 days prior to the date specified
therein, a notice specifying (A) the date on which any such record is to be
taken for the purpose of such dividend or distribution, (B) the date on which
any such reorganization, reclassification, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and (C)
the time, if any, that is to be fixed, as to when the holders of record of the
Common Stock (or other securities, including the Convertible Preferred Stock)
shall be entitled to exchange their shares of the Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, transfer, consolidation, merger, dissolution,
liquidation or winding up.
(j) NO FRACTIONAL SHARES. No fractional shares of the Common Stock
shall be issued upon conversion of the Convertible Preferred Stock. In lieu of
any fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to the product of such fraction multiplied by
the fair market value of one share of the Common Stock on the date of
conversion, as determined in good faith by the Board of Directors.
(k) AUTHORIZED COMMON STOCK. The Corporation shall take all actions
necessary to authorize, and at all times thereafter take all actions to reserve
and keep available out of its authorized but unissued shares of the Common Stock
solely for the purpose of effecting the conversion of the shares of the
Convertible Preferred Stock, such number of its shares of the Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Convertible Preferred Stock; and if at any time the
number of authorized but unissued shares of the Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Convertible Preferred Stock, the Corporation will take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized but
unissued shares of the Common Stock to such number of shares as shall be
sufficient for such purpose.
(l) DELIVERY OF NOTICE. Any notice required by the provisions of this
Section III to be given to the holders of shares of the Convertible Preferred
Stock shall be given by either hand-delivery, telecopy, overnight mail or
certified or registered mail, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Corporation and shall be
deemed received, if hand-delivered, upon delivery, if telecopied, upon
confirmation of receipt, and if mailed (whether by overnight, certified or
registered mail), upon receipt.
(m) NO AVOIDANCE. The Corporation shall not amend its Certificate of
Incorporation or participate in any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, for the purpose of avoiding or seeking to avoid
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<PAGE>
the observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Convertible
Preferred Stock against dilution or other impairment.
IV. CONVERTIBLE PREFERRED STOCK RESTRICTIONS ON CORPORATE ACTION
Without the consent of the holders of record of a majority of the
shares of Convertible Preferred Stock at the time outstanding, given in writing
or by vote at any regular or special meeting of stockholders, the Corporation
shall not issue additional shares of Convertible Preferred Stock or amend, alter
or remove any of the provisions of the Corporation's certificate of
incorporation or authorize any reclassification of the Convertible Preferred
Stock, in either case so as to affect adversely the preferences, special rights
or powers of the Convertible Preferred Stock, either directly or indirectly, or
through a merger or consolidation with any corporation, or authorize any shares
of the Corporation ranking, either as to the payment of dividends or upon
liquidation, dissolution or winding up, prior to the Convertible Preferred
Stock.
V. CONVERTIBLE PREFERRED STOCK DIVIDENDS
When and as dividends are declared on the Common Stock, the holders of
the Convertible Preferred shall be entitled to share in such dividends with the
holders of the Common Stock together as one class on an as converted basis.
VI. CONVERTIBLE PREFERRED STOCK PAYMENTS AND NOTICES
All notices and all payments with respect to the Convertible Preferred
Stock shall be sent to the holders thereof at their respective addresses, as the
same shall appear on the books of the Corporation.
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IN WITNESS WHEREOF, this Certificate of Designation has been
executed by the Corporation by its President, Alan Gold, this 24th day of May,
1999.
GHS, INC.
By: /s/ Alan Gold
------------------------------------------
Alan Gold
President
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AMENDED AND RESTATED
BY-LAWS
OF
GHS, INC.
ARTICLE I
OFFICES
SECTION 1.01. REGISTERED OFFICE. Unless and until otherwise determined
by the Board of Directors of GHS, Inc. (the "CORPORATION"), the registered
office of the Corporation in the State of Delaware shall be at the office of The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801 and
the registered agent in charge thereof shall be The Corporation Trust Company.
SECTION 1.02. OTHER OFFICES. The Corporation may also have an office or
offices at any other place or places within or without the State of Delaware as
the Board of Directors of the Corporation (the "Board") may from time to time
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETING OF STOCKHOLDERS
SECTION 2.01. ANNUAL MEETINGS. The annual meeting of stockholders of
the Corporation for the election of directors of the Corporation ("DIRECTORS")
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
PROVIDED, HOWEVER, that no annual meeting of stockholders need be held if all
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "GENERAL CORPORATION LAW") to be
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of stockholders for
any purpose or purposes may be called by the Board or the Chairman, the
President or the Secretary of the Corporation or by the recordholders of at
least twenty percent (20%) of the shares of common stock of the Corporation
issued and outstanding ("SHARES") and entitled to vote thereat, to be held at
such place, date and time as shall be designated in the notice or waiver of
notice thereof.
SECTION 2.03. NOTICE OF MEETINGS. (a) Except as otherwise provided by
<PAGE>
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of Shares (a "STOCKHOLDER") entitled to
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "SECRETARY") shall
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. WAIVER OF NOTICE. Notice of any annual or special meeting
of Stockholders need not be given to any Stockholder who files a written waiver
of notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. ADJOURNMENTS. Whenever a meeting of Stockholders, annual
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
SECTION 2.06. QUORUM. Except as otherwise provided by law or the
Certificate of Incorporation of the Corporation (the "CERTIFICATE OF
INCORPORATION"), the recordholders of a majority of the Shares entitled to vote
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat
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may adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. VOTING. Each Stockholder shall be entitled to one vote
for each Share held of record by such Stockholder. Except as otherwise provided
by law or the Certificate of Incorporation, when a quorum is present at any
meeting of Stockholders, the vote of the recordholders of a majority of the
Shares constituting such quorum shall decide any question brought before such
meeting.
SECTION 2.08. PROXIES. Each Stockholder entitled to vote at a meeting
of Stockholders or to express, in writing, consent to or dissent from any action
of Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09. STOCKHOLDERS' CONSENT IN LIEU OF MEETING. Except as may
otherwise be provided by law or in the Certificate of Incorporation, any action
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. Except as may otherwise be provided by
law or in the Certificate of Incorporation, the business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. NUMBER AND TERM OF OFFICE. The Board of Directors shall
consist of eight members and the initial members of the Board of Directors
following the Company's acquisition of Change Your Life.com, LLC ("CYL") on May
27, 1999 (the "CYL Closing Date") shall be elected within 45 days of the CYL
Closing Date and shall be those persons listed on Exhibit A hereto, PROVIDED
that the three-person Board of Directors existing prior to the Closing Date
shall continue to exist until such time as all actions are taken which are
required by applicable law to effect the provisions of this Section 3.02. At
each subsequent election of directors and for so long as Anthony J. Robbins or
any of his Affiliates shall hold in the aggregate at least 10% of the
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outstanding shares of Common Stock or Common Stock equivalents, (i) Anthony J.
Robbins or such Affiliates shall have the right to nominate three persons as
Directors of the Company (the "Robbins Directors"), and (ii) a Nominating
Committee consisting of the directors (other than the Robbins Directors and the
Company's Chief Executive Officer) and their respective successors shall have
the right to nominate four persons as Directors of the Company and (iii) the
eighth Director shall be the Company's Chief Executive Officer. If any Director
is unable to serve or, once having commenced to serve, is removed or withdraws
from the Board of Directors of the Company, the replacement of such Director on
the Board of Directors of the Company will be nominated in accordance with the
procedures described in this Section 3.02. Except as otherwise provided in these
by-laws, all decisions of the Board of Directors shall be made by a majority of
its members. Directors need not be Stockholders. Directors shall be elected at
the annual meeting of Stockholders or, if, in accordance with Section 2.01
hereof, no such annual meeting is held, by written consent in lieu of meeting
pursuant to Section 2.09 hereof, and each Director shall hold office until his
successor is elected and qualified, or until his earlier death or resignation or
removal in the manner hereinafter provided.
SECTION 3.03. RESIGNATION. Any Director may resign at any time by
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "CHAIRMAN") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. REMOVAL. Any or all of the Directors may be removed, with
or without cause, at any time by vote of the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by written consent
of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. VACANCIES. Vacancies occurring on the Board as a result
of the removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.09 hereof. Subject to Section 3.02, vacancies occurring on the Board for any
other reason, including, without limitation, vacancies occurring as a result of
the creation of new directorships that increase the number of Directors, may be
filled by such vote or written consent or by vote of the Board or by written
consent of the Directors pursuant to Section 3.08 hereof. Subject to Section
3.02, if the number of Directors then in office is less than a quorum, such
other vacancies may be filled by vote of a majority of the Directors then in
office or by written consent of all such Directors pursuant to Section 3.08
hereof. Unless earlier removed pursuant to Section 3.04 hereof, each Director
chosen in accordance with this Section 3.05 shall hold office until the next
annual election of Directors by the Stockholders and until his successor shall
be elected and qualified.
SECTION 3.06. MEETINGS. (a) ANNUAL MEETINGS. As soon as practicable
after each annual election of Directors by the Stockholders, the Board shall
meet for the
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purpose of organization and the transaction of other business, unless it shall
have transacted all such business by written consent pursuant to Section 3.08
hereof.
(b) OTHER MEETINGS. Other meetings of the Board shall be held at such
times as the Chairman, the President of the Corporation (the "PRESIDENT"), the
Secretary or a majority of the Board shall from time to time determine.
(c) NOTICE OF MEETINGS. The Secretary shall give written notice to each
Director of each meeting of the Board, which notice shall state the place, date,
time and purpose of such meeting. Notice of each such meeting shall be given to
each Director, if by mail, addressed to him at his residence or usual place of
business, at least five days before the day on which such meeting is to be held,
or shall be sent to him at such place by telecopy, telegraph, cable, or other
form of recorded communication, or be delivered personally or by telephone not
later than the day before the day on which such meeting is to be held. A written
waiver of notice, signed by the Director entitled to notice, whether before or
after the time of the meeting referred to in such waiver, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of any meeting of the Board need be specified in any written waiver of notice
thereof. Attendance of a Director at a meeting of the Board shall constitute a
waiver of notice of such meeting, except as provided by law.
(d) PLACE OF MEETINGS. The Board may hold its meetings at such place or
places within or without the State of Delaware as the Board may from time to
time determine, or as shall be designated in the respective notices or waivers
of notice of such meetings.
(e) QUORUM AND MANNER OF ACTING. One-third of the total number of
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one or in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. Notwithstanding anything to the contrary in
these By-laws, the approval of at least two-thirds of the members of the Board
of Directors shall be required in order for the Corporation (i) merge or
consolidate with another entity or to sell all or substantially all of its
assets to any person or entity or (ii) to acquire all or substantially all of
the stock or assets of another business entity, whether by purchase for cash,
stock or other consideration or by merger or otherwise. In the absence of a
quorum for any such meeting, a majority of the Directors present thereat may
adjourn such meeting from time to time until a quorum shall be present.
(f) ORGANIZATION. At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside, in the following order of
precedence:
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(i) the Chairman, if any;
(ii) the Chief Executive Officer;
(iii) any Director chosen by a majority of the Directors present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. COMMITTEES OF THE BOARD. The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; PROVIDED, HOWEVER, that no such committee shall have such power of
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; PROVIDED FURTHER, HOWEVER, that, unless
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. DIRECTORS' CONSENT IN LIEU OF MEETING. Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or
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such committee.
SECTION 3.09. ACTION BY MEANS OF TELEPHONE OR SIMILAR COMMUNICATIONS
EQUIPMENT. Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. COMPENSATION. Directors shall not receive any stated
salary for their services as directors or as members of committees, except as
authorized by the Stockholders. No such compensation or reimbursement shall
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 3.13. INTERESTED DIRECTORS; QUORUM. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association, firm or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, or in which
any of the foregoing may be pecuniarily or otherwise interested, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board or Committee thereof
which authorizes the contract or transaction, or solely because the votes of one
or more of such directors or officers are counted for such purpose, if:
(1) the material facts as to that person's relationship or interest and
as to the contract or transaction are disclosed or are known to the Board or
the Committee, and the Board or Committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less
than a quorum; or
(2) the material facts as to that person's relationship or interest and
as to the contract or transaction are disclosed or are known to the
Stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by a majority of the votes cast by the
Stockholders entitled to vote other than the votes of shares owned of record
or beneficially by the interested director, officer, or otherwise interested
entity; or
(3) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
Committee thereof, or the Stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a Committee
which authorizes the contract or transaction.
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ARTICLE IV
OFFICERS
SECTION 4.01. OFFICERS. The officers of the Corporation shall be the
Chairman of the Board, the President, the Secretary and a Treasurer and may
include, one or more Vice Presidents (including, one or more Executive and/or
Senior Vice Presidents), one or more Assistant Secretaries, one or more
Assistant Treasurers and such other officers as the Board may determine. The
corporation shall also designate a Chief Executive Officer and Chief Operating
Officer. Any two or more offices may be held by the same person.
SECTION 4.02. AUTHORITY AND DUTIES. All officers shall have such
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. TERM OF OFFICE, RESIGNATION AND REMOVAL. (a) Each officer
shall be appointed by the Board and shall hold office for such term as may be
determined by the Board, PROVIDED that, during the term of the Content Provider
Agreement and License effective as of April 23, 1999 between CYL, Anthony J.
Robbins and Robbins Research International, Inc., Anthony J. Robbins will have
the right to approve of the selection of the Chief Executive Officer of the
Company, PROVIDED FURTHER, that said right shall expire if the entire interest
in the Company (or successor thereto) obtained by Anthony J. Robbins and Robbins
Research International Inc. in connection with the exchange of their membership
interests in CYL are transferred to any other party on an involuntary basis,
e.g. through bankruptcy proceedings or pursuant to a court order. Each officer
shall hold office until his successor has been appointed and qualified or his
earlier death or resignation or removal in the manner hereinafter provided. The
Board may require any officer to give security for the faithful performance of
his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
SECTION 4.04. VACANCIES. Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. THE CHAIRMAN OF THE BOARD . The Chairman of the Board
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shall have the power to call special meetings of Stockholders, to call special
meetings of the Board and, if present, to preside at all meetings of
Stockholders and all meetings of the Board. The Chairman of the Board shall
perform all duties incident to the office of Chairman of the Board and all such
other duties as may from time to time be assigned to him by the Board or these
By-laws.
SECTION 4.06. THE CHIEF EXECUTIVE OFFICER . The Chief Executive Officer
shall have general and active management and control of the business and affairs
of the Corporation, subject to the control of the Board, and shall see that all
orders and resolutions of the Board are carried into effect. The Chief Executive
Officer shall perform all duties incident to the office of Chief Executive
Officer and all such other duties as may from time to time be assigned to him by
the Board or these By-laws.
SECTION 4.07. CHIEF OPERATING OFFICER . The Chief Operating Officer
shall be responsible for the day to day operations of the Corporation. The Chief
Operating Officer shall report to the Chief Executive Officer.
SECTION 4.08. THE PRESIDENT . The President shall have such duties as
may from time to time be assigned to him by the Board of Directors or these
By-laws.
SECTION 4.09. VICE PRESIDENTS . Vice Presidents, if any, in order of
their seniority or in any other order determined by the Board, shall generally
assist the Chief Executive Officer and perform such other duties as the Board or
the President shall prescribe, and in the absence or disability of the
President, shall perform the duties and exercise the powers of the President.
SECTION 4.10. THE SECRETARY . The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the President. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "TREASURER") or an Assistant Secretary or Assistant
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board, the Chairman or the President may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
SECTION 4.11. ASSISTANT SECRETARIES. Assistant Secretaries of the
Corporation ("ASSISTANT SECRETARIES"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties
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as the Board or the Secretary shall prescribe, and, in the absence or disability
of the Secretary, shall perform the duties and exercise the powers of the
Secretary.
SECTION 4.12. THE TREASURER. The Treasurer shall have the care and
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11. ASSISTANT TREASURERS. Assistant Treasurers of the
Corporation ("ASSISTANT TREASURERS"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
SECTION 4.12. COMPENSATION. The compensation of the officers of the
Corporation shall be fixed by the Board.
ARTICLE V
SHARES AND TRANSFERS OF SHARES
SECTION 5.01. CERTIFICATES EVIDENCING SHARES. Shares shall be evidenced
by certificates in such form or forms as shall be approved by the Board.
Certificates shall be issued in consecutive order and shall be numbered in the
order of their issue, and shall be signed by the Chairman, the President or any
Vice President and by the Secretary, any Assistant Secretary, the Treasurer or
any Assistant Treasurer. Any or all of the signatures on a Certificate may be a
facsimile. In the event any such officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to hold such
office or to be employed by the Corporation before such certificate is issued,
such certificate may be issued by the Corporation with the same effect as if
such officer had held such office on the date of issue.
SECTION 5.02. STOCK LEDGER. A stock ledger in one or more counterparts
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock
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ledger of the Corporation shall be deemed the owner and recordholder thereof for
all purposes.
SECTION 5.03. TRANSFERS OF SHARES. Registration of transfers of Shares
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 5.04. ADDRESSES OF STOCKHOLDERS. Each Stockholder shall
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
SECTION 5.05. LOST, DESTROYED AND MUTILATED CERTIFICATES. Each
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 5.06. REGULATIONS. The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 5.07. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjustment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
judgment of such meeting; PROVIDED, HOWEVER, that the Board may fix a new record
date for the adjourned meeting.
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ARTICLE VI
SEAL
SECTION 6.01. SEAL. The Board may approve and adopt a corporate seal,
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VII
FISCAL YEAR
SECTION 7.01. FISCAL YEAR. The fiscal year of the Corporation shall end
on the thirty-first day of December of each year unless changed by resolution of
the Board.
ARTICLE 8
VOTING OF SHARES IN OTHER CORPORATIONS
SECTION 8.01. VOTING OF SHARES IN OTHER CORPORATIONS. Shares in other
corporations which are held by the Corporation may be represented and voted by
the Chairman, President or a Vice President of the Corporation or by proxy or
proxies appointed by one of them. The Board may however, appoint some other
person to vote the shares.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01. INDEMNIFICATION. The Corporation shall indemnify, in the
manner and to the full extent permitted by law, any person (or the estate of any
person) who was or is a party to, or is threatened to be made a party to, any
threatened, pending or completed action, suit or proceeding, whether or not by
or in the right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise. Where required by law, the indemnification provided for herein
shall be made only as authorized in the specific case upon a determination, in
the manner provided by law, that indemnification of the director, officer,
employee or agent is proper in the circumstances. The Corporation may, to the
full extent permitted by law, purchase and maintain insurance on behalf of any
such person against any liability which may be asserted against such person. To
the full extent permitted by law, the indemnification provided herein shall
include expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement, and, in the manner provided by law, any such expenses shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding. The
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indemnification provided herein shall not be deemed to limit the right of the
Corporation to indemnify any other person for any such expenses to the full
extent permitted by law, nor shall it be deemed exclusive of any other rights to
which any person seeking indemnification from the Corporation may be entitled
under any agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office. Such indemnification shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
ARTICLE X
AMENDMENTS
SECTION 10.01. AMENDMENTS. Any By-law (including these
By-laws) may be adopted, amended or repealed by the vote of the recordholders of
a majority of the Shares then entitled to vote at an election of Directors or by
written consent of Stockholders pursuant to Section 2.09 hereof, or by vote of
the Board or by a written consent of Directors pursuant to Section 3.08 hereof,
provided no provision of these By-laws that requires greater than a majority
vote of the Board of Directors to accomplish an action may be amended (i)
without the same percentage vote by the Board of Directors or (ii) by the
holders of a majority of the Shares and provided further that Sections 3.06(e)
and 4.03 may only be amended by vote of (i) at least two-thirds of the members
of the Board of Directors or (ii) by the holders of a majority of the Shares.
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EXHIBIT A
(A) NOMINEES OF ANTHONY J. ROBBINS
Three persons to be designated by Anthony J. Robbins
(B) OTHER NOMINEES
1. Grant Gregory
2. Frederic D. Rosen
3. Charles D. Peebler
4. A fourth director to be selected by the Board of Directors of
the Company existing at the Closing
In the event that any of the preceding named persons shall fail to
agree to serve as a director of the Company within 30 days of the Closing, then
the Board of Directors of the Company existing at the Closing shall designate
replacement nominees to serve as directors of the Company.
(C) THE CHIEF EXECUTIVE OFFICER OF GHS
The person, if any, designated as the Chief Executive Officer of the
Company.
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* Confidential Treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
CONTENT PROVIDER AGREEMENT AND LICENSE
This AGREEMENT effective as of the 23rd day of April, 1999, by
and between Change Your Life.com, LLC ("Change Your Life"), a Delaware limited
liability company, with its principal offices at 704 Broadway, New York, NY
10003, Anthony J. Robbins, an individual resident in San Diego, California
("Robbins"), Robbins Research International Inc., a Nevada corporation, with its
principal offices at 9191 Town Center Drive, Suite 600, San Diego, California
92122 (Robbins and Robbins Research International Inc., collectively, the
"Robbins Group"). Change Your Life and the Robbins Group may hereinafter each be
referred to as a "Party" and collectively as the "Parties".
1. DEFINITIONS
1.1 "Content" means text, graphics, photographs, animation,
characters, illustrations, features, recordings, video, audio,
CD-ROMS, proprietary software packages, tools and systems, and/or
other data or information relating to any subject.
1.2 "CYL" means Change Your Life and any divisions, subsidiaries, and
successors thereto and any parent or affiliate thereof.
1.3 "Change Your Life Content" means (i) any Content developed, owned
or controlled by Change Your Life and (ii) any interactive
Content supplied to Change Your Life by the Robbins Group, other
than Robbins Group Property.
1.4 "Change Your Life Site Channel" means a generic area within the
Change Your Life Site that is targeted to a specific subject
matter (such as career, relationships, etc.) but excludes those
features or areas that do not relate to one particular subject
matter (i.e. shopping, chat and community).
1.5 "CYL Network" means all channels, programming, products, services
and ventures featured on the Change Your Life Site as well as
other channels, programming, products and ventures whether or not
appearing on the Change Your Life Site, such as co-branded,
syndicated, private label and joint venture and partnership
offerings and endeavors, in which CYL has input or an economic
interest.
1.6 "Change Your Life Site" means the Internet sites or areas
developed, supported, sponsored, owned or controlled by Change
Your Life whether for business or consumer applications.
1.7 "Enhancement Development Cost" means direct, out-of-pocket cash
development costs (excluding any general and administrative costs
and other overhead items) expended by the Robbins Group to
develop an Enhancement.
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1.8 "Fixed Icon" means a branded button that is placed in a fixed
position on the home page of a Change Your Life Site Channel and
links directly to the Robbins Group/Change Your Life Site.
1.9 "Impression" means user exposure to a page on the Change Your
Life Site.
1.10 "Intellectual Property Rights" means all inventions, discoveries,
trademarks, patents, domain names, URLs, trade names, copyrights,
moral rights, jingles, know-how, intellectual property, software,
shop rights, licenses, developments, research data, designs,
technology, trade secrets, test procedures, processes, route
lists, customer lists (subject to the limitations set forth in
Exhibit B hereto), computer programs, computer discs, computer
tapes, literature, reports and other confidential information,
intellectual and similar intangible property rights, whether or
not patentable or copyrightable (or otherwise subject to legally
enforceable restrictions or protections against unauthorized
third party usage), and any and all applications for,
registrations of and extensions, divisions, renewals and
reissuance of, any of the foregoing, and rights therein,
including without limitation (a) rights under any royalty or
licensing agreements, and (b) programming and programming rights,
on any distribution medium (i.e. audio, video, film, digital).
1.11 "Internet" means any network of interconnected computer networks,
using the Transmission Control Protocol/Internet Protocol and/or
such other standard network interconnection protocols as may be
adopted from time to time, which is used to transmit Content that
is directly or indirectly delivered to a computer or other
digital electronic device for display to an end-user, whether
such Content is delivered through on-line browsers, off-line
browsers, or through "push" technology, electronic mail,
broadband distribution, satellite, wireless or otherwise, and any
subset of such network, such as "intranets."
1.12 "Internet Site" means any site or service delivering Content on
or through the Internet, world-wide web, corporate intranets,
private data networks or proprietary on-line service, including,
without limitation, America Online, Compuserve, Prodigy and the
Microsoft Network.
1.13 "Person" means any natural person, legal entity, or other
organized group of persons or entities. (All pronouns whether
personal or impersonal, which refer to a Person include natural
persons and other Persons.)
1.14 "Robbins Group Core Business" means in-person seminars,
television infomercials, one-on-one human coaching, printed books
and audio and video tapes, marketed, distributed or supplied by
the Robbins Group, other than on or through the Internet.
1.15 "Robbins Group/Change Your Life Content" means new Content (i)
created jointly by Change Your Life and the Robbins Group or
their representatives, (ii) created by Change Your Life based on
or derived from Robbins Group Content or (iii) any Enhancement
for which the Enhancement Development Cost has been recouped as
set forth in Section 2.4.
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1.16 "Robbins Group Content" means any existing or future non-Internet
Content (i.e. Content that is not distributed on or through or
utilizes the Internet) that is owned by the Robbins Group and
relates to, among other things, the Robbins Group Core Business.
1.17 "Robbins Group/Change Your Life Site" is defined in Section 2.1
hereof.
1.18 "Robbins Group Products" means all existing and future Robbins
Group-branded, affiliated and sourced products, including books,
audio and video tapes and other merchandise, but shall exclude
off-line coaching services that are not marketed, serviced or
supported through the Internet.
1.19 "Robbins Group Marks" means the existing trademarks and service
marks of the Robbins Group set forth on Exhibit E hereto, as from
time to time amended so as to include all future trademarks and
service marks, to the extent that the Robbins Group has an
interest therein.
1.20 "Robbins Group Property" is defined in Section 9.1(a) hereof.
1.21 "Robbins Group Content Deliverables" is defined in Exhibit A
hereof.
2. DISTRIBUTION; PROGRAMMING
2.1 ROBBINS GROUP/CHANGE YOUR LIFE SITE. The Robbins Group shall have a
co-branded area on the Change Your Life Site (the "Robbins Group/Change Your
Life Site"). In addition, the Robbins Group will receive a Fixed Icon within
one-half of up to six Change Your Life Site Channels, i.e. no more than three
Fixed Icons. In the event of an odd number of channels (up to and including five
channels), the number of channels for the purpose of calculating the number of
Fixed Icons for the Robbins Group shall be rounded up to the next even number,
i.e. one shall become two, three shall become four and five shall become six. If
there are more than six Change Your Life Site Channels, the Robbins Group and
Change Your Life shall mutually agree on the number of additional Fixed Icons to
be provided to the Robbins Group within the additional Change Your Life Site
Channels, which shall in any event result in Fixed Icons in at least one-third
of such additional Change Your Life Site Channels. The Robbins Group will be
listed as a resource on those Change Your Life Site Channels in which the
Robbins Group does not have a Fixed Icon.
2.2 CONTENT. Subject to the terms of this Agreement, CYL shall have the
right to integrate, use and develop existing or future Robbins Group Content and
Robbins Group/Change Your Life Content anywhere on the CYL Network as further
described in Section 3 hereof. The Robbins Group/Change Your Life Site shall
consist of (i) Robbins Group Content and any other Content licensed, sublicensed
and/or published by the Robbins Group in connection with its products, services
or publications including, without limitation, elements described on EXHIBIT A
hereto, (ii) Robbins Group/Change Your Life Content, (iii) Change Your Life
Content and any other Content licensed, sublicensed and/or published by CYL in
connection with its products, services or publications and (iv) other elements
as mutually agreed by CYL and the Robbins Group. The Robbins Group shall not
authorize or permit any third party (including but not
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limited to affiliates, unaffiliated parties, strategic partners, joint venture
partners and others) to distribute any Content on the CYL Network without CYL's
prior written approval.
2.3 DEDICATED EMPLOYEES. Change Your Life will dedicate a team of at
least [*] individuals whose primary responsibility will be the development and
maintenance of the (i) Robbins Group Content on the CYL Network and (ii) Robbins
Group/Change Your Life Content (the "Robbins Team"). Such individuals will be
employed by and subject to the management control of Change Your Life; PROVIDED,
HOWEVER, that Robbins will have the right to approve the selection of the
General Manager of the Robbins Team. All other personnel and resources to be
dedicated to any Robbins Group project will be determined in accordance with and
subject to Change Your Life's periodic personnel and budgeting process.
2.4 ROBBINS GROUP ENHANCEMENTS. (a) If the Robbins Group proposes that
Change Your Life develop an Internet-based product offering that was not
previously agreed to by the Parties (an "Enhancement Product") and Change Your
Life determines not to commit development dollars to such Enhancement Product
(an "Enhancement"), then the Robbins Group may develop such Enhancement
utilizing its own funding and resources; PROVIDED, HOWEVER, such Enhancement (i)
shall conform to all uniformity and technical requirements of Change Your Life,
including, without limitation, look, feel and functionality, (ii) shall not be
available outside the CYL Network, (iii) shall not cause or result in a material
adverse effect on CYL and (iv) shall not be developed within six months of the
launch of the CYL Network. [*] Change Your Life may incur and shall charge the
Robbins Group for certain costs associated with an Enhancement (if applicable),
including, without limitation, cost of (a) integrating of such Enhancement in
the Robbins Group/Change Your Life Site, (b) servicing, sales commissions and
tracking of advertising or sponsorship associated with such Enhancement, (c)
transaction processing associated with such Enhancement and (d) any revenue
sharing arrangements with marketing and distribution partners of CYL ("Change
Your Life Enhancement Costs"). CYL will charge the Robbins Group for Change Your
Life Enhancements Costs based on its then current actual costs.
(b) [*]
[*]
(c) Each Enhancement shall comply with the following terms:
(i) no Enhancement may reside outside the domain of
the Change Your Life Site or on any server outside the
CYL Network;
(ii) before an Enhancement may be implemented, Change
Your Life must be provided with adequate time in its
reasonable discretion to review fully and approve in
its reasonable discretion all technology, Look, Feel
and Functionality (subject to Robbins' rights set
forth in Section 3.4 hereof) and production plans and
designs;
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(iii) Change Your Life shall have the right in its
reasonable discretion to approve arrangements for the
development, production, merchandising and sponsorship
for the Enhancement; and
(iv) users of the Enhancement shall not be required
to go through a registration process (or any similar
process) to access and use the Enhancement.
2.5 CHANGE YOUR LIFE SITE. Subject to the terms of this Agreement,
Change Your Life shall have the following rights. Change Your Life shall have
the sole and exclusive right to determine all Change Your Life Content and other
elements that will be displayed on the Change Your Life Site. Change Your Life
shall have the sole and exclusive right to redesign or modify the organization,
structure, look, feel and functionality, navigation and other elements of the
Change Your Life Site. If Change Your Life implements such redesign or
modifications to the Change Your Life Site in a manner that substantially
modifies the placement of the Fixed Icons, then Change Your Life will work with
the Robbins Group in good faith to assure that any new placement of the Fixed
Icons is reasonably satisfactory to the Robbins Group.
2.6 RIGHT TO CONFORM TO INTERNATIONAL LOCAL MARKETS. Change Your Life
shall have the right to conform, and the Robbins Group shall assist Change Your
Life in conforming, the Robbins Group Content for markets outside the United
States, including translating the Robbins Group Content into languages other
than English and making any other stylistic changes to the Robbins Group Content
to conform it to a local market.
2.7 CHANGE YOUR LIFE LOOK, FEEL AND FUNCTIONALITY. The Robbins Group
acknowledges and agrees that Change Your Life shall own all right, title and
interest in and to the distinctive and particular elements of graphics, design,
organization, presentation, layout, user interface, navigation, links, trade
dress and stylistic convention (including the digital implementations thereof)
within the Change Your Life Site, and the total appearance and impression
substantially formed by the combination, coordination and interaction of these
elements and any copyrights or other Intellectual Property Rights therein (the
"Look, Feel and Functionality"). Change Your Life shall have editorial control
over: (1) the Change Your Life Site (other than the Robbins Group/Change Your
Life Site), (2) the portions of the Change Your Life Sites that frame the
Robbins Group/Change Your Life Site (the "Change Your Life Site Frames") and (3)
the main screen for the Change Your Life Site. Change Your Life may, in its sole
discretion, incorporate navigational icons, links and pointers or other Content
into such Change Your Life Site Frames.
2.8 OTHER SITES. The Robbins Group agrees and acknowledges that certain
third-party Content providers now or in the future associated with the Change
Your Life Site will have expended or may expend varying efforts and amounts of
money to independently develop their Content, and therefore the Robbins
Group/Change Your Life Site may look and feel substantially different from the
sites developed by other Content providers on the Change Your Life Site.
2.9 FULFILLMENT. The Robbins Group will sell or arrange for the sale of
Robbins Group Products (other than seminars and off-line one-on-one human
coaching services) to Change Your
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Life at the Robbins Group's cost for such Robbins Group Products. The Robbins
Group will also make available to Change Your Life those discounts or other
concessions on Robbins Group Products that it makes available to other third
parties or to which the Robbins Group may be entitled. The Robbins Group will
permit Change Your Life to offer any promotional pricing, discount or price
reduction that may be offered by any other distribution channel for Robbins
Group Products. The Robbins Group will also permit CYL to sell its live
seminars, live events attendance and off-line one-on-one person-to-person,
real-time coaching services. The Parties acknowledge that in connection with
providing such off-line, one-on-one, person-to-person, real-time, coaching
services, the coaching participants may use the Internet to share
non-interactive documents relating to the coaching in which case Change Your
Life will receive a fee, subject to the last clause of this sentence, equal to
[*] of the fee received by the Robbins Group from such coaching call but in no
event shall the fee to Change Your Life be less than [*] per call, unless the
costs of such document sharing to Change Your Life are in excess of such
amounts, in which case a higher fee to be agreed by the Parties will be
established to adequately compensate Change Your Life for its additional costs
for its services. To the extent any such coaching has been sold on-line, then
Change Your Life shall be entitled to the revenues from such sale as specified
in Exhibit B hereto.
2.10 INTERNET EVENTS. Robbins will conduct on-line chats of at least
one hour duration on the Change Your Life Site at the following levels:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
<S> <C>
YEARS NUMBER OF CHATS
- - --------------------------------------------------------------------------------
in years 1-5 at least [*] per year
- - --------------------------------------------------------------------------------
in years 6-10 at least [*] per year
- - --------------------------------------------------------------------------------
thereafter such numbers as are mutually agreed
by Change Your Life and Robbins
- - --------------------------------------------------------------------------------
</TABLE>
Change Your Life and Robbins will co-ordinate with each other to establish a
mutually agreeable schedule for the above on-line chats in advance of each
quarter during the term of this commitment, provided that changes for marketing
and other purposes may be necessary and the parties will use their best efforts
to accommodate such changes as they arise. To the extent Robbins is unavailable
at any time due to death, disability or legal restriction to provide the on-line
chats outlined above, the Robbins Group will assist, if requested by Change Your
Life, with the process of obtaining a replacement spokesperson acceptable to
Change Your Life, but in no event will the failure of Robbins to complete the
on-line chats for the reasons specified above be deemed to be a breach of this
Agreement by Robbins or the Robbins Group.
2.11 OTHER EXPERTS. The Robbins Group will use its best efforts to
attract other key Content providers as Content providers for the CYL Network.
2.12 ADVERTISING. The Robbins Group will collaborate with, make
introductions and provide other reasonable assistance to facilitate sponsorship
and advertising sales for the CYL Network from the Robbins Group's existing and
future corporate relationships and clients.
2.13 INFORMATION/INVESTOR RELATIONS. The Robbins Group will cooperate
with and supply to CYL all materials and information reasonably requested by CYL
for regulatory compliance and required disclosures, in each case as required
under applicable law or by CYL's
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other contractual arrangements. In addition, Robbins will dedicate reasonable
time and energy to promote CYL to the investment community, including, without
limitation, attendance at meetings and participation on teleconferences with
brokerage firms, analysts and significant investors.
2.14 GUTHY-RENKER. The Robbins Group will facilitate the negotiation
and execution of an agreement between CYL and Guthy-Renker (or any successor
thereto) for, among other things, the right to broadcast over the CYL Network
excerpts from infomercials that promote Robbins Group Products. This assistance
from the Robbins Group shall not require it to undertake any actions that would
be detrimental, in the reasonable judgment of the Robbins Group, to its share of
revenues from Guthy-Renker.
2.15 COACHING. If Change Your Life offers for sale person-to-person,
coaching services on the Change Your Life Site, the Robbins Group will be the
exclusive provider of such coaching services. Robbins will have approval over
the coaching services sold by the Change Your Life Site and will work with
Change Your Life to develop the appropriate types of coaching services.
Notwithstanding the foregoing, the Robbins Group exclusivity with regard to
coaching services is subject to the following provisions: (1) there will be
various pricing options, each option offering a relative value; (2) more than
one type of approach to coaching may be offered including coaching services
either offered by or branded under a name different that one related to the
Robbins Group; and (3) there may be private label versions of the coaching
services. Subject to Section 7 and Exhibit B attached hereto, Change Your Life
and the Robbins Group will share revenue associated with such coaching services.
Nothing contained in this Section 2.15 shall be deemed to restrict the Robbins
Group from providing offline one-on-one human coaching. However, if the Robbins
Group is no longer actively engaged in providing coaching services or Robbins,
individually, is no longer directing the Robbins Group coaching services, then
the Robbins Group shall no longer be the exclusive provider of coaching services
for Change Your Life.
3. LICENSE
3.1 EXCLUSIVE GRANT. The Robbins Group grants to CYL, during the term
of this Agreement and subject to the terms and conditions contained herein and
the rights of third parties (if any), the exclusive, worldwide right and license
on the Internet:
(a) to use, copy, publicly display, edit, revise, amend, modify,
extend, perform, distribute or otherwise make available Robbins Group Content on
the CYL Network;
(b) to permit users of the CYL Network to view, access, retrieve,
copy and print any Robbins Group Content distributed thereon;
(c) to use the Robbins Marks, the likeness of Robbins and the
Robbins Group Content and in connection with advertising, promotion and
operation of the CYL Network; and
(d) to advertise, promote, utilize as Content and sell Robbins
Group Products on the Internet (provided that the exclusivity with respect to
this Section 3.1(d) is subject to Section 9.3).
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3.2 SOLE INTERNET DISTRIBUTION. Subject to Section 9.3, the Robbins
Group/Change Your Life Site will be the Robbins Group's sole authorized Internet
Site or presence, and the Robbins Group will not maintain any other Internet
Site or presence. The Robbins Group will incorporate the contents of its
existing website(s) into the Robbins Group/Change Your Life Site and shall not,
during the term of this Agreement, sponsor, support or maintain any other
website.
3.3 ROBBINS GROUP CONTENT. (a) CYL shall have access to and the Robbins
Group shall deliver, at times reasonably requested by CYL, all Robbins Group
Content. Notwithstanding the foregoing, Robbins shall have approval and control
over Robbins Group Content and shall have the right to refuse to deliver to CYL
specific Robbins Group Content if, in Robbins' judgment, the Robbins Group
Content or the use contemplated by CYL, conflicts with, interferes with or is
detrimental to Robbins's interests, reputation or business or might subject
Robbins to unfavorable regulatory action, violate any law, infringe the rights
of any person, or subject Robbins to liability for any reason; provided that a
refusal by the Robbins Group to deliver certain Robbins Group Content shall not
diminish its obligation to provide Content generally hereunder.
(b) The Robbins Group will assist Change Your Life in developing and producing
new Content, services and utilities that will be updated on an ongoing basis.
The Robbins Group will collaborate with Change Your Life in the development and
production of the Change Your Life member experience. For those Change Your Life
Site Channels in which the Robbins Group has a Fixed Icon, the Robbins Group
will:
(i) collaborate in the process of developing core
tools and resources;
(ii) provide text and proprietary artwork and images;
(iii) provide a complete list of appropriate products
and services to be offered by Change Your Life in such
Change Your Life Site Channels;
(iv) provide answers to questions from members of
Change Your Life;
(v) actively participate in the development of
educational programs to be offered in such Change Your
Life Site Channels; and
(vi) train and provide qualified personnel (to be
compensated by Change Your Life) for message boards
and chat services.
