Exhibit 2.1
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
ALLOY ONLINE, INC.,
▇▇▇▇▇▇ MEDIA GROUP, INC.,
CARNEGIE COMMUNICATIONS, INC.,
AND THE
STOCKHOLDERS OF ▇▇▇▇▇▇ MEDIA GROUP, INC.
Dated as of April 11, 2001
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TABLE OF CONTENTS
ARTICLE I.........................................................................................................2
1.1 The Merger......................................................................................2
1.2 The Effective Time of the Merger................................................................2
1.3 Effect of Merger................................................................................2
1.4 Charter and By-Laws of Surviving Corporation....................................................2
1.5 Taking of Necessary Action......................................................................3
1.6 Tax-Free Merger.................................................................................3
1.7 Closing.........................................................................................3
ARTICLE II........................................................................................................3
2.1 Total Consideration; Effect on Capital Stock....................................................3
(a) Conversion and Exchange Ratio for Company Stock........................................4
(b) Cancellation of Certain Shares of Company Stock........................................6
2.2 Escrow Deposit; Exchange of Certificates........................................................6
(a) Escrow Agreement.......................................................................6
(b) Escrow Deposit.........................................................................6
(c) Procedure for Exchange.................................................................6
(d) Fractional Shares......................................................................7
(e) No Further Ownership Rights............................................................7
(f) No Liability...........................................................................7
(g) Lost, Stolen or Destroyed Company Certificates.........................................7
2.3 Company Options; Other Securities...............................................................7
2.4 Authorization of the Merger, the Certificate of Merger, the Escrow Agreement and the
Escrow Agent....................................................................................8
ARTICLE III.......................................................................................................8
3.1 Representations and Warranties of the Company...................................................8
(a) Organization; Good Standing; Qualification and Power...................................8
(b) Subsidiaries; Equity Investments.......................................................9
(c) Capital Stock; Securities..............................................................9
(d) Authority.............................................................................10
(e) Financial Information.................................................................10
(f) Absence of Changes....................................................................11
(g) Absence of Undisclosed Liabilities....................................................13
i
(h) Tax Matters...........................................................................13
(i) Title to Assets; Equipment; Real Property.............................................14
(j) Proprietary Assets....................................................................15
(k) Licensed Software.....................................................................16
(l) Contracts, Agreements, Etc............................................................16
(m) Compliance with Legal Requirements....................................................17
(n) Governmental Authorizations...........................................................17
(o) Litigation, Etc.......................................................................17
(p) Accounts and Notes Receivable.........................................................18
(q) Accounts and Notes Payable............................................................18
(r) Environmental Matters.................................................................18
(s) Labor Relations; Employees............................................................19
(t) Employee Benefit Plans................................................................20
(u) Insurance.............................................................................23
(v) Non-Contravention; Consents...........................................................23
(w) Bank Accounts; Powers of Attorney.....................................................24
(x) Brokers...............................................................................24
(y) Related Transactions..................................................................24
(z) Customers.............................................................................24
(aa) Certain Agreements....................................................................24
(bb) Minute Books..........................................................................25
(cc) Business Generally....................................................................25
(dd) Board Approval........................................................................25
(ee) Vote Required.........................................................................25
(ff) Operation of Business.................................................................25
(gg) Disclosure............................................................................25
3.2 Several Representations and Warranties of the Stockholders.....................................26
(a) Title; Absence of Certain Agreements..................................................26
(b) Organization, Good Standing and Power.................................................26
(c) Brokers...............................................................................27
(d) Representation by Legal Counsel......................................................27
3.3 Representations and Warranties of Alloy........................................................27
(a) Organization; Good Standing; Qualification and Power..................................27
ii
(b) Capital Stock.........................................................................27
(c) Authority.............................................................................27
(d) SEC Documents.........................................................................28
(e) Brokers...............................................................................29
(f) Financial Information.................................................................29
(g) Disclosure............................................................................29
(h) Acknowledgements......................................................................30
(i) Derivative Securities.................................................................30
(i) 30
ARTICLE IV.......................................................................................................30
4.1 Related Agreements.............................................................................30
(a) Lock-Up Agreements....................................................................30
(b) Escrow Agreement......................................................................31
(c) Non-Competition Agreements............................................................31
(d) Registration Rights Agreements........................................................31
(e) Employment Agreement..................................................................31
(f) Release Agreements....................................................................31
(g) Sublease..............................................................................31
ARTICLE V........................................................................................................31
5.1 Preparation of Filings.........................................................................32
5.2 Approval.......................................................................................32
5.3 Financial Statements...........................................................................32
5.4 Stock Exchange Listing.........................................................................32
5.5 Dissenters Rights.............................................................................33
ARTICLE VI.......................................................................................................33
6.1 Conditions to Each Party's Obligations.........................................................33
(a) Approvals.............................................................................33
(b) Legal Action..........................................................................34
(c) Legislation...........................................................................34
6.2 Conditions to Obligations of Alloy.............................................................34
(a) Representations and Warranties of the Company and the Stockholder.....................34
(b) Performance of Obligations of the Company and the Stockholder.........................34
iii
(c) Authorization of Merger...............................................................34
(d) Opinion of the Company's Counsel......................................................34
(e) Consents and Approvals................................................................34
(f) Government Consents, Authorizations, Etc..............................................35
(g) Related Agreements....................................................................35
(h) Absence of Material Adverse Change....................................................35
(i) Asset Sale............................................................................35
(j) Resignation of Directors and Officers.................................................35
(k) Delivery of Closing Financial Certificate.............................................35
(l) Additional Documents..................................................................36
(m) Employee Benefit Plans................................................................36
6.3 Conditions to Obligations of the Company.......................................................36
(a) Representations and Warranties of Alloy...............................................36
(b) Performance of Obligations of Alloy...................................................36
(c) Related Agreements....................................................................37
(d) Aggregate Consideration...............................................................37
(e) Additional Documents..................................................................37
(d) Opinion of Alloy's Counsel............................................................37
(g) Related Agreements....................................................................37
ARTICLE VII......................................................................................................37
7.1 Certain Information Required by the Code.......................................................38
7.2 Restriction on Transfer........................................................................38
7.3 Confidentiality................................................................................40
ARTICLE VIII.....................................................................................................42
8.1 Definitions....................................................................................42
(a) "Affiliate............................................................................42
(b) "Event of Indemnification.............................................................42
(c) "Indemnified Persons..................................................................44
(d) "Indemnifying Persons.................................................................44
(e) "Losses...............................................................................44
8.2 Indemnification Generally......................................................................45
8.3 Assertion of Claims............................................................................46
8.4 Notice and Defense of Third Party Claims.......................................................47
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8.5 Survival of Representations and Warranties.....................................................47
8.6 Potential Additional Adjustment................................................................48
ARTICLE IX.......................................................................................................50
9.1 Termination....................................................................................50
9.2 Effect of Termination..........................................................................51
9.3 Specific Performance...........................................................................51
ARTICLE X........................................................................................................51
10.1 Expenses.......................................................................................51
10.2 Entire Agreement...............................................................................51
10.3 Interpretation.................................................................................51
10.4 Notices........................................................................................52
10.5 Counterparts...................................................................................53
10.6 Governing Law..................................................................................53
10.7 Benefits of Agreement..........................................................................53
10.8 Pronouns.......................................................................................53
10.9 Amendment, Modification and Waiver.............................................................53
10.10 No Third Party Beneficiaries...................................................................53
10.11 Consents.......................................................................................54
10.12 Interpretation.................................................................................54
10.13 No Joint Venture...............................................................................54
ANNEXES AND SCHEDULES
Disclosure Schedule
Schedule A ................ ▇▇▇▇▇▇ Stockholders
Schedule 7.4............... Persons Receiving Alloy Stock Options
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AGREEMENT AND PLAN OF MERGER dated as of April 11, 2001, by and between
ALLOY ONLINE, INC., a Delaware corporation ("Alloy"), ▇▇▇▇▇▇ MEDIA GROUP, INC.,
a Massachusetts corporation (the "Company"), CARNEGIE COMMUNICATIONS, INC., a
Delaware corporation ("Carnegie"), and the stockholders of the Company, all of
whom are listed on Schedule A hereto (the "Stockholders").
