EXHIBIT 5.1
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AGREEMENT AND PLAN OF MERGER
Dated as of February 29, 2000
By and Among
24/7 MEDIA, INC.,
EVERGREEN ACQUISITION SUB CORP.
And
▇▇▇▇▇▇▇.▇▇▇, INC.
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Contents, p. 1
TABLE OF CONTENTS
Page
ARTICLE I
The Merger
SECTION 1.01. The Merger................................................... 2
SECTION 1.02. Closing ................................................... 3
SECTION 1.03. Effective Time............................................... 3
SECTION 1.04. Effects of the Merger........................................ 3
SECTION 1.05. Certificate of Incorporation and By-laws..................... 3
SECTION 1.06. Board of Directors and Officers.............................. 3
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock...................................... 4
(a) Capital Stock of Sub..................................... 4
(b) Cancelation of Treasury Stock and Parent-
Owned Stock.............................................. 4
(c) Conversion of Target Common Stock........................ 4
(d) Anti-Dilution Provisions................................. 4
SECTION 2.02. Exchange of Certificates..................................... 5
(a) Exchange Agent........................................... 5
(b) Exchange Procedures...................................... 5
(c) Distributions with Respect to
Unexchanged Shares.................................... 6
(d) No Further Ownership Rights in Target
Common Stock............................................. 6
(e) No Fractional Shares..................................... 7
(f) Termination of Exchange Fund............................. 7
(g) No Liability............................................. 7
(h) Investment of Exchange Fund.............................. 7
(i) Lost Certificates........................................ 8
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of Target..................... 8
(a) Organization, Standing and Corporate
Power.................................................... 8
(b) Subsidiaries............................................. 9
(c) Capital Structure........................................ 9
Contents, p. 2
Page
(d) Authority; Noncontravention.............................. 11
(e) SEC Documents; Undisclosed
Liabilities........................................... 13
(f) Information Supplied..................................... 14
(g) Absence of Certain Changes or Events..................... 14
(h) Litigation............................................... 15
(i) Compliance with Applicable Laws.......................... 15
(j) Absence of Changes in Benefit Plans...................... 16
(k) ERISA Compliance; Excess Parachute
Payments................................................. 17
(l) Taxes.................................................... 21
(m) Voting Requirements...................................... 23
(n) State Takeover Statutes.................................. 23
(o) Brokers.................................................. 23
(p) Opinion of Financial Advisor............................. 24
(q) Intellectual Property; Year 2000......................... 24
(r) Contracts................................................ 26
(s) Title to Properties...................................... 28
(t) Privacy Policy........................................... 29
SECTION 3.02. Representations and Warranties of Parent and
Sub.......................................................... 30
(a) Organization, Standing and Corporate
Power.................................................... 31
(b) Subsidiaries............................................. 31
(c) Capital Structure........................................ 31
(d) Authority; Noncontravention.............................. 32
(e) SEC Documents; Undisclosed
Liabilities........................................... 33
(f) Information Supplied..................................... 34
(g) Absence of Certain Changes or Events..................... 35
(h) Litigation............................................... 35
(i) Compliance with Applicable Laws.......................... 35
(j) ERISA Compliance......................................... 35
(k) Taxes.................................................... 35
(l) Voting Requirements...................................... 36
(m) State Takeover Statutes.................................. 36
(n) Intellectual Property; Year 2000......................... 36
(o) Title to Properties...................................... 37
(p) Privacy Policy........................................... 37
(q) Tax Matters.............................................. 38
(r) Interim Operations of Sub................................ 38
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business.......................................... 38
(a) Conduct of Business by Target............................ 38
(b) Conduct of Business by Parent............................ 42
(c) Advice of Changes........................................ 42
SECTION 4.02. No Solicitation by Target.................................... 43
Contents, p. 3
Page
SECTION 4.03. Recommendation by Parent..................................... 43
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the Proxy
Statement; Target Stockholders Meeting;
Parent Stockholders Meeting.................................. 44
SECTION 5.02. Letters of Target's Accountants.............................. 46
SECTION 5.03. Letters of Parent's Accountants.............................. 46
SECTION 5.04. Access to Information; Confidentiality....................... 46
SECTION 5.05. Reasonable Efforts........................................... 47
SECTION 5.06. Stock Options; Warrants...................................... 48
SECTION 5.07. Employee Matters............................................. 50
SECTION 5.08. Indemnification, Exculpation and
Insurance.................................................... 51
SECTION 5.09. Fees and Expenses............................................ 52
SECTION 5.10. Public Announcements......................................... 53
SECTION 5.11. Affiliates................................................... 53
SECTION 5.12. Quotation.................................................... 54
SECTION 5.13. Litigation................................................... 54
SECTION 5.14. Tax Treatment................................................ 54
SECTION 5.15. Target Stockholder Agreement Legend; Parent
Stockholder Agreement Legend................................. 54
SECTION 5.16. Termination of Agreements.................................... 55
SECTION 5.17. Resignations................................................. 55
SECTION 5.18. Composition of Board of Directors of Parent.................. 55
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obligation To
Effect the Merger............................................ 55
(a) Stockholder Approval..................................... 55
(b) HSR Act.................................................. 55
(c) No Litigation............................................ 55
(d) Form S-4................................................. 56
SECTION 6.02. Conditions to Obligations of Parent
and Sub...................................................... 56
(a) Representations and Warranties........................... 56
(b) Performance of Obligations of Target..................... 56
SECTION 6.03. Conditions to Obligations of Target.......................... 57
(a) Representations and Warranties........................... 57
(b) Performance of Obligations of
Parent and Sub........................................ 57
(c) Tax Opinion.............................................. 57
(d) Nasdaq Quotation...................................... 57
SECTION 6.04. Frustration of Closing Conditions............................ 57
Contents, p. 4
Page
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination.................................................. 58
SECTION 7.02. Effect of Termination........................................ 59
SECTION 7.03. Amendment.................................................... 59
SECTION 7.04. Extension; Waiver............................................ 59
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver.......................................... 60
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties................................................... 60
SECTION 8.02. Notices...................................................... 60
SECTION 8.03. Definitions.................................................. 61
SECTION 8.04. Interpretation............................................... 62
SECTION 8.05. Counterparts................................................. 62
SECTION 8.06. Entire Agreement; No Third-Party
Beneficiaries................................................ 62
SECTION 8.07. Governing Law................................................ 63
SECTION 8.08. Assignment................................................... 63
SECTION 8.09. Enforcement.................................................. 63
SECTION 8.10. Severability................................................. 64
Annex I - Index of Defined Terms
Exhibit A - Form of Affiliate Letter
Exhibit B - Form of Tax Representation Letters
Schedule I - Board of Directors of Parent
AGREEMENT AND PLAN OF MERGER (this
"Agreement") dated as of February 29, 2000,
among 24/7 MEDIA, INC., a Delaware corpora
tion ("Parent"), EVERGREEN ACQUISITION SUB
CORP., a Delaware corporation and a wholly
owned subsidiary of Parent ("Sub"), and
▇▇▇▇▇▇▇.▇▇▇, INC., a Delaware corporation
("Target").
WHEREAS the respective Boards of Directors of
Parent, Sub and Target have approved and declared advisable
this Agreement and the merger of Sub with and into Target
(the "Merger"), upon the terms and subject to the conditions
set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $0.01 per share,
of Target ("Target Common Stock"), other than shares owned by
Parent, Sub or Target, will be converted into the right to
receive the Merger Consideration, and the Boards of Directors
of Parent and Target have recommended that their respective
stockholders adopt this Agreement;
WHEREAS the respective Boards of Directors of
Parent, Sub and Target have each determined that the Merger
and the other transactions contemplated hereby are consistent
with, and in furtherance of, their respective business
strategies and goals;
WHEREAS Parent, Sub and Target desire to make
certain representations, warranties, covenants and agreements
in connection with the Merger and also to prescribe various
conditions to the Merger;
WHEREAS for U.S. federal income tax purposes, it is
intended that (a) the Merger will qualify as a reorgani
zation under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and the rules
and regulations promulgated thereunder and (b) this Agreement
constitutes a plan of reorganization;
WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Parent and Sub to enter into this
Agreement, Parent and certain stockholders of Target
(collectively, the "Target Stockholders") are entering into
an agreement (the "Target Stockholder Agreement") pursuant to
which the Target Stockholders will agree to vote to adopt and
approve this Agreement and to take certain other actions in
furtherance of the Merger upon the terms and subject to the
conditions set forth in the Target Stockholder Agree ment;
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WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Target to enter into this Agreement,
Target and certain stockholders of Parent (collectively, the
"Parent Stockholders") are entering into an agreement (the
"Parent Stockholder Agreement") pursuant to which the Parent
Stockholders will agree to vote to approve the issuance of
shares of Parent Common Stock (as defined in Section 2.01(c))
in connection with the Merger upon the terms and subject to
the conditions set forth in the Parent Stockholder Agreement;
WHEREAS simultaneously with the execution and
delivery of this Agreement, Parent and certain individuals
are entering into employment agreements (the "Employment
Agreements") pursuant to which Parent will agree to employ
such individuals following the Effective Time (as defined in
Section 1.03) and such individuals will agree to be subject
to non-compete and non-solicitation obligations upon the
terms and conditions set forth in the Employment Agreements;
and
WHEREAS simultaneously with the execution and
delivery of this Agreement and as a condition and inducement
to the willingness of Parent to enter into this Agreement,
Parent and the Target Stockholders have entered into Lock-Up
Agreements (collectively, the "Lock-Up Agreements") pursuant
to which the Target Stockholders have agreed to certain
restrictions relating to the disposition of Parent Common
Stock following the Effective Time under certain
circumstances.
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements
contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
SECTION 1.01. The Merger. Upon the terms and
subject to the conditions set forth in this Agreement, and in
accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into Target at the
Effective Time. Following the Effective Time, Target shall be
the surviving corporation (the "Surviving Corporation") and
shall succeed to and assume all the rights and obligations of
Sub in accordance with the DGCL.
SECTION 1.02. Closing. The closing of the Merger
(the "Closing") will take place at 10:00 a.m. on a date to
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be specified by the parties (the "Closing Date"), which shall
be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VI (other
than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at
such location in the City of New York as is agreed to by the
parties hereto.
SECTION 1.03. Effective Time. Subject to the
provisions of this Agreement, as soon as practicable on or
after the Closing Date, the parties shall file a certificate
of merger or other appropriate documents (in any such case,
the "Certificate of Merger") executed in accordance with the
relevant provisions of the DGCL and shall make all other
filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of
Merger is duly filed with the Delaware Secretary of State, or
at such subsequent date or time as Parent and Target shall
agree and specify in the Certificate of Merger (the time the
Merger becomes effective being hereinafter referred to as the
"Effective Time").
SECTION 1.04. Effects of the Merger. The Merger
shall have the effects set forth in Section 259 of the DGCL.
SECTION 1.05. Certificate of Incorporation and
By-laws. (a) The certificate of incorporation of Target, as
in effect immediately prior to the Effective Time, shall be
amended as of the Effective Time so that Article IV of such
certificate of incorporation reads in its entirety as
follows: "The total number of shares of all classes of stock
which the Corporation shall have authority to issue is 1,000
shares of common stock, par value $0.01 per share.", and, as
so amended, such certificate of incorporation shall be the
certificate of incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by
applicable law.
(b) The by-laws of Target, as in effect immediately
prior to the Effective Time, shall be the by-laws of the
Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
SECTION 1.06. Board of Directors and Officers. (a)
The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their
respective successors are duly elected and qualified, as the
case may be.
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(b) The officers of Sub immediately prior to the
Effective Time shall be the officers of the Surviving
Corporation, until the earlier of their resignation or
removal or until their respective successors are duly elected
and qualified, as the case may be.
ARTICLE II
Effect of the Merger on the Capital Stock of the
Constituent Corporations; Exchange of Certificates
SECTION 2.01. Effect on Capital Stock. As of the
Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Target
Common Stock or any shares of capital stock of Sub:
(a) Capital Stock of Sub. Each issued and
outstanding share of capital stock of Sub shall be
converted into one share of common stock of the
Surviving Corporation.
(b) Cancelation of Treasury Stock and Parent- Owned
Stock. Each share of Target Common Stock that is owned
by Target, Sub or Parent shall automatically be canceled
and shall cease to exist, and no consideration shall be
delivered or deliverable in exchange therefor.
(c) Conversion of Target Common Stock. Subject to
Section 2.02(e), each issued and outstanding share of
Target Common Stock (other than shares to be canceled in
accordance with Section 2.01(b)) shall be converted into
the right to receive 0.60 (the "Exchange Ratio") fully
paid and nonassessable shares of common stock, par value
$0.01 per share, of Parent ("Parent Common Stock") (the
"Merger Consideration"). As of the Effective Time, all
such shares of Target Common Stock shall no longer be
outstanding and shall automatically be canceled and
shall cease to exist, and each holder of a certificate
representing any such shares of Target Common Stock
shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration to
be issued in consideration therefor upon surrender of
such certificate in accordance with Section 2.02,
without interest.
(d) Anti-Dilution Provisions. In the event Parent
changes (or establishes a record date for changing) the
number of shares of Parent Common Stock issued and
outstanding prior to the Effective Time as a result of a
stock split, stock dividend, recapitaliza tion,
subdivision, reclassification, combination, exchange of
shares or similar transaction with respect
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to the outstanding Parent Common Stock and the record
date therefor shall be prior to the Effective Time, the
Exchange Ratio shall be proportionately adjusted to
reflect such stock split, stock dividend, recapitaliza
tion, subdivision, reclassification, combination,
exchange of shares or similar transaction.
SECTION 2.02. Exchange of Certificates. (a)
Exchange Agent. As of the Effective Time, Parent shall enter
into an agreement with such bank or trust company as may be
designated by Parent (the "Exchange Agent"), which shall
provide that Parent shall deposit with the Exchange Agent as
of the Effective Time, for the benefit of the holders of
shares of Target Common Stock, for exchange in accordance
with this Article II, through the Exchange Agent,
certificates representing the shares of Parent Common Stock
(such shares of Parent Common Stock, together with any
dividends or distributions with respect thereto with a record
date after the Effective Time being hereinafter referred to
as the "Exchange Fund") issuable pursuant to Section 2.01 in
exchange for outstanding shares of Target Common Stock.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time
represented outstanding shares of Target Common Stock (the
"Certificates") whose shares were converted into the right to
receive the Merger Consideration pursuant to Section 2.01,
(i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form
and have such other provisions as Parent and Target may
reasonably specify) and (ii) instructions for use in
surrendering the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for
cancelation to the Exchange Agent, together with such letter
of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder
of such Certificate shall receive in exchange therefor a
certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II and
certain dividends or other distributions in accordance with
Section 2.02(c), and the Certificate so surrendered shall
forthwith be canceled. In the event of a transfer of
ownership of Target Common Stock which is not registered in
the transfer records of Target, a certificate representing
the proper number of shares of Parent Common Stock may be
issued to a person other than the person in whose name the
Certificate so surrendered is registered if such Certificate
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shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay
any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other
than the registered holder of such Certificate or establish
to the satisfaction of Parent that such tax has been paid or
is not applicable. Until surrendered as contemplated by this
Section 2.02(b), each Certificate shall be deemed at any time
after the Effective Time to represent only the right to
receive the Merger Consideration to be issued in
consideration therefor upon surrender of such certificate in
accordance with this Section 2.02. No interest shall be paid
or will accrue on any cash payable to holders of Certificates
pursuant to the provisions of this Article II.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions with respect to
Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock
represented thereby, and all such dividends and other
distributions shall be paid by Parent to the Exchange Agent
and shall be included in the Exchange Fund, until the
surrender of such Certificate in accordance with this Article
II. Subject to the effect of applicable escheat or similar
laws, following surrender of any such Certificate there shall
be paid to the holder of the certificate representing whole
shares of Parent Common Stock issued in exchange therefor,
without interest, (i) at the time of such surrender, the
amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock and (ii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date after the Effective Time but
prior to such surrender and with a payment date subsequent to
such surrender payable with respect to such whole shares of
Parent Common Stock.
(d) No Further Ownership Rights in Target Common
Stock. All shares of Parent Common Stock issued upon the
surrender for exchange of Certificates in accordance with the
terms of this Article II (including any cash paid pursuant to
this Article II) shall be deemed to have been issued (and
paid) in full satisfaction of all rights pertaining to the
shares of Target Common Stock theretofore represented by such
Certificates, subject, however, to the Surviving
Corporation's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective
Time which may have been declared or made by Target on such
shares of Target Common Stock which remain unpaid at the
Effective Time, and there shall be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of the shares of Target Common Stock
7
which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as
provided in this Article II, except as otherwise provided by
law.
(e) No Fractional Shares. (i) No certificates or
scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution of Parent shall
relate to such fractional share interests and such fractional
share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of Parent.
(ii) Notwithstanding any other provision of this
Agreement, each holder of shares of Target Common Stock
exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Parent
Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof,
cash (without interest) in an amount, less the amount of any
withholding taxes that may be required thereon, equal to such
fractional part of a share of Parent Common Stock multiplied
by the per share last reported sale price of Parent Common
Stock on the Closing Date, as such price is quoted by Nasdaq.
(f) Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders
of the Certificates for six months after the Effective Time
shall be delivered to Parent, upon demand, and any holders of
the Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment
of their claim for Merger Consideration and any dividends or
distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, Sub, Target or
the Exchange Agent shall be liable to any person in respect
of any shares of Parent Common Stock or any dividends or
distributions with respect thereto, in each case delivered to
a public official pursuant to any applicable abandoned
property, escheat or similar law. If any Certificate shall
not have been surrendered prior to one year after the
Effective Time (or immediately prior to such date on which
any amounts payable pursuant to this Article II would
otherwise escheat to or become the property of any Govern
mental Entity), any such amounts shall, to the extent
permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or
interest of any person previously entitled thereto.
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(h) Investment of Exchange Fund. The Exchange Agent
shall invest any cash included in the Exchange Fund, as
directed by Parent, on a daily basis. Any interest and other
income resulting from such investments shall be paid to
Parent.
(i) Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certifi
cate to be lost, stolen or destroyed and, if required by
Parent, the posting by such person of a bond in such reason
able amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such
Certificate, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed Certificate the applicable
Merger Consideration with respect thereto and, if appli
cable, any unpaid dividends and distributions on shares of
Parent Common Stock deliverable in respect thereof, in each
case pursuant to this Agreement.
ARTICLE III
Representations and Warranties
SECTION 3.01. Representations and Warranties of
Target. Except as disclosed in the Target Filed SEC Docu
ments or as set forth on the Disclosure Schedule delivered by
Target to Parent prior to the execution of this Agreement
(the "Target Disclosure Schedule") (each section of which
qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein and such
other representations and warranties or covenants to the
extent a matter in such section is disclosed in such a way as
to make its relevance to the information called for by such
other representation and warranty or covenant reasonably
apparent), Target represents and warrants to Parent and Sub
as follows:
(a) Organization, Standing and Corporate Power.
Target is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware and has the requisite corporate power and
authority to carry on its business as now being
conducted. Target is duly qualified or licensed to do
business and is in good standing in each jurisdiction in
which the nature of its business or the ownership,
leasing or operation of its assets makes such
qualification or licensing necessary, except for those
jurisdictions where the failure to be so qualified or
licensed or to be in good standing, individually and in
the aggregate, is not reasonably likely to have a
material adverse effect on Target. Target has made
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available to Parent prior to the execution of this
Agreement complete and correct copies of its certificate
of incorporation and by-laws, as amended to the date of
this Agreement.
(b) Subsidiaries. Target has no subsidiaries.
(c) Capital Structure. The authorized capital stock
of Target consists of 35,000,000 shares of Target Common
Stock and 3,500,000 shares of preferred stock, par value
$0.01 per share, of Target ("Target Author ized
Preferred Stock"). At the close of business on February
10, 2000, (i) 12,700,898 shares of Target Common Stock
were issued and outstanding; (ii) no shares of Target
Common Stock were held by Target in its treasury; (iii)
no shares of Target Authorized Preferred Stock were
issued and outstanding; (iv) 3,202,264 shares of Target
Common Stock were reserved for issuance pursuant to the
Target 1996 Stock Option Plan, the Target 1997 Stock
Option Plan, the Target 1999 Equity Incentive Plan and
the Target 1999 Employee Stock Purchase Plan (such
plans, collectively, the "Target Stock Plans") of which
2,073,548 are subject to outstanding Target Stock
Options; and (v) 1,275,158 shares of Target Common Stock
were reserved for issuance upon the exercise of the
warrants (the "Warrants") subject to the warrant
agreements listed in Section 3.01(c) of the Target
Disclosure Schedule. Except as set forth above, at the
close of business on February 10, 2000, no shares of
capital stock or other voting securities of Target were
issued, reserved for issuance or outstanding. There are
no outstanding stock appreciation rights ("SARs") or
rights (other than the Target Stock Options) to receive
shares of Target Common Stock on a deferred basis
granted under the Target Stock Plans or otherwise.