3.4 OPERATION OF ROBBINS GROUP/CHANGE YOUR LIFE SITE. (a) During the
term of this Agreement and subject to the then applicable uniformity
requirements of Change Your Life including, without limitation, Look, Feel and
Functionality, Robbins, individually and not through intermediaries, shall have
the right to approve and create the Content and the look and feel on the Robbins
Group/Change Your Life Site and to have it displayed on the Robbins Group/Change
Your Life Site, provided however, that CYL shall not be obligated to place any
Content on the Robbins Group/Change Your Life Site that (i) does not meet Change
Your Life's
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technical requirements, (ii) is outside of the personal and professional
improvement category, (iii) would result in a violation of any applicable
governmental law, rule or regulation or any other terms of this Agreement, or
conflict with any third party rights, (iv) is morally offensive, (v) violates or
conflicts with any applicable restrictions or limitations placed on CYL by its
third party promotional and marketing partners or (vi) would result in a
material adverse effect on CYL. In the event that Robbins is no longer actively
involved in the Robbins Group's businesses, the Robbins Group shall have the
right to designate one person who shall succeed Robbins with respect to the
rights set forth in the prior sentence, provided such person has final
decision-making authority on all such decisions.
(b) Change Your Life shall provide the Robbins Group with those
data and systems services that may be reasonably required for the maintenance of
the Robbins Group/Change Your Life Content and the Robbins Group/Change Your
Life Site.
(c) Subject to the terms and provisions of this Agreement, Change
Your Life shall have sole authority over budgeting and operational issues
affecting the Change Your Life Site and the Robbins Group/Change Your Life Site.
4. PROMOTION
4.1 COOPERATION. Each Party shall cooperate with and reasonably assist
the other Party in supplying all necessary materials for marketing and
promotional activities of Change Your Life. The Robbins Group will assist Change
Your Life in (i) securing appropriate advertisers and sponsors for the Change
Your Life Site and (ii) developing sponsor-funded programs for the Change Your
Life Site and the Robbins Group/Change Your Life Site.
4.2 PROMOTION OF CYL BY THE ROBBINS GROUP. The Robbins Group agrees to
use its reasonable efforts to promote Change Your Life, including but not
limited to promotion of the affiliation between the Robbins Group and Change
Your Life. Further, the Robbins Group will and will use its reasonable efforts
to cause third-party distribution partners of the Robbins Group to:
(a) feature the URL for the Change Your Life Site
and any keywords or locators for any Change Your Life
interactive marketing and distribution partners in all
existing and future books, tapes, off-line class and
seminar materials and any and all other printed
materials (including the promotional materials used by
the Robbins Group to promote the Robbins Group Core
Business);
(b) mention and/or display the Robbins Group/Change
Your Life Site and its relationship with Change Your
Life in all applicable television, print, and radio
appearances or interviews; and
(c) include Change Your Life-branded Internet access
software (or that of a CYL distribution/media
partner), with Robbins Group books, recorded audio
content and off-line seminar and appearance materials.
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The undertaking in this Section 4.2 with respect to third-party distribution
partners shall not require the Robbins Group to undertake any actions that would
be detrimental, in its reasonable judgment, to its share of revenues from such
distribution partners or breach any of its contractual obligations. In such
promotions, Change Your Life shall have the right to control the manner in which
the Change Your Life logo is displayed and the Change Your Life Site described.
4.3 QUALITY CONTROL AND APPROVALS. (a) The Robbins Group will provide
camera-ready specimens of the Robbins Marks and the likeness of Robbins for use
by CYL as specified in Section 3.1. In the event that CYL utilizes the Robbins
Marks or the likeness of Robbins to advertise or promote the CYL Network (the
"CYL Promotional Materials") without including any other third party Content
provider on such advertisement or promotion, then CYL will provide the Robbins
Group with an example of such CYL Promotional Materials for prior approval by
the Robbins Group. If the Robbins Group does not respond within 5 days of
delivery of such CYL Promotional Materials then the Robbins Group will be deemed
to have approved such CYL Promotional Materials. If such CYL Promotional
Materials also feature other Content providers of the CYL Network, no approval
shall be necessary, however, the Robbins Group may request the removal of any
Robbins Marks or likeness of Robbins as soon as commercially practicable if in
the Robbins Group's reasonable judgment, the use thereof does not comply with
the terms and provisions of this Section 4.3.
(b) CYL recognizes and understands the importance of the exercise of
control by the Robbins Group over the quality of the services provided by CYL
using the Robbins Marks. CYL agrees that the services provided by CYL under the
Robbins Marks will be of a quality standard reasonably acceptable to the Robbins
Group and further agrees to respond to any reasonable objections by the Robbins
Group in this regard; PROVIDED, HOWEVER, that use of the Robbins Marks in
connection with services of a quality at least equal to that of CYL's services
generally shall be deemed to be compliance by CYL of all quality control
obligations hereunder.
4.4 PROMOTION OF THE ROBBINS GROUP BY CHANGE YOUR LIFE. Change Your
Life agrees to use its reasonable efforts to promote the Robbins Group,
including promoting the Robbins Group's affiliation with Change Your Life.
Change Your Life shall also commit in the first ten years of the operation of
the Change Your Life Site to reserve a pool equal to approximately [*] of the
total Impressions received by the Change Your Life Site each quarter during the
following quarter (the "Impressions Pool") to be directed exclusively to the
Change Your Life Site experts. The Robbins Group will be prominently featured
and receive that share of the Impressions Pool that is granted to the expert
tier level in which the Robbins Group is placed by Change Your Life which,
during the term of this Agreement, shall be in the highest tier available for
any expert of Change Your Life.
4.5 JOINT PRESS RELEASE. On a date to be determined by Change Your
Life, Change Your Life and the Robbins Group shall jointly issue one or more
press releases regarding the Robbins Group affiliation with Change Your Life and
the availability of the Robbins Group Content through the CYL Network. Any
additional press releases by either Change Your Life or the Robbins Group that
contain information that is in addition to (a) a description or reference to the
arrangements between Change Your Life and the Robbins Group, such as a list of
Change Your Life experts and a description of their website features and tools
on the CYL Network, (b) previously approved standard disclosures and tag lines
of the other party or (c) previously
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released and mutually approved CYL Promotional Materials, shall require the
prior approval of the other Party hereto. The Parties agree that any release
that includes Robbins shall identify him as Chairman and a founder of CYL.
4.6 USE OF LOGO AND/OR TAG LINE. The Robbins Group shall provide CYL
with its logo and/or tag line, if any, in an electronic form and hereby grants
CYL the right to use such logo and/or tagline in accordance with the terms of
this Agreement. In the event that the Robbins Group's logo and/or tag line is
modified, the Robbins Group shall provide CYL with 30 business days advance
written notice, including such modified logo and/or tag line and CYL shall have
30 business days to incorporate such modified logo and/or tag line into their
programming.
4.7 RESPONSE TO QUESTIONS/COMMENTS, CUSTOMER SERVICE. The Robbins Group
shall use its best efforts to respond promptly and professionally to questions,
comments, complaints and other reasonable requests regarding the Robbins
Group/Change Your Life Site by CYL users and shall cooperate with and provide
answers to commonly asked questions regarding the Robbins Group to Change Your
Life in order to assist Change Your Life in promptly answering the same. Change
Your Life shall co-operate with and provide answers to commonly asked questions
regarding Change Your Life to the Robbins Group in order to assist the Robbins
Group in promptly answering the same.
4.8 STATEMENTS TO THIRD PARTIES. Neither Party shall make, publish, or
otherwise communicate or cause to be made, published or otherwise communicated,
any deleterious remarks whatsoever to any third parties concerning the other
Party or its affiliates, directors, officers, employees or agents, including,
without limitation, the other Party's business projects, business capabilities,
performance of duties and services or financial position.
4.9 LIMITATION OF PROMOTION. Subject to the terms of Section 9.3(b),
the Robbins Group will not promote any other Internet Site or Internet product
or service without the prior written consent of Change Your Life.
5. TERM
5.1 DURATION. Subject to this Section 5, this Agreement and the
licenses granted hereunder shall be perpetual. The Agreement may, however, be
terminated or its term abbreviated in accordance with the terms and conditions
of Section 5.2 hereof.
5.2 FINANCIAL TESTS. Within 90 days of the tenth anniversary of the
date of the launch of the Change Your Life Site (the "Tenth Anniversary Date"),
Change Your Life and the Robbins Group will determine if the following two tests
have been met:
(a) Change Your Life has been able to secure in the aggregate
equity, debt or commercial credit financing coupled with cumulative (measured
from the fiscal year in which Change Your Life achieves at least break even cash
flow) positive, free cash flow in an amount of at least [*] in the ten year
period beginning on the date of this Agreement; and
(b) Change Your Life has at least [*] in working capital, measured
on the basis of the average of the working capital amounts at the end of the
last four fiscal quarters ending prior to the Tenth Anniversary Date.
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If the conditions in (a) and (b) above have been determined not to
have been met, then either Party may notify the other within 30 days thereof
that it will not thereafter continue with the Agreement. If no such notice is
given, then the Agreement will continue.
5.3 POSSIBLE REDUCTION IN TERM. Beginning with the eleventh year
following the launch of the Change Your Life Site, Change Your Life will commit
to certain amounts of annual promotions for Robbins, the Robbins Group/Change
Your Life Site and Robbins Group Products (taken together). These promotions
will be reviewed beginning at the end of the eleventh year following the launch
of the Change Your Life Site and on each anniversary thereafter (each an "Option
Year") to determine if the following conditions have been met:
(a) Change Your Life has devoted in the equivalent period specified
below off-line marketing dollars to Robbins, the Robbins Group/Change Your Life
Site and Robbins Group Products (taken together) in an amount at least equal to
the highest amount spent on any other single expert, calculated on the basis of
the higher amount spent in the following two periods: (i) the last fiscal year
and (ii) an average of the prior ten fiscal years (based on the highest amount
spent on any other single expert in each of the prior years);
(b) On-line promotion in the equivalent period specified below of
Robbins, the Robbins Group/Change Your Life Site and Robbins Group Products
(taken together) has been in an amount and of a value at least equal to the
amount and value provided to the expert adviser featured on the Change Your Life
Site to whom CYL has provided the highest on-line promotion in the equivalent
period, taking into account, in determining value, positioning, size, time of
day and other features, calculated on the basis of the higher amount and value
provided in the following two periods: (i) the last fiscal year or (ii) an
average of the prior ten fiscal years (based on the average of the amounts and
value of on-line promotions for the expert with the highest amounts spent in
each of the prior years);
If the conditions in either (a) or (b) above have not been met in each
respective Option Year, then Change Your Life shall have a period of three
months, unless CYL and the Robbins Group agree in writing to a longer period, to
cure any deficiency. If Change Your Life does not do so within said period,
either Party may notify the other within 30 days of the end of such three month
period that it will not thereafter continue with the Agreement. If no such
notice is given, then the Agreement shall continue.
5.4 TERMINATION EVENTS. (a) In the event of a breach of a material term
of (x) this Agreement by Change Your Life or the Robbins Group (y) of Sections
3.3 and 8.5 of the Contribution and Exchange Agreement by and among Change Your
Life, GHS, Inc. and certain of the stockholders of GHS, Inc. or (z) of the
obligations of GHS, Inc. to Robbins under that certain letter agreement dated
April 23, 1999 regarding reimbursement of expenses, the non-breaching party may
terminate this Agreement provided that it has given the breaching party written
notice of such breach and the breaching party has not within the 45 business
days of the receipt of such notice, corrected such breach if it is capable of
correction, provided however, that if the breaching party believes the breach is
incapable of being cured, said question shall be referred to arbitration under
the terms of Section 13.5. In the event the arbitration concludes that the
breach was curable but was not cured, then the Agreement shall terminate upon
such finding
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and the breaching party may be found liable for damages in the arbitration. If,
however, the arbitration finds that the breach was not capable of being cured,
then damages may be assessed against the breaching party, but the Agreement will
not terminate unless the same breach occurs again, in which case,
notwithstanding the fact that the subsequent breach is incapable of being cured,
the Agreement will terminate.
(b) The Robbins Group shall have the right to terminate this
Agreement upon providing written notice to Change Your Life if Change Your Life:
(i) becomes insolvent or unable to pay its debts as they mature or makes an
assignment for the benefit of its creditors; (ii) is the subject of a voluntary
petition in bankruptcy or any voluntary proceeding relating to insolvency,
receivership, liquidation, or composition for the benefit of creditors, if such
petition or proceeding is not dismissed within sixty (60) days of filing; (iii)
becomes the subject of any involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing; or (iv) is liquidated or dissolved.
5.5 RIGHTS UPON TERMINATION OF AGREEMENT. In the event that this
Agreement is terminated in accordance with the terms hereof and no other
agreement is reached by the parties hereto, CYL shall cease all use of the
Robbins Group Marks as provided in Section 6.3 below. Notwithstanding the
foregoing, CYL shall be permitted to continue to use and modify the Content
derived from the Robbins Group Content in connection with the operation of the
CYL Network provided that they are in the form used on or before the termination
date and do not include the Robbins Group Marks and any non-interactive Robbins
Group Content shall be returned to the Robbins Group upon its request. In the
event that the Robbins Group Content from which the Content described above is
derived was copyrighted by the Robbins Group, then CYL shall pay the royalty set
forth on Exhibit B for its continued use following termination of this
Agreement.
6. TRADEMARKS
6.1 DELIVERY. (a) Each Party acknowledges that the Robbins Group Marks
are trademarks exclusively owned or controlled by the Robbins Group and that all
uses by CYL of such Robbins Group Marks shall inure to the Robbins Group
benefit.
(b) In the event that during the term of this Agreement CYL shall
create any proprietary right in any Robbins Group Marks, as a result of the
exercise by CYL of any right granted to it hereunder, such proprietary right
shall immediately vest in the Robbins Group and CYL shall be authorized to use
for no additional consideration such new proprietary right as though the same
had specifically been included in this Agreement.
6.2 APPLICATIONS. Change Your Life shall not file any application in
any country to register a trademark that contains "Robbins " or any other
trademark that is the same as, similar to, or misleading with respect to the
Robbins Group Marks. If any application for registration is filed in any country
by Change Your Life in contravention of this Section 6.2, the Robbins Group
shall have the right to take appropriate action against Change Your Life,
including seeking injunctive relief, to prohibit or otherwise restrain Change
Your Life from using such trademark. The Robbins Group shall not file any
application in any country to register a
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trademark that contains "Change Your Life" or any other trademark which is the
same as, similar to, or misleading with respect to CYL or its marks. If any
application for registration is filed in any country by the Robbins Group in
contravention of this Section 6.2, Change Your Life shall have the right to take
appropriate action against the Robbins Group, including seeking injunctive
relief, to prohibit or otherwise restrain the Robbins Group's use of such
trademark.
6.3 TERMINATION. Upon termination of this Agreement, CYL shall cease
all use of the Robbins Group Marks, as soon as commercially and technically
practicable but in no event longer than 90 business days from the date of
termination.
7. COMPENSATION
7.1 REVENUE SHARING. Change Your Life and the Robbins Group shall share
in revenues attributable to the Robbins Group Content, Robbins Group/Change Your
Life Content and/or Robbins Group Products as described in EXHIBIT B attached
hereto.
7.2 PAYMENT. Except as otherwise specified herein, each Party agrees to
pay the other Party all amounts received and payable to the other Party under
this Agreement, less a reserve for returns of 15% and bad debts, on a quarterly
basis within 45 days of the end of the calendar quarter in which such amounts
were collected by such Party and recognized as revenues in accordance with
generally accepted accounting principles.
7.3 CURRENCY, INTEREST AND TAXES. Each Party shall be responsible for
all applicable national, state and local taxes, value added or sales taxes,
exchange, interest, banking, collection and other charges and levies and
assessments pertaining to payments received by such Party other than U.S. taxes
based on the other Party's net income. If either Party is required by law to
make any deduction or to withhold from any sum payable to the other Party
hereunder, such Party shall effect such deduction or withholding, remit such
amounts to the appropriate taxing authorities and promptly furnish the other
Party with tax receipts evidencing the payments of such amounts.
8. ACCOUNTINGS
8.1 PERIODIC REPORTS. (a) Change Your Life will compute and report
revenues and usage data for the Robbins Group/Change Your Life Site and the
Robbins Group/Change Your Life Content ("Quarterly Reports") on a calendar
quarter basis for the prior quarterly period. Change Your Life shall provide
the Robbins Group with each Quarterly Report and payment (as described in
Section 7.2) within forty-five days after the calendar quarterly period to
which such Quarterly Report pertains. Acceptance by the Robbins Group of any
Quarterly Report or payment shall not preclude the Robbins Group from
challenging the accuracy thereof.
(b) The Robbins Group will compute and report revenues and usage
data for each Enhancement ("Enhancement Reports") on a calendar quarter basis
for the prior quarterly period. The Robbins Group shall provide Change Your Life
with each Enhancement Report and payment (as described in Sections 2.4 and 7.2)
within forty-five days after the calendar quarterly period to which such
Enhancement Report pertains. Acceptance by Change Your Life of any Enhancement
Report or payment shall not preclude Change Your Life from challenging the
accuracy thereof.
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8.2 MAINTENANCE OF RECORDS; EXAMINATION. Change Your Life will maintain
accurate books and records with respect to its business. The Robbins Group may,
at its own expense, examine and copy those books and records that pertain to the
Quarterly Report, as provided in this Section 8.2. The Robbins Group may must
examine a particular statement within 3 years after the date when Change Your
Life sends the respective Quarterly Report. Change Your Life will be deemed
conclusively to have sent the Robbins Group the statement concerned on the date
prescribed in Section 8.1. The Robbins Group may make such examinations only
during Change Your Life's usual business hours and at the place where Change
Your Life keeps its books and records. Such books and records shall be kept at
the Change Your Life office in New York, New York, unless otherwise notified.
The Robbins Group will be required to notify Change Your Life at least ten
business days before the date of planned examination. If the Robbins Group's
examination has not been completed within two months from the time the Robbins
Group begins such examination, Change Your Life may require the Robbins Group to
terminate such examination on seven days notice to the Robbins Group at any
time, provided that Change Your Life has reasonably cooperated with the Robbins
Group in the examination of such books and records. In the event that an
examination conducted pursuant to the terms of this Section 8.2 results in a
change in the amounts owing to the Robbins Group by Change Your Life of more
than ten percent (10%) of the total amount reported, then Change Your Life shall
pay both its and the Robbins Group's expenses of such examination.
9. RIGHTS
9.1 OWNERSHIP. (a) As between the Robbins Group and CYL, the Robbins
Group shall be the exclusive owner of and shall have all right, title and
interest in and to the Robbins Group Content and the Robbins Group Marks,
including all Intellectual Property Rights therein, but excluding the Change
Your Life Content and the Robbins Group/Change Your Life Content (the "Robbins
Group Property").
(b) Change Your Life shall be the exclusive owner of and shall have
all right, title and interest in and to the Change Your Life Content or any
Content derived therefrom, the Robbins Group/Change Your Life Content or any
Content derived therefrom, the Change Your Life Site, all trademarks of Change
Your Life, and all Intellectual Property Rights contained in each of the above,
excluding the Robbins Group Property.
9.2 NECESSARY ACTION. Each Party agrees to take all action and
cooperate as is reasonably necessary, at the other Party's request and expense,
to protect the other's respective rights, titles, and interests specified in
this Article 9, and further agrees to execute any documents that might be
necessary to perfect each Party's ownership of such rights, titles, and
interests.
9.3 RESTRICTIONS. Anything contained in this Agreement to the contrary
notwithstanding, the Robbins Group shall be permitted:
(i) to conduct any activity in connection with the Robbins
Group Core Business conducted during the term of this Agreement,
PROVIDED that (x) such activity is not a product offering designed as
an Internet product offering, (y) any Internet promotion of a Robbins
Group Core Business offering (a) is only a portion of the main
distribution
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channels for the Robbins Group Core Business product offering, (b) is
on a non-interactive commerce website (except interactivity employed
solely to order Robbins Group Products) or to download a Robbins Group
Product (such as an audio or video tape) via the Internet as an
alternative delivery route of a third party distributor, provided that
said website does not predominately feature Robbins, the Robbins Group
or Robbins Group Products, (c) is other than an interactive offering
(except interactivity employed solely to order or download (as an
alternative delivery route) Robbins Group Products) and (d) does not
mimic or incorporate any Robbins Group/Change Your Life Content. For
example, an Internet appearance on a Simon & Schuster website to
promote a new book would be permitted;
(ii) to conduct Internet sales and marketing training for
employees of companies in which the Robbins Group owns at least 20% of
the equity or equity with a fair market value of at least $250,000
whichever is lower, provided that such equity was not purchased with a
view towards circumventing the terms of this Agreement, and provided
further that any such training on the Internet shall require the
royalty payments to Change Your Life specified on Schedule B hereto;
and
(iii) to continue to provide in-house, corporate consulting
services and products that include client seminars, presentations and
training that may be broadcast via satellite, teleconference or
inter-company networks such as intranets; provided however, that such
intranet broadcasts will be one-directional, for client company use
only and non-interactive except for questions and answers, audience
group responses and Robbins' Outcome Purpose Action (OPA) offerings.
The Robbins Group will include restrictions consistent with the terms of this
Agreement, particularly Section 9.3 hereof, in all new distribution agreements
and in all renewals of existing distribution agreements.
10. WARRANTIES; REPRESENTATIONS; INDEMNITIES
10.1 AUTHORITY AND OBLIGATION OF EACH PARTY. Each Party represents and
warrants to the other, as of the date hereof, that (a) such party has the full
right, power and authority to enter into this Agreement, to grant the licenses
hereunder and to perform the acts required of it hereunder, (b) the execution,
delivery and performance by such party of this Agreement are within its powers
and have been duly authorized by all necessary action on its part; (c) the
execution of this Agreement by such party and the performance by such party of
its obligations and duties hereunder do not and will not violate any agreement,
applicable law, judgment, injunction, order or decree to which such party is a
party or by which it is otherwise bound; (d) when executed and delivered by it,
this Agreement will constitute the legal, valid and binding obligation of such
party, enforceable against such party in accordance with its terms; (e) such
party acknowledges that the other party makes no representations, warranties or
agreements related to the subject matter hereof which are not expressly provided
for in this Agreement.
10.2 REPRESENTATIONS. (a) The Robbins Group represents, warrants and
covenants that: (i) it has sufficient right and authority to grant to CYL all
licenses and rights granted by the Robbins Group hereunder; (ii) the Robbins
Group Marks and the use thereof as permitted
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pursuant to this Agreement shall not violate any law or infringe upon or violate
any rights of any Person; (iii) the Robbins Group Content and the use thereof as
permitted pursuant to this Agreement shall not violate any law or infringe upon
or violate any rights of any Person under any law; (iv) no Person other than
those Persons specifically identified on Exhibit D hereto and who may be Parties
to this Agreement has any ownership right or interest in or with respect to the
Robbins Group Marks or Robbins Group Content and the Robbins Group shall not
transfer or assign any ownership right or interest, in or with respect to the
Robbins Group Marks or the Robbins Group Content, unless the transferee becomes
a party to this Agreement and bound by the terms and provisions hereof; (v)
Exhibit E contains a true and complete list of all Robbins Group Marks used in
connection with the (x) Robbins Group Content or (y) any Intellectual Property
used by the Robbins Group and (vi) no Person in the Robbins Group or any
affiliate of the Robbins Group has, during the term of this Agreement, or will,
enter into any business or contractual or other relationship that is directly or
indirectly competitive with CYL's business or would have any ownership, control
or interest over the subject matter of this Agreement.
(b) Change Your Life represents and warrants that: (i) it owns or
controls all right, title, and interest in and to the Change Your Life Site, and
all Intellectual Property Rights therein, necessary to carry out its obligations
hereunder; (ii) it is has the full power and authority to enter into and fully
perform this Agreement; (iii) the Change Your Life Site, any Change Your Life
Content and any Content developed or furnished by Change Your Life hereunder and
the use thereof shall not violate any law or infringe upon or violate any rights
of any Person; and (iv) the Change Your Life Site will be produced, advertised,
distributed, transmitted and licensed in accordance with all applicable federal,
state, local and foreign laws and in a manner that will not reflect adversely on
Robbins.
10.3 INDEMNITIES. (a) The Robbins Group shall indemnify and hold
harmless CYL and its officers, agents and employees from and against any and all
losses, liabilities, costs, expenses (including reasonable attorneys' fees),
claims, penalties, judgments and damages, resulting from or arising out of: (i)
any breach by the Robbins Group of any representation or warranty made in this
Agreement, including, but not limited to, any infringement or alleged
infringement or violation of rights of third parties, including copyright,
trademark, trade dress, trade secrets, design right, patent, moral right, right
of publicity, defamation, libel, know-how and/or any other present or future
intellectual property right of any type; (ii) any injury to person or property
caused by any material, product, or service sold or distributed in connection
with Robbins' participation in the CYL Network or any activity conducted or
action taken by the Robbins Group, directly or indirectly, in connection with
the Robbins Group's CYL Site; and (iii) the Robbins Group Content and any
material to which users can directly link through the Robbins Group Content or
other information supplied by the Robbins Group.
(b) Change Your Life shall indemnify and hold harmless the Robbins
Group and its officers, agents and employees from and against any and all
losses, liabilities, costs, expenses (including reasonable attorneys' fees),
claims, penalties, judgments and damages, resulting from or arising out of: (a)
any breach by Change Your Life of this Agreement, including, but not limited to,
any infringement or alleged infringement or violation of rights of third
parties, including copyright, trademark, trade dress, trade secrets, design
right, patent, moral right, right of publicity, defamation, libel, know-how
and/or any other present or future intellectual property right of any type; (b)
any injury to person or property caused by any material, product, or service
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sold or distributed in connection with the CYL Network not in connection with
the Robbins Group/Change Your Life Site and (c) the Change Your Life Content and
any material which users can directly link through the Change Your Life Content,
other than Robbins Group Content incorporated in the CYL Network.
(c) PROMPT NOTIFICATION. Each party to this Agreement agrees
to (a) promptly inform the other in writing of any information related to the
CYL Network which could reasonably lead to a claim, demand or liability against
Change Your Life or the Robbins Group by any third party; PROVIDED, HOWEVER,
that failure to give prompt notice will not relieve either party of any
liability hereunder (except to the extent such failure causes or leads to actual
material prejudice to the other party); and (b) cooperate fully with the other
Party, at that other Party's expense, in defending or settling such claim.
11. CONFIDENTIALITY
11.1 CONFIDENTIAL INFORMATION. For the purposes of this Agreement,
"Confidential Information" means any information relating to or disclosed during
the term of the Agreement, which is, or should be reasonably understood to be,
confidential or proprietary to the disclosing Party, including, but not limited
to, information about Change Your Life subscribers, technical processes and
formulas, source codes, product designs, sales, cost and other unpublished
financial information, product and business plans, projections, usage and
marketing data. "Confidential Information" shall not include information (a)
already lawfully known to or independently developed by the receiving Party, (b)
disclosed in published materials, (c) generally known to the public, (d)
lawfully obtained from any third party or (e) required or reasonably advised to
be disclosed by law.
11.2 CONFIDENTIALITY. Each Party acknowledges that Confidential
Information may be disclosed to the other Party during the course of this
Agreement. Each Party agrees that it (a) will not disclose to any third party or
use any Confidential Information disclosed to it except as expressly permitted
in this Agreement and (b) shall take reasonable steps, at least substantially
equivalent to the steps it takes to protect its own proprietary information, to
prevent the duplication or disclosure of Confidential Information of the other
Party, other than by or to its employees or agents who must have access to such
Confidential Information to perform such Party's obligations hereunder, which
employees shall each agree to comply with this Article 11 of this Agreement.
11.3 DISCLOSURE. Notwithstanding the foregoing, each party may disclose
Confidential Information (a) to the extent required by a court of competent
jurisdiction or other governmental authority or (b) on a "need-to-know" basis
under an obligation of confidentiality to its legal counsel, accountants, banks
and other financing sources and their advisors.
11.4 TERMS AND CONDITIONS OF AGREEMENT CONFIDENTIAL. The terms and
conditions of this Agreement will be deemed to be the Confidential Information
of each Party an will not be disclosed without the written consent of the other
party or as otherwise provided in this Agreement or as required by law or
regulation.
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12. PRIVACY
12.1 PROTECTION OF PRIVACY. Change Your Life shall establish, and the
Robbins Group and Change Your Life shall adhere to and enforce the terms of, a
privacy policy (which policy may be modified from time to time) for the
protection of the privacy of all subscribers to or users of Change Your Life.
12.2 SUBSCRIBER INFORMATION. The Robbins Group shall not sell or
otherwise make available to any third party, any information about Change Your
Life subscribers collected via the Change Your Life Site ("Subscriber
Information") except to the extent that such Subscriber Information is required
by a third party to fulfill the purchase of any products or services purchased
via the Change Your Life Site. Furthermore, except for promotional activities
expressly permitted under this Agreement, the Robbins Group will not use any
Subscriber Information except to the extent that such Subscriber Information is
required by the Robbins Group to fulfill the purchase of any products or
services purchased via the Change Your Life Site unless (a) such use conforms
with Change Your Life's then-current privacy policy and the Robbins Group has
obtained Change Your Life's prior written consent for such use; or (b) the
Subscriber Information to be used consists only of information input directly by
a Change Your Life subscriber after such subscriber has either viewed (or been
given a clear and conspicuous opportunity to view) a clear disclosure of how
such information may be used by the Robbins Group and/or had the opportunity to
"opt out" of any use of such information. This paragraph will survive the
termination of this Agreement for a period of two years.
12.3 SOLICITATION OF SUBSCRIBERS. During the Term of this Agreement
neither the Robbins Group nor its agents will (a) solicit or participate in the
solicitation of CYL subscribers when that solicitation is for the benefit of any
entity (including the Robbins Group) which could reasonably be construed to be
or become in competition with CYL or (b) promote any services which could
reasonably be construed to be in competition with services available through
CYL, including, but not limited to, services available through the Internet and
the on-line services of any aggregators of personal and professional development
Content.
13. TREATMENT OF CLAIMS
13.1 DAMAGES. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO
THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY
DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES)
ARISING FROM BREACH OF THIS AGREEMENT, THE USE OF OR INABILITY TO USE CYL
NETWORK OR ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO,
LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY,
"DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE TO THE OTHER
PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE
SUBJECT TO INDEMNIFICATION ABOVE. EXCEPT AS PROVIDED ABOVE IN THE "INDEMNITY"
SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE
AGGREGATE AMOUNTS PAYABLE HEREUNDER; PROVIDED THAT EACH PARTY SHALL REMAIN
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LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER
PARTY UNDER THE PROVISIONS OF THIS AGREEMENT.
13.2 NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS
AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS,
ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE CYL
NETWORK, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR
COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, CYL
SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF THE CYL
NETWORK OR THE ROBBINS GROUP/CHANGE YOUR LIFE SITE.
13.3 ACKNOWLEDGMENT. CHANGE YOUR LIFE AND THE ROBBINS GROUP EACH
ACKNOWLEDGE THAT THE PROVISIONS OF THIS AGREEMENT WERE NEGOTIATED TO REFLECT AN
INFORMED, VOLUNTARY ALLOCATION BETWEEN THEM OF ALL RISKS (BOTH KNOWN AND
UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER. THE
LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES AND LIABILITY CONTAINED IN
THIS AGREEMENT ARE INTENDED TO LIMIT THE CIRCUMSTANCES AND EXTENT OF LIABILITY.
THE PROVISIONS OF THIS SECTION 14 SHALL BE ENFORCEABLE INDEPENDENT OF AND
SEVERABLE FROM ANY OTHER ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS
AGREEMENT.
13.4 DISPUTE RESOLUTION. (a) Sections 2.4, 2.15., 3.4, 5.3(b) and
9.3(i) and 9.3 (iii) are sections that relate to issues that could not be
adequately described as of the date of this Agreement. Although the parties
intend to co-operate in good faith on such matters, in the event that a dispute
on such matters arises, the following dispute resolution mechanism shall be
employed. Each of the Robbins Group and Change Your Life shall appoint one
member of the Board of Directors of Change Your Life (other than Robbins and the
Chief Executive Officer of Change Your Life) or if Robbins has no nominees then
serving on the Board of Directors of Change Your Life, he may appoint a third
party (other than himself or an affiliate of the Robbins Group) and these two
designees shall appoint a third person who may, but shall not be required, to be
a member of the Board of Directors of Change Your Life. This group of three
persons shall be empowered as mediators to consider any dispute(s) presented to
them. If this mediation process does not resolve the dispute in a mutually
satisfactory manner for disputes arising under Sections 2.15, 5.3(b) or 9.3 (i)
and 9.3 (iii), then the matter may be submitted by any party to arbitration as
provided for in Section 13.5. The referral to arbitration may occur at any time
within sixty (60) days of the decision of the mediators, but in the event the
dispute arises under Sections 2.15, 5.3(b) or 9.3 (i) or 9.3 (iii), the
mediators will be instructed to determine the matter within thirty (30) days of
the appointment of the mediators. If the mediators have not done so, then any
party may submit the matter to arbitration under Section 13.5, provided the
dispute has arisen under Sections 2.15, 5.3(b) or 9.3 (i) or 9.3 (iii), within
the subsequent sixty (60) day period. For disputes arising under Sections 2.4 or
3.4, the determination of the mediators shall be final and binding on all
Parties without the ability to resort to the provisions of Section 13.4(b),
arbitration or any court process.
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(b) In the event of any dispute, controversy or claim arising out of or
relating to this Agreement (other than those governed by the terms of Section
13.4(a) hereof), representatives of the parties shall meet in New York, NY, San
Diego, CA or such other city as may be agreeable to the parties as soon as
reasonably possible (but not later than ten (10) days after written notice from
one party to the other of such dispute) and shall enter into good faith
negotiations aimed at resolving the dispute. If they are unable to resolve the
dispute in a mutually satisfactory manner within thirty (30) days from the date
of such notice, the matter may be submitted by any party to arbitration as
provided for in Section 13.5.
13.5 ARBITRATION. (a) Any dispute, controversy or claim between or
among any of the parties hereto arising out of or relating to this Agreement or
the breach, termination or invalidity thereof, including any dispute as to
whether any dispute is subject to arbitration, which has not been resolved after
good faith negotiations pursuant to Section 13.4(b) hereof shall be settled by
binding arbitration administered by the American Arbitration Association in
accordance with its then current Commercial Arbitration Rules except as provided
herein.
(b) Any arbitration shall be conducted by a three person
arbitration panel. The three person arbitration panel shall consist of one party
arbitrator selected by Change Your Life, one party arbitrator selected by the
Robbins Group, each of whom shall be named within ten (10) days of the demand
for arbitration, and one neutral arbitrator selected by the first two
arbitrators. If the two party appointed arbitrators cannot agree on the neutral
arbitrator within ten (10) days of the selection of the last party appointed
arbitrator, the American Arbitration Association shall appoint the neutral
arbitrator, who shall act as chairperson. In the event of a vacancy with respect
to an arbitrator, the vacancy shall be filled within ten (10) days of notice of
the vacancy in the same manner and subject to the same requirements as are
provided for in the original appointment to that position. If the vacancy is not
filled within ten (10) days, the American Arbitration Association shall make the
appointment. Unless otherwise mutually agreed, the place of arbitration shall be
New York, NY or San Diego, CA, as selected by the party receiving the request
for arbitration.
(c) The law applicable to the validity of the arbitration
clause, the conduct of the arbitration, including the resort to a court for
interim relief, enforcement of the award or any other question of arbitration
law or procedure shall be the United States' Federal Arbitration Act,
9 U.S.C. Section 1 ET SEQ. The parties shall be entitled to engage in
reasonable discovery including requests for the production of all relevant
documents and a reasonable number of depositions. The arbitration panel shall
have the sole discretion to determine the reasonableness of any requested
document production or deposition. It is the intent of the parties that a
substantive hearing be held within sixty (60) days of the appointment of the
neutral arbitrator or the rejection of a challenge thereto, whichever shall
occur later. In the event that the dispute referred to arbitration hereunder
arises under Section 2.15, 5.3(b) or 9.3(i) or 9.3 (iii), then the
arbitrators shall be instructed to resolve the entire matter and render their
findings within a period of forty-five (45) days of the appointment of the
neutral arbitrator or the rejection of a challenge thereto, whichever shall
occur later. A stenographic record of every hearing shall be made. The
presentation of evidence shall be governed by the federal Rules of Evidence.
(d) Any award, including any interim award, made shall be made by a
majority of the arbitrators applying the substantive law of New York and shall
(i) be in writing and state
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the arbitration panel's findings of fact and conclusions of law; (ii) be made
promptly, and in any event within sixty (60) days after the conclusion of the
arbitration hearing; and (iii) be binding against the parties involved and may
be entered for enforcement in any court of competent jurisdiction.
(e) The costs of any arbitration proceeding (e.g., arbitrators,
court reporter and room rental fees) shall be equally divided between Change
Your Life and the Robbins Group. However, each party shall pay its own expense,
including attorneys' and other professionals' fees and disbursements.
(f) The arbitration provision set forth in this Section 13.5 shall
be a complete defense to any suit, action or proceeding instituted in any court
with respect to any matter arbitrable under this Agreement, except that judicial
intervention may be sought in accordance with Section 13.6 hereof.
13.6 NO WAIVERS; INTERIM RELIEF.
The Parties mutually acknowledge that an award of damages may be
inadequate to remedy any breach hereof and that injunctive relief may be
required. Therefore, (a) a party may request a court of competent jurisdiction
to provide interim injunctive relief in aid of arbitration or to prevent a
violation of this Agreement pending arbitration, and any such request shall not
be deemed a waiver or breach of the obligations to arbitrate set forth herein
and (b) the arbitrators may order equitable relief where they deem it
appropriate and the parties agree that any interim relief ordered by the
arbitrators may be immediately and specifically enforced by a court otherwise
having jurisdiction over the parties.
14. GENERAL
14.1 ASSIGNMENT. Neither party may assign this Agreement, nor any
rights, interests or obligations thereunder, in whole or in part without the
other party's prior written consent. Any attempt to assign this Agreement
without such consent shall be void and of no effect AB INITIO. Notwithstanding
the foregoing, the Robbins Group may assign its rights and duties under the
Agreement to an entity, wholly-owned directly or indirectly by Robbins and
Change Your Life may assign the Agreement to an affiliate provided that such
assignee agrees in writing to succeed to all of the rights and be subject to all
of the obligations of under this Agreement. No assignment shall relieve the
assignor of its obligations under the Agreement. The Agreement shall apply to,
and shall be binding upon each of the Parties thereto, their respective
successors and permitted assigns, and all persons claiming by, through, or under
any of the aforesaid persons.
14.2 COMPLIANCE. Each party shall comply in all material respects with
all laws and regulations applicable to its activities under this Agreement.
14.3 SEVERABILITY. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any Person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the
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remaining portion thereof) or the application of such provision to any other
Persons or circumstances.
14.4 NOTICES. All notices or other communications required or permitted
to be given hereunder shall be in writing and shall be delivered by hand or
sent, postage prepaid, by registered, certified or express mail or reputable
overnight courier service and shall be deemed given when so delivered by hand,
or if mailed, three days after mailing (one business day in the case of express
mail or overnight courier service), as follows: (i) if to Change Your Life.com,
Inc, 704 Broadway, New York, NY 10003 Attention of Beth Polish, Chief Operating
Officer with copies to: Dewey Ballantine LLP, 1301 Avenue of the Americas, New
York, NY 10019 Attention of Frank E. Morgan II, Esq., (ii) if to the Robbins
Group, 9191 Town Center Drive, Suite 600, San Diego, CA 92122; Attention of Sam
Georges with copies to: Loeb & Loeb, Suite 1800, 1000 Wilshire Boulevard, Los
Angeles, CA 90017-245 Attention of David L. Ficksman, Esq.
14.5 INDEPENDENT CONTRACTORS. The parties to this Agreement are
independent contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. Neither party shall have
the power to bind the other or incur obligations on the other's behalf without
the other's prior written consent.
14.6 FAILURE TO ENFORCE RIGHTS. No failure of either party to exercise
or enforce any of its rights under this Agreement shall act as a waiver of such
right.
14.7 COMPLETE AGREEMENT. This Agreement, along with the Exhibits hereto
and the agreements entered into by the parties on a contemporaneous basis
herewith contain the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter. Neither party
shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein.
14.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to each of the other parties.
14.9 AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
14.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York applicable to
agreements made and to be performed entirely within such State, without regard
to the conflicts of law principles of such State.
