EXHIBIT 10.15
Purchase Agreement
among
AVENUE A, INC.
and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
and
▇▇▇▇▇▇ ▇▇▇▇▇▇
Dated as of September 2, 1999
CONTENTS
ARTICLE I - DEFINITIONS.............................................................................................. 1
ARTICLE II - PURCHASE AND SALE OF INTERESTS.......................................................................... 4
2.1 Purchase and Sale of Interests.......................................................................... 4
2.2 Consideration for Interests............................................................................. 5
2.2.1 Closing Consideration............................................................................ 5
2.2.2 Escrow Payment................................................................................... 5
2.3 Closing................................................................................................. 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE MEMBERS.......................................................... 5
3.1 Member Matters.......................................................................................... 6
3.1.1 Good Title....................................................................................... 6
3.1.2 Enforceability................................................................................... 6
3.1.3 Securities Law Representations and Warranties.................................................... 6
3.1.3(a) Purchase Entirely for Own Account......................................................... 6
3.1.3(b) Access to Information..................................................................... 7
3.1.3(c) Sophistication............................................................................ 7
3.1.3(d) Suitability............................................................................... 7
3.1.3(e) High Degree of Risk....................................................................... 7
3.1.3(f) Restricted Securities..................................................................... 8
3.1.3(g) Residency................................................................................. 8
3.1.3(h) Legends................................................................................... 8
3.1.3(i) Accreditation............................................................................. 8
3.1.4 Consent to Transfer....................................................................... 9
3.2 Organization; Good Standing; Authority.................................................................. 9
3.3 Interests............................................................................................... 9
3.4 Subsidiaries and Affiliates............................................................................. 10
3.5 No Approvals or Notices Required; No Conflicts.......................................................... 10
3.6 Financial Statements; Obligations....................................................................... 10
3.7 Absence of Certain Changes or Events.................................................................... 11
3.8 Taxes................................................................................................... 12
3.9 Property................................................................................................ 12
3.10 Contracts............................................................................................... 13
3.11 Claims and Legal Proceedings............................................................................ 14
3.12 Labor Matters........................................................................................... 14
3.13 Employee Arrangements and Plans......................................................................... 15
3.14 Personnel............................................................................................... 17
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3.15 Intellectual Property.................................................................................... 17
3.15.1 Title............................................................................................. 17
3.15.2 Licenses.......................................................................................... 17
3.15.3 Infringement ..................................................................................... 18
3.15.4 Valid and Subsisting; Applications and Registrations.............................................. 18
3.15.5 Indemnification................................................................................... 19
3.15.6 Year 2000......................................................................................... 19
3.15.7 Restrictions on Intellectual Property............................................................. 19
3.16 Accounts Receivable...................................................................................... 20
3.17 Corporate Books and Records.............................................................................. 20
3.18 Licenses, Permits, Authorizations, etc................................................................... 20
3.19 Compliance With Laws..................................................................................... 21
3.20 Insurance................................................................................................ 21
3.21 Brokers or Finders....................................................................................... 21
3.22 Bank Accounts............................................................................................ 21
3.23 Previous Conduct of Business; Insider Interests.......................................................... 21
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................. 22
4.1 Organization; Good Standing; Authority................................................................... 22
4.2 Enforceability........................................................................................... 22
4.3 No Approvals or Notices Required; No Conflicts With Instruments.......................................... 23
4.4 Claims and Legal Proceedings............................................................................. 23
4.5 Tax Consequences......................................................................................... 23
4.6 Capitalization........................................................................................... 24
4.7 Validly Issued Shares.................................................................................... 24
4.8 Financial Statements..................................................................................... 24
4.9 Absence of Certain Changes or Events..................................................................... 25
4.10 Licenses, Permits, Authorizations, etc................................................................... 25
4.11 Compliance With Laws..................................................................................... 25
4.12 Brokers or Finders....................................................................................... 26
ARTICLE V - COVENANTS................................................................................................. 26
5.1 Further Action........................................................................................... 26
5.2 Publicity................................................................................................ 26
5.3 Limitations on Disposition of Shares; Right of First Refusal............................................. 26
5.4 Noncompetition Agreements................................................................................ 30
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ARTICLE VI - CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............................................................. 30
6.1 Accuracy of Representations and Warranties............................................................... 30
6.2 Performance of Agreements................................................................................ 30
6.3 Opinion of Counsel for the Members....................................................................... 30
6.4 Members' Certificate..................................................................................... 31
6.5 Approvals and Consents................................................................................... 31
6.6 Legal Proceedings........................................................................................ 31
6.7 Nonforeign Affidavit..................................................................................... 31
6.8 Escrow Agreement......................................................................................... 31
6.9 Registration Rights Agreement............................................................................ 32
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS...................................................... 32
7.1 Accuracy of Representations and Warranties............................................................... 32
7.2 Performance of Agreements................................................................................ 32
7.3 Opinion of Counsel for Buyer............................................................................. 32
7.4 Officer's Certificate.................................................................................... 32
7.5 Approvals and Consents................................................................................... 32
7.6 Legal Proceedings........................................................................................ 33
7.7 Delivery of Certificates................................................................................. 33
7.8 Escrow Agreement......................................................................................... 33
7.9 Registration Rights Agreement............................................................................ 33
7.10 Delivery of Stock Option Letter Agreements............................................................... 33
ARTICLE VIII - AMENDMENT AND WAIVER................................................................................... 33
8.1 Amendment................................................................................................ 33
8.2 Waiver................................................................................................... 33
ARTICLE IX - SURVIVAL AND INDEMNIFICATION............................................................................. 34
9.1 Survival................................................................................................. 34
9.2 Indemnification.......................................................................................... 34
9.2.1 Indemnification by ▇▇▇▇▇ and ▇▇▇▇▇................................................................ 34
9.2.2 Indemnification by Buyer.......................................................................... 35
9.3 Limitations.............................................................................................. 35
9.4 Procedure for Indemnification............................................................................ 36
9.4.1 Claim Notice...................................................................................... 36
9.4.2 Dispute Notice.................................................................................... 36
9.4.3 Third-Party Claims................................................................................ 36
9.5 Access to Escrow Amount.................................................................................. 37
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ARTICLE X - GENERAL.................................................................................................. 37
10.1 Expenses................................................................................................ 37
10.2 Specific Enforcement.................................................................................... 37
10.3 Assignment.............................................................................................. 38
10.4 Notices................................................................................................. 38
10.5 Governing Law; Arbitration; Jurisdiction; Venue......................................................... 40
10.6 Successors and Assigns.................................................................................. 40
10.7 Severability............................................................................................ 41
10.8 Entire Agreement; Counterparts.......................................................................... 41
10.9 Consent to Transfer of Interests........................................................................ 41
10.10 Consent of Parties...................................................................................... 41
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EXHIBITS
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2.2.2 - Escrow Agreement
5.4 - Noncompetition Agreement
6.3 - Opinion of Counsel for the Members
6.4 - Members' Certificate of the Company
6.7 - Nonforeign Affidavit
6.9 - Registration Rights Agreement
7.3 - Opinion of Counsel for Buyer
7.4 - Officer's Certificate of Buyer
DISCLOSURE SCHEDULES
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PURCHASE AGREEMENT
This Purchase Agreement (this "Agreement") is entered into as of
September 2, 1999 among Avenue A, Inc., a Washington corporation ("Buyer"), and
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇"), ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇ (collectively, the "Members").
RECITALS
A. I-BALLS LLC, a New York limited liability company (the "Company"),
operates an Internet media planning and buying business.
B. The Members own the Interests (as defined herein) and desire and
intend to sell the Interests to Buyer at the price and on the terms and subject
to the conditions set forth below.
E. Buyer desires and intends to purchase the Interests from the Members
at the price and on the terms and subject to the conditions set forth below.
AGREEMENT
In consideration of the terms hereof, the parties agree as follows:
ARTICLE I - DEFINITIONS
1.1 "Accounts": As defined in Section 3.16.
1.2 "Act": As defined in Section 3.1.3.
1.3 "Buyer Balance Sheet": The balance sheet of Buyer as of July 31,
1999.
1.4 "Buyer Financial Statements": As defined in Section 4.8.
1.5 "Buyer Indemnified Parties": As defined in Section 9.2.1.
1.6 "Buyer Permits": As defined in Section 4.10.
1.7 "Claim": As defined in Section 9.2(c).
1.8 "Claim Notice": As defined in Section 9.4.1.
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1.9 "Closing": The closing of the transactions contemplated by this
Agreement.
1.10 "Closing Amount": As defined in Section 2.2.1.
1.11 "Code": The Internal Revenue Code of 1986, as amended.
1.12 "Company Balance Sheet": The balance sheet of the Company as of
July 31, 1999.
1.13 "Company Financial Statements": As defined in Section 3.6.
1.14 "Company Permits": As defined in Section 3.18.
1.15 "Common Stock": As defined in Section 2.2.1.
1.16 "Disclosure Schedules": The Disclosure Schedules attached and made a
part hereof and which constitute in their entirety a representation and warranty
under Article III.
1.17 "Dispute Notice": As defined in Section 9.4.2.
1.18 "Endorsement": As defined in Section 5.3(b)(vi).
1.19 "Employee Benefit Plan": Any employee benefit plan, fund, program,
contract, arrangement or payroll practice. Any retirement, pension, profit
sharing, deferred compensation, savings, bonus, incentive, cafeteria, flexible
benefits, medical, dental, vision, hospitalization, life insurance, dependent
care assistance, tuition reimbursement, disability, sick pay, holiday, vacation,
severance, fringe benefit and other employee benefit plan, fund, policy,
program, contract, arrangement or payroll practice (including, but not limited
to each "employee benefit plan," as defined in Section 3(3) of ERISA) and each
employment or consulting contract or agreement, whether formal or informal and
whether legally binding or not, (i) sponsored, maintained or contributed to by
the Company, (ii) covering or benefiting any current or former Manager,
employee, agent or independent contractor of the Company (or any dependent or
beneficiary of any such individual) or (iii) with respect to which the Company
has (or could have) any actual or potential obligation or liability.
1.20 "ERISA": The Employee Retirement Income Security Act of 1974, as
amended.
1.21 "Escrow Agent": As defined in Section 2.2.2.
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1.22 "Escrow Agreement": As defined in Section 2.2.2.
1.23 "Escrow Amount": As defined in Section 2.2.2.
1.24 "Fair Market Value": As defined in Section 5.3(b)(ix).
1.25 "GAAP": Generally accepted accounting principles in the United
States.
1.26 "Holder": As defined in Section 5.3(b)(i).
1.27 "Indemnified Parties": As defined in Section 9.2.2.
1.28 "Initial Public Offering": As defined in Section 5.3(b)(xii).