WHEREAS, the Company and Carnegie are engaged, among other things, in
the business of providing information about private colleges and universities
and the admissions process to high school students and their parents (the
"Business"), and Alloy is interested in acquiring the Business;
WHEREAS, the Boards of Directors of Alloy and the Company have
determined that it is in the best interests of their respective stockholders for
Alloy to acquire the Company and Carnegie, the Company's sole subsidiary, upon
the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance of such acquisition, the Boards of Directors of
Alloy and the Company have duly approved and adopted this Agreement and Plan of
Merger (this "Agreement"), a Certificate of Merger (the "Certificate of
Merger"), Articles of Merger (the "Articles of Merger") and the proposed merger
of the Company with and into Alloy in accordance with this Agreement, the
Certificate of Merger, the Articles of Merger, the Delaware General Corporation
Law (the "DGCL") and the Massachusetts Business Corporation Law (the "MBCL"),
whereby, among other things, immediately after the sale by the Company and
Carnegie to one or more third parties that may be, but need not be, Affiliates
of the Stockholders (the "Purchasers") of all assets of the Company and Carnegie
not exclusively or primarily used in the Business (the "Asset Sale"), the
Company will merge with and into Alloy, and all of the issued and outstanding
shares of (i) Common Stock, no par value per share, of the Company (the "Voting
Common") and (ii) Non-Voting Common Stock, $1.00 par value per share (the
"Non-Voting Common" and together with the Voting Common, the "Company Common
Stock") will be exchanged and converted into the right to receive shares of
common stock, $.01 par value, of Alloy (the "Alloy Common Stock"), warrants to
purchase shares of Alloy Common Stock and the right to receive certain cash
payments, all in the manner set forth in Article II hereof and in the
Certificate of Merger and the Articles of Merger, upon the terms and subject to
the conditions set forth in this Agreement and the Certificate of Merger and the
Articles of Merger.
WHEREAS, as a condition to the willingness of, and as an inducement to,
Alloy to enter into this Agreement, contemporaneously with the execution and
delivery of this Agreement, the Company, the Stockholders and certain other
parties are entering into or agreeing to enter into the Related Agreements (as
defined herein);
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that
this Agreement shall constitute a "plan of reorganization" for purposes of
Section 368 of the Code.
NOW, THEREFORE, in consideration of the mutual benefits to be derived
from this Agreement and the Certificate of Merger and the representations,
warranties, covenants, agreements, conditions and promises contained herein and
therein, the parties hereby agree as follows:
ARTICLE I
GENERAL
1.1 The Merger. In accordance with the provisions of and subject
to the conditions set forth in this Agreement, the Certificate of Merger, the
DGCL and the MBCL, at the Effective Time (as defined in Section 1.2), the
Company shall be merged with and into Alloy (the "Merger"). At and after the
Effective Time, Alloy shall be, and is sometimes herein referred to as, the
"Surviving Corporation," and the Company and Alloy are sometimes herein referred
to as the "Constituent Corporations."
1.2 The Effective Time of the Merger. Subject to the provisions
and conditions of this Agreement, on the Closing Date, the Certificate of Merger
shall be executed and verified by each of the Constituent Corporations and
delivered to and filed with the Secretary of State of the State of Delaware in
the manner provided in the DGCL and the Articles of Merger shall be executed and
verified by each of the Constituent Corporations and delivered to and filed with
the Secretary of the Commonwealth of the Commonwealth of Massachusetts in the
manner provided in the MBCL. The Merger shall become effective (i) upon the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and the filing of the Articles of Merger with the Secretary of the
Commonwealth of the Commonwealth of Massachusetts or (ii) at such time
thereafter as is provided in the Certificate of Merger and the Articles of
Merger. Such effective time shall be referred to herein as the "Effective Time."
1.3 Effect of Merger. At the Effective Time the separate existence
of the Company shall cease and the Company shall be merged with and into the
Surviving Corporation, and the Surviving Corporation shall succeed, without
other transfer, to all rights and property of each of the Constituent
Corporations and shall be subject to all the debts and liabilities of the
Constituent Corporations in the same manner as if the Surviving Corporation had
itself incurred them, and be subject to all the restrictions, disabilities and
duties of each of the Constituent Corporations as provided in the DGCL and the
MBCL.
1.4 Charter and By-Laws of Surviving Corporation. From and after
the Effective Time, (i) the Charter of Alloy as in effect immediately before the
Effective Time shall be the Charter of the Surviving Corporation unless and
until altered, amended or repealed as provided in the DGCL, (ii) the by-laws of
Alloy shall be the by-laws of the Surviving Corporation, unless and until
altered, amended or repealed as provided in the DGCL, the Charter or such
by-laws, (iii) the directors of Alloy shall be the directors of the Surviving
Corporation, unless and until removed, or
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until their respective terms of office shall have expired, in accordance with
the DGCL, the Charter and the by-laws of the Surviving Corporation, as
applicable, and (iv) the officers of Alloy shall be the officers of the
Surviving Corporation, unless and until removed, or until their terms of office
shall have expired, in accordance with the DGCL, the Charter and the by-laws of
the Surviving Corporation, as applicable.
1.5 Taking of Necessary Action. Prior to the Effective Time, the
parties hereto shall do or cause to be done all such acts and things as may be
necessary or appropriate in order to effectuate the Merger as expeditiously as
reasonably practicable, in accordance with this Agreement, the Certificate of
Merger, the DGCL and the MBCL, including, without limitation, consummating the
Asset Sale.
1.6 Tax-Free Reorganization. For Federal income tax purposes, the
parties intend that the Merger be treated as a tax-free reorganization within
the meaning of Section 368(a) of the Code. Except for cash paid or payable to
the Stockholders under Section 2.1 hereunder and any cash paid in lieu of
fractional shares, no consideration that could constitute "other property"
within the meaning of Section 356 of the Code is being transferred by Alloy in
the Merger in exchange for Company Common Stock. The parties shall not take a
position on any tax return or take any action inconsistent with this Section
1.6.