Target has delivered to Parent a complete and correct
list, as of February 10, 2000, of each holder of
outstanding stock options or other rights to purchase or
receive Target Common Stock granted under the Target
Stock Plans (collectively, "Target Stock Options") and
the Warrants, the number of shares of Target Common
Stock subject to each such Target Stock Option and
Warrant, the name of the Target Stock Plan pursuant to
which such Target Stock Options were granted, the grant
dates and exercise prices of such Target Stock Options
and Warrants and the dates on which such Target Stock
Options and Warrants become vested. All (i) outstanding
shares of Target Common Stock in respect of which Target
has a right under specified circumstances to repurchase
such shares at a fixed purchase price and (ii)
outstanding Target Stock Options, are evidenced by stock
option agreements and
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restricted stock purchase agreements in substantially
the forms attached as Exhibit A to Section 3.01(c) of
the Target Disclosure Schedule, and no stock option
agreement or restricted stock purchase agreement
contains terms that are substantially inconsistent with
such forms. No bonds, debentures, notes or other
indebtedness of Target having the right to vote (or
convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders
of Target may vote are issued or outstanding or subject
to issuance. All outstanding shares of capital stock of
Target are, and all shares which may be issued will be,
when issued, duly authorized, validly issued, fully paid
and nonassessable and will be delivered free and clear
of all pledges, claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever
(collectively, "Liens"), other than Liens created by or
imposed upon the holders thereof, and not subject to
preemptive rights. Except as set forth in this Section
3.01(c) (including pursuant to the conversion or
exercise of the securities referred to above), (x) there
are not issued, reserved for issuance or outstanding (A)
any shares of capital stock or other voting securities
of Target, (B) any securities of Target convertible into
or exchangeable or exercisable for shares of capital
stock or other voting securities of, or other ownership
interests in, Target or (C) any warrants, calls, options
or other rights to acquire from Target, and no
obligation of Target to issue, any capital stock or
other voting securities of, or other ownership interests
in, or any securities convertible into or exchangeable
or exercisable for any capital stock or other voting
securities of, or other ownership interests in, Target
and (y) there are not any outstanding obligations of
Target to repurchase, redeem or otherwise acquire any
such securities or to issue, deliver or sell, or cause
to be issued, delivered or sold, any such securities.
Target is not a party to any voting agreement with
respect to the voting of any such securities. Target
does not directly or indirectly beneficially own any
securities or other beneficial ownership interests in
any other entity. The Target Stockholders hold of record
over 50% of the outstanding shares of Target Common
Stock (calculated on a fully diluted basis assuming the
exercise of all outstanding securities of Target that
are currently, or may become on or prior to August 31,
2000, convertible into or exchangeable or exercisable
for, shares of capital stock or other voting securities
of Target).
(d) Authority; Noncontravention. Target has all
requisite corporate power and authority to enter into
11
this Agreement and, subject to the Target Stockholder
Approval, to consummate the transactions contemplated by
this Agreement. The execution and delivery of this
Agreement by Target and the consummation by Target of
the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action
on the part of Target, subject, in the case of the
Merger, to the Target Stockholder Approval. This
Agreement has been duly executed and delivered by Target
and, assuming the due authorization, execution and
delivery by each of the other parties thereto,
constitutes a legal, valid and binding obligation of
Target, enforceable against Target in accordance with
its terms. The execution and delivery of this Agree ment
does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to
a right of termination, cancelation or acceleration of
any obligation or to the loss of a benefit under, or
result in the creation of any Lien upon any of the
properties or assets of Target under, (i) the
certificate of incorporation or by-laws of Target, (ii)
any loan or credit agreement, note, bond, mortgage,
indenture, lease or other contract, agreement,
obligation, commitment, arrangement, understanding,
instrument, permit, concession, franchise, license or
similar authorization (each, a "Contract") applicable to
Target or its properties or assets or (iii) subject to
the governmental filings and other matters referred to
in the following sentence, (A) any judgment, order or
decree or (B) any statute, law, ordinance, rule or
regulation, in each case applicable to Target or its
properties or assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations,
defaults, rights, losses or Liens that, individually and
in the aggregate, are not reasonably likely to (x) have
a material adverse effect on Target, (y) impair the
ability of Target to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this
Agreement. No consent, approval, order or authorization
of, action by or in respect of, or registration,
declaration or filing with, any federal, state, local or
foreign government, any court, administrative,
regulatory or other governmental agency, commission or
authority or any non-governmental self-regulatory
agency, commission or authority (each a "Governmental
Entity") is required by or with respect to Target in
connection with the execution and delivery of this
Agreement by Target or the consummation by Target of the
transactions contemplated by this
12
Agreement, except for (1) the filing of a premerger
notification and report form by Target under the ▇▇▇▇-
▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and any applicable filings and
approvals under similar foreign antitrust or competition
laws and regulations; (2) the filing with the Securities
and Exchange Commission (the "SEC") of (A) a joint proxy
statement relating to the Target Stockholders Meeting
and the Parent Stockholders Meeting (such proxy
statement, as amended or supplemented from time to time,
the "Proxy Statement"), and (B) such reports under
Section 13(a), 13(d), 15(d) or 16(a) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"),
as may be required in connection with this Agreement,
the Target Stockholder Agreement, the Parent Stockholder
Agreement and the transactions contemplated by this
Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement; (3) the filing of the
Certificate of Merger with the Delaware Secretary of
State and appropriate documents with the relevant
authorities of other states in which Target is qualified
to do business and such filings with Governmental
Entities to satisfy the applicable requirements of state
securities or "blue sky" laws; and (4) such other
consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of
which to be made or obtained, individually and in the
aggregate, are not reasonably likely to (x) have a
material adverse effect on Target, (y) impair the
ability of Target to perform its obligations under this
Agreement or (z) prevent or materially delay the
consummation of the transactions contemplated by this
Agreement.
(e) SEC Documents; Undisclosed Liabilities. Target
has filed all required reports, schedules, forms,
statements and other documents (including exhibits and
all other information incorporated therein) with the SEC
since November 24, 1999 (together with Target's
Registration Statement on Form S-1 (Registration No.
333-85315), the "Target SEC Documents"). As of their
respective dates, the Target SEC Documents complied in
all material respects with the requirements of the
Securities Act of 1933 (the "Securities Act") or the
Exchange Act, as the case may be, and the rules and
regulations of the SEC promul gated thereunder
applicable to such Target SEC Documents, and none of the
Target SEC Documents when filed 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. The financial
13
statements of Target included in the Target SEC
Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects
with applicable accounting requirements and the
published rules and regulations of the SEC with respect
thereto (the "Accounting Rules"), have been prepared in
accordance with generally accepted accounting principles
("GAAP") (except, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly
present in all material respects the financial position
of Target as of the dates thereof and the results of its
operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal
recurring year-end audit adjustments). Except (i) as
reflected in the financial statements contained in the
Target Filed SEC Documents or in the notes thereto or
(ii) for liabilities incurred in connection with this
Agreement or the transactions contemplated hereby,
Target does not have any liabilities or obligations of
any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, when
taken as a whole with any benefits or rights
corresponding to such liabilities or obligations, are
reasonably likely to have a material adverse effect on
Target.
(f) Information Supplied. None of the informa tion
supplied or to be supplied by Target specifically for
inclusion or incorporation by reference in (i) the
registration statement on Form S-4 to be filed with the
SEC by Parent in connection with the issuance of Parent
Common Stock in the Merger (the "Form S-4") will, at the
time the Form S-4 becomes effective under the Securities
Act, 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 not
misleading or (ii) the Proxy Statement will, at the date
it is first mailed to Target's or Parent's stockholders
or at the time of the Target Stockholders Meeting or the
Parent Stockholders Meeting, contain any untrue
statement of a material fact or omit to state any
material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange
Act and the rules and regulations thereunder. No
representa tion or warranty is made by Target with
respect to statements made or incorporated by reference
therein based on information supplied by Parent
specifically
14
for inclusion or incorporation by reference in the Proxy
Statement.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this
Agreement, the Parent Stockholder Agreement or the
transactions contemplated hereby or thereby and except
as disclosed in the Target SEC Documents filed and
publicly available prior to the date of this Agreement
(as amended to the date of this Agreement, the "Target
Filed SEC Documents"), from December 31, 1998 to the
date of this Agreement, Target has conducted its
business only in the ordinary course, and during such
period there has not been (1) any material adverse
change in Target, (2) any declaration, setting aside or
payment of any dividend or other distribution (whether
in cash, stock or property) with respect to any of
Target's capital stock, (3) any split, combination or
reclassification of any of Target's capital stock or any
issuance or the authorization of any issuance of any
other securities in respect of, in lieu of or in
substitution for shares of Target's capital stock, (4)
(A) any granting by Target to any current or former
director, consultant, executive officer or other
employee of Target of any increase in compensation,
bonus or other benefits, except for normal increases in
cash compensation in the ordinary course of business
consistent with past practice or as was required under
any employment agreements in effect as of the date of
the most recent audited financial statements included in
the Target Filed SEC Documents, (B) any granting by
Target to any such current or former director,
consultant, executive officer or employee of any
increase in severance or termination pay, (C) any entry
by Target into, or any amendments of, any Target Benefit
Agreement or (D) any amendment to, or modification of,
any Target Stock Option, (5) except insofar as may have
been required by a change in GAAP, any change in
accounting methods, principles or practices by Target
materially affecting their respective assets,
liabilities or businesses, (6) any tax election that
individually or in the aggregate is reasonably likely to
adversely affect in any material respect the tax
liability or tax attributes of Target or (7) any
settlement or compromise of any material income tax
liability. Except for liabilities incurred in connection
with this Agreement, the Parent Stock holder Agreement
or the transactions contemplated hereby or thereby and
except as disclosed in the Target Filed SEC Documents,
since December 31, 1998, there has not been any material
adverse change in Target.
15
(h) Litigation. There is no suit, action or
proceeding pending or, to the knowledge of Target,
threatened against or affecting Target that,
individually or in the aggregate, is reasonably likely
to have a material adverse effect on Target nor is there
any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against
Target having, or which is reasonably likely to have,
individually or in the aggregate, a material adverse
effect on Target. Section 3.01(h) of the Target
Disclosure Schedule sets forth a true and complete list,
as of the date of this Agreement, of each settlement or
similar agreement in respect of any pending or
threatened suit, action, proceeding, judgment, decree,
injunction, rule or order of any Governmental Entity or
arbitrator which Target has entered into or become bound
by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Target
holds all material permits, licenses, variances,
exemptions, orders, registrations and approvals of all
Governmental Entities (the "Target Permits") that are
required for them to own, lease or operate their assets
and to carry on their businesses. Target is in
compliance with the terms of the Target Permits and all
applicable statutes, laws (including Environmental
Laws), ordinances, rules and regulations, except for
such failures to comply that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. No action, demand, requirement
or investigation by any Governmental Entity and no suit,
action or proceeding by any person, in each case with
respect to Target or any of its properties that,
individually or in the aggregate, is reasonably likely
to have a material adverse effect on Target, is pending
or, to the knowledge of Target, threatened.
(ii) To Target's knowledge, there have been no
Releases of any Hazardous Materials at, on or under any
facility or property currently or formerly owned,
leased, or operated by Target that, individually or in
the aggregate, are reasonably likely to have a material
adverse effect on Target. Target is not the subject of
any pending or, to Target's knowledge, threatened
investigation or proceeding under Environmental Law
relating in any manner to the off-site treatment,
storage or disposal of any Hazardous Materials generated
at any facility or property currently or formerly owned,
leased or operated by Target. The term "Environmental
Law" means any and all applicable laws or regulations or
other requirements of any Governmental Entity concerning
the protection of human
16
health or the environment. The term "Hazardous
Materials" means all explosive or radioactive materials,
hazardous or toxic substances, wastes or chemicals,
petroleum (including crude oil or any fraction thereof)
or petroleum distillates, asbestos or
asbestos-containing materials, and all other materials
or chemicals regulated under any Environmental Law. The
term "Release" means any spill, emission, leaking,
pumping, injection, deposit, disposal, discharge,
dispersal, leaching, emanation or migration in, into,
onto, or through the environment.
(j) Absence of Changes in Benefit Plans. Since the
date of the most recent audited financial state ments
included in the Target Filed SEC Documents, there has
not been any adoption or amendment by Target of any
collective bargaining agreement or any bonus, pension,
profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock
option, phantom stock, retirement, thrift, savings,
stock bonus, restricted stock, cafeteria, paid time off,
perquisite, fringe benefit, vacation, severance,
disability, death benefit, hospitalization, medical,
welfare benefit or other plan, arrangement or
understanding (whether or not legally binding) providing
benefits to any current or former employee, officer,
consultant or director of Target (collectively, the
"Target Benefit Plans"), or any change in any actuarial
or other assumption used to calculate funding
obligations with respect to any Target pension plans, or
any change in the manner in which contributions to any
Target pension plans are made or the basis on which such
contributions are determined. Except as disclosed in the
Target Filed SEC Documents, there are not any
employment, consulting, deferred compensation,
indemnification, severance or termination agreements or
arrangements between Target and any current or former
employee, officer, consultant or director of Target
(collectively, the "Target Benefit Agreements").
(k) ERISA Compliance; Excess Parachute Payments.
(i) Section 3.01(k) of the Target Disclosure Schedule
contains a list of all "employee pension benefit plans"
(as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Target Pension
Plans"), "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA) and all other Target Benefit
Plans and Target Benefit Agreements maintained, or
contributed to, by Target, or to which Target is a
party, for the benefit of any current or former
employees, officers or directors of Target. Target has
17
made available to Parent or will make available to
Parent upon request true, complete and correct copies of
(a) each Target Benefit Plan and Target Benefit
Agreement (or, in the case of any unwritten Target
Benefit Plan or Target Benefit Agreement, a description
thereof), (b) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to
each Target Benefit Plan (if any such report was
required), (c) the most recent summary plan description
for each Target Benefit Plan for which such summary plan
description is required and (d) each trust agreement and
group annuity contract relating to any Target Benefit
Plan.
(ii) Each Target Benefit Plan has been admini
stered in all material respects in accordance with its
terms. Target and each Target Benefit Plan are in
substantial compliance with the applicable provisions of
ERISA and the Code, and all other applicable laws and
the terms of all collective bargaining agreements. All
Target Pension Plans intended to be qualified have
received favorable determination letters from the
Internal Revenue Service with respect to "TRA" (as
defined in Section 1 of Rev. Proc. 93-39), to the effect
that such Target Pension Plans are qualified and exempt
from Federal income taxes under Sections 401(a) and
501(a), respectively, of the Code, and no such
determination letter has been revoked nor, to the
knowledge of Target, has revocation been threatened, nor
has any such Target Pension Plan been amended since the
date of its most recent determination letter or
application therefor in any respect that would adversely
affect its qualification or materially increase its
costs. There is no pending or, to the knowledge of
Target, threatened litigation relating to Target Benefit
Plans.
(iii) None of Target or any person which is
considered one employer with Target under Section 4001
of ERISA or Section 414 of the Code (an "ERISA
Affiliate") has or could reasonably be expected to have
any liability under Title IV of ERISA with respect to
any Target Benefit Plan. None of Target, any officer of
Target or any of the Target Benefit Plans which are
subject to ERISA, including the Target Pension Plans,
any trusts created thereunder or, to the knowledge of
Target, any trustee or administrator thereof, has
engaged in a "prohibited transaction" (as such term is
defined in Section 406 of ERISA or Section 4975 of the
Code) or any other breach of fiduciary responsibility
that could subject Target or any officer of Target to
the tax or penalty on prohibited transactions imposed by
such Section 4975 in an amount that would be
18
material or to any material liability under Section
502(i) or 502(l) of ERISA. All contributions and
premiums required to be made under the terms of any
Target Benefit Plan as of the date hereof have been
timely made or have been reflected on the most recent
consolidated balance sheet filed or incorporated by
reference in the Filed Target SEC Documents. Neither any
Target Pension Plan nor any single-employer plan of an
ERISA Affiliate has an "accumulated funding deficiency"
(as such term is defined in Section 302 of ERISA or
Section 412 of the Code), whether or not waived.
(iv) With respect to any Target Benefit Plan that
is an employee welfare benefit plan, (a) no such Target
Benefit Plan is unfunded or funded through a "welfare
benefit fund" (as such term is defined in Section 419(e)
of the Code) and (b) each such Target Benefit Plan that
is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code) complies with the
applicable requirements of Section 4980B(f) of the Code.
Target has no obligations for retiree health and life
benefits under any Target Benefit Plan or Target Benefit
Agreement.
(v) The consummation of the Merger or any other
transaction contemplated by this Agreement, the Target
Stockholder Agreement or the Parent Stockholder Agree
ment will not (x) entitle any employee, officer,
consultant or director of Target to severance pay, (y)
accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or
otherwise) of compensation or benefits under, increase
the amount payable or trigger any other material
obligation pursuant to, any of the Target Benefit Plans
or Target Benefit Agreements or (z) result in any breach
or violation of, or a default under, any of the Target
Benefit Plans or Target Benefit Agreements.
(vi) Other than payments that may be made to the
persons listed in Section 3.01(k)(vi) of the Target
Disclosure Schedule (the "Primary Target Executives"),
any amount or economic benefit that could be received
(whether in cash or property or the vesting of property)
as a result of the Merger or any other transaction
contemplated by this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement (including
as a result of termination of employment on or following
the Effective Time) by any employee, officer or director
of Target or any of its affiliates who is a
"disqualified individual" (as such term is defined in
proposed Treasury Regulation
19
Section 1.280G-1) under any Target Benefit Plan or
Target Benefit Agreement or otherwise would not be
characterized as an "excess parachute payment" (as
defined in Section 280G(b)(1) of the Code), and no
disqualified individual is entitled to receive any
additional payment from Target or any other person in
the event that the excise tax under Section 4999 of the
Code is imposed on such disqualified individual. Set
forth in Section 3.01(k)(vi) of the Target Disclosure
Schedule is (a) the estimated maximum amount that could
be paid to each Primary Target Executive as a result of
the Merger and the other transactions contemplated by
this Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement (including as a result of a
termination of employment on or following the Effective
Time) under all Target Benefit Plans and Target Benefit
Agreements and (b) the "base amount" (as defined in
Section 280G(b)(3) of the Code) for each Primary Target
Executive calculated as of the date of this Agreement.
(vii) Target is in compliance with all Federal,
state and local requirements regarding employment,
except for such failures to comply that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. As of the date of
this Agreement, Target is not a party to any collective
bargaining or other labor union contract applicable to
persons employed by Target and no collective bargaining
agreement is being negotiated by Target. As of the date
of this Agreement, there is no labor dispute, strike or
work stoppage against Target pending or, to the
knowledge of Target, threatened which may interfere with
the business activities of Target. As of the date of
this Agreement, to the knowledge of Target, none of
Target or any of its representatives or employees has
committed an unfair labor practice in connection with
the operation of the business of Target, and there is no
charge or complaint against Target by the National Labor
Relations Board or any comparable governmental agency
pending or threatened in writing.
(l) Taxes. (i) Target has filed all tax returns and
reports required to be filed by it and all such returns
and reports are complete and correct in all material
respects, or requests for extensions to file such
returns or reports have been timely filed, granted and
have not expired, except to the extent that such
failures to file, to be complete or correct or to have
extensions granted that remain in effect, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target. Target has paid all
taxes due with respect to such returns, and the
20
most recent financial statements contained in the Target
Filed SEC Documents reflect an adequate reserve for all
taxes payable by Target for all taxable periods and
portions thereof accrued through the date of such
financial statements.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against Target that are
not adequately reserved for, except for deficiencies
that individually or in the aggregate are not reasonably
likely to have a material adverse effect on Target. The
Federal income tax returns of Target for periods ending
on or before December 31, 1995, have closed by virtue of
the applicable statute of limitations and no requests
for waivers of the time to assess any such taxes are
pending, and, with respect to all subsequent periods, no
Federal or state tax return or report or any other
material tax return or report of Target is currently
under audit and no written or unwritten notice of any
such audit or similar examination has been received by
Target. There is no currently effective agreement or
other document extending, or having the effect of
extending, the period of assessment or collection of any
taxes and no power of attorney with respect to taxes has
been executed or filed with any taxing authority.
(iii) There are no material liens for taxes (other
than for current taxes not yet due and payable) on the
assets of Target. Target is not bound by any agreement
with respect to taxes.
(iv) Target has not been and is not a United States
real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii).
(v) Section 3.01(l)(v) of the Target Disclosure
Schedule sets forth each state in which Target has filed
a tax return relating to state income, franchise,
license, excise, net worth, property and sales and use
taxes, except in a case where Target is or has been
required to file such a tax return and such failures to
file could not individually or in the aggregate
reasonably be expected to have a material adverse effect
on Target. To the knowledge of Target, it is not
required to file any tax return or report in any other
state and no claim has ever been made by a taxing
authority in a jurisdiction where Target does not file a
tax return that it is, or may be subject to, taxation in
that jurisdiction.
21
(vi) Target has not taken any action or knows of
any fact, agreement, plan or other circumstance that is
reasonably likely to prevent the Merger from qualifying
as a reorganization within the meaning of Section 368(a)
of the Code.
(vii) Target has not paid and has not entered into
any binding agreement to pay any amount, nor will any
bonuses paid by Target with respect to which a deduction
is claimed for the 1999 fiscal year constitute amounts,
to which Section 162(m) of the Code will apply so as to
result in the disallowance of any material deduction.
(viii) Target has not constituted either a
"distributing corporation" or a "controlled corporation"
in a distribution of stock qualifying for tax-free
treatment under Section 355 of the Code (x) in the two
years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a
"plan" or "series of related transactions" (within the
meaning of Section 355(e) of the Code) in conjunction
with the Merger.