1.29 "Intellectual Properties": As defined in Section 3.15.1.
1.30 "Intellectual Property Rights": As defined in Section 3.15.1.
1.31 "Interests": The limited liability company membership interests of
the Company to be purchased by Buyer, representing 100% of the outstanding
limited liability company interests of the Company.
1.32 "Knowledge": Representations and warranties to a party's knowledge
mean that in acquiring such knowledge, the party representing and warranting
such knowledge has engaged in reasonable inquiry and investigation.
1.33 "Losses": As defined in Section 9.2.
1.34 "Managers": the managers of the Company as set forth in the Operating
Agreement.
1.35 "Member Indemnified Parties": As defined in Section 9.2.2.
1.36 "Millennium Compliant": As defined in Section 3.15.6.
1.37 "Notice": As defined in Section 5.3(b)(ii).
1.38 "Offered Price": As defined in Section 5.3(b)(ii).
1.39 "Operating Agreement": The Restated and Amended Operating agreement
of I-BALLS LLC, dated as of October 1, 1998.
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1.40 "Person": Any person, corporation, partnership, limited liability
company, joint venture, association, organization, other entity or governmental
or regulatory authority.
1.41 "Personal Property": As defined in Section 3.9(b).
1.42 "Proposed Transferee": As defined in Section 5.3(b)(ii).
1.43 "Purchase Price": As defined in Section 5.3(b)(iv).
1.44 "Real Property": As defined in Section 3.9(a).
1.45 "Registration Rights Agreement": As defined in Section 6.12.
1.46 "Returns": Any return, declaration, report, claim or refund,
information return, statement, or other similar document relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
1.47 "Right of First Refusal": As defined in Section 5.3(b)(i).
1.48 "Shares": As defined in Section 2.2.1.
1.49 "Series A Preferred Stock": As defined in Section 4.6(a).
1.50 "Series B Preferred Stock": As defined in Section 4.6(a).
1.51 "Series C Preferred Stock": As defined in Section 4.6(a).
1.52 "Taxes": As defined in Section 3.8(a).
1.53 "Transaction Documents": This Agreement and each of the agreements,
certificates, instruments and documents executed or delivered pursuant to the
terms of this Agreement.
ARTICLE II - PURCHASE AND SALE OF INTERESTS
2.1 Purchase and Sale of Interests
On the terms and subject to the conditions of this Agreement, Buyer agrees
to purchase the Interests from the Members, and the Members agree to sell the
Interests to Buyer.
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2.2 Consideration for Interests
The aggregate consideration for the Interests shall be payable as set forth
in this Section 2.2.
2.2.1 Closing Consideration
Buyer shall pay the Members, by wire transfer at the Closing, a total of
$3,500,000, less the Escrow Amount (the "Closing Amount"). The Closing Amount
shall be paid to the Members as set forth in Schedule 2.2.1. Buyer shall also
issue to the Members a total of 500,000 shares (the "Shares") of Buyer's common
stock, par value $0.01 per share (the "Common Stock"), to be distributed to the
Members pro rata based on their respective Interests.
2.2.2 Escrow Payment
Buyer shall pay $450,000 (the "Escrow Amount") to U.S. Bank Trust National
Association, as escrow agent (the "Escrow Agent"), to be held in escrow for a
period of one year from the date hereof. The Escrow Amount shall be held as
security for the indemnification obligations of ▇▇▇▇▇ and ▇▇▇▇▇ pursuant to
Section 9.2.1 and in accordance with an Escrow Agreement in substantially the
form attached as Exhibit 2.2 (the "Escrow Agreement") to be entered into by
Buyer, ▇▇▇▇▇, ▇▇▇▇▇ and the Escrow Agent as of the date hereof, and shall be
paid out as provided therein. The Escrow Amount shall be deducted pro rata from
that portion of the cash consideration otherwise payable to ▇▇▇▇▇ and ▇▇▇▇▇ as
set forth in Schedule 2.2.1.
2.3 Closing
The Closing shall be held at 10:00 a.m. (local time) on the date hereof at
the offices of ▇▇▇▇▇▇▇ Coie LLP in Seattle, Washington, or at such other place
as agreed to by ▇▇▇▇▇, ▇▇▇▇▇ and Buyer. At the Closing, Buyer and the Members
shall take all such action and deliver all such funds, documents, instruments,
certificates and other items as may be required, under this Agreement or
otherwise, in order to perform or fulfill all covenants, conditions and
agreements on their part to be performed or fulfilled at or before the date
hereof and to cause all conditions precedent to the other parties' obligations
under this Agreement to be satisfied in full.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
OF THE MEMBERS
Except as is otherwise set forth on the Disclosure Schedules, which
exceptions shall specifically identify the paragraph or paragraphs of this
Article III to which such exceptions relate, and which shall constitute in its
entirety a representation and
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warranty under this Article III, ▇▇▇▇▇ and ▇▇▇▇▇ jointly and severally represent
and warrant, and each Member with respect to Section 3.1 individually but not
jointly represents and warrants, to Buyer as of the date hereof as follows in
this Article III:
3.1 Member Matters
3.1.1 Good Title
Such Member owns the membership interest in the Company as set forth on
Disclosure Schedule 3.1.1 (collectively, the "Interests"). Except as disclosed
on Disclosure Schedule 3.1.1, such Interests are owned free and clear of any
lien, encumbrance, adverse claim, restriction on sale, transfer or voting (other
than restrictions imposed by applicable securities laws), preemptive right,
option or other right to purchase. Upon the consummation of the sale of such
Interests as contemplated hereby, Buyer will have good title to such Interests,
free and clear of any lien, encumbrance, adverse claim, restriction on sale,
transfer or voting (other than restrictions imposed by applicable securities
laws), preemptive right, option or other right to purchase.
3.1.2 Enforceability
This Agreement and the other Transaction Documents to which such Member is
a party have been duly executed and delivered by such Member and are legal,
valid and binding obligations of such Member, enforceable against such Member in
accordance with their terms.
3.1.3 Securities Law Representations and Warranties
Such Member has been advised that the Shares are not being registered under
the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws, but are being issued pursuant to exemptions from such laws, and
that Buyer's reliance upon such exemptions is predicated in part on such
Member's representations and warranties contained herein.
3.1.3(a) Purchase Entirely for Own Account
The Shares will be acquired for investment for such Member's own account,
not as a nominee or agent, and not with a view to distributing all or any part
thereof; such Member has no present intention of selling, granting any
participation in or otherwise distributing any of the Shares in a manner
contrary to the Act or any applicable state securities law, and such Member does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person
with respect to any of the Shares.
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3.1.3(b) Access to Information
Such Member believes it has been given access to full and complete
information regarding Buyer, including, in particular, the current financial
condition of Buyer and the risks associated therewith, and has utilized such
access to his or her satisfaction for the purpose of obtaining information about
Buyer; particularly, such Member has been given reasonable opportunity to ask
questions of, and receive answers from, Buyer concerning the business,
properties, prospects and financial condition of Buyer and to obtain any
additional information, to the extent reasonably available, necessary to verify
the accuracy of information provided to such Member about Buyer. No such
investigation, however, shall limit or qualify the representations and
warranties of Buyer in this Agreement.
3.1.3(c) Sophistication
Such Member, either alone or with the assistance of its professional
advisor, is a sophisticated investor, is able to fend for himself or herself in
the transactions contemplated by this Agreement, and has such knowledge and
experience in financial and business matters that he or she is capable of
evaluating the merits and risks of an investment in Buyer.
3.1.3(d) Suitability
The investment in the Shares is suitable for such Member based upon his or
her investment objectives and financial needs, and such Member has adequate net
worth and means for providing for such Member's current financial needs and
contingencies and has no need for liquidity of investment with respect to the
Shares. Such Member's overall commitment to investments that are not readily
marketable is not disproportionate to his or her net worth, and an investment in
the Shares will not cause such overall commitment to become excessive.
3.1.3(e) High Degree of Risk
SUCH MEMBER RECOGNIZES THAT AN INVESTMENT IN THE SHARES INVOLVES A HIGH
DEGREE OF RISK. Such Member is aware that Buyer is a start-up enterprise with a
limited operating history in a highly competitive market. Such Member
recognizes that Buyer's operations are continuing to incur losses and negative
cash flow, that Buyer will need significant additional capital to be successful,
which capital may not be readily available, and that there can be no assurance
that Buyer's products or services will be accepted in the marketplace or that
Buyer will be able to obtain its projected sales or profits goals.
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3.1.3(f) Restricted Securities
Such Shareholder realizes that (i) the Shares have not been registered
under the Act, are characterized under the Act as "restricted securities" and,
therefore, cannot be sold or transferred unless they are subsequently registered
under the Act or an exemption from such registration is available and (ii) there
is presently no public market for the Common Stock and such Shareholder would
most likely not be able to liquidate his or her investment in the event of an
emergency or to pledge the Shares as collateral security for loans.
3.1.3(g) Residency
Such Shareholder is a bona fide resident of, or is domiciled in, the state
identified in the address for such Shareholder on Disclosure Schedule 3.1.3(g).
3.1.3(h) Legends
Such Shareholder understands that the certificates evidencing the Shares
will bear a legend substantially as follows:
The securities evidenced by this certificate have not been registered under
the Securities Act of 1933, as amended (the "Act") or applicable state
securities laws, and no interest may be sold, distributed, assigned,
offered, pledged or otherwise transferred unless (a) there is an effective
registration statement under the Act and applicable state securities laws
covering any such transaction involving said securities, (b) this
corporation receives an opinion of legal counsel for the holder of these
securities satisfactory to this corporation stating that such transaction
is exempt from registration, or (c) this corporation otherwise satisfies
itself that such transaction is exempt from registration.
The shares represented by this certificate may be transferred only in
accordance with the terms of a Purchase Agreement dated as of
September ___, 1999 by and among the Company, the holder of this
certificate and certain other shareholders of the Company, a copy of which
is on file with the Secretary of the Company.
3.1.3(i) Accreditation
Such Shareholder is familiar with the term "accredited investor" and its
use in connection with private placements of securities under applicable
securities laws. Except as set forth on Disclosure Schedule 3.3.3(i), such
Shareholder is an accredited investor as such term is defined in Rule 501(a)
under the Act and as defined pursuant
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to the provisions of state securities laws applicable to such Shareholder
providing for an exemption from registration or qualification of the issuance of
the Shares.
3.1.4 Consent to Transfer
Pursuant to Section 6.1 of the Operating Agreement, such Member hereby
consents to the transfer of Interests by the other Members as contemplated by
this Agreement.