1.7 Closing. Unless this Agreement shall have been terminated and
the transactions contemplated by this Agreement abandoned pursuant to the
provisions of Article IX, and subject to the provisions of Article V, the
closing of the Merger (the "Closing") will take place at 10:00 a.m. (Eastern
time) on a date (the "Closing Date") to be mutually agreed upon by the parties,
which date shall be not later than the third Business Day after all the
conditions set forth in Article VI shall have been satisfied (or waived in
accordance with Section 10.9, to the extent the same may be waived), unless
another date is agreed to in writing by the parties. The Closing shall take
place at the offices of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One
Financial Center, Boston Massachusetts, unless another place is agreed to in
writing by the parties. As used herein, the term "Business Day" shall mean any
day other than a Saturday, Sunday or another day on which banks are permitted to
close in the City and State of New York.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 Total Consideration; Effect on Capital Stock. The entire
consideration (the "Aggregate Consideration") payable by Alloy with respect to
all outstanding shares of Company Common Stock (other than shares canceled
pursuant to Section 2.1(b), if any) (the "Outstanding Shares") shall be an
aggregate of (i) the number of shares of Alloy Common Stock (subject to
adjustment as hereinafter provided) (the "Total Alloy Share Amount") as is
obtained by dividing (A) twelve million dollars ($12,000,000) by (B) $9.13 (the
"Stipulated Price"); (ii) five million dollars ($5,000,000) in cash payable on
the Closing Date (the "Closing Cash Payment"); (iii) four (4) quarterly cash
payments of seven hundred thousand dollars ($700,000) each, commencing on the
first day of the fourth calendar month following the Closing Date and continuing
on the first day of each third calendar month thereafter until all such
quarterly payments have been made in full (each, a "Quarterly Cash Payment");
and (iv) one or more warrants by Alloy to purchase additional shares of Alloy
Common Stock, on the terms
3
and conditions and in an aggregate amount (the "Total Warrant Share Amount") set
forth in the form of Warrant attached as Exhibit A hereto (collectively, the
"Warrants"). Notwithstanding the foregoing, and notwithstanding Section 1.6 of
this Agreement, Alloy shall have the option, in its sole discretion, to redeem
for cash all or a portion of the Warrants at any time. In addition, at any time
that the Warrants are exercisable, each Stockholder shall have the option, in
their sole discretion, to put to Alloy for cash all or a portion of the
Warrant(s) then held by such Stockholder, provided that no such put would
disqualify the Merger from treatment as a tax free "reorganization" under the
Code. For purposes of any such redemption or put, the aggregate value of the
Warrants shall be equal to the then current Minimum Value, as defined in the
Warrants. Any such redemption or put shall be consummated in the manner and at
the time(s) set forth in the Warrants. In addition, under no circumstances shall
Alloy be obligated to issue any shares of Alloy Common Stock under the Warrant
if, but only to the extent that, such shares, when aggregated with the Merger
Shares and Additional Merger Shares, if any, issued pursuant to this Agreement,
would result in the issuance of a number of shares of Alloy Common Stock that
exceeds 19.9% of the total number of shares of Alloy Common Stock outstanding as
of the day immediately prior to the Closing Date. Notwithstanding the foregoing,
if Alloy redeems any or all of the Warrants and, in connection with all such
redemptions, Alloy pays the Stockholders cash in an amount that, alone or in
combination with all prior actual redemptions and puts, results in the Merger
being disqualified from treatment as a tax free reorganization, (i) the
Stockholders shall (notwithstanding any other provision of this Agreement) have
no liability for any additional Tax payable by the Company or Alloy as a result
of such disqualification, and (ii) Alloy shall pay to the Stockholders an
additional amount equal to (A) the interest and penalties that actually accrue
as a result of the acceleration of all of the long term capital gain on the
Merger into tax year 2001, assuming for purposes of such calculation that the
Stockholders collectively sold an aggregate of $791,667.00 in value of Merger
Shares in each month from and after the Closing Date until the first anniversary
of the Closing Date, and (B) the present value of the acceleration of the taxes
due on a portion of the long term capital gain on the Merger from tax year 2002
into tax year 2001, assuming for purposes of such calculation that the
Stockholders collectively sold an aggregate of $791,667.00 in value of Merger
Shares in each month from and after the Closing Date until the first anniversary
of the Closing Date, discounted at a annual interest rate equal to the interest
rate charged by the Internal Revenue Service on late payments.
For purposes of the calculation of the exchange ratio for Company
Common Stock under Section 2.1(a) hereof, it is assumed that the Redemption
Transaction will have occurred and that the number of Outstanding Company Shares
is 460.141, comprised of 61.75 shares of Voting Common and 398.391 shares of
Non-Voting Common, which number shall be confirmed or updated at the Closing and
reflected in the certificate of the Chief Executive Officer of the Company that
is being provided to Alloy pursuant to Section 6.2(a) (the "Outstanding Company
Share Amount"). At the Effective Time, subject and pursuant to the terms and
conditions of this Agreement, the Certificate of Merger and the Articles of
Merger, by virtue of the Merger and without any action on the part of the
Constituent Corporations or the holders of the capital stock of the Constituent
Corporations:
(a) Conversion and Exchange Ratio for Company Common Stock.
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(i) Subject to Section 2.2, each share of Company Common Stock
issued and outstanding at the Effective Time (other than shares
canceled pursuant to Section 2.1(b), if any), including all accrued and
unpaid dividends thereon, shall be exchanged and converted
automatically into the right to receive (1) such number of validly
issued, fully paid and non-assessable shares of Alloy Common Stock as
is determined by dividing (i) the Total Alloy Share Amount by (ii) the
Outstanding Company Share Amount, (2) a Warrant to purchase such number
of shares, if any, of validly issued, fully paid and non-assessable
Alloy Common Stock, as is determined by dividing (i) the Total Warrant
Share Amount by (ii) the Outstanding Company Share Amount, (3) a
portion of the Closing Cash Payment as is equal to $5,000,000 divided
by the Outstanding Company Share Amount and (4) a portion of each
Quarterly Cash Payment as is equal to $700,000 divided by the
Outstanding Company Share Amount (collectively, the "Per Share
Consideration"). The shares of Alloy Common Stock to be issued upon the
exchange and conversion of the Company Common Stock in accordance with
this Section 2.1(a) shall sometimes be hereinafter collectively
referred to as the "Merger Shares."
(ii) As of the Effective Time, all shares of Company Common
Stock and all shares and other securities convertible into or
exercisable or exchangeable for, or representing the right to purchase
or otherwise receive, directly or indirectly, any such capital stock,
or other arrangement to acquire, at any time or under any circumstance,
Company Common Stock or other capital stock or other securities of the
Company, if any (collectively, the "Convertible Securities"), shall no
longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate or other
instrument representing any such shares or interests shall cease to
have any rights with respect thereto, except the right to receive the
consideration set forth in Section 2.1 hereof, and any cash in lieu of
fractional shares of Alloy Common Stock to be issued or paid in
consideration for the Company Common Stock, upon surrender of such
certificate in accordance with Section 2.2(d) hereof.
(iii) The parties acknowledge that the Aggregate Consideration
is based upon a presumed consolidated Net Working Capital amount of the
Company at Closing equal to $0 ("Presumed Company Net Working
Capital"), which shall not include any assets or liabilities which are
being transferred in connection with or which arise out of or in
connection with the Asset Sale, plus $150,000 in cash, which is the
amount of the estimated Actual 2001 FY Tax Liability (as defined
below). Notwithstanding the foregoing, if on the Closing Date, the
Estimated Company Net Working Capital (as defined in Section 6.2 below)
is less than the Presumed Company Net Working Capital, then the Total
Alloy Share Amount shall be reduced at Closing by an amount equal to
the Working Capital Adjustment Factor (as defined below). Any such
reduction shall reduce the overall Aggregate Consideration. For
purposes hereof, "Net Working Capital" shall mean current assets less
current liabilities, "Working Capital Difference" shall mean the
difference, if any, between the Presumed Company Net Working Capital
and the Estimated Company Net Working Capital and "Working Capital
Adjustment Factor" shall mean the nearest whole number obtained by
dividing the Working Capital Difference by the Stipulated Price.