(ix) As used in this Agreement, "taxes" shall
include all (x) Federal, state, local or foreign income,
property, sales, excise and other taxes or similar
governmental charges, including any interest, penalties
or additions with respect thereto, and (y) liability for
the payment of any amounts as a result of being party to
any tax sharing agreement or as a result of any express
or implied obligation to indemnify any other person with
respect to the payment of any amounts of the type
described in clause (x).
(m) Voting Requirements. The affirmative vote of
the holders of a majority of the voting power of all
outstanding shares of Target Common Stock to adopt this
Agreement (the "Target Stockholder Approval") is the
only vote of the holders of any class or series of
Target's capital stock necessary to approve and adopt
this Agreement and the transactions contemplated hereby.
(n) State Takeover Statutes. The Board of Directors
of Target has unanimously approved the terms of this
Agreement and the Target Stockholder Agreement and the
consummation of the Merger and the other trans actions
contemplated by this Agreement and the Target
Stockholder Agreement and such approval constitutes
approval of this Agreement and the Target Stockholder
Agreement and the Merger and the other transactions
contemplated by this Agreement and the Target Stock
holder Agreement by the Board of Directors of Target
under the provisions of Section 203 of the DGCL and
represents all the action necessary to ensure that the
restrictions contained in such Section 203 do not apply
to Parent or Sub in connection with the Merger and the
other transactions contemplated by this Agreement and
the Target Stockholder Agreement. To the knowledge of
Target, no other state takeover statute is applicable to
the Merger or the other transactions contemplated hereby
and by the Target Stockholder Agreement.
(o) Brokers. No broker, investment banker,
financial advisor or other person, other than ▇▇▇▇▇▇
▇▇▇▇▇▇ Partners LLC, the fees and expenses of which will
be paid by Target, is entitled to any broker's,
finder's, financial advisor's or other similar fee or
commission in connection with the transactions
contemplated by this Agreement based upon arrangements
made by or on behalf of Target. Target has furnished to
Parent true and complete copies of all agreements under
which any such fees or expenses are payable and all
indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
(p) Opinion of Financial Advisor. Target has
received the written opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇ Partners
LLC, dated the date of this Agreement, to the effect
that, as of such date, the Exchange Ratio is fair from a
financial point of view to the stockholders of Target, a
signed copy of which opinion has been or promptly will
be delivered to Parent.
(q) Intellectual Property; Year 2000. (i) As used
herein, "Intellectual Property Rights" shall mean all
trademarks, service marks, trade names, brands,
copyrights and patents, all applications for registra
tion and registrations for such trademarks, copyrights
and patents and all mask works, trade secrets,
confidential and proprietary information, compositions
of matter, formulas, designs, proprietary rights, know-
how and processes; and "Target Intellectual Property
Rights" shall mean all Intellectual Property Rights
owned by or licensed to or used by Target. A list and
brief description of all Target Intellectual Property
Rights that are material to the conduct of the business
of Target, and all licenses, contracts, rights and
arrangements with respect to the foregoing, are set
forth in Section 3.01(q) of the Target Disclosure
Schedule. To Target's knowledge, all the Target
Intellectual Property Rights which are material to the
conduct of its business are valid, enforceable and in
full force and effect. Target owns, free and clear of
22
all Liens, or is validly licensed or otherwise has the
right to use all the Target Intellectual Property Rights
which are material to the conduct of its business.
(ii) To Target's knowledge, Target has not
interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Intellectual
Property Rights or other proprietary information of any
other person. Target has not received any written
charge, complaint, claim, demand or notice alleging any
such interference, infringement, misappropriation or
other conflict (including any claim that Target or any
such subsidiary must license or refrain from using any
Intellectual Property Rights or other proprietary
information of any other person) which has not been
settled or otherwise fully resolved, except for such
charges, complaints, claims, demands or notices that,
individually and in the aggregate, are not reasonably
likely to have a material adverse effect on Target. To
Target's knowledge, no other person has materially
interfered with, infringed upon, misappropriated or
otherwise come into conflict with any Target
Intellectual Property Rights.
(iii) As the business of Target is presently
conducted, Parent's use after the Closing of the Target
Intellectual Property Rights which are material to the
conduct of the business of Target will not interfere
with, infringe upon, misappropriate or otherwise come
into conflict with the Intellectual Property Rights or
other proprietary information of any other person,
except for such interferences, infringements,
misappropriations or other conflicts that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Target.
(iv) Target has taken, and until the Closing Date,
Target will take all steps reasonably necessary to
preserve Target's legal rights in all the Target
Intellectual Property Rights, except for such steps the
failure of which to be taken, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. In addition, each employee,
agent, consultant or contractor who has materially
contributed to or participated in the creation or
development of any copyrightable, patentable or trade
secret material on behalf of Target or any predecessor-
in-interest thereto either (x) is a party to a "work-
for-hire" relationship under which Target is deemed to
be the original owner/author of all property rights
therein or (y) has executed an assignment or an
agreement to assign in favor of Target or such
23
predecessor-in-interest, as applicable, all right, title
and interest in such material.
(v) Target has reviewed and assessed all areas
within its business and operations that could be
adversely affected by the "Target Year 2000 Problem"
(that is, the risk that computer applications used by
Target or used by any of the suppliers and vendors of
Target and that interface with a computer application
used by Target may be unable to recognize and perform
properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999).
Based on the foregoing, Target represents that all
computer applications used by Target and all computer
applications used by the suppliers and vendors of Target
that interface with any computer application used by
Target that are material to its business or operations
are Year 2000 Compliant, except for such failures to be
Year 2000 Compliant that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target. The term "Year 2000
Compliant", with respect to a computer system or
software program, means that such computer system or
program: (a) is capable of correctly recognizing,
processing, managing, representing, interpreting and
manipulating accurate and correctly formatted date-
related data for dates earlier and later than January 1,
2000; (b) does not lack the ability to function
automatically into and beyond the year 2000 without
human intervention and without any change in operations
as a result of the advent of the year 2000; (c) has the
ability to interpret accurate and correctly formatted
date data correctly into and beyond the year 2000; (d)
does not lack the ability not to produce noncompliance
in existing data, nor otherwise corrupt such data, into
and beyond the year 2000 as a result of the advent of
the year 2000; (e) has the ability to process correctly
after January 1, 2000, accurate and correctly formatted
date data containing dates and times before that date;
and (f) has the ability to recognize all "leap year"
dates, including February 29, 2000.
(r) Contracts. Except for Contracts filed as
exhibits to the Target Filed SEC Documents, Target is
not a party to or bound by, and none of its properties
or assets are bound by or subject to, any written or
oral:
(i) Contract not made in the ordinary course
of business entered into prior to the date of this
Agreement;
24
(ii) Contract pursuant to which Target has
agreed not to compete with any person or to engage
in any activity or business, or pursuant to which
any benefit is required to be given or lost as a
result of so competing or engaging;
(iii) Contract pursuant to which Target is
restricted in any material respect in the
development, marketing or distribution of its
products or services;
(iv) Contract with (A) any affiliate of Target
or (B) any current or former director or officer of
Target or of any affiliate of Target or any of the
25 most highly compensated employees of Target or
(C) any affiliate of any such person (other than
(w) contracts on arm's-length terms with companies
whose common stock is publicly traded, (x) offer
letters providing solely for "at will" employment,
(y) invention assignment and confidentiality
agreements relating to the assignment of inventions
to Target not involving the payment of money and
(z) Target Benefit Plans referred to in Section
3.01(j));
(v) license or franchise granted by Target
pursuant to which Target has agreed to refrain from
granting license or franchise rights to any other
person;
(vi) Contract under which Target has (i)
incurred any indebtedness that is currently owing
or (ii) given any guarantee in respect of
indebtedness, in each case having an aggregate
principal amount in excess of $250,000;
(vii) Contract that requires consent, approval
or waiver of or notice to a third party in the
event of or with respect to the Merger, including
in order to avoid termination of or a loss of
material benefit under any such Contract, except
for such Contracts the termination or loss of
material benefit under which, individually and in
the aggregate, are not reasonably likely to have a
material adverse effect on Target;
(viii) Contract or other agreement, whether
written or oral, that contains any guarantees as to
Target's future revenues;
(ix) Contract providing for payments of
royalties to third parties;
25
(x) Contract granting a third party any
license to Intellectual Property Rights that is not
limited to the internal use of such third party;
(xi) Contract providing confidential treatment
by Target of third party information other than
non-disclosure agreements and provisions entered
into by Target in the ordinary course of business
consistent with past practice;
(xii) Contract granting the other party to
such Contract or a third party "most favored
nation" status that, following the Merger, would in
any way apply to Parent or any of its subsidiaries
(other than Target and its products or services
(other than any similar products or services
produced or offered by Parent or any of its
subsidiaries (other than Target))); and
(xiii) Contract which (i) has aggregate future
sums due from Target in excess of $250,000 and is
not terminable by Target for a cost of less than
$250,000 or (ii) is otherwise material to the
business of Target as presently conducted or as
proposed to be conducted.
Each Contract of Target is in full force and effect and
is a legal, valid and binding agreement of Target and,
to the knowledge of Target, of each other party thereto,
enforceable against Target and, to the knowledge of
Target, against the other party or parties thereto, in
each case, in accordance with its terms, except for such
failures to be in full force and effect or enforceable
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Target. Target has performed or is performing all
material obligations required to be performed by it
under its Contracts and is not (with or without notice
or lapse of time or both) in breach or default in any
material respect thereunder, and, to the knowledge of
Target, no other party to any of its Contracts is (with
or without notice or lapse of time or both) in breach or
default in any material respect thereunder except, in
each case, for such breaches that, individually and in
the aggregate, are not reasonably likely to have a
material adverse effect on Target.
(s) Title to Properties. (i) Section 3.01(s) of the
Target Disclosure Schedule sets forth a true and
complete list, as of the date of this Agreement, of all
real property and leasehold property owned or leased by
26
Target or any of its subsidiaries. Target has good and
valid title to, or valid leasehold interests in or valid
rights to, all its material properties and assets except
for such as are no longer used or useful in the conduct
of its businesses or as have been disposed of in the
ordinary course of business and except for defects in
title, easements, restrictive covenants and similar
encumbrances that, individually and in the aggregate, do
not materially interfere with its ability to conduct its
business as currently conducted. All such material
assets and properties, other than assets and properties
in which Target has a leasehold interest, are free and
clear of all Liens except for Liens that, individually
and in the aggregate, do not materially interfere with
the ability of Target to conduct its business as
currently conducted.
(ii) Target has complied in all material respects
with the terms of all leases to which it is a party and
under which it is in occupancy, and all such leases are
in full force and effect. Target enjoys peaceful and
undisturbed possession under all such leases, except for
failures to do so that, individually and in the
aggregate, are not reasonably likely to have a material
adverse effect on Target.
(t) Privacy Policy. (i) For purposes of this
Section 3.01(t):
(A) "Privacy Statement" means the written
privacy policy of Target to be established by
Target on or before the Policy Launch Date
regarding the collection, use and distribution of
personal information from visitors to its web site
as in effect from time to time;
(B) "Policy Launch Date" means the date on
which Target makes the Privacy Statement accessible
to visitors of its website, provided that such date
shall occur no later than March 15, 2000; and
(C) "Terms and Conditions" means Target's
written agreements with its customers that
establish the terms and conditions of Target's
services as in effect from time to time.
(ii) On and after the Policy Launch Date, the
Privacy Statement will be conspicuously linked at all
times on Target's homepage and from any page on Target's
website on which personal information is collected from
visitors to its web site. The Privacy Statement will
include at the minimum the
27
following: (A) notice to visitors about Target's web
site's information collection policies and practices
prior to disclosing their personal information; (B)
options for the visitors regarding how their personal
information will be used, including any uses beyond
those for which the information was provided and the
option to choose whether or not to allow their personal
information to be disclosed and used for such purposes
and by third parties, but excluding the use and
disclosure of personal information to the extent that
Target believes in good faith (based on the advise of
outside counsel) that applicable law requires such use
or disclosure or for administrative purposes to the
extent that Target determines in good faith that such
use or disclosure is reasonably necessary to maintain or
service its site or its services; (C) a mechanism by
which visitors may view and correct their personal data
if it is inaccurate or incomplete; (D) representation
that Target uses industry standard security measures to
protect all data collected by Target from visitors; and
(E) a notice that visitors under the age of eighteen
should not disclose personal information without the
consent of a parent or guardian.
(iii) Except as set forth in the Terms and
Conditions, Target does not sell, rent or otherwise make
available to third parties any personal data submitted
by visitors and consumers; provided, however, that
Target does make use of non-personally identifiable
statistical information including, but not limited to,
browser-type, geographical location, age and gender,
solely for its own statistical analysis.
(iv) Target and its employees have (A) complied
with all privacy policies issued by Target, all
applicable privacy laws and all applicable Terms and
Conditions regarding the disclosure and use of data, (B)
not violated the Privacy Statement and (C) taken all
steps to protect and maintain the confidential nature of
the personal information provided to Target by visitors
who do not consent to the disclosure of such information
to third parties or have otherwise expressly requested
that Target not disclose such information. All personal
data collected by Target from time to time is or will be
used in accordance with the most current privacy
policies of Target or, to the extent applicable, the
Terms and Conditions.
SECTION 3.02. Representations and Warranties of
Parent and Sub. Except as disclosed in the Parent Filed SEC
Documents or as set forth on the Disclosure Schedule
delivered by Parent to Target prior to the execution of this
Agreement (the "Parent Disclosure Schedule") (each section
28
of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent
specified therein and such other representations and
warranties or covenants to the extent a matter in such
section is disclosed in such a way as to make its relevance
to the information called for by such other representation
and warranty or covenant reasonably apparent), Parent and Sub
represent and warrant to Target as follows:
(a) Organization, Standing and Corporate Power.
Each of Parent and Sub is a corporation duly organized,
validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated and has the
requisite corporate power and authority to carry on its
business as now being conducted. Each of Parent and Sub
is duly qualified or licensed to do business and is in
good standing (with respect to jurisdictions which
recognize such concept) in each jurisdiction in which
the nature of its business or the ownership, leasing or
operation of its assets makes such quali fication or
licensing necessary, except for those jurisdictions
where the failure to be so qualified or licensed or to
be in good standing, individually and in the aggregate,
is not reasonably likely to have a material adverse
effect on Parent. All outstanding shares of capital
stock of Parent are duly authorized, validly issued,
fully paid and nonassessable. Parent has made available
to Target prior to the execution of this Agreement
complete and correct copies of its certificate of
incorporation and by-laws and the certificate of
incorporation and by-laws of Sub, in each case as
amended to the date of this Agreement.
(b) Subsidiaries. Section 3.02(b) of the Parent
Disclosure Schedule sets forth a true and complete list,
as of the date of this Agreement, of each of Parent's
subsidiaries. All the outstanding shares of capital
stock of, or other equity interests in, each subsidiary
of Parent have been validly issued, are fully paid and
nonassessable and are owned directly or indirectly by
Parent, free and clear of all Liens.
(c) Capital Structure. The authorized capital stock
of Parent consists of 70,000,000 shares of Parent Common
Stock and 10,000,000 shares of preferred stock, par
value $0.01 per share, of Parent ("Parent Authorized
Preferred Stock"). At the close of business on January
31, 2000, (i) 22,615,709 shares of Parent Common Stock
were issued and outstanding; (ii) no shares of Parent
Authorized Preferred Stock were issued and outstanding;
(iii) 4,218,874 shares of Parent Common Stock were
reserved for issuance pursuant to Parent's 1998 Stock
Incentive Plan; and (iv) 3,411,832
29
shares of Parent Common Stock were reserved for issuance
upon exercise of outstanding warrants. As of the date of
this Agreement, no bonds, debentures, notes or other
indebtedness of Parent having the right to vote (or
convertible into, or exchangeable for, securities having
the right to vote) on any matters on which stockholders
of Parent may vote are issued or outstanding or subject
to issuance. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value
$0.01 per share, all of which are issued and outstanding
and wholly owned by Parent. All outstanding shares of
capital stock of Parent and Sub are, and all shares
which may be issued will be, when issued, duly
authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights.
(d) Authority; Noncontravention. Each of Parent and
Sub has all requisite corporate power and authority to
enter into this Agreement and, subject to the Parent
Stockholder Approval, to consummate the transactions
contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Sub and the
consummation by Parent and Sub of the transactions
contemplated by this Agreement have been duly authorized
by all necessary corporate action on the part of Parent
and Sub, subject, in the case of the issuance of shares
of Parent Common Stock in connection with the Merger, to
the Parent Stockholder Approval. This Agreement has been
duly executed and delivered by Parent and Sub and,
assuming the due authorization, execution and delivery
by each of the other parties thereto, constitutes a
legal, valid and binding obligation of Parent and Sub,
enforceable against each of them in accordance with its
terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions
contemplated by this Agreement and compliance with the
provisions of this Agreement will not, conflict with, or
result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to
a right of termination, cancelation or acceleration of
any obligation or loss of a benefit under, or result in
the creation of any Lien upon any of the properties or
assets of Parent or Sub under, (i) the certificate of
incorporation or by-laws of Parent or Sub, (ii) any
Contract applicable to Parent or Sub or their respective
properties or assets or (iii) subject to the
governmental filings and other matters referred to in
the following sentence, (A) any judgment, order or
decree or (B) any statute, law, ordinance, rule or
regulation, in each case applicable to Parent or any of
its subsidiaries or their respective properties or
assets, other than, in the case of clauses (ii) and
30
(iii), any such conflicts, violations, defaults, rights,
losses or Liens that, individually and in the aggregate,
are not reasonably likely to (x) have a material adverse
effect on Parent, (y) impair the ability of Parent or
Sub to perform its obligations under this Agreement or
(z) prevent or materially delay the consummation of the
transactions contemplated by this Agreement. No consent,
approval, order or authorization of, action by or in
respect of, or registration, declaration or filing with,
any Governmental Entity is required by or with respect
to Parent or Sub in connection with the execution and
delivery of this Agreement by Parent and Sub or the
consummation by Parent and Sub of the transactions
contemplated by this Agreement, except for (1) the
filing of a premerger notification and report form by
Parent under the HSR Act and any applicable filings and
approvals under similar foreign antitrust or competition
laws and regulations; (2) the filing with the SEC of (A)
the Form S-4 and (B) such reports under Section 13(a),
13(d), 15(d) or 16(a) of the Exchange Act as may be
required in connection with this Agreement, the Target
Stockholder Agreement, the Parent Stockholder Agreement
and the transactions contemplated by this Agreement, the
Target Stockholder Agreement and the Parent Stockholder
Agreement; (3) the filing of the Certificate of Merger
with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states
in which Parent is qualified to do business and such
filings with Govern mental Entities to satisfy the
applicable requirements of state securities or "blue
sky" laws; (4) such filings with and approvals of The
Nasdaq National Market ("Nasdaq") to permit the shares
of Parent Common Stock that are to be issued in the
Merger to be quoted on Nasdaq; and (5) such other
consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of
which to be made or obtained, individually and in the
aggregate, are not reasonably likely to (x) have a
material adverse effect on Parent, (y) impair the
ability of Parent or Sub to perform its obligations
under this Agreement or (z) prevent or materially delay
the consummation of the transactions contemplated by
this Agreement.
(e) SEC Documents; Undisclosed Liabilities. Parent
has filed all required reports, schedules, forms,
statements and other documents (including exhibits and
all other information incorporated therein) with the SEC
since December 31, 1997 (collectively, the "Parent SEC
Documents"). As of their respective dates, the Parent
SEC Documents complied in all material respects with the
requirements
31
of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Parent SEC
Documents, and none of the Parent SEC Documents when
filed 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. The financial
statements of Parent included in the Parent SEC
Documents comply as to form, as of their respective
dates of filing with the SEC, in all material respects
with the Accounting Rules, have been prepared in
accordance with GAAP (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC)
applied on a consistent basis during the periods
involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the
consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and
the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case
of unaudited statements, to normal recurring year-end
audit adjustments). Except (i) as reflected in the
financial statements contained in the Parent Filed SEC
Documents or in the notes thereto or (ii) for liabili
ties incurred in connection with this Agreement or the
transactions contemplated hereby, neither Parent nor any
of its subsidiaries has any liabilities or obligations
of any nature (whether accrued, absolute, contingent or
otherwise) which, individually or in the aggregate, when
taken as a whole with any benefits or rights
corresponding to such liabilities or obligations, are
reasonably likely to have a material adverse effect on
Parent.
(f) Information Supplied. None of the informa tion
supplied or to be supplied by Parent specifically for
inclusion or incorporation by reference in (i) the Form
S-4 will, at the time the Form S-4 becomes effective
under the Securities Act, 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 not misleading or (ii) the Proxy
Statement will, at the date it is first mailed to
Target's or Parent's stockholders or at the time of the
Target Stockholders Meeting or the Parent Stockholders
Meeting, contain any untrue statement of a material fact
or omit to state any material fact required to be stated
therein or neces sary in order to make the statements
therein, in light of the circumstances under which they
are made, not misleading. The Form S-4 will comply as to
form in all
32
material respects with the requirements of the Exchange
Act and the rules and regulations thereunder. No
representation or warranty is made by Parent with
respect to statements made or incorporated by reference
therein based on information supplied by Target
specifically for inclusion or incorporation by reference
in the Form S-4.