3.2 Organization; Good Standing; Authority
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the state of New York. The
Company is duly qualified to do business, and is in good standing, in the states
required due to (i) the ownership or lease of real or personal property for use
in the operation of the Company's business or (ii) the nature of the business
conducted by the Company, except where the failure to be so qualified would not
have a material adverse effect on the business, assets, operations, prospects or
condition (financial or other) of the Company. The Company has all requisite
corporate power, right and authority to own, operate and lease its properties
and assets and to carry on its business as now conducted and as proposed to be
conducted.
(b) All actions on the part of the Company and the Members necessary for
the authorization, execution, delivery and performance of this Agreement and the
other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, have been taken.
3.3 Interests
(a) The Interests consist solely of six membership interests in the
Company, held by the Members as set forth on Disclosure Schedule 3.1.1. All
Interests are duly authorized and validly issued in compliance with all
applicable federal, state and foreign laws, including the New York Limited
Liability Company Law. Except for the Members, no Person holds any interest in
the Company.
(b) There are no outstanding rights of first refusal, preemptive rights,
options or other agreements, either directly or indirectly, for the purchase or
acquisition from the Company or any Member of any Interest.
(c) The Company is not a party or subject to any agreement or
understanding, and there is no agreement or understanding between any Persons,
that affects or relates to the voting or giving of written consents with respect
to any Interests or the voting by any Member.
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3.4 Subsidiaries and Affiliates
The Company does not own, directly or indirectly, any ownership, equity,
profits or voting interest in, or otherwise control, any Person, and the Company
has no agreement or commitment to purchase any such interest.
3.5 No Approvals or Notices Required; No Conflicts
The execution, delivery and performance of this Agreement and the other
Transaction Documents by the Members, and the consummation of the transactions
contemplated hereby and thereby, will not (a) constitute a violation (with or
without the giving of notice or lapse of time, or both) of any provision of any
law or any judgment, decree, order, regulation or rule of any court, agency or
other governmental authority applicable to the Company, (b) except as disclosed
on Disclosure Schedule 3.5(b), require any consent, approval or authorization
of, or declaration, filing or registration with, any Person, (c) except as
disclosed on Disclosure Schedule 3.5(c), result in a default (with or without
the giving of notice or lapse of time, or both) under, acceleration or
termination of, or the creation in any party of the right to accelerate,
terminate, modify or cancel, any agreement, lease, note or other restriction,
encumbrance, obligation or liability to which the Company is a party or by which
it is bound or to which any assets of the Company are subject, (d) result in the
creation of any lien or encumbrance upon the assets of the Company, or upon any
Interests, (e) conflict with or result in a breach of or constitute a default
under any provision of the Operating Agreement or (f) invalidate or adversely
affect any permit, license, authorization or status used in the conduct of the
business of the Company.
3.6 Financial Statements; Obligations
The Company has delivered to Buyer unaudited balance sheets and unaudited
statements of operations and cash flows of the Company at and for the following
periods: December 31, 1997 through July 31, 1999. All the foregoing financial
statements (including the notes thereto) are referred to as the "Company
Financial Statements." The Company Financial Statements have been prepared in
conformity with GAAP consistently applied throughout the periods covered, except
as may be indicated in the notes thereto, and present fairly the financial
position, results of operations and changes in financial position of the Company
as at the dates and for the periods indicated, subject to normal recurring
period-end adjustments. The Company has no material liabilities or obligations
of any nature (absolute, accrued or contingent) that are not fully reflected or
reserved against in the Company Balance Sheet, as prescribed by GAAP and the
Financial Accounting Standards Board, except (i) liabilities or obligations
incurred since the date of the Company Balance Sheet in the ordinary course of
business and consistent with past practice or (ii) as specifically
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set forth on Disclosure Schedule 3.6. The Company maintains standard systems of
accounting established and administered in accordance with GAAP. Except as
disclosed on Disclosure Schedule 3.6, the Company is not a guarantor,
indemnitor, surety or other obligor of any indebtedness of any other Person.
Disclosure Schedule 3.6 sets forth all promissory notes, loans, lines of credits
or similar obligations pursuant to which the Company is an obligor, together
with all the amounts owed by the Company under such obligations, as of the date
hereof. Disclosure Schedule 3.6 sets forth all indebtedness and other
obligations of the Members relating to the Company, together with all the
amounts owed by such Members in respect thereof, as of the date hereof.
3.7 Absence of Certain Changes or Events
Except (a) as and to the extent reflected or reserved against in the
Company Balance Sheet, (b) for liabilities and obligations incurred in the
ordinary course of business since the date of the Company Balance Sheet, which
are not material in amount, and (c) as otherwise disclosed on Disclosure
Schedule 3.7, there are no liabilities or obligations of any nature relating to
the Company, accrued or contingent, whether or not due and payable and whether
or not in dispute, that would be required to be included in a balance sheet
prepared in accordance with GAAP. The Company has not entered into or agreed to
enter into any transaction, agreement or commitment, suffered the occurrence of
any event or events or experienced any change in financial condition, business,
results of operations or otherwise that, in the aggregate, has (i) interfered
with the normal and usual operations of the Company or business prospects of the
Company or (ii) resulted in a material adverse change in the business, assets,
operations, prospects or condition (financial or other) of the Company or could
reasonably be expected to have such material adverse effect. For the purposes
of this Section 3.7, payments of accrued bonuses of $197,058 as reflected in the
Company Financial Statements will not constitute an interference or material
adverse change as described in the foregoing sentence, and distributions
reflected in the Members' capital account balances in an aggregate amount of
$492,177 as disclosed or otherwise provided in the Company Financial Statements
will not constitute an interference or material adverse change as described in
the foregoing sentence.
3.8 Taxes
(a) The Company has (i) timely filed with the appropriate governmental
agencies (domestic and foreign) all material returns (including information
returns reflecting the Members' shares of Company taxable income) for all Taxes
(as defined below) required to have been filed with respect to the Company and
its business ("Returns"), and such Returns are true, correct and complete and
(ii) duly and timely paid all Taxes (whether or not reflected on such Returns)
that are due or claimed to be
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due by any governmental agency, other than (A) Taxes that are due or claimed to
be due by Members and (B) such payments as are being contested in good faith by
appropriate proceedings. "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, but not limited to, income, excise, gross
receipts, property, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, severance, stamp, occupation,
windfall profits, social security and unemployment or other taxes imposed by the
United States or any agency or instrumentality thereof, any state, county, local
or foreign government, or any agency or instrumentality thereof, and any
interest or fines, and any and all penalties or additions relating to such
taxes, charges, fees, levies or other assessments.
(b) Except as set forth on Disclosure Schedule 3.8: (i) no unresolved
claim for assessment or collection of Taxes has been asserted or, to the
knowledge of ▇▇▇▇▇ and ▇▇▇▇▇, threatened against the Company and, to the
knowledge of ▇▇▇▇▇ and ▇▇▇▇▇, no audit or investigation of the Company by any
governmental authority is under way with respect to Taxes, interest or other
governmental charges; and (ii) the Company has duly and timely withheld from
employee salaries, wages and other compensation and paid over to the appropriate
governmental authority all amounts required to be so withheld and paid over for
all periods under all applicable laws.
(c) The Company has furnished Buyer with complete and correct copies of all
Returns.
3.9 Property
(a) Disclosure Schedule 3.9(a) contains a complete and accurate list of all
real property that is owned, leased, rented or used by the Company (the "Real
Property"). The Company has delivered to Buyer true and complete copies of all
leases, subleases, rental agreements, contracts of sale, tenancies or licenses
relating to the Real Property.
(b) Disclosure Schedule 3.9(b) contains a complete and accurate list of
personal property as of July 31, 1999 having a book value in excess of $5,000
that is owned, leased, rented or used by the Company (the "Personal Property");
provided, however, that such list need not describe the Company's Intellectual
Properties or its Intellectual Property Rights. The Company has delivered to
Buyer true and complete copies of all leases, subleases, rental agreements,
contracts of sale, tenancies or licenses relating to the Personal Property.
(c) The Company holds good, marketable and insurable title to a fee or
leasehold interest, as applicable, in the Real Property, free and clear of all
liens, mortgages, pledges, deeds of trust, security interests, charges and other
encumbrances.
-12-
(d) Except for (i) assessments for current taxes not yet due and payable,
(ii) mechanics', materialmen's, carriers' and other similar statutory liens
securing indebtedness that is in the aggregate less than $25,000, which was
incurred in the ordinary course of business and is not yet due and payable, and
(iii) those liens disclosed on Disclosure Schedule 3.9(d), the Personal Property
is free and clear of all liens, and except as disclosed on Disclosure Schedule
3.9(d), the Company owns such Personal Property.
(e) Each lease of any portion of the Real Property and each lease, license,
rental agreement, contract of sale or other agreement to which the Personal
Property is subject is listed on Disclosure Schedule 3.9(e) and is valid,
binding and enforceable in accordance with its terms against the parties
thereto; the Company has performed all obligations imposed upon it thereunder;
and the Company is not in default thereunder, nor to the knowledge of ▇▇▇▇▇ or
▇▇▇▇▇ is there any event that with notice or lapse of time, or both, would
constitute a default thereunder. Except as disclosed on Disclosure Schedule
3.9(e), no consent is required from any Person under any lease or other
agreement or instrument relating to the Real Property or Personal Property in
connection with the consummation of the transactions contemplated by this
Agreement, and the Company has not received notice that any party to any such
lease or other agreement or instrument intends to cancel, terminate or refuse to
renew the same or to exercise or decline to exercise any option or other right
thereunder.
3.10 Contracts
Disclosure Schedule 3.10 contains a complete and accurate list of all
contracts, agreements, arrangements and understandings with a value in excess of
$5,000, oral or written, to which the Company is a party or by which the Company
is bound, including, without limitation, all security agreements, Intellectual
Property licenses and other license agreements, credit agreements, instruments
relating to the borrowing of money, purchase contracts, sale contracts, research
contracts and scientific collaboration or cooperation agreements. Disclosure
Schedule 3.10 also sets forth all agency agreements to which the Company is a
party or by which it is bound, and all insertion orders that require the Company
to purchase advertising space on Web sites for periods longer than 90 days and
that involve payments that in the aggregate are greater than $50,000. To the
knowledge of ▇▇▇▇▇ or ▇▇▇▇▇, all agreements set forth on Disclosure Schedule
3.10 are valid, binding and enforceable in accordance with their terms against
each party thereto and are in full force and effect; the Company has performed
all obligations imposed upon it thereunder; and the Company is not in default
thereunder; nor is there any event that with notice or lapse of time, or both,
would constitute a default thereunder. Furthermore, to the knowledge of ▇▇▇▇▇
or ▇▇▇▇▇, no breach or default by any other party to any such agreement or any
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provision thereof, nor any condition or event that, with notice or lapse of
time, or both, would constitute such a breach or default, has occurred. True and
complete copies of each such agreement have been delivered to Buyer. Except as
disclosed on Disclosure Schedule 3.10, no consent is required from any Person
under any contract, agreement, arrangement or understanding set forth on
Disclosure Schedule 3.10 in connection with the consummation of the transactions
contemplated by this Agreement, and the Company has not received notice, and is
not otherwise aware, that any party to any such contract, agreement, arrangement
or understanding intends to cancel, terminate or refuse to renew such contract,
agreement, arrangement or understanding or to exercise or decline to exercise
any option or right thereunder.