5
(b) Cancellation of Certain Shares of Company Common Stock. Each share
of Company Common Stock that is (A) owned by the Company as treasury stock, (B)
authorized but unissued, (C) owned by any subsidiary of the Company or (D) owned
by Alloy or any subsidiary of Alloy, shall be canceled and no Alloy Common Stock
or other consideration shall be delivered in exchange therefor. As used herein,
"subsidiary" means any corporation, partnership, joint venture, limited
liability company or other legal entity of which the Company, the Surviving
Corporation, Alloy or such other person, as the case may be, (either alone or
through or together with any other subsidiary) owns, directly or indirectly,
more than 50% of the stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporate or other legal entity.
2.2 Escrow Deposit; Exchange of Certificates.
(a) Escrow Agreement. At the Closing, the parties shall enter into an
escrow agreement (the "Escrow Agreement") to be dated as of the Effective Time
among the Stockholders, Alloy and State Street Bank & Trust Company, as escrow
agent (the "Escrow Agent"), pursuant to which, among other things, the
Stockholders shall, in accordance with the terms of this Agreement, secure their
indemnification obligations pursuant to Article VIII hereof.
(b) Escrow Deposit. Upon receipt by Alloy at or after the Effective
Time from a Stockholder of a certificate or certificates which immediately prior
to the Effective Time represented all of the issued and outstanding shares of
Company Common Stock owned by such Stockholder (each, a "Company Certificate"),
together with the items referred to in Sections 2.2(c) below with respect
thereto, Alloy shall cause certificates for Alloy Common Stock to be deposited
with the Escrow Agent, and the Stockholders, by their execution and delivery of
this Agreement and/or approval of the Merger, hereby authorize and direct Alloy
to make such deposit on their behalf, representing initially 197,152 shares of
Alloy Common Stock, which equals fifteen percent (15%) of the Total Alloy Share
Amount. In addition, Alloy shall, at such time, if any, that it delivers to the
Stockholders any Additional Merger Shares pursuant to Section 8.6 hereof cause
certificates for Alloy Common Stock to be deposited with the Escrow Agent, and
the Stockholders, by their execution and delivery of this Agreement and/or
approval of the Merger, hereby authorize and direct Alloy to make such deposit
on their behalf, evidencing shares of Alloy Common Stock equal to fifteen
percent (15%) of the aggregate number of Additional Merger Shares. The shares of
Alloy Common Stock deposited with the Escrow Agent pursuant to the provisions of
this Section are referred to collectively as the "Escrow Shares". All
calculations to determine the number of Merger Shares and Additional Merger
Shares to be delivered into escrow as aforesaid shall be rounded up to the
nearest whole share.
(c) Procedure for Exchange. At the Closing, Alloy shall deliver to each
Stockholder in exchange for each Company Certificate or affidavit of loss
thereof tendered by such Stockholder (1) a certificate (the "Alloy Certificate")
representing that number of Merger Shares that the Stockholder has the right to
receive pursuant to Section 2.1(a) with respect to such Company Certificate,
less the Escrow Shares attributable to such Company Certificate determined as
set forth in this Section 2.2 and the Escrow Agreement, (2) a Warrant
representing the portion of the Total Warrant Share Amount, if any, that the
Stockholder has the right to
6
receive pursuant to Section 2.1(a), and (3) such amount of the Closing Cash
Payment that the Stockholder has the right to receive pursuant to Section 2.1(a)
after receipt by Alloy of (i) such Company Certificate for cancellation,
together with such other documents as may be reasonably required by Alloy and
(ii) an executed letter of transmittal, in which, among other things, such
holder agrees to be bound by Section 7.2(b) and any other applicable
restrictions on transfer of the Merger Shares represented by such Alloy
Certificate, together with such other documents as may be reasonably required by
Alloy, and the Company Certificate so surrendered shall forthwith be cancelled.
Until surrendered as contemplated by this Section 2.2, each Company Certificate
shall be deemed, on and after the Effective Time, to represent only the right to
receive upon such surrender, the Per Share Consideration for each share of
Company Common Stock evidenced by such Company Certificate, without interest.
All Escrow Shares shall be held by the Escrow Agent, and distributed solely in
accordance with, the terms and provisions of the Escrow Agreement.
(d) Fractional Shares. No fractional shares of Alloy Common Stock shall
be issued in connection with the Merger. Any fractional interests will be
aggregated so that the total number of Merger Shares a Stockholder receives will
be rounded to the nearest whole number of shares of Alloy Common Stock. Each
holder of a Company Certificate having a fractional interest arising upon the
conversion of such Certificate shall, at the time of surrender of such
Certificate, be paid by Alloy an amount of cash equal to the value of such
fractional interest based on a price per share equal to the Stipulated Price.
(e) No Further Ownership Rights. The Per Share Consideration issued
upon the surrender for exchange of shares of Company Common Stock in accordance
with the terms of this Article II shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock .
If, after the Effective Time, any Company Certificate is presented to Alloy or
the Surviving Corporation, such Company Certificate shall be canceled and
exchanged as provided in this Article II.
(f) No Liability. Neither Alloy nor the Company shall be liable to any
holder of shares of Company Common Stock or Alloy Common Stock, as the case may
be, for any Aggregate Consideration (or dividends or distributions with respect
thereto) to be issued in exchange for Company Common Stock pursuant to this
Section 2.2, if, on or after the expiration of six months following the
Effective Time, such Aggregate Consideration is delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
(g) Lost, Stolen or Destroyed Company Certificates. If any Company
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit to that effect by a Stockholder and the posting by such person of a
bond in such amount as Alloy may reasonably direct as indemnity against any
claim that may be made against it with respect to such Company Certificate,
Alloy will issue in exchange for such lost, stolen or destroyed Company
Certificate the Merger Shares, Warrants, cash payments and cash in lieu of
fractional shares deliverable in respect thereof pursuant to this Agreement.
7
2.3 Company Options; Other Securities.
Neither the Company nor Carnegie has adopted any stock option plan (a
"Company Option Plan") any time prior to the date hereof. As of the date hereof
there are no, and at the Effective Time there shall be no, outstanding employee
or consultant stock options (collectively, the "Company Options") and no other
Convertible Securities.
2.4 Authorization of the Merger, this Agreement, the Certificate of
Merger, the Escrow Agreement and the Escrow Agent. The approval of the Merger by
the Stockholders, as required by the MBCL and as contemplated by this Agreement,
shall constitute approval and ratification by the Stockholders of the (i)
Merger, as required by the MBCL, (ii) provisions of this Agreement and the
Articles of Merger and Certificate of Merger, and (iii) designation of the
Escrow Agent and the approval and ratification by the Stockholders of the terms
and provisions of the Escrow Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of the Company, Carnegie and the
Stockholders. The Company, Carnegie and each of the Stockholders, jointly and
severally, represent and warrant to Alloy that, except as disclosed in the
disclosure schedule dated the date hereof, certified by the Chief Executive
Officer of the Company and Carnegie and delivered by the Company and Carnegie to
Alloy simultaneously herewith (the "Disclosure Schedule"):
(a) Organization; Good Standing; Qualification and Power. The Company
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the Commonwealth of Massachusetts, (ii) has all requisite corporate
power and authority to own, lease and operate its properties and assets and to
carry on its business as now being conducted, to enter into this Agreement, the
Certificate of Merger, the Articles of Merger and the other Related Agreements
(as defined below) to which the Company is a party, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby and (iii) is qualified and in good standing to do business as a
foreign corporation and is in good standing under the laws of each of the
jurisdictions listed in Section 3.1(a) of the Disclosure Schedule, which
constitute the only jurisdictions where the failure to be so qualified and in
good standing could have a material adverse effect on the business, financial
condition or results of operations of Carnegie (a "Material Adverse Effect").