(g) Absence of Certain Changes or Events. Except
for liabilities incurred in connection with this
Agreement, the Target Stockholder Agreement, the
Employment Agreements or the transactions contemplated
hereby or thereby and except as disclosed in the Parent
SEC Documents filed and publicly available prior to the
date of this Agreement (as amended to the date of this
Agreement, the "Parent Filed SEC Documents"), from
December 31, 1998 to the date of this Agreement, Parent
and its subsidiaries have conducted their business only
in the ordinary course, and during such period there has
not been (1) any material adverse change in Parent, (2)
any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock
or property) with respect to any of Parent's capital
stock, (3) any split, combination or reclassification of
any of Parent's capital stock or any issuance or the
authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of
Parent's capital stock, (4) (A) any granting by Parent
or any of its subsidiaries to any current or former
director, consultant, executive officer or other
employee of Parent or its subsidiaries of any increase
in compensation, bonus or other benefits, except for
normal increases in cash compensation in the ordinary
course of business consistent with past practice or as
was required under any employment agreements in effect
as of the date of the most recent audited financial
statements included in the Parent Filed SEC Documents,
(B) any granting by Parent or any of its subsidiaries to
any such current or former director, consultant,
executive officer or employee of any increase in
severance or termination pay, (C) any entry by Parent or
any of its subsidiaries into, or any amendments of, any
Parent Benefit Agreement or (D) any amendment to, or
modification of, any Parent Stock Option, (5) except
insofar as may have been required by a change in GAAP,
any change in accounting methods, principles or
practices by Parent or any of its subsidiaries
materially affecting their respective assets,
liabilities or businesses, (6) any tax election that
individually or in the aggregate is reasonably likely to
adversely affect in any material respect the tax
liability or tax attributes of Parent or any of its
subsidiaries or (7) any settlement or compromise of any
33
material income tax liability. Except for liabilities
incurred in connection with this Agreement, the Target
Stockholder Agreement, the Employment Agreements or the
transactions contemplated hereby or thereby and except
as disclosed in the Parent Filed SEC Documents, since
December 31, 1998, there has not been any material
adverse change in Parent.
(h) Litigation. There is no suit, action or
proceeding pending or, to the knowledge of Parent or any
of its subsidiaries, threatened against or affecting
Parent or any of its subsidiaries that, individually or
in the aggregate, is reasonably likely to have a
material adverse effect on Parent nor is there any
judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against
Parent or any of its subsidiaries having, or which is
reasonably likely to have, individually or in the
aggregate, a material adverse effect on Parent. Section
3.02(h) of the Parent Disclosure Schedule sets forth a
true and complete list, as of the date of this
Agreement, of each settlement or similar agreement in
respect of any pending or threatened suit, action,
proceeding, judgment, decree, injunction, rule or order
of any Governmental Entity or arbitrator which Parent or
any of its subsidiaries has entered into or become bound
by since June 30, 1999.
(i) Compliance with Applicable Laws. (i) Parent and
its subsidiaries hold all material permits, licenses,
variances, exemptions, orders, registrations and
approvals of all Governmental Entities (the "Parent
Permits") that are required for them to own, lease or
operate their assets and to carry on their businesses.
Parent and its subsidiaries are in compliance with the
terms of the Parent Permits and all applicable statutes,
laws (including Environmental Laws), ordinances, rules
and regulations, except for such failures to comply
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Parent. No action, demand, requirement or investigation
by any Governmental Entity and no suit, action or
proceeding by any person, in each case with respect to
Parent or any of its subsidiaries or any of their
respective properties that, individually or in the
aggregate, is reasonably likely to have a material
adverse effect on Parent, is pending or, to the
knowledge of Parent, threatened.
(ii) To Parent's knowledge, there have been no
Releases of any Hazardous Materials at, on or under any
facility or property currently or formerly owned,
leased, or operated by Parent or any of its subsidi
aries that, individually or in the aggregate, are
reasonably likely to have a material adverse effect on
Parent. Neither Parent nor any of its subsidiaries is
the subject of any pending or, to Parent's knowledge,
threatened investigation or proceeding under Environ
mental Law relating in any manner to the off-site
treatment, storage or disposal of any Hazardous
Materials generated at any facility or property
currently or formerly owned, leased or operated by
Parent or any of its subsidiaries.
(j) ERISA Compliance. (i) Section 3.02(j) of the
Parent Disclosure Schedule contains a list of all
"employee pension benefit plans" (as defined in Section
3(2) of ERISA) (sometimes referred to herein as "Parent
Pension Plans"), "employee welfare benefit plans" (as
defined in Section 3(1) of ERISA), all other collective
bargaining agreements or any bonus, pension, profit
sharing, deferred compensation, incentive compensation,
stock ownership, stock purchase, stock option, phantom
stock, retirement, thrift, savings, stock bonus,
restricted stock, cafeteria, paid time off, perquisite,
fringe benefit, vacation, severance, disability, death
benefit, hospitalization, medical, welfare benefit or
other plan, arrangement or under standing (whether or
not legally binding) providing benefits to any current
or former employee, officer, consultant or director of
Parent (collectively, the "Parent Benefit Plans"), and
employment, consulting, deferred compensation,
indemnification, severance or termination agreements or
arrangements between Parent and any current or former
employee, officer, consultant or director of Parent
(collectively, the "Parent Benefit Agreements")
maintained, or contributed to, by Parent or any of its
subsidiaries, or to which Parent or any of its
subsidiaries is a party, for the benefit of any current
or former employees, officers or directors of Parent or
any of its subsidiaries. Parent has made available to
Target or will make available to Target upon request
true, complete and correct copies of (a) each Parent
Benefit Plan and Parent Benefit Agreement (or, in the
case of any unwritten Parent Benefit Plan or Parent
Benefit Agreement, a description thereof), (b) the most
recent annual report on Form 5500 filed with the
Internal Revenue Service with respect to each Parent
Benefit Plan (if any such report was required), (c) the
most recent summary plan description for each Parent
Benefit Plan for which such summary plan description is
required and (d) each trust agreement and group annuity
contract relating to any Parent Benefit Plan.
34
(ii) Each Parent Benefit Plan has been administered
in all material respects in accordance with its terms.
Parent, its subsidiaries and each Parent Benefit Plan
are in substantial compliance with the applicable
provisions of ERISA and the Code, and all other
applicable laws and the terms of all collective
bargaining agreements. All Parent Pension Plans intended
to be qualified have received favorable determination
letters from the Internal Revenue Service with respect
to "TRA" (as defined in Section 1 of Rev. Proc. 93-39),
to the effect that such Parent Pension Plans are
qualified and exempt from Federal income taxes under
Sections 401(a) and 501(a), respectively, of the Code,
and no such determination letter has been revoked nor,
to the knowledge of Parent, has revocation been
threatened, nor has any such Parent Pension Plan been
amended since the date of its most recent determination
letter or application therefor in any respect that would
adversely affect its qualification or materially
increase its costs. There is no pending or, to the
knowledge of Parent, threatened litigation relating to
Parent Benefit Plans.
(iii) None of Parent or any person which is
considered an ERISA Affiliate of Parent has or could
reasonably be expected to have any liability under Title
IV of ERISA with respect to any Parent Benefit Plan.
None of Parent, any of its subsidiaries, any officer of
Parent or any of its subsidiaries or any of the Parent
Benefit Plans which are subject to ERISA, including the
Parent Pension Plans, any trusts created thereunder or,
to the knowledge of Parent, any trustee or administrator
thereof, has engaged in a "prohibited transaction" (as
such term is defined in Section 406 of ERISA or Section
4975 of the Code) or any other breach of fiduciary
responsibility that could subject Parent, any of its
subsidiaries or any officer of Parent or any of its
subsidiaries to the tax or penalty on prohibited
transactions imposed by such Section 4975 in an amount
that would be material or to any material liability
under Section 502(i) or 502(l) of ERISA. All
contributions and premiums required to be made under the
terms of any Parent Benefit Plan as of the date hereof
have been timely made or have been reflected on the most
recent consolidated balance sheet filed or incorporated
by reference in the Filed Parent SEC Documents. Neither
any Parent Pension Plan nor any single-employer plan of
an ERISA Affiliate of Parent has an "accumulated funding
deficiency" (as such term is defined in Section 302 of
ERISA or Section 412 of the Code), whether or not
waived.
35
(iv) With respect to any Parent Benefit Plan that
is an employee welfare benefit plan, (a) no such Parent
Benefit Plan is unfunded or funded through a "welfare
benefit fund" (as such term is defined in Section 419(e)
of the Code) and (b) each such Parent Benefit Plan that
is a "group health plan" (as such term is defined in
Section 5000(b)(1) of the Code) complies with the
applicable requirements of Section 4980B(f) of the Code.
Neither Parent nor any of its subsidiaries has any
obligations for retiree health and life benefits under
any Parent Benefit Plan or Parent Benefit Agreement.
(v) Parent and its subsidiaries are in compliance
with all Federal, state and local requirements regarding
employment, except for such failures to comply that,
individually and in the aggregate, are not reasonably
likely to have a material adverse effect on Parent. As
of the date of this Agreement, neither Parent nor any of
its subsidiaries is a party to any collective bargaining
or other labor union contract applicable to persons
employed by Parent or any of its subsidiaries and no
collective bargaining agreement is being negotiated by
Parent or any of its subsidiaries. As of the date of
this Agreement, there is no labor dispute, strike or
work stoppage against Parent or any of its subsidiaries
pending or, to the knowledge of Parent, threatened which
may interfere with the respective business activities of
Parent or its subsidiaries. As of the date of this
Agreement, to the knowledge of Parent, none of Parent,
any of its subsidiaries or any of their respective
representatives or employees has committed an unfair
labor practice in connection with the operation of the
respective businesses of Parent or any of its
subsidiaries, and there is no charge or complaint
against Parent or any of its subsidiaries by the
National Labor Relations Board or any comparable
governmental agency pending or threatened in writing.
(k) Taxes. (i) Each of Parent and its subsidiaries
has filed all tax returns and reports required to be
filed by it and all such returns and reports are
complete and correct in all material respects, or
requests for extensions to file such returns or reports
have been timely filed, granted and have not expired,
except to the extent that such failures to file, to be
complete or correct or to have extensions granted that
remain in effect, individually and in the aggregate, are
not reasonably likely to have a material adverse effect
on Parent. Parent and each of its subsidiaries has paid
(or Parent has paid on its behalf) all taxes due with
respect to such returns, and
36
the most recent financial statements contained in the
Parent Filed SEC Documents reflect an adequate reserve
for all taxes payable by Parent and its subsidiaries for
all taxable periods and portions thereof accrued through
the date of such financial statements.
(ii) No deficiencies for any taxes have been
proposed, asserted or assessed against Parent or any of
its subsidiaries that are not adequately reserved for,
except for deficiencies that individually or in the
aggregate are not reasonably likely to have a material
adverse effect on Parent. The Federal income tax returns
of Parent and each of its subsidiaries consolidated in
such returns for periods ending on or before December
31, 1995, have closed by virtue of the applicable
statute of limitations and no requests for waivers of
the time to assess any such taxes are pending, and, with
respect to all subsequent periods, no Federal or state
tax return or report or any other material tax return or
report of Parent and such subsidiaries is currently
under audit and no written or unwritten notice of any
such audit or similar examination has been received by
Parent. There is no currently effective agreement or
other document extending, or having the effect of
extending, the period of assessment or collection of any
taxes and no power of attorney with respect to taxes has
been executed or filed with any taxing authority.
(iii) There are no material liens for taxes (other
than for current taxes not yet due and payable) on the
assets of Parent or any of its subsidiaries. Neither
Parent nor any of its subsidiaries is bound by any
agreement with respect to taxes.
(iv) Neither Parent nor any of its subsidiaries has
been or is a United States real property holding
corporation within the meaning of Section 897(c)(2) of
the Code during the applicable period specified in
Section 897(c)(1)(A)(ii).
(v) Section 3.02(k)(v) of the Parent Disclosure
Schedule sets forth each state in which Parent or any of
its subsidiaries has filed a tax return relating to
state income, franchise, license, excise, net worth,
property and sales and use taxes, except in a case where
Parent or any of its subsidiaries is or has been
required to file such a tax return and such failures to
file could not individually or in the aggregate
reasonably be expected to have a material adverse effect
on Parent or any of its subsidiaries. To the knowledge
of Parent, it is not required to file any tax return or
report in any other state and no claim has
37
ever been made by a taxing authority in a jurisdiction
where any of Parent and each of its subsidiaries does
not file a tax return that it is, or may be subject to,
taxation in that jurisdiction.
(vi) Neither Parent nor any of its subsidiaries has
taken any action or knows of any fact, agreement, plan
or other circumstance that is reasonably likely to
prevent the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Code.
(vii) The Parent Benefit Plans and other Parent
employee compensation arrangements in effect as of the
date of this Agreement have been designed so that the
disallowance of a material deduction under Section
162(m) of the Code for employee remuneration will not
apply to any amounts paid or payable by Parent or any of
its subsidiaries under any such plan or arrangement and,
to the knowledge of Parent, no fact or circumstance
exists that is reasonably likely to cause such
disallowance to apply to any such amounts.
(viii) Neither Parent nor any of its subsidiaries
has constituted either a "distributing corporation" or a
"controlled corporation" in a distribution of stock
qualifying for tax-free treatment under Section 355 of
the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could other
wise constitute part of a "plan" or "series of related
transactions" (within the meaning of Section 355(e) of
the Code) in conjunction with the Merger.
(l) Voting Requirements. The affirmative vote of a
majority of the votes cast at the Parent Stockholders
Meeting to approve the issuance of shares of Parent
Common Stock in connection with the Merger in accordance
with the rules and regulations of Nasdaq (the "Parent
Stockholder Approval") is the only vote of the holders
of any class or series of Parent's capital stock
necessary to approve such issuance and the transactions
contemplated hereby.
(m) State Takeover Statutes. The Board of Directors
of Parent has unanimously approved the terms of this
Agreement and the Parent Stockholder Agreement and the
consummation of the transactions contemplated by this
Agreement and the Parent Stockholder Agreement and such
approval constitutes approval of this Agreement and the
Parent Stockholder Agreement and the transactions
contemplated by this Agreement and the Parent
Stockholder Agreement by the Board of Directors of
Parent under the provisions of Section 203 of the DGCL
and represents all the action necessary to ensure
38
that the restrictions contained in such Section 203 do
not apply to Target in connection with the transactions
contemplated this Agreement and the Parent Stockholder
Agreement. To the knowledge of Parent, no other state
takeover statute is applicable to the transactions
contemplated hereby and by the Parent Stockholder
Agreement.
(n) Intellectual Property; Year 2000. (i) As used
herein, "Parent Intellectual Property Rights" shall mean
all Intellectual Property Rights owned by or licensed to
or used by Parent as of the date of this Agreement. To
the knowledge of Parent, all the Parent Intellectual
Property Rights which are material to the conduct of its
business are valid, enforceable and in full force and
effect. Parent and its subsidiaries own, free and clear
of all Liens, or are validly licensed or otherwise have
the right to use all the Parent Intellectual Property
Rights which are material to the conduct of the business
of Parent and its subsidiaries.
(ii) To the knowledge of Parent, neither Parent nor any
of its subsidiaries has materially interfered with,
infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property Rights or other
proprietary information of any other person. Neither
Parent nor any of its subsidiaries has received any
written charge, complaint, claim, demand or notice
alleging any such interference, infringement, misappro
priation or other conflict (including any claim that
Parent or any such subsidiary must license or refrain
from using any Intellectual Property Rights or other
proprietary information of any other person) which has
not been settled or otherwise fully resolved, except for
such charges, complaints, claims, demands or notices
that, individually and in the aggregate, are not
reasonably likely to have a material adverse effect on
Parent. Except as set forth in Section 3.02(n) of the
Parent Disclosure Schedule, to Parent's knowledge, no
other person has materially interfered with, infringed
upon, misappropriated or otherwise come into conflict
with any Parent Intellectual Property Rights or any
Intellectual Property Rights of any of its subsidiaries.
(iii) Parent has reviewed and assessed all areas within
its business and operations that could be adversely
affected by the "Parent Year 2000 Problem" (that is, the
risk that computer applications used by Parent or used
by any of the suppliers and vendors of Parent and that
interface with a computer application used by Target
that may be unable to recognize and
39
perform properly date-sensitive functions involving
certain dates prior to and any date after December 31,
1999). Based on the foregoing, Parent represents that
all computer applications used by Parent and all
computer applications used by the suppliers and vendors
of Parent that interface with any computer application
used by Target that are material to its business or
operations are Year 2000 Compliant, except for such
failures to be Year 2000 Compliant that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Parent.
(o) Title to Properties. (i) Each of Parent and its
subsidiaries has good and valid title to, or valid
leasehold interests in or valid rights to, all its
material properties and assets except for such as are no
longer used or useful in the conduct of its businesses
or as have been disposed of in the ordinary course of
business and except for defects in title, easements,
restrictive covenants and similar encumbrances that,
individually and in the aggregate, do not materially
interfere with its ability to conduct its business as
currently conducted. All such material assets and
properties, other than assets and properties in which
Parent or any of its subsidiaries has a leasehold
interest, are free and clear of all Liens except for
Liens that, individually and in the aggregate, do not
materially interfere with the ability of Parent and its
subsidiaries to conduct their respective businesses as
currently conducted.
(ii) Each of Parent and its subsidiaries has
complied in all material respects with the terms of all
leases to which it is a party and under which it is in
occupancy, and all such leases are in full force and
effect. Each of Parent and its subsidiaries enjoys
peaceful and undisturbed possession under all such
leases, except for failures to do so that, individually
and in the aggregate, are not reasonably likely to have
a material adverse effect on Parent.
(p) Privacy Policy. (i) For purposes of this
Section 3.02(p):
(A) "Privacy Statement" means Parent's written
privacy policies regarding the collection, use and
distribution of personal information from visitors
to its web site and consumers of its products and
services as in effect from time to time; and
(B) "Data Collection and Security Statement"
means Parent's written data collection and
40
security statement, comprising a part of the
Privacy Statement as in effect from time to time.
(ii) The Privacy Statement is conspicuously linked
at all times on Parent's homepage. The Privacy Statement
is clearly written and includes at the minimum the
following: (A) notice to visitors about Parent's web
site's information collection policies and practices
prior to disclosing their personal information; (B)
options for the visitors regarding how their personal
information will be used, including any uses beyond
those for which the information was provided and the
option to choose whether or not to allow their personal
information to be disclosed and used for such purposes
and by third parties, but excluding the use and
disclosure of personal information to the extent that
Parent believes in good faith (based on the advise of
outside counsel) that applicable law requires such use
or disclosure or for administrative purposes to the
extent that Parent determines in good faith that such
use or disclosure is reasonably necessary to maintain or
service its site or its services; (C) a mechanism by
which visitors may view and correct their personal data
if it is inaccurate or incomplete; (D) representation
that Parent uses industry standard security measures to
protect all data collected by Parent from its visitors.
(iii) Parent and its employees have (A) complied
with all privacy policies issued by Parent, all
applicable privacy laws regarding the disclosure and use
of data, (B) not violated the Privacy Statement or the
Data Collection and Security Statement and (C) taken all
reasonable steps to protect and maintain the
confidential nature of the personal information provided
to Parent by visitors who do not consent to the
disclosure of such information to third parties or have
otherwise expressly requested that Parent not disclose
such information. All personal data collected by Parent
from time to time is used in accordance with the most
current privacy policies of Parent.
(q) Tax Matters. Neither Parent nor any of its
subsidiaries has taken any action or knows of any fact,
agreement, plan or other circumstance that is reason
ably likely to prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of
the Code.
(r) Interim Operations of Sub. Sub was formed
solely for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business
41
activities and has conducted its operations only as
contemplated hereby.