3.11 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations, criminal or civil
investigations or proceedings pending or involving or, to the knowledge of ▇▇▇▇▇
or ▇▇▇▇▇, threatened against the Company before or by any court or governmental
or nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of ▇▇▇▇▇ or ▇▇▇▇▇, there
is no valid basis for any claim, action, suit, arbitration, investigation or
proceeding that could reasonably be expected to be materially adverse to the
business, assets, operations, prospects or condition (financial or other) of the
Company before or by any Person. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which the Company is a party that
involve the transactions contemplated herein or that would have a material
adverse effect on the business, assets, operations, prospects or condition
(financial or other) of the Company.
3.12 Labor Matters
There are no labor disputes, employee grievances or discrimination or other
employment related actions pending or, to the knowledge of ▇▇▇▇▇ or ▇▇▇▇▇,
threatened against or involving the Company or any present or former employee of
the Company. To the knowledge of ▇▇▇▇▇ or ▇▇▇▇▇, the Company has complied in
all material respects with all provisions of law relating to employment and
employment practices, terms and conditions of employment, wages and hours
including, without limitation, equal opportunity, workplace safety, workers'
compensation and other similar laws. The Company is not engaged in any unfair
labor practice and does not have any liability for any arrears of wages or Taxes
or penalties for failure to comply with any such provisions of law. There is no
labor strike, dispute, slowdown or stoppage pending or threatened against or
affecting the Company, and the Company has not experienced any work stoppage or
similar concerted employee activities. No collective bargaining agreement is
binding on the Company.
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3.13 Employee Arrangements and Plans
(a) Disclosure Schedule 3.13 sets forth a true, accurate and complete list
and description of each Employee Benefit Plan. The Company does not have any
agreement, arrangement or commitment, whether formal or informal and whether
legally binding or not, to create any additional Employee Benefit Plan or to
modify any existing Employee Benefit Plan. Except as set forth in Disclosure
Schedule 3.13, the terms of each Employee Benefit Plan permit the Company to
amend or terminate such Employee Benefit Plan at any time and for any reason
without penalty. There has been no amendment, written interpretation or
announcement (whether or not written) by the Company relating to, or change in
participation or coverage under, any Employee Benefit Plan that, either alone or
together with other items or events, would materially increase the expense of
maintaining the Employee Benefit Plans above the level of expense incurred with
respect thereto for the most recent fiscal year included in the Company
Financial Statements. The Company does not have any "employee benefit plans" as
defined in ERISA.
(b) The Company has delivered to Buyer true, correct and complete copies
(or, in the case of unwritten Employee Benefit Plans, descriptions) of all
Employee Benefit Plans (and all amendments thereto), along with, to the extent
applicable to the particular Employee Benefit Plan, the following information:
(i) copies of the annual reports (Form 5500 series) filed for the last three
years; (ii) copies of the summary plan descriptions, summary annual reports,
summaries of material modifications and all material employee manuals or
communications filed or distributed with respect to the Employee Benefit Plan
during the last three years; (iii) copies of any insurance contracts or trust
agreements (and any amendments thereto) through which the Employee Benefit Plan
is funded; (iv) copies of all documents relating to any loans to the Employee
Benefit Plan, including, but not limited to, any and all notes, security
agreements and guarantees; (v) copies of all contracts (and any amendments
thereto) relating to the Employee Benefit Plan, including, but not limited to,
service provider agreements, insurance contracts, investment management
agreements, subscription and prescription agreements and recordkeeping
agreements; (vi) a copy of the most recent Internal Revenue Service
determination letter issued with respect to the Employee Benefit Plan; and (vii)
notice of any material adverse change occurring with respect to the Employee
Benefit Plan since the date of the most recently completed and filed annual
report.
(c) With respect to each Employee Benefit Plan: (i) such Employee Benefit
Plan is, and at all times since inception has been, maintained, administered,
operated and funded in compliance with its terms and with the requirements
prescribed by any and all applicable laws, statutes, orders, rules and
regulations; (ii) all returns, reports
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and other disclosures relating to such Employee Benefit Plan required to be
filed with any governmental entity or agency or furnished to any participant or
beneficiary have been fully and accurately completed or prepared and timely and
properly filed or furnished in accordance with applicable law; (iii) and no
event or omission has occurred, or is about to occur, that could subject the
Company or any other Person, directly or indirectly, to a tax under Chapter 43
of Subtitle D of the Code.
(d) There are no actions, suits or claims (other than routine claims for
benefits) pending or, to the knowledge of ▇▇▇▇▇ or ▇▇▇▇▇, threatened with
respect to any Employee Benefit Plan or against the assets of any Employee
Benefit Plan. No Employee Benefit Plan is currently under investigation, audit
or review, directly or indirectly, by the Internal Revenue Service, Department
of Labor or any other governmental entity or agency, and, to the knowledge of
▇▇▇▇▇ and ▇▇▇▇▇, no such action is contemplated or under consideration by the
Internal Revenue Service, Department of Labor or any other governmental entity
or agency.
(e) The consummation of the transactions contemplated by this Agreement and
the other Transaction Documents will not: (i) entitle any current or former
manager, member, employee, agent or independent contractor of the Company to
severance pay, unemployment compensation or any other payment from the Company,
or increase the amount of compensation due to any such individual; (ii) result
in any benefit becoming established, or accelerate the time of payment or
vesting of any benefit, under any Employee Benefit Plan; (iii) require the
Company to make any contribution to a "rabbi" trust or to increase its
contribution to any Employee Benefit Plan; (iv) conflict with the terms of any
Employee Benefit Plan, whether or not some other subsequent action or event
would be required to trigger any of the items specified in clause (i), (ii),
(iii) or (iv) of this Section 3.13(e); or (iv) result in a payment or series of
payments by the Company or any other person or entity, directly or indirectly,
to any person that would constitute a "parachute payment" within the meaning of
Section 280G of the Code.
3.14 Personnel
Disclosure Schedule 3.14 sets forth a true and complete list of the names
and the family relationships, if any, among all Members, employees, contractors
and consultants of the Company.
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3.15 Intellectual Property
3.15.1 Title
The Company owns, or is licensed or otherwise entitled to use without
restriction (free and clear of any encumbrance) (in each case as delineated on
Disclosure Schedule 3.15), its Intellectual Properties (as defined below) and
its Intellectual Property Rights (as defined below) and has rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to use its Intellectual Properties and its Intellectual Property
Rights. "Intellectual Properties" means all services, computer programs,
specifications, source code, object code, graphics, art work, designs, devices,
techniques, know-how, algorithms, methods, technology, processes, procedures,
packaging, trade dress, trade secrets, formulae, drawings, designs,
improvements, discoveries, concepts, user interfaces, "look and feel," software
or development tools, content and inventions, whether or not patentable or
copyrightable and whether or not reduced to practice, all designs, logos,
themes, know-how, promotional ideas, marketing and purchasing strategies,
concepts that are now used, have been used or are currently proposed to be used
in the Company's business and all documentary evidence thereof, including,
without limitation, the intellectual properties listed on Disclosure Schedule
3.15. "Intellectual Property Rights" means all intellectual property and other
proprietary rights in the Intellectual Properties, and all licenses, sublicenses
or like agreements providing any right or concession to use any of the
Intellectual Properties, including all trade names, trademarks, domain names,
service marks, copyrights and their registrations and applications and all
goodwill associated therewith, all domestic and foreign letters patented and
patent applications, if any, whether arising under the laws of the United States
or any other state, country or jurisdiction, including all rights or causes of
action for infringement or misappropriation of any of the foregoing, including,
without limitation, the intellectual property and other proprietary rights
listed on Disclosure Schedule 3.15.
3.15.2 Licenses
Copies of all licenses, sublicenses and other agreements, including
confidential disclosure agreements, relating to the Intellectual Property Rights
or pursuant to which any other Person is authorized to use any of the
Intellectual Properties, are listed on Disclosure Schedule 3.15 and have been
delivered by the Company to Buyer. The Company is not, and as a result of the
execution and delivery of this Agreement or any other Transaction Document or
the performance of the Members' obligations hereunder will not be, in violation
of, or lose any rights pursuant to, any such license, sublicense or agreement.
-17-
3.15.3 Infringement
To the knowledge of ▇▇▇▇▇ and ▇▇▇▇▇, the Intellectual Properties do not
infringe any patent, copyright, trade secret, trademark or other intellectual
property or proprietary right of any Person, whether arising under the laws of
the United States or any other state, country or jurisdiction. No claim with
respect to the Intellectual Properties has been asserted or is threatened by any
Person, and the Company is not aware of any claim (a) to the effect that the
manufacture, sale or use of any product or specification used or offered by the
Company or proposed for use or sale by the Company or using or incorporating any
of the Intellectual Properties infringes any copyright, patent, trademark,
service ▇▇▇▇, trade secret or other intellectual property or proprietary right
of any Person, whether arising under the laws of the United States or any other
state, country or jurisdiction; (b) against the use by the Company of any of its
Intellectual Properties; or (c) challenging the ownership, validity or
effectiveness of any of its Intellectual Property Rights. To the knowledge of
▇▇▇▇▇ or ▇▇▇▇▇, there has not been and there is not now any unauthorized use,
infringement or misappropriation of any Intellectual Properties or Intellectual
Property Rights by any Person, including, without limitation, any current or
former employee of the Company. To the knowledge of ▇▇▇▇▇ and ▇▇▇▇▇, there has
not been and there is not now any unauthorized use, infringement or
misappropriation of any copyright, patent, trademark, service ▇▇▇▇, trade secret
or other intellectual property or proprietary right of any Person by the
Company.
3.15.4 Valid and Subsisting; Applications and Registrations
All patents, common law and registered trademarks, service marks, domain
names and other product or service identifiers and registered and unregistered
copyrights (and all applications therefor) of the Company are listed on
Disclosure Schedule 3.15 (together with their current status), and to the
knowledge of ▇▇▇▇▇ and ▇▇▇▇▇ are valid and subsisting. To the knowledge of
▇▇▇▇▇ and ▇▇▇▇▇, the Company had and does now have the exclusive right to file,
prosecute and maintain all applications and registrations with respect to its
Intellectual Property Rights.