The Company has delivered to Alloy true and complete copies of the Charter and
by-laws of the Company, in each case as amended to the date hereof. As used
herein, "Charter" shall mean, with respect to any corporation, those instruments
that at the time constitute its corporate charter as filed or recorded under the
general corporation law of the jurisdiction of its incorporation, including the
articles or certificate of incorporation or organization, and any amendments
thereto, as the same may have been restated, and any amendments thereto
(including any articles or certificates of merger or consolidation, certificate
of correction or certificates of designation or similar instruments which effect
any such amendment) which became effective after the most recent such
restatement. Except for Carnegie or as otherwise disclosed in Section 3.1(a) of
the Disclosure Schedule, the Company has never had, nor does it currently have,
any subsidiaries, nor has it ever owned, nor does it
8
currently own, any capital stock or other proprietary interest, directly or
indirectly, in any corporation, association, trust, partnership, joint venture
or other entity.
(b) Subsidiary; Equity Investments. Carnegie (i) is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, (ii) has all requisite corporate power and authority to own, lease and
operate its properties and assets and to carry on its business as now being
conducted, and (iii) is qualified and in good standing to do business as a
foreign corporation and is in good standing under the laws of each of the
jurisdictions listed in Section 3.1(b) of the Disclosure Schedule, which
constitute the only the jurisdictions where the jurisdictions where the failure
to be so qualified and in good standing likely would have a Material Adverse
Effect. The Company has delivered to Alloy true and complete copies of the
Charter and by-laws of Carnegie, in each case as amended to the date hereof. The
Company owns all of the issued and outstanding capital stock of Carnegie. Except
as disclosed in Section 3.1(b) of the Disclosure Schedule, Carnegie has never
had, nor does it currently have, any subsidiaries, nor has it ever owned, nor
does it currently own, any capital stock or other proprietary interest, directly
or indirectly, in any corporation, association, trust, partnership, joint
venture or other entity.
(c) Capital Stock; Securities.
(i) The authorized capital stock of the Company consists of
(A) 6,000 shares of Common Stock, of which (i) 5,000 shares are
classified as Voting Common Stock, no par value, of which 61.75 shares
are issued and outstanding, and (ii) 1,000 shares are classified as
Non-Voting Common Stock, $1.00 par value per share, of which 398.391
shares will be issued and outstanding after giving effect to the
Redemption Transaction, and (B) 6,000 shares of Preferred Stock, $1.00
par value per share, no shares of which are issued and outstanding.
There are no outstanding Company Options or other Convertible
Securities. All outstanding shares of Company Common Stock are duly
authorized, validly issued and outstanding, fully paid and
non-assessable and not subject to preemptive rights created by statute,
the Charter or by-laws of the Company or any agreement to which the
Company is a party or by which it is bound. Section 3.1(c)(i) of the
Disclosure Schedule sets forth a true and complete list of the holders
of record shares of Company Common Stock and the number of such shares
owned of record and beneficially by each such holder. All outstanding
shares of Company Common Stock were issued in compliance with
applicable federal and state securities laws. The holders of the
Company Common Stock have been or will be properly given, or shall have
properly waived, any required notice prior to the Merger.
(ii) The authorized capital stock of Carnegie consists of
shares of common stock, $1.00 par value per share of which 100 shares
are issued and outstanding and all of which are owned by the Company.
There are no outstanding options, rights or warrants to purchase any
capital stock of Carnegie. All outstanding shares of Carnegie common
stock are duly authorized, validly issued and outstanding, fully paid
and non-assessable and not subject to preemptive rights created by
statute, the Charter or by-laws of Carnegie or any agreement to which
the Company or Carnegie is a party or by which it is
9
bound. All outstanding shares of Carnegie common stock were issued in
compliance with applicable federal and state securities laws.
(iii) Except as set forth in this Section 3.1(c), there is no:
(i) outstanding subscription, option, call, warrant or right to acquire
any shares of the capital stock or other securities of the Company or
Carnegie; (ii) outstanding security, instrument or obligation that is
or will become convertible into or exchangeable for any shares of the
capital stock or other securities of the Company or Carnegie; or (iii)
written or oral contract, subcontract, lease, instrument, note, option,
purchase order, license, sublicense, insurance policy, benefit plan or
legally binding commitment or undertaking of any nature (a "Contract")
under which the Company or Carnegie is or will become obligated to sell
or otherwise issue any shares of its capital stock or any other
securities.
(d) Authority. The execution, delivery and performance by the Company
of this Agreement, the Certificate of Merger and the Related Agreements to which
it is a party and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of the Company; and this Agreement and the Related Agreements to
which it is a party have been, and the Certificate of Merger when executed and
delivered by the Company will be, duly and validly executed and delivered by the
Company, and this Agreement, the Certificate of Merger, Articles of Merger and
the other Related Agreements to which it is a party are the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(e) Financial Information.
(i) The Company has previously delivered to Alloy the
following financial statements (collectively, the "Company Financial
Statements"):
(A) the unaudited consolidated balance sheet of the
Company as of February 28, 2001 (the "Company Interim
Balance Sheet") and the related consolidated
statements of income, cash flows and stockholders
equity for the three-month period then ended,
prepared by the Company (the "Company Interim
Financial Statements"); and
(ii) the audited consolidated balance sheet of the Company as
at December 31, 1999 and the draft audited consolidated balance sheet
of the Company as at December 31, 2000 (the "Company Balance Sheets"
and the date of the latter being the "Company Balance Sheet Date"), and
the related audited consolidated statements of income, cash flow and
shareholders' equity for the year then ended (including complete
footnotes thereto), certified by Gosule, ▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP, the
Company's independent public accountants (the "Company Accountants"),
and accompanied by a copy of such auditor's report.
10
(iii) The Company Financial Statements (A) have been prepared
from the books and records of the Company, (B) fairly present the
consolidated financial condition of the Company and Carnegie as at the
respective dates indicated and the results of operations of the Company
and Carnegie for the respective periods indicated, and (C) have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP"), except, in the case of the Company
Interim Financial Statements, for the absence of complete footnote
disclosure as required by GAAP and subject to changes resulting from
normal year-end audit adjustments, which adjustments shall not in any
event result in a material adverse change to any item of the Company's
or Carnegie's assets, liabilities, revenue or expense.