ARTICLE IV
Covenants Relating to Conduct of Business
SECTION 4.01. Conduct of Business. (a) Conduct of
Business by Target. Except as set forth in Section 4.01(a) of
the Target Disclosure Schedule, as otherwise expressly
contemplated by this Agreement or as consented to in writing
by Parent, during the period from the date of this Agreement
to the Effective Time, Target shall carry on its business
only in the ordinary course consistent with past practice and
in compliance in all material respects with all applicable
laws and regulations and, to the extent consistent therewith,
use all reasonable efforts to preserve intact its current
business organization, use reasonable efforts to keep
available the services of its current officers and other key
employees and preserve its relationships with those persons
having business dealings with it to the end that its goodwill
and ongoing business shall be unimpaired at the Effective
Time. Without limiting the generality of the foregoing (but
subject to the above exceptions), during the period from the
date of this Agreement to the Effective Time, Target shall
not, without the prior written consent of Parent, which
consent shall not be unreasonably withheld:
(i) (x) declare, set aside or pay any dividends on,
or make any other distributions (whether in cash, stock,
property or otherwise) in respect of, any of its capital
stock, (y) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (z)
purchase, redeem or otherwise acquire, directly or
indirectly, any shares of capital stock of Target or any
other securities thereof or any rights, warrants or
options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge or otherwise
encumber or subject to any Lien (w) any shares of its
capital stock, (x) any other voting securities, (y) any
securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities
or convertible securities or (z) any "phantom" stock or
stock rights, SARs or stock-based performance units
other than (A) the issuance of Target Stock Options
granted in the ordinary course of business consistent
with past practice to new or promoted employees, so long
as (I) the vesting of such
42
Target Stock Options will not accelerate as a result of
this Agreement, the Target Stockholder Agreement or the
transactions contemplated hereby or thereby and (II) the
exercise of such Target Stock Options would not result
in the Target Stockholders failing to hold of record
more than 50% of the outstanding shares of Target Common
Stock (calculated on a fully diluted basis assuming the
exercise of all outstanding securities of Target that
are then, or may become on or prior to August 31, 2000,
convertible into or exchangeable or exercisable for,
shares of capital stock or other voting securities of
Target), and (B) the issuance of Target Common Stock
upon the exercise of Target Stock Options or the
Warrants outstanding as of the date hereof in accordance
with their present terms, or upon the exercise of Target
Stock Options referred to in clause (A) in accordance
with their terms;
(iii) amend Target's certificate of incorporation
or by-laws;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing assets of, or by
any other manner, any business or any person;
(v) sell, lease, license, sell and leaseback,
mortgage or otherwise encumber or subject to any Lien or
otherwise dispose of any of its properties or assets
(including securitizations), other than sales or
licenses of finished goods or services in the ordinary
course of business consistent with past practice;
(vi) incur any indebtedness in excess of an
aggregate principal amount of $250,000 for borrowed
money or guarantee any such indebtedness of another
person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of Target,
guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any
financial statement condition of another person or enter
into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings
incurred in the ordinary course of business (or to
refund existing or maturing indebtedness) consistent
with past practice;
(vii) make any loans, advances or capital
contributions to, or investments in, any other person;
(viii) make or agree to make any new capital
expenditures, or enter into any agreements providing for
payments which, individually, are in excess of
43
$500,000 or, in the aggregate, are in excess of
$5,000,000;
(ix) make any tax election that, individually or in
the aggregate, is reasonably likely to adversely affect
in any material respect the tax liability or tax
attributes of Target or settle or compromise any
material income tax liability;
(x) (A) pay, discharge, settle or satisfy any
claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), or
litigation (whether or not commenced prior to the date
of this Agreement) other than the payment, discharge,
settlement or satisfaction, in the ordinary course of
business consistent with past practice or in accordance
with their terms, of liabilities recognized or disclosed
in the most recent financial statements (or the notes
thereto) of Target included in the Target Filed SEC
Documents or incurred since the date of such financial
statements, or (B) waive the benefits of, agree to
modify in any manner, terminate, release any person from
or fail to enforce any confidentiality, standstill or
similar agreement to which Target is a party or of which
Target is a beneficiary;
(xi) except as required by law or contemplated
hereby and except for labor agreements negotiated in the
ordinary course, (x) establish, enter into, adopt or
amend or terminate any Target Benefit Plan or Target
Benefit Agreement, (y) change any actuarial or other
assumption used to calculate funding obligations with
respect to any Target Pension Plan, or change the manner
in which contributions to any Target Pension Plan are
made or the basis on which such contributions are
determined or (z) take any action to accelerate any
rights or benefits, or make any material determinations
not in the ordinary course of business consistent with
past practice, under any collective bargaining
agreement, Target Benefit Plan or Target Benefit
Agreement;
(xii) (w) increase the compensation, bonus or other
benefits of any current or former director, consultant,
officer or other employee, except for (A) salary
increases for non-officer employees as part of an annual
review process or part of a promotion in job title or
responsibility in an amount not to exceed 15% of such
employee's salary as of the date of this Agreement
individually and 5% of the total salary base of all
non-officer employees of Target in the aggregate for all
such increases or (B) salary increases for officers
consistent with the salary for the respective
44
officer set forth in such officer's Employment Agreement
with Parent, (x) grant any current or former director,
consultant, officer or other employee any increase in
severance or termination pay, (y) amend or modify any
Target Stock Option or (z) pay any benefit or amount not
required by a plan or arrangement as in effect on the
date of this Agreement to any such person;
(xiii) transfer or license to any person or entity
or otherwise extend, amend or modify any rights to the
Intellectual Property Rights of Target other than in the
ordinary course of business consistent with past
practice; provided that in no event shall Target license
on an exclusive basis or sell any Intellectual Property
Rights of Target;
(xiv) enter into or amend any agreements pursuant
to which any person is granted exclusive marketing or
other exclusive rights with respect to any Target
product, process or technology;
(xv) enter into or amend any Contract or other
agreement, whether written or oral, that contains any
guarantees as to Target's future revenues or as to the
future revenues of any other party to such Contract or
other agreement;
(xvi) obtain, through acquisition, lease, sublease
or otherwise, any real property for use as an office or
similar facility of Target;
(xvii) hire additional employees in excess of the
limits set forth in Target's budget for the fiscal year
ending December 31, 2000 attached to Section
4.01(a)(xvii) of the Target Disclosure Schedule;
(xviii) except insofar as may be required by a
change in GAAP, make any changes in accounting methods,
principles or practices;
(xix) take any action that would, or that is
reasonably likely to, result in (x) any of the
representations and warranties made by Target in this
Agreement that are qualified as to materiality becoming
untrue, (y) any of such representations and warranties
that are not so qualified becoming untrue in any
material respect or (z) any condition to the Merger set
forth in Article VI not being satisfied; or
(xx) authorize, or commit, resolve or agree to
take, any of the foregoing actions.
45
(b) Conduct of Business by Parent. Except as set
forth in Section 4.01(b) of the Parent Disclosure Schedule,
as otherwise expressly contemplated by this Agreement or as
consented to in writing by Target, during the period from the
date of this Agreement to the Effective Time, Parent shall,
and shall cause its subsidiaries to, carry on their
respective businesses only in the ordinary course consistent
with past practice and in compliance in all material respects
with all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve
intact their current business organizations, use reasonable
efforts to keep available the services of their current
officers and other key employees and preserve their
relationships with those persons having business dealings
with them to the end that their goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Without
limiting the generality of the foregoing (but subject to the
above exceptions), during the period from the date of this
Agreement to the Effective Time, Parent shall not, and shall
not permit any of its subsidiaries to, without the prior
written consent of Target, which consent shall not be
unreasonably withheld:
(i) take any action that would, or that is
reasonably likely to, result in (x) any of the
representations and warranties made by Parent in this
Agreement that are qualified as to materiality becoming
untrue, (y) any of such representations and warranties
that are not so qualified becoming untrue in any
material respect or (z) any condition to the Merger set
forth in Article VI not being satisfied; or
(ii) acquire any business entity, whether by
merger, consolidation, stock purchase or otherwise,
unless Parent's board of directors determines in good
faith that such acquisition would not materially delay
the consummation of the transactions contemplated by
this Agreement.
(c) Advice of Changes. Target and Parent shall
promptly advise the other party orally and in writing to the
extent it has knowledge of (i) any representation or warranty
made by it (and, in the case of Parent, made by Sub)
contained in this Agreement that is qualified as to
materiality becoming untrue or inaccurate in any respect or
any such representation or warranty that is not so qualified
becoming untrue or inaccurate in any material respect, (ii)
the failure by it (and, in the case of Parent, by Sub) to
comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it
under this Agreement and (iii) any change or event having, or
which is reasonably likely to have, a material adverse effect
on such party or on the truth of
46
their respective representations and warranties or the
ability of the conditions set forth in Article VI to be
satisfied; provided, however, that no such notification shall
affect the representations, warranties, covenants or
agreements of the parties (or remedies with respect thereto)
or the conditions to the obligations of the parties under
this Agreement.
SECTION 4.02. No Solicitation by Target. (a) Target
shall not, nor shall it permit any of its subsidiaries to,
nor shall it authorize or permit any of its directors,
officers or employees or any investment banker, financial
advisor, attorney, accountant or other representa tive
retained by it or any of its subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate or
encourage (including by way of furnishing information), or
take any other action to facilitate, any inquiries or the
making of any proposal that constitutes, or may reasonably be
expected to lead to, any Takeover Proposal or (ii) enter
into, continue or otherwise participate in any discussions or
negotiations regarding, or furnish to any person any
information with respect to, any Takeover Proposal.
Notwithstanding the foregoing, in the event that, notwith
standing compliance with the preceding sentence, Target
receives a Superior Proposal, Target may, to the extent that
the Board of Directors of Target determines in good faith
(after consultation with outside counsel) that such action
would, in the absence of the foregoing proscriptions, be
required by its fiduciary duties, participate in discussions
regarding any Superior Proposal in order to be informed with
respect thereto in order to make any determination permitted
pursuant to Section 4.02(b)(i). In such event, Target shall,
(i) no less than 48 hours prior to participating in any such
discussions, inform Parent of the material terms and
conditions of such Superior Proposal, including the identity
of the person making such Superior Proposal, (ii) promptly
inform Parent of the substance of any discussions relating to
such Superior Proposal and (iii) promptly keep Parent fully
informed of the status, including any change to the details
of, any such Superior Proposal.
For purposes of this Agreement, "Takeover Proposal"
means any inquiry, proposal or offer from any person relating
to any direct or indirect acquisition or purchase of 15% or
more of the assets of Target and its subsidiaries, taken as a
whole, or 15% or more of any class or series of equity
securities of Target or any of its subsidiaries, any tender
offer or exchange offer that if consummated would result in
any person beneficially owning 15% or more of any class or
series of equity securities of Target or any of its
subsidiaries, or any merger, consolidation, business
combination, recapitalization,
47
liquidation, dissolution or similar transaction involving
Target or any of its subsidiaries, other than the
transactions contemplated by this Agreement.
For purposes of this Agreement, "Superior Proposal"
means any offer not solicited by Target made by a third party
to consummate a tender offer, exchange offer, merger,
consolidation or similar transaction which would result in
such third party (or its shareholders) owning, directly or
indirectly, more than 50% of the shares of Target Common
Stock then outstanding (or of the surviving entity in a
merger) or all or substantially all of the assets of Target
and otherwise on terms which the Board of Directors of Target
determines in good faith (following receipt of the advice of
a financial advisor of nationally recognized reputation) to
provide consideration to the holders of Target Common Stock
with a greater value than the consideration payable in the
Merger.
(b) Neither Target nor the Board of Directors of
Target nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse
to Parent, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement,
except to the extent that such Board of Directors determines
in good faith (after consultation with outside counsel) that
such action would, in the absence of the foregoing
proscriptions, be required by its fiduciary duties, (ii)
approve or recommend, or propose to approve or recommend, any
Takeover Proposal or (iii) approve or recommend, or propose
to approve or recommend, or execute or enter into, any letter
of intent, memorandum of under standing, agreement in
principle, merger agreement, acquisition agreement, option
agreement, joint venture agreement, partnership agreement or
other similar agreement or propose or agree to do any of the
foregoing constituting or related to, or which is intended to
or is reasonably likely to lead to, any Takeover Proposal.
(c) In addition to the obligations of Target set
forth in paragraphs (a) and (b) of this Section 4.02, Target
shall immediately (and no later than 48 hours) advise Parent
orally and in writing of any request for information or of
any inquiry with respect to a Takeover Proposal, the material
terms and conditions of such request, inquiry or Takeover
Proposal and the identity of the person making such request,
inquiry or Takeover Proposal. Target will promptly keep
Parent informed of the status and details (including
amendments or changes or proposed amendments or changes) of
any such request, inquiry or Takeover Proposal.
(d) Nothing contained in this Section 4.02 shall
prohibit Target from taking and disclosing to its stock
holders a position contemplated by Rule 14e-2(a) promulgated
under the Exchange Act or from making any disclosure to
Target's stockholders if, in the good faith judgment of the
Board of Directors of Target, after consultation with outside
counsel, failure so to disclose would be inconsis tent with
its obligations under applicable law; provided, however,
that, subject to Section 4.02(b)(i), neither Target nor its
Board of Directors nor any committee thereof shall withdraw
or modify, or propose to withdraw or modify, its position
with respect to this Agreement or the Merger or approve or
recommend, or propose to approve or recommend, a Takeover
Proposal.
SECTION 4.03. Recommendation by Parent. Neither
Parent nor the Board of Directors of Parent nor any committee
thereof shall withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Target, the approval or
recommendation by such Board of Directors or such committee
of the Merger or this Agreement, except to the extent that
such Board of Directors determines in good faith (after
consultation with outside counsel) that such action would, in
the absence of the foregoing proscriptions, be required by
its fiduciary duties. The foregoing sentence shall not
prohibit Parent from taking and disclosing to its
stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any
disclosure to its stockholders if, in the good faith judgment
of the Board of Directors of Parent, after consultation with
outside counsel, failure so to disclose would be inconsistent
with its obligations under applicable law; provided, however,
that, subject to the first sentence of this Section 4.03,
neither Parent nor its Board of Directors nor any committee
thereof shall withdraw or modify, or propose to withdraw or
modify, its position with respect to this Agreement or the
Merger.
ARTICLE V
Additional Agreements
SECTION 5.01. Preparation of the Form S-4 and the
Proxy Statement; Target Stockholders Meeting; Parent Stock
holders Meeting. (a) As soon as practicable following the
date of this Agreement, Parent and Target shall prepare and
file with the SEC the Proxy Statement and Parent and Target
shall prepare and Parent shall file with the SEC the Form
S-4, in which the Proxy Statement will be included as a
prospectus. Each of Target and Parent shall use all
reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after
such filing. Parent and Target will use all reasonable
efforts to cause the Proxy Statement to be mailed to
48
Parent's and Target's stockholders, respectively, as promptly
as practicable after the Form S-4 is declared effective under
the Securities Act. Parent shall also take any action (other
than qualifying to do business in any jurisdiction in which
it is not now so qualified or to file a general consent to
service of process) required to be taken under any applicable
state securities laws in connection with the issuance of
Parent Common Stock in the Merger and Target shall furnish
all information concerning Target and the holders of capital
stock of Target as may be reasonably requested in connection
with any such action and the preparation, filing and
distribution of the Proxy Statement. No filing of, or
amendment or supplement to, or correspondence to the SEC or
its staff with respect to, the Form S-4 will be made by
Parent, or the Proxy Statement will be made by Target or
Parent, without providing the other party a reasonable
opportunity to review and comment thereon. Parent will advise
Target, promptly after it receives notice thereof, of the
time when the Form S-4 has become effective or any supplement
or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of the Parent Common
Stock issuable in connection with the Merger for offering or
sale in any jurisdiction, or any request by the SEC for
amendment of the Form S-4 or comments thereon and responses
thereto or requests by the SEC for additional information.
Target or Parent will advise the other party, promptly after
it receives notice thereof, of any request by the SEC for the
amendment of the Proxy Statement or comments thereon and
responses thereto or requests by the SEC for additional
information. If at any time prior to the Effective Time any
information relating to Target or Parent, or any of their
respective affiliates, officers or directors, should be
discovered by Target or Parent which should be set forth in
an amendment or supplement to any of the Form S-4 or the
Proxy Statement, so that any of such documents would not
include any misstatement of a material fact or omit to state
any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading, the party which discovers such information shall
promptly notify the other parties hereto and an appro priate
amendment or supplement describing such information shall be
promptly filed with the SEC and, to the extent required by
law, disseminated to the stockholders of Target.
(b) Target shall, as soon as practicable following
the date of this Agreement, establish a record date (which
will be as soon as practicable following the date of this
Agreement) for, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Target Stockholders
Meeting") solely for the purpose of obtaining the Target
Stockholder Approval. Subject to Section 4.02(b)(i), Target
shall, through its Board of
49
Directors, recommend to its stockholders the approval and
adoption of this Agreement, the Merger and the other
transactions contemplated hereby. Without limiting the
generality of the foregoing, Target agrees that its
obligations pursuant to the first sentence of this Section
5.01(b) shall not be affected by (i) the commencement, public
proposal, public disclosure or communication to Target of any
Takeover Proposal or (ii) the withdrawal or modification by
the Board of Directors of Target or any committee thereof of
such Board of Directors' or such committee's approval or
recommendation of the Merger or this Agreement.
(c) Parent shall, as soon as practicable following
the date of this Agreement, establish a record date (which
will be as soon as practicable following the date of this
Agreement) for, duly call, give notice of, convene and hold a
meeting of its stockholders (the "Parent Stockholders
Meeting") for the purpose of obtaining the Parent Stockholder
Approval. Subject to the first sentence of Section 4.03,
Parent shall, through its Board of Directors, recommend to
its stockholders the approval of the issuance of shares of
Parent Common Stock in connection with the Merger. Without
limiting the generality of the foregoing, Parent agrees that
its obligations pursuant to the first sentence of this
Section 5.01(c) shall not be affected by (i) the
commencement, public proposal, public disclosure or
communication to Parent of any acquisition proposal involving
Parent or any of its subsidiaries or (ii) the withdrawal or
modification by the Board of Directors of Parent or any
committee thereof of such Board of Directors' or such
committee's approval or recommendation of the Merger or this
Agreement.
SECTION 5.02. Letters of Target's Accountants.
Target shall use all reasonable efforts to cause to be
delivered to Parent two letters from Target's independent
public accountants, one dated a date within two business days
before the date on which the Form S-4 shall become effective
and one dated a date within two business days before the
Closing Date, each addressed to Parent, in form and substance
reasonably satisfactory to Parent and customary in scope and
substance for comfort letters delivered by independent public
accountants in connection with registration statements
similar to the Form S-4.
SECTION 5.03. Letters of Parent's Accountants.
Parent shall use all reasonable efforts to cause to be
delivered to Target two letters from Parent's independent
accountants, one dated a date within two business days before
the date on which the Form S-4 shall become effective and one
dated a date within two business days before the Closing
Date, each addressed to Target, in form and sub stance
reasonably satisfactory to Target and customary in scope and
substance for comfort letters delivered by independent public
accountants in connection with registration statements
similar to the Form S-4.
SECTION 5.04. Access to Information; Confi
dentiality. Upon reasonable notice and subject to the
Confidentiality Agreement dated as of January 5, 2000,
between Parent and Target (the "Confidentiality Agreement"),
Target shall, and shall cause each of its subsidiaries to,
afford to Parent and to its officers, employees, accountants,
counsel, financial advisors and other representatives,
reasonable access during normal business hours during the
period prior to the Effective Time to all its properties,
books, contracts, commitments, personnel and records and,
during such period, Target shall, and shall cause each of its
subsidiaries to, furnish promptly to Parent (a) a copy of
each report, schedule, registration statement and other
document filed by it during such period pursuant to the
requirements of federal or state securities laws and (b) all
other information concerning its business, properties and
personnel as Parent may reasonably request (including
Target's outside accountants work papers). Target shall not
be required to provide access to or disclose information
where such access or disclosure would contravene any law,
rule, regulation, order or decree. No review pursuant to this
Section 5.04 shall have an effect for the purpose of
determining the accuracy of any representation or warranty
given by either party hereto to the other party hereto.
Parent will hold, and will cause its officers, employees,
accountants, counsel, financial advisors and other
representatives and affiliates to hold, any nonpublic
information in accordance with the terms of the
Confidentiality Agreement.
SECTION 5.05. Reasonable Efforts. (a) Upon the
terms and subject to the conditions set forth in this Agree
ment, each of the parties agrees to use reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause
to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable
to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions
contemplated by this Agreement, the Target Stockholder
Agreement and the Parent Stockholder Agreement, including
using reasonable efforts to accomplish the following: (i) the
taking of all reasonable acts necessary to cause the
conditions to Closing to be satisfied as promptly as
practicable; (ii) the obtaining of all necessary actions or
nonactions, waivers, consents and approvals from Govern
mental Entities and the making of all necessary registra
tions and filings (including filings with Governmental
Entities, including under the HSR Act) and the taking of all
50
steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by, any
Governmental Entity; (iii) the obtaining of all necessary
consents, approvals or waivers from third parties; (iv) the
defending of any lawsuits or other legal proceedings, whether
judicial or administrative, challenging this Agreement, the
Target Stockholder Agreement or the Parent Stockholder
Agreement or the consummation of the transactions
contemplated by this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement, including
seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or
reversed; and (v) the execution and delivery of any
additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the
purposes of, this Agreement, the Target Stockholder Agreement
and the Parent Stockholder Agreement; provided, however, that
Parent will not be required to agree to, or proffer to, (i)
divest or hold separate any of Parent's, Target's or any of
their respective affiliates' businesses or assets or (ii)
cease to conduct business or operations in any jurisdiction
in which Parent, Target or any of Parent's subsidiaries
conducts business or operations as of the date of this
Agreement.
(b) In connection with and without limiting the
foregoing, Target and its Board of Directors and Parent and
its Board of Directors shall (i) take all action necessary to
ensure that no state takeover statute or similar statute or
regulation is or becomes applicable to the Merger, this
Agreement, the Target Stockholder Agreement or the Parent
Stockholder Agreement or any other transactions contemplated
by this Agreement, the Target Stockholder Agreement or the
Parent Stockholder Agreement and (ii) if any state takeover
statute or similar statute or regulation becomes applicable
to the Merger, this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement or any other
transaction contemplated by this Agreement, the Target
Stockholder Agreement or the Parent Stockholder Agreement,
take all action necessary to ensure that the Merger and the
other transactions contemplated by this Agreement, the Target
Stockholder Agreement and the Parent Stockholder Agreement
may be consummated as promptly as practicable on the terms
contemplated by this Agreement, the Target Stockholder
Agreement and the Parent Stockholder Agreement and otherwise
to minimize the effect of such statute or regulation on the
Merger and the other transactions contemplated by this
Agreement, the Target Stockholder Agreement and the Parent
Stockholder Agreement.