3.15.5 Indemnification
The Company has not entered into any agreement or offered to indemnify any
Person against any charge of infringement of any intellectual property or other
proprietary right. The Company has not entered into any agreement granting any
Person the right to bring any infringement action with respect to, or otherwise
to enforce, any of the Intellectual Property Rights.
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3.15.6 Year 2000
The software included in the Intellectual Properties (including, without
limitation, any software licensed by the Company and incorporated or imbedded in
any product or specification used or offered by the Company or proposed for use
or sale by the Company) is Millennium Compliant. As used in this Agreement,
"Millennium Compliant" means the ability of the software to provide the
following functions: (a) consistently handle date information before, during
and after January 1, 2000, including, but not limited to, accepting date input,
providing date output, and performing calculations on dates or portions of
dates; (b) function accurately in accordance with its specifications and without
interruption before, during and after January 1, 2000, without any change in
operations associated with the advent of the new century (defined for purposes
of this section as commencing at 12:00 A.M., January 1, 2000); (c) respond to
two-digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner; and (d) store and provide output of
date information in ways that are unambiguous as to century; provided that all
other software and all hardware with which such software interacts or upon which
such software relies in order to properly function is Millennium Compliant.
3.15.7 Restrictions on Intellectual Property
None of the Company's Members, employees, and, to the knowledge of ▇▇▇▇▇
and ▇▇▇▇▇, consultants, distributors, agents, representatives or advisors has
entered into any agreement relating to the Company's business regarding know-
how, trade secrets, assignment of rights in inventions, or prohibition or
restriction of competition or solicitation of customers, or any other similar
restrictive agreement or covenant, whether written or oral, with any Person
other than the Company.
In addition: (a) the Company has not disclosed other than in the ordinary
course consistent with past practice any proprietary information relating to
Intellectual Properties and Intellectual Property Rights to any Person other
than to Buyer or disclosures to Persons who are required contractually to
maintain the confidentiality of such proprietary information; (b) the Company
has at all times maintained reasonable procedures to protect and enforce all
Intellectual Properties and Intellectual Property Rights; and (c) except for
sharing technical data with customers as is typical in the Company's business,
the Company is not under any contractual or other obligation to disclose any
proprietary information relating to Intellectual Properties.
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3.16 Accounts Receivable
Except as disclosed on Disclosure Schedule 3.16, all accounts receivable of
the Company reflected in the Company Balance Sheet or existing through the date
hereof ("Accounts") represent amounts due for services performed or sales
actually made in the ordinary course of business and properly reflect the
amounts due. Except as set forth on Disclosure Schedule 3.16, the bad debt
reserves and allowances reflected in the Company Balance Sheet are adequate in
all material respects. Except as disclosed on Disclosure Schedule 3.16, all
Accounts existing and remaining unpaid as of the date hereof will be collectible
by Buyer in the ordinary course of business consistent with past practice.
3.17 Corporate Books and Records
The Company has furnished to Buyer true and complete copies of (a) the
Operating Agreement as currently in effect, including all amendments thereto,
and (b) records of any meetings of the Board of Managers and any committee
thereof of the Company. Such records reflect all meetings of the Members, the
Managers and any committees thereof since the Company's inception, and such
records accurately reflect the events of and actions taken at such meetings.
3.18 Licenses, Permits, Authorizations, etc.
The Company has received all required governmental approvals,
authorizations, consents, licenses, orders, registrations and permits of all
agencies, whether federal, state, local or foreign (the "Company Permits"), the
failure to obtain of which would have a material adverse effect on the business,
assets, operations, prospects or condition (financial or other) of the Company.
The Company is in compliance in all material respects with the terms of all
Company Permits, and all Company Permits are valid and in full force and effect,
and no proceeding is pending or, to the knowledge of ▇▇▇▇▇ or ▇▇▇▇▇, threatened,
the object of which is to revoke, limit or otherwise affect any Company Permit.
The Company has not received any notifications of any asserted failure to obtain
any Company Permit.
3.19 Compliance With Laws
The Company is and has been in compliance in all material respects with all
federal, state, local and foreign laws, rules, regulations, ordinances, decrees
and orders applicable to the operation of its business, to its employees, or to
its property, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, zoning and land use, environmental protection, equal opportunity,
health, occupational safety, good
-20-
laboratory practices, pension, securities and trading-with-the-enemy matters.
The Company has not received any notification of any asserted present or past
unremedied failure by the Company to comply with any of such laws, rules,
ordinances, decrees or orders.
3.20 Insurance
The Company maintains (a) insurance on its property (including leased
premises) that insures against loss or damage by fire or other casualty
(including extended coverage) and (b) insurance against liabilities, claims and
risks which cover all events or occurrences prior to the date hereof regardless
of when the claim is made of a nature and in such amounts as are normal and
customary in the Company's industry. All insurance policies of the Company are
in full force and effect.
3.21 Brokers or Finders
The Company has not incurred, and will not incur, directly or indirectly,
as a result of any action taken by or on behalf of the Company, any liability
for brokerage or finders' fees or agents' commissions or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.22 Bank Accounts
Disclosure Schedule 3.22 sets forth the names and locations of all banks,
trust companies, savings and loan associations and other financial institutions
at which the Company maintains safe deposit boxes or accounts and the names of
all Persons authorized to draw thereon, make withdrawals therefrom or have
access thereto.
3.23 Previous Conduct of Business; Insider Interests
Except as described in Disclosure Schedule 3.23, all of the transactions of
the Company with third parties have been conducted on an arm's-length basis.
Except as described in Disclosure Schedule 3.23, no employee, contractor,
consultant or other representative of the Company has any direct or indirect
interest, and no Member has any direct or indirect interest, other than as a
Member, (a) in any property, real or personal, tangible or intangible, used in
or directly pertaining to the business of the Company, including, without
limitation, any Intellectual Property, or (b) in any agreement, contract,
arrangement or obligation relating to the Company or its operations. Except as
described on Disclosure Schedule 3.23, and except with regard to holdings of
less than five percent of the outstanding capital stock of any entities whose
shares are publicly traded on any securities exchange, to the knowledge of ▇▇▇▇▇
or ▇▇▇▇▇, neither the Company nor any of its Members, employees, contractors
-21-
or consultants has any interest, either directly or indirectly, in any entity
that (i) provides any services, produces or sells any products or product lines,
or engages in any activity that is the same, similar to or competitive with any
activity or business in which the Company is now engaged or proposes to engage
or (ii) is a supplier, customer or creditor of the Company, or has an existing
contractual relationship with any of the Company's employees (or persons
performing similar functions).
ARTICLE IV - REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to the Members as of the date hereof as
follows in this Article IV:
4.1 Organization; Good Standing; Authority
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the state of Washington. Buyer is duly qualified to
do business, and is in good standing, in the states required due to (i) the
ownership or lease of real or personal property for use in the operation of
Buyer's business or (ii) the nature of the business conducted by Buyer, except
where the failure to be so qualified would not have a material adverse effect on
the business, assets, operations, prospects or condition (financial or other) of
Buyer. Buyer has all requisite corporate power and authority to own, operate
and lease its properties and assets, to carry on its business as now conducted
and as proposed to be conducted, to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party,
and to carry out the transactions contemplated hereby and thereby.
4.2 Enforceability
All action on the part of Buyer and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of this Agreement and the other Transaction Documents to which it is
a party, the consummation of the transactions contemplated hereby and thereby,
and the performance of all of Buyer's obligations under this Agreement and the
other Transaction Documents to which it is a party has been taken. This
Agreement and the other Transaction Documents to which Buyer is a party have
been duly executed and delivered by Buyer, and this Agreement and each of the
other Transaction Documents to which Buyer is a party is a legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms.
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4.3 No Approvals or Notices Required; No Conflicts With Instruments
The execution, delivery and performance by Buyer of this Agreement and the
other Transaction Documents to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, will not (a) constitute a
violation (with or without the giving of notice or lapse of time, or both) of
any provision of any law or any judgment, decree, order, regulation or rule of
any court, agency or other governmental authority applicable to Buyer, (b)
require Buyer to obtain any consent, approval or authorization of, or
declaration, filing or registration with, any Person, (c) result in a default
(with or without the giving of notice or lapse of time, or both) under,
acceleration or termination of, or the creation in any party of the right to
accelerate, terminate, modify or cancel, any agreement, lease, note or other
restriction, encumbrance, obligation or liability to which Buyer is a party or
by which it is bound or to which any assets of Buyer are subject, (d) result in
the creation of any lien or encumbrance upon the assets of Buyer, (e) conflict
with or result in a breach of or constitute a default under any provision of the
Articles of Incorporation or Bylaws of Buyer or (f) invalidate or adversely
affect any permit, license, authorization or status used in the conduct of the
business of Buyer.
4.4 Claims and Legal Proceedings
There are no claims, actions, suits, arbitrations, criminal or civil
investigations or proceedings pending or involving or, to Buyer's knowledge,
threatened against Buyer before or by any court or governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, or any other Person. To the knowledge of Buyer, there is no
valid basis for any claim, action, suit, arbitration, investigation or
proceeding that could reasonably be expected to be materially adverse to the
business, assets, operations, prospects or condition (financial or other) of
Buyer before or by any Person. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which Buyer is a party that
involve the transactions contemplated herein or that would have a material
adverse effect on the business, assets, operations, prospects or condition
(financial or other) of Buyer.
4.5 Tax Consequences
Buyer does not make any representation or warranty with respect to, and
expressly disclaims any responsibility for, any Tax consequences to the Members
arising out of the structure or terms of this Agreement, or the negotiation or
consummation hereof. Each Member shall be solely responsible for any such Tax
consequences.
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4.6 Capitalization
(a) The authorized capital stock of Buyer consists of 50,000,000 shares of
Common Stock and 17,500,000 shares of preferred stock, $0.01 par value, of which
4,000,000 shares have been designated Series A Preferred Stock (the "Series A
Preferred Stock"), 2,580,000 shares have been designated Series B Preferred
Stock (the "Series B Preferred Stock"), and 10,000,000 shares have been
designated Series C Preferred Stock (the "Series C Preferred Stock").
(b) Immediately prior to the date hereof, the issued and outstanding
capital stock of Buyer consisted solely of 12,866,096 shares of Common Stock,
3,998,474 shares of Series A Preferred Stock, 2,580,000 shares of Series B
Preferred Stock, and 9,837,623 shares of Series C Preferred Stock. All shares of
Common Stock, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock that are issued and outstanding are duly authorized and validly
issued, fully paid and nonassessable.