14.11 SOLE BENEFIT. This Agreement is for the sole benefit of the
parties hereto and their permitted assigns and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
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14.12 HEADINGS. The headings contained in this Agreement or in any
Exhibit or Schedule hereto are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. All Exhibits and
Schedules annexed hereto or referred to herein are hereby incorporated in and
made a part of this Agreement as if set forth in full herein. Any capitalized
terms used in any Schedule or Exhibit but not otherwise defined therein, shall
have the meaning as defined in this Agreement. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the Effective Date.
CHANGE YOUR LIFE.COM, LLC
/s/ David Roy
- - --------------------------------
Print Name: David Roy
---------------------
Title: Vice President
--------------------------
Date: April 23, 1999
---------------------------
/s/ Anthony J. Robbins
- - --------------------------------
ANTHONY J. ROBBINS
Date: April 23, 1999
---------------------------
ROBBINS RESEARCH INTERNATIONAL INC.
By: /s/ Anthony J. Robbins
-----------------------------
Print Name: Anthony J. Robbins
---------------------
Title: Chairman
--------------------------
Date: April 23, 1999
---------------------------
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EXHIBIT B
REVENUE SHARING
ADVERTISING REVENUES. Aggregate amounts collected by CYL, the Robbins Group or
either Party's agents, as the case may be, arising from the license or sale of
advertisements, promotions, links or sponsorships ("Advertisements") that appear
within any pages of the Change Your Life Site, less applicable Advertising Sales
Commissions and Distribution Fees.
ADVERTISING SALES COMMISSIONS. (i) Actual amounts paid as commission to third
party agencies or media networks by either buyer or seller in connection with
sale of an Advertisement and/or (ii) any amount payable to employees of CYL in
connection with the sale of an Advertisement.
DISTRIBUTION FEES. Any portion of Revenues earned by the Company that are paid
to a third party with whom the Company partners to distribute, market or
otherwise promote the CYL Network on any digital and/or interactive platform,
which third party shall not include a provider of content unless such provider
of content is separately a party to a distribution, marketing or promotion
agreement with the CYL.
ADJUSTED TRANSACTION REVENUES. Aggregate amounts that are paid by users of the
CYL Network or in connection with the sale, licensing, distribution or provision
any CYL Product, Robbins Group Product or CYL/Robbins Group Product (as the case
may be) and excluding in each case (a) amounts collected for sales or use taxes
or duties, (b) handling, shipping and service charges and credit or debit card
charges, (c) credits and chargebacks for returned or canceled goods or services,
(d) cost of goods sold or services and (e) fixed per person per item or session
charges (in the case of digital products only) [*].
CYL PRODUCT. Any product, good or service (other than a Robbins Group Product)
which CYL develops, purchases wholesale or manufactures and which CYL (or others
acting on its behalf or as distributors) offers, sells, provides, distributes or
licenses to users of the CYL Network directly or indirectly through (i) the
Change Your Life Site, (ii) any other electronic means directors at users of the
CYL Network (e.g., email offers), or (iii) an `off line' means (e.g. toll-free
number) for receiving orders related to specific offers within the CYL Network
requiring purchasers to reference a specific promotional identifier or tracking
code.
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ROBBINS GROUP PRODUCT. Any Robbins Group Product which CYL (or others acting on
its behalf or as distributors) purchases wholesale or manufactures and offers,
sells, provides, distributes or licenses to users of the CYL Network directly or
indirectly through (i) the Change Your Life Site, (ii) any other electronic
means directed at users of the CYL Network (e.g., email offers), or (iii) an
`off line' means (e.g. toll-free number) for receiving orders related to
specific offers within the CYL Network requiring purchasers to reference a
specific promotional identifier or tracking code.
ROBBINS GROUP OFFLINE/LIVE PRODUCT. Any offline coaching, offline seminar or
offline live event offered by the Robbins Group which CYL (or others acting on
its behalf or as distributors) offers, sells, provides, distributes or licenses
to users of the CYL Network directed or indirectly through (i) the Change Your
Life Site, (ii) any other electronic means directors at users of the CYL Network
(e.g., email offers), or (iii) an `off line' means (e.g. toll-free number) for
receiving orders related to specific offers within the CYL Network requiring
purchasers to reference a specific promotional identifier or tracking code.
CYL/ROBBINS GROUP PRODUCT. Any product, good or service which CYL and Robbins
Group develop together and co-brand as defined in Section 1.15, and which CYL
(or others acting on its behalf or as distributors) offers, sells, provides,
distributes or licenses to users of the CYL Network directly or indirectly
through (i) the Change Your Life Site, (ii) any other electronic means directed
at users of the CYL Network (e.g., email offers), or (iii) an `off line' means
(e.g. toll-free number) for receiving orders related to specific offers within
the CYL Network requiring purchasers to reference a specific promotional
identifier or tracking code.
UNBRANDED CYL/ROBBINS GROUP PRODUCT. Any product, good or service which is based
upon copyrighted Robbins Group Content and which after Termination of this
Agreement under Section 5.5, CYL (or others acting on its behalf or as
distributors) continues to offer, sell, provide, distribute or license to users
of the CYL Network directly or indirectly through (i) the Change Your Life Site,
(ii) any other electronic means directed at users of the CYL Network (e.g. email
offers), or (iii) an `off line' means (e.g. toll-free number) for receiving
orders related to specific offers within the CYL Network requiring purchasers to
reference a specific promotional identifier or tracking code.
ROBBINS GROUP EXISTING CUSTOMERS. Robbins Group customers that exist as of the
date of this Agreement and Robbins Group customers that are obtained solely as a
result of direct non-Internet marketing efforts that are identified in the
customer lists that are to be provided by the Robbins Group in accordance with
Section 1.10 of this Agreement. Such Robbins Group Existing Customers will be
separately identified and their purchases will be separately tracked.
REVENUE SHARE FOR ADVERTISEMENT SALES. CYL will share Advertising Revenues with
the Robbins Group as follows: [*]
REVENUE SHARE FOR ROBBINS GROUP PRODUCTS. CYL will share with the Robbins Group
[*] of Adjusted Transaction Revenues from Robbins Group Products.
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REVENUE SHARE FOR CYL PRODUCTS. CYL will share with the Robbins Group [*] of
Adjusted Transaction Revenues from CYL Products that are sold by the Robbins
Group offline.
REVENUE SHARE FOR CYL/ROBBINS GROUP PRODUCTS. CYL will share with the Robbins
Group [*] of Adjusted Transaction Revenues from CYL/Robbins Group Products.
REVENUE SHARE FOR ROBBINS GROUP OFFLINE/LIVEPRODUCTS. CYL will retain the
following amounts in connection with the sale of Robbins Group Offline/Live
Products:
(a) [*] of gross revenue earned in connection with the sale of such
Robbins Group Offline/Live Products;
(b) [*] of gross revenue earned in connection with the sale of such
Robbins Group Offline/Live Products; and
(c) [*] of gross revenue earned in connection with the sale of such
Robbins Group Offline/Live Products.
[*]
REVENUE SHARE FOR UNBRANDED CYL/ROBBINS GROUP PRODUCTS. CYL will share with the
Robbins Group [*] percent ([*]) of the Adjusted Transaction Revenues from
Unbranded CYL/Robbins Group Products as described above.
REVENUE SHARE FOR ROBBINS GROUP EXISTING CUSTOMERS. CYL will not retain any
Adjusted Transaction Revenues from [*] purchases of Robbins Group Products
(other than purchases of book products) made by Robbins Group Existing
Customers. Thereafter, CYL will share revenue associated with Robbins Group
Existing Customers with the Robbins Group in accordance with the revenue sharing
provisions contained in this Exhibit B. Notwithstanding the foregoing, CYL will
not retain any Adjusted Transaction Revenues associated with a specific Robbins
Group Existing Customer until such Robbins Group Existing Customer has purchased
[*]aggregate of [*] of Robbins Group Product.
REVENUE FROM SALES AND MARKETING TRAINING BY THE ROBBINS GROUP. In the event
that the Robbins Group provides sales and marketing training in accordance with
Section 9.3(ii) of this Agreement, then CYL shall be entitled to [*] of all cash
receipts received by the Robbins Group in connection therewith; PROVIDED,
HOWEVER, that if CYL in any manner assists the Robbins Group with such sales and
marketing training (including, without limitation, marketing of the same on the
Internet) the parties shall at such time agree in good faith on an appropriate
revenue share with respect thereto.
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
ESCROW AGREEMENT, dated as
of May 27, 1999, among GHS, INC., a
Delaware corporation ("PARENT"),
Debbie Dworkin (the "STOCKHOLDER"
and together with Parent referred to
herein as "INTERESTED PARTIES") and
State Street Bank and Trust Company,
in its capacity as Escrow Agent
hereunder (the "ESCROW AGENT", which
term shall also include any
successor escrow agent appointed in
accordance with Section 9(d)
hereof).
Reference is made to the Agreement and Plan of Reorganization dated as
of the date hereof (the "REORGANIZATION AGREEMENT"), among Parent, Concept
Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of
Parent ("ACQUISITION SUB"), Concept Development, Inc., a Delaware corporation
(the "COMPANY"), the Stockholder and William Zanker (together with the
Stockholder, the "FOUNDERS") providing for, among other things, the merger (the
"MERGER") of Acquisition Sub with and into the Company, with the Company
surviving the Merger as a wholly-owned subsidiary of Parent and the Stockholder
is receiving shares of preferred stock of Parent ("PARENT PREFERRED STOCK") in
exchange for shares of capital stock of the Company, in the manner provided in
the Reorganization Agreement and the Agreement of Merger. As used herein, the
term "Reorganization Agreement" shall be deemed to mean and include the
Reorganization Agreement and the Agreement of Merger executed and delivered in
connection therewith.
Reference is also made to the Repurchase Agreement dated as of the date
hereof (the "REPURCHASE AGREEMENT") between Parent and the Stockholder providing
for the repurchase by Parent of the Parent Preferred Stock in order to provide
an incentive to William Zanker, the Stockholder's husband, to exercise his best
efforts on behalf of Parent or any subsidiaries or affiliates of Parent.
This Agreement is designed to implement the provisions of the
Reorganization Agreement and the Repurchase Agreement pursuant to which Parent,
on behalf of the Stockholder, is depositing with the Escrow Agent that number of
shares of Parent Preferred Stock listed on SCHEDULE I hereto issued in the
Merger to the Stockholder as security for the satisfaction of (i) the
indemnification obligations of the Stockholder pursuant to Article VIII of the
Reorganization Agreement and (ii) the repurchase obligations of the Stockholder
pursuant to the Repurchase Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations and warranties and agreements contained herein, the parties
hereto agree as follows:
1. DEFINITIONS. As used herein the following capitalized terms shall have
the following meanings:
(a) "ESCROW SHARES" shall mean the Parent Common Stock and the Parent
Preferred Stock held by the Escrow Agent hereunder.
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
(b) "INDEMNIFIED PERSONS" shall mean and include Parent, Acquisition
Sub and the Company and their respective affiliates, successors and assigns, and
the respective officers and directors of each of the foregoing.
(c) "INDEMNITY ESCROW SHARES" shall mean [*] (of the total of [*])
shares of Parent Preferred Stock issued to the Stockholder pursuant to the
Reorganization Agreement (including, without limitation, any shares issued
pursuant to any stock dividend, stock split, reverse stock split, combination or
reclassification thereof), and any shares of common stock of Parent ("PARENT
COMMON STOCK") issued upon conversion thereof (including, without limitation,
any shares issued pursuant to any stock dividend, stock split, reverse stock
split, combination or reclassification thereof).
(d) "REPURCHASE ESCROW SHARES" shall mean [*] shares of Parent
Preferred Stock issued to the Stockholder pursuant to the Reorganization
Agreement (including, without limitation, any shares issued pursuant to any
conversion, stock dividend, stock split, reverse stock split, combination or
reclassification thereof), and any shares of Parent Common Stock issued upon
conversion thereof (including, without limitation, any shares issued pursuant to
any conversion, stock dividend, stock split, reverse stock split, combination or
reclassification thereof).
(e) "SALE TRANSACTION" shall mean the merger or consolidation of the
Company into or with another corporation or other entity, or the sale of all or
substantially all the assets or the sale of all of the outstanding capital stock
of the Company, in each case under circumstances in which the holders of the
outstanding capital stock of the Company immediately prior to the Transaction,
own less than a majority in voting power of the outstanding capital stock of the
Company or the surviving or resulting company or acquiror, as the case may be,
immediately following such transaction.
(f) "STIPULATED PRICE" shall mean (i) in the event that the Parent
Preferred Stock has not been converted into Parent Common Stock, the product of
(x) (A) the closing price of the Parent Common Stock on any securities exchange,
the Nasdaq National Market or (B) if actively traded over-the-counter, the
average of the closing bid or sale prices (whichever is applicable), on the date
hereof TIMES (y) ten (10) or (ii) in the event that the Parent Preferred Stock
has been converted into Parent Common Stock, the closing price per share of the
Parent Common Stock on any securities exchange, the Nasdaq National Market or
OTC Bulletin Board on the date hereof, all as calculated and/or ascertained by
the Parent and communicated to the Escrow Agent in writing.
2. APPOINTMENT OF ESCROW AGENT; ESCROW ACCOUNT. The Escrow Agent is hereby
appointed to act as escrow agent hereunder and the Escrow Agent agrees to act as
such.
3. ESCROW FUND AND ESCROW ACCOUNT. (a) Parent shall deliver to the Escrow
Agent, within a reasonable time from the date hereof, certificates registered in
the name of the Stockholder representing the Indemnity Escrow Shares and the
Repurchase Escrow Shares (in each case, with stock powers executed in blank by
the Stockholder attached thereto) and the
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
Escrow Agent shall accept such certificates in escrow for the benefit of (i)
Parent, and the Indemnified Persons and (ii) the Stockholder, pursuant and
subject to the provisions of this Agreement. The shares of Parent Preferred
Stock to be delivered to the Escrow Agent pursuant to this Section 3(a),
together with any stock dividends or stock distributions or any securities of
Parent issued in respect thereof (including, without limitation, any shares
issued pursuant to any conversion, stock dividend, stock split, reverse stock
split, combination or reclassification thereof) shall become part of, and are
hereinafter referred to collectively as, the "ESCROW FUND". The Escrow Agent
shall have no responsibility for the genuineness, validity, market value, title
or sufficiency for any intended purpose of the Parent Preferred Stock to be
delivered to it under this Agreement.
(b) The Escrow Agent shall establish a segregated account (the "ESCROW
ACCOUNT") at its office located at its address set forth on SCHEDULE II in which
to hold the Escrow Fund.
4. RIGHTS TO THE ESCROW FUND. The Escrow Fund shall be for the exclusive
benefit of the Parent and the Indemnified Persons and their respective
successors and assigns, as provided herein, in the Repurchase Agreement and in
the Reorganization Agreement, and no other person or entity shall have any
right, title or interest therein other than the Stockholder's underlying
ownership interests in the property constituting the Escrow Fund.
5. DISTRIBUTION OF THE INDEMNITY ESCROW SHARES IN CONNECTION WITH
INDEMNITY CLAIMS. The Escrow Agent shall continue to hold the Indemnity Escrow
Shares in its possession until authorized hereunder to distribute the Indemnity
Escrow Shares or any part thereof. The Escrow Agent shall distribute the
Indemnity Escrow Shares as follows:
(a) INDEMNIFICATION. In the event any Indemnified Person (the "CLAIMING
PERSON") asserts a right of indemnity against the Stockholder under Section 8 of
the Reorganization Agreement, Parent shall execute and deliver to the Escrow
Agent a written notice to such effect (a "NOTICE OF CLAIM"; and the right of
indemnity asserted in a Notice of Claim being hereinafter referred to as a
"CLAIM"), which Notice of Claim shall instruct the Escrow Agent to deliver that
portion of the Indemnity Escrow Shares the Fair Market Value (as defined in
Section 8 hereof) of which shall equal the amount of the Claim (or, if the
amount of the Claim shall be greater than the Fair Market Value of the Indemnity
Escrow Shares, the balance of the Indemnity Escrow Shares) to such Claiming
Person, and the following shall apply:
(i) a Notice of Claim delivered to the Escrow Agent pursuant to
this Section 5(a) shall set forth the name of the Claiming Person, the
nature and details of such Claim (to the extent known), and a
calculation setting forth the amount thereof (or if not ascertainable,
a reasonable good faith estimate of the maximum amount thereof); and
(ii) if within 10 business days after the Escrow Agent's receipt
of any Notice of Claim pursuant to this Section 5(a), the Escrow Agent
has not received a notification (a "NOTICE OF DISPUTE") from the
Stockholder that the Claim, or the amount thereof, is disputed, the
Escrow Agent shall, within 5 business days after the expiration of such
10-day period, deliver to the Claiming Person that portion of the
Indemnity Escrow Shares the Fair
3
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
Market Value of which shall equal the amount of the Claim as set
forth in such Notice of Claim (or, if the amount of the Claim shall
be greater than the Fair Market Value of the aggregate Indemnity
Escrow Shares as of such date, the balance of the Indemnity Escrow
Shares) (the date of any such delivery being referred to herein as a
"RELEASE DATE"). If the Escrow Agent does receive a Notice of
Dispute within such 10-day period (a copy of the Notice of Dispute
being simultaneously sent to Parent by the Stockholder), the Escrow
Agent shall not deliver such amount to such Claiming Person until 5
business days after such dispute has been settled as provided in
Section 17 hereof and written notice of such settlement and of the
amount, if any, to be paid in respect of the disputed Claim has been
received by the Escrow Agent from the Parent.
(b) Anything contained herein to the contrary notwithstanding, if the
Escrow Agent is authorized, at any time pursuant to Section 5(a) hereof, to
deliver all or any portion of the Indemnity Escrow Shares to a Claiming Person
with respect to a Claim or Claims, then (i) such delivery shall be made
regardless of the Escrow Agent's prior or subsequent receipt of any Notice of
Claim or Notice of Dispute with respect to any other Claim or Claims and (ii)
the Escrow Agent shall (A) deliver to the transfer agent for the Parent
Preferred Stock (who shall be identified to the Escrow Agent in writing by
Parent) on behalf of the Stockholder the certificate registered in such
Stockholder's name representing the Escrow Shares, together with a completed
stock power transferring to such Claiming Person that number of shares of Parent
Preferred Stock being delivered to such Claiming Person and (B) instruct such
transfer agent to issue and deliver to the Escrow Agent for retention hereunder
as part of the Escrow Fund a certificate of like tenor, registered in the name
of the Stockholder representing the balance of the shares of Parent Preferred
Stock represented thereby, if any. Parent and the Stockholder shall take all
such actions and execute and deliver all such documents as are necessary to
effectuate the intent and purpose of this Section 5(b).
6. DISTRIBUTION OF THE REPURCHASE ESCROW SHARES IN CONNECTION WITH EXERCISE OF
THE REPURCHASE OPTION.
(a) In the event Parent and/or any assignee of Parent shall elect to
exercise the Purchase Option set forth in the Repurchase Agreement, Parent shall
execute and deliver to the Escrow Agent and the Stockholder a written notice (a
"REPURCHASE NOTICE") specifying (i) the number of shares of (A) Parent Preferred
Stock or (B) upon conversion of the Parent Preferred Stock, Parent Common Stock,
which Parent is entitled to repurchase, (ii) the number of Repurchase Escrow
Shares as to which it is exercising the Repurchase Option, (iii) the purchase
price and the calculation thereof and (iv) the time for a closing thereunder at
the principal office of Parent (the "REPURCHASE CLOSING"). Said Repurchase
Notice shall be given no sooner than five (5) business days before the
Repurchase Closing.
(b) Stockholder and Parent hereby irrevocably authorize and direct the
Escrow Agent to deliver to the Parent the number of shares of Parent Preferred
Stock or Parent Common Stock, as applicable, to close the transaction
contemplated by such Repurchase Notice in accordance with the terms of said
Repurchase Notice. Subject to the provisions of the Repurchase
4
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
Agreement and Section 6(b) hereof, the Escrow Agent shall deliver to the
Stockholder the number of shares equal to the difference between (x) the total
number of Repurchase Escrow Shares held by the Escrow Agent on the date of
delivery of the Repurchase Notice MINUS (y) the number of Repurchase Escrow
Shares for which the Purchase Option has been exercised.
(c) If the Escrow Agent has not received from Parent a Repurchase
Notice to the Escrow Agent, or has exercised the Purchase Option with respect to
less than all of the then remaining Repurchase Escrow Shares, prior to the
applicable date set forth on the table below, the Escrow Agent shall deliver to
the Stockholder, subject to payment of escrow fees and expenses by the Company
as required herein, within five (5) business days after the dates set forth
below the number of Repurchase Escrow Shares equal to the Vested Shares (as set
forth below):
5
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
<TABLE>
<CAPTION>
VESTED SHARES (IF THE PARENT VESTED SHARES (IF THE PARENT
PREFERREDSTOCK HAS NOT PREFERRED STOCK HAS
BEEN CONVERTED TO PARENT BEEN CONVERTED TO PARENT
DATE COMMON STOCK) COMMON STOCK)
<S> <C> <C>
September 1, 1999 [*] [*]
December 1, 1999 [*] [*]
March 1, 2000 [*] [*]
June 1, 2000 [*] [*]
September 1, 2000 [*] [*]
December 1, 2000 [*] [*]
March 1, 2001 [*] [*]
June 1, 2001 [*] [*]
September 1, 2001 [*] [*]
December 1, 2001 [*] [*]
March 1, 2002 [*] [*]
June 1, 2002 [*] [*]
</TABLE>
(d) SALE TRANSACTION. Subject to Section 7 hereof and anything
contained herein to the contrary notwithstanding, upon the consummation of a
Sale Transaction, Parent shall deliver a notice to the Escrow Agent (the "SALE
TRANSACTION NOTICE") and Escrow Agent shall thereafter deliver the Repurchase
Escrow Shares (including, without limitation, any shares issued pursuant to any
stock split, reverse stock split, combination or reclassification thereof) to
the Stockholder within five (5) business days after receipt of the Sale
Transaction Notice, subject to the following:
(i) if the Sale Transaction Notice is received by the Escrow
Agent before the first anniversary of the date hereof (the "FIRST
ANNIVERSARY"), the Escrow Agent shall not distribute to the
Stockholder, and the Escrow Agent shall hold and retain in Escrow, the
balance of the Indemnity Escrow Shares (including, without limitation,
any shares issued pursuant to any stock split, reverse stock split,
combination or reclassification thereof) and on and after the First
Anniversary the Escrow Agent shall distribute to the Stockholder within
five (5) business days after the First Anniversary the balance of the
Indemnity Escrow Shares; PROVIDED, HOWEVER, that, regardless of whether
the Sale Transaction Notice is received before, on or after the First
Anniversary, the Escrow Agent shall NOT distribute to the Stockholder,
and the Escrow Agent shall hold and retain in Escrow, the number of
Indemnity Escrow shares specified in all Notices of Claim which, prior
to the First Anniversary, have been received by the Escrow Agent but
which have not been paid to Parent or otherwise discharged pursuant to
this Section 6. Any portion of the Indemnity Escrow Shares which shall
continue to be held by the Escrow Agent pursuant to the preceding
sentence shall be so held until such time as all disputed Claims
6
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
hereunder have been settled as provided in Section 17 and written
notice of such settlement or settlements setting forth the amounts to
be paid to Parent, on the one hand, and the Stockholder, on the other
hand, have been received by the Escrow Agent.
7. ESCROW FEES. Notwithstanding anything herein to the contrary, at any
time that the Escrow Agent is authorized or directed or otherwise required to
make a disbursement or distribution from the Escrow Fund, the Escrow Agent may
refrain from making such disbursement or distribution from the Escrow Fund,
without liability, if and to the extent that there are any fees or expenses then
due to the Escrow Agent pursuant to Sections 11, 12, 13 and/or Schedule II.
8. VALUATION. For all purposes of this Agreement, the "FAIR MARKET VALUE"
of any property (other than cash and shares of Parent Preferred Stock or Parent
Common Stock) contained in the Escrow Fund as of any date shall be the fair
market value of such property as of such date as determined by the Board of
Directors of Parent in the good faith exercise of its reasonable business
judgment, which determination shall be evidenced by a certificate executed by
the Secretary of Parent and delivered to the Escrow Agent and the Stockholder,
and the "FAIR MARKET VALUE" per share of Parent Preferred Stock and/or Parent
Common Stock, as applicable, shall be the lesser of (i) the Stipulated Price and
(ii) (A) if such shares are traded on a securities exchange or through the
Nasdaq National Market, the value shall be deemed to be the closing price of the
securities on such exchange on the date of delivery of the Notice of Claim or
Repurchase Notice or (B) if actively traded over-the-counter, the value shall be
deemed to be the closing bid or sale prices (whichever is applicable) on the
date of delivery of the Notice of Claim or Repurchase Notice, as calculated
and/or ascertained by the Parent and provided to the Escrow Agent in writing.
9. STOCKHOLDER RIGHTS. (a) Except as expressly provided otherwise herein,
the Stockholder shall at all times retain and have the full and absolute right
to exercise all rights and indicia of ownership with respect to the Escrow
Shares owned by such Stockholder, including, without limitation, voting and
consensual rights; provided, HOWEVER, that the Stockholder shall have no right
to transfer, pledge or encumber or otherwise dispose in any manner whatsoever
any Escrow Shares that are held in Escrow Account. In accordance with Section
3(a), all dividends or distributions or proceeds in stock or other property
issued (other than cash) in respect of the Escrow Shares shall be deposited into
the Escrow Account and become part of the Escrow Fund so long as the Escrow
Agent is authorized to retain such shares hereunder. If any such shares of
Parent Preferred Stock are transferred to a Claiming Person pursuant to Section
5 hereof in satisfaction of a Claim or Claims, all rights and indicia of
ownership with respect to such shares shall thereupon reside with such Claiming
Person or any subsequent holder thereof.
(b) The Escrow Agent shall be under no duty to preserve, protect or
exercise rights in the Escrow Shares, and shall be responsible only for
reasonable measures to maintain the physical safekeeping thereof, and otherwise
to perform such duties on its part as are expressly set forth in this Agreement.
The Escrow Agent will not be responsible for authenticating the right of the
Stockholder to exercise voting or consent-giving authority in respect of shares
of Parent Preferred
7
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
Stock held by it hereunder. The Escrow Agent shall not be responsible for
forwarding to, or notifying any party, or taking any other action with respect
to any notice, solicitation or other document or information, written or oral,
received by the Escrow Agent from an issuer or other person with respect to
Escrow Shares held by the Escrow Agent hereunder, including, without limitation,
any proxy material, tenders, options, the pendency of calls and maturities and
the expiration of rights.
10. TERMINATION. This Agreement may be terminated at any time by and upon
the receipt by the Escrow Agent of 10 days' prior written notice of termination
executed by Parent and the Stockholder directing the distribution of all
property then held by the Escrow Agent under and pursuant to the distribution
provisions of Section 5(c) of this Agreement and such termination notice. This
Agreement shall automatically terminate if and when all amounts in the Escrow
Account (including all the securities in which any funds, if any, contained in
the Escrow Account shall have been invested) shall have been distributed by the
Escrow Agent in accordance with the terms of this Agreement and all amounts
payable to the Escrow Agent pursuant to Sections 11, 12 or 13 have been paid.
11. CONCERNING THE ESCROW AGENT.
(a) Each party acknowledges and agrees that the Escrow Agent (i) shall
not be responsible for any of the agreements referred to or described herein
(including without limitation the Reorganization Agreement), or for determining
or compelling compliance therewith, and shall not otherwise be bound thereby,
(ii) shall be obligated only for the performance of such duties as are expressly
and specifically set forth in this Agreement on its part to be performed, each
of which is ministerial (and shall not be construed to be fiduciary) in nature,
and no implied duties or obligations of any kind shall be read into this
Agreement against or on the part of the Escrow Agent, (iii) shall not be
obligated to take any legal or other action hereunder that might in its judgment
involve or cause it to incur any expense or liability unless it shall have been
furnished with acceptable indemnification, (iv) may rely on and shall be
protected in acting (or, if so requested, refraining from acting) upon and in
accordance with any written notice, instruction (including, without limitation,
wire transfer instructions, whether incorporated herein or provided in a
separate written instruction), instrument, statement, certificate, request or
other document furnished to it hereunder and believed by it to be genuine and to
have been signed or presented by the proper person, and shall have no
responsibility for determining the accuracy thereof, and (v) may consult counsel
satisfactory to it, including in-house counsel, and the opinion or advice of
such counsel in any instance shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in accordance with the opinion or advice of such counsel.
(b) The Escrow Agent shall not be liable to anyone for any action taken
or omitted to be taken by it hereunder except in the case of the Escrow Agent's
gross negligence or willful misconduct in breach of the terms of this Agreement.
In no event shall the Escrow Agent be liable for indirect, punitive, special or
consequential damage or loss (including but not limited to
8
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
lost profits) whatsoever, even if the Escrow Agent has been informed of the
likelihood of such loss or damage and regardless of the form of action.
(c) The Escrow Agent shall have no more or less responsibility or
liability on account of any action or omission of any book-entry depository or
securities intermediary employed by the Escrow Agent than any such book-entry
depository or securities intermediary has to the Escrow Agent, except to the
extent that such action or omission of any book-entry depository or securities
intermediary was caused by the Escrow Agent's own gross negligence or willful
misconduct in breach of this Agreement.
(d) The Escrow Agent may resign and be discharged from its duties
hereunder at any time by giving at least 30 days' prior written notice of such
resignation to Parent and the Stockholder specifying a date upon which such
resignation shall take effect; PROVIDED, HOWEVER, that the Escrow Agent shall
continue to serve until its successor accepts the Escrow Fund. Upon receipt of
such notice, a successor escrow agent shall be appointed by Parent and the
Stockholder, such successor escrow agent to become the Escrow Agent hereunder on
the resignation date specified in such notice. If a written instrument of
acceptance by a successor escrow agent shall not have been received by the
Escrow Agent within 40 days after the giving of such notice of resignation, the
resigning Escrow Agent may at the expense of Parent petition any court of
competent jurisdiction for the appointment of a successor escrow agent. Parent
and the Stockholder acting jointly, may at any time substitute a new escrow
agent by giving 10 days' prior written notice thereof to the Escrow Agent then
acting and by Parent paying all fees and expenses of such Escrow Agent.
12. INDEMNIFICATION. Each of the Interested Parties covenant and agree, jointly
and severally, to indemnify the Escrow Agent (and its directors, officers and
employees) and hold it (and such directors, officers and employees) harmless
from and against any loss, liability, damage, cost and expense of any nature
incurred by the Escrow Agent arising out of or in connection with this Agreement
or with the administration of its duties hereunder, including but not limited to
reasonable attorney's fees and other costs and expenses of defending or
preparing to defend against any claim of liability unless and except to the
extent such loss, liability, damage, cost and expense shall be caused by the
Escrow Agent's gross negligence or willful misconduct. The foregoing
indemnification and agreement to hold harmless shall survive the termination of
this Agreement and the resignation of the Escrow Agent.
13. FEES OF ESCROW AGENT. For its services hereunder, the Escrow Agent shall be
entitled to the fees set forth on SCHEDULE II attached hereto. The annual
Administrative Fee shall be subject to adjustment annually, upon notice. Such
fees shall be paid by Parent. In addition, the Parent and the Stockholder
jointly and severally agree to pay equally the cost of reimbursing the Escrow
Agent, and shall reimburse the Escrow Agent on demand, for all costs and
expenses incurred in connection with the administration of this Agreement or the
escrow created hereby or the performance or observance of its duties hereunder
which are in excess of its compensation for normal services hereunder, including
without limitation, payment of any reasonable legal fees and expenses incurred
by the Escrow Agent in connection with resolution of any claim by any
9
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
party hereunder ("EXTRAORDINARY ADMINISTRATIVE EXPENSES"). The Escrow Agent
shall periodically bill Parent and the Stockholder for such out of pocket fees
and expenses. The Escrow Fund shall not be available to, and shall not be used
by, the Escrow Agent to set off any obligations of any party hereto owing the
Escrow Agent in any capacity. Without altering or limiting the joint and several
liability of any of the Interested Parties to the Escrow Agent hereunder, each
of the Interested Parties agrees as between themselves that they shall share,
one half each, all amounts payable to the Escrow Agent for Extraordinary
Administrative Expenses pursuant to this Section 13.
14. CERTIFICATION OF TAX IDENTIFICATION NUMBER. The Interested Parties hereto
agree to provide the Escrow Agent with a certified tax identification number by
signing and returning a Form W-9 (or Form W-8, in case of non-U.S. persons) to
the Escrow Agent prior to the date on which any income earned on the Escrow Fund
is credited to the Escrow Fund. The Interested Parties understand that, in the
event their tax identification numbers are not certified to the Escrow Agent,
the Internal Revenue Code, as amended from time to time, may require withholding
of a portion of any income earned on the Escrow Fund.
15. TAX REPORTING. The interested Parties agree that, for tax reporting
purposes, all income earned on the Escrow Fund in any tax year shall (i) to the
extent such income is distributed by the Escrow Agent to any person or entity
pursuant to the terms of this Agreement during such tax year, to be allocated to
such person or entity, and (ii) otherwise shall be allocated to the Stockholder.
16. TAX INDEMNIFICATION. Each of the Interested Parties agree, jointly and
severally, (i) to assume any and all obligations now or hereafter arising under
any applicable tax law with respect to any payment or distribution of the Escrow
Fund to, or performance of other activities under this Agreement by, such
Interested Party, (ii) to instruct the Escrow Agent in writing with respect to
the Escrow Agent's responsibility for withholding and other taxes, assessments
or other governmental charges, and to instruct the Escrow Agent with respect to
any certifications and governmental reporting that may be required under any
laws or regulations that may be applicable in connection with its action as
Escrow Agent under this Agreement, and (iii) to indemnify and hold the Escrow
Agent harmless from any liability or obligation on account of taxes,
assessments, additions for late payment, interest, penalties expenses and other
governmental charges that may be assessed or asserted against the Escrow Agent
in connection with or relating to any payment made or other activities performed
under the terms of this Agreement, including without limitation any liability
for the withholding or deduction of (or the failure to withhold or deduct) the
same, and any liability for failure to obtain proper certifications or to report
properly to governmental authorities in connection with this Agreement,
including costs and expenses (including reasonable legal fees and expenses),
interest and penalties, to the extent that it relates to such individual
Interested Party. The foregoing indemnification and agreement to hold harmless
shall survive the termination of this Agreement and the resignation of the
Escrow Agent.
10
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
17. DISPUTES. If any dispute should arise with respect to the payment or
ownership or right of possession of the Escrow Fund, or the duties of the Escrow
Agent hereunder or should any claim be made upon the Escrow Agent or the Escrow
Fund by any third party, the Escrow Agent is authorized and directed to retain
in its possession, without liability to anyone, any part of the Escrow Fund in
dispute until such dispute shall have been settled either by mutual agreement of
Parent and the Stockholder (evidenced by appropriate instructions in writing to
the Escrow Agent signed by Parent and the Stockholder) or by the final order,
decree or judgment, received by the Escrow Agent, of a court of competent
jurisdiction in the United States of America (the time for appeal having expired
with no appeal having been taken) in a proceeding to which Parent and the
Stockholder are parties, but the Escrow Agent shall be under no duty whatsoever
to institute or defend any such proceedings.
18. MISCELLANEOUS.
(a) All notices or other communications which are required or permitted
hereunder shall be in writing and shall be deemed given (i) when received by the
addressee if delivered personally or sent by nationally-recognized overnight
courier (ii) when received by the addressee if sent by registered or certified
mail, return receipt requested and postage prepaid, or (iii) when sent by
telecopier, provided that a confirmation copy thereof is sent the same day by
postage prepaid U.S. mail. Notwithstanding the foregoing, no notice nor other
communication shall be deemed given to the Escrow Agent until the Escrow Agent's
actual receipt thereof. Notices shall be sent to the addresses given below for
the parties, or to such other address for any party notice of which, complying
with these requirements, is given by that party to all others.
(i) if to the Stockholder then to:
Debbie Dworkin
20 Taconic Road
Millwood, New York 10546
Fax: (212) 967-6256
(ii) if to Parent, to:
GHS, Inc.
2400 Research Blvd.
Rockville, Maryland 20850
Attention: Alan Gold
Telecopier: (301) 308-3254
with copies to:
Orrick, Herrington & Sutcliffe LLP
30 Rockefeller Plaza
11
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
New York, New York 10112
Attention: Martin H. Levenglick, Esq.
Telecopier: (212) 506-5151; and
if to the Escrow Agent, to the address set forth on
SCHEDULE II hereto;
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith.
(b) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(c) GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the domestic laws of the Commonwealth of Massachusetts without
giving effect to any choice of law or conflicting provision or rule.
(d) PARTIES IN INTEREST. This Agreement shall be binding upon, inure to
the benefit of, and be enforceable by, the parties hereto and their respective
successors and assigns. Anything contained herein to the contrary
notwithstanding, this Agreement shall not be assigned by any party hereto
without the consent of the other parties hereto.
(e) AMENDMENTS. This Agreement may be amended only by a written
instrument duly executed by the parties hereto. No course of conduct shall
constitute a waiver of any of the terms and conditions of this Escrow Agreement,
unless such waiver is specified in writing, and then only to the extent so
specified. A waiver of any of the terms and conditions of this Escrow Agreement
on one occasion shall not constitute a waiver of the terms of this Escrow
Agreement, or of such terms and conditions on any other occasion.
(f) HEADINGS. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) ENTIRE AGREEMENT. This Agreement and, with respect to the
Interested Parties only, the Reorganization Agreement, contain the entire
agreement among the parties hereto with respect to the transactions contemplated
hereby and supersedes all prior agreements or understandings, written or oral,
among the parties identified above with respect thereto; PROVIDED, that anything
contained herein to the contrary notwithstanding, the parties hereto agree that
the Escrow Agent shall perform its obligations under this Agreement solely by
reference to this Agreement.
(h) FORCE MAJEURE. The Escrow Agent will not be responsible for delays
or failures in performing its duties resulting from acts beyond its control such
as, but not limited to, acts of God, strikes, lockouts, riots, acts of war,
epidemics, governmental regulations superimposed after
12
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
the fact, fire, communication line failures, computer viruses, power failures,
earthquakes or other disasters.
(i) REPRODUCTION OF AGREEMENT. This Agreement and all documents
relating hereto, including, without limitation, (1) consents, waivers and
modifications that may hereafter be executed, and (2) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. It is agreed that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding, whether or not the original is in existence and
whether or not the reproduction was made by a party in the regular course of
business, and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
(j) INVESTMENT OF CASH. Should the Escrow Agent hold any cash in the
Escrow fund, the Escrow Agent shall be under no obligation to invest (or
otherwise pay interest on) such cash.
(K) CONSENT TO JURISDICTION AND SERVICE. Each of the Interested Parties
hereby absolutely and irrevocably consents and submits to the jurisdiction of
the courts in the Commonwealth of Massachusetts and of any Federal court located
in said Commonwealth in connection with any actions or proceedings brought
against any of the Interested Parties (or each of them) by the Escrow Agent
arising out of or relating to this Escrow Agreement. In any such action or
proceeding, the Interested Parties each hereby absolutely and irrevocably (i)
waives any objection to jurisdiction or venue, (ii) waives personal service of
any summons, complaint, declaration or other process, and (iii) agrees that the
service thereof may be made by certified or registered first-class mail directed
to such party, as the case may be, at their respective addresses in accordance
Section 16(a) hereof.
(L) CERTAIN DISTRIBUTIONS OF ESCROW SHARES. Notwithstanding anything herein
to the contrary, if the Escrow Agent is required to distribute Escrow Shares
pursuant hereto to a particular recipient or recipients (an "Intended
Recipient"), and the Escrow Agent has sufficient Parent Common Stock or Parent
Preferred Stock, as the case may be, to satisfy such distribution, but the stock
certificates in the Escrow Agent's possession are in such denominations that the
Escrow Agent is not able to distribute the exact number of Escrow Shares so
required to be distributed (the "Required Amount"), the Escrow Agent shall
deliver to the Parent such number of Parent Common Stock and/or Parent Preferred
Stock, as the case may be, as may exceed the Required Amount, and the Parent
shall promptly deliver to the Escrow Agent a certificate representing the number
of such shares in excess of the Required Amount (the "Excess Shares") for the
Escrow Agent to retain in escrow pursuant to the terms hereof. The Parent shall,
to the extent necessary, deliver a certificate representing the Required Amount
of the Parent Common Stock or Parent Preferred Stock, as the case may be, to the
Intended Recipient. The Escrow Agent shall not be responsible for safekeeping
the Excess Shares until received by the Escrow Agent from the Parent, and the
Escrow Agent shall not be responsible for its failure to perform hereunder
resulting from the failure of the Escrow Agent to receive such Excess Shares
from the Parent.