SECTION 5.06. Stock Options; Warrants. (a) On or as
soon as practicable following the date of this Agreement, the
Board of Directors of Target (or, if
51
appropriate, any committee thereof administering the Target
Stock Plans) shall adopt such resolutions or take such other
actions as may be required to effect the following:
(i) adjust the terms of all outstanding Target
Stock Options granted under the Target Stock Plans
(each, as so adjusted, an "Adjusted Option"), whether
vested or unvested, as necessary to provide that, at the
Effective Time, each Target Stock Option outstanding
immediately prior to the Effective Time shall be amended
and converted into an option to acquire, on the same
terms and conditions as were applicable under such
Target Stock Option, the number of shares of Parent
Common Stock (rounded down to the nearest whole share)
equal to (A) the number of shares of Target Common Stock
subject to such Target Stock Option immediately prior to
the Effective Time multiplied by (B) the Exchange Ratio,
at an exercise price per share of Parent Common Stock
(rounded up to the nearest tenth of a cent) equal to (x)
the exercise price per share of such Target Common Stock
immediately prior to the Effective Time divided by (y)
the Exchange Ratio; and
(ii) make such other changes to the Target Stock
Plans as Target and Parent may agree are appropriate to
give effect to the Merger.
(b) The adjustments provided in this Section 5.06
with respect to any Target Stock Option to which Section
421(a) of the Code applies shall be and are intended to be
effected in a manner which is consistent with Section 424(a)
of the Code so that no such adjustment shall cause (other
than de minimis changes resulting from mathematical rounding)
(i) the ratio of the exercise price of each Adjusted Option
to the fair market value of the Parent Common Stock subject
to such Adjusted Option immediately following the Effective
Time to be more favorable to the optionee than the ratio of
the corresponding Target Stock Option exercise price to the
fair market value of the Target Common Stock subject to such
corresponding Target Stock Option immediately prior to the
Effective Time or (ii) the excess of the aggregate fair
market value of all shares of Parent Common Stock subject to
each Adjusted Option immediately following the Effective Time
over the aggregate exercise price of such Adjusted Option to
be more than the excess of the aggregate fair market value of
all shares of Target Common Stock subject to the
corresponding Target Stock Option immediately prior to the
Effective Time over the aggregate exercise price of such
corresponding Target Stock Option. As soon as practicable
after the Effective Time, Parent shall deliver to the holders
of Target Stock Options appropriate notices setting forth
such holders'
52
rights pursuant to the respective Target Stock Plans and the
agreements evidencing the grants of such Target Stock Options
and that such Target Stock Options and agreements shall be
assumed by Parent and shall continue in effect on the same
terms and conditions (subject to the adjustments required by
this Section 5.06 after giving effect to the Merger).
(c) A holder of an Adjusted Option may exercise
such Adjusted Option in whole or in part in accordance with
its terms by following procedures to be communicated by
Parent with the notice contemplated by Section 5.06(b),
together with the consideration therefor and the federal
withholding tax information, if any, required in accordance
with the related Target Stock Plan.
(d) Except as otherwise expressly provided by this
Section 5.06 and except to the extent required under the
respective terms of the Target Stock Options, all
restrictions or limitations on transfer and vesting with
respect to Target Stock Options awarded under the Target
Stock Plans or any other plan, program or arrangement of
Target or any of its subsidiaries, to the extent that such
restrictions or limitations shall not have already lapsed,
and all other terms thereof, shall remain in full force and
effect with respect to such options after giving effect to
the Merger and the assumption by Parent as set forth above.
(e) Within two business days following the
Effective Time, Parent shall prepare and file with the SEC a
registration statement on Form S-8 (or another appropriate
form) registering a number of shares of Parent Common Stock
equal to the number of shares subject to the Adjusted
Options. Target shall cooperate with, and assist Parent in
the preparation of, such registration statement. Prior to the
Effective Time, Parent shall take all necessary actions in
connection with the assumption of the Adjusted Options,
including the reservation, issuance and listing of Parent
Common Stock in a number at least equal to the number of
shares of Parent Common Stock that will be subject to the
Adjusted Options.
(f) Target shall take, or cause to be taken, all
action necessary to cause the termination of Target's 1999
Employee Stock Purchase Plan and all future offering periods
thereunder, in each case, effective as of the date that is no
later than five business days prior to the Closing Date.
(g) As soon as practicable following the date of
this Agreement, the Board of Directors of Target (or, if
53
appropriate, any committee thereof) shall adopt such
resolutions or take such other actions as may be required to
effect the following:
(i) adjust the terms of all outstanding Warrants
granted under the warrant agreements listed in Section
3.01(c) of the Target Disclosure Schedule as necessary
to provide that, at the Effective Time, each Warrant
outstanding immediately prior to the Effective Time
shall be amended and converted into a warrant to
acquire, on the same terms and conditions as were
applicable under such Warrant, the number of shares of
Parent Common Stock (rounded down to the nearest whole
share) equal to (A) the number of shares of Target
Common Stock subject to such Warrant immediately prior
to the Effective Time multiplied by (B) the Exchange
Ratio, at an exercise price per share of Parent Common
Stock (rounded up to the nearest tenth of a cent) equal
to (x) the exercise price per share of such Target
Common Stock immediately prior to the Effective Time
divided by (y) the Exchange Ratio; and
(ii) make such other changes to the warrant
agreements listed in Section 3.01(c) of the Target
Disclosure Schedule as Target and Parent may agree are
appropriate to give effect to the Merger.
SECTION 5.07. Employee Matters. (a) Parent shall
provide, or cause to be provided, from the Effective Time
through December 31, 2000, to current employees of Target who
continue employment through the Effective Time (the "Target
Employees"), employee benefits that are, in the aggregate, no
less favorable than the employee benefits provided to
similarly situated employees of Parent.
(b) For purposes of eligibility and vesting (but
not benefit accrual) under the employee benefit plans of
Parent and its subsidiaries providing benefits to Target
Employees, Parent shall credit, and shall cause the Surviving
Corporation to credit, each Target Employee with his or her
years of service with Target before the Effective Time, to
the same extent as such Target Employee was entitled
immediately prior to the Effective Time to credit for such
service under any similar Target Benefit Plan. To the extent
permitted by Parent's employee benefit plans and applicable
law, Parent, the Surviving Corporation and its subsidiaries
shall waive any pre-existing condition limitations, waiting
periods or similar limitations applicable to Target Employees
and their covered dependents (other than limitations or
waiting periods that are already in effect with respect to
such employees and dependents and that have not been
satisfied as of the Effective Time) under such employee
benefit plans of Parent and shall provide each
54
such Target Employee with credit for any co-payments
previously made and any deductibles previously satisfied.
(c) Nothing contained in this Section 5.07 or
elsewhere in this Agreement shall be construed to prevent the
termination of employment of any individual Target Employee
or any change in the employee benefits available to any
individual Target Employee or the amendment or termina tion
of any particular Target Benefit Plan or Target Benefit
Agreement to the extent permitted by its terms as in effect
immediately prior to the Effective Time.
SECTION 5.08. Indemnification, Exculpation and
Insurance. (a) Parent agrees that all rights to indemni
fication, advancement of expenses and exculpation from
liabilities for acts or omissions occurring at or prior to
the Effective Time now existing in favor of the current or
former directors or officers of Target as provided in its
certificate of incorporation or by-laws and any indemnifi
cation agreements of Target (as each is in effect on the date
hereof), the existence of which does not constitute a breach
of this Agreement, shall be assumed by the Surviving
Corporation in the Merger, without further action, as of the
Effective Time and shall survive the Merger and shall
continue in full force and effect in accordance with their
terms, and Parent shall cause the Surviving Corporation to
honor all such rights.
(b) In the event that the Surviving Corporation or
any of its successors or assigns (i) consolidates with or
merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, or otherwise
dissolves the Surviving Corporation, then, and in each such
case, Parent shall cause proper provision to be made so that
the successors and assigns of the Surviving Corporation
assume the obligations set forth in this Section 5.08. Parent
hereby guarantees to the current or former directors or
officers of Target the performance of the obligations of the
Surviving Corporation under Section 5.08(a) up to a maximum
aggregate amount of $45,000,000.
(c) The Surviving Corporation shall, at its option,
either (i) maintain for a period of not less than six years
after the Effective Time, Target's current directors' and
officers' liability insurance covering acts or omissions
occurring prior to the Effective Time ("D&O Insurance") with
respect to those persons who are currently covered by
Target's directors' and officers' liability insurance policy
on terms with respect to such coverage and amount no less
favorable than those of such policy in effect on the date
hereof or (ii) cause to be provided coverage no
55
less favorable to such directors or officers, as the case may
be, than the D&O Insurance, in each case so long as the
annual premium therefor would not be in excess of 200% of the
last annual premium paid for the D&O Insurance prior to the
date of this Agreement (such 200% amount the "Maximum
Premium"). If the existing or substituted directors' and
officers' liability insurance expires, is terminated or
canceled during such six-year period, the Surviving
Corporation will obtain as much D&O Insurance as can be
obtained for the remainder of such period for an annualized
premium not in excess of the Maximum Premium. Target
represents that (a) the Maximum Premium is $466,804 and (b)
the maximum amount payable under the D&O Insurance is
$20,000,000. At the option of Parent, Parent may assume the
obligations of the Surviving Corporation set forth in
Sections 5.08(a) and (b), and thereafter neither Parent nor
the Surviving Corporation shall have any further obligations
pursuant to this Section 5.08(c) for so long as Parent
continues to so assume the obligations of the Surviving
Corporation.
(d) The provisions of this Section 5.08 (i) are
intended to be for the benefit of, and will be enforceable
by, each indemnified party, his or her heirs and his or her
representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or
contribution that any such person may have by contract or
otherwise.
SECTION 5.09. Fees and Expenses. (a) All fees and
expenses incurred in connection with the Merger, this
Agreement, the Target Stockholder Agreement, the Parent
Stockholder Agreement and the transactions contemplated by
this Agreement, the Target Stockholder Agreement and the
Parent Stockholder Agreement shall be paid by the party
incurring such fees or expenses, whether or not the Merger is
consummated, except that each of Parent and Target shall bear
and pay one-half of the costs and expenses incurred in
connection with the filing, printing and mailing of the Form
S-4 and the Proxy Statement (including SEC filing fees).
Parent shall file any return with respect to, and shall pay,
any state or local taxes (including any penalties or interest
with respect thereto), if any, which are attributable to the
transfer of the beneficial ownership of Target's real
property (collectively, the "Real Estate Transfer Taxes") as
a result of the Merger (other than any such taxes that are
solely the obligations of a stockholder of Target, in which
case Target shall pay any such taxes). Target shall cooperate
with Parent in the filing of such returns including, in the
case of Target, supplying in a timely manner a complete list
of all real property interests held by Target and any
information with respect to such property that is reasonably
necessary to complete such
56
returns. The fair market value of any real property of Target
subject to the Real Estate Transfer Taxes shall be as agreed
to between Parent and Target.
(b) In the event that this Agreement is terminated
(x) by Parent or Target pursuant to clause (B) of Section
7.01(b)(ii) or (y) by Target pursuant to Section 7.01(d) as a
result of a breach of this Agreement by Parent by reason of
Parent's refusal to hold the Parent Stockholders Meeting in
accordance with Section 5.01(c), then Parent shall promptly,
but in no event later than the date of such termination, pay
Target a fee equal to $12,800,000.00, payable by wire
transfer of same day funds. If Parent fails to pay any amount
due pursuant to this Section 5.09(b) and, in order to obtain
such payment, Target commences a suit which results in a
judgment against Parent for the payment of such fee, Parent
shall pay to Target its out-of-pocket expenses incurred in
connection with such suit.
(c) In the event that this Agreement is terminated
by Parent pursuant to Section 7.01(c) as a result of a breach
of this Agreement by Target by reason of Target's refusal to
hold the Target Stockholders Meeting in accordance with
Section 5.01(b), then Target shall promptly, but in no event
later than the date of such termination, pay Parent a fee
equal to $6,400,000.00, payable by wire transfer of same day
funds. If Target fails to pay any amount due pursuant to this
Section 5.09(c) and, in order to obtain such payment, Parent
commences a suit which results in a judgment against Target
for the payment of such fee, Target shall pay to Parent its
out-of-pocket expenses incurred in connection with such suit.
SECTION 5.10. Public Announcements. Parent and
Target will consult with each other before issuing, and
provide each other the opportunity to review, comment upon
and concur with, any press release or other public state
ments with respect to the transactions contemplated by this
Agreement, including the Merger, the Target Stockholder
Agreement and the Parent Stockholder Agreement, and shall not
issue any such press release or make any such public
statement prior to such consultation, except as either party
may determine is required by applicable law, the SEC, court
process or by obligations pursuant to any listing or
quotation agreement with any national securities exchange or
national trading system. The parties agree that the initial
press release to be issued with respect to the transactions
contemplated by this Agreement, the Target Stockholder
Agreement and the Parent Stockholder Agreement shall be in
the form heretofore agreed to by the parties. Promptly after
the date of this Agreement, Parent and Target shall each file
with the SEC, in a form agreed to by the parties,
57
a Current Report on Form 8-K relating to the execution of
this Agreement and the transactions contemplated hereby,
attaching as exhibits thereto a copy of this Agreement, the
Parent Stockholder Agreement, the Target Stockholder
Agreement and the press release referred to in the previous
sentence.
SECTION 5.11. Affiliates. Target shall deliver to
Parent at least 30 days prior to the Closing Date a letter
identifying all persons who are, at the time this Agreement
is submitted for adoption by the stockholders of Target,
"affiliates" of Target for purposes of Rule 145 under the
Securities Act. Target shall use reasonable efforts to cause
each such person to deliver to Parent at least 30 days prior
to the Closing Date a written agreement substantially in the
form attached as Exhibit A hereto.
SECTION 5.12. Quotation. Parent shall use
reasonable efforts to cause the Parent Common Stock issuable
in the Merger to be approved for quotation on Nasdaq, subject
to official notice of issuance, as promptly as practicable
after the date hereof, and in any event prior to the Closing
Date.
SECTION 5.13. Litigation. Target shall give Parent
the reasonable opportunity to participate, at its expense, in
the defense of any litigation against Target and/or its
directors relating to the transactions contemplated by this
Agreement and the Target Stockholder Agreement.
SECTION 5.14. Tax Treatment. Each of Parent and
Target shall use best efforts to cause the Merger to qualify
as a reorganization under the provisions of Section 368 of
the Code, and each of Parent and Target shall use reasonable
efforts to obtain the opinion of counsel referred to in
Sections 6.02(d) and 6.03(c), including the execution of the
letters of representation referred to therein.
SECTION 5.15. Target Stockholder Agreement Legend;
Parent Stockholder Agreement Legend. (a) As soon as
practicable after the date of this Agreement, Target will
inscribe upon any certificate representing Target Subject
Shares (as defined in the Target Stockholder Agreement) the
following legend: "THE SHARES OF COMMON STOCK, PAR VALUE
$0.01 PER SHARE, OF TARGET REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A STOCKHOLDER AGREEMENT DATED AS OF FEBRUARY
29, 2000, AND THE TRANSFER AND VOTING THEREOF ARE SUBJECT TO
THE TERMS THEREOF. COPIES OF SUCH AGREEMENT MAY BE OBTAINED
AT THE PRINCIPAL EXECUTIVE OFFICES OF TARGET."; and Target
will return such certificate containing such inscription to
the Target Stockholders within three business days following
Target's receipt thereof.
58
(b) As soon as practicable after the date of this
Agreement, Parent will inscribe upon any certificate
representing Parent Subject Shares (as defined in the Parent
Stockholder Agreement) the following legend: "THE SHARES OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE, OF PARENT
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDER
AGREEMENT DATED AS OF FEBRUARY 29, 2000, AND THE VOTING
THEREOF ARE SUBJECT TO THE TERMS THEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT THE PRINCIPAL EXECUTIVE OFFICES
OF PARENT."; and Parent will return such certificate
containing such inscription to the Parent Stockholders within
three business days following Parent's receipt thereof.
SECTION 5.16. Termination of Agreements. Target
shall cause all provisions of all purchase agreements,
stockholder agreements, registration rights agreements,
investors' rights agreements, co-sale agreements, rights of
first refusal and similar agreements between any stockholder
of Target and Target to terminate and be of no further force
and effect upon consummation of the Merger. A list of all of
such agreements is set forth on Section 5.16 of the Target
Disclosure Schedule.
SECTION 5.17. Resignations. Prior to the Effective
Time, Target shall cause each member of its Board of
Directors to execute and deliver a letter effectuating his or
her resignation as a director of such Board effective
immediately prior to the Effective Time.
SECTION 5.18. Composition of Board of Directors of
Parent. At or prior to the Effective Time, Parent shall take
all action necessary to cause to be appointed to the Board of
Directors of Parent as of the Effective Time the two
designees of Target referenced on Schedule I hereto in
accordance with the terms set forth in such Schedule.
ARTICLE VI
Conditions Precedent
SECTION 6.01. Conditions to Each Party's Obli
gation To Effect the Merger. The respective obligation of
each party to effect the Merger is subject to the satisfac
tion or waiver on or prior to the Closing Date of the
following conditions:
(a) Stockholder Approval. The Target Stockholder
Approval and the Parent Stockholder Approval shall have
been obtained.
59
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act
shall have been terminated or shall have expired.
(c) No Litigation. No judgment, order, decree,
statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or
other Governmental Entity of competent jurisdiction or
other legal restraint or prohibition (collectively,
"Restraints") shall be in effect, and there shall not be
pending or threatened any suit, action or proceeding by
any Governmental Entity (i) preventing the consummation
of the Merger or (ii) prohibiting or limiting the
ownership or operation by Target or Parent and Parent's
subsidiaries of any material portion of the business or
assets of Target or Parent and Parent's subsidiaries
taken as a whole, or compelling Target or Parent and
Parent's subsidiaries to dispose of or hold separate any
material portion of the business or assets of Target or
Parent and Parent's subsidiaries taken as a whole, as a
result of the Merger or any of the other transactions
contemplated by this Agreement, the Target Stockholder
Agreement or the Parent Stockholder Agreement; provided,
however, that each of the parties shall have used its
reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any
such Restraints that may be entered.
(d) Form S-4. The Form S-4 shall have become
effective under the Securities Act and shall not be the
subject of any stop order or proceedings seeking a stop
order.
(e) Nasdaq Quotation. The shares of Parent Common
Stock issuable to Target's stockholders as contemplated
by this Agreement shall have been approved for quotation
on Nasdaq, subject to official notice of issuance.
SECTION 6.02. Conditions to Obligations of Parent
and Sub. The obligation of Parent and Sub to effect the
Merger is further subject to satisfaction or waiver of the
following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Target set forth in
this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or
material adverse effect, shall be true and correct as of
the date hereof and as of the Effective Time, with the
same effect as if made at and as of such time (except to
the extent such representations and
60
warranties were expressly made as of an earlier date, in
which case such representations and warranties shall be
true and correct as of such earlier date), except where
the failure of such representations and warranties to be
true and correct would not, individually or in the
aggregate, be reasonably likely to have a material
adverse effect on Target. Parent shall have received a
certificate signed on behalf of Target by the chief
executive officer of Target to such effect.
(b) Performance of Obligations of Target. Target
shall have performed in all material respects all
obligations required to be performed by it under this
Agreement at or prior to the Closing Date. Parent shall
have received a certificate signed on behalf of Target
by the chief executive officer of Target to such effect.
(c) Parent shall have received from Cravath, Swaine
& ▇▇▇▇▇, counsel to Parent, on the date on which the
Form S-4 is declared effective by the SEC and on the
Closing Date, an opinion, in each case dated as of such
respective date and stating that the Merger will qualify
for U.S. federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code. The
issuance of such opinion shall be conditioned upon the
receipt by such tax counsel of customary representation
letters from each of Target, Sub and Parent, in each
case, in the form and substance attached hereto as
Exhibits B-1 and B-2.
SECTION 6.03. Conditions to Obligations of Target.
The obligation of Target to effect the Merger is further
subject to satisfaction or waiver of the following
conditions:
(a) Representations and Warranties. Each of the
representations and warranties of Parent and Sub set
forth in this Agreement, disregarding all qualifications
and exceptions contained therein relating to materiality
or material adverse effect, shall be true and correct as
of the date hereof and as of the Effective Time, with
the same effect as if made at and as of such time
(except to the extent such representations and
warranties were expressly made as of an earlier date, in
which case such representations and warranties shall be
true and correct as of such earlier date), except where
the failure of such representations and warranties to be
true and correct would not, individually or in the
aggregate, be reasonably likely to have a material
adverse effect on Parent. Target shall have received a
certificate
61
signed on behalf of Parent by an authorized signatory of
Parent to such effect.
(b) Performance of Obligations of Parent and Sub.
Parent and Sub shall have performed in all material
respects all obligations required to be performed by
them under this Agreement at or prior to the Closing
Date. Target shall have received a certificate signed on
behalf of Parent by an authorized signatory of Parent to
such effect.
(c) Tax Opinion. Target shall have received from
▇▇▇▇▇▇ Godward LLP, counsel to Target, on the date on
which the Form S-4 is declared effective by the SEC and
on the Closing Date, an opinion, in each case dated as
of such respective date and stating that the Merger will
qualify for U.S. federal income tax purposes as a
reorganization within the meaning of Section 368(a) of
the Code. The issuance of such opinion shall be
conditioned upon the receipt by such tax counsel of
customary representation letters from each of Target,
Sub and Parent, in each case, in the form and substance
attached hereto as Exhibits B-1 and B-2.
SECTION 6.04. Frustration of Closing Conditions.
None of Parent, Sub or Target may rely on the failure of any
condition set forth in Section 6.01, 6.02 or 6.03, as the
case may be, to be satisfied if such failure was caused by
such party's failure to use reasonable efforts to consummate
the Merger and the other transactions contemplated by this
Agreement, the Target Stockholder Agreement and the Parent
Stockholder Agreement, as required by and subject to Section
5.05.
ARTICLE VII
Termination, Amendment and Waiver
SECTION 7.01. Termination. This Agreement may be
terminated at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this
Agreement by the stockholders of Parent, Sub or Target:
(a) by mutual written consent of Parent and Target;
(b) by either Parent or Target:
(i) if the Merger shall not have been
consummated by August 31, 2000; provided, however,
that the right to terminate this Agreement pursuant
to this Section 7.01(b)(i) shall not be
62
available to any party whose failure to perform any
of its obligations under this Agreement results in
the failure of the Merger to be consummated by such
time;
(ii) if (A) the Target Stockholder Approval
shall not have been obtained at a Target
Stockholders Meeting duly convened therefor or at
any adjournment or postponement thereof or (B) the
Parent Stockholder Approval shall not have been
obtained at a Parent Stockholders Meeting duly
convened therefor or at any adjournment or
postponement thereof; or
(iii) if any Restraint having any of the
effects set forth in Section 6.01(c) shall be in
effect and shall have become final and nonappeal
able; provided that the party seeking to terminate
this Agreement pursuant to this Section
7.01(b)(iii) shall have used reasonable efforts to
prevent the entry of and to remove such Restraint;
(c) by Parent, if Target shall have breached
or failed to perform in any material respect any of
its representations, warranties, covenants or other
agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to
the failure of a condition set forth in Section
6.02(a) or (b), and (B) is incapable of being or
has not been cured by Target within 30 calendar
days after giving written notice to Target of such
breach or failure to perform; or
(d) by Target, if Parent shall have breached
or failed to perform in any material respect any of
its representations, warranties, covenants or other
agreements contained in this Agreement, which
breach or failure to perform (A) would give rise to
the failure of a condition set forth in Section
6.03(a) or (b), and (B) is incapable of being or
has not been cured by Parent within 30 calendar
days after giving written notice to Parent of such
breach or failure to perform.
SECTION 7.02. Effect of Termination. In the event
of termination of this Agreement by either Target or Parent
as provided in Section 7.01, this Agreement shall forthwith
become void and have no effect, without any liability or
obligation on the part of Parent or Target, other than the
provisions of Section 3.01(o), the last sentence of Section
5.04, Section 5.09, this Section 7.02 and Article VIII, which
provisions survive such termination, and except to the extent
that such termination results from the willful and material
breach by a party of any of its
63
representations, warranties, covenants or agreements set
forth in this Agreement.
SECTION 7.03. Amendment. This Agreement may be
amended by the parties at any time prior to the Effective
Time; provided, however, that after the Target Stockholder
Approval or the Parent Stockholder Approval has been
obtained, there shall not be made any amendment that by law
requires further approval by the stockholders of Target or
Parent without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior
to the Effective Time, a party may (a) extend the time for
the performance of any of the obligations or other acts of
the other parties, (b) waive any inaccuracies in the
representations and warranties of the other parties contained
in this Agreement or in any document delivered pursuant to
this Agreement or (c) subject to the proviso of Section 7.03,
waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any
agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any
party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of
such rights.
SECTION 7.05. Procedure for Termination, Amendment,
Extension or Waiver. A termination of this Agreement pursuant
to Section 7.01, an amendment of this Agreement pursuant to
Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require, in the case of
Parent or Target, action by its Board of Directors or, with
respect to any amendment to this Agreement, the duly
authorized committee of its Board of Directors to the extent
permitted by law.
ARTICLE VIII
General Provisions
SECTION 8.01. Nonsurvival of Representations and
Warranties. None of the representations and warranties in
this Agreement or in any instrument delivered pursuant to
this Agreement shall survive the Effective Time. This Section
8.01 shall not limit any covenant or agreement of the parties
which by its terms contemplates performance after the
Effective Time.
64
SECTION 8.02. Notices. All notices, requests,
claims, demands and other communications under this Agree
ment shall be in writing and shall be deemed given if
delivered personally, telecopied (which is confirmed) or sent
by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
24/7 Media, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇
with a copy to:
Cravath, Swaine & ▇▇▇▇▇
Worldwide Plaza
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇; and
(b) if to Target, to
▇▇▇▇▇▇▇.▇▇▇, Inc.
707-17th Street, Suite 2850
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: E. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
with a copy to:
▇▇▇▇▇▇ Godward LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ C. T. Linfield
65
SECTION 8.03. Definitions. For purposes of this
Agreement:
(a) an "affiliate" of any person means another
person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under
common control with, such first person, where "control"
means the possession, directly or indirectly, of the
power to direct or cause the direction of the management
policies of a person, whether through the ownership of
voting securities, by contract, as trustee or executor,
or otherwise;
(b) "business day" means any day other than
Saturday, Sunday or any other day on which banks are
legally permitted to be closed in New York;
(c) "knowledge" of any person which is not an
individual means the knowledge of such person's
executive officers after reasonable inquiry;
(d) "material adverse change" or "material adverse
effect" means, when used in connection with Target or
Parent, any change, effect, event, occurrence, condition
or development or state of facts that is materially
adverse to the business (viewed in its entirety),
results of operations or financial condition of such
party and its subsidiaries taken as a whole, other than
any change, effect, event, occurrence, condition,
development or state of facts (i) relating to the
economy or securities markets in general, (ii) relating
to the industries in which such party operates in
general or (iii) resulting from this Agreement or the
transactions contemplated hereby or the announcement
thereof;
(e) "person" means an individual, corporation,
partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other
entity; and
(f) a "subsidiary" of any person means another
person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is
sufficient to elect at least a majority of its Board of
Directors or other governing body (or, if there are no
such voting interests, 50% or more of the equity
interests of which) is owned directly or indirectly by
such first person.
SECTION 8.04. Interpretation. When a reference is
made in this Agreement to an Article, Section or Exhibit,
such reference shall be to an Article or Section of, or an
66
Exhibit to, this Agreement unless otherwise indicated. The
table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. When
ever the words "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the
words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement. All terms defined
in this Agreement shall have the defined meanings when used
in any certificate or other document made or delivered
pursuant hereto unless otherwise defined therein. The
definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the
masculine as well as to the feminine and neuter genders of
such term. Any agreement, instrument or statute defined or
referred to herein or in any agreement or instrument that is
referred to herein means such agree ment, instrument or
statute as from time to time amended, modified or
supplemented, including (in the case of agree ments or
instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments
incorporated therein. References to a person are also to its
permitted successors and assigns.
SECTION 8.05. Counterparts. This Agreement may be
executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become
effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties.
SECTION 8.06. Entire Agreement; No Third-Party
Beneficiaries. This Agreement (including the documents and
instruments referred to herein), the Target Stockholder
Agreement, the Parent Stockholder Agreement, the Employment
Agreements, the Lock-Up Agreements and the Confidentiality
Agreement (a) constitute the entire agreement, and supersede
all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter of
this Agreement and (b) except for the provisions of Article
II, Section 5.06, and Section 5.08, are not intended to
confer upon any person other than the parties any rights or
remedies.
SECTION 8.07. 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 conflict of
laws thereof.
67
SECTION 8.08. Assignment. Neither this Agreement
nor any of the rights, interests or obligations under this
Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties hereto
without the prior written consent of the other parties. Any
assignment in violation of the preceding sentence shall be
void. Subject to the preceding two sentences, this Agree ment
will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors
and assigns.
SECTION 8.09. Enforcement. Each of the parties
hereto agrees that irreparable damage would occur and that
the parties would not have any adequate remedy at law in the
event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifi cally the
terms and provisions of this Agreement in any federal court
located in the State of Delaware or in Delaware state court,
this being in addition to any other remedy to which they are
entitled at law or in equity. In addition, each of the
parties hereto (a) consents to submit itself to the personal
jurisdiction of any federal court located in the State of
Delaware or any Delaware state court in the event any dispute
arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court and (c)
agrees that it will not bring any action relating to this
Agreement or any of the trans actions contemplated by this
Agreement in any court other than a federal court sitting in
the State of Delaware or a Delaware state court.
SECTION 8.10. 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. 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 to the fullest extent permitted by applicable law in
an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
68
IN WITNESS WHEREOF, Parent, Sub and Target have
caused this Agreement to be signed by their respective
officers thereunto duly authorized, all as of the date first
written above.
24/7 MEDIA, INC.,
by /s/ C. ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------
Name: C. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Executive Vice President
EVERGREEN ACQUISITION SUB CORP.,
by /s/ C. ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------
Name: C. ▇▇▇▇▇▇ ▇▇▇▇▇
Title: Executive Vice President
▇▇▇▇▇▇▇.▇▇▇, INC.,
by /s/ E. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
----------------------------
Name:E. ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
Title:Chief Executive Officer
ANNEX I
TO THE MERGER AGREEMENT
Index of Defined Terms
Term Page
Accounting Rules..................13 Parent Stockholder
Adjusted Option...................55 Agreement.......................2
affiliate.........................69 Parent Stockholder
Agreement......................... 1 Approval ...............40
business day......................70 Parent SEC Documents.............32
Certificate of Merger............. 3 Parent Stockholder
Certificates...................... 5 Approval................40
Closing........................... 3 Parent Stockholders...............2
Closing Date...................... 3 Parent Stockholders
Code............................. 2 Meeting.................52
Confidentiality Agreement.........53 person...........................70
control...........................69 Policy Launch Data...............27
D & O Insurance...................59 Primary Target Executives........18
Data Collection and Security Privacy Statement................27
Policy..........................41 Proxy Statement..................12
DGCL.............................. 2 Real Estate Transfer Taxes.......60
Effective Time.................... 3 Release..........................16
Employment Agreements..............2 Restraints.......................63
Environmental Law.................16 SARs..............................9
ERISA.............................16 SEC..............................12
ERISA Affiliate...................17 Securities Act...................17
Exchange Act......................12 Sub...............................1
Exchange Agent.................... 5 subsidiary.......................70
Exchange Fund..................... 5 Surviving Corporation.............2
Exchange Ratio.................... 4 Takeover Proposal................49
Form S-4..........................13 Target........................... 1
GAAP..............................13 Target Authorized Preferred
Governmental Entity...............12 Stock...........................9
Hazardous Materials...............16 Target Benefit Agreements........16
HSR Act...........................12 Target Benefit Plans.............16
Intellectual Property Target Common Stock.............. 1
Rights..........................22 Target Disclosure Schedule....... 8
knowledge.........................70 Target Filed SEC Documents.......14
Liens.............................10 Target Intellectual Property
Lock-Up Agreements.................2 Rights..................22
material adverse change...........70 Target Pension Plans.............16
material adverse effect...........70 Target Permits...................15
Maximum Premium...................59 Target SEC Documents.............12
Merger.............................1 Target Stock Options..............9
Merger Consideration...............4 Target Stock Plans................9
Nasdaq............................31 Target Stockholder
Parent.............................1 Agreement.......................1
Parent Authorized Preferred Target Stockholder
Stock...........................30 Approval................21
Parent Benefit Agreements.........36 Target Stockholders
Parent Benefit Plans..............35 Meeting.................52
Parent Common Stock................4 taxes............................21
Parent Disclosure Schedule........29 Terms and Conditions.............28
Parent Filed SEC Documents........33 Warrants..........................9
Parent Intellectual Property Year 2000 Compliant..............24
Rights..........................40
Parent Pension Plans..............35
Parent Permits....................34
[996420.5:wpc5:03/13/2000--5:14p]
EXHIBIT A
TO THE MERGER AGREEMENT
Form of Affiliate Letter
Dear Sirs:
The undersigned, a holder of shares of common stock,
par value $0.01 per share ("Target Common Stock"), of
▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation ("Target"), is entitled
to receive in connection with the merger (the "Merger") of a
subsidiary of 24/7 Media, Inc., a Delaware corporation
("Parent"), with and into Target, securities of Parent, as the
parent of the surviving corporation in the Merger (the "Parent
Securities"). The undersigned acknowledges that the undersigned
may be deemed an "affiliate" of Target within the meaning of Rule
145 ("Rule 145") promulgated under the Securities Act of 1933
(the "Securities Act") by the Securities and Exchange Commission
(the "SEC"), although nothing contained herein should be
construed as an admission of such fact.
If in fact the undersigned were an affiliate under the
Securities Act, the undersigned's ability to sell, assign or
transfer the Parent Securities received by the undersigned in
exchange for any shares of Target Common Stock in connection with
the Merger may be restricted unless such transaction is
registered under the Securities Act or an exemption from such
registration is available. The undersigned understands that such
exemptions are limited and the undersigned has obtained or will
obtain advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the
applicability to the sale of such securities of Rules 144 and
145(d) promulgated under the Securities Act. The undersigned
understands that Parent will not be required to maintain the
effectiveness of any registration statement under the Securities
Act for the purposes of resale of Parent Securities by the
undersigned.
The undersigned hereby represents to and covenants with
Parent that the undersigned will not sell, assign or transfer any
of the Parent Securities received by the undersigned in exchange
for shares of Target Common Stock in connection with the Merger
except (i) pursuant to an effective registration statement under
the Securities Act, (ii) in conformity with the volume and other
limitations of Rule 145 or (iii) in a transaction which, in the
opinion of counsel reasonably acceptable to Parent or as
described in a "no-action" or interpretive letter from the Staff
of the SEC specifically issued with respect to a transaction to
be engaged in by the undersigned, is not required to be
registered under the Securities Act.
2
In the event of a sale or other disposition by the
undersigned of Parent Securities pursuant to Rule 145, the
undersigned will supply Parent with evidence of compliance with
such Rule, in the form of a letter in the form of Annex I hereto
and the opinion of counsel or no-action letter referred to above.
The undersigned understands that Parent may instruct its transfer
agent to withhold the transfer of any Parent Securities disposed
of by the undersigned, but that (provided such transfer is not
prohibited by any other provision of this letter agreement) upon
receipt of such evidence of compliance, Parent shall cause the
transfer agent to effectuate the transfer of the Parent
Securities sold as indicated in such letter.
Parent covenants that it will take all such actions as
may be reasonably available to it to permit the sale or other
disposition of Parent Securities by the undersigned under Rule
145 in accordance with the terms thereof.
The undersigned acknowledges and agrees that the
legends set forth below will be placed on certificates
representing Parent Securities received by the undersigned in
connection with the Merger or held by a transferee thereof, which
legends will be removed by delivery of substitute certificates
upon receipt of an opinion in form and substance reasonably
satisfactory to Parent from independent counsel reasonably
satisfactory to Parent to the effect that such legends are no
longer required for purposes of the Securities Act.
There will be placed on the certificates for Parent
Securities issued to the undersigned, or any substitutions
therefor, a legend stating in substance:
"The shares represented by this certificate were issued
in a transaction to which Rule 145 promulgated under the
Securities Act of 1933 (the "Securities Act") applies. The
shares have not been acquired by the holder with a view to,
or for resale in connection with, any distribution thereof
within the meaning of the Securities Act. The shares may not
be sold, pledged or otherwise transferred except (i)
pursuant to an effective registration under the Securities
Act, (ii) in conformity with the volume and other limita
tions of Rule 145 or (iii) in accordance with an exemption
from the registration requirements of the Securities Act."
The undersigned acknowledges that (i) the under signed
has carefully read this letter and understands the requirements
hereof and the limitations imposed upon the
3
distribution, sale, transfer or other disposition of Parent
Securities and (ii) the receipt by Parent of this letter is an
inducement to Parent's obligations to consummate the Merger.
Very truly yours,
Dated:
ANNEX I
TO EXHIBIT A
[Name] [Date]
On , the undersigned sold the securities of 24/7 Media,
Inc., a Delaware corporation ("Parent"), described below in the
space provided for that purpose (the "Securities"). The
Securities were received by the undersigned in connection with
the merger of a subsidiary of Parent with and into ▇▇▇▇▇▇▇.▇▇▇,
Inc., a Delaware corporation.
Based upon the most recent report or statement filed by
Parent with the Securities and Exchange Commission, the
Securities sold by the undersigned were within the prescribed
limitations set forth in paragraph (e) of Rule 144 promulgated
under the Securities Act of 1933 (the "Securities Act").
The undersigned hereby represents that the Securities
were sold in "brokers' transactions" within the meaning of
Section 4(4) of the Securities Act or in transactions directly
with a "market maker" as that term is defined in Section 3(a)(38)
of the Securities Exchange Act of 1934, as amended. The
undersigned further represents that the undersigned has not
solicited or arranged for the solicitation of orders to buy the
Securities, and that the undersigned has not made any payment in
connection with the offer or sale of the Securities to any person
other than to the broker who executed the order in respect of
such sale.
Very truly yours,
[Space to be provided for description of the Securities.]
EXHIBIT B-1
TO THE MERGER AGREEMENT
Form of Target's Tax Representation Letter
[Letterhead of Target]
[Date]
Cravath, Swaine & ▇▇▇▇▇
Worldwide Plaza
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ Godward LLP
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Ladies and Gentlemen:
In connection with the opinions to be delivered
pursuant to Sections 6.02(d) and 6.03(c) of the Agreement and
Plan of Merger (the "Merger Agreement") dated as of February 29,
2000, by and among 24/7 Media, Inc., a Delaware corporation
("Parent"), Evergreen Acquisition Sub Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and
▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation (the "Target"), and in
connection with the filing with the Securities Exchange
Commission (the "SEC") of the registration statement on Form S-4
(the "Registration Statement") relating to the Merger Agreement,
which includes the proxy statement/prospectus of Parent and
Target, the undersigned certifies and represents on behalf of
Target, after due inquiry and investigation (including
consultation with Target's counsel and auditors regarding the
meaning of, and factual support for, such representations if and
to the extent Target's management deems necessary), as follows
(any capitalized term used but not defined herein having the
meaning given to such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the
"Merger") of Sub with and into Target as described in the
Registration Statement and the documents described in the
Registration Statement are and, as of the Effective
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Time, will be, insofar as such facts pertain to Target, true,
correct and complete in all material respects. The Merger will be
consummated substantially in accordance with the Merger Agreement
and none of the material terms and conditions therein has been or
will be modified.
2. The formula set forth in the Merger Agreement
pursuant to which each issued and outstanding share of common
stock, par value $.01 per share, of Target, (the "Target Common
Stock") will be converted into 0.60 of a common share, par value
.01 per share, of Parent ("Parent Common Stock") is the result of
arm's length bargaining.
3. Cash payments to be made to stockholders of Target
in lieu of fractional shares of Parent Common Stock that would
otherwise be issued to such stockholders in the Merger will be
made for the purpose of saving Parent the expense and
inconvenience of issuing and transferring fractional shares of
Parent Common Stock, and do not represent separately bargained
for consideration. The total cash consideration that will be paid
in the transaction to Target stockholders instead of issuing
fractional shares of Parent Common Stock will not exceed [one
percent (1%)] of the total consideration that will be issued in
the transaction to the Target stockholders in exchange for their
shares of Target Common Stock. The fractional share interests of
each Target stockholder will be aggregated, and no Target
stockholder will receive cash in an amount equal to or greater
than the value of one full share of Parent Common Stock.
4. (i) Neither Target nor any corporation "related" to
Target has acquired or has any present plan or intention to
acquire any Target Common Stock in contemplation of the Merger,
or otherwise as part of a plan of which the Merger is a part.
(ii) For purposes of this representation, two
corporations shall be treated as related to one another if
immediately prior to or immediately after the Merger, (a) the
corporations are members of the same affiliated group (within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), but determined without regard to Section
1504(b) of the Code) or (b) one corporation owns 50% or more of
the total combined voting power of all classes of stock of the
other corporation that are entitled to vote or 50% or more of the
total value of shares of all classes of stock of the other
corporation (applying the attribution rules of Section 318 of the
Code, as modified pursuant to Section 304(c)(3)(B) of the Code).
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5. Target has not made, and does not have any present
plan or intention to make, any distributions (other than
dividends made in the ordinary course of business) prior to, in
contemplation of or otherwise in connection with, the Merger.
6. Except for Transfer Taxes and filing fees with
respect to the Proxy Statement and the Form S-4 and the HSR Act,
Parent, Sub, Target and holders of Target Common Stock will each
pay their respective expenses, if any, incurred in connection
with the Merger. Except with respect to Transfer Taxes, Target
has not agreed to assume, nor will it directly or indirectly
assume, any expense or other liability, whether fixed or
contingent, of any holder of Target Common Stock nor, to the best
knowledge of (but not pursuant to due inquiry or investigation
by) the management of Target, will any Target Common Stock
acquired by Parent in the Merger be subject to any liabilities.