4.7 Validly Issued Shares
The Shares have been duly authorized for issuance, and the Shares, when
issued and delivered to the Members pursuant to this Agreement, shall be validly
issued, fully paid and nonassessable and will be free of all encumbrances and
restrictions other than encumbrances and restrictions attributable to the
Members, and the restrictions referred to in the restrictive legend set forth in
Section 3.1.3(h) hereto and the restrictions set forth in Section 5.3.
4.8 Financial Statements
Buyer has delivered to the Company and the Members its audited balance
sheet and statement of stockholders' equity at December 31, 1998, and its
audited statements of operations and cash flows for the year ended December 31,
1998. All the foregoing financial statements (including the notes thereto) are
referred to as the "Buyer Financial Statements." The Buyer Financial Statements
have been prepared in conformity with GAAP consistently applied throughout the
periods covered, except as may be indicated in the notes thereto, and present
fairly the financial position, results of operations and changes in financial
position of Buyer at the dates and for the periods indicated. Buyer has
delivered to the Company and the Members its unaudited income statement for the
seven months ended July 31, 1999, and the Buyer Balance Sheet. Buyer has no
material liabilities or obligations of any nature (absolute, accrued or
contingent) that are not fully reflected or reserved against in the Buyer
Balance Sheet, except (i) liabilities or obligations incurred since the date of
the Buyer Balance Sheet in the ordinary course of business and consistent with
past practice or (ii) as specifically set forth on Disclosure Schedule 4.8.
Buyer maintains
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standard systems of accounting established and administered in accordance with
GAAP.
4.9 Absence of Certain Changes or Events
Except (a) as and to the extent reflected or reserved against in the Buyer
Balance Sheet, (b) for liabilities and obligations incurred in the ordinary
course of business since the date of the Buyer Balance Sheet, which are not
material in amount, and (c) as otherwise disclosed on Disclosure Schedule 4.9,
there are no liabilities or obligations of any nature relating to Buyer, accrued
or contingent, whether or not due and payable and whether or not in dispute,
that would be required to be included in a balance sheet prepared in accordance
with GAAP. Buyer has not entered into or agreed to enter into any transaction,
agreement or commitment, suffered the occurrence of any event or events or
experienced any change in financial condition, business, results of operations
or otherwise that, in the aggregate, has (i) interfered with the normal and
usual operations of Buyer or business prospects of Buyer or (ii) resulted in a
material adverse change in the business, assets, operations, prospects or
condition (financial or other) of Buyer or could reasonably be expected to have
such material adverse effect.
4.10 Licenses, Permits, Authorizations, etc.
Buyer has received all required governmental approvals, authorizations,
consents, licenses, orders, registrations and permits of all agencies, whether
federal, state, local or foreign (the "Buyer Permits"), the failure to obtain of
which would have a material adverse effect on the business, assets, operations,
prospects or condition (financial or other) of Buyer. Buyer is in compliance in
all material respects with the terms of all Buyer Permits, and all Buyer Permits
are valid and in full force and effect, and no proceeding is pending or, to the
knowledge of Buyer, threatened, the object of which is to revoke, limit or
otherwise affect any Buyer Permit. Buyer has not received any notifications of
any asserted failure to obtain any Buyer Permit.
4.11 Compliance With Laws
Buyer is and has been in compliance in all material respects with all
federal, state, local and foreign laws, rules, regulations, ordinances, decrees
and orders applicable to the operation of its business, to its employees, or to
its property, including, without limitation, all such laws, rules, ordinances,
decrees and orders relating to antitrust, consumer protection, currency
exchange, zoning and land use, environmental protection, equal opportunity,
health, occupational safety, good laboratory practices, pension, securities and
trading-with-the-enemy matters. Buyer
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has not received any notification of any asserted present or past unremedied
failure by Buyer to comply with any of such laws, rules, ordinances, decrees or
orders.
4.12 Brokers or Finders
Buyer has not incurred, and will not incur, directly or indirectly, as a
result of any action taken by or on behalf of Buyer, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
ARTICLE V - COVENANTS
The parties covenant and agree as set forth in this Article V.
5.1 Further Action
In case at any time after the date hereof any action is necessary or
desirable to carry out the purposes of this Agreement, each party to this
Agreement shall use its best efforts to take all such action.
5.2 Publicity
None of the parties shall disclose, make or issue, or cause to be
disclosed, made or issued, any comment, statement or communication with respect
to, or otherwise disclose or permit the disclosure of the existence of, this
Agreement or the transactions contemplated hereby to any third parties (other
than its managers, officers, directors, employees, authorized representatives,
legal advisors and financial advisors who need to know such information in
connection with carrying out or facilitating the transactions contemplated
hereby) without the prior written consent of the other parties, except as
required by law and after providing written notice to the other parties of such
required disclosure, which notice shall include the content of the proposed
disclosure, the reasons that such disclosure is required by law, and the time
and place such disclosure will be made.
5.3 Limitations on Disposition of Shares; Right of First Refusal
(a) The Members will not dispose of any portion of the Shares unless and
until:
(i) There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement;
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(ii) Such Member shall have furnished Buyer with an opinion of
counsel, reasonably satisfactory to Buyer, that such disposition will not
require registration of such shares under the Act; or
(iii) Buyer shall be satisfied that such proposed disposition
complies with SEC Rule 144 or any successor rule providing a safe harbor for
such dispositions without registration.
For purposes of this Section 5.3, the term "dispose" includes, but is
not limited to, the acts of selling, assigning, transferring, pledging,
encumbering, giving away, devising, and any other form of conveying, including
conveyances caused by marital separation, divorce, receivership, or bankruptcy,
whether voluntary or involuntary or by operation of law. For purposes of this
Section 5.3, the term "Shares" includes the Shares as defined in Section 2.2.1
as well as any shares issued by Buyer in connection with the exercise of stock
options as provided in the employment agreements entered into by Buyer and ▇▇▇▇▇
and ▇▇▇▇▇ as of the date hereof.
(b) (i) Notwithstanding the provisions of Section 5.3(a), before any
Shares held by any Member or any transferee of any Member (either being
sometimes referred to as the "Holder") may be sold or otherwise disposed of (as
defined above but excluding transfers described in and governed by Section
5.3(b)(vii), Buyer or its assignee(s) shall have a right of first refusal to
purchase the Shares on the terms and conditions set forth in this Section 5.3(b)
(the "Right of First Refusal").
(ii) The Holder of the Shares shall deliver to Buyer a written
notice (the "Notice") stating: (A) the Holder's bona fide intention to sell or
otherwise transfer such Shares; (B) the name and address of any proposed
purchaser or other transferee ("Proposed Transferee"); (C) the number of Shares
to be transferred; and (D) the terms and conditions of any proposed sale or
transfer, including the proposed purchase price for the Shares to be transferred
(the "Offered Price").
(iii) At any time within thirty (30) days after receipt of the
Notice, Buyer or its assignee(s) may, by giving written notice to the Holder,
elect to purchase all, but not less than all, of the Shares proposed to be
transferred to any one or more of the Proposed Transferees, at the purchase
price determined in accordance with Section 5.3(b)(iv) below.
(iv) The purchase price ("Purchase Price") for the Shares purchased
by Buyer or its assignee(s) under this Section 5.3(b) shall be the Offered
Price. If the Offered Price includes consideration other than cash, the cash
equivalent value of the
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non-cash consideration shall be determined by the Board of Directors of Buyer in
good faith.
(v) Payment of the Purchase Price shall be made, at the option of
Buyer or its assignee(s), in cash (by check), by cancellation of all or a
portion of any outstanding indebtedness of the Holder to Buyer (or, in the case
of repurchase by an assignee, to the assignee), or by any combination thereof
within thirty (30) days after receipt of the Notice or in the manner and at the
times set forth in the Notice.
(vi) If all of the Shares proposed in the Notice to be transferred
to a given Proposed Transferee are not purchased by Buyer and/or its assignee(s)
as provided in Section 5.3(b)(iii), then the Holder may sell or otherwise
transfer such Shares to that Proposed Transferee at the Offered Price or at a
higher price, provided that such sale or other transfer is consummated within
sixty (60) days after the date of the Notice and provided further that any such
sale or other transfer is effected in accordance with any applicable securities
laws and the Proposed Transferee and any spouse executes an endorsement in the
form attached as Exhibit 5.3(b)(vi), acknowledging that the provisions of this
Agreement shall continue to apply to the Shares in the hands of such Proposed
Transferee (an "Endorsement"). If the Shares are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new Notice
shall be given to Buyer, and Buyer or its assignees shall again be offered the
Right of First Refusal before any Shares held by the Holder may be sold or
otherwise transferred.
(vii) Notwithstanding anything to the contrary in this Section
5.3(b), the transfer of any or all of the Shares during the Member's lifetime or
on the Member's death by will or intestacy to the Member's Immediate Family or a
trust for the benefit of the Member's Immediate Family shall be exempt from the
provisions of this Section 5.3(b). "Immediate Family" as used herein shall mean
the Member's spouse (except in the case of divorce), father, mother, brother,
sister or children or an entity in which all beneficial ownership interests are
held by the Member, any of the aforementioned persons or any other such entity.
In such case, the transferee or other recipient shall receive and hold the
Shares so transferred subject to the provisions of this Section 5.3(b), shall
execute an Endorsement and there shall be no further transfer of such Shares
except in accordance with the terms of this Section 5.3(b).
(viii) Notwithstanding anything to the contrary in this Section
5.3(b), the transfer by gift of up to an aggregate of 30,000 Shares by ▇▇▇▇▇ or
▇▇▇▇▇ to employees of the Company shall be exempt from the provisions of this
Section 5.3(b), provided that ▇▇▇▇▇ and ▇▇▇▇▇ may transfer such Shares to no
more than five employees of the Company, and provided further that the
transferees of such Shares
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shall receive and hold the Shares so transferred subject to the provisions of
this Section 5.3(b), shall execute an Endorsement and there shall be no further
transfer of such Shares except in accordance with the terms of this Section
5.3(b).
(ix) In the event, at any time after the date of this Agreement, of
any transfer by operation of law or other involuntary transfer (including death,
divorce, legal separation or bankruptcy, but excluding a transfer to Immediate
Family as set forth in Section 5.3(b)(vii) above) of all or a portion of the
Shares by the Holder, Buyer or its assignee(s) shall have an option to purchase
all of the Shares transferred at the Fair Market Value (as defined below) of the
Shares on the date of transfer. The Holder or the Holder's executor shall
promptly notify the Secretary of Buyer in writing of such involuntary transfer.
The right to purchase such Shares shall be provided to Buyer or its assignee(s)
for a period of thirty (30) days following receipt by Buyer of such written
notice. In the event that the proposed transfer is required by the order,
judgment or decision of a court, arbitrator or other third party, the Holder or
the Holder's executor shall notify such court, arbitrator or other third party
of Buyer's rights under this Section 5.3(b)(ix).