(f) Absence of Changes. Except as disclosed in Section 3.1(f) of the
Disclosure Schedule, and except as contemplated by (i) the Asset Sale Agreements
(as defined below) and (ii) the dividend to the Company of certain working
capital of Carnegie and the subsequent redemption by the Company of 50.609
shares of Company Common Stock (the "Redemption Transaction") (between the
Company Balance Sheet Date and the date of this Agreement, each of the Company
and Carnegie has been operating in the ordinary course and has not:
(i) sold or transferred any material portion of its assets or any
material portion of the interests in such portion, except in
the ordinary course of business;
(ii) incurred any damage, destruction or loss, (whether or not
covered by insurance) having or which could have a Material
Adverse Effect;
(iii) declared, set aside or paid any dividend or other distribution
of assets with respect to any shares of capital stock of the
Company or Carnegie or, directly or indirectly, redeemed,
purchased or otherwise acquired any such shares of the Company
or Carnegie;
(iv) made any material change in the nature of its business or
operations;
(v) entered into any material transaction except in the ordinary
course of business, or any license, sale, transfer, pledge,
mortgage or other disposition of any material tangible or
intangible asset (including any Intellectual Property Rights)
of the Company or Carnegie;
(vi) incurred any Liabilities other than in the ordinary course of
business;
(vii) terminated or indicated any intention to not renew any
material Contract between the Company and/or Carnegie and any
other person, except in the ordinary course of business;
(viii) terminated the employment of any officer or key employee of
the Company or Carnegie or became aware of the express intent
by any officer or key employee of the Company or Carnegie to
resign or terminate employment;
11
(ix) learned of any labor dispute or union organizing campaign
against the Company or Carnegie;
(x) commenced any litigation or other action, or learned of any
commencement of litigation or other action against the Company
or Carnegie that may result in any liability against the
Company or Carnegie;
(xi) amended or modified the Company's or Carnegie's Charter or
by-laws;
(xii) effected any increase in or modification of compensation
payable or to become payable to (A) any director or officer of
the Company or Carnegie or (B) any employee of the Company, or
Carnegie other than in the ordinary course of business, or the
entering into of any employment contract with any officer or
employee;
(xiii) effected any increase in or modification or acceleration of
any benefits payable or to become payable under any bonus,
pension, severance, insurance or other benefit plan, payment
or arrangement (including, but not limited to, the granting of
stock options, restricted stock awards or stock appreciation
rights) made to, for or with any director, officer, employee,
consultant or agent of the Company or Carnegie;
(xiv) except as set forth in Section 3.1(f) of the Disclosure
Schedule, effected any material write-down or write-up of the
value of any asset of the Company or Carnegie, or any
write-off of any accounts receivable or notes receivable of
the Company or Carnegie or any portion thereof in any event in
excess of $20,000 in the aggregate;
(xv) entered into any loan, advance or capital contribution to or
investment in any person or the engagement in any transaction
with any employee, officer, director or securityholder of the
Company or Carnegie other than advances to employees in the
ordinary course of business for travel and similar business
expenses;
(xvi) made any change in the accounting methods or practices
followed by the Company or Carnegie or any change in
depreciation or amortization policies or rates theretofore
adopted;
(xvii) made any change in the manner in which Carnegie extends
discounts or credit to customers or otherwise deals with
customers;
(xviii) any agreement, understanding, authorization or proposal,
whether in writing or otherwise, for the Company or Carnegie
to take any of the actions specified in items (i) through
(xvii) above; or
(xix) suffered any adverse change with respect to its business or
financial condition which has had or likely will have a
Material Adverse Effect, other than any
12
change which has general applicability to the industries in
which the Company and Carnegie operate as opposed to changes
specifically affecting the businesses of Carnegie and/or the
Company.
(g) Absence of Undisclosed Liabilities. (i) At December 31, 2000, with
respect to the Company Balance Sheet, and at February 28, 2001, with respect to
the Company Interim Balance Sheet, respectively, the Company had no liability or
obligation of any nature (whether matured or unmatured, fixed or contingent,
secured or unsecured, accrued, absolute or otherwise (a "Liability")), either
individually or in the aggregate in excess of $25,000, required to be set forth
on the Company Balance Sheet or the Company Interim Balance Sheet, respectively,
in order for the Company Balance Sheet and the Company Interim Balance Sheet,
respectively, to accurately present the consolidated financial condition of the
Company at the respective dates thereof which was not provided for or disclosed
thereon, other than those Liabilities arising in the ordinary course of business
as a result of the accounting practices used by the Company in a consistent
manner in the ordinary course of its business, and all liability reserves
established by Company and set forth thereon were adequate for all such
Liabilities at the respective dates thereof. There were no material loss
contingencies (as such term is used in Statement of Financial Accounting
Standards No. 5 issued by the Financial Accounting Standards Board in April,
1975 ("FAS No. 5")) which were not adequately provided for on the Company
Balance Sheet and Company Interim Balance Sheet, respectively, as required by
FAS No. 5.
(h) Tax Matters. The Company and Carnegie and each other corporation
(if any) included in any consolidated or combined tax return in which the
Company has been included: (i) have filed and will file, in a timely and proper
manner, consistent with applicable laws, all Federal, state and local Tax
returns and Tax reports required to be filed by them through the Closing Date
(the "Company Returns") with the appropriate governmental agencies in all
jurisdictions in which Company Returns are required to be filed, and have timely
paid or will timely pay all amounts shown thereon to be due; and (ii) currently
are not the beneficiary of an extension of time within which to file any Tax
return or Tax report. All such Company Returns were and will be correct and
complete in all material respects at the time of filing. All Taxes of the
Company and Carnegie attributable to all taxable periods ending on or before the
dates of the Company Balance Sheets and the Company Interim Balance Sheet,
respectively, have been paid or adequately provided for on the Company Balance
Sheets and the Company Interim Balance Sheet (as appropriate) and the Company
and Carnegie will not accrue any Tax liability from the Company Balance Sheet
Date up to and including the Closing Date, other than a Tax liability accrued in
the ordinary course of business and any Tax liability incurred in connection
with the Asset Sale. Except as set forth on Section 3.1(h) of the Disclosure
Schedule, neither the Company nor Carnegie has been notified in writing by the
Internal Revenue Service or any state, local or foreign taxing authority that
any issues have been raised (and are currently pending) in connection with any
Company Return, and no waivers of statutes of limitations have been given with
respect to the Company or Carnegie that are still in effect. Except as contested
in good faith and disclosed in Section 3.1(h) of the Disclosure Schedule, any
deficiencies asserted or assessments (including interest and penalties) made as
a result of any examination by the Internal Revenue Service or by any other
taxing authorities of any Company Return have been fully paid or are adequately
provided for on the Company Balance Sheets and the Company Interim Balance Sheet
(as appropriate) and neither the Company nor Carnegie has received notification
13
that any proposed additional Taxes have been asserted. Neither the Company nor
Carnegie (i) has made an election to be treated as a "consenting corporation"
under Section 341(f) of the Code, (ii) is a "personal holding company" within
the meaning of Section 542 of the Code and (iii) has been a United States real
property holding corporation within the meaning of Section 897(c) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Neither the Company nor Carnegie has agreed to, nor is it required (except as a
result of this Merger) to, make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise. Neither the Company nor
Carnegie will incur a Tax Liability resulting from the Company or Carnegie
ceasing to be a member of a consolidated or combined group that had previously
filed consolidated, combined or unitary Tax returns.
As used in this Agreement, "Tax" means any of the Taxes and "Taxes"
means, with respect to any entity, (A) all income taxes (including any tax on or
based upon net income, gross income, income as specially defined, earnings,
profits or selected items of income, earnings or profits) and all gross
receipts, sales, use, ad valorem, transfer, franchise, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property or
windfall profits taxes, alternative or add-on minimum taxes, customs duties and
other taxes, fees, assessments or charges of any kind whatsoever, together with
all interest and penalties, additions to tax and other additional amounts
imposed by any taxing authority (domestic or foreign) on such entity and (B) any
liability for the payment of any amount of the type described in the immediately
preceding clause (A) as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable law) of another entity or a
member of an affiliated or combined group.
(i) Title to Assets; Equipment; Real Property.
(i) Each of the Company and Carnegie owns, and has good, valid
and marketable title to the assets purported to be owned by them and
which are material to the Company or Carnegie or to the conduct of the
Business in a manner substantially similar to business operations of
each as of the Company Balance Sheet Date. Except as set forth in
Section 3.1(i) of the Disclosure Schedule, such assets are owned by the
Company or Carnegie free and clear of any Encumbrances, except for (x)
any lien for current taxes not yet due and payable and (y) liens that
have arisen in the ordinary course of business and that do not
materially detract from the value of the assets subject thereto or
materially impair the operations of the Company or Carnegie. The
material items of equipment and other tangible assets owned by or
leased to the Company are adequate for the uses to which they are being
put and are in good condition and repair (ordinary wear and tear
excepted). The assets, properties and interests in properties of the
Company to be owned, leased or licensed by the Surviving Corporation at
the Effective Time shall include all assets, properties and interests
in properties (real, personal and mixed, tangible and intangible) and
all rights, leases, licenses and other agreements necessary to enable
the Surviving Corporation to carry on the Business as presently
conducted. The assets, properties and interests in properties of
Carnegie to be owned, leased or licensed by Carnegie at the Effective
Time shall include all assets, properties and interests in properties
(real, personal and mixed, tangible and intangible) and all rights,
leases, licenses and other agreements necessary to enable Carnegie to
carry on the Business as
14
presently conducted. The Asset Sale will not result in the distribution
of any material assets of either the Company or Carnegie necessary for
each to conduct the Business after the Effective Time as presently
conducted.
(ii) Neither the Company nor Carnegie owns any real property
or any material interest in real property, except for the leaseholds
created under the real property leases (the "Leases") included in
Section 3.1(i) of the Disclosure Schedule (the "Leased Real Property").
The Company has provided true and complete copies of each Lease to
Alloy. Each of the Leases is in full force and effect and constitutes
the valid and binding obligation of the Company or Carnegie, as
applicable. The Company has made available to Alloy true and complete
copies of all Leases. Except as set forth in Section 3.1(i) of the
Disclosure Schedule, all improvements included in the Leased Real
Property are in good operating condition and repair in all material
respects (ordinary wear and tear excepted) and there does not exist any
condition which interferes with the economic value or use of such
property and improvements. As used herein, the term "Encumbrances"
shall mean and include any lien, pledge, hypothecation, charge,
mortgage, security interest, easement or other encumbrance or cloud on
title.
(j) Proprietary Assets.
(i) The Company and Carnegie each have a valid right to use
and exploit the Proprietary Assets owned or licensed by it. Except as
set forth in Section 3.1(j) of the Disclosure Schedule, neither the
Company nor Carnegie has developed jointly with any other Person any
Proprietary Assets with respect to which such other Person has any
rights. Except as set forth in Section 3.1(j) of the Disclosure
Schedule, as of the date of this Agreement, there is no Contract
pursuant to which any Person has any right (whether or not currently
exercisable) to use, license or otherwise exploit any Proprietary
Assets. Set forth in Section 3.1(j) of the Disclosure Schedule is a
true and complete list of all Internet domain name registrations,
trademarks and other intellectual property or rights thereto which are
owned by either the Company or Carnegie.
(ii) The Company and Carnegie have taken reasonable measures
and precautions to protect and maintain the confidentiality, secrecy
and value of the Proprietary Assets (except Proprietary Assets whose
value would be unimpaired by public disclosure).
(iii) To the knowledge of the Company, Carnegie and the
Stockholders: (i) all patents, trademarks, service marks and copyrights
that are registered with any governmental body and held by the Company
or Carnegie are valid and subsisting; (ii) none of the Proprietary
Assets infringes any Proprietary Asset owned or used by any other
Person.
(iv) Neither the Company nor Carnegie has (i) licensed any of
the Proprietary Assets to any Person on an exclusive basis, or (ii)
entered into any covenant not to compete or Contract limiting its
ability to exploit fully any material Proprietary Assets.
15
(v) Section 3.1(j) of the Disclosure Schedule sets forth, for
the Proprietary Assets owned by the Company or Carnegie, a complete and
accurate list of all United States and foreign (a) patents; (b)
trademarks (including Internet domain registrations and unregistered
Trademarks); (c) copyrights (including unregistered copyrights); (d)
tradenames or servicemarks; and (e) computer software.
(vi) As used herein, the term "Proprietary Asset" shall mean
any patent, patent application, trademark (whether registered or
unregistered), trademark application, trade name, fictitious business
name, service ▇▇▇▇ (whether registered or unregistered), service ▇▇▇▇
application, copyright (whether registered or unregistered), copyright
application, maskwork, maskwork application, trade secret, know-how,
computer software, computer program, source code, algorithm, invention,
proprietary product, technology, proprietary right or other
intellectual property right or intangible asset, in any event which is
used by or useful to Carnegie or the Company in connection with the
operation of the Business.
(k) Licensed Software.
(i) Section 3.1(k) of the Disclosure Schedule sets forth a
true and complete list of all material software programs and
applications licensed by Carnegie from any third party (the "Licensed
Software") and used by Carnegie in the operation of the Business.
(ii) The Licensed Software is validly held and used by
Carnegie and may be used by Carnegie pursuant to the applicable license
agreement with respect thereto without the consent of or notice to any
third party.
(l) Contracts, Agreements, Etc.
(i) Section 3.1(l) of the Disclosure Schedule identifies each
Contract in which any of the Company or Carnegie is a party, except for
any Excluded Contract. For purposes of this Section 3.1(l) the term
"Excluded Contract" shall mean any Contract that the Company or
Carnegie has entered in the ordinary course of business that does not
(i) contemplate or involve the payment of cash or other consideration
in an amount in excess of $25,000, (ii) contain any restrictions on the
Company's or Carnegie's operations of is business in any jurisdiction
or manner or (iii) pertain to the licensing of any Proprietary Asset.
(ii) The Company has furnished to Alloy true and complete
copies of all Contracts listed in Section 3.1(l) of the Disclosure
Schedule. Each such Contract (A) is the legal, valid and binding
obligation of the Company and/or Carnegie, as applicable, and, to the
best knowledge of the Company, Carnegie and the Stockholders, the
legal, valid and binding obligation of each other party thereto, in
each case enforceable in accordance with its terms subject to (i) laws
of general application relating to bankruptcy, insolvency and the
relief of debtors, and (ii) rules of law governing specific
performance, injunctive relief and other equitable remedies, and (B) is
in full force and effect. Neither
16
the Company nor Carnegie nor, to the best knowledge of the Company,
Carnegie and the Stockholders, except as set forth in Section 3.1(l) of
the Disclosure Schedule, the other party or parties thereto, are in
default under any Contract in any material respect.
(m) Compliance with Legal Requirements. Except as disclosed in Section
3.1(m) of the Disclosure Schedule, each of the Company and Carnegie is in
compliance in all material respects with applicable Federal, state, local,
municipal, foreign laws, ordinances, regulations and orders ("Legal
Requirements"). Except as disclosed in Section 3.1(m) of the Disclosure
Schedule, the Company has not received at any time since Company Balance Sheet
Date any notice or other written communication from any Governmental Authority
regarding any actual or possible violation of, or failure to comply with, any
Legal Requirement.
(n) Governmental Authorizations. Each of the Company and Carnegie has
all material Federal, state, local and foreign governmental licenses, consents,
approvals, authorizations, permits, orders, decrees and other compliance
agreements necessary to the conduct of the Business as presently conducted
(collectively, "Governmental Authorizations"). To the Company's, Carnegie's and
the Stockholders' knowledge, each such Governmental Authorization is valid and
in full force and effect, other than those which the failure to be so in full
force and effect could not, either individually or in the aggregate, have a
Material Adverse Effect. Each of the Company and Carnegie is in compliance in
all material respects with the terms and requirements of such Governmental
Authorizations. Neither the Company nor Carnegie has received at any time since
the Company Balance Sheet Date any written notice or other written communication
from any Governmental Authority regarding (a) any actual or possible violation
of or failure to comply with any term or requirement of any Governmental
Authorization or (b) any actual or possible revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
None of such Governmental Authorizations shall be affected in any material
respect by the Merger or the transactions contemplated hereby.
(o) Litigation, Etc. Except as set forth in Section 3.1(o) of the
Disclosure Schedule, there are no (i) actions, suits, claims or legal or
administrative or arbitration proceedings (collectively, "Actions"), pending,
or, any investigations pending or, to the Company's, Carnegie's and the
Stockholders' knowledge, threatened against the Company or Carnegie or, to the
Company's, Carnegie's and the Stockholders' knowledge, any Actions threatened
against the Company or Carnegie, in any event whether at law or in equity, or
before or by any Federal, state, municipal, foreign or other governmental court,
department, commission, board, bureau, agency or instrumentality ("Governmental
Authority"), (ii) judgments, decrees, injunctions or orders of any Governmental
Authority or arbitrator against the Company or Carnegie, or (iii) disputes with
customers or vendors who are material to the operation of the Company's or
Carnegie's business in the ordinary course. There are no Actions pending or, to
the Company's, Carnegie's and the Stockholders' knowledge, threatened, nor is
there any basis therefor, with respect to (A) the current employment by, or
association with, the Company or Carnegie, or future employment by, or
association with, Alloy or the Surviving Corporation, of any of the present
officers or employees of or consultants to Carnegie (collectively, the
"Designated Persons"), or (B) the use, in connection with any business presently
conducted or proposed to be conducted by Carnegie or the Surviving Corporation,
of any information, techniques or processes
17
presently utilized or proposed to be utilized by the Company, Carnegie, Alloy,
the Surviving Corporation or any of the Designated Persons, that the Company,
Carnegie, Alloy, the Surviving Corporation or any of the Designated Persons are
or would be prohibited from using as the result of a violation or breach of, or
conflict with any agreements or arrangements between any Designated Person and
any other person, or any legal considerations applicable to unfair competition,
trade secrets or confidential or proprietary information. The Company has
delivered to Alloy all material documents and correspondence relating to such
matters referred to in Section 3.1(o) of the Disclosure Schedule.
(p) Accounts and Notes Receivable. All the accounts receivable and
notes receivable owing to the Company and Carnegie as of the date hereof (other
than those being transferred as part of the Asset Sale) constitute, and as of
the Effective Time will constitute, valid and enforceable claims arising from
bona fide transactions in the ordinary course of business, and there are no
known or asserted claims, refusals to pay or other rights of set-off against any
thereof in excess of the amounts for doubtful accounts set forth on the Company
Interim Balance Sheet. There is (i) no account debtor or note debtor that has
refused (or, to the best knowledge of the Company, Carnegie and the
Stockholders, threatened to refuse) to pay its obligations for any reason, other
than such account and note debtors as to which an adequate reserve has been
established on the Company Interim Balance Sheet, (ii) to the knowledge of the
Company, Carnegie and the Stockholders, no account debtor or note debtor that is
insolvent or bankrupt and (iii) no account receivable or note receivable which
is pledged to any third party by the Company or Carnegie.
(q) Accounts and Notes Payable. Except as set forth in Section 3.1(q)
of the Disclosure Schedule, all accounts payable and notes payable in excess of
$25,000 by the Company and Carnegie to third parties as of the date hereof
(other than those being transferred as part of the Asset Sale) arose, and as of
the Closing will have arisen, in the ordinary course of business, and, except as
set forth in Section 3.1(q) of the Disclosure Schedule, there is no such account
payable or note payable delinquent in its payment, except those contested in
good faith and already disclosed in Section 3.1(q) of the Disclosure Schedule.
(r) Environmental Matters. To the Company's, Carnegie's and the
Stockholders' knowledge, (i) each of the Company and Carnegie has complied with
and is in compliance with all federal, state, local and foreign laws, statutes
(civil and criminal), common laws, ordinances, codes, regulations, rules,
notices, permits, judgments, requirements, standards, guidelines, judicial and
administrative orders and decrees applicable to it and its properties, assets,
operations and businesses relating to pollution, worker and public health and
safety, and/or environmental protection (collectively "Environmental Laws"),
including without limitation Environmental Laws relating to air, water, land and
the generation, release, storage, use, handling, transportation, treatment,
discharge, disposal or other handling of Wastes, Hazardous Wastes and Hazardous
Substances (as such terms are currently defined in any applicable Environmental
Law), except to the extent that noncompliance with any Environmental Law, either
singly or in the aggregate, does not and would not have a Material Adverse
Effect; (ii)(A) no portion of any past or present properties of the Company and
Carnegie has been used for the handling, manufacturing, processing, storage or
disposal of Hazardous Substances except in compliance in all respects with
applicable Environmental Laws, and no underground tank or
18
other underground storage receptacle for Hazardous Substances is located on such
properties; and (B) in the course of any activities conducted by the Company and
Carnegie, no Hazardous Substances have been generated or are being used on such
properties except in compliance in all respects with applicable Environmental
Laws; (iii) there have been no emissions, spills, discharges, releases or
threats of releases (as defined in Environmental Laws) at, from, in or on any
property owned, leased or operated by Company and/or Carnegie except as
permitted by Environmental Laws or where such emissions, spills, discharges, and
releases do not and could not have a Material Adverse Effect; (iv) there are no
on-site or off-site location to which the Company or Carnegie has transported or
disposed of Wastes, Hazardous Wastes and/or Hazardous Substances or arranged for
the transportation of Hazardous Wastes and Hazardous Substances, which site is
the subject of any federal, state, local or foreign enforcement action or any
other investigation which could lead to any claim against Company, Carnegie, the
Surviving Corporation or Alloy for any clean-up cost, remedial work, damage to
natural resources or personal injury, including without limitation any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended ("CERCLA"); and (v) neither the Company nor Carnegie has nor
will have any liability in connection with any release of any Hazardous Waste or
Hazardous Substance into the environment, except to the extent that such
liability does not and would not have a Material Adverse Effect. For purposes
hereof, the term Environmental Laws includes, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act, 42
▇.▇.▇.▇▇. 9601 et seq., the Resource Conservation and Recovery Act, 42 ▇.▇.▇.▇▇.
6901 et seq., the Federal Water Pollution Control Act, 33 ▇.▇.▇.▇▇. 1251 et
seq., the Clean Air Act, 42 U.S.C.ss.1857 et seq., the Occupational Safety and
Health Act of 1970, 29 ▇.▇.