7. Immediately following the Merger, Target will hold
(i) at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets that
were held by Target immediately prior to the Merger and (ii) at
least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets that were held
by Sub immediately prior to the Merger. For purposes of this
representation, amounts paid to stockholders who receive cash or
other property (including cash in lieu of fractional shares of
Parent Common Stock) in connection with the Merger, assets of
Target used to pay reorganization expenses, assets disposed of by
Target or Sub (other than assets transferred from Sub to Target
in the Merger and asset transfers described in both Section
368(1)(2)(C) of the Code and Treasury Regulations Section
1.368-2(k)(2)) prior to or subsequent to the Merger and in
contemplation thereof (including without limitation, any asset
disposed of by Target, other than in the ordinary course of
business, pursuant to a plan or intent existing during the period
beginning with the commencement of negotiations (whether formal
or informal) with Parent regarding the Merger (the "Pre-Merger
Period") and ending at the Effective Time, except to the extent
proceeds of such sale are retained in Target or Sub as the case
may be, and all redemptions and distributions made by Target
(other than dividends made in the ordinary course of business)
immediately preceding, or in contemplation of, the Merger will be
included as assets held by Target immediately prior to the
Merger.
8. Except as provided in the Merger Agreement,
immediately prior to the time of the Merger, the only class of
stock of the Company that will be outstanding will be the Target
Common Stock and Target will not have outstanding any
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warrants, options, convertible securities or any other type of
right pursuant to which any person could acquire Target Common
Stock.
9. In connection with the Merger, all Target Common
Stock will be converted solely into Parent Common Stock (except
for cash paid in lieu of fractional shares of Parent Common
Stock). The shares of Target Common Stock converted into Parent
Common Stock will represent Control of Target. As used herein,
"Control" shall consist of direct ownership of shares of stock
possessing at least eighty percent (80%) of the total combined
voting power of shares of all classes of stock entitled to vote
and at least eighty percent (80%) of the total number of shares
of each other class of stock of Target. For purposes of
determining Control, a person shall not be considered to own
shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held
by a third party (including a voting trust) other than an agent
of such person. For purposes of this representation, Target
Common Stock redeemed for cash or other property furnished,
directly or indirectly, actually or constructively, by Parent or
a person related to Parent will be considered as exchanged for
other than Parent Common Stock. The total market value of all
consideration other than shares of Parent Common Stock that will
be paid for shares of Target stock in connection with the Merger
(including without limitation cash paid to Target stockholders in
lieu of fractional shares) will be less than [ten percent (10%)]
of the aggregate fair market value of shares of Target stock
outstanding immediately prior to the Merger.
10. Target is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
11. Target will not take, and, to the best knowledge of
the management of Target, there is no present plan or intention
by stockholders of Target to take, any position on any Federal,
state or local income or franchise tax return, or take any other
tax reporting position, that is inconsistent with the treatment
of the Merger as a reorganization within the meaning of Section
368(a) of the Code, unless otherwise required by a
"determination" (as defined in Section 1313(a)(1) of the Code) or
by applicable state or local tax law (and then only to the extent
required by such applicable state or local tax law).
12. None of the compensation to be received by any
stockholder-employee or stockholder-independent contractor of
Target in respect of periods ending at or prior to the Effective
Time will represent separate consideration for, or is allocable
to, any of its Target Common Stock. None of the Parent Common
Stock that will be
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received by any stockholder-employees or stockholder- independent
contractor of Target in the Merger represents separately
bargained for consideration which is allocable to any employment
agreement, consulting agreement, covenant not to compete, release
or other similar arrangement. The compensation paid to any
stockholder-employees or stockholder-independent contractors of
Target will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
13. There is no intercorporate indebtedness existing
between Parent (or any of its subsidiaries, including Sub) and
Target (or any of its subsidiaries) that was issued or acquired,
or will be settled, at a discount.
14. Target is not under the jurisdiction of a court in
a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
15. The Merger Agreement, the Registration Statement
and the other documents described in the Registration Statement
represent the entire understanding of Target with respect to the
Merger.
16. No assets of Target have been sold, transferred or
otherwise disposed of which would prevent Parent from continuing
the "historic business" of Target or from using a significant
portion of the "historic business assets" of Target in a business
following the Merger (as such terms are defined in Treasury
Regulations Section 1.368-1(d)), and Target intends to continue
its historic business or use a significant portion of its
historic business assets in a business following the Merger.
17. As of the time of the Merger, the fair market value
of the assets of Target will equal or exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which
such assets are subject.
18. No holders of Target Common Stock have dissenters'
rights with respect to the Merger under applicable laws.
19. Other than in the ordinary course of business or
pursuant to its obligations under the Merger Agreement, Target
has made no transfer of any of its assets (including any
distribution of assets with respect to, or in redemption of,
stock) in contemplation of the Merger or during the Pre- Merger
Period. 20. Except for transfers described in both Section
368(a)(2)(C) of the Code and Treasury Regulations Sections
1.368-2(k)(2), the Target has no plan or intention
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to sell or otherwise dispose of any of its assets or of any of
the assets acquired from Sub in the Merger, except for
dispositions in made in the ordinary course of business or to pay
expenses incurred by Target pursuant to the Merger.
21. Target's principal reasons for participating in the
Merger are bona fide business purposes unrelated to Taxes.
22. Target has no plan, obligation, understanding,
agreement or intention to issue additional shares of stock after
the Merger, or to take any other action, that would result in
Parent losing Control of Target.
23. The liabilities of Target were incurred in the
ordinary course of Target's business.
24. The fair market value of the shares of Parent
Common Stock received by each stockholder of Target will be
approximately equal to the fair market value of the shares of
stock of Target surrendered in exchange therefor and the
aggregate consideration received by stockholders of Target in
exchange for their shares of Target Common Stock will be
approximately equal to the fair market value of all the
outstanding shares of stock of Target immediately prior to the
Merger.
25. With respect to each instance, if any, in which
shares of stock of Target have been purchased by a stockholder of
Parent (a "Parent Stockholder") during the Pre-Merger Period (a
"Stock Purchase"): (i) to the knowledge of Target, (A) the Stock
Purchase was made by such Parent Stockholder on its own behalf,
rather than as a representative, or for the benefit, of Parent,
(B) the Stock Purchase was entered into solely to satisfy the
separate interests of such Parent Stockholder and the seller and
(C) the purchase price paid by such Parent Stockholder pursuant
to the Stock Purchase was the product of arm's length negotiation
and was funded by such Parent Stockholder's own assets, and such
purchase price was not advanced and will not be reimbursed,
either directly or indirectly, by Parent; and (ii) the Stock
Purchase was not a formal or informal condition to consummation
of the Merger.
26. The undersigned is authorized by Target to make all
the representations set forth herein.
The undersigned acknowledges that (i) the opinions to
be delivered pursuant to Sections 6.02(d) and 6.03(c) of the
Merger Agreement will be based on the accuracy of the
representations set forth herein and on the accuracy of the
representations and warranties and the satisfaction of the
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covenants and obligations contained in the Merger Agreement and
the various other documents related thereto, and (ii) such
opinions will be subject to certain limitations and
qualifications including that it may not be relied upon if any
such representations or warranties are not accurate or if any
such covenants or obligations are not satisfied in all material
respects.
The undersigned acknowledges that such opinions will
not address any tax consequences of the Merger or any action
taken in connection therewith except as expressly set forth in
such opinions.
Notwithstanding anything herein to the contrary, the
undersigned makes no representations regarding any actions or
conduct of Target pursuant to Parent's exercise of control over
Target after the Merger, unless Target's management has actual
knowledge of such actions or conduct.
Target undertakes to inform you immediately should any
of the foregoing statements or representations become untrue,
incorrect or incomplete in any respect on or prior to the
Effective Time.
Very truly yours,
▇▇▇▇▇▇▇.▇▇▇, INC.,
by
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Title:
EXHIBIT B-2
TO THE MERGER AGREEMENT
Form of Parent's Tax Representation Letter
[Letterhead of Parent]
[Date]
▇▇▇▇▇▇ Godward LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Cravath, Swaine & ▇▇▇▇▇
Worldwide Plaza
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
In connection with the opinions to be delivered
pursuant to Sections 6.02(d) and 6.03(c) of the Agreement and
Plan of Merger (the "Merger Agreement") dated as of February 29,
2000, by and among 24/7 Media, Inc., a Delaware corporation
("Parent"), Evergreen Acquisition Sub Corp., a Delaware
corporation and a wholly owned subsidiary of Parent ("Sub"), and
▇▇▇▇▇▇▇.▇▇▇, Inc., a Delaware corporation ("Target"), and in
connection with the filing with the Securities Exchange
Commission (the "SEC") of the registration statement on Form S-4
(the "Registration Statement") relating to the Merger Agreement,
which includes the proxy statement/prospectus of Parent and
Target, the undersigned certifies and represents on behalf of
Parent and Sub, after due inquiry and investigation (including
consultations with Parent's counsel and auditors regarding the
meaning of, and factual support for, such representations if and
to the extent Parent's management deems necessary), as follows
(any capitalized term used but not defined herein having the
meaning given to such term in the Merger Agreement):
1. The facts relating to the contemplated merger (the
"Merger") of Sub with and into Target as described in
2
the Registration Statement and the documents described in the
Registration Statement are and, as of the Effective Time, will
be, insofar as such facts pertain to Parent and Sub, true,
correct and complete in all material respects. The Merger will be
consummated substantially in accordance with the Merger Agreement
and none of the material terms and conditions therein has been or
will be waived or modified.
2. The formula set forth in the Merger Agreement
pursuant to which each issued and outstanding share of common
stock, par value $.01 per share, of Target (the "Target Common
Stock") will be converted into 0.60 of a common share, par value
$.01 per share, of Parent ("Parent Common Stock") is the result
of arm's length bargaining.
3. Cash payments to be made to stockholders of Target
in lieu of fractional shares of Parent Common Stock that would
otherwise be issued to such stockholders in the Merger will be
made for the purpose of saving Parent the expense and
inconvenience of issuing and transferring fractional shares of
Parent Common Stock, and do not represent separately bargained
for consideration. The total cash consideration that will be paid
in the transaction to Target stockholders instead of issuing
fractional shares of Parent Common Stock will not exceed [one
percent (1%)] of the total consideration that will be issued in
the transaction to the Target stockholders in exchange for their
shares of Target Common Stock. The fractional share interests of
each Target stockholder will be aggregated, and no Target
stockholder will receive cash in an amount equal to or greater
than the value of one full share of Parent Common Stock.
4. (i) Parent has no present plan or intention, after,
but in connection with, the Merger, to reacquire, or to cause any
corporation that is related to Parent to acquire, any Parent
Common Stock; provided, however, that Parent may adopt an open
market stock repurchase program that satisfies the requirements
of Revenue Ruling 99-58. To the best knowledge of the management
of Parent, no corporation that is "related" to Parent has a
present plan or intention to purchase any Parent Common Stock
following the Merger.
(ii) For purposes of this representation, two
corporations shall be treated as related to one another if
immediately prior to or immediately after the Merger, (a) the
corporations are members of the same affiliated group (within the
meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), but determined without regard to Section
1504(b) of the Code) or (b) one corporation owns 50% or more of
the total combined voting power of all classes of stock of the
other
3
corporation that are entitled to vote or 50% or more of the total
value of shares of all classes of stock of the other corporation
(applying the attribution rules of Section 318 of the Code, as
modified pursuant to Section 304(c)(3)(B) of the Code).
5. Parent has no present plan or intention to make any
distributions after, but in connection with, the Merger to
holders of Parent Common Stock (other than dividends made in the
ordinary course of business).
6. Neither Parent nor Sub (nor any other subsidiary of
Parent) has acquired, or, except as a result of the Merger, will
acquire, or has owned in the past five years, any Target Common
Stock.
7. Prior to the Merger, Parent will own all the capital
stock of Sub. Parent has no plan or intention to cause Target to
issue additional shares of its capital stock that would result in
Parent ceasing to have "control" of Target. As used herein,
"Control" shall consist of direct ownership of shares of stock
possessing at least eighty percent (80%) of the total combined
voting power of shares of all classes of stock entitled to vote
and at least eighty percent (80%) of the total number of shares
of each other class of stock of Target. For purposes of
determining Control, a person shall not be considered to own
shares of voting stock if rights to vote such shares (or to
restrict or otherwise control the voting of such shares) are held
by a third party (including a voting trust) other than an agent
of such person.
8. Parent has no present plan or intention, following
the Merger, to liquidate Target, to merge Target with and into
another corporation, to sell or otherwise dispose of any of the
stock of Target, to cause Target to distribute to Parent or any
of its subsidiaries any assets of Target or the proceeds of any
borrowings incurred by Target, or to cause Target to sell or
otherwise dispose of any of the assets held by Target at the time
of the Merger, except for dispositions of such assets in the
ordinary course of business and transfers described in Section
368(a)(2)(C) of the Code or Treasury Regulations Sections
1.368-1(d) or 1.368-2(k).
9. Immediately following the Merger, Target will hold
(i) at least 90% of the fair market value of the net assets and
at least 70% of the fair market value of the gross assets that
were held by Target immediately prior to the Merger and (ii) at
least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets that were held
by Sub immediately prior to the Merger. For purposes of this
representation, amounts
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paid to stockholders who receive cash or other property
(including cash in lieu of fractional shares of Parent Common
Stock) in connection with the Merger, assets of Target used to
pay reorganization expenses, assets disposed of by Target or Sub
(other than assets transferred from Sub to Target in the Merger
and asset transfers described in both Section 368(a)(2)(C) of the
Code and Treasury Regulations Section 1.368-2(k)(2)) prior to or
subsequent to the Merger and in contemplation thereof (including
without limitation any asset disposed of by Target, other than in
the ordinary course of business, pursuant to a plan or intent
existing during the period beginning with the commencement of
negotiations (whether formal or informal) with Parent regarding
the Merger (the "Pre-Merger Period") and ending at the Effective
Time, except to the extent proceeds from such sale are retained
in Target or Sub as the case may be, and all redemptions and
distributions made by Target (other than dividends made in the
ordinary course of business) immediately preceding, or in
contemplation of, the Merger will be included as assets held by
Target immediately prior to the Merger.
10. Except for Transfer Taxes and filing fees with
respect to the Proxy Statement and the Form S-4 and the HSR Act,
Parent, Sub, Target and holders of Target Common Stock will each
pay their respective expenses, if any, incurred in connection
with the Merger. Except to the extent specifically contemplated
under the Merger Agreement and Target Stockholder Agreement,
neither Parent nor Sub has paid (directly or indirectly) or has
agreed to assume any expenses or other liabilities, whether fixed
or contingent, incurred or to be incurred by Target or any holder
of Target Common Stock in connection with or as part of the
Merger or any related transactions nor, to the best knowledge of
(but not pursuant to due inquiry or investigation by) the
management of Parent, will any Target Common Stock acquired by
Parent in the Merger be subject to any liabilities.
11. Following the Merger, Parent intends to cause
Target to continue its "historic business" or to use a
significant portion of its "historic business assets" in a
business (as such terms are defined in Treasury Regulations
Section 1.368-1(d)).
12. Neither Parent nor Sub is an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
13. Neither Parent nor Sub will take any position on
any Federal, state or local income or franchise tax return, or
take any other tax reporting position, that is inconsistent with
the treatment of the Merger as a reorganization within the
meaning of Section 368(a) of the
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Code unless otherwise required by a "determination" (as defined
in Section 1313(a)(1) of the Code) or by applicable state or
local tax law (and then only to the extent required by such
applicable state or local tax law).
14. None of the compensation to be received by any
stockholder-employee or stockholder-independent contractor of
Target in respect of periods ending after the Effective Time will
represent separate consideration for, or is allocable to, any of
their Target Common Stock. None of the Parent Common Stock that
will be received by any stockholder-employee or
stockholder-independent contractor of Target in the Merger
represents separately bargained for consideration which is
allocable to any employment agreement, consulting agreement,
covenant not to compete, release or similar arrangement. The
compensation paid to any stockholder-employees or
stockholder-independent contractors of Parent after the Effective
Time will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at
arm's length for similar services.
15. There is no intercorporate indebtedness existing
between Parent (or any of its subsidiaries, including Sub) and
Target (or any of its subsidiaries) that was issued or acquired,
or will be settled, at a discount.
16. Neither Parent nor Sub is under the jurisdiction of
a court in a Title 11 or similar case. For purposes of the
foregoing, a "Title 11 or similar case" means a case under Title
11 of the United States Code or a receivership, foreclosure or
similar preceding in a federal or state court.
17. In connection with the Merger, all Target Common
Stock will be converted solely into Parent Common Stock (except
for cash paid in lieu of fractional shares of Parent Common
Stock). The shares of Target Common Stock converted into Parent
Common Stock will represent Control of Target. For purposes of
this representation, Target Common Stock redeemed for cash or
other property furnished, directly or indirectly, actually or
constructively, by Parent or a person related to Parent will be
considered as acquired by Parent for other than Parent Common
Stock. The total market value of all consideration other than
shares of Parent Common Stock that will be paid for shares of
Target stock in connection with the Merger (including without
limitation cash paid to Target stockholders in lieu of fractional
shares) will be less than [ten percent (10%)] of the aggregate
fair market value of shares of Target stock outstanding
immediately prior to the Merger.
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18. The Merger Agreement, the Registration Statement
and the other documents described in the Registration Statement
represent the entire understanding of Parent and Sub with respect
to the Merger.
19. Sub is a corporation newly formed for the purpose
of participating in the Merger and at no time prior to the Merger
has had assets (other than nominal assets contributed upon the
formation of Sub, which assets will be held by Sub following the
Merger) or business operations. Prior to the Merger, Parent will
be in Control of Sub. As used herein, "Control" shall consist of
direct ownership of shares of stock possessing at least eighty
percent (80%) of the total combined voting power of shares of all
classes of stock entitled to vote and at least eighty percent
(80%) of the total number of shares of each other class of stock
of Sub. For purposes of determining Control, a person shall not
be considered to own shares of voting stock if rights to vote
such shares (or to restrict or otherwise control the voting of
such shares) are held by a third party (including a voting trust)
other than an agent of such person.
20. The Merger is being undertaken for purposes of
enhancing the business of Parent and for good and valid business
purposes of Parent.
21. No Target stockholder is acting as agent for Parent
in connection with the Merger or the approval thereof; Parent
will not reimburse any Target stockholder for any Target stock
that such stockholder may have purchased or for other obligations
such stockholder may have incurred.
22. The fair market value of the shares of Parent
Common Stock received by each stockholder of Target will be
approximately equal to the fair market value of the shares of
stock of Target surrendered in exchange therefor and the
aggregate consideration received by stockholders of Target in
exchange for their shares of Target Common Stock will be
approximately equal to the fair market value of all the
outstanding shares of stock of Target immediately prior to the
Merger.
23. With respect to each instance, if any, in which
shares of stock of Target have been purchased by a stockholder of
Parent (a "Parent Stockholder") during the Pre-Merger Period (a
"Stock Purchase"): (i) to the knowledge of Parent, (A) the Stock
Purchase was made by such Parent Stockholder on its own behalf,
rather than as a representative, or for the benefit, of Parent,
(B) the Stock Purchase was entered into solely to satisfy the
separate interests of such Parent Stockholder and the seller and
(C) the purchase price paid by such Parent Stockholder
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pursuant to the Stock Purchase was the product of arm's length
negotiation and was funded by such Parent Stockholder's own
assets, and such purchase price was not advanced and will not be
reimbursed, either directly or indirectly, by Parent; and (ii)
the Stock Purchase was not a formal or informal condition to
consummation of the Merger.
24. The undersigned is authorized to make all the
representations set forth herein on behalf of Parent and Sub.
The undersigned acknowledges that (i) the opinions to
be delivered pursuant to Sections 6.02(d) and 6.03(c) of the
Merger Agreement will be based on the accuracy of the
representations set forth herein and on the accuracy of the
representations and warranties and the satisfaction of the
covenants and obligations contained in the Merger Agreement and
the various other documents related thereto, and (ii) such
opinions will be subject to certain limitations and
qualifications including that it may not be relied upon if any
such representations or warranties are not accurate or if any
such covenants or obligations are not satisfied in all material
respects.
The undersigned acknowledges that such opinions will
not address any tax consequences of the Merger or any action
taken in connection therewith except as expressly set forth in
such opinions.
Notwithstanding anything herein to the contrary, the
undersigned makes no representations regarding any actions or
conduct of Target prior to the Merger, unless Parent's management
has actual knowledge of such actions or conduct.
Parent undertakes to inform you immediately should any
of the foregoing statements or representations become untrue,
incorrect or incomplete in any respect on or prior to the
Effective Time.
Very truly yours,
PARENT
by
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Name:
Title:
SCHEDULE I
TO THE MERGER AGREEMENT
Board of Directors of Parent
Name(1) Class of Membership
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▇▇▇▇ ▇▇▇▇▇▇▇ II(2)
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ III
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(1) If either or both of the individuals set forth in
the table are unavailable at the Effective Time to serve as
directors of Parent, Target shall be entitled to substitute in
their place any members of Target's Board of Directors as
constituted immediately prior to the date of the Merger
Agreement; provided that any such new designees must qualify as
independent directors under the Nasdaq rules.
(2) Parent shall take all action to ensure that the
individual appointed to serve as a Class II director of Parent
will also be included in Parent's slate of directors nominated
for election at Parent's 2000 annual meeting of stockholders.