(x) For purposes of this Agreement, the "Fair Market Value" of the
Shares shall be defined as the value of the Shares as determined by the Board of
Directors of Buyer, which value reflects the then-current value of the Shares in
terms of present earnings and future prospects of Buyer. Buyer shall notify the
Holder or the Holder's executor of the Fair Market Value within thirty (30) days
after receipt by it of written notice of the proposed transfer of Shares.
However, if the Holder or the Holder's executor does not agree with the
valuation as determined by the Board of Directors of Buyer, the Holder or the
Holder's executor shall be entitled to have the valuation determined by an
independent appraiser to be mutually agreed upon by Buyer and the Holder or the
Holder's executor and whose fees shall be borne equally by Buyer and the Holder
or the Holder's estate.
(xi) The rights of Buyer to purchase any part of the Shares may be
assigned in whole or in part to any shareholder or shareholders of Buyer or
other persons or organizations.
(xii) All transferees of Shares or any interest therein will receive
and hold such Shares or interest subject to the provisions of this Section
5.3(b). Any sale or transfer of the Shares shall be void unless the provisions
of this Section 5.3(b) are met.
(xiii) This Section 5.3(b) shall terminate upon the closing of the
first sale of Common Stock of Buyer to the general public (an "Initial Public
Offering") under a registration statement declared effective under the Act, or
any successor
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statute. Upon termination of this Section 5.3(b), a new certificate or
certificates representing the Shares shall be issued, on request, without the
second paragraph of the legend required by Section 3.1.3(h) and delivered to
such Member.
5.4 Noncompetition Agreements
The Members shall cause each employee of the Company who will continue
to be employed by the Company after the date hereof to enter into a twelve-month
noncompetition agreement in substantially the form attached as Exhibit 5.4, and
shall terminate any such employees on or before October 31, 1999 who have not
entered into such agreement within 30 days of the date hereof.
5.5 Delivery of Stock Option Letter Agreements
Buyer shall within 10 days after the date hereof deliver to continuing
employees of the Company stock option letter agreements granting options to
purchase up to an aggregate of 125,000 shares of Common Stock, subject to the
terms of the Avenue A, Inc. 1998 Stock Incentive Compensation Plan (as amended
and restated April 20, 1999).
ARTICLE VI - CONDITIONS PRECEDENT TO
OBLIGATIONS OF BUYER
The obligations of Buyer to perform and observe the covenants, agreements
and conditions to be performed and observed by it shall be subject to the
satisfaction of the following conditions, which may be expressly waived only in
writing signed by Buyer.
6.1 Accuracy of Representations and Warranties
Each of the representations and warranties of the Members contained in this
Agreement (including applicable Exhibits or Disclosure Schedules) shall be true
and correct as of the date hereof.
6.2 Performance of Agreements
The Members shall have performed all obligations and agreements and
complied with all covenants and conditions contained in this Agreement to be
performed and complied with by them at or prior to the date hereof.
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6.3 Opinion of Counsel for the Members
Buyer shall have received the opinion of Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP,
counsel for the Members, dated as of the date hereof, in substantially the form
attached as Exhibit 6.3.
6.4 Members' Certificate
Buyer shall have received a certificate of the Members of the Company,
dated as of the date hereof, in substantially the form attached as Exhibit 6.4,
certifying that the conditions set forth in Sections 6.1, 6.2 and 6.5 have been
fulfilled.
6.5 Approvals and Consents
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, the granting or
delivery of which is necessary for the consummation of the transactions
contemplated hereby or for the continued operation of the Company as set forth
on the Disclosure Schedules, shall have been obtained. All other consents,
approvals and notices material to the consummation of the transactions
contemplated by this Agreement and referred to on the Disclosure Schedules shall
have been obtained or delivered. All such transfers, approvals and consents
shall be satisfactory in all respects to Buyer in its sole and absolute
discretion.
6.6 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
6.7 Nonforeign Affidavit
Buyer shall have received from the Members, pursuant to Section 1445 of the
Code, a Foreign Investment in Real Property Tax Act Affidavit in the form
attached as Exhibit 6.7.
6.8 Escrow Agreement
Buyer, the Escrow Agent, ▇▇▇▇▇ and ▇▇▇▇▇ shall have executed and delivered
the Escrow Agreement.
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6.9 Registration Rights Agreement
Buyer and the Members shall have executed and delivered a Registration
Rights Agreement, dated as of the date hereof, in substantially the form
attached as Exhibit 6.9 (the "Registration Rights Agreement").
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF THE MEMBERS
The obligations of the Members to perform and observe the covenants,
agreements and conditions to be performed and observed by each of them shall be
subject to the satisfaction of the following conditions, which may be expressly
waived only in writing signed by ▇▇▇▇▇ and ▇▇▇▇▇.
7.1 Accuracy of Representations and Warranties
Each of the representations and warranties of Buyer contained in this
Agreement (including applicable Exhibits or Disclosure Schedules) shall be true
and correct as of the date hereof.
7.2 Performance of Agreements
Buyer shall have performed all obligations and agreements and complied with
all covenants and conditions contained in this Agreement to be performed and
complied with by it at or prior to the date hereof.
7.3 Opinion of Counsel for Buyer
The Members shall have received the opinion of ▇▇▇▇▇▇▇ Coie LLP, counsel
for Buyer, dated as of the date hereof, in substantially the form attached as
Exhibit 7.3.
7.4 Officer's Certificate
The Members shall have received a certificate of a Vice President of Buyer,
dated as of the date hereof, in substantially the form attached as Exhibit 7.4,
certifying that the conditions in Section 7.1, 7.2 and 7.5 have been fulfilled.
7.5 Approvals and Consents
All transfers of permits or licenses and all approvals, applications or
notices to public agencies, federal, state, local or foreign, required to be
obtained by Buyer for the consummation of the transactions contemplated hereby
shall have been obtained. All other consents, approvals and notices material to
the consummation of the
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transactions contemplated by this Agreement and referred to on the Disclosure
Schedules shall have been obtained or delivered.
7.6 Legal Proceedings
No order of any court or administrative agency shall be in effect that
enjoins, restrains, conditions or prohibits consummation of this Agreement, and
no litigation, investigation or administrative proceeding shall be pending or
threatened that would enjoin, restrain, condition or prevent consummation of
this Agreement or the transactions contemplated hereby.
7.7 Delivery of Certificates
Buyer shall have delivered to the Members at the Closing certificates
representing the Shares.
7.8 Escrow Agreement
Buyer, the Escrow Agent, ▇▇▇▇▇ and ▇▇▇▇▇ shall have executed and delivered
the Escrow Agreement.
7.9 Registration Rights Agreement
Buyer and the Members shall have executed and delivered the Registration
Rights Agreement.
ARTICLE VIII - AMENDMENT AND WAIVER
8.1 Amendment
Buyer and the Members may amend, modify or supplement this Agreement at any
time, but only in writing duly executed by them.
8.2 Waiver
Any party may waive any inaccuracy in the representations and warranties
contained in any Transaction Document, or waive compliance with any agreement or
condition in any Transaction Document. Any such waiver shall be valid only if
set forth in an instrument in writing signed by the party or parties to be
bound. The failure of any party at any time or times to require performance of
any provisions shall in no manner affect its right at a later time to enforce
the same. No waiver by any party of any condition or of any breach of any
terms, covenants, representations, warranties or agreements contained in this
Agreement shall be deemed to be a further
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or continuing waiver of any such condition or breach in other instances or a
waiver of any other condition or any breach of any other terms, covenants,
representations, warranties or agreements.
ARTICLE IX - SURVIVAL AND INDEMNIFICATION
9.1 Survival
All representations and warranties contained in this Agreement or the other
Transaction Documents shall survive for a period of one year following the date
hereof, except that the representations and warranties with respect to Section
3.1.1 (Good Title), Section 3.3 (Interests), Section 3.8 (Taxes), Section 3.15
(Intellectual Property), Section 4.6 (Capitalization) and Section 4.7 (Validly
Issued Shares) shall not terminate and shall survive indefinitely. The
covenants and agreements contained in this Agreement that contemplate
performance after the Closing shall survive the Closing and shall continue until
all obligations with respect thereto shall have been performed or satisfied or
shall have been terminated in accordance with their terms, except the covenants
set forth in Section 5.2 shall survive for a period of five years.
9.2 Indemnification
9.2.1 Indemnification by ▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇ and ▇▇▇▇▇ jointly and severally shall indemnify and hold Buyer and
its affiliates (the "Buyer Indemnified Parties") harmless from and against, and
shall reimburse Buyer Indemnified Parties for, any and all losses, damages,
debts, liabilities, obligations, judgments, orders, awards, writs, injunctions,
decrees, fines, penalties, taxes, costs or expenses (including but not limited
to any reasonable legal and accounting fees and expenses) ("Losses") arising out
of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by any Member in this Agreement or in any other Transaction
Document;
(b) any failure by any Member to perform or comply, in whole or in
part, with any covenant or agreement in this Agreement or any other Transaction
Document to which such Member is a party; or
(c) any claim, demand, cause of action, suit, proceeding, hearing
or investigation ("Claim") by any Person for all Taxes relating to periods on or
prior to the date hereof.
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9.2.2 Indemnification by Buyer
Buyer shall indemnify and hold ▇▇▇▇▇ and ▇▇▇▇▇ (the "Member Indemnified
Parties"; together with Buyer Indemnified Parties, the "Indemnified Parties")
harmless from and against, and shall reimburse the Member Indemnified Parties
for, any and all Losses arising out of or in connection with:
(a) any inaccuracy in or other breach of any representation or
warranty made by Buyer in this Agreement or in any other Transaction Document;
or
(b) any failure by Buyer to perform or comply, in whole or in part,
with any covenant or agreement in this Agreement or any other Transaction
Document to which it is a party.
9.3 Limitations
(a) No claim for indemnification may be made unless the aggregate
amount of all indemnifiable Losses exceeds $50,000, in which event an
Indemnified Party shall be entitled to indemnification for all Losses.
(b) In no event shall ▇▇▇▇▇ or ▇▇▇▇▇ be obligated to make any
payments for Losses in an aggregate amount in excess of the Escrow Amount except
for payments made for Losses relating to Section 3.1.1 (Good Title), Section 3.3
(Interests) or Section 3.8 (Taxes), which payments in the aggregate (together
with all other payments made pursuant to Section 9.2.1) shall not exceed
$3,960,000.
(c) In no event shall Buyer be obligated to make any payments for Losses
in an aggregate amount in excess of $450,000 except for payments made for Losses
relating to Section 4.6 (Capitalization) or Section 4.7 (Validly Issued Shares),
which payments in the aggregate (together with all other payments made pursuant
to Section 9.2.2) shall not exceed $3,960,000.