13
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed and delivered on the date first above written.
GHS, INC.
By: /s/ Alan Gold
---------------------------------
Name: Alan Gold
Title: President
STOCKHOLDER:
/s/ Debbie Dworkin
------------------------------------
Debbie Dworkin
Accepted and Agreed to
as of the Date First Above Written:
STATE STREET BANK AND TRUST COMPANY,
AS ESCROW AGENT:
By: /s/
--------------------------
Name:
Title:
15
<PAGE>
SCHEDULE I
ESCROW SHARES
- - -------------------------------------------------------------------------------
STOCKHOLDER ESCROW SHARES
- - -------------------------------------------------------------------------------
Debbie Dworkin [*] Parent Preferred Stock and all shares of Parent
Common Stock issued upon conversion thereof.
- - -------------------------------------------------------------------------------
16
<PAGE>
SCHEDULE II
FEES OF ESCROW AGENT
ESCROW AGENT:
State Street Bank and Trust Company
Financial Markets Group
Corporate Trust
Two International Place, 5th Floor
Boston, MA 02110-2804
Attention: GHS/Dworkin Escrow
Wire Transfer Information:
State Street Bank and Trust Company
ABA#: 011 000 028
DDA: 99039901
FFC: 122299-010
Attn: Corporate Trust Dept
Ref: GHS/Dworkin Escrow
FEES AND EXPENSES:
- - -------------------
ACCEPTANCE FEE: $1,000.00
ADMINISTRATIVE FEE: 3,500.00 per year or any part thereof
INVESTMENT FEE: $65.00 per buy/sell
SWEEP FEE: 40 basis points per annum of the
average daily net assets
WIRE FEE: $20 per wire
OUT OF POCKET EXPENSES: At Cost
LEGAL FEES: At Cost, including attorney's fees
incurred in the preparation of this
Escrow Agreement
EXTRAORDINARY ADMINISTRATIVE EXPENSES As billed as per Section 13
17
<PAGE>
Exhibit 10(c)
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
REPURCHASE AGREEMENT dated as
of May 27, 1999, between GHS, INC.,
a Delaware corporation (the
"Company"), and DEBBIE DWORKIN (the
"Stockholder").
The Stockholder owns 50,000 shares of preferred stock, $0.01 par
value (the "Preferred Stock") of the Company or common stock, $0.01 par value
(the "Common Stock" and together with the Preferred Stock, the "Shares") of the
Company issued upon conversion thereof, which Shares shall pursuant to the terms
of this Agreement, become subject to repurchase by the Company in order provide
an incentive to William Zanker ("Zanker"), the Stockholder's husband, to
exercise his best efforts on behalf of the Company or any subsidiaries or
affiliates of the Company, subject to the terms and provisions of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt
of which is hereby acknowledged, the parties hereto hereby agree as follows:
1. PURCHASE OPTION.
(a) The Shares shall be subject to the option (the "Purchase
Option") in the amounts set forth in Section 2(c) herein. In the event Zanker
shall cease to be employed by the Company (including an affiliate or a
subsidiary of the Company) pursuant to any Voluntary Termination, Involuntary
Termination or a Termination for Cause (in each case as defined in the
Employment Agreement dated as of the date hereof (the "Employment Agreement")
between the Company and Zanker) ("Cessation of Employment"), the Company shall
have the right, at any time within 60 days after the date the Zanker ceases to
be so employed, to purchase from the Stockholder or her personal representative,
as the case may be, at the purchase price specified in subsection (b) below (the
"Option Price"), up to but not exceeding the number of Shares specified in
subparagraph (c) below upon the terms hereinafter set forth; PROVIDED, HOWEVER,
that the Shares shall immediately cease to be subject to the Purchase Option (A)
upon the merger or consolidation of the Company into or with another corporation
or other entity, or the sale of all or substantially all the assets or the sale
of all of the outstanding capital stock of the Company (each, a "Sale
Transaction"), in each case under circumstances in which the holders of the
outstanding capital stock of the Company, immediately prior to the Transaction,
own less than a majority in voting power of the outstanding capital stock of the
Company or the surviving or resulting company or acquiror, as the case may be,
immediately following such Sale Transaction or (B) if Zanker is Terminated
Without Cause (as such term is defined in the Employment Agreement).
(b) The Option Price per Share (as constituted on the date
hereof) shall be:
(i) from the date hereof until May 31, 2000, the lesser
of (A) /*/ and (B) /*/ (as hereinafter defined);
<PAGE>
(ii) from June 1, 2000 until the May 31, 2001, the
lesser of (A) /*/ and (B) /*/; and
(iii) from June 1, 2001 until May 31, 2002, the lesser
of (A) /*/ and (B) /*/ (as hereinafter defined).
"Fair Value Per Share" shall mean, as of the date the Purchase Option is
exercised, (i) if the Shares are not publicly traded, a price determined in good
faith by the Board of Directors of the Company or (ii) if the Shares are
publicly traded, the average closing price per share of Common Stock as reported
in the over-the-counter market as reported on the Nasdaq National Market System
or on the principal national securities exchange on which it is so traded, as
the case may be, during the ten trading days ending on the trading date
immediately prior to the date the Purchase Option is exercised.
(c) Subject to Section 1(d) hereof and the proviso contained in
Section 1(a) hereof, upon the Cessation of Employment of Zanker during any
period of time specified in the table below, the Company may exercise the
Purchase Option for up to the maximum number of the Shares specified in the
following table for such period:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES
SUBJECT TO PURCHASE OPTION (IF SUBJECT TO PURCHASE OPTION (IF
IF CESSATION OF PREFERRED SHARES HAVE BEEN CONVERTED PREFERRED SHARES HAVE NOT BEEN
EMPLOYMENT OCCURS INTO COMMON SHARES) CONVERTED INTO COMMON SHARES)
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
During the period beginning on the /*/ /*/
date hereof and ending on August
31, 1999
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
September 1, 1999 and ending on
November 30, 1999
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
December 1, 1999 and ending on
February 28, 2000
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
March 1, 2000 and ending on May 31,
2000
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on June /*/ /*/
1, 2000
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
- - -----------------------------------------------------------------------------------------------------------------
and ending on August 31,
2000
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
September 1, 2000 and ending on
November 30, 2000
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
December 1, 2000 and ending on
February 28, 2001
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
March 1, 2001 and ending on May 31,
2001
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on June /*/ /*/
1, 2001 and ending on August 31,
2001
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
September 1, 2001 and ending on
November 30, 2001
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
December 1, 2001 and ending on
February 28, 2002
- - -----------------------------------------------------------------------------------------------------------------
During the period beginning on /*/ /*/
March 1, 2002 and ending on May 31,
2002
- - -----------------------------------------------------------------------------------------------------------------
June 1, 2002 0 0
- - -----------------------------------------------------------------------------------------------------------------
</TABLE>
(d) Nothing in this Agreement shall affect in any manner
whatsoever the right or power of the Company, or a parent or affiliate or
subsidiary of the Company, to terminate Zanker's employment for any reason, with
or without cause, and without notice.
(e) For purposes of this Agreement, the following terms shall
have the following respective meanings:
<PAGE>
2. EXERCISE OF PURCHASE OPTION. The Purchase Option shall be
exercised by written notice signed by an officer of the Company (the "Purchase
Notice") and delivered or mailed as provided in Section 9 indicating (i) that
the Company is exercising the Purchase Option, (ii) specifying a place and date
not earlier than five (5) days from the date of delivery of the Purchase Notice
for the closing of such purchase (the "Option Closing Date"), (iii) Option Price
to be paid hereunder and (iv) instructing that the Escrow Agent deliver out of
the Escrow Fund to the Company the number of shares held by the Escrow Agent
being purchased by the Company on the Option Closing Date. The Option Price
shall be payable, at the option of the Company in cash (by check) or by wire
transfer of funds.
3. ADJUSTMENTS, ETC. If, from time to time during the term of the
Purchase Option, there is:
(a) any stock dividend or liquidating dividend of cash and/or
property, stock split or other change in the character or amount of any of the
outstanding securities of the Company; or
(b) any consolidation, merger or sale of all, or substantially
all, of the assets of the Company, other than a Sale Transaction;
then, in such event, any and all new, substituted or additional securities or
other property to which Stockholder is entitled by reason of his ownership of
the Shares (the "Substituted Property") to the Purchase Option and shall be
included in the term "Shares" for all purposes of the Purchase Option with the
same force and effect as the Shares subject to the Purchase Option under the
terms of Section 1. While the total Option Price shall remain the same after
each such event, the Option Price per Company Share upon exercise of the
Purchase Option shall be appropriately adjusted.
4. RESTRICTIONS ON TRANSFER. Stockholder shall not sell or in any
other way directly or indirectly transfer, assign, pledge, distribute, bequeath,
devise, encumber or otherwise dispose of, either voluntarily or involuntarily,
with or without consideration (each, a "Sale") any of the Shares subject to the
Purchase Option.
5. LEGENDS. All certificates representing any of the Shares subject
to the provisions of this Agreement shall have endorsed thereon the following
legend
"THESE SECURITIES ARE SUBJECT TO THE TERMS, CONDITIONS AND PROVISIONS, INCLUDING
A PURCHASE OPTION AND A RIGHT OF FIRST REFUSAL, CONTAINED IN A CERTAIN AGREEMENT
BETWEEN THE RECORD HOLDER HEREOF AND THE COMPANY. A COPY OF SUCH AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE COMPANY'S OFFICES."
6. ESCROW ARRANGEMENTS. As security for her faithful performance of
the terms of this Agreement and to insure that the Shares will be available for
delivery upon exercise of the Purchase Option as herein provided, Stockholder
agrees to deliver to and deposit with State Street Bank and Trust Company, or
any successor thereto, or any other escrow agent mutually agreeable to the
Company and the Stockholder (the "Escrow Agent"), as Escrow Agent in this
transaction, two Stock Assignments, duly endorsed (with date and number of
shares blank) in the forms attached hereto as Exhibit 1, together with the
certificate or certificates evidencing the Shares. Said documents are to be held
by the Escrow Agent and delivered by the Escrow Agent
<PAGE>
pursuant to the Escrow Agreement dated as of the date hereof among the Escrow
Agent, the Company and the Stockholder and incorporated by this reference. The
escrow arrangements set forth in this Section 6 with respect to the Shares shall
not survive a Sale Transaction, and upon the consummation of any Sale
Transaction the certificates evidencing the Shares and the Stock Assignments
related thereto shall be delivered by the Escrow Agent to the registered holders
thereof; PROVIDED, that the escrow arrangements set forth in this Section 6 with
respect to the Shares shall survive any consolidation, merger or sale of the
assets or capital stock of the Company which is not a Sale Transaction and shall
remain in full force and effect with respect to the Substituted Property.
7. RIGHTS AS A STOCKHOLDER. The Company shall not be required (i) to
transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement or
(ii) to treat as the owner of such shares or to accord the right to vote as such
owner or to pay dividends to any transferee to whom such shares shall have been
so transferred. Subject to the provisions of Section 6 above, Stockholder shall,
during the term of this Agreement, exercise all rights and privileges of a
stockholder of the Company with respect to the Shares deposited in said escrow.
8. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and to be wholly performed in such State (without regard to principles of
conflicts of laws).
9. NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally, by
telecopier sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address:
(i) If to Stockholder, to:
William Zanker
20 Taconic Road
Millwood, New York 10546
Telecopier: (914) ________
(ii) If to the Company, to:
GHS, Inc.
2400 Research Blvd.
Rockville, Maryland 20850
Attention: Alan Gold
Telecopier: (301) 208-3254
<PAGE>
with copies to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Martin H. Levenglick
Telecopier: (212) 506-5151
or to such other address as the party to whom notice is to be given may have
furnished to the other parties hereto in writing in accordance herewith. Any
such notice or communication shall be deemed to be delivered and received (A) in
the case of personal delivery or delivery by telecopier, when delivered,(B) in
the case of nationally-recognized overnight courier, on next business day after
the date when sent and(C) in the case of mailing, on the third business day
following that on which the piece of mail containing such communication is
posted. As used in this Section 9, "business day" shall mean any day other than
a date in which banking institutions in the State of New York are legally closed
for business.
10. ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the Company's successors and
permitted assigns.
11. MISCELLANEOUS.
(a) Each of the parties hereto shall hereafter, at the request of
any party hereto, execute and deliver such further documents and agreements, and
do such further acts and things as may be necessary or expedient to carry out
the provisions of this Agreement.
(b) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(c) This Agreement constitutes a complete statement of all of the
arrangements between the parties as of the date hereof with respect to the
transactions contemplated hereby and supersedes all prior agreements and
understandings between such parties. No amendment, alteration or modification of
this Agreement shall be valid unless in each instance such amendment, alteration
or modification is in a writing signed by both parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
GHS, INC.
By: /s/ Alan Gold
-------------------------------------
Name: Alan Gold
Title: President
STOCKHOLDER
/s/ Debbie Dworkin
-------------------------------------
DEBBIE DWORKIN
<PAGE>
EXHIBIT 1 to Repurchase Agreement
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, _____________________ hereby sells, assigns
and transfers unto GHS, INC. __________________ shares of preferred stock, $0.01
par value, of GHS, INC., a Delaware corporation, or common stock issued upon
conversion thereof, standing in the undersigned's name on the books of said
Company represented by Certificate No. ___________, and does hereby irrevocably
constitute and appoint ______________________ attorney to transfer the said
shares on the books of the said Company with full power of substitution in the
premises.
Dated:
------------------------
Signature:
------------------------------
<PAGE>
EMPLOYMENT AGREEMENT dated as
of May 27,1999 between GHS, INC. a
Delaware corporation (the
"Company"), and William Zanker
(the "Employee").
The Company desires to employ the Employee, and the Employee desires to
accept such employment, on the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Employee, and the Employee
hereby accepts such employment by the Company, on the terms and subject to the
conditions hereinafter set forth.
2. TERM. The Employee shall be an employee of the Company for three (3) years.
The period of the Employee's employment with the Company shall be referred to
herein as the "Employment Period".
3. DUTIES. The Employee shall be employed by the Company and shall personally,
diligently and faithfully perform on a full-time and exclusive basis, such
executive duties and services and have such executive responsibilities as may be
assigned to him from time to time by the Chief Operating Officer (the "Chief
Operating Officer") of the Company and/or the general manager of the online
education division of the Company (the "General Manager") or its respective
designees. Such duties may include, without limitation, the performance of
services for or on behalf of any subsidiary or affiliate of the Company. The
Employee shall observe all reasonable rules and regulations adopted by the
Company in connection with the operation of its business and carry out all
instructions by the Company. The Employee will at all times perform all of the
duties and obligations required of the Employee under this agreement in a loyal
and conscientious manner and to the best of the Employee's ability and
experience.
4. TIME TO BE DEVOTED TO EMPLOYMENT. Except for vacations in accordance with
Section 5(c) hereof and absences due to temporary illness during the Employment
Period the Employee shall devote substantially all of his business time,
attention and energies to the performance of his duties and responsibilities
under this Agreement. During the Employment Period, the Employee shall not be
engaged in any other business activity which, in the reasonable judgment of the
Chief Operating Officer or the General Manager, conflicts with the duties of the
Employee under this Agreement, whether or not such activity is pursued for gain,
profit or other pecuniary advantage.
5. COMPENSATION; REIMBURSEMENT; ETC.
(a) BASE SALARY. The Company (or at the option of the Board of
Directors, any subsidiary or affiliate thereof) shall pay to the Employee an
annual base salary (the "Base Salary") of $200,000 subject to increase at the
sole and absolute discretion of the Board of Directors (or the Compensation
Committee thereof). The Base Salary shall be payable in equal
<PAGE>
bi-weekly installments or otherwise in accordance with the Company's then
prevailing payroll policy.
(b) BENEFITS. During the Employment Period, the Company shall provide
the Employee with such employee benefits as are provided by the Company from
time to time to its executive officers generally.
(c) VACATION. The Employee will be entitled to paid vacation days in
accordance with the normal vacation policies of the Company in effect from time
to time.
(d) REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Employee
from time to time, in accordance with the practices for employees of the
Company, for all approved travel expenses and other disbursements incurred by
him for or on behalf of the Company in accordance with the Company's policies in
connection with the performance of his duties hereunder (such expenses being
referred to herein as "Reimbursable Expenses") upon presentation of receipts or
other appropriate documentation therefor.
(e) WITHHOLDING. The Company shall deduct from any payments to be made
by it to the Employee under this Section 5 or Section 6 hereof any amounts
required to be withheld in respect of Federal, state or local income or other
taxes.
6. TERMINATION OF EMPLOYMENT.
(a) GENERAL. The Company or the Employee may terminate the Employee's
employment hereunder at any time for any reason or for no reason. The Employee's
employment shall terminate automatically upon his death. Any termination of the
Employee's employment is referred to herein as a "Termination of Employment."
(b) TERMINATION NOTICE. The Company or the Employee may initiate a
Termination of Employment by giving the other party written notice thereof (the
"Termination Notice"). In the event of a Termination for Cause, the Termination
Notice shall include reasonable detail related to the cause for termination;
PROVIDED, HOWEVER, that if the Company does not include such detail in the
Termination Notice in connection with a Termination for Cause, the Company can
provide such reasonable detail in a separate writing delivered to the Employee
within a reasonable time after the Termination Date.
(c) TERMINATION DATE. The effective date (the "Termination Date") of
any Termination of Employment shall be deemed to be the later of (i) the date on
which the Termination Notice is given and (ii) the date specified as the
effective date in the Termination Notice; PROVIDED, HOWEVER, that in the case of
the Employee's death, the Termination Date shall be the date of death.
(d) CERTAIN DEFINITIONS.
(i) "CAUSE" shall mean (A) the Employee's misconduct which could
reasonably be expected to have a material adverse effect on the business,
assets, results of operations or financial condition of the Company, (B) any
material misrepresentation under the Agreement and Plan of Reorganization dated
as of the date hereof, among the Company,
-2-
<PAGE>
Concept Development, Inc., the Employee and the other parties thereto (C) the
Employee's disregard of lawful instructions of the Chief Operating Officer or
the General Manager (or its designees) consistent with the Employee's position
with the Company or insubordination, neglect of duties or failure to act, which,
in each case, could reasonably be expected to have a material adverse effect on
the business, assets, results of operations or financial condition of the
Company, (D) alcohol or drug abuse by the Employee, (E) the commission by the
Employee of a felony or an act involving fraud, moral turpitude, theft,
dishonesty or unethical business conduct, (F) the Employee's material breach of
any of the Employee's obligations contained herein or in any of the agreements
referred to herein or (G) the Employee's engaging in, directly or indirectly,
any publicity unauthorized by the Chief Operating Officer or his or her
designee; PROVIDED, that for events described in Section 6(d)(i)(C) above, the
Employee will have a one-time only right to cure such event (to the extent
reasonably curable) within not more than three (3) business days of the date of
receipt of a Termination Notice.
(ii) "INVOLUNTARY TERMINATION" shall mean the Employee is
incapacitated or disabled by accident, sickness or otherwise so as to render his
mentally or physically incapable of performing his duties for a period of 90
consecutive days, or for an aggregate of 120 days during any twelve-month
period. In the event of an Involuntary Termination, the Termination Notice must
state that the Termination of Employment is an Involuntary Termination.
(iii) "VOLUNTARY TERMINATION" shall mean any Termination of
Employment other than an Involuntary Termination, a Termination for Cause or a
Termination Without Cause.
(iv) "TERMINATION FOR CAUSE" shall mean any Termination of
Employment initiated by the Company upon the occurrence of an event that
constitutes Cause.
(v) "TERMINATION WITHOUT CAUSE" shall mean any Termination of
Employment initiated by the Company other than a Termination for Cause, a
Voluntary Termination or an Involuntary Termination; PROVIDED, that if the
Employee is terminated by the Company solely for refusing to relocate his
principal place of employment from New York, such termination shall be deemed to
be a Termination Without Cause.
7. EFFECT OF TERMINATION OF EMPLOYMENT. In the event of any Termination of
Employment of the Employee neither the Employee nor his estate or beneficiaries
shall have any further rights or claims against the Company under this Agreement
except the right to receive:
(a) the portion of the Base Salary which accrued with respect to the
period prior to the Termination Date but which remained unpaid as of the
Termination Date; and
(b) the aggregate amount of Reimbursable Expenses which were incurred
prior to the Termination Date but which were not reimbursed by the Corporation
as provided in Section 5(e) prior to the Termination Date;
PROVIDED, HOWEVER, that if the Termination of Employment is pursuant to a
Termination Without Cause, then, in addition to the amounts computed pursuant to
Sections 7(a) and 7(b) above, the Employee shall have the right to receive as
severance compensation an amount equal to the
-3-
<PAGE>
Employee's Base Salary for the remainder of the Employment Period (the
"Severance Payment"), such amount to be payable at the same times and in the
same manner in which the Base Salary would have been payable to the Employee had
the Termination of Employment not occurred. Any income derived from other
sources (other than investment income derived solely from passive investment
activity) during the period beginning on the Termination Date and ending on the
third anniversary of the date hereof (the "Severance Period") will offset,
dollar for dollar, the Company's obligation to make Severance Payments by that
same amount. Upon (i) a Termination of Employment for Cause, (ii) a Voluntary
Termination or (iii) an Involuntary Termination, the Employee shall not be
entitled to any Severance Payment.
8. NON-COMPETE, NON-DISCLOSURE AND ASSIGNMENT OF INVENTIONS AGREEMENT.
Reference is made to the Non-Competition, Non-Disclosure and Assignment of
Inventions Agreement (the "NDA") attached hereto as EXHIBIT A, the provisions of
which are hereby incorporated herein and made a part hereof as if set forth in
their entirety. The Employee hereby confirms the NDA and shall observe and
perform the obligations set forth in such NDA in all respects.
9. NOTICES. All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if (a) delivered personally or sent
by telecopier, (b) sent by nationally-recognized overnight courier or (c) sent
by certified mail, postage prepaid, return receipt requested, addressed as
follows:
(i) if to the Company, to:
GHS, Inc.
2400 Research Boulevard
New York, New York 20850
Attention: Secretary
Telecopier: (301) 208-3254;
(ii) if to the Employee, to the Employee's address on the books or
records of the Company;
or to such other address as the party to whom notice is to be given may have
furnished to each other party in writing in accordance herewith. Any such
communication shall be deemed to have been given (i) when delivered if
personally delivered or sent by telecopier, (ii) on the Business Day (as
hereinafter defined) after dispatch if sent by nationally-recognized, overnight
courier and (iii) on the fifth Business Day after dispatch if sent by mail. As
used herein, "Business Day" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York, New York are not required to be open.
10. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other agreements
referred to herein contain the entire agreement between the parties with respect
to the subject matter hereof and supersede all prior or contemporaneous
negotiations, correspondence, understandings and agreements between the parties
with respect thereto. This Agreement may be amended only by an agreement in
writing signed by both parties hereto.
-4-
<PAGE>
11. ASSIGNMENT; SUCCESSORS; BENEFITS OF AGREEMENT. This Agreement is personal in
its nature and neither party hereto shall, without the consent of the other,
assign or transfer this Agreement or any rights or obligations hereunder;
PROVIDED, HOWEVER, that the Company shall have the right to assign its rights
hereunder to a successor to all or substantially all of the Company's business
as part of a merger with, or acquisition of the Company by, another business
entity. The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective heirs, executors, administrators and successors and
permitted assigns of the parties hereto.
12. WAIVER OF BREACH. A waiver of any breach of any provision of this Agreement
shall not constitute or operate as a waiver of any other breach of such
provision or of any other provision, and any failure to enforce any provision
hereof shall not operate as a waiver of such provision or of any other
provision.
13. COUNTERPARTS; HEADINGS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. Headings used herein are for convenience
of reference only and are not to affect the interpretation of this Agreement.
14. GOVERNING LAW. This Agreement will be governed by, and construed and
enforced in accordance with, the laws of the State of New York (without giving
effect to principles governing conflicts of laws).
15. SEVERABILITY. In the event that any provision of this Agreement would be
held in any jurisdiction to be invalid, prohibited or unenforceable for any
reason, such provision, as to such jurisdiction, shall be ineffective, without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so
as not to be invalid, prohibited or unenforceable in such jurisdiction, it
shall, as to such jurisdiction, be so narrowly drawn, without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
16. REMEDIES. The Employee acknowledges and understands that the provisions of
this Agreement are of a special and unique nature, the loss of which cannot be
adequately compensated for in damages by an action at law, and that the breach
or threatened breach of the provisions of this Agreement would cause the Company
irreparable harm. In the event of a breach or threatened breach by the Employee
of the provisions of this Agreement, the Company shall be entitled to an
injunction restraining him from such breach. No failure or delay in exercising
any right or remedy shall operate as a waiver thereof or modify the terms of
this Agreement, nor shall any single or partial exercise of any right or remedy
preclude any other or further exercise of the same or any other right or remedy
with respect to, among other things, any breach or threatened breach of this
Agreement.
***
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
GHS, INC.
By: /s/ Alan Gold
-------------------------------
Name: Alan Gold
Title: President
EMPLOYEE
William Zanker
-------------------------------
William Zanker
<PAGE>
EXHIBIT A
GHS, INC.
EMPLOYEE NON-DISCLOSURE, NON-COMPETITION
AND ASSIGNMENT OF INVENTIONS AGREEMENT
In consideration and as a condition of the continued employment of
William Zanker (the "Employee") by GHS, INC. (the "Company"), the Employee
hereby agrees with the Company as follows:
1. USE OF CONFIDENTIAL INFORMATION. During the course of the Employee's
employment with the Company, the Employee has and will continue to gain access
to or knowledge of, or work on the development or creation of Confidential
Information (as hereinafter defined). The Employee hereby agrees that he/she
will not at any time, whether during or after the termination of his/her
employment, reveal to any person or entity any Confidential Information of the
Company or of any third party which the Company is under an obligation to keep
confidential, except as may be required in the ordinary course of performing
his/her duties as an employee of the Company, and the Employee shall keep secret
all Confidential Information and shall not use or attempt to use any such
information in any manner, except as may be required in the ordinary course of
performing his/her duties as an employee of the Company.
2. DEFINITION OF CONFIDENTIAL INFORMATION.
(a) As used herein, the term "Confidential Information" shall mean all
trade secrets and confidential and proprietary information relating to the
Company, including, without limitation: (i) supplier and customer lists,
supplier and customer-specific information, user lists, vendor lists and content
provider lists; (ii) planning data and selling and marketing strategies; (iii)
product and process designs, formulas, processes, plans, drawings, concepts,
techniques, systems, strategies, software programs and works of authorship; (iv)
manufacturing and operating methods; (v) research and development data and
materials, including those related to the research and development of products,
materials or manufacturing and other processes; (vi) financial and accounting
information, financial and accounting records, pricing information, projects,
budgets, projections and forecasts; (vii) all industrial and intellectual
property rights, including, without limitation, patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, copyright applications, databases,
algorithms, computer programs and other software, know-how, trade secrets,
proprietary processes and formulae, inventions, trade dress, logos, design and
all documentation and media constituting, describing or relating to the above;
and (h) other information with respect to the Company, which, if divulged to the
Company's competitors, would impair the Company's ability to compete in the
marketplace.
(b) Confidential Information shall not include: (i) information that at
the time of disclosure is in the public domain through no fault of the Employee;
(ii) information received from a third party outside of the Company that was
disclosed without a breach of any
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confidentiality obligation; or (iii) information approved for release by
written authorization of the Company.
(c) In the event the Employee becomes legally compelled to disclose
Confidential Information pursuant to a subpoena, summons, order or other
judicial or governmental process, the Employee shall provide the Company with
prompt notice thereof so that the Company may seek a protective order or another
appropriate remedy, or waive compliance with the relevant provisions of this
agreement. In the event such a protective order or other remedy is not obtained,
or that such a waiver is granted, the Employee shall furnish only that portion
of the Confidential Information that is legally required.
3. RETURN OF CONFIDENTIAL INFORMATION. The Employee hereby further agrees that
during his/her employment he/she shall not take, use or permit to be used any
notes, memoranda, reports, lists, records, drawings, sketches, specifications,
software programs, data, documentation or other materials of any nature relating
to any matter within the scope of the business of the Company or concerning any
of its dealings or affairs otherwise than for the benefit of the Company. The
Employee further agrees that he/she shall not, after the termination of his/her
employment, use or permit to be used any such notes, memoranda, reports, lists,
records, drawings, sketches, specifications, software programs, data,
documentation or other materials, it being agreed that all of the foregoing
shall be and remain the sole and exclusive property of the Company and that
immediately upon the termination of his/her employment, the Employee shall
deliver all of the foregoing, and all copies thereof, to the Company at its main
office.
4. ASSIGNMENT OF DEVELOPMENTS.
(a) If at any time or times during his/her employment the Employee
shall (either alone or with others) make, conceive, discover or reduce to
practice any invention, modification, discovery, design, development,
improvement, process, software program, work-of-authorship, documentation,
formula, data, technique, know-how, secret or intellectual property right
whatsoever or any interest therein (whether or not patentable or registrable
under copyright or similar statutes or subject to analogous protection) (herein
called "Developments") that (a) relates to the business of the Company or any
customer of or supplier to the Company or any of the products or services being
developed, manufactured, sold or provided by the Company or which may be used in
relation therewith, (b) results from tasks assigned to the Employee by the
Company or (c) results from the use of premises or personal property (whether
tangible or intangible) owned, leased or contracted for by the Company, such
Developments and the benefits thereof shall immediately become the sole and
absolute property of the Company and its assigns, and the Employee shall
promptly disclose to the Company (or any persons designated by it) each such
Development and hereby assigns any rights the Employee may have or acquire in
the Developments and benefits and/or rights resulting therefrom to the Company
and its assigns without further compensation and shall communicate, without cost
or delay, and without publishing the same, all available information relating
thereto (with all necessary documentation, plans and models) to the Company.
(b) Upon disclosure of each Development to the Company, the Employee
will, during his/her employment and at any time thereafter, at the request and
cost of the
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Company, sign, execute, make and do all such deeds, documents, acts and
things as the Company and its duly authorized agents may reasonably require:
(i) to apply for, obtain and vest in the name of the Company
alone (unless the Company otherwise directs) letters patent, copyrights,
trademarks, service marks or other analogous protection in any country
throughout the world and when so obtained or vested to renew and restore the
same; and
(ii) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyrights, trademarks, service marks or
other analogous protection.
(c) In the event the Company is unable, after reasonable effort, to
secure the Employee's signature on any letters patent, copyrights, trademarks,
service marks or other analogous protection relating to a Development, whether
because of the Employee's physical or mental incapacity or for any other reason
whatsoever, the Employee hereby irrevocably designates and appoints the Company
and its duly authorized officers and agents as the Employee's agent and
attorney-in-fact, to act for and in his/her behalf and stead to execute and file
any such application or applications and to do all other lawfully permitted acts
to further the prosecution and issuance of any such letters patent, copyrights,
trademarks, service marks and other analogous protection thereon with the same
legal force and effect as if executed by the Employee.
5. NON-COMPETITION. While employed at the Company and (A) if the Employee is
Terminated Without Cause (as defined in the Employment Agreement dated as of the
date hereof between the Company and the Employee), for a period of the longer of
(i) the Severance Period (as defined in the Employment Agreement) PLUS nine (9)
months and (ii) one (1) year after termination of the Employee's employment or
(B) if the Employee is terminated for any reason (whether voluntary or
involuntary) other than a Termination Without Cause, one (1) year after
termination of the Employee's employment (the period from the commencement of
employment through the period subsequent to termination as specified above
herein referred to as the "Non-Competition Period"), the Employee agrees that
he/she will not, whether alone or as an individual proprietor, partner, officer,
director, consultant, agent, employee or stockholder of any company or other
commercial enterprise, directly or indirectly, engage in any business activity
that competes with any business conducted by the Company or any of its
subsidiaries at any time during the period of the Employee's employment with the
Company, or any business planned by the Company or any of its subsidiaries at
any time during the period of the Employee's employment with the Company nor
otherwise assist such company or other commercial enterprise in engaging in such
business activity. The Employee shall be permitted to own securities of a public
company not in excess of one percent (1%) of any class of such securities and
such ownership shall not, by itself, violate the terms of this Paragraph 5.
6. NON-SOLICITATION OF COMPANY EMPLOYEES. While employed at the Company and for
a period of three (3) years after termination of the Employee's employment for
any reason (whether voluntary or involuntary), the Employee will not, directly
or indirectly, solicit, recruit or hire any employee of the Company to work for
a third party other than the Company or
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engage in any activity that would cause any employee to violate any agreement
with the Company.
7. NON-SOLICITATION OF COMPANY CUSTOMERS AND SUPPLIERS. While employed by the
Company and for a period of three (3) years after termination of the Employee's
employment for any reason (whether voluntary or involuntary), the Employee will
not, directly or indirectly, solicit, entice or induce any Customer or Supplier
(as defined below) of the Company to become a Customer or Supplier of any other
person or entity engaged in any competitive activity, or to cease doing business
with the Company, and the Employee will not assist any person or entity in
taking any such action. For purposes of this Agreement, (x) a "Customer" of the
Company means any person, corporation, partnership, trust, division, business
unit, department or agency which, at the time of termination or within one (1)
year prior thereto, shall be or shall have been a customer, distributor or agent
of the Company or shall be or shall have been contacted by the Company for the
purpose of soliciting it to become a customer, distributor or agent of the
Company, and (y) a "Supplier" of the Company means any person, corporation,
partnership, trust, division, business unit, department or agency which, at the
time of determination or within one (1) year prior thereto, shall be or shall
have been a supplier, vendor, manufacturer or developer for any product or
significant component, design or software used in any product or service of the
Company. In the case of an entity with multiple divisions, departments or
business units, a determination shall be made in good faith by the Board of
Directors as to whether the entire entity or a specific division, department or
unit is a Customer based on the nature of the relationship between the Company
and the Customer.
8. EMPLOYEE REPRESENTATIONS.
(a) The Employee hereby represents and warrants to the Company that,
except as specifically disclosed in writing to the Company prior to commencing
employment with the Company, the Employee is not bound by the terms of any
agreement with any previous employees or other party to refrain from using or
disclosing any trade secret or confidential or proprietary information in the
course of his/her employment with the Company or to refrain from competing,
directly or indirectly, with the business of such previous employer or any other
party.
(b) The Employee further represents and warrants to the Company that
his/her performance of all the terms of this Agreement and as an employee of the
Company does not and will not breach any agreement to keep in confidence
proprietary information, knowledge or data acquired by the Employee in
confidence or in trust prior to his/her employment with the Company, and the
Employee will not disclose to the Company or induce the Company to use any
confidential or proprietary information or material belonging to any previous
employer or others.
9. INJUNCTIVE RELIEF. The Employee agrees that any breach of this Agreement by
the Employee will cause irreparable damage to the Company and that in the event
of such breach the Company shall have, in addition to any and all remedies of
law, the right to an injunction, specific performance or other equitable relief
to prevent the violation of the Employee's obligations hereunder. Nothing herein
contained shall be construed as prohibiting the Company from pursuing any other
remedy available for such breach or threatened breach. The prevailing party in
any litigation arising under this Agreement shall be entitled to recover his or
its attorneys' fees and expenses in addition to all other available remedies.
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10. MISCELLANEOUS.
(a) The Employee understands that this Agreement does not create an
obligation on the Company or any other person or entity to continue the
Employee's employment or to exploit any Developments.
(b) Any waiver by the Company of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision hereof.
(c) The Employee hereby acknowledges that the type and periods of
restriction imposed in the provisions of this Agreement are fair and reasonable
and are reasonably required for the protection of the Company's proprietary
information and the goodwill associated with the business of the Company. The
Employee hereby further acknowledges that the provisions of this Agreement shall
be enforced to the fullest extent permissible under the laws and public policies
applied in each jurisdiction in which enforcement is sought. Accordingly, the
Employee agrees that if any particular provision of this Agreement shall be
adjudicated to be invalid or unenforceable, such provision shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of such
provision in the particular jurisdiction in which such adjudication is made. In
addition, if any one or more of the provisions contained in this Agreement shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, it shall be construed by limiting and reducing it,
so as to be enforceable to the extent compatible with the applicable law as it
shall then appear. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(d) The Employee's obligations under this Agreement shall survive the
termination of the Employee's employment regardless of the manner of such
termination and shall be binding upon the Employee's heirs, executors,
administrators and legal representatives.
(e) The term "Company" shall include GHS, Inc. and any of its
subsidiaries and divisions. The Company shall have the right to assign this
Agreement to its successors and assigns, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by said successors or
assigns.
(f) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed wholly therein (without regard to principles of conflicts of laws).
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IN WITNESS WHEREOF, the undersigned has executed this Employee
Non-Disclosure, Non-Competition and Assignment of Inventions Agreement as of the
__ day of __________, 1999.
----------------------
Signature
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Name - please print
----------------------
----------------------
Address
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* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
CONFIDENTIAL
EXCLUSIVE LICENSE AND MARKETING AGREEMENT
Exclusive License and Marketing Agreement (the "Agreement") dated as of
May 27, 1999 (the "Effective Date"), among GHS, INC., a Delaware corporation
("GHS"), having a principal place of business at 704 Broadway, 2nd Floor, New
York, New York 10003, and SELIGMAN GREER COMMUNICATION RESOURCES, INC., a
California corporation (d/b/a The Learning Annex of San Francisco), SGS
COMMUNICATION RESOURCES, INC., a California corporation (d/b/a The Learning
Annex of Los Angeles), SELIGMAN GREER SANDBERG ENTERPRISES, INC., a California
corporation (d/b/a The Learning Annex of San Diego), SGC COMMUNICATION RESOURCES
LLC, a Delaware limited liability company (d/b/a The Learning Annex of New York)
and LEARNING ANNEX INTERACTIVE LLC, a Delaware limited liability company
(collectively, "THE LEARNING ANNEX") with offices at c/o Stephen Seligman, 291
Geary Street, Suite 510, San Francisco, California 94102. GHS and Learning Annex
are each referred to herein as "Party" or collectively as "Parties".
INTRODUCTION
GHS owns, operates and/or distributes information on the Internet and
through other offline media. Learning Annex creates and manages self improvement
and education seminars and events and creates and distributes various products
relating to the same.
Each of Learning Annex and GHS desire to provide certain content,
products and services relating to the promotion of each of Learning Annex and
GHS on the terms and subject to the conditions set forth herein.
NOW THEREFORE, the parties hereby agree as follows:
TERMS
1. DEFINITIONS. The following terms shall have the following meanings for
the purpose of this Agreement:
1.1 "GHS MARKS" means the brands, URL's, logos and trademarks of GHS to
be utilized by Learning Annex in accordance with the terms and conditions of
Agreement, each of which shall be identified by GHS as soon as practicable after
the date hereof.
1.2 "GHS MATERIALS" means the GHS Marks and the GHS Seminars.
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1.3 "GHS SEMINARS" shall mean any courses, seminars, training sessions
or events that are delivered to Students via the Internet, including those
courses that are booked by the Learning Annex pursuant to the terms of this
Agreement.
1.4 "GHS WEB SITE" means the web site or URL as may be designated by
GHS from time to time.
1.5 "INTERNET" means any network of interconnected computer networks,
using the Transmission Control Protocol/Internet Protocol and/or such other
standard network interconnection protocols as may be adopted from time to time,
which is used to transmit content that is directly or indirectly delivered to a
computer or other digital electronic device for display to an end-user, whether
such Content is delivered through on-line browsers, off-line browsers, or
through "push" technology, electronic mail, broadband distribution, satellite,
wireless or otherwise, and any subset of such network, such as "intranets".
1.6 "LEARNING ANNEX CONTENT" means all seminars, locations and events
(each, a "Learning Annex Seminar") hosted by Learning Annex (including text,
pictures, graphics, sound, video and other data utilized in such Learning Annex
Seminar). If the Learning Annex has not obtained, after using its best efforts,
permission from an instructor to distribute on the Internet the content
contained in Learning Annex Seminars that were presented prior to the date
hereof by such instructor, then such content shall not be included in the
definition of Learning Annex Content.
1.7 "LEARNING ANNEX MARKS" means the name, brands, URL's, logos and
trademarks of the Learning Annex to be utilized by GHS in accordance with and in
order to effectuate the terms and conditions of Agreement. The Learning Annex
Marks presently owned or licensed by the Learning Annex are identified on
Schedule 1.7 attached hereto, which Schedule 1.7 shall be automatically amended
to include any additional Learning Annex Marks acquired during the Term.
1.8 "LEARNING ANNEX MATERIALS" means Learning Annex Content, Learning
Annex Marks and Learning Annex Products.
1.9 "LEARNING ANNEX PRODUCTS" means all products manufactured, sold or
distributed by Learning Annex now or in the future including, without
limitation, all books, videos and tapes and provided hereunder in accordance
with the terms and conditions of this Agreement.
1.10 "LEARNING ANNEX SEMINAR" shall have the meaning set forth in
Section 1.6.
1.11 "MARKS" means The Learning Annex Marks or the GHS Marks, as the
case may be.
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1.12 "STUDENT" means any registrant or attendee of a Learning Annex
Seminar or a GHS Seminar, as the case may be.
2. LICENSE.
2.1 LEARNING ANNEX MARKS. Subject to the terms of this Agreement,
Learning Annex hereby grants GHS a worldwide, royalty-free, exclusive right and
license to use on the Internet the Learning Annex Marks for all purposes (with
the exception of the "learningannex.com" URL, the sole use of which shall be
limited to information and registration for Learning Annex Seminars); PROVIDED
that GHS: (a) does not create a unitary composite mark involving a Learning
Annex Mark without the prior written approval of Learning Annex, which approval
may be withheld in its reasonable discretion; and (b) uses the Learning Annex
Marks only in the formats in which they have heretofore been used by the
Learning Annex, unless the Learning Annex expressly approves in advance of any
change in writing.
2.2 LEARNING ANNEX CONTENT. Subject to the terms of this Agreement,
Learning Annex hereby grants GHS a worldwide, royalty-free, exclusive right and
license (i) to reproduce Learning Annex Content by audio and visual reproduction
(the "Reproductions"), (ii) to distribute, transmit, store, communicate,
perform, market, enhance, establish navigational icons, links and pointers
within, display, promote, create derivative works from and sublicense the
Reproductions solely on the Internet, and (iii) to "webcast" the Learning Annex
Content via an online or Internet transmission, PROVIDED that the license to
"webcast" the Learning Annex Content pursuant to this Section 2.2 shall not be
royalty-free and the Parties shall determine in good faith a mutually agreeable
royalty for such license; PROVIDED FURTHER, HOWEVER, that the right and license
granted under this Section 2.3 shall be non-exclusive as to Disclosed Existing
Rights (as hereinafter defined).
2.3 LEARNING ANNEX PRODUCTS. Subject to the terms of this Agreement,
Learning Annex hereby grants GHS a worldwide, royalty-free, exclusive right and
license to distribute, market and sell on the Internet all Learning Annex
Products; PROVIDED, HOWEVER, that the right and license granted under this
Section 2.3 shall be non-exclusive as to Disclosed Existing Rights.
2.4 LEARNING ANNEX MAILING LIST. Subject to the terms of this
Agreement, Learning Annex hereby grants GHS a worldwide, royalty-free, exclusive
right and license to use the Learning Annex mailing list for purposes related to
the promotion of the GHS Seminars; PROVIDED, HOWEVER, that GHS shall also be
permitted to use the Learning Annex mailing list for promotions of other aspects
of the GHS business if the promotion of GHS Seminars also includes such
promotions of other aspects of the GHS business.
2.5 GHS MARKS. Subject to the terms of this Agreement, GHS hereby
grants to the Learning Annex a worldwide, royalty-free right and license to use
the GHS Marks for the purposes identified in this Agreement; PROVIDED that
Learning Annex: (a) does not create a unitary composite mark involving a GHS
Mark without the prior written
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approval of GHS, which approval may be withheld in its reasonable discretion and
(b) uses the GHS Marks only in the formats in which they have heretofore been
used by the GHS, unless the GHS expressly approves in advance of any change in
writing.
2.6 EXCLUSIVITY. During the term of this Agreement and subject to the
terms hereof, Learning Annex agrees that GHS will be the sole licensee of any
Learning Annex Content, Learning Annex Marks and Learning Annex Products owned,
licensed or sublicensed by Learning Annex for any use or distribution on the
Internet; PROVIDED, HOWEVER, that the right and license granted under Section
2.3 shall be non-exclusive as to Disclosed Existing Rights.
3. TERM; TERMINATION.
3.1 INITIAL TERM. The initial term shall commence on the Effective Date
and shall continue until [*] (the "Initial Term").
(a) RENEWAL TERMS. [*]
3.2 TERMINATION FOR BREACH. Except as expressly provided elsewhere in
this Agreement, either Party may terminate this Agreement at any time in the
event of a material breach of this Agreement by the other Party which remains
uncured after thirty (30) days written notice thereof to the other Party (or
such shorter period as may be specified elsewhere in this Agreement). A failure
to pay any licensing fees due under this Agreement within ten (10) days of its
due date shall be deemed to be a material breach of this Agreement.
3.3 EFFECT OF TERMINATION. Upon the expiration or termination of this
Agreement, (i) neither Party shall have any further right to exercise any or all
of the license rights contained in Section 2 hereof and such license rights
shall forthwith revert to the other Party, (ii) all items identified in Section
1.9 and furnished by Learning Annex to GHS shall immediately be returned to the
Learning Annex at GHS's expense, (iii) all items identified in Section 1.2 and
furnished by GHS to Learning Annex shall immediately be returned to GHS at the
Learning Annex's expense and (iv) all portions of those items identified in
subclauses (ii) and (iii) above that are not returned as described above shall
be destroyed and a certificate evidencing such destruction shall be delivered to
the Party that owns such items.
4. LICENSE CONSIDERATION.
4.1 [*]
(a) [*]
(b) Learning Annex shall have executed and delivered to GHS the
Investor Suitability Questionnaire, which includes certain investment
representations,
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attached hereto as EXHIBIT B, the provisions of which are incorporated herein by
reference.
4.2 [*]
(a) [*]
(b) [*]
5. OWNERSHIP OF MARKS AND CONTENT; QUALITY CONTROL.
5.1 OWNERSHIP OF LEARNING ANNEX CONTENT AND LEARNING ANNEX MARKS. All
right, title and interest in and to the Learning Annex Content and Learning
Annex Marks as well as intellectual property rights (including without
limitation all rights therein under copyright, trademark, trade secret and
similar laws) shall remain with Learning Annex or its licensors and/or
suppliers.
5.2 OWNERSHIP OF GHS MATERIALS. All right, title and interest in and to
the GHS Materials and any intellectual property rights of GHS (including without
limitation all rights therein under copyright, trademark, trade secret and
similar laws) shall remain with GHS or its licensors and/or suppliers.
5.3 TRADEMARK RIGHTS. Each Party acknowledges that its utilization of
the other Party's Marks will not create in it, nor will it represent it has, any
right, title or interest in or to such Marks other than the licenses expressly
granted herein. Each Party agrees not to do anything contesting or impairing the
trademark rights of the other Party.
5.4 QUALITY STANDARDS. Each Party: (a) agrees that the nature and
quality of its products and services supplied in connection with the other
Party's Marks shall conform to quality standards communicated in writing by the
other Party for use of its trademarks; (b) agrees to supply the other Party,
upon request, with a reasonable number of samples of any materials publicly
disseminated by such Party which utilize the other Party's Marks; (c) shall
accurately reproduce any graphic portions of the other Party's Marks and
displays symbols and notices clearly and sufficiently indicating the trademark
status and ownership of the other Party's Marks in accordance with applicable
trademark law and practice; (d) understands and acknowledges that the other
Party has the right to establish and to change standards of quality for the
services rendered under its Marks, and agrees to conform to such standards as
the other Party may establish from time to time, (e) shall use the other Party's
marks only in the formats in which they have heretofore been used by the other
Party, unless the other Party expressly approves any change in writing, and (f)
shall comply with all applicable laws, regulations and customs and obtain any
required government approvals pertaining to use of the other Party's Marks.
5.5 DUTY TO INFORM. Each party shall promptly inform the other Party of
any information related to the other Party's Marks which could reasonably lead
to a claim, demand or liability of or against the other Party by any third
party.
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6. CO-MARKETING OBLIGATIONS.
6.1 THE LEARNING ANNEX MAGAZINE.
(a) Learning Annex shall include the following, in each edition of
the LEARNING ANNEX MAGAZINE that is distributed in each Learning Annex location
and city:
(i) an advertisement for each of the courses offered by GHS
adjacent to its counterpart course, if any, offered by Learning Annex via a
visual burst or icon;
(ii) (A) multiple advertisements for GHS or GHS Seminars, the
number and size of which shall be determined by GHS in its sole discretion and
the placement of which shall be mutually agreed upon by the Parties or (B) the
first opportunity to include an exclusive insert, the size and design of which
shall be determined by GHS in its sole discretion and the placement of which
shall be mutually agreed upon by the Parties, PROVIDED that if the Learning
Annex has an opportunity to include inserts from other third parties in the
LEARNING ANNEX MAGAZINE, then the Learning Annex shall notify GHS in writing of
such opportunity (which notice shall identify the third party and type of
insert) and GHS shall within ten (10) days of receipt of such notification GHS
inform the Learning Annex whether the inclusion of such insert with the GHS
insert is acceptable; and
(iii) taglines (such as "Can't make it to class - take it
online at ConceptDevelopment.com" or such other words or phrases to similar
effect ) related to GHS programming to be placed throughout such edition of the
LEARNING ANNEX MAGAZINE, which taglines shall be developed solely by GHS and
approved by the Learning Annex, which approval shall not be unreasonably
withheld or delayed.
(b) All advertisements and inserts that are included in the
LEARNING ANNEX MAGAZINE shall be subject to and conform to the Learning Annex's
standard operating protocol for acceptance in the LEARNING ANNEX MAGAZINE
attached hereto as EXHIBIT C.
(c) In connection this Section 6.1, the Learning Annex shall (i)
inform GHS of the editorial schedule (the "Editorial Schedule") of the LEARNING
ANNEX MAGAZINE (including requisite delivery dates for each of the items
identified in Section 6.1(a) above) and (ii) provide GHS with sixty (60) days
written notice of any changes to such schedule. GHS shall deliver each of the
items identified in Section 6.1(a) to the Learning Annex in accordance with the
Editorial Schedule for inclusion in each LEARNING ANNEX MAGAZINE. The Editorial
Schedule is attached hereto as EXHIBIT D.
(d) GHS shall pay for the direct costs related to the additional
printing, insertion, production and/or postage charges incurred in connection
with the items identified in Section 6.1(a).
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(e) In the event that GHS places additional full-page
advertisements on one or more pages of the LEARNING ANNEX MAGAZINE, the Learning
Annex shall make such pages available to GHS at a price that is no greater than
cost to Learning Annex to produce such advertisements.
6.2 PROMOTION.
(a) STREET STANDS. Learning Annex shall affix advertising stickers
promoting GHS on existing and newly placed Learning Annex streets stands which
are located on street and store locations throughout the United States and
contain copies of the LEARNING ANNEX MAGAZINE. The advertising stickers shall be
developed solely by GHS and approved by the Learning Annex, which approval shall
not be unreasonably withheld or delayed. GHS shall pay for the cost of producing
such advertising stickers.
(b) ADVERTISEMENTS. In Learning Annex's television, radio, print
and "out of home" (e.g., buses and billboards) advertisements or co-sponsorships
and in any publications, programs, features or other forms of media over which
Learning Annex exercises at least partial editorial control, Learning Annex will
include specific references or mentions (verbally where possible) of the
availability of GHS, which references shall be reasonably determined by GHS.
(c) MATERIALS. At all locations where Learning Annex sells or
distributes any of its materials, including any location where Learning Annex
Products are sold or distributed or any location where registration for any
Learning Annex Seminar is offered, Learning Annex shall make available at such
location all materials of GHS requested by GHS to be included with such
distributions of Learning Annex materials. GHS shall incur all costs directly
related to the inclusion of its materials pursuant to this Section 7.2(c).
(d) LEARNING ANNEX LOCATIONS. At all locations at which Learning
Annex hosts Learning Annex Seminars, Learning Annex shall:
(i) prominently display GHS "take-one" cards, such cards to be
provided by and paid for by GHS;
(ii) distribute GHS promotional materials to all Learning Annex
registrants and/or to attendees of the Learning Annex Seminars, such materials
to be provided by and paid for by GHS; and
(iii) allow GHS to set up and maintain an information booth at
any such location for the duration of the Learning Annex Seminar.
(e) LEARNING ANNEX PROMOTIONAL LINK. Learning Annex shall provide
prominent banner advertisements for and promotional links to the URL
"ConceptDevelopment.com" above-the-fold on the LearningAnnex.com website.
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(f) GHS PROMOTIONAL LINK. GHS shall provide banner advertisements
for and promotional links to the URL "LearningAnnex.com" on the
ConceptDevelopment.com website to promote the Learning Annex offline courses.
(g) LEARNING ANNEX REGISTRATION. Learning Annex shall make
available to GHS on a monthly basis the e-mail addresses of each Student and
hereby grants permission to GHS to market to each Student through e-mail
communication or otherwise the GHS Seminars. GHS hereby agrees to post a privacy
policy on the GHS Web Site, which privacy policy shall comply with all material
Federal laws regarding e-mail communications, and to utilize the e-mail
addresses of the Students only in accordance with such privacy policy.
(h) PROMOTIONAL MATERIALS. Learning Annex shall include GHS
promotional materials as stuffers in all Learning Annex registration materials.
All such GHS promotional materials shall be provided by GHS and GHS shall incur
the costs of producing such promotional materials and the additional postage
costs for including such stuffers with the Learning Annex registration
materials. The quantity and content of such materials shall be mutually approved
by the parties.
7. FURTHER OBLIGATIONS OF LEARNING ANNEX.
7.1 LISTINGS. Learning Annex shall make all of its Learning Annex
Seminar listings available to GHS (for use by GHS as provided hereunder) at the
same time that the Learning Annex submits each issue of the LEARNING ANNEX
MAGAZINE containing such listings to its printer for printing. This information
will include, at a minimum, the time, location, instructor and title of such
Learning Annex Seminar. Learning Annex will respond to requests for Learning
Annex Seminar information that are initiated by Internet users of the GHS Web
Site or a web site of a partner or affiliate of GHS.
7.2 INSTRUCTORS. During each printing period, Learning Annex shall
present to GHS a list of courses anticipated to be offered by Learning Annex and
instructors therefor. GHS shall review the list and choose those courses and
instructors it wishes to include on the GHS service, whereupon Learning Annex
shall use its commercially reasonable efforts to book such courses and
instructors via a standard employment contract provided to Learning Annex by
GHS. In the event that the booking process with respect to any instructor or
course becomes unduly complicated or protracted, then the Learning Annex may
transfer the obligation to continue to negotiate with and book such instructor
or course to GHS; PROVIDED, HOWEVER, that the Learning Annex shall not, directly
or indirectly, prevent or hinder the negotiation process or the consummation of
an agreement between GHS and such instructor or course.
7.3 INTRODUCTIONS. Learning Annex shall use its best efforts to
introduce GHS to its various business partners including, but not limited to,
instructors, teachers and Career Track, for the purpose of entering into a
strategic relationships.
8. HAY HOUSE AGREEMENT.
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(a) As of the Effective Date, the Learning Annex shall have either
(i) entered into an agreement with Hay House, Inc. ("HH") or (ii) amended the
agreement dated August 31, 1994 (the "Original Hay House Agreement") between The
Learning Annex and HH, in either case, to provide, among other things, the
following:
(i) to clarify and confirm that ownership of Learning Annex
Products (whether past, present or future), including any products that may
previously have been assigned to HH under the Original Hay House Agreement,
resides with The Learning Annex;
(ii) HH shall grant to The Learning Annex exclusive online
distribution rights in all Learning Annex Products that the Learning Annex owns
or owned, publishes or published, produces or produced or otherwise has or had
an interest in or are otherwise provided by Learning Annex for distribution by
HH (including any such products to which rights may have previously been
assigned to HH under the Original Hay House Agreement), other than those rights
relating to Learning Annex Products granted under distribution agreements
currently existing between HH and other parties heretofore specifically
disclosed to The Learning Annex (the "Disclosed Existing Rights") and attached
hereto as EXHIBIT E;
(iii) the sale by HH to Learning Annex of The Learning Annex
Products at the lowest cost on terms no less favorable than it sells such
products to any other distributor or wholesaler;
(iv) the representation and warranty that Learning Annex is,
and the covenant that Learning Annex shall be, the exclusive online distributor
of Learning Annex Products other than the Disclosed Existing Rights; and
(v) that The Learning Annex shall have the right to designate a
third party to be the exclusive online distributor of all Learning Annex
Products.
(b) [*]
(c) Any Learning Annex Products sold by HH to Learning Annex
pursuant to Section 8(a)(iii) above shall be made available to GHS at Learning
Annex's cost.
9. REPRESENTATIONS AND WARRANTIES.
9.1 Each of Learning Annex and GHS hereby represent and warrant to the
other, as of the date hereof, that: (a) the execution, delivery and performance
by it of this Agreement are within its corporate powers and have been duly
authorized by all necessary corporate action on its part and (b) this Agreement
constitutes a valid and binding agreement of it enforceable against it in
accordance with its terms.
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9.2 GHS hereby represents that as of the date hereof the Certificate
of Designation shall have been filed with the Secretary of State of the State
of Delaware.
9.3 Learning Annex hereby represents and warrants, as of the date
hereof, that:
(a) With respect to the Learning Annex Materials and other subject
matter, including ideas, processes and methods which Learning Annex discloses to
GHS or uses in the performance of this Agreement, Learning Annex has the right
to make disclosure and use thereof without liability to others. Any Learning
Annex Materials and all related ideas, creations and information furnished or
developed by Learning Annex and licensed to GHS under this Agreement (i) are or
will be Learning Annex's own and original creation (except for matters in the
public domain) and (ii) shall not rely, or in any way be based upon, proprietary
information obtained or derived by Learning Annex from any source other than
Learning Annex unless Learning Annex has received specific authorization or
license in writing from any such source as to the use thereof; and
(b) The Learning Annex Materials do not and will not (including the
use thereof under this Agreement) infringe upon or misappropriate the
intellectual property rights or any other legal rights of any third party.
Should any aspect of the Learning Annex Materials become, or in GHS's opinion is
likely to become, the object of any infringement or misappropriation claim or
suit, Learning Annex will procure for GHS the right to use such Learning Annex
Materials in all respects.
10. LIMITED WARRANTY.
10.1 LIMITED DAMAGES. EXCEPT WITH RESPECT TO ANY LIABILITY OF EITHER
PARTY TO THE OTHER PARTY ARISING UNDER SECTIONS 9 OR 11 HEREUNDER, IN NO EVENT
SHALL EITHER PARTY BE LIABLE FOR LOSS OF PROFITS, REVENUES OR DATA, OR ANY
SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES WITH RESPECT
TO ANY PROVISION OF THIS AGREEMENT, INCLUDING LOST PROFITS, INTERRUPTED
COMMUNICATIONS OR LOST DATA EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10.2 NO OTHER WARRANTIES. EXCEPT AS EXPRESSLY PROVIDED IN THIS
AGREEMENT, EACH PARTY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE.
11. INDEMNITY.
11.1 INDEMNITY BY GHS. GHS shall indemnify and hold Learning Annex and
its officers, directors, employees and agents harmless from and against all
claims, losses, damages, liabilities, costs and expenses, including reasonable
attorneys' fees, resulting from or arising out of (a) any breach of
representation or warranty made in this
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Agreement, including but not limited to any infringement or violation of rights
of third parties including copyright, music performance or other music related
right, trademark, trade dress, trade secret, design right, patent, moral right,
right of publicity, defamation, libel, know-how and/or any other present or
future intellectual property right of any type or (b) any injury to any person
or property caused by any GHS Materials or any content on the GHS Web Site, in
each case excluding any Learning Annex Materials contained therein or thereon,
if any.
11.2 INDEMNITY BY LEARNING ANNEX. Learning Annex shall indemnify and
hold GHS and its Partners affiliates and suppliers and their respective
officers, directors, employees and agents harmless from and against all claims,
losses, damages, liabilities, costs and expenses, including reasonable
attorneys' fees, resulting from or arising out of (a) any breach of
representation or warranty made in this Agreement, including but not limited to
any infringement or violation of rights of third parties including copyright,
music performance or other music related right, trademark, trade dress, trade
secret, design right, patent, moral right, right of publicity, defamation,
libel, know-how and/or any other present or future intellectual property right
of any type or (b) any injury to any person or property caused by any Learning
Annex Materials.
11.3 MECHANICS OF INDEMNITY. The party seeking indemnification (the
"Indemnified Party") shall: (a) give the proposed indemnifier (the "Indemnifying
Party") notice of the relevant claim, (b) cooperate with the Indemnifying Party,
at the Indemnifying Party's expense, in the defense of such claim, and (c) give
the Indemnifying Party the right to defend such claim, except that the
Indemnifying Party shall not enter into any settlement without the Indemnified
Party's prior written approval and (ii) select counsel PROVIDED that such
counsel shall be reasonably acceptable to the Indemnified Party. The Indemnified
Party shall have the right to participate in or assume the defense at its
expense.
12. SURVIVAL. All rights granted to and obligations undertaken by the
Parties hereunder will terminate immediately upon the expiration or termination
of this Agreement, except that (a) Sections, 9, 10, 11, 12, 13 and 14 hereof
shall survive any termination or expiration of this Agreement and (b) the
termination of this Agreement for any reason shall not relieve GHS of its
obligations to make full payment to Learning Annex for any and all amounts that
are owed through the date of termination of this Agreement.
13. CONFIDENTIALITY.
13.1 CONFIDENTIAL INFORMATION. Each party acknowledges that
Confidential Information (as hereinafter defined) may be used or disclosed to
the other party during the course of this Agreement. For the purposes of this
Agreement, "Confidential Information" means any information which the party
disclosing the information (the "Discloser") designates as confidential or which
the party receiving the information (the "Receiver") knows or has reason to know
or should know is confidential to the Discloser and the terms of this Agreement.
Confidential Information does not include information
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which is: (a) already known by the Receiver at time of disclosure through lawful
means; (b) is or becomes, through no act or fault of Receiver, publicly known;
(c) received by Receiver from a third party free to make such disclosure without
breach of any legal obligations; (d) independently developed by Receiver without
reference to Discloser's Confidential Information; or (e) required to be
disclosed by a court or governmental agency pursuant to a statute, regulation or
valid order.
13.2 NON-DISCLOSURE OBLIGATIONS. The Receiver shall hold the
Confidential Information in confidence and shall not disclose the Confidential
Information to third parties nor use the Confidential Information for any
purpose other than as permitted in this Agreement.
13.3 RETURN OF CONFIDENTIAL INFORMATION. Upon termination or expiration
of this Agreement for any reason, Receiver shall return or destroy all copies of
Confidential Information in its possession at Discloser's direction.
14. GENERAL PROVISIONS.
14.1 GOVERNING LAW. This Agreement will be governed and construed in
accordance with the applicable laws of the State of California without giving
effect its conflict of laws principles.
14.2 COMPLIANCE WITH LAWS. Each of Learning Annex and GHS at its own
expense shall comply with all applicable laws, regulations, rules, ordinances
and orders regarding its activities related to this Agreement.
14.3 PUBLICITY. Parties shall work together to issue a mutually
acceptable and mutually approved press release announcing this Agreement. The
Parties may issue additional press releases regarding the relationship of the
Parties subject to the prior approval of the other Party. The Parties shall not
disclose the terms of this Agreement to any third party, except as required by
law.
14.4 SEVERABILITY; HEADINGS. If any provision of this Agreement is held
to be invalid or unenforceable for any reason, the remaining provisions will
continue in full force without being impaired or invalidated in any way.
Headings are for reference purposes only and in no way define, limit, construe
or describe the scope or extent of such section, or in any way affect this
Agreement.
14.5 INDEPENDENT CONTRACTORS. The Parties to this Agreement are
independent contractors, and no agency, partnership, joint venture or
employee-employer relationship is intended or created by this Agreement. Neither
Party may take any actions which are binding on the other party. Without
limiting the foregoing, neither Learning Annex nor GHS shall not make any
representations or warranties to third parties on behalf of the other party.
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14.6 NOTICE. Any notices required or permitted hereunder shall be given
to the appropriate Party at the address specified in the preamble to this
Agreement or at such other address as the Party shall specify in writing. Unless
otherwise specified, such notice shall be deemed given: upon personal delivery;
if sent by fax, upon confirmation of receipt; if sent by overnight mail carrier,
the next business day or if sent by certified or registered mail, postage
prepaid, three (3) days after the date of mailing.
14.7 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement and the
Exhibits attached hereto set forth the entire understanding and agreement of the
Parties, and supersede any and all prior or contemporaneous oral or written
agreements or understandings between the parties, as to the subject matter of
this Agreement. Except as provided herein, this Agreement may be changed only by
a writing signed by both Parties. Waiver by either Party of a breach of any
provision contained herein must be in writing, and no such waiver shall be
construed as a waiver of any succeeding breach of such provision or a waiver of
the provision itself.
14.8 ASSIGNMENT. This Agreement and the rights and obligations
hereunder may, in GHS's sole discretion, be assigned, in whole or in part, to a
designated affiliate (as defined below) of GHS. Neither this Agreement nor any
of the rights and obligations hereunder may be assigned, in whole or in part, by
Learning Annex. Notwithstanding the foregoing, the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of each of the Parties
and their respective successors (by merger, acquisition or operation of law) and
assigns. For purposes of this Section 14.8, "affiliate" shall mean (a) a
corporation or other entity in which GHS owns, directly or indirectly, more than
50% of the capital stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other entity and (b) any other person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with, GHS.
14.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which shall
be deemed to be one instrument.
14.10 ATTORNEY'S FEES. Should any litigation be commenced between the
Parties in relation to this Agreement, the Party prevailing in such litigation
shall be entitled, in addition to such other relief as may be granted, to a
reasonable sum for attorneys' fees in connection with such litigation.
14.11 AGENCY. Stephen Seligman as Chief Executive Officer of Seligman
Greer Communications Resources, Inc. (the "Agent") is hereby designated and
shall act on behalf of all the Learning Annex entities identified in the caption
to this Agreement on any matter in connection with this Agreement and any matter
s contemplated hereby and is hereby authorized to bind all such entities in
respect thereof. Accordingly, GHS shall only be required to interact with or in
any respect deal with the Agent in any matter
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involving the Agent or any of such Learning Annex entities (including without
limitation, the giving of notice, consents or approvals hereunder or any
amendment, modification waiver of any term, condition or provision of this
Agreement or to the other agreements and exhibits contemplated hereby).
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IN WITNESS WHEREOF, the parties have executed and delivered this
Exclusive License and Marketing Agreement on the date first above written.
GHS, INC. SELIGMAN GREER COMMUNICATION RESOURCES, INC.
By:/s/ Alan Gold By:/s/ Stephen Seligman
---------------------------- ---------------------------
Name: Alan Gold Name: Stephen Seligman
Title President Title: C.E.O.
By:/s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
SGS COMMUNICATION RESOURCES, INC.,
By:/s/ Stephen Seligman
---------------------------
Name: Stephen Seligman
Title: C.E.O.
By:/s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
SELIGMAN GREER SANDBERG ENTERPRISES, INC.
By:/s/ Stephen Seligman
---------------------------
Name: Stephen Seligman
Title: C.E.O.
By:/s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
SGC COMMUNICATION RESOURCES LLC
By:/s/ Stephen Seligman
---------------------------
Name: Stephen Seligman
Title: C.E.O.
By:/s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
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LEARNING ANNEX INTERACTIVE LLC
By:/s/ Stephen Seligman
---------------------------
Name: Stephen Seligman
Title: C.E.O.
By:/s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
16
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Exhibit A.
ADDITIONAL AGREEMENTS
1. DEFINITIONS. As used in this Exhibit A, the following terms shall have the
following meanings:
1.1 "COMMISSION" means the Securities and Exchange Commission or any
other Federal agency at the time administering the Securities Act
1.2 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission promulgated thereunder,
all as the same shall be in effect from time to time.
1.3 "OTHER SHARES" means at any time those shares of Common Stock which
do not constitute Primary Shares or Registrable Shares.
1.4 "PRIMARY SHARES" means at any time the authorized but unissued
shares of Common Stock or shares of Common Stock held by GHS in its treasury.
1.5 "REGISTRABLE SHARES" means at any time the shares of Common Stock
held by Learning Annex or its successors, assigns or transferees that constitute
Restricted Shares.
1.6 "REGISTRATION DATE" means the date upon which the registration
statement pursuant to which GHS shall have initially registered shares of Common
Stock under the Securities Act for sale to the public shall have been declared
effective.
1.7 "RESTRICTED SHARES" means at any time the Shares and any shares of
Common Stock issued or issuable upon conversion thereof which are held by
Learning Annex and which have not previously been sold to the public pursuant to
a registration statement under the Securities Act or pursuant to Rule 144.
1.8 "RULE 144" means Rule 144 promulgated under the Securities Act or
any successor rule thereto or any complementary rule thereto.
1.9 "SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, all as the same shall be
in effect from time to time.
1.10 "TRANSFER" means any disposition of any Restricted Shares or of
any interest therein which constitutes a sale within the meaning of the
Securities Act, other than any disposition pursuant to an effective registration
statement under the Securities Act and complying with all applicable state
securities and "blue sky" laws.
<PAGE>
2. PIGGYBACK REGISTRATION. If GHS at any time proposes for any reason (other
than at the request or demand of any third party) to register Primary Shares or
Other Shares under the Securities Act (other than on Form S-4 or Form S-8
promulgated under the Securities Act or any successor forms thereto or other
than in connection with an exchange offer or offering solely to, GHS's
stockholders), it shall promptly give written notice to Learning Annex of its
intention so to register the Primary Shares or Other Shares and, upon the
written request, given within 30 days after delivery of any such notice by GHS,
of Learning Annex to include in such registration Registrable Shares (which
request shall specify the number of Registrable Shares proposed to be included
in such registration), GHS shall use its best efforts to cause all such
Registrable Shares to be included in such registration on the same terms and
conditions as the securities otherwise being sold in such registration;
PROVIDED, HOWEVER, that if the managing underwriter advises GHS that the
inclusion of all Registrable Shares and/or Other Shares proposed to be included
in such registration would interfere with the successful marketing (including
pricing) of the Primary Shares proposed to be registered by GHS, then the number
of Primary Shares, Registrable Shares and Other Shares, proposed to be included
in such registration shall be included in the following order:
(i) FIRST, the Primary Shares;
(ii) SECOND,; the Other Shares and
(iii) THIRD, the Registrable Shares.
3. LOCK-UP AGREEMENT. In connection with the registration of shares of Common
Stock under the Securities Act for sale to the public, Learning Annex shall not
sell, make any short sale of, grant any option for the purchase of, or otherwise
dispose of any Restricted Shares (other than those shares of Common Stock
included in such registration pursuant to Sections 2) without the prior written
consent of GHS for a period designated by GHS in writing to the Learning Annex,
which period shall not last more than 180 days after the effective date of such
registration statement. Notwithstanding the foregoing, to the extent that
Learning Annex shall enter into an underwriting agreement that contains
provisions covering one or more issues addressed in this Section 3, the
provisions contained in such underwriting agreement shall control as to the
party or parties so entering into such underwriting agreement.
4. INFORMATION TO BE PROVIDED BY LEARNING ANNEX. Whenever under this Agreement
Registrable Shares are being registered, Learning Annex shall, as a condition to
the inclusion of Registrable Shares held it in such registration, provide GHS on
a timely basis with such information and materials as GHS may reasonably request
in order to effect the registration of the Registrable Shares.
5. RULE 144. With a view to making available Learning Annex the benefits of
Rule 144 under the Securities Act, GHS agrees to use its best efforts to make
available adequate current public information with respect to it within the
meaning of, and as required pursuant to, Rule 144(c).
<PAGE>
6. TERMS AND CONDITIONS OF REGISTRATION. In connection with any registration
pursuant to this Agreement, and subject to the other terms and conditions of
this Agreement, GHS shall in its sole discretion determine the terms and
conditions of such registration, including, without limitation, the timing
thereof; the scope of the offering contemplated thereby (i.e., whether the
offering shall be a combined primary offering and a secondary offering or
limited only to a secondary offering); the manner of distribution of Registrable
Shares; the period of effectiveness of registration for permissible sales of
Registrable Securities thereunder consistent with the plan of distribution
agreed upon by GHS and Learning Annex; and all other material aspects of the
registration and the registration process. In connection therewith, GHS may
require that any such registration be underwritten, in which event (i) the
managing underwriter shall be selected by GHS and (ii) the inclusion of
Registrable Shares in such registration shall be conditioned upon each holder
thereof entering into an underwriting agreement in customary form with such
underwriters participating in such registration.
7. EXPENSES. All expenses incurred by GHS in effecting a registration under
this Agreement, including, without limitation, all registration and filing fees
(including all expenses incident to filing with the NASD), fees and expenses of
complying with securities and "blue-sky" laws, printing expenses, and the fees
and expenses of counsel and accountants, shall be borne by GHS; PROVIDED,
HOWEVER, that under all circumstances all underwriting discounts, income and
transfer taxes, if any, selling commissions and legal fees and expenses of
counsel to Learning Annex participating in any registration under this Agreement
shall not be borne by GHS but shall be borne solely by Learning Annex.
8. TRANSFER OF SECURITIES.
8.1 RESTRICTIONS ON TRANSFER. Learning Annex and each subsequent
transferee of the Shares (each, a "Holder") acknowledges that the Shares have
not been and will not be registered under the Securities Act, that the Shares
are being or will be issued pursuant to an exemption from registration under the
Securities Act and that such shares constitute "restricted securities" under
Rule 144. Accordingly, Shares held by a Holder shall not be sold, transferred,
assigned, pledged, encumbered or otherwise disposed of (each, a "Transfer")
except upon the conditions specified in this Section 8.1 (which provides for
certain additional restrictions on transfer), which conditions are intended to
ensure compliance with the provisions of the Securities Act and this Agreement.
8.2 RESTRICTIVE LEGEND. Each certificate for the Shares and each
certificate for any such Shares issued to subsequent transferees of any such
certificate shall (unless otherwise permitted by the provisions of Sections 8.3
and 8.4) be stamped or otherwise imprinted with a legend in substantially the
following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR
<PAGE>
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED OR ANY APPLICABLE STATE SECURITIES OR "BLUE-SKY"
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT OR LAWS. ADDITIONALLY, THE TRANSFER OF THESE SECURITIES IS
SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION 8 OF EXHIBIT A TO
THE EXCLUSIVE LICENSE AND MARKETING AGREEMENT DATED AS OF MAY __,
1999, AMONG GHS, INC. AND THE LEARNING ANNEX, AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS
HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF ALL APPLICABLE
CONDITIONS, GHS, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A
NEW CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES
REPRESENTED HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF."
8.3 NOTICE OF TRANSFER. Holder agrees, prior to any Transfer of Shares
to give written notice to GHS of Holder's intention to effect such Transfer and
to comply in all other respects with the provisions of this Section 8. Each such
notice shall describe the manner and circumstances of the proposed Transfer and
shall be accompanied by the written opinion, addressed to GHS, of counsel for
the Holder, stating that in the opinion of such counsel (which opinion and
counsel shall be reasonably satisfactory to GHS), such proposed Transfer does
not involve any transaction requiring registration or qualification of such
shares under the Securities Act or the securities or "blue-sky" laws of any
relevant state of the United States. Such Holder shall thereupon be entitled to
Transfer such shares in accordance with the terms of the notice delivered by it
to GHS. Each certificate or other instrument evidencing the securities issued
upon the Transfer of any such shares (and each certificate or other instrument
evidencing any untransferred balance of such shares) shall bear the legend set
forth in Section 8 unless (a) in such opinion of counsel registration of any
future Transfer is not required by the applicable provisions of the Securities
Act and applicable state securities or "blue-sky" laws or (b) GHS shall have
waived the requirement of such legends. No Holder shall Transfer any Shares
until such opinion of counsel has been given (unless waived by GHS or unless
such opinion is not required in accordance with the provisions of this
Section 8).
<PAGE>
8.4 REMOVAL OF LEGENDS, ETC. Notwithstanding the foregoing provisions
of this Section 8, the restrictions imposed by this Section 8 upon the
transferability of any Shares held by a Holder shall cease and terminate when
(a) any such shares are sold or otherwise disposed of pursuant to an effective
registration statement under the Securities Act or as otherwise contemplated by
Section 8(c) and, pursuant to Section 8(c), the Shares so transferred are not
required to bear the legend set forth in Section 8(b) or (b) the holder of such
shares has met the requirements for Transfer of such Shares pursuant to
subparagraph (k) of Rule 144. Whenever the restrictions imposed by this Section
8 shall terminate, as herein provided, each Holder holding Shares as to which
such restrictions have terminated shall be entitled to receive from GHS, without
expense, a new certificate not bearing the restrictive legend set forth in
Section 8(b) and not containing any other reference to the restrictions imposed
by this Section 8.
9. INDEMNIFICATION.
9.1 In connection with any registration of any Registrable Shares under
the Securities Act pursuant to this Agreement, GHS shall indemnify and hold
harmless Learning Annex against any losses, claims, damages or liabilities,
joint or several (or actions in respect thereof), to which Learning Annex may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a material
fact contained in the registration statement under which such Registrable Shares
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein or otherwise filed with the Commission, any
amendment or supplement thereto or any document incident to registration or
qualification of any Registrable Shares, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by GHS of the Securities Act or state securities or "blue-sky" laws
applicable to GHS and relating to action or inaction required of GHS in
connection with such registration or qualification under state securities or
"blue-sky" laws; PROVIDED, HOWEVER, that GHS shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said registration statement, preliminary
prospectus, final prospectus, amendment, supplement or document incident to
registration or qualification of any Registrable Shares in reliance upon and in
strict conformity with written information furnished to GHS by Learning Annex
with respect to information regarding such the Learning Annex expressly for
inclusion therein.
9.2 In connection with any registration of Registrable Shares under
the Securities Act pursuant to this Agreement, Learning Annex shall indemnify
and hold harmless (in the same manner and to the same extent as set forth in
Section 8.1) GHS, each director of GHS, each officer of GHS who shall sign
such registration statement,
<PAGE>
each underwriter, broker or other Person acting on behalf of GHS and each Person
who controls any of the foregoing Persons within the meaning of the Securities
Act with respect to any statement or omission from such registration statement,
any preliminary prospectus or final prospectus contained therein or otherwise
filed with the Commission, any amendment or supplement thereto or any document
incident to registration or qualification of any Registrable Share, if such
statement or omission was made in reliance upon and in strict conformity with
written information furnished to GHS or such underwriter by Learning Annex
expressly for inclusion in such registration statement, preliminary prospectus,
final prospectus, amendment, supplement or document, PROVIDED that the liability
of the Learning Annex under this Section 8.2 shall not exceed the aggregate
proceeds received by the Learning Annex upon the sale of Registrable Shares by
the Learning Annex pursuant to such registration.
9.3 Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 9, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action. In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be responsible for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof; PROVIDED, HOWEVER, that an indemnified party shall have the
right to retain its own counsel, with the reasonable fees and expenses to be
paid by the indemnifying party, if such indemnified party shall have reasonably
concluded that representation of such indemnified party or parties by the
counsel retained by the indemnifying party or parties would be inappropriate due
to actual or potential differing interests between such indemnified party or
parties and any other party represented by such counsel in such proceeding.
9.4 If the indemnification provided for in this Section 9 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage, liability or action referred to herein, then
the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by such indemnified
party as a result of such loss, claim, damage, liability or action in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss, claim, damage,
liability or action as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent,
<PAGE>
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
10. TERMINATION. The terms of Section 2 this Exhibit A shall terminate and be of
no further force or effect on the earlier to occur of (i) the third anniversary
of the date hereof (ii) when there shall not be any Restricted Shares and (iii)
at such time as the provisions of Rule 144(k) are applicable to the Restricted
Shares then held by Learning Annex.
11. REPRESENTATIONS AND WARRANTIES. REPRESENTATIONS AND WARRANTIES OF THE THE
LEARNING ANNEX. The Learning Annex represents and warrants to the Corporation as
follows:
11.1 ACCREDITED INVESTOR. If the Learning Annex has checked the box
located on Exhibit B to the Agreement, it is an "accredited investor" (as such
term is defined in Rule 501 of Regulation D promulgated under the Securities
Act).
11.2 INVESTMENT INTENT. The Learning Annex is acquiring the Shares for
his own account, for investment and not with a view to, or for resale in
connection with, any distribution thereof, nor with any present intention of
distributing or reselling the same or any part thereof in any transactions that
would be in violation of the Securities Act of or any state securities or
"blue-sky" laws.
11.3 RESTRICTED SECURITIES. The Learning Annex understands (i) that the
Shares will not be registered under the Securities Act or any state securities
or "blue-sky" laws by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act or any state securities or
"blue-sky" laws, (ii) that the Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities Act or any
state securities or "blue-sky" laws or is exempt from such registration, (iii)
that, except as set forth in this Exhibit A, GHS is under no obligation to so
register any Shares and (iv) that the certificate(s) evidencing the Shares will
be imprinted with a legend that prohibits the transfer substantially as set
forth in Section 8.2 hereof unless they are registered or such registration is
not required.
11.4 RULE 144. The Learning Annex understands that the exemption from
registration afforded by Rule 144 (the provisions of which are known to such
person) promulgated under the Securities Act ("Rule 144") depends on the
satisfaction of various conditions and that, if applicable, Rule 144 may only
afford the basis for sales under certain circumstances only in limited amounts.
The Learning Annex understands that at the time it wishes to sell the Shares,
GHS may not be satisfying the current public information requirements of Rule
144, and that, in such event, the Learning Annex would be precluded from selling
the securities under Rule 144 even if the applicable minimum holding period
provided thereunder had been satisfied.
11.5 ACCESS TO INFORMATION; EXPERIENCE. The Learning Annex has had
access during the course of this transaction and prior to the sale of the Shares
to all information necessary to enable the Learning Annex to evaluate the merits
and risks of accepting the
<PAGE>
Shares pursuant to the Agreement and the Learning Annex has had an opportunity
to discuss with representatives of GHS the business and financial affairs of GHS
and to obtain such additional information, to the extent that GHS possesses such
information or could acquire it without unreasonable effort or expense,
necessary to verify the accuracy of the information to which GHS has had access
and all questions raised by the Learning Annex have been answered to its full
satisfaction. The Learning Annex can afford to suffer a complete loss of its or
his investment in the Shares.
11.6 SPECULATIVE INVESTMENT. The Learning Annex understands that the
Corporation has a limited financial and operating history, that the Common
Shares are a speculative investment which involve a high degree of financial
risk, and that there is no assurance of any economic, income or tax benefit from
such investment.
<PAGE>
* Confidential treatment has been requested for certain portions of this
exhibit. Omitted portions have been filed separately with the Commission.
OPTION AGREEMENT dated as of May 27,
1999 among GHS, INC., a Delaware
corporation ("GHS"), SELIGMAN GREER
COMMUNICATION RESOURCES, INC., a
California corporation (d/b/a The
Learning Annex of San Francisco)
(the "SAN FRANCISCO LEARNING
ANNEX"), SGS COMMUNICATION
RESOURCES, INC., a California
corporation (d/b/a The Learning
Annex of Los Angeles) (the "LOS
ANGELES LEARNING ANNEX"), SELIGMAN
GREER SANDBERG ENTERPRISES, INC., a
California corporation (d/b/a The
Learning Annex of San Diego) (the
"SAN DIEGO LEARNING ANNEX"), SGC
COMMUNICATION RESOURCES LLC, a
Delaware limited liability company
(d/b/a The Learning Annex of New
York) (the "NEW YORK LEARNING
ANNEX") and LEARNING ANNEX
INTERACTIVE LLC, a Delaware limited
liability company (the "DELAWARE
LEARNING ANNEX" and collectively
"THE LEARNING ANNEX") and the
shareholders and members, as
applicable, of The Learning Annex
listed on Schedule I attached hereto
(the "SHAREHOLDERS").
Pursuant to this Agreement, GHS shall have, among other things, the
right and option to acquire The Learning Annex on the terms and subject to the
conditions set forth in this Agreement (the "ACQUISITION"). In connection with
the proposed Acquisition, GHS, The Learning Annex and the Shareholders desire to
enter into certain other arrangements, on the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the representations, warranties, covenants, agreements
and promises contained herein, the parties hereby agree as follows:
1. OPTIONS.
(a) ALTERNATIVE A OPTION. Each Shareholder hereby grants to GHS, and
GHS shall have the irrevocable right and option (the "ALTERNATIVE A OPTION")
exercisable during the period beginning on the date hereof and ending on
September 1, 2004 (the "OPTION PERIOD"), upon compliance with the procedures set
forth in Section 6 hereof, to acquire 100% of the outstanding capital stock and
other interests of The Learning Annex and all options, warrants, rights, calls,
commitments, agreements or arrangements of any character to which the any of the
Shareholders or The Learning Annex is a party or by which he, she, it or they is
or are bound
<PAGE>
calling for the issuance of shares of capital stock or other interests of The
Learning Annex or any securities convertible into or exercisable or exchangeable
for, or representing the right to purchase or otherwise receive, directly or
indirectly, any such capital stock or other interests, or other arrangement to
acquire, at any time or under any circumstance, capital stock or other interests
of The Learning Annex or any such other securities (the "FULLY-DILUTED LEARNING
ANNEX SECURITIES").
(b) ALTERNATIVE B OPTION. GHS may in its sole discretion, during the
Option Period, in lieu of exercising the Alternative A Option, elect in
compliance with the procedures set forth in Section 6 hereof, to consummate an
acquisition of The Learning Annex by way of (i) a statutory merger, (ii)
consolidation, (iii) purchase of all or substantially all of the assets of The
Learning Annex or (iv) purchase of the Fully-Diluted Learning Annex Securities
(each, an "ALTERNATIVE B OPTION" and together with the Alternative A Option, the
"OPTIONS"). It is hereby understood that GHS is under no obligation to elect to
consummate such an Alternative B Option and any election to do so shall be in
its sole discretion; PROVIDED, that the consummation of the Alternative B Option
shall, taken as a whole, be mutually beneficial to both parties from a tax
perspective and; PROVIDED FURTHER that notwithstanding the exercise of an
Alternative B Option, GHS may elect to exercise the Alternative A Option at any
time, in which case such exercise of the Alternative A Option shall effect the
termination of negotiations pursuant to the Alternative B Option and the
Alternative A Option shall immediately supersede in all respects the Alternative
B Option election.
(c) ELECTION NOT TO PROCEED WITH OPTION EXERCISE.
(i) NOTICE NOT TO PROCEED. At any time after the exercise of either
of the Options and prior to the consummation of the closing under the applicable
Option, GHS shall have the right and option, without liability to any of the
Shareholders, The Learning Annex or any other third party, to elect not to
proceed with a closing by delivery to The Learning Annex of GHS's election not
to proceed (the "NOTICE NOT TO PROCEED").
(ii) If (A) GHS has no reasonable basis to elect NOT to proceed
with the consummation of the Acquisition, (B) The Learning Annex and the
Shareholders are ready, willing and able to proceed with the consummation of the
Acquisition and (C) GHS delivers the Notice Not to Proceed for a reason outside
of GHS' control, then GHS shall be deemed for all purposes to have exercised the
Options hereunder and shall not thereafter have the right to exercise either of
the Options; PROVIDED, HOWEVER, that GHS shall have the one time right, upon the
payment of the Option Reset Expenses (as defined below), to be deemed not to
have exercised the Options hereunder and shall thereafter have the right to
exercise either of the Options for the term of this Agreement on the terms and
subject to the conditions set forth herein (the "OPTION RESET").
(iii) In connection with the Option Reset, GHS shall reimburse The
Learning Annex for any reasonable fees of The Learning Annex incurred directly
and solely in connection with the transactions related to the exercise of the
Option prior to
2
<PAGE>
delivery of the Notice Not to Proceed, upon receipt of reasonable documentation
therefor (the "OPTION RESET EXPENSES").
2. OPTION PRICE; OPTION PERIOD.
(a) The price payable hereunder in consideration of the Options (the
"OPTIONS PRICE") shall be the dollar amount set forth below payable on the
date(s) set forth opposite such amounts (each an "OPTION PAYMENT DATE");
PROVIDED, that if GHS does not pay the applicable Options Price on any Option
Payment Date, The Learning Annex shall deliver notice of its intention to
terminate the Option (the "TERMINATION NOTICE") and GHS shall have 30 days after
delivery of the Termination Notice to deliver the Options Price:
<TABLE>
<CAPTION>
OPTION PERIOD DOLLAR AMOUNT TIMING OF PAYMENT
- - ------------- ------------- -----------------
<S> <C> <C>
From the date hereof until the first $75,000.00 Simultaneous with the execution and
anniversary of the date hereof ("YEAR delivery of the License Agreement
ONE"). (as defined below in Section 11(a))
From the first anniversary of the date $125,000.00 September 1, 2000
hereof until the second anniversary of
the date hereof ("YEAR TWO").
From the second anniversary of the $200,000.00 September 1, 2001
date hereof until the third
anniversary of the date hereof ("YEAR
THREE").
From the third anniversary of the date $500,000.00 September 1, 2002
hereof until the fourth anniversary of
the date hereof ("YEAR FOUR").
From the fourth anniversary of the $750,000.00 September 1, 2003
date hereof until the fifth
anniversary of the date hereof ("YEAR
FIVE").
</TABLE>
3. PLEDGE OF SHARES. The Shareholders hereby pledge the Fully-Diluted Learning
Annex Securities to be held in trust by Carol Goodman or another mutually
agreeable third party (the "AGENT") pursuant to an agreement in form and
substance acceptable to GHS for the purpose of securing the obligations of The
Learning Annex and the Shareholders hereunder (the "PLEDGE
3
<PAGE>
AGREEMENT"). As soon as practicable after the date hereof, and in no event later
than fifteen (15) days after the date hereof, each Shareholder shall cause to be
deposited with the Agent all stock certificates or certificate of ownership of
membership interests, as the case may be, held by such Shareholder, together
with a stock power or certificate of assignment duly endorsed in blank for
transfer on behalf of such Shareholder, representing all of the shares of
capital stock or membership interests of The Learning Annex (the "OPTION
SECURITIES") owned by such Shareholder (and representing, in the aggregate, the
Fully-Diluted Learning Company Securities).
4. EXERCISE PRICE.
(a) GENERAL. The exercise price to be paid upon exercise by GHS of the
Alternative A Option or the Alternative B Option (in each case, the "EXERCISE
PRICE") shall be as set forth below:
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
<S> <C>
YEAR EXERCISE PRICE
- - --------------------------------------------------------------------------------
Year One [*]
- - --------------------------------------------------------------------------------
Year Two [*]
- - --------------------------------------------------------------------------------
Year Three [*]
- - --------------------------------------------------------------------------------
Year Four [*]
- - --------------------------------------------------------------------------------
Year Five [*]
- - --------------------------------------------------------------------------------
</TABLE>
(b) EXERCISE PRICE ADJUSTMENT.
(i) [*]
(ii) [*]
(c) [*]
(d) [*].
5. AUDITOR'S REPORT; CALCULATION OF EBIDA.
(a) DELIVERY TO GHS OF AUDITOR'S REPORT. Within sixty (60) days
following the end of each Option Period, The Learning Annex shall deliver to GHS
reviewed financial statements for the prior Option Period prepared in accordance
with GAAP consistently applied (the "FINANCIAL STATEMENTS") [*] (the
"CALCULATION"), which Calculation and Financial Statements shall be certified by
Chaio and Smith (the "ACCOUNTANTS") (the "AUDITOR'S REPORT").
4
<PAGE>
(b) REVIEW BY BUYER OF THE AUDITOR'S REPORT. Following receipt of the
Auditor's Report, GHS will be afforded a period of sixty (60) calendar days (the
"REVIEW PERIOD") to review the Auditor's Report. During such Review Period, GHS
and GHS's accountants will be afforded reasonable access to any of The Learning
Annex's employees and the records, work papers, trial balances and similar
materials prepared by The Learning Annex's Accountants and The Learning Annex
shall, and shall cause the Accountants to, cooperate and provide assistance to
such GHS Accountants in connection therewith. At or before the end of the Review
Period, GHS will either (i) accept the Auditor's Report in its entirety, in
which case the Calculation shall be deemed to be as set forth in the Auditor's
Report, or (ii) deliver to The Learning Annex and The Learning Annex's
Accountants a written notice in accordance with Section 6(c) disputing the
Calculation.
(c) DISPUTES. GHS shall notify the Learning Annex in writing of each
disputed item in the Accountant's Report that bears a relationship to or is
relevant to the determination of EBIDA prior to the expiration of the Review
Period, specifying the amount thereof in dispute, or a reasonable estimation
thereof, and setting forth the basis for such dispute. In the event of such a
dispute, GHS and The Learning Annex shall attempt to reconcile in good faith
their differences as to such items within twenty (20) calendar days (the
"RESOLUTION PERIOD") of The Learning Annex's receipt of such notice, and any
resolution by them as to any disputed amounts shall be final, binding and
conclusive on GHS and The Learning Annex. If GHS and The Learning Annex are
unable to reach a resolution with such effect within the Resolution Period, GHS
and The Learning Annex shall submit the items in the Accountant's Report
remaining in dispute for resolution to an independent accounting firm of
national reputation mutually appointed by GHS and The Learning Annex (the
"INDEPENDENT ACCOUNTING FIRM"), which shall, within thirty (30) calendar days of
such submission, determine and report to GHS and The Learning Annex its
resolution of such remaining disputed items, which shall be deemed to be
resolved as set forth in such report, and such report shall be final, binding
and conclusive on GHS and The Learning Annex. GHS and The Learning Annex shall
each pay fifty percent (50%) of the fees and disbursements of such Independent
Accounting Firm.
(d) FAILURE TO DELIVER AUDITOR'S REPORT. If The Learning Annex fails to
deliver the certified Calculation and Financial Statements on or before ninety
(90) days following the end of any Option Period, then GHS shall have the right
to select an independent certified public accountant (the "GHS ACCOUNTANT") (the
fees and charges of which shall be borne by The Learning Annex) to prepare a
determination of such prior year's EBIDA (the "GHS CALCULATION") (and the GHS
Accountant will be afforded reasonable access to any of The Learning Annex's
employees and the records, work papers, trial balances and similar materials
prepared by The Learning Annex's Accountants and The Learning Annex shall, and
shall cause the Accountants to, cooperate and provide assistance to such GHS
Accountants in connection therewith) and the GHS Calculation shall be the EBIDA
for all calculations hereunder.
6. MECHANICS FOR EXERCISE.
(a) ALTERNATIVE A EXERCISE NOTICE. In the event that GHS desires to
exercise the Alternative A Option, it shall send to The Learning Annex and to
the Agent a written notice (such notice being herein referred to as an
"ALTERNATIVE A EXERCISE NOTICE" and the date of
5
<PAGE>
issuance of an Alternative A Exercise Notice being herein referred to as the
"ALTERNATIVE A NOTICE DATE") indicating (i) that GHS is exercising the
Alternative A Option, (ii) specifying a place and date not earlier than five (5)
Business Days and not later than thirty (30) Business Days from the Alternative
A Notice Date for the closing of such purchase (the "ALTERNATIVE A OPTION
CLOSING DATE"), (iii) the Exercise Price to be paid hereunder and (iv) that, and
instructing that, the Agent deliver out of the pledge fund to GHS all shares of
The Learning Annex held by the Agent on the Alternative A Option Closing Date.
GHS may require that, in connection with the exercise of the Alternative A
Option, in which case the parties shall, in good faith negotiate and enter into
definitive agreements (which shall provide for, among other things, customary
representations and warranties (in addition to those representations and
warranties the truth and accuracy of which are being confirmed in accordance
with Section 6(c) hereof), covenants and indemnities and provide a closing date
for consummation of the transactions described therein) customary for
transactions of this type.
(b) ALTERNATIVE B EXERCISE NOTICE. In the event that GHS desires to
exercise the Alternative B Option, it shall send to The Learning Annex a written
notice (such notice being herein referred to as an "ALTERNATIVE B EXERCISE
NOTICE" and the date of issuance of an Alternative B Exercise Notice being
herein referred to as the "ALTERNATIVE B NOTICE DATE") indicating that GHS is
exercising the Alternative B Option, and The Learning Annex and the Shareholders
shall as soon as practicable thereafter, and in any event within thirty (30)
days from the Alternative B Notice Date, in good faith negotiate and enter into
definitive agreements (which shall provide for, among other things, customary
representations and warranties (in addition to those representations and
warranties the truth and accuracy of which are being confirmed in accordance
with Section 6(c) hereof), covenants and indemnities and provide a closing date
for consummation of the transactions described therein) customary for
transactions of this type. GHS can elect to exercise the Alternative A Option at
any time during the Option Period, whether before or after the delivery of the
Alternative B Exercise Notice.
(c) CLOSING. The Closing of the Acquisition shall occur on the
Alternative A Option Closing Date or on the date of the closing of the
Acquisition pursuant to exercise of the Alternative B Option (the "ALTERNATIVE B
OPTION CLOSING DATE"), against delivery of (i) certificates or other instruments
representing the Fully-Diluted Company Securities duly endorsed in blank and
otherwise in proper form for transfer free and clear of any liens or
Encumbrances, (ii) documents listed on ANNEX A and (iii) such other definitive
documents customary for transactions of the applicable type (including
representations, warranties and covenants customary for transactions of the
applicable type) and such other documents (including the documents listed on
ANNEX A) as the parties mutually agree (each of (i) through (iii) hereof being
collectively referred to as the "CLOSING DOCUMENTS").
(d) EXECUTION AND DELIVERY OF FURTHER DOCUMENTS. Upon receipt of the
Alternative A Exercise Notice or the Alternative B Exercise Notice, as the case
may be, each party hereto will promptly and duly execute and deliver such
further documents, certificates and agreements and make such further assurances
for and take such further action reasonably requested by any other party to this
Agreement, in addition to the execution and delivery of the Closing Documents,
all as may be reasonably necessary to carry out more effectively the intent and
purpose of this Agreement and consummate the exercise of the Options.
6
<PAGE>
(e) If the form of transaction chosen for the Acquisition permits an
Internal Revenue Code (the "CODE") Section 338 election or a Code Section
338(h)(10) election (or any successor or similar elections relating to the
establishment of the tax basis of the assets underlying the businesses
transferred to GHS) then, if and to the extent requested by GHS, the parties to
the Acquisition shall take all steps reasonably necessary to effect such
election(s); PROVIDED, that such election shall, taken as a whole, be mutually
beneficial from a tax perspective to the parties hereto.
(f) EXTENSION OF OPTION PERIOD. If the closing of the Acquisition
pursuant to the Alternative A Option or the Alternative B Option cannot be
consummated, by reason of any applicable Order (as defined below), the period of
time that otherwise would run pursuant to Section 6(a)(ii) or Section 6(b), as
applicable, shall run instead from the date on which such restriction on
consummation has expired or been terminated (the "TOLLING PERIOD"); and PROVIDED
FURTHER, without limiting the foregoing, that if, in the reasonable opinion of
GHS, prior notification to or approval of any regulatory agency is required in
connection with the Acquisition, The Learning Annex, GHS or one or more of the
Shareholders, as the case may be, shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or been
terminated or such approvals have been obtained and any requisite waiting period
or periods shall have passed. Anything contained herein to the contrary
notwithstanding, if (A) the Tolling Period continues for more than ninety (90)
days and (B) the next Option Period has begun, then the Exercise Price shall be
recalculated on the terms set forth in Section 4 hereof; PROVIDED that GHS shall
not be required to make any additional Options Payment for the next Option
Period.
(g) DEFINITION OF ORDER. As used herein, "ORDER" shall mean any orders,
judgments, injunctions, decrees and other legislative, administrative or
judicial restrictions (including the Federal securities laws and regulations
thereunder and the rules of all such regulatory organizations including those
which The Learning Annex is subject to).
7. REPRESENTATIONS AND WARRANTIES OF THE LEARNING ANNEX. The Learning Annex
hereby represents and warrants to GHS as follows:
(a) ORGANIZATION. The (i) San Francisco Learning Annex is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California, (ii) Los Angeles Learning Annex is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, (iii) San Diego Learning Annex is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
(iv) New York Learning Annex is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of Delaware
and (v) Delaware Learning Annex is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of Delaware,
and, in each case, has all requisite corporate power and authority to own, lease
and operate the assets used in its business, to carry on its business as
presently conducted and as proposed to be conducted, to enter into this
Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby.
7
<PAGE>
(b) QUALIFICATION; GOOD STANDING. The Delaware Learning Annex is
qualified to do business as a foreign corporation in the State of New York. The
Learning Annex is qualified to do business as a foreign corporation in any other
jurisdiction in which it is required to be so qualified.
(c) CORPORATE AUTHORIZATION; ENFORCEABILITY. The Learning Annex has
taken all corporate action (including all action required of its Board of
Directors, managers and Shareholders or members, as applicable) necessary to
authorize its execution and delivery of this Agreement, its performance of its
obligations hereunder, and its consummation of the Acquisition contemplated
hereby. This Agreement has been executed and delivered by officers of The
Learning Annex in accordance with such authorization. This Agreement constitutes
a valid and binding obligation of The Learning Annex, enforceable in accordance
with its terms, subject to applicable bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
(d) AUTHORIZATION OF SHARES OF CAPITAL STOCK. The Option Securities,
when issued, were duly authorized by all requisite corporate action of The
Learning Annex and when issued, sold and delivered by The Learning Annex the
Option Securities were validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof, and
not subject to preemptive or any similar rights of the shareholders of The
Learning Annex or others.
(e) NO CONFLICT. The execution and delivery by The Learning Annex of
this Agreement, its consummation of the Acquisition contemplated hereby, and its
compliance with the provisions hereof, will not (a) violate or conflict with its
certificate of incorporation, certificate of formation, by-laws or operating
agreement, as applicable, (b) violate, conflict with, or give rise to any right
of termination, cancellation, rescission or acceleration under any material
agreement, lease, security, license, permit, or instrument to which The Learning
Annex is a party, or to which it or any of its assets is subject, (c) result in
the imposition of any security interests, mortgages, liens, pledges, guarantees,
charges, easements, reservations, restrictions, rights of way, options, rights
of first refusal and all other encumbrances, whether or not relating to the
extension of credit or the borrowing of money (an "ENCUMBRANCE") on any asset of
The Learning Annex, (d) violate or conflict with any Laws, or (e) require any
consent, approval or other action of, notice to, or filing with any entity or
person (governmental or private), except for those that have been obtained or
made. "Laws" means all laws, rules, regulations, ordinances, orders, judgments,
injunctions, decrees and other legislative, administrative or judicial
restrictions.
(f) NO CONSENT OR APPROVAL REQUIRED. No authorization, consent,
approval or other order of, or declaration to or filing with, any governmental
agency or body or other person or entity is required for the valid
authorization, execution and delivery by The Learning Annex of this Agreement,
or for the consummation of the Acquisition contemplated hereby or, if required,
the same has been obtained or effected.
(g) CAPITALIZATION. The capitalization of The Learning Annex upon the
signing hereof shall consist of (A) 10,000 shares of common stock, no par value,
of the San Diego Learning Annex, of which 200 shares are validly issued and
outstanding, fully paid and
8
<PAGE>
nonassessable, (B) 10,000 shares of common stock, no par value, of the Los
Angeles Learning Annex, of which 200 shares are validly issued and outstanding,
fully paid and nonassessable, (C) 10,000 shares of common stock, no par value,
of the San Francisco Learning Annex, of which 1,000 shares are validly issued
and outstanding, fully paid and nonassessable, (D) membership interests in
respect of 100% of the outstanding equity of the Delaware Learning Annex, all of
which are validly issued and outstanding, fully paid and nonassessable and (E)
membership interests in respect of 100% of the outstanding equity of the New
York Learning Annex, all of which are validly issued and outstanding, fully paid
and nonassessable. The Option Securities listed on SCHEDULE I hereto constitute
all of the capital stock of The Learning Annex. As of the date hereof there are
no (i) outstanding warrants, options, agreements, convertible securities or
other commitments or instruments pursuant to which The Learning Annex is or may
become obligated to issue or sell any shares of capital stock or other
securities of The Learning Annex, (ii) preemptive or similar rights to purchase
or otherwise acquire shares of capital stock of The Learning Annex pursuant to
any provision of law, the Certificate of Incorporation, By-laws, Certificate of
Formation or Operating Agreement, as the case may be, of The Learning Annex or
any agreement to which The Learning Annex is party or otherwise or (iii)
obligation (contingent or otherwise) of The Learning Annex to purchase, redeem
or otherwise acquire any shares of its capital stock or any interest therein or
to pay any dividend or make any other distribution in respect thereof. There are
no voting trusts, voting agreements, proxies, first refusal rights, first offer
rights, co-sale rights, options, transfer restrictions or other agreements,
instruments or understandings (whether written or oral, formal or informal) with
respect to the voting, transfer or disposition of capital stock of The Learning
Annex to which The Learning Annex is a party or by which it is bound, or, to the
best knowledge of The Learning Annex, among or between any persons other than
The Learning Annex..
(h) LITIGATION, ETC. Other than the current proceeding against the
Seminar Center which is described no Schedule 7(h) and which shall not result in
a Liability in excess of $100,000, there are no (i) actions, suits, claims,
investigations or legal or administrative or arbitration proceedings
(collectively, "ACTIONS") pending, or to the best knowledge of The Learning
Annex, threatened against The Learning Annex nor, to the best knowledge of The
Learning Annex, any basis therefor, whether at law or in equity, or before or by
any Federal, state, local, municipal, foreign or other governmental court,
department, commission, board, bureau, agency or instrumentality ("GOVERNMENTAL
AUTHORITY"), (ii) judgments, decrees, injunctions or orders of any Governmental
Authority or arbitrator against The Learning Annex or (iii) disputes with
students, teachers, customers or vendors with an amount in dispute, individually
or in the aggregate, greater than $25,000. There are no Actions pending or, to
the best knowledge of The Learning Annex, threatened, nor, to the best knowledge
of The Learning Annex, any basis therefor, with respect to (A) the current or
future employment by, or association with, The Learning Annex, of any of the
present officers or employees of or consultants to The Learning Annex
(collectively, the "DESIGNATED PERSONS") or (B) the use, in connection with any
business presently conducted or proposed to be conducted by The Learning Annex,
of any information, techniques or processes presently utilized or proposed to be
utilized by The Learning Annex or any of the Designated Persons, that The
Learning Annex or any of the Designated Persons are or would be prohibited from
using as the result of a violation or breach of, or conflict with any agreements
or arrangements between any Designated Person and any other person, or any legal
considerations applicable to unfair competition, trade secrets or
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confidential or proprietary information. The Learning Annex has delivered to GHS
all material documents and correspondence relating to such matters referred to
in this Section 7(h) (including, in the case of clause (iii) of the first
sentence of this Section 7(h), any correspondence evidencing material customer
dissatisfaction with The Learning Annex or its products or services).
(i) INTELLECTUAL PROPERTY
(i) The Learning Annex has good and valid title to, and
owns free and clear of all Encumbrances, has the exclusive right to use, sell,
transfer, license (or subli cense), transmit, broadcast, deliver (electronically
or otherwise) and dispose of, and has the right to bring actions for the
infringement of, all Intellectual Property Rights necessary or required for the
conduct of its business as currently conducted and as proposed to be conducted
(collectively, the "COMPANY RIGHTS").
(ii) The execution, delivery and performance of this
Agreement, the License Agreement and the Pledge Agreement and the consummation
of the transactions contemplated hereby, will not breach, violate or conflict
with any instrument or agreement governing any Company Rights, will not cause
the forfeiture or termination or give rise to a right of forfeiture or
termination of any Company Right or in any way impair the right of The Learning
Annex to use, sell, license (or sublicense), transmit, broadcast, deliver
(electronically or otherwise) or dispose of, or to bring any action for the
infringement of, any Company Right or portion thereof.
(iii) There are no royalties, honoraria, fees or other
payments payable by The Learning Annex to any person by reason of the ownership,
use, license (or sublicense), transmission, broadcast, delivery (electronically
or otherwise), sale, or disposition of The Learning Annex Rights, other than
sales commissions and other instructor fees paid in the ordinary course of
business.
(iv) All works that were created, prepared or delivered by
consultants, independent contractors or other third parties for or on behalf of
The Learning Annex (including any materials and elements created, prepared or
delivered by such parties in connection therewith) (A) are and shall constitute
"works made for hire" specially ordered or commissioned by The Learning Annex
within the meaning of United States' copyright law, or (B) all right, title and
interest therein (including any materials and elements created, prepared or
delivered by such parties in connection therewith) have been assigned to The
Learning Annex.
(v) Except for the agreement between Hay House and
Seligman/Greer Communication Resources, Inc., dba The Learning Annex dated
August 31, 1994, as amended (the "HAY HOUSE AGREEMENT"), no licenses or rights
have been granted by The Learning Annex, or by any employee, consultant,
officer, director, agent or affiliate of The Learning Annex or by anyone other
than the foregoing, to distribute the source code of, or to use source code to
create Derivative Works, of, any product currently marketed by, commercially
available from or under development by The Learning Annex for which The Learning
Annex possesses the source code. As used herein, "DERIVATIVE WORK" shall mean a
work that is based upon one or more preexisting works, such as a revision,
enhancement, modification, abridgment, condensation, expansion or
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any other form in which such preexisting works may be recast, transformed or
adapted, and which, if prepared without authorization of the owner of the
copyright in such preexisting work, would constitute a copyright infringement.
For purposes herein, a "DERIVATIVE WORK" shall also include any compilation that
incorporates such a preexisting work as well as translations from one type of
code to another.
(vi) Except for the Hay House Agreement, no person has any
marketing rights to any of the Intellectual Property Rights of The Learning
Annex (excluding Intellectual Property Rights licensed to The Learning Annex by
third parties).
(vii) Section 7(i)(viii) of The Learning Annex Disclosure
Schedule contains a true and complete list of all (A) of The Learning Annex's
patents, patent applications, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright registrations
and copyright applications and Internet domain names and applications therefor
and (B) other filings and formal actions made or taken pursuant to Federal,
state, local and foreign laws by The Learning Annex to perfect or protect its
interest therein.
(viii) Section 7(i)(ix) of The Learning Annex Disclosure
Schedule contains a true and complete list of all options, licenses or other
agreements of any kind by which Intellectual Property Rights have been granted
to The Learning Annex from, or granted by The Learning Annex to, any other
person.
(ix) As used herein, the term "Intellectual Property
Rights" shall mean all industrial and intellectual property rights, including,
without limitation, patents, patent applications, patent rights, trademarks,
trademark applications, trade names, service marks, service mark applications,
copyrights, copyright registrations, copyright applications, franchises,
licenses, databases, "URL's" and Internet domain names and applications therefor
(and all interest therein), computer programs and other computer software
(including, but not limited to, the Software), user interfaces, know-how, trade
secrets, customer lists, proprietary technology, processes and formulae, source
code, object code, algorithms, architecture, structure, display screens,
layouts, development tools, instructions, templates, marketing materials,
inventions, trade dress, logos and designs and all documentation and media
constituting, describing or relating to the foregoing.
(j) TITLE TO ASSETS, PROPERTIES AND RIGHTS AND RELATED MATTERS. Except
as set forth on Schedule 7(j) of The Learning Annex Disclosure Schedule, The
Learning Annex has good and valid title to, or good and valid licenses or
leasehold interests in, all assets, properties and interests in properties,
real, personal or mixed, necessary for the conduct of the business as conducted
or as proposed to be conducted, free and clear of all Encumbrances, of any kind
or character, except for (i) those Encumbrances set forth in Section 7(j) of The
Learning Annex Disclosure Schedule, (ii) liens for current taxes not yet due and
payable and (iii) statutory mechanics and materialmen's liens. The assets,
properties and interests in properties of The Learning Annex are in good
operating condition and repair in all material respects. The Learning Annex does
not own or lease any personal and/or mixed property.
(k) ABSENCE OF UNDISCLOSED LIABILITIES.
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(i) At the Balance Sheet Date, with respect to the Balance Sheet,
The Learning Annex had no material Liability (as defined below) required to be
set forth on the Balance Sheet or the Interim Financial Information,
respectively, in order for the Balance Sheet or the Interim Financial
Information, respectively, to fairly present the financial condition of The
Learning Annex at the dates thereof in accordance with GAAP, which was not
provided for or disclosed thereon.
(ii) All liability reserves established by The Learning Annex and
set forth on the Balance Sheet or the Interim Financial Information,
respectively, were adequate, in all material respects, for all such Liabilities
at the respective dates thereof.
(iii) As used herein the term "LIABILITY" shall mean any liability
or obligation of any nature (whether known or unknown, matured or unmatured,
fixed or contingent, secured or unsecured, accrued, absolute or otherwise).
(l) FINANCIAL STATEMENTS.
(i) The Learning Annex has previously delivered to GHS the
following financial statements (collectively, "THE LEARNING ANNEX FINANCIAL
STATEMENTS"):
(1) the financial information and calculations concerning The
Learning Annex set forth in Section 7(l) of The Learning Annex Disclosure
Schedule as at March 31, 1999 or April 30, 1999, as applicable (the "INTERIM
FINANCIAL INFORMATION"; and the date thereof being the "INTERIM FINANCIAL
INFORMATION DATE"); and
(2) the balance sheets of The Learning Annex as at December 31,
1998 (the "BALANCE SHEET"; and the date thereof being the "BALANCE SHEET
DATE"), 1997 and 1996, respectively, and the related statements of income,
cash flow and shareholders' equity for the respective years then ended
(including complete footnotes thereto), certified by The Learning Annex
Accountants, and accompanied by a copy of such auditor's report.
(ii) The Learning Annex Financial Statements (A) are in accordance
with the books and records of The Learning Annex, (B) fairly present the
financial condition of The Learning Annex as at the respective dates indicated
and the results of operations of The Learning Annex for the respective periods
indicated and (C) have been prepared in accordance with generally accepted
accounting principles consistently applied, except as indicated therein and, in
the case of Interim Financial Statements, for the absence of complete footnote
disclosure as required by GAAP and subject, in the case of the Interim Financial
Statements, to changes resulting from normal year-end audit adjustments, which
adjustments shall not in any event be material individually or in the aggregate.
(m) ABSENCE OF CHANGES. Except as set forth in Section 7(m) of The
Learning Annex Disclosure Schedule, since the Balance Sheet Date, The Learning
Annex has been operated in the ordinary course, consistent with past practice,
and there has not been any material adverse change in the business, assets,
properties, Liabilities, operations, results of operations, condition (financial
or otherwise), prospects or affairs (a "MATERIAL ADVERSE CHANGE") of The
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Learning Annex, in each case in an amount, individually or in the aggregate,
greater than $25,000.
(n) AGREEMENTS. Schedule 7(n) hereto sets forth a true and complete
list of all contracts, agreements, instruments, understandings or arrangements
to The Learning Annex is a party or by which it is bound (i) that involve
liabilities or obligations of, or payments by or to The Learning Annex or
otherwise have a value in excess of $50,000, (ii) that involve the license to or
from The Learning Annex of any intellectual property rights (other than licenses
of, or licenses arising from purchases of, "off-the-shelf" or other standard
products), (iii) between it and any of its officers, directors, employees,
consultants (or any of their respective family members) or (iv) that restricts
The Learning Annex from engaging in any aspect of its business or competing in
any line of business in any geographic area. To the best knowledge of The
Learning Annex, it is not in default under any agreements with any third
parties.
(o) DISCLOSURE. Neither Section 7 of this Agreement (including The
Learning Annex Disclosure Schedule) nor any document, written information,
statement, financial statement, certificate or exhibit furnished or to be
furnished to GHS by or on behalf of The Learning Annex or any securityholder
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements or
facts contained herein and therein not misleading in light of the circumstances
under which they were made. There is no fact which materially adversely affects,
or in the future may, insofar as can be reasonably foreseen by The Learning
Annex, materially adversely affect, the business, operations, affairs,
prospects, condition, properties or assets of The Learning Annex which has not
been set forth in this Agreement or in the Closing Documents.
8. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS. Each of the
Shareholders, severally (and not jointly) represents and warrants to GHS with
respect to himself, herself or itself as follows:
(a) TITLE; ABSENCE OF CERTAIN AGREEMENTS. Such Shareholder is the
lawful and record and beneficial owner of (i) the Option Securities and (ii) all
options, warrants, rights, calls, commitments, agreements or arrangements of any
character to which such Shareholder is a party or by which he, she, or it is
bound calling for the issuance of shares of capital stock of The Learning Annex
or any securities convertible into or exercisable or exchangeable for, or
representing the right to purchase or otherwise receive, directly or indirectly,
any such capital stock, or other arrangement to acquire, at any time or under
any circumstance, capital stock of The Learning Annex (the "COMMON EQUIVALENTS")
or any such other securities in each case set forth opposite the name of such
Shareholder on SCHEDULE I attached hereto, with the full power and authority to
vote such Option Securities and transfer and otherwise dispose of such Option
Securities and Common Equivalents and any and all rights and benefits incident
to the ownership thereof, free and clear of all Encumbrances, and there are no
voting trusts, voting agreements, proxies, first refusal rights, first offer
rights, co-sale rights, options, transfer restrictions or other agreements,
instruments or understandings (whether written or oral, formal or informal)
between such Shareholder and The Learning Annex and/or any other Shareholder or
any other person with respect to the voting, transfer or disposition of Option
Securities or any other matter relating
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to Option Securities. The Option Securities set forth opposite the name of such
Shareholder are the only shares of capital stock of The Learning Annex held by
such Shareholder.
(b) ORGANIZATION, GOOD STANDING AND POWER. In the case of any
Shareholder that is not a natural person, such Shareholder is duly organized or
formed and validly existing under the laws of the jurisdiction of its
incorporation or formation and has the corporate or other organizational power
and authority under such laws to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
(c) AUTHORITY - GENERAL. Such Shareholder has full and absolute power
and authority to enter into this Agreement and the Pledge Agreement and, and
has, in the case of a Shareholder that is not a natural person, been duly
authorized by all requisite action on the part of such Shareholder; and this
Agreement and the Pledge Agreement have been duly executed and delivered by such
Shareholder, and each is the valid and binding obligation of such Shareholder,
enforceable against such Shareholder in accordance with its terms. Neither the
execution, delivery and performance of this Agreement or the Pledge Agreement,
nor the consummation of the transactions contemplated hereby or thereby nor
compliance by such Shareholder with any of the provisions hereof or thereof will
(i) (A) conflict with, (B) result in any violations of, (C) cause a default
under (with or without due notice, lapse of time or both), (D) give rise to any
right of termination, amendment, cancellation or acceleration of any obligation
contained in or the loss of any material benefit under or (E) result in the
creation of any Encumbrance upon or against any assets, rights or property of
GHS, under any term, condition or provision of (x) any agreement or instrument
to which such Shareholder is a party, or by which such Shareholder or, to the
best knowledge of such Shareholder, any of his or its properties, assets or
rights may be bound, (y) any law, statute, rule, regulation, order, writ,
injunction, decree, permit, concession, license or franchise of any Governmental
Authority applicable to such Shareholder or, to the best knowledge of such
Shareholder, any of his or its properties, assets or rights or (z) in the case
of any Shareholder that is not a natural person, such Shareholder's Charter or
by-laws, as amended through the date hereof, which conflict, breach, default or
violation or other event would prevent the consummation of the transactions
contemplated by this Agreement or the Pledge Agreement. No permit,
authorization, consent or approval of or by, or any notification of or filing
with, any Governmental Authority or other person is required in connection with
the execution, delivery and performance by such Shareholder of this Agreement,
or the Pledge Agreement or the consummation by such Shareholder of the
transactions contemplated hereby or thereby.
9. REPRESENTATIONS AND WARRANTIES OF GHS. GHS represents and warrants to The
Learning Annex and Shareholders as follows:
(a) ORGANIZATION. GHS is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite power and authority to enter into this Agreement, to perform its
obligations hereunder, and to consummate the Acquisition contemplated thereby.
(b) AUTHORIZATION. GHS has taken all corporate action necessary to
authorize its execution and delivery of this Agreement, its performance of its
obligations hereunder, and its consummation of the Acquisition contemplated
hereby. This Agreement has been executed and
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delivered by an officer of GHS in accordance with such authorization. This
Agreement constitutes a valid and binding obligation of GHS, enforceable in
accordance with its terms, subject to bankruptcy, reorganization, insolvency,
moratorium, and similar laws affecting creditors' rights generally and to
general principles of equity.
(c) NO CONFLICT. The execution and delivery by GHS of this Agreement,
its consummation of the Acquisition contemplated hereby, and its compliance with
the provisions hereof, will not (a) violate or conflict with its Certificate of
Incorporation or By-laws, (b) violate, conflict with, or give rise to any right
of termination, cancellation, rescission or acceleration under any agreement,
lease, security, license, permit, or instrument to which GHS is a party, or to
which it or any of its assets is subject, (c) violate or conflict with any Laws,
or (d) require any consent, approval or other action of, notice to, or filing
with any entity or person (governmental or private), except for those that have
been obtained or made.
10. OPERATION OF THE BUSINESS; FINANCIAL INFORMATION.
(a) OPERATION OF BUSINESS. During the Option Period, The Learning Annex
will operate its business as now operated and only in the normal and ordinary
course and, consistent with such operation, will use its best efforts to
preserve intact its present business organization, to keep available the
services of its officers and employees and to maintain satisfactory
relationships with licensors, franchisees, licensees, suppliers, contractors,
distributors, customers and other persons having business dealings with it.
Without limiting the generality of the foregoing, during the Option Period The
Learning Annex shall not without the prior written consent of GHS, in each case
other than in the ordinary course of business, take or cause to occur any of the
following actions or transactions;
(i) The sale, lease, license, transfer, Encumbrance, pledge or
other disposition of The Learning Annex's material assets, involving more
than $50,000 in any one transaction (or series of related transactions);
(ii) any declaration, setting aside or payment of any dividend or
other distribution of any assets of any kind whatsoever with respect to any
shares of the capital stock of The Learning Annex, or any direct or indirect
redemption, purchase or other acquisition of any such shares of the capital
stock of The Learning Annex (other than (1) any cash dividends and (2) the
payment or disposition, by dividend or otherwise, of (A) the payments of the
Options Price pursuant to this Agreement, (B) the Shares and (C) so long as
Steven Seligman or Beth Greer are full time employees of The Learning Annex,
the license fees paid by GHS to the Learning Annex pursuant to the License
Agreement);
(iii) any stock split, reverse stock split, combination,
reclassification or recapitalization of any capital stock of The Learning
Annex, or any issuance of any other security in respect of or in exchange
for, any shares of capital stock of The Learning Annex;
(iv) any increase in or modification to or acceleration of any
benefits payable or to become payable under any bonus, pension, severance,
insurance or other benefit plan, payment or arrangement (including, but not
limited to, the granting of stock
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options, restricted stock awards or stock appreciation rights) made
to, for or with any officer, key employee, consultant or agent of The
Learning Annex;
(v) any loan, advance or capital contribution to or investment in
(or series of related loans, advances or capital contributions to or
investments in) any person in each case in excess of $50,000 or the
engagement in any transaction with any employee, officer, director or
securityholder, other than advances to employees in the ordinary course of
business for travel and similar business expenses;
(vi) any change in the accounting methods or practices followed The
Learning Annex or any change in depreciation or amortization policies or
rates theretofore adopted;
(vii) any acceleration or decceleration of payment of accounts
payable or collection of accounts receivable other than in a manner
consistent with past practice;
(viii) any incurrence, refinancing or alteration of material terms
by The Learning Annex of indebtedness for borrowed money in excess of
$150,000 in the aggregate (or the guaranty by The Learning Annex of any such
indebtedness);
(ix) conducting operations or entering into transactions materially
inconsistent with the annual business plan in effect at the time or material
changes in the strategic direction of the business or scope of the business
or entering into any material joint venture outside the ordinary course of
business;
(x) any amendments or changes in The Learning Annex's Charter or
by-laws.
(b) INFORMATION RIGHTS. During the Option Period The Learning Annex
shall provide GHS with the following information:
(i) GENERAL. The Learning Annex will permit GHS on reasonable
notice to visit and inspect during normal business hours any of the
properties of The Learning Annex and to examine its books and records, and
to discuss with its officers the business and affairs of The Learning Annex,
at such reasonable times as such persons may desire without disruption of
The Learning Annex's normal business and affairs for any reasonable purpose
relating to its investment in The Learning Annex.
(ii) QUARTERLY STATEMENTS. As soon as available, but not later than
sixty (60) days after the end of each quarterly accounting period commencing
with the quarterly period ending on June 30, 1999, an unaudited consolidated
financial report of The Learning Annex, prepared in accordance with
generally accepted accounting principles consistently applied, except that
such financial statements shall not include footnotes and shall be subject
to normal year-end audit adjustments, including, with respect to such
quarterly accounting period, the following:
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(1) A profit and loss statement for such quarterly accounting
period and on a cumulative basis for the fiscal year to date;
(2) A balance sheet as at the last day of such quarterly
accounting period;
(3) A statement of cash flow for such quarterly accounting
period on a cumulative basis for the fiscal year to date; and
(4) A comparison between the actual figures for such quarterly
accounting period and on a cumulative basis for the fiscal year to
date, the comparable figures (with respect to clauses (1) and (2) only)
for the prior period of year (if any),
certified by the chief executive officer and chief financial officer of the
Corporation as being prepared in accordance with generally accepted
accounting principles (except with respect to footnote disclosure and
subject to normal year-end audit adjustments) consistently applied and
accompanied by a statement showing the number of shares of each class and
series of capital stock, and securities convertible into or exercisable for
shares of capital stock.
(iii) ANNUAL REPORTS. As soon as available, but not later than 90
days after the end of each fiscal year of The Learning Annex, reviewed
financial statements of The Learning Annex, which shall include a statement
of cash flows and statement of operations for such fiscal year and a balance
sheet as at the last day thereof, each prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by the
report of Chaio and Smith or another accounting firm reasonably acceptable
to GHS. The Corporation shall maintain a system of accounting sufficient to
enable its independent certified public accountants to render the report
referred to in this Section 7(k).
(c) MATERIAL EVENTS. The Learning Annex shall promptly notify GHS in
writing (i) if there has been or is likely to be a Material Adverse Change, (ii)
if there has been any event which adversely impacts or could reasonably be
expected to adversely impact the integrity and value of the Options or (iii) if
The Learning Annex has entered into any business relationship that could
infringe upon the nature and scope of the contemplated Options.
11. COVENANTS.
(a) LICENSE AGREEMENT. On or before the date hereof, GHS and The
Learning Annex shall have executed and delivered an exclusive online marketing
and licensing agreement in the form attached hereto as EXHIBIT B (the "LICENSE
AGREEMENT").
(b) NO-SHOP.
(i) Subject to the ability of The Learning Annex to consummate a
Corporate Transaction on the terms and subject to the conditions set forth
in Section
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11(c) hereof, from the date of this Agreement until the earlier
of (i) the termination of this Agreement in accordance with its terms or
(ii) the closing of the Acquisition pursuant to the exercise of either of
the Options, The Learning Annex shall not, nor shall it authorize or permit
any of its respective officers, directors, employees, members,
representatives, Shareholders, agents or affiliates, directly or indirectly,
to (A) solicit, initiate or encourage or take any action to facilitate or
encourage any inquiries or the making of any proposal that constitutes, an
Acquisition Proposal or (B) participate or engage in discussions or
negotiations with, or provide any information to, any person or entity
concerning an Acquisition Proposal or which might reasonably be expected to
result in an Acquisition Proposal. The Learning Annex shall immediately
cease and cause to be terminated and shall cause its affiliates and its or
their respective officers, directors, employees, members, Shareholders,
representatives or agents, to terminate all existing discussions or
negotiations with any persons or entities conducted heretofore with respect
to, or that could reasonably be expected to lead to, an Acquisition Proposal
and hereby agree to immediately disclose to GHS the existence and terms of
any written or oral offer to The Learning Annex or any Shareholder of an
Acquisition Proposal, or any representative acting on its, his, her or their
behalf, including copies of any relevant written materials.
(ii) For purposes of this Agreement, the term "ACQUISITION
PROPOSAL" shall mean any inquiry, proposal or offer from any person
(other than GHS) relating to any (i) merger or consolidation of The
Learning Annex into or with another corporation or other entity, (ii) the
sale, transfer, license or other disposition of all or substantially all
of the properties or of The Learning Annex, (iii) the sale, transfer or
other disposition of capital stock of The Learning Annex, in each case
under circumstances in which the holders of the outstanding capital stock
of The Learning Annex immediately prior to such merger, consolidation or
sale, own less than a majority (by voting power) of outstanding capital
stock of The Learning Annex or the surviving or resulting corporation or
acquirer, as the case may be, immediately following such merger,
consolidation or sale, (iv) any investment in, or any debt or equity
financing of either The Learning Annex, (v) the Internet (as such term is
defined in the License Agreement) distribution of content or services of
The Learning Annex or (vi) any other transaction the consummation of
which could reasonably be expected to impede, interfere with, prevent or
materially delay the consummation of the transactions contemplated hereby
or which would reasonably be expected to dilute materially the benefits
to GHS of the transactions contemplated hereby (each a "CORPORATE
TRANSACTION").
(c) RIGHT OF FIRST REFUSAL.
(i) On and after the third anniversary of the date hereof, if The
Learning Annex proposes to seek or seeks parties to enter into a Corporate
Transaction or takes any action incident thereto, The Learning Annex shall
so notify GHS in writing (the "SHOPPING NOTICE") prior to contacting or
negotiating with any other party and shall provide GHS and its affiliates
the first and exclusive option, for a period of 30 days after such notice is
delivered, to negotiate the terms and conditions upon which GHS may propose
at its option and in its discretion to consummate a Corporate Transaction
(other
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than pursuant to the exercise of the Option). The Shopping Notice
shall include (A) all relevant terms of the proposed Corporate Transaction
and (B) a list of parties proposed to be involved in such proposed Corporate
Transaction.
(ii) If GHS elects not to make a proposal to The Learning Annex to
enter into a Corporate Transaction and if GHS has not exercised the Option
within one hundred and twenty (120) days of delivery of the Shopping Notice,
then The Learning Annex shall have the right to actively solicit Acquisition
Proposals (but not consummate any Corporate Transaction (other than pursuant
to the exercise of the Option)) for sixty (60) days (the "SHOPPING PERIOD")
at a price and on terms and conditions no more favorable to the purchaser(s)
than the price, terms and conditions set forth in the Shopping Notice.
(iii) The Learning Annex shall keep GHS regularly informed and
updated as to the status of its search for Acquisition Proposals,
discussions and/or negotiations, if any, with third parties for any
Corporate Transaction. If during the Shopping Period The Learning Annex
negotiates all of the material terms of a BONA FIDE Corporate Transaction
with a third party (the "CORPORATE TRANSACTION PROPOSAL"), then GHS shall
immediately thereupon notify GHS in writing thereof and GHS shall have
the right and option (the "RIGHT OF FIRST REFUSAL") for thirty (30) days
after receipt of the such written notice to elect to (A) consummate an
Acquisition pursuant to the exercise of the Option on the terms set forth
in Section 4 hereof or (B) consummate the Corporate Transaction on terms
and conditions no less favorable to GHS than the terms and conditions set
forth in the Corporate Transaction Proposal; PROVIDED, that if the
Corporate Transaction Proposal provides for the third party to provide
capital stock or other securities or other non-cash consideration as
consideration in the Corporate Transaction, GHS shall be entitled to
provide capital stock or other securities or other non-cash consideration
of GHS or (C) deliver a notice to The Learning Annex that GHS elects not
to exercise its Right of First Refusal.
(iv) If (A) GHS elects not to exercise its Right of First Refusal
and (B) The Learning Annex consummates the Corporate Transaction, then The
Learning Annex shall reimburse GHS in cash simultaneous with the closing of
the Corporate Transaction an amount equal to the last payment made by GHS in
respect of the Options Price.
(d) FUTURE SHAREHOLDERS.
(i) ISSUANCE BY THE LEARNING ANNEX. The Learning Annex hereby
covenants that it shall not issue or sell any capital stock of The Learning
Annex or any options, warrants, rights, calls, commitments, agreements or
arrangements of any character calling for the issuance of shares of capital
stock of The Learning Annex or any securities convertible into or
exercisable or exchangeable for, or representing the right to purchase or
otherwise receive, directly or indirectly, any such capital stock, or
other arrangement to acquire, at any time or under any circumstance,
capital stock of The Learning Annex or any such other securities which
The Learning Annex is or may become obligated to issue or sell any shares
of capital stock or other securities of The
19
<PAGE>
Learning Annex to any person (a "FUTURE ISSUANCE") unless such person
shall have, as a condition to such Future Issuance, executed a
counterpart to this Agreement and the Pledge Agreement, agreeing to be
bound by and obligated in accordance with this Agreement and the Pledge
Agreement as if he, she or it were a Shareholder.
(ii) TRANSFER BY EXISTING SHAREHOLDER. Each of the Shareholders
hereby covenants and agrees that he, she or it shall not sell, transfer or
otherwise dispose (a "TRANSFER") of any Option Securities or any other
capital stock ("OTHER SHARES" and, together with the Option Securities, the
"SECURITIES") of The Learning Annex now owned or ever owned by such
Shareholder to any person (a "TRANSFEREE") unless such Transferee shall
have, as a condition to such Transfer, executed a counterpart to this
Agreement and the Pledge Agreement, agreeing to be bound by and obligated in
accordance with this Agreement and the Pledge Agreement as if he, she or it
were a Shareholder.
(iii) RESTRICTIVE LEGEND. Each certificate for the Securities and
each certificate for any such Securities issued to subsequent transferees or
pursuant to a Future Issuance shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE CONDITIONS SPECIFIED IN THE OPTION AGREEMENT AMONG GHS,
INC., THE LEARNING ANNEX AND THE SHAREHOLDERS (AS DEFINED THEREIN), AND
NO TRANSFER OF THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF ALL APPLICABLE
CONDITIONS, GHS, INC. HAS AGREED TO DELIVER TO THE HOLDER HEREOF A NEW
CERTIFICATE, NOT BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED
HEREBY REGISTERED IN THE NAME OF THE HOLDER HEREOF."
(e) SHAREHOLDERS' BEST EFFORTS. Each of the Shareholders hereby
covenants and agrees that he, she or it shall use his, her or its best efforts
to ensure that the Learning Annex abides by, observes and performs his, her or
its obligations hereunder, and the Shareholders and The Learning Annex hereby
agree that they shall not sell their Shares except in accordance with Section 11
hereto.
(f) CONFIDENTIALITY. The parties hereto hereby covenant and agree that
without the express written consent of GHS on the one hand and The Learning
Annex on the other hand, neither The Learning Annex nor any Shareholder, nor
GHS, shall disclose the existence of this Agreement or any agreements referenced
herein or attached hereto, nor any of the terms hereof or thereof, to any third
party except: (i) as required by law; (ii) to such party's attorneys,
accountants, other advisors, officers, employees, directors and equityholders,
as applicable, in order to facilitate the consummation of the Acquisition and
the fulfillment of such party's obligations hereunder or thereunder, provided
that any such third party agrees to be bound by the confidentiality provisions
hereof.
20
<PAGE>
(g) NO JOINT VENTURE. Neither party shall make any warranties or
representations, or assume or create any obligations, on the other party's
behalf except as may be expressly permitted hereunder or in writing by such
other party. Each party shall be solely responsible for the actions of all its
respective employees, agents and representatives.
(h) ACCESS TO INFORMATION. Upon the exercise of either of the Options,
The Learning Annex shall afford to the officers, employees, accountants, counsel
and other representatives of GHS, reasonable access, during the period prior to
the date of the closing of the Acquisition, to all its properties, books,
contracts, commitments and records and, during such period, and The Learning
Annex shall furnish promptly to GHS all information concerning its business,
properties and personnel as GHS may reasonably request, and The Learning Annex
shall make available to GHS the appropriate individuals for discussion of The
Learning Annex's business, properties and personnel as GHS may reasonably
request. No investigation pursuant to this Section 11(g) shall affect any
representations or warranties of The Learning Annex herein or the conditions to
the obligations of the parties hereto.
(i) RETENTION OF KEY EMPLOYEES. The Learning Annex hereby covenants and
agrees that it shall use best efforts from the date hereof until the Closing
Date to retain all key employees of The Learning Annex, including, without
limitation, Steve Seligman and Beth Greer. The Learning Annex shall promptly,
and in any event within 48 hours, notify GHS in writing if any The Learning
Annex key employee on the date hereof ceases to be an employee of The Learning
Annex, or if any The Learning Annex key employee on the date hereof informs any
officer of The Learning Annex that he or she will terminate his or her
employment or engagement with The Learning Annex.
12. SURVIVAL; INDEMNIFICATION.
(a) SURVIVAL. The covenants, representations and warranties and
agreements of the parties hereto contained in this Agreement and in the Closing
Documents shall survive (i) for the term of this Agreement or (ii) if the
Options are exercised and the closing of the Acquisition pursuant thereto is
consummated, then for three (3) years after the closing date of such
Acquisition.
(b) THE LEARNING ANNEX AND SHAREHOLDERS INDEMNITY. The Learning Annex
and the Shareholders hereby jointly and severally indemnify GHS against and
agree to hold GHS harmless from any and all damage, loss, liability and expense
(including, without limitation, reasonable expenses of investigation and
reasonable attorneys' fees and expenses in connection with any action, suit or
proceeding, including any action, suit or proceeding to enforce this indemnity)
("DAMAGES") incurred or suffered by GHS arising out of any misrepresentation or
breach of representation, warranty (or any facts or circumstances constituting
such breach), covenant or agreement made or to be performed by The Learning
Annex or the Shareholders pursuant to this Agreement, the Closing Documents or
other closing documents executed and delivered in connection therewith. The
Shareholders shall not have any right of contribution against The Learning Annex
in connection with this Section 12.
(c) GHS INDEMNITY. GHS hereby indemnifies The Learning Annex and each
of the Shareholders against and agrees to hold each of them harmless from any
and all Damages
21
<PAGE>
incurred or suffered by The Learning Annex or each of the Shareholders arising
out of any misrepresentation or breach of representation, warranty (or any facts
or circumstances constituting such breach), covenant or agreement made or to be
performed by GHS pursuant to this Agreement, Closing Documents or other
documents delivered in connection therewith.
(d) PROCEDURES. If any third party shall assert any claim against a
GHS, The Learning Annex or a Shareholder, as the case may be, which, if
successful, would entitle the such person to indemnification under Section 12(a)
or (b), as the case may be, such person (the "INDEMNIFIED PARTY") shall give a
notice of such claim to the party from whom it intends to seek indemnification
(the "INDEMNIFYING PARTY") and the Indemnified Party shall have the right to
assume the defense. If the Indemnified Party does assume such defense, the
Indemnifying Person shall indemnify and hold the Indemnified Party harmless from
and against any and all losses, damages and liabilities caused by or arising out
of any settlement or judgment of such claim and the Indemnifying Person may not
claim that it does not have an indemnification obligation with respect thereto.
In addition, the Indemnifying Party shall have the right to participate in the
defense of such claim at its expense, in which case (i) the Indemnified Party
shall cooperate in providing information to and consulting with the Indemnifying
Party about the claim; and (ii) the Indemnified Party shall not consent to the
entry of judgment or enter into any settlement without the prior written consent
of the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. If the Indemnified Party does not assume the defense of any such claim,
the Indemnifying Party may defend against or settle such claim in such manner
and on such terms as it in good faith deems appropriate and shall be entitled to
indemnification in respect thereof in accordance with Section 12(a) or (b), as
the case may be.
13. EXPIRATION OR TERMINATION. In the event that the Option shall not have been
exercised on or prior to the end of the Option Period, the Option shall
automatically expire and terminate and no party hereunder shall have any rights
or obligations with respect thereto.
14. MISCELLANEOUS PROVISIONS.
(a) ENTIRE AGREEMENT. This Agreement (including the Exhibits attached
hereto) and the Pledge Agreement and License Agreement contain the entire
agreement among the parties hereto with respect to the transactions contemplated
hereby and supersede all prior agreements or understandings, written or oral,
among the parties with respect thereto.
(b) DESCRIPTIVE HEADINGS. Descriptive headings are for convenience only
and shall not control or affect the meaning or construction of any provision of
this Agreement.
(c) NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally,
sent by nationally-recognized overnight courier or by registered or certified
mail, postage prepaid, return receipt requested or by telecopier, addressed as
follows:
(i) if to GHS, to:
22
<PAGE>
GHS, Inc.
2400 Research Boulevard
Rockville, MD 20850
Attention:
Telecopier (301) 308-3254;
with copies to:
Orrick, Herrington & Sutcliffe LLP
666 Fifth Avenue
New York, New York 10103
Attention: Martin H. Levenglick, Esq.
Telecopier: (212) 506-5151; and
(ii) if to The Learning Annex, to:
Seligman/Greer Communication Resources, Inc.
291 Greary Street, Suite 510
San Francisco, CA 94102
Attn: Stephen Seligman
Telecopier: (415) 788-5574
with copies to:
Carol Goodman
Delta Tower
100 First Street, Suite 2530
San Francisco, California 94105
Telecopier: (415) 357-3851
(iii) if to the Shareholders, to their respective addresses set
forth on SCHEDULE I, attached hereto,
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be delivered and received (a) in the case
of personal delivery or telecopy, on the date of such delivery, (b) in the case
of nationally-recognized overnight courier, on the next business day after the
date when sent and (c) in the case of mailing, on the third business day
following the date on which the piece of mail containing such communication was
posted.
(d) COUNTERPARTS. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
23
<PAGE>
(e) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and to be performed wholly therein, without reference to the principals of
conflicts of law.
(f) BENEFITS OF AGREEMENT. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns; PROVIDED, HOWEVER, that
this Agreement shall not be assignable by The Learning Annex or the
Shareholders, whether by operation of law or otherwise, without the express
written consent of GHS. Any attempted assignment, pledge, hypothecation or other
disposition of such Option contrary to the provisions hereof shall be null and
void and without effect.
(g) PRONOUNS. As used herein, all pronouns shall include the masculine,
feminine, neuter, singular and plural thereof whenever the context and facts
require such construction.
(h) ATTORNEYS' FEES. In the event of a claim by a party to this
Agreement against another party to this Agreement, arising under this Agreement,
the prevailing party in a disposition of such claim by a court of competent
jurisdiction or by arbitration shall be paid by the other party the reasonable
and actual out-of-pocket attorneys' fees and expenses incurred by the prevailing
party with respect thereto.
(i) SPECIFIC PERFORMANCE. The transactions contemplated hereby are
unique and the parties acknowledge that the breach or threatened breach of the
provisions hereof may cause irreparable harm to GHS for which an award of
monetary damages would be inadequate. Accordingly, in addition to and not in
limitation of any other remedies available for a breach or threatened breach by
a party hereto, GHS shall be entitled to an injunction restraining the breaching
party from continuing such breach or threatened breach or specific performance.
(j) AGENCY. Stephen Seligman as Chief Executive Officer of Seligman
Greer Communications Resources, Inc. (the "THE LEARNING ANNEX AGENT") is hereby
designated and shall act on behalf of all The Learning Annex entities identified
in the caption to this Agreement on any matter in connection with this Agreement
and any matters contemplated hereby and is hereby authorized to bind all such
entities in respect thereof. Accordingly, GHS shall only be required to interact
with or in any respect deal with The Learning Annex Agent in any matter
involving The Learning Annex Agent or any of such Learning Annex entities
(including without limitation, the giving of notice, consents or approvals
hereunder or any amendment, modification waiver of any term, condition or
provision of this Agreement or to the other agreements and exhibits contemplated
hereby).
(k) AMENDMENT, MODIFICATION AND WAIVER. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by each of the parties hereto; PROVIDED, HOWEVER, that any party to this
Agreement may waive in writing any obligation owed to it by any other party
under this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Option
Agreement to be executed on its behalf as of the date first above written.
GHS, INC.
By: /s/ Alan Gold
-----------------------------------
Name: Alan Gold
Title: President
THE LEARNING ANNEX:
SELIGMAN/GREER COMMUNICATION SGS COMMUNICATION RESOURCES,
RESOURCES, INC., INC.,
a California corporation a California corporation
By: /s/ Stephen Seligman By: /s/ Stephen Seligman
--------------------------- -----------------------------------
Name: Stephen Seligman Name: Stephen Seligman
Title: C.E.O. Title: C.E.O.
By: /s/ Beth Greer By: /s/ Beth Greer
--------------------------- -----------------------------------
Name: Beth Greer Name: Beth Greer
Title: President Title: President
SELIGMAN GREER SANDBERG SGC COMMUNICATION RESOURCES,
ENTERPRISES, INC., a California LLC,
corporation a Delaware limited liability company
By: /s/ Stephen Seligman By: /s/ Stephen Seligman
--------------------------- -----------------------------------
Name: Stephen Seligman Name: Stephen Seligman
Title: C.E.O. Title: C.E.O.
By: /s/ Beth Greer By: /s/ Beth Greer
--------------------------- -----------------------------------
Name: Beth Greer Name: Beth Greer
Title: President Title: President
LEARNING ANNEX INTERACTIVE
LLC,
A Delaware limited liability company
By: /s/ Stephen Seligman
---------------------------
Name: Stephen Seligman
Title: C.E.O.
By: /s/ Beth Greer
---------------------------
Name: Beth Greer
Title: President
25
<PAGE>
Title:
26
<PAGE>
SIGNATURE PAGE TO OPTION AGREEMENT
DATED AS OF MAY 26, 1999 (THE "AGREEMENT"), AMONG
THE LEARNING ANNEX
AND THE OTHER PARTIES TO THE AGREEMENT
The undersigned hereby executes and delivers the Agreement, authorizes
this signature page to be attached to a counterpart of the Agreement, and agrees
to be bound by the Agreement; and this Signature Page together with the
Signature Pages of GHS, Inc., The Learning Annex (as defined therein) and the
other parties to the Agreement shall constitute counterpart copies of the
Agreement in accordance with the terms of the Agreement.
SHAREHOLDERS:
-----------------------------
STEPHEN SELIGMAN
-----------------------------
BETH GREER
27
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------
COMPANY NAME/
SHAREHOLDER OR MEMBER NAME OPTION SECURITIES
- - ----------------------------------------------------------------------------------------
<S> <C>
SELIGMAN/GREER/SANDBERG ENTERPRISES, INC., a California
Corporation
- - ----------------------------------------------------------------------------------------
Stephen Seligman 100 shares common stock
- - ----------------------------------------------------------------------------------------
Beth Greer 100 shares common stock
- - ----------------------------------------------------------------------------------------
SGS COMMUNICATION RESOURCES, INC., a California corporation
- - ----------------------------------------------------------------------------------------
Stephen Seligman 100 shares common stock
- - ----------------------------------------------------------------------------------------
Beth Greer 100 shares common stock
- - ----------------------------------------------------------------------------------------
SELIGMAN/GREER COMMUNICATION RESOURCES, INC., a California
corporation
- - ----------------------------------------------------------------------------------------
Stephen Seligman 500 shares common stock
- - ----------------------------------------------------------------------------------------
Beth Greer 500 shares common stock
- - ----------------------------------------------------------------------------------------
LEARNING ANNEX INTERACTIVE, LLC, a Delaware limited
liability company
- - ----------------------------------------------------------------------------------------
Stephen Seligman 50% of membership interests
- - ----------------------------------------------------------------------------------------
Beth Greer 50% of membership interests
- - ----------------------------------------------------------------------------------------
SGS COMMUNICATION RESOURCES, LLC, a Delaware limited
liability company
- - ----------------------------------------------------------------------------------------
Stephen Seligman 50% of membership interests
- - ----------------------------------------------------------------------------------------
Beth Greer 50% of membership interests
- - ----------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
ANNEX A
CLOSING DOCUMENTS
1. Certificate of The Learning Annex confirming the representations and
warranties of The Learning Annex and the disclosure schedule, and including
updated financial statement for purposes of Section 7.
2. Certificate of each Shareholder confirming the representations and warranties
of such Shareholder.
3. Recent Good standing certificate of The Learning Annex and all subsidiaries
and affiliates thereof together with any bring-down certificates.
4. Certificate of the Secretary of The Learning Annex as to incumbency.
5. Such certificates, instruments and documents customary in transactions of
this type as are mutually agreed upon by the parties.
29
<PAGE>
Exhibit 10(g)
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of May
27, 1999 is made and entered into by and among GHS, Inc., a Delaware corporation
(the "Company"), and the holders of Registrable Securities (as defined herein)
whose names appear on the signature pages of this Agreement.
The parties to this Agreement, intending to be legally bound hereby,
agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:
"Affiliate" has the meaning ascribed to that term in Rule 12b-2 of the
General Rules and Regulations promulgated under the Exchange Act.
"Common Stock" means the voting common stock, par value $.01 per share,
of the Company.
"Common Equity Securities" shall mean Common Stock, any option, warrant
or right to subscribe for, acquire or purchase Common Stock (whether or not
currently exercisable), and any security convertible into or exchangeable for
Common Stock (whether or not currently convertible or exchangeable).
"Demand Request" has the meaning ascribed to that term in Section 3.1.
"Demand Registration" has the meaning ascribed to that term in
Section 3.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initiating Holder" means CYL Development Holdings, LLC.
"Person" means an individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
"Piggyback Registration" has the meaning ascribed to that term in
Section 3.2.
"Prospectus" means the prospectus included in any registration
statement, as amended or supplemented by any prospectus supplement and by all
other amendments, and supplements to such prospectus, including post-effective
amendments, and all information incorporated by reference in such prospectus.
"Registrable Securities" means any shares of Common Stock (i) acquired
by a party to this Agreement upon conversion of the Series A Preferred Stock or
upon exercise of the warrants of the Company acquired pursuant to the terms of
the Contribution and Exchange
<PAGE>
Agreement among the Company and the holders of Registrable Securities dated as
of May 20, 1999 or (ii) acquired thereafter by a party to this Agreement by
virtue of any stock split or combination, stock dividend or similar event in
respect of any of the shares referred to in clause (i) of this definition;
PROVIDED, HOWEVER, that shares of Common Stock that are Registrable Securities
shall cease to be Registrable Securities upon the sale thereof pursuant to an
effective registration statement or pursuant to Rule 144 (or successor rule)
under the Securities Act or upon, in the case of any holder thereof, shares of
Common Stock becoming saleable pursuant to Rule 144 without volume or other
restrictions; and PROVIDED, FURTHER that shares of Common Stock that are
Registrable Securities shall continue to be Registrable Securities upon their
transfer in a private transaction exempt from the registration requirements of
the Securities Act to a person who is already a party to this Agreement (or an
affiliate of any party to this Agreement) or a transfer of Registrable
Securities in accordance with Section 11 who becomes a party to this Agreement
by agreeing in writing to be bound by the terms of this Agreement, such
agreement to be in form and substance reasonably satisfactory to the Company.
"Registration Expenses" means all registration and filing fees, fees
with respect to filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD"), fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of one
counsel for the underwriters or sellers of Registrable Securities in connection
with blue sky qualifications of the Registrable Securities under the laws of
such jurisdictions as the managing underwriters or holders of a majority of the
Registrable Securities being sold may reasonably designate), printing expenses
and distribution expenses associated with the preparation and distribution of
any registration statement, any prospectus, and amendments or supplements
thereto, all fees and expenses associated with the listing of any Registrable
Securities on any securities exchange or exchanges, and fees and disbursements
of counsel for the Company and its independent certified public accountants,
out-of-pocket expenses of underwriters customarily paid by the issuer to the
extent provided for in any underwriting agreement (but specifically excluding
any Selling Expenses).
"Registration Statement" means any registration statement of the
Company filed under the Securities Act, including the prospectus forming a part
thereof, amendments and supplements to such registration statement, including
post-effective amendments, and all exhibits to and all information incorporated
by reference in such registration statement.
"Requisite Amount" shall mean, for the purposes of Section 3.1, an
amount of Registrable Securities proposed to be registered under Section 3.1
pursuant to a Demand Registration which is reasonably expected to have an
aggregate offering price of at least $1,000,000.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations thereunder, all as the
same shall be in effect at the time.
"Selling Expenses" means, with respect to any holder of Registrable
Securities, all underwriting discounts, selling commissions and stock transfer
or documentary stamp taxes, if
2
<PAGE>
any, applicable to any Registrable Securities registered and sold by such
holder, and all fees and disbursements of any counsel for such holder (other
than any counsel fees expressly constituting a Registration Expense as
defined in this Agreement).
"Selling Holders" has the meaning ascribed to that term in Section 3.1.
"Underwritten Offering" means an offering registered under the
Securities Act in which securities are sold to an underwriter, whether on a
"firm commitment", "best efforts" or other basis, for reoffering to the public.
2. SECURITIES SUBJECT TO THIS AGREEMENT. The only securities entitled
to the benefits of this Agreement are the Registrable Securities.
3. REGISTRATION OF REGISTRABLE SECURITIES.
3.1. DEMAND REGISTRATION.
(a) DEMAND. At any time beginning on the second anniversary of the date
of this Agreement and subject to the other provisions of this Agreement, the
Initiating Holder shall have the right, exercisable by making a written request
(a "Demand Request") to the Company (which request shall specify the aggregate
number of shares of Registrable Securities requested to be registered), to
require that the Company effect the registration in accordance with the
provisions of the Securities Act of the Underwritten Offering and sale of any of
the Registrable Securities held by such holder. The Registrable Securities
requested in the Demand Request to be included in the Underwritten Offering
shall have an aggregate offering price of at least the Requisite Amount. Upon
receipt of the Demand Request, the Company shall promptly give written notice of
the Demand to all other holders of Registrable Securities, and the Company shall
use all reasonable efforts to effect, at the earliest practicable date, the
registration (a "Demand Registration") under the Securities Act of (i) the
Underwritten Offering and sale of the Registrable Securities that the Company
has been so required to register by such Initiating Holder, and (ii) the
Underwritten Offering and sale of all other Registrable Securities that the
Company has been requested to register by the holders thereof (such holders
together with the Initiating Holder being hereinafter referred to as the
"Selling Holders") by written request given to the Company within 15 days after
the receipt of such written notice by the Company.
(b) FORM; EFFECTIVE REGISTRATION STATEMENT. A Demand Registration shall
only be on Form S-3 (or any successor "short-form" registration statement). A
registration requested pursuant to this Section 3.1 shall not be deemed to have
been effected unless a registration statement with respect thereto has become
effective; PROVIDED, HOWEVER, that if, after a Demand Registration has become
effective, the offering of Registrable Securities pursuant thereto is
permanently suspended, blocked by any stop order, injunction or other order of
the SEC or any governmental agency or court, or withdrawn (except a Demand
Registration withdrawn under Section 6(a)), such Demand Registration will be
deemed not to have been effected.
(c) SELECTION OF UNDERWRITERS. The Company shall have the sole right to
select, after consultation with the Selling Holders, the underwriter or
underwriters of the Underwritten Offering of the Registrable Securities so to be
registered.
3
<PAGE>
(d) PRIORITY IN REQUESTED REGISTRATION. If the managing underwriter of
the Demand Registration advises the Company in writing that, in its opinion, the
number of shares of Registrable Securities and other securities of the Company
requested to be included in such offering exceeds the number that can be sold in
such offering without materially affecting the offering price of any such
securities, the Company shall include in such registration (1) first, the
Registrable Securities requested by the Selling Holders to be included in the
Demand Registration pursuant to Section 3.1(a) and any other securities of the
Company proposed to be sold by any holders of securities of the Company having
preferential registration rights to participate with such Selling Holders in
such Demand Registration, pro rata among such Selling Holders and such other
holders on the basis of the total number of shares of securities of the Company,
including Registrable Securities, requested to be included in such Demand
Registration; and (2) second, to the extent that such securities of the Company
may be included without materially affecting the offering price of the
Registrable Securities and securities of the Company referred to in clause (1),
in the opinion of such managing underwriter, any other securities of the Company
held by persons having rights to participate in such Demand Registration that
are non-preferential to the Selling Holders and such other holders and
securities of the Company to be issued or sold by the Company, in accordance
with their agreements with respect thereto.
(e) LIMITATIONS ON DEMAND REGISTRATION. Notwithstanding the foregoing,
the Company shall not be required to file a registration statement for a Demand
Registration under any of the following circumstances:
(i) within 60 days prior to the estimated date of filing of and 180
days after the effectiveness (within the meaning of Section 3.1(b)) of a
registration statement filed in connection with an underwritten public offering
of securities of the Company;
(ii) the Company has effected two Demand Registrations pursuant to this
Section 3.1;
(iii) the Company determines, in good faith and after consultation with
the Initiating Holder, that the Registrable Securities proposed to be registered
in the Demand Request are not expected to have an aggregate offering price of at
least the Requisite Amount;
(iv) the Company promptly delivers written notice ("Prior Registration
Notice") to the Initiating Holder making the Demand Request that it has filed
and is using reasonable efforts to have declared effective, or at the time of
receipt of the Demand Request is required to file, or has delivered a Piggyback
Notice (as defined in Section 3.2) with respect to, a registration statement
pursuant to (1) demand registration rights granted to any person or entity
(other than pursuant to this Section 3.1) or (2) Section 3.2 ("Prior
Registration Rights"); PROVIDED, HOWEVER, that the Company may postpone the
filing of a registration statement pursuant to a Demand Request for a period of
no longer than (1) 180 days after the effective date of the registration
statement filed pursuant to the Prior Registration Rights, if such registration
statement was filed before the date of delivery of the Prior Registration Notice
or within 60 days thereafter and, in either case, becomes effective within 120
days after the date of delivery of the Prior Registration Notice; (2) 120 days
after the date of delivery of the Prior Registration Notice, if such
registration statement was filed before the date of delivery of the Prior
Registration
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Notice or within 60 days thereafter but, in either case, does not become
effective within such 120-day period; or (3) 60 days after the date of delivery
of the Prior Registration Notice, if such registration statement was not filed
before the date of delivery of the Prior Registration Notice and is not filed
within 60 days thereafter;
(v) if there exists at the time, material non-public information
relating to the Company, which, in the reasonable opinion of the Board of
Directors, should not be disclosed, any other provisions of this Agreement to
the contrary notwithstanding, or if it would be severely detrimental to the
Company to file a registration statement in the near future in the reasonable
opinion of the Board of Directors, the Company's obligation to file a
registration statement, or cause such registration statement to become and
remain effective (whether under this Section 3.1 or under any other provision of
this Agreement), shall be suspended for a period not to exceed 90 days (and for
a period not exceeding, in the aggregate, 180 days in any 24-month period);
(vi) if the Company shall not then qualify for registration on Form S-3
(or any successor "short-form" registration statement); or
(vii) if the Company shall be unable, after consultation with the
Selling Holders, to select an underwriter or underwriters to underwrite the
Demand Registration which is reasonable acceptable to the Company.
3.2. PIGGYBACK REGISTRATION.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any time
beginning on the second anniversary of the date of this Agreement proposes
(other than pursuant to Section 3.1) to register the offering and sale of shares
of Common Stock under the Securities Act by registration on any form other than
Forms S-4 or S-8 (or any successor forms thereto) whether or not for sale for
its own account, it shall each such time give prompt written notice ("Piggyback
Notice") to all holders of Registrable Securities of its intention to do so and
of such holders' rights under this Section 3.2. Upon the written request of any
such holder (a "Requesting Holder") received by the Company within 15 days after
the giving of any Piggyback Notice (which request shall specify the Registrable
Securities intended to be disposed of by such Requesting Holder and the intended
method of such disposition), the Company shall use all reasonable efforts to
include in such registration ("Piggyback Registration") all Registrable
Securities that the Requesting Holders have so requested be included in such
Piggyback Registration to permit the disposition by such Requesting Holders of
such Registrable Securities; provided that (i) if such registration involves an
underwritten public offering, all holders of Registrable Securities requesting
to be included in the Company's registration must sell their Registrable
Securities to the underwriters selected by the Company on the same terms and
conditions as apply to the Company; and (ii) if, at any time after giving notice
of its intention to register any securities pursuant to this Section 3.2(a) and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register such securities, the Company shall give written notice to all holders
of Registrable Securities and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration. No
registration effected under this Section 3.2 shall relieve the Company of its
obligations to effect registrations upon request under
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Section 3.1. The Company shall not, without the prior written consent of the
holders of a majority of the Registrable Securities, grant future piggyback
registration rights to other persons which, as a whole, are superior to the
Piggyback Registration rights provided by this Section 3.2.
(b) PRIORITY IN PIGGYBACK REGISTRATIONS. If a Piggyback Registration is
an Underwritten Offering and the managing underwriter thereof advises the
Company in writing that, in its opinion, the number of shares of Registrable
Securities requested or proposed to be included in such offering exceeds the
number that can be sold in such offering without materially affecting the
offering price of any such securities, the Company shall include in such
registration (1) first, to the extent that such securities of the Company may be
included in such registration without materially affecting the offering price
thereof, in the opinion of such managing underwriter, (A) if such registration
is initiated by the Company proposing to register any of its Common Stock, such
Common Stock proposed to be sold by the Company and (B) the securities of the
Company held by persons (other than the holders of Registrable Securities with
respect to Registrable Securities) who otherwise have preferential registration
rights to include such securities in such Piggyback Registration in preference
to such holders and which have been duly requested to be included in such
Piggyback Registration in accordance with the agreements with respect to such
registration rights between the Company and such holders; and (2) second, to the
extent that such Registrable Securities may be included in such registration
without materially affecting the offering price of the securities referred to in
clause (1), in the opinion of such managing underwriter, the Registrable
Securities requested by the holders to be included in such Piggyback
Registration pursuant to Section 3.2 (a) and any other securities of the Company
held by persons other than the holders having rights to participate in such
Piggyback Registration that are non-preferential to the holders of Registrable
Securities, pro rata among all such holders on the basis of the total number of
securities of the Company, including Registrable Securities, requested by each
such holder to be included therein.
4. HOLD-BACK AGREEMENTS. During the term of this Agreement, each holder
of Registrable Securities shall, if requested by the managing underwriter or
underwriters in an Underwritten Offering and provided the Company is then in
compliance with the terms of this Agreement, agree not to effect any public sale
or distribution of securities of the Company of the same class as the securities
included in such registration statement, including a sale pursuant to Rule 144
under the Securities Act, except as part of such underwritten registration,
during the 30-day period prior to, and during a period of up to 180 days
beginning on, the closing date of each Underwritten Offering made pursuant to
such registration statement, to the extent timely notified in writing by the
Company or the managing underwriter or underwriters.
5. REGISTRATION PROCEDURES.
In connection with the Company's obligations under Section 3, the
Company shall use all reasonable efforts to effect such registration to permit
the sale of such Registrable Securities in accordance with the intended method
or methods of distribution thereof, and pursuant thereto the Company shall as
expeditiously as practicable:
(a) prepare and file with the SEC under the Securities Act a
registration statement with respect to such Registrable Securities which shall
state that the Registrable Securities are covered thereby, and use all
reasonable efforts to cause such registration statement
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to become effective and to remain effective; PROVIDED, HOWEVER, that the Company
may discontinue any registration of Registrable Securities being effected
pursuant to Section 3.2 at any time before the effective date of the
registration statement relating thereto;
(b) prepare and file with the SEC such amendments and supplements, if
any, to such registration statement and the prospectus used in connection
therewith as may be necessary to (1) keep such registration statement effective
until the earlier of (a) 90 days after the effectiveness thereof or (b) the
completion of the distribution under such registration statement, and (2) comply
with the provisions of the Securities Act applicable to it with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in such registration statement;
(c) furnish to each seller of such Registrable Securities and each
underwriter (if any) such number of copies of such registration statement
(including exhibits), each amendment and supplement thereto, the prospectus
included in such registration statement or filed with the SEC (including each
preliminary prospectus), and each amendment and supplement thereto as such
seller and underwriter may reasonably request to facilitate the disposition of
the Registrable Securities owned by such seller and covered by such registration
statement;
(d) use all reasonable efforts to (1) register or qualify such
Registrable Securities under the securities or "blue sky" laws of such
jurisdictions as any seller of such Registrable Securities or the managing
underwriter (if any) may reasonably request; (2) keep such registrations or
qualifications in effect for so long as such registration statement is in
effect; and (3) take any and all other reasonable actions that may be necessary
or appropriate to enable each seller of Registrable Securities or other
securities of the Company covered by such registration statement and each
underwriter (if any) to consummate the disposition in such jurisdictions of the
relevant Registrable Securities and other securities of the Company; PROVIDED,
HOWEVER, that the Company shall not be required to (a) qualify generally to
transact business as a foreign corporation in any jurisdiction where it would
not otherwise be required to qualify but for the requirements of this Section 5,
(b) subject itself to taxation in any such jurisdiction; (c) consent to general
service of process in any jurisdiction; or (d) register or qualify Registrable
Securities or take any other action under the securities or blue sky laws of any
jurisdiction if, in the judgment of the Board of Directors of the Company, the
consequences of such registration, qualification or other action would be unduly
burdensome to the Company;
(e) (1) at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, notify each seller of Registrable
Securities covered by a registration statement when it becomes aware of the
occurrence of any event as a result of which the prospectus (as then amended or
supplemented) contains any untrue statement of a material fact or omits any fact
necessary to make the statements therein, in the light of circumstances under
which they were made, not misleading; and (2) at the request of any such seller,
as promptly as practicable thereafter, prepare in sufficient quantities and
furnish to such seller and each underwriter (if any) a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter delivered
to the offerees or purchasers of such Registrable Securities, such prospectus
will not contain any untrue statement of a material fact or omit to
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<PAGE>
state any fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading;
(f) use all reasonable efforts to cause all such Registrable Securities
covered by such registration statement to be listed on any securities exchange,
if any, on which similar securities of the Company are then listed, if the
listing of such Registrable Securities is then permitted under the rules of such
exchange;
(g) enter into and perform its obligations under customary agreements
relating to the registration, including an underwriting agreement in customary
form;
(h) subject to the execution of confidentiality agreements customary
for transactions of this type, in form and substance satisfactory to the
Company, (1) make reasonably available for inspection by any seller of such
Registrable Securities, any underwriter (if any) and any legal counsel,
accountant or other agent retained by any such underwriter, all financial and
other records, relevant corporate documents, and properties of the Company, and
(2) cause the Company's directors, officers, employees, counsel and independent
public accountants to supply all information reasonably requested by, and to
respond to inquiries from, any such seller, underwriter, legal counsel,
attorney, accountant or agent in connection with such registration statement, in
each instance to the extent that such information is reasonably necessary to
satisfy any of its obligations under applicable law;
(i) with respect to Underwritten Offerings, use all reasonable efforts
to obtain an appropriate opinion from counsel for the Company and a "cold
comfort" letter from then Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions of counsel and cold comfort letters in similar registrations;
(j) promptly notify each selling holder of Registrable Securities and
each managing underwriter (if any) and, upon request by any such person, confirm
such advance in writing, (1) when such registration statement, the prospectus or
any prospectus supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective amendment thereto,
when the same has become effective, (2) of the issuance by the SEC of any stop
order suspending the effectiveness of such registration statement or the
initiation of any proceeding for such purpose, or (3) of the receipt by the
Company of any notification with respect to the suspension of the registration
or qualification of such Registrable Securities for sale in any jurisdiction or
the initiation of any proceeding for such purpose; and
(k) use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing; PROVIDED, HOWEVER, that such
information shall be used by the Company only to the extent necessary for, and
in connection with, such registration.
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Each holder of Registrable Securities agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 5(e)(1) hereof, such holder shall forthwith discontinue disposition of
such Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 5(e)(2), or until it
is advised in writing (the "Advice") by the Company that the use of the
prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the prospectus, and,
if so directed by the Company, such holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies then in such
holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the time periods regarding the maintenance of the
registration statement in Section 3 shall be extended by the number of days
during the period from and including the date of the giving of such notice
pursuant to Section 5(e)(1) to and including the date when each seller of
Registrable Securities covered by such registration statement shall have
received the copies of the supplemented or amended prospectus contemplated by
Section 5(e)(2) or the Advice.
6. WITHDRAWAL.
(a) If any holder participating in a registration hereunder disapproves
of the terms of any offering, the sole remedy of such holder shall be, in its
discretion, to withdraw such holder's Registrable Securities and other
securities of the Company therefrom by giving written notice to the Company and
any managing underwriter (if any). The holder's Registrable Securities and other
securities of the Company so withdrawn from the offering also shall be withdrawn
from registration. If the holders participating in such registration withdraw
all Registrable Securities from the offering, the Company may withdraw the
registration, and if such registration was commenced pursuant to a Demand
Request, such registration shall nevertheless be counted as a Demand
Registration effected hereunder; PROVIDED, HOWEVER, that such registration shall
not be so counted if the withdrawal was based on the Company's failure to comply
in any material respect with its obligations hereunder.
(b) If as a result of the proration provisions of Sections 3.1(d) and
3.2(b), any holder of Registrable Securities is not entitled to include all of
such holder's Registrable Securities in a registration that such holder has
requested to be included, then after the delivery to such holder of notice
thereof from the Company, such holder may elect to withdraw his request to
include such holder's Registrable Securities in such registration ("Withdrawal
Election"); PROVIDED, HOWEVER, that a Withdrawal Election shall be irrevocable
and, after making a Withdrawal Election, a holder shall no longer have any right
to include such holder's Registrable Securities in the registration as to which
such Withdrawal Election was made. If as a result of Withdrawal Elections (but
after the Company has included in such registration in place of such withdrawn
Registrable Securities such additional Registrable Securities or other
securities of the Company to be sold by the Company or held by other holders or
other sellers whose Registrable Securities or other securities of the Company
were excluded as a result of the proration provisions of Sections 3.1(d) and
3.2(b)), less than the Requisite Amount of Registrable Securities and other
securities of the Company are requested to be included in a registration, the
Company, in its sole discretion, may give written notice to all holders of
Registrable Securities who have requested that such holders' Registrable
Securities be included in a registration and who have not made a Withdrawal
Election that the Company has determined
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not to proceed with such registration and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
abandoned registration (without prejudice, however, to the holders' rights to
have Registrable Securities registered pursuant to Section 3.2 and the holders'
rights to have Registrable Securities registered pursuant to Section 3.1 in the
future). Any such abandoned registration shall not be counted as a Demand
Registration for purposes of Section 3.1(e)(iii).
7. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration in accordance with Section 3 shall be borne by
the Company. All Selling Expenses relating to Registrable Shares registered on
behalf of any person shall be borne by such person.
8. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company shall indemnify and
hold harmless, with respect to any registration statement filed by it, to the
fullest extent permitted by law, each holder who is a seller of Registrable
Securities covered by such registration statement, its officers, directors,
employees, agents and general or limited partners, and each other person, if
any, who controls such holder within the meaning of the Securities Act
(collectively, "Holder Indemnified Parties") against all losses, claims,
damages, liabilities and expenses, joint or several, (including reasonable fees
of counsel and any amounts paid in settlement effected with the Company's
consent, which consent shall not be unreasonably withheld) to which any such
Holder Indemnified Party may become subject under the Securities Act, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) are caused by (1) any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement in which such Registrable Securities were included as
contemplated hereby or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, (2) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the SEC any amendment thereof
or supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, or (3) any violation by the Company of any federal or
state law, rule or regulation applicable to the Company relating to action of or
inaction by the Company in connection with any such registration; and in each
such case, the Company shall reimburse each such Holder Indemnified Party for
any reasonable legal or any other expenses incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability,
expense, action or proceeding; PROVIDED, HOWEVER, that the Company shall not be
liable to any such Holder Indemnified Party in any such case to the extent that
any such loss, claim, damage, liability or expense (or action or proceeding,
whether commenced or threatened, in respect thereof) arises out of or is based
upon any untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement or amendment thereof or supplement
thereto or in any such preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of any such Holder Indemnified Party relating to such Holder Indemnified
Party expressly for use in the preparation thereof; and PROVIDED, FURTHER, that
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the Company shall not be liable to any such Holder Indemnified Party with
respect to any preliminary prospectus to the extent that any such loss, claim,
damage, liability or expense of such Holder Indemnified Party results from the
fact that such Holder Indemnified Party sold Registrable Securities to a person
to whom there was not sent or given, at or before the written confirmation of
such sale, a copy of the prospectus (excluding documents incorporated by
reference) or of the prospectus as then amended or supplemented (excluding
documents incorporated by reference) if the Company has previously furnished
copies thereof to such Holder Indemnified Party in compliance with Section 5 and
the loss, claim, damage, liability or expense of such Holder Indemnified Party
results from an untrue statement or omission of a material fact contained in
such preliminary prospectus which was corrected in the prospectus (or the
prospectus as amended or supplemented). Such indemnity and reimbursement of
expenses obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such holder.
(b) INDEMNIFICATION BY HOLDERS. Each holder of Registrable Securities
participating in any registration hereunder shall severally and not jointly
indemnify and hold harmless, to the fullest extent permitted by law, the
Company, its directors, officers, employees and agents, and each person who
controls the Company (within the meaning of the Securities Act) (collectively,
"Company Indemnified Parties") against all losses, claims, damages, liabilities
and expenses, joint or several (including reasonable fees of counsel and any
amounts paid in settlement effected with such holder's consent, which consent
shall not be unreasonably withheld) to which any Company Indemnified Party may
become subject under the Securities Act, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions or proceedings
in respect thereof) are caused by (1) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement in which
such holder's Registrable Securities were included or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, (2) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary, final or summary prospectus, together with the documents
incorporated by reference therein (as amended or supplemented if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading to the extent, but only to the extent, in the cases described in
clauses (1) and (2), that such untrue statement or omission is contained in any
information furnished in writing by such holder to the Company expressly for use
in the preparation thereof; PROVIDED, HOWEVER, that the aggregate amount which
any such holder shall be required to pay pursuant to this Section 8(b) shall be
limited to the dollar amount of proceeds received by such holder upon the sale
of the Registrable Securities and other securities of the Company pursuant to
the registration statement giving rise to such claim. Such indemnity obligation
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Company Indemnified Parties (except as provided above) and
shall survive the transfer of such securities by such holder.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Promptly after receipt by
an indemnified party under Section 8(a) or 8(b) of written notice of
commencement of any action, suit, proceeding, investigation or threat thereof
made in writing with respect to which a claim for
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indemnification may be made pursuant to this Section 8, such indemnified party
shall, if a claim in respect thereto is to be made against an indemnifying
party, give written notice to the indemnifying party of the threat or
commencement thereof; PROVIDED, HOWEVER, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or action
referred to under Section 8(a) or 8(b) is brought against any indemnified party
and it then notifies the indemnifying party of the threat or commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it wishes, jointly with any other indemnifying party similarly
notified, to assume the defense thereof with counsel reasonably satisfactory to
such indemnified party. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense of any such claim or
action, the indemnifying party shall not be liable to such indemnified party
under this Section 8 for any legal expenses of counsel or any other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation unless (i) the indemnifying
party has failed to assume the defense of such claim or action or to employ
counsel reasonably satisfactory to such indemnified party or (ii) in the
reasonable judgment of any indemnified party a conflict of interest is likely to
exist, based on the written opinion of counsel, between such indemnified party
and any other of such indemnified parties with respect to such claim, in which
event the indemnifying party shall be obligated to pay reasonable fees and
expenses of such additional counsel. The indemnifying party shall not be
required to indemnify the indemnified party with respect to any amounts paid in
settlement of any action, proceeding or investigation entered into without the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld. No indemnifying party shall consent to the entry of any
judgment or enter into any settlement without the consent of the indemnified
party unless (1) such judgment or settlement does not impose any obligation or
liability upon the indemnified party other than the execution, delivery or
approval thereof, and (2) such judgment or settlement includes as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a full release and discharge from all liability in respect
of such claim for all persons that may be entitled to or obligated to provide
indemnification or contribution under this Section 8.
(d) CONTRIBUTION. If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or 8(b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) referred to in Section 8(a) or 8(b) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other in connection with the statements,
omissions, actions or inactions which resulted in such losses, claims, damages,
liabilities or expenses. The relative fault of the indemnifying party and the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party, any action or
inaction by any such party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement, omission,
action or inaction. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) pursuant to this Section 8(d) shall be deemed to
include any reasonable legal or other expenses incurred by such indemnified
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party in connection with investigating or defending any such action or claim
(which shall be limited as provided in Section 8(c) if the indemnifying party
has assumed the defense of any such action in accordance with the provisions
thereof) which is the subject of this Section 8(d). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Promptly after receipt by an
indemnified party under this Section 8(d) of written notice of the commencement
of any action, suit, proceeding, investigation or threat thereof made in writing
with respect to which a claim for contribution may be made against an
indemnifying party under this Section 8(d), such indemnified party shall, if a
claim for contribution in respect thereto is to be made against an indemnifying
party, give written notice to the indemnifying party in writing of the
commencement thereof (if the notice specified in Section 8(c) has not been given
with respect to such action); PROVIDED, HOWEVER, that the failure to so notify
the indemnifying party shall not relieve it from any obligation to provide
contribution which it may have to any indemnified party under this Section 8(d)
except to the extent that the indemnifying party is actually prejudiced by the
failure to give notice. Notwithstanding anything in this Section 8(d) to the
contrary, no holder of Registrable Securities participating in any registration
hereunder shall be required pursuant to this Section 8(d) to contribute any
amount which exceeds the dollar amount of the proceeds received by such holder
from the sale of Registrable Securities and other securities of the Company in
the offering to which the losses, claims, damages, liabilities or expenses of
the indemnified parties relate.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
If indemnification is available under this Section 8, the indemnifying
parties shall indemnify each indemnified party to the fullest extent provided in
Sections 8(a) and 8(b), without regard to the relative fault of said
indemnifying party or indemnified party or any other equitable consideration
provided for in this Section 8(d). The provisions of this Section 8(d) shall be
in addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract, shall remain in full
force and effect regardless of any investigation made by or on behalf of any
indemnified party, and shall survive the transfer of securities by any such
party.
(e) INDEMNIFICATION AND CONTRIBUTION OF UNDERWRITERS. In connection
with any Underwritten Offering contemplated by this Agreement which includes
Registrable Securities, the Company and all sellers of Registrable Securities
included in any registration statement shall agree to customary provisions for
indemnification and contribution (consistent with the other provisions of this
Section 8) in respect of losses, claims, damages, liabilities and expenses of
the underwriters of such offering.
9. CURRENT PUBLIC INFORMATION. With a view to making available the
benefits of certain rules and regulations of the SEC which may permit the sale
of Registrable Securities to the public without registration, the Company agrees
to use its best efforts to:
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(a) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act after the Company
becomes subject to the reporting requirements of such act; and
(b) furnish to any holder of Registrable Securities, during the term of
this Agreement, forthwith upon request (i) if true, a written statement by the
Company that it has complied with the current public information and reporting
requirements of Rule 144 under the Securities Act and the Exchange Act to which
it is subject and (ii) a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the Company.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. In the case of any
underwritten registration under Section 3.1, or in the case of a registration
under Section 3.2, if the Company determines to enter into an underwriting
agreement in connection therewith, (1) all shares of Registrable Securities or
other Securities of the Company to be included in such registration shall be
subject to such underwriting agreement, which shall be in customary form, and
(2) no person may participate in any such registration unless such person (a)
agrees to sell such person's securities on the basis provided in such
underwriting arrangement and (b) completes and executes all questionnaires,
powers-of-attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
11. TRANSFER OF REGISTRATION RIGHTS. Subject to the restrictions on the
transfer of Common Equity Securities of the Company under the terms of that
certain Stockholders' Agreement dated as of the date hereof by and between,
among others, the Company and the Holders, the rights to cause the Company to
register Registrable Securities of a Holder and keep information available
granted to a Holder by the Company hereunder may be assigned by a Holder (i) to
any partner or shareholder of such Holder, (ii) to any other Holder, or (iii) to
other transferees or assignees; PROVIDED, that the Company is given written
notice by the Holder at any time of or within a reasonable time after said
transfer, stating the name and address of said transferee or assignee and
identifying the securities with respect to which such registration rights are
being assigned and the transferee or assignee agrees in writing to be bound by
the terms of this Agreement, such agreement to be in form and substance
reasonably satisfactory to the Company.
12. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no
alteration, modification, amendment, change or waiver of any provision of this
Agreement shall be effective or binding on any party hereto unless the same is
in writing and is executed by the Company and the holders of at least a majority
of the Registrable Securities then outstanding; PROVIDED, HOWEVER, that with
respect to a particular registration statement filed pursuant to Section 3, a
waiver or consent to departure from the provisions of this Agreement regarding
only such registration statement and the offering covered thereby may be given
by the holders of not less than a majority of the Registrable Securities covered
by such registration statement, except that no such waiver or consent shall
operate to affect adversely the rights hereunder of any other holder of
Registrable Securities.
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(b) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or courier guaranteeing overnight delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company; and
(ii) if to the Company, at 704 Broadway, New York, NY 10003, Attention:
Chief Executive Officer.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; three days after
being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day if timely delivered to
a courier guaranteeing overnight delivery.
(c) TERM. This Agreement shall terminate and cease to be of any further
force or effect on the fifth anniversary of the date of this Agreement;
PROVIDED, HOWEVER, that the indemnification and contribution rights and
obligations shall not terminate and shall continue forever; and PROVIDED,
FURTHER, that with respect to any particular party to this Agreement, this
Agreement shall terminate and cease to be of any further force or effect on the
first date which that party ceases to hold any Registrable Securities.
(d) SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties hereto, provided that any such
successors, permitted assign, heirs, executors and administrators shall have
agreed in writing to be bound by the terms and conditions of this Agreement.
(e) REMEDIES. Each party hereto acknowledges that in the event of any
breach of this Agreement by such party, the other parties hereto (1) would be
irreparably and immediately harmed by such breach, (2) could not be made whole
by monetary damages, and (3) shall be entitled to temporary and permanent
injunctions (or their functional equivalents) to prevent any such breach and/or
to compel specific performance with this Agreement, in addition to all other
remedies to which such parties may be entitled at law or in equity.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed in Delaware without regard to principles of conflicts of
laws.
(h) SEVERABILITY. Each provision of this Agreement shall be considered
severable, and if for any reason any provision that is not essential to the
effectuation of the basic purposes of the Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable under existing or future
applicable law, such invalidity shall not impair the
15
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operation of or affect those provisions of this Agreement that are valid. In
that case, this Agreement shall be construed so as to limit any term or
provision so as to make it enforceable or valid within the requirements of any
applicable law, and in the event such term or provision cannot be so limited,
this Agreement shall be construed to omit such invalid or unenforceable
provisions.
(i) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no representations, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company hereby. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter and cannot be changed or terminated orally.
(j) CONSTRUCTION. As used in this Agreement, unless the context
otherwise requires (i) references to "Sections" are to sections of this
Agreement, (ii) "hereof", "herein", "hereunder" and comparable terms refer to
this Agreement in its entirety and not to any particular part of this Agreement,
(iii) the singular includes the plural and the masculine, feminine and neutral
gender includes the other, (iv) "including" or "includes" shall be deemed to be
followed by the phrase "without limitation", and (v) headings of the various
Sections and subsections are for convenience of reference only and shall not be
given any effect for purposes of interpreting this Agreement.
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This Agreement is executed and delivered by the parties hereto
to be effective as of the date first above written.
GHS, INC.
By: /s/ Alan Gold
------------------------------------
Name: Alan Gold
Title: President
CYL DEVELOPMENT HOLDINGS, LLC
By: /s/ David Roy
------------------------------------
Name: David Roy
Title: Manager
ROBBINS RESEARCH INTERNATIONAL, INC.
By: /s/ Anthony J. Robbins
------------------------------------
Name: Anthony J. Robbins
Title: Chairman
/s/ Anthony J. Robbins
-------------------------------------------
Anthony J. Robbins
17
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Exhibit 10(h)
GHS, INC.
STOCKHOLDERS AGREEMENT
This Stockholders Agreement dated as of May 27, 1999 (this "Agreement")
by and among GHS, Inc., a Delaware corporation (the "Company"), and each of the
individuals or entities signatory hereto (each a "Stockholder" and together the
"Stockholders").
W I T N E S S E T H :
WHEREAS, the Stockholders are parties to a Contribution and Exchange
Agreement dated as of May 20, 1999 (the "Contribution Agreement");
WHEREAS, it is a condition precedent to the obligation of the Company
to proceed with the Closing (as defined in the Contribution Agreement) that the
parties hereto enter into this Agreement;
NOW, THEREFORE, in consideration of the parties to proceed with the
Closing and other good and valuable consideration the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.01 DEFINED TERMS. The following terms when used in this Agreement,
including its preamble and recitals, shall, except where the context otherwise
requires, have the following meanings, such meanings to be equally applicable to
the singular and plural forms thereof:
"AFFILIATE" shall mean, with respect to any Person, any person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
"CLOSING" means the closing of the transactions contemplated by the
Contribution Agreement.
"COMMON STOCK" shall mean and include the Company's currently
authorized common stock, par value $.01 per share and shall include any
securities which may be issued or distributed with respect to, or in exchange
for, such Common Stock, pursuant to a stock dividend, stock split, or other
distribution, merger, consolidation, recapitalization or reclassification or
similar transaction.
<PAGE>
"COMMON STOCK EQUIVALENTS" shall mean the number of shares of Common
Stock issuable upon the exercise, exchange or conversion of any security.
"CONTRIBUTION AGREEMENT" shall have the meaning set forth in the first
recital hereof.
"EQUITY SECURITIES" shall mean any security exercisable for, or
convertible or exchangeable into, Common Stock.
"EXPIRATION DATE" shall mean the later to occur of (i) March 31, 2014
or (ii) the termination of the Content Provider Agreement and License by and
among Anthony J. Robbins, Robbins Research International Inc. and
ChangeYourLife.com, LLC dated April 23, 1999, as it may hereinafter be amended
from time to time.
"PERSON" shall mean and include an individual, a corporation, a limited
liability company, an association, a partnership, a trust or estate, a
government or any department or agency thereof.
"REGISTRABLE SHARES" shall consist of any and all shares of Common
Stock held by the Stockholders.
"VOTING STOCK" shall mean any shares of Common Stock or of any Equity
Securities entitling the holder thereof to case one or more votes for the
election of the Directors of the Company.
ARTICLE 2
VOTING AGREEMENT
2.01 BOARD OF DIRECTORS OF THE COMPANY; GOVERNANCE. (a) The
Stockholders hereby agree that the Board of Directors shall consist of eight
members and that the initial members of the Board of Directors who shall be
elected within 45 days of the Closing shall be those persons listed on Exhibit A
hereto. At each subsequent election of directors and for so long as Anthony J.
Robbins or any of his Affiliates shall hold in the aggregate at least 10% of the
outstanding shares of Common Stock or Common Stock equivalents, (i) Anthony J.
Robbins or such Affiliates shall have the right to nominate three persons as
Directors of the Company (the "Robbins Directors"), and (ii) a Nominating
Committee consisting of the directors (other than the Robbins Directors and the
Company's Chief Executive Officer) and their respective successors shall have
the right to nominate four persons as Directors of the Company and (iii) the
eighth Director shall be the Company's Chief Executive Officer. Except as
otherwise provided in the Company's by-laws, all decisions of the Board of
Directors shall be made by a majority of its members. The Board of Directors
shall be headed by a non-executive Chairman of the Board who, provided Anthony
J. Robbins or any of his Affiliates shall hold in the aggregate at least 10% of
the outstanding shares of Common Stock or Common Stock equivalents, shall be
Anthony J. Robbins or a person nominated by Mr. Robbins from amongst the
Directors and said person shall also serve as the Chairman of the Executive
Committee. The Chairman shall perform his duties at the direction of the Board
of Directors. The Company shall have a Chief Executive Officer responsible for
the management and day to day operations of the Company.
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The Chief Executive Officer shall be appointed by the Board of Directors of the
Company and shall execute his duties in accordance with the decisions of and
shall report to the Board of Directors. Officers and employees of the Company
shall report to the Chief Executive Officer.
2.02 COVENANT TO VOTE. Each of the Stockholders shall appear in person
or by proxy at any annual or special meeting of stockholders for the purpose of
obtaining a quorum and shall vote or cause the vote of the shares of Voting
Stock owned by such Stockholder or by any Affiliate of such Stockholder, either
in person or by proxy, at any annual or special meeting of stockholders of the
Company called for the purpose of voting on the election, if such Director has
been nominated for election, or removal, if such Director has been designated
for removal, of Directors, or by consensual action of stockholders with respect
to such election or removal of Directors, in favor of such election of the
Directors nominated, or removal of the Directors designated, in accordance with
Section 2.01 and for the replacement of the Directors in accordance with Section
2.03. In addition, each of the Stockholders shall appear in person or by proxy
at any annual or special meeting of stockholders for the purpose of obtaining a
quorum and shall vote or cause the vote of the shares of Voting Stock owned by
such Stockholder or any Affiliate of such Stockholder upon any matter submitted
to a vote of the stockholders of the Company in the manner recommended by the
Board of Directors of the Company, provided that such recommendation has
received the required vote of such body, and in a manner so as to be consistent
and not in conflict with, and to implement, the terms of this Agreement.
2.03 VACANCIES. The Stockholders hereby agree that if any Director is
unable to serve or, once having commenced to serve, is removed or withdraws from
the Board of Directors of the Company, the replacement of such Director on the
Board of Directors of the Company will be nominated in accordance with the
procedures described in Section 2.01.
2.04 NO VOTING OR CONFLICTING AGREEMENTS. Each of the Stockholders
agrees that it will not and will not permit any Affiliate to grant any proxy or
enter into or agree to be bound by any voting trust with respect to its shares
of Voting Stock or to enter into any stockholder agreements or arrangements of
any kind with any Person with respect to its shares of Voting Stock in any such
case in a manner that is inconsistent with the provisions of this Agreement.
2.05 ACTIONS CONSISTENT WITH AGREEMENT. Except as required by
applicable law, the Company shall not take any action inconsistent with the
provisions of this Agreement.
2.06 VOTING OF COMMON STOCK BY THE COMPANY. To the extent not
prohibited by applicable law, if the Company or one or more of its Affiliates
shall hold, beneficially or of record, shares of Voting Stock at the time of any
vote of holders of Common Stock, the Company shall vote or cause to be voted
such shares of Voting Stock for and against any proposal in the same proportion
as the shares of Common Stock held by the Stockholders (other than the Company
or any of its Affiliates) are voted for and against such proposal.
2.07 NO CUMULATIVE VOTING The Stockholders agree that they will not
amend the Company's Certificate of Incorporation to permit cumulative voting.
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2.08 EXPIRATION OF RIGHTS. Notwithstanding any other provision of this
Agreement, the parties hereto hereby agree that the rights granted pursuant to
this Article 2 shall expire and be of no further force and effect as of the
Expiration Date.
ARTICLE 3
RESTRICTIONS ON TRANSFERS BY THE STOCKHOLDERS
3.01 RESTRICTIONS ON TRANSFERS GENERALLY. Each Stockholder hereby
agrees that such Stockholder shall not, and shall not permit any Affiliate to,
directly or indirectly, transfer, sell or otherwise dispose of any shares of
Common Stock or Equity Securities, other than (i), pursuant to an effective
registration statement under the Securities Act, (ii) pursuant to the terms and
conditions of Rule 144 under the Securities Act or (iii) pursuant to an
exemption from registration under the Securities Act and any state securities or
Blue Sky laws; PROVIDED, HOWEVER, that any transfer, sale or other disposition
pursuant to clause (iii) above shall be only to a transferee who shall agree to
be bound by the terms hereof and be deemed to be a Stockholder under this
Agreement.
3.02 TRANSFERS TO AFFILIATES. Notwithstanding anything to the contrary
contained in Section 3.01 and subject to the provisions of Section 3.04, a
Stockholder may transfer its shares of Common Stock or Equity Securities to an
Affiliate of such Stockholder ("Permitted Transferee") provided that such
Stockholder shall not transfer control of any such Affiliate to a person which
is not an Affiliate of such Stockholder without first reacquiring such shares of
Common Stock or Equity Securities; and provided further, that the Permitted
Transferee of a Stockholder may only transfer its shares of Common Stock or
Equity Securities to the transferor Stockholder from whom such Permitted
Transferee received such shares of Common Stock or Equity Securities or any of
such transferor's Permitted Transferees or otherwise in accordance with the
terms hereof.
3.03 RESTRICTIVE LEGENDS. Each share of Common Stock and Equity
Securities shall bear a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND ARE
TRANSFERABLE ONLY UPON COMPLIANCE WITH, THE PROVISIONS OF THE
STOCKHOLDERS AGREEMENT DATED MAY 27, 1999, AMONG GHS, INC. AND CERTAIN
OF ITS STOCKHOLDERS. A COPY OF THE ABOVE-REFERENCED AGREEMENT IS ON
FILE AT THE OFFICE OF GHS, INC.
3.04 TRANSFEREES SUBJECT TO AGREEMENT. Any transferee of any shares of
Common Stock or Equity Securities shall, as a condition of the consummation of
such transfer, agree to be subject to the terms of Article 2 of this Agreement,
other than share sold pursuant to Section 3.01(i) or (ii).
3.05 EXPIRATION OF RESTRICTIONS. The parties hereto hereby agree that
the restrictions set forth in Article 3 hereof shall expire and be of no further
force and effect as of the Expiration Date.
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<PAGE>
ARTICLE 4
CERTAIN REPRESENTATIONS
4.01 STOCKHOLDER REPRESENTATION. Each Stockholder represents and
warrants as to itself that as of the Closing Date (after giving effect to all
transactions occurring on or as of the Closing Date) such Stockholder is not a
party with any other Person to any other agreement other than the Contribution
Agreement with respect to the holding, voting, acquisition or disposition of
shares of Common Stock or Equity Securities.
4.02 COMPANY REPRESENTATION. The Company represents and warrants that
as of the Closing Date it is not a party with any other Person to any other
agreement with respect to the holding, voting, acquisition or disposition of
shares of Common Stock or Equity Securities other than the Contribution
Agreement, the Stockholder Support Agreement by and among the Company, Allen &
Company Incorporated and Stanley S. Shuman, or as described therein.
ARTICLE 5
MISCELLANEOUS
5.01 INJUNCTIVE RELIEF. It is acknowledged that it will be impossible
to measure in money the damages that would be suffered if the parties fail to
comply with certain of the obligations imposed on them by this Agreement,
including without limitation those obligations set forth in Article 2 and
Article 3, and that in the event of any such failure, an aggrieved Person will
be irreparably damaged and will not have an adequate remedy at law. Any such
Person shall, therefore, be entitled to injunctive relief and/or specific
performance to enforce such obligations, and if any action should be brought in
equity to enforce any of such provisions of this Agreement, none of the parties
hereto shall raise the defense that there is an adequate remedy at law.
5.02 FURTHER ASSURANCES. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
5.03 GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of New York, without regard to the conflicts of laws principles
thereof.
5.04 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (i) together
with the Contribution Agreement contains the entire agreement among the parties
hereto with respect to the subject matter hereof, (ii) supersedes all prior
written agreements and negotiations and oral understandings, if any, with
respect thereto, (iii) may not be amended or supplemented except by an
instrument or counterparts thereof in writing signed by the Company and the
Stockholders so long as they shall hold in the aggregate at least 1% of the
outstanding shares of
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Common Stock and Common Stock equivalents. No waiver of any term or provision
shall be effective unless in writing signed by the party to be charged.
5.05 BINDING EFFECT. This Agreement shall be binding on and inure to
the benefit of the parties hereto and, subject to the terms and provisions
hereof, their respective legal representatives, successors and assigns.
5.06 INVALIDITY OF PROVISION. The invalidity or unenforceability of any
provision of this Agreement in any jurisdiction shall not affect the validity or
enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of this Agreement, including that provision, in any
other jurisdiction.
5.07 COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, all of which shall be deemed but one and the same
instrument and each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
5.08 NOTICES. All notices and other communications provided for or
given or made hereunder shall be in writing (including delivery by facsimile
transmission) and, unless otherwise provided herein, shall be deemed to have
been given when received by the party to whom such notice is to be given at its
address set on the signature page hereto, or such other address for the party as
shall be specified by notice given pursuant hereto.
5.09 HEADINGS. The descriptive headings of the several paragraphs of
this Agreement are inserted for convenience only and do not constitute part of
this Agreement.
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IN WITNESS WHEREOF, this Agreement has been executed by or on behalf of
each of the parties hereto as of the date first above written.
GHS, INC.
By /s/ Alan Gold
----------------------------------
Name: Alan Gold
Title: President
STOCKHOLDERS:
/s/ Anthony J. Robbins
- - ------------------------------------
ANTHONY J. ROBBINS
Address: 9191 Town Center Drive
San Diego, CA 92122
ROBBINS RESEARCH
INTERNATIONAL INC.
By: /s/ Anthony J. Robbins
--------------------------------
Name: Anthony J. Robbins
Title: Chairman
Address: 9191 Town Center Drive
San Diego, CA 92122
CYL DEVELOPMENT HOLDINGS, LLC
By: /s/ David Roy
--------------------------------
Name: David Roy
Title: Manager
Address: 330 South Street
P.O. Box 1975
Morristown, NJ 07962-1975
7
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EXHIBIT A
(A) NOMINEES OF ANTHONY J. ROBBINS
Three persons to be designated by Anthony J. Robbins
(B) OTHER NOMINEES
1. Grant Gregory
2. Frederic D. Rosen
3. Charles D. Peebler
4. A fourth director to be selected by the Board of Directors of
the Company existing at the Closing
In the event that any of the preceding named persons shall fail to
agree to serve as a director of the Company within 30 days of the Closing, then
the Board of Directors of the Company existing at the Closing shall designate
replacement nominees to serve as directors of the Company.
(C) THE CHIEF EXECUTIVE OFFICER OF GHS
The person, if any, designated as the Chief Executive Officer of the
Company.
8
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Exhibit 99(a)
FOR IMMEDIATE RELEASE Contact: Alan Gold
(301) 208-8998
GHS, INC. ANNOUNCES CONSUMMATION OF INTERNET INITIATIVE
AND COMPLETION OF PRIVATE PLACEMENT:
INTERNET SITES TO FOCUS ON SELF-IMPROVEMENT, MOTIVATION & EDUCATION
ROCKVILLE, MD (MAY 28, 1999) -- GHS, Inc. (GHSI: OTCBB) today announced the
creation of an Internet initiative for an online network to focus on personal
and professional improvement.
GHS has consummated the acquisition of ChangeYourLife.com, LLC, a company
founded by Anthony J. Robbins that is engaged in the development of a web site
for personal and professional improvement. ChangeYourLife.com, LLC has an
agreement with Anthony J. Robbins and his operating company, Robbins Research
International Inc. that makes GHS the exclusive online source for Robbins'
training, courses, content and publications.
GHS also announced today the completion of the sale in a private placement of
shares of its preferred stock, convertible into approximately 1.8 million shares
of common stock, raising gross proceeds of approximately $16 million.
In addition, GHS has completed its acquisition of Brainfuel.com, the online arm
of The Learning Annex and has the option to purchase The Learning Annex's
traditional offline business. As a result of this acquisition, GHS has exclusive
online access to educational content and materials covering a wide range of
topics.
After giving effect to these transactions, GHS will have outstanding
approximately 41 million shares of common stock, on an as converted basis, of
which Tony Robbins and affiliated entities will own approximately 56%.
Anthony J. Robbins is internationally recognized as the world leader in peak
performance results coaching. He is an international best selling author of five
books and his PERSONAL POWER audio program is the number-one personal and
professional coaching system of all time with more than 30 million tapes being
used to transform lives worldwide. Robbins Research International, Inc., known
as The Anthony Robbins Companies, is an acknowledged authority in the personal
and professional improvement industry, conducting training and coaching programs
worldwide. The company's dynamic contributions create positive transformations
for individuals and organizations globally.
The Learning Annex is America's leading alternative adult education
organization. It presents highly acclaimed speakers offering practical seminars
aimed at transforming the professional, emotional, physical and creative lives
of participants. Its classes are on the cutting edge of new business, social,
scientific and spiritual trends in America.
<PAGE>
GHS, Inc. is a public company whose current operating subsidiary, US
NeuroSurgical, owns and operates stereotactic radiosurgery centers utilizing the
Leksell Gamma Knife. The Company plans a spinoff of US NeuroSurgical to its
common stockholders in the near future.
# # #
Statements in this press release, other than statements of historical
information, are forward-looking statements that are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that forward-looking statements are inherently
uncertain. Actual performance and results may differ materially from the
projected or suggested herein due to certain risks and uncertainties including,
without limitation, the risks associated with the ability to consummate the
transactions set forth above, management of growth, and competition, as well as
operating risks. Those and other risks are described in the Company's filings
with the Securities and Exchange Commission (SEC) over the last 12 months,
copies of which are available from the SEC or may be obtained upon request from
the Company.