9.4 Procedure for Indemnification
9.4.1 Claim Notice
In the event that any Indemnified Party sustains or incurs any Losses in
respect of which indemnification may be sought pursuant to this Article IX, such
Indemnified Party may assert a claim for indemnification by giving written
notice (the "Claim Notice") to the indemnifying party that will describe in
reasonable detail the facts and circumstances upon which the asserted claim for
indemnification is based. The Claim Notice will also specify how the
Indemnified Party intends to recover such funds pursuant to this Agreement.
Unless the claim described in the Claim Notice is
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contested by the indemnifying party by written notice to the Indemnified Party
(and to the Escrow Agent if the claim is against ▇▇▇▇▇ or ▇▇▇▇▇), given within
30 days of the receipt of the Claim Notice, the Indemnified Party may recover
such undisputed amount of the claim described in the Claim Notice. If the
undisputed claim is against ▇▇▇▇▇ or ▇▇▇▇▇, such claim may be paid out of the
Escrow Amount by giving written notice of such claim to the Escrow Agent. The
Escrow Agent shall be entitled to rely on any such notice and distribute the
Escrow Amount held in escrow to Buyer in accordance with the terms thereof.
9.4.2 Dispute Notice
If, within 30 days of the receipt by the indemnifying party of the Claim
Notice, the indemnifying party contests in writing to the Indemnified Party and
the Escrow Agent (if such claim is against ▇▇▇▇▇ or ▇▇▇▇▇) that such Loss
constitutes an indemnifiable claim (the "Dispute Notice"), then the Indemnified
Party and the indemnifying party, acting in good faith, shall attempt to reach
agreement with respect to such claim. If the Indemnified Party and the
indemnifying party should so agree, a memorandum setting forth such agreement
shall be prepared and signed by the Indemnified Party and the indemnifying party
and shall be furnished to the Escrow Agent if claim is to be made against the
Escrow Amount. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute the Escrow Amount in accordance with the terms
thereof. Any claims for which the indemnifying party and the Indemnified Party
do not reach agreement are subject to arbitration as set forth in Section
10.5(b).
9.4.3 Third-Party Claims
With respect to claims for indemnification resulting from or in connection
with any legal proceeding commenced by a third party, the Indemnified Party will
give the Claim Notice to the indemnifying party no later than 10 days prior to
the time any initial answer or response to the asserted claim is legally
required under any applicable court or procedural rule. Nothing in this Section
9.4.3 limits in any way the right of the Indemnified Party to defend against any
claim or litigation in such manner as it may deem appropriate, including, but
not limited to, settling the claim or litigation (after giving notice of the
same to the indemnifying party) on such terms as the Indemnified Party may in
good ▇▇▇▇▇ ▇▇▇▇ appropriate (provided, however, that no such settlement shall
occur without the indemnifying party's prior written consent, which shall not be
unreasonably withheld). The indemnifying party will, subject to the limitations
set forth in Section 9.3, promptly indemnify the Indemnified Party in accordance
with the provisions of this Article IX and the Escrow Agreement, if applicable.
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9.5 Access to Escrow Amount
The satisfaction of any Losses agreed by the parties, or finally determined
by arbitration, to be owed to Buyer under this Article IX shall be made by
delivery by the Escrow Agent to Buyer of all or a portion of the Escrow Amount.
Any liability for indemnification by ▇▇▇▇▇ or ▇▇▇▇▇ under this Article IX shall
(subject to the limitations set forth in Section 9.3) be satisfied, first, from
the Escrow Amount pursuant to a set-off under the Escrow Agreement and, second,
to the extent the Escrow Amount is insufficient to satisfy any such liability,
from other assets of ▇▇▇▇▇ or ▇▇▇▇▇.
ARTICLE X - GENERAL
10.1 Expenses
Each party shall pay its, his or her own fees and expenses for the
negotiation, preparation and carrying out of this Agreement and the other
Transaction Documents (including any legal and accounting fees and expenses).
The Members shall pay any transfer or similar Taxes which may be payable in
connection with the transactions contemplated by this Agreement.
10.2 Specific Enforcement
The parties expressly agree that they will be irreparably damaged if this
Agreement is not specifically enforced. Upon a breach or threatened breach of
this Agreement by any party, Buyer and the Members shall, in addition to all
other remedies, be entitled to a temporary or permanent injunction, without
showing any actual damage, or a decree for specific performance, in accordance
with the provisions of this Agreement.
10.3 Assignment
This Agreement shall not be assigned by any party or by operation of law or
otherwise, except that Buyer may assign all or any of its rights and obligations
to any of its affiliates. In the event of any such permitted assignment, Buyer
shall guarantee the performance of such obligations by such assignee.
10.4 Notices
Unless otherwise provided, any notice under this Agreement shall be given
in writing and shall be deemed effectively given (a) upon personal delivery to
the party to be notified, (b) upon confirmation of receipt by fax by the party
to be notified, (c) one business day after deposit with a reputable overnight
courier, prepaid for
-37-
overnight delivery and addressed as set forth below, or (d) three days after
deposit with the U.S. Post Office, postage prepaid, registered or certified with
return receipt requested and addressed to the party to be notified at the
address indicated for such party below, or at such other address as such party
may designate by 10 days' advance written notice to the other parties given in
the foregoing manner.
TO BUYER:
Avenue A, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ Coie LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
-38-
TO THE MEMBERS:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇/▇▇/ ▇▇▇▇▇▇, #▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇, #▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇/▇▇/ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to:
Camhy ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, Esq.
and, if to ▇▇▇▇▇, a copy to:
▇▇▇▇▇▇ & ▇▇▇▇▇, P.C.
One ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇/▇▇/ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
-39-
10.5 Governing Law; Arbitration; Jurisdiction; Venue
(a) This Agreement shall be governed by and construed under the laws of
the state of Washington without regard to principles of conflict of laws.
(b) Any controversy, dispute or claim arising out of or relating to this
Agreement or the breach hereof that cannot be settled by mutual agreement
(except for actions by any party seeking equitable, injunctive or other relief)
shall be finally settled by arbitration as follows: Any party who is aggrieved
shall deliver a notice to the other parties hereto setting forth the specific
points in dispute. Any points remaining in dispute 20 days after the giving of
such notice shall be submitted to arbitration in Seattle, Washington, to
JAMS/Endispute, before a single arbitrator appointed in accordance with
JAMS/Endispute's Arbitration Rules, modified as expressly provided therein. The
arbitrator may enter a default decision against any party who fails to
participate in the arbitration proceedings. The decision of the arbitrator on
the points in dispute will be final, unappealable and binding, and judgment on
the award may be entered in any court having jurisdiction. The parties to this
Agreement irrevocably consent to submit to the jurisdiction and venue of the
state and federal courts located in King County, Washington for the purpose of
resolving disputes arising out of this Agreement and the transactions
contemplated by this Agreement and hereby waive any claim based on a lack of
personal jurisdiction concerning the matter in dispute. Notwithstanding any
other provision of this Agreement, the arbitrator will be authorized to
apportion its fees and expenses and the reasonable attorneys' fees and expenses
of the parties as the arbitrator deems appropriate. In the absence of any such
apportionment, the fees and expenses of the arbitrator will be borne 50% by
Buyer, on the one hand, and 50% by the Members, on the other hand, and each such
party will bear the fees and expenses of its own attorneys. The parties agree
that this clause has been included to rapidly and inexpensively resolve any
disputes between them with respect to this Agreement, and that this clause shall
be grounds for dismissal of any court action commenced by either party with
respect to this Agreement, other than post-arbitration actions seeking to
enforce an arbitration award. The parties shall keep confidential, and shall
not disclose to any Person, except as may be required by law, the existence of
any controversy hereunder, the referral of any such controversy to arbitration
or the status or resolution thereof.
10.6 Successors and Assigns
The terms and conditions of this Agreement shall inure to the benefit of
and be binding on the respective heirs, personal representatives, executors,
successors and assigns of the parties.
-40-
10.7 Severability
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provision shall be excluded from this Agreement, and
the balance of this Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
10.8 Entire Agreement; Counterparts
This Agreement (including the exhibits and Disclosure Schedules hereto),
the Transaction Documents (including, but not limited to, the Registration
Rights Agreement, the Escrow Agreement, and certain employment agreements) and
the non-disclosure agreement between Buyer and the Company, dated December 29,
1998, constitute the entire agreement among the parties with respect to this
subject matter and supersede all prior agreements and undertakings, both written
and oral, among the parties with respect to this subject matter, including, but
not limited to, the Letter of Intent, dated May 26, 1999, among Buyer and the
Members. In the event that the terms of this Agreement shall be inconsistent or
conflict with the terms of any other Transaction Document, the terms of this
Agreement shall govern. This Agreement may be executed in two or more
counterparts, which together shall constitute one instrument.
10.9 Consent to Transfer of Interests
The Members hereby consent to the transfer of the Interests to Buyer and
consent to the admission of Buyer as a substitute Member of the Company pursuant
to Article VI of the Operating Agreement.
10.10 Consent of Parties
Unless otherwise expressly stated herein, whenever the consent of a party
is required to be given hereunder, such consent shall not be unreasonably
withheld or delayed.
[SIGNATURE PAGE FOLLOWS]
-41-
IN WITNESS WHEREOF, the parties hereto have entered into and signed this
Agreement as of the date and year first above written.
AVENUE A, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Its: Vice President
MEMBERS OF I-BALLS, LLC
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇
-42-
SCHEDULE 2.2.1
SCHEDULE OF MEMBERS AND CLOSING AMOUNTS
-----------------------------------------------------------------------
Members Closing Amounts Number of Shares
-----------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ $1,882,800 315,000
-----------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 747,200 125,000
-----------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇ 175,000 25,000
-----------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ 175,000 25,000
-----------------------------------------------------------------------
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ 35,000 5,000
-----------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇ 35,000 5,000
-----------------------------------------------------------------------
Total $3,050,000 500,000
-----------------------------------------------------------------------
SCHEDULE OF ESCROW AMOUNT CONTRIBUTIONS
-----------------------------------------------------------------------
Member Escrow Amount Contribution
-----------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ $322,200
-----------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 127,800
-----------------------------------------------------------------------
Total $450,000
-----------------------------------------------------------------------
-1-
DISCLOSURE SCHEDULE 4.8
-----------------------
Buyer entered into a lease agreement with ▇▇▇▇▇ Foundation on July 16,
1999, which provides for total lease payments of approximately $5.2 million for
an initial five-year term.
-1-
DISCLOSURE SCHEDULE 4.9
-----------------------
Buyer entered into a lease agreement with ▇▇▇▇▇ Foundation on July 16,
1999, which provides for total lease payments of approximately $5.2 million for
an initial five-year term.
-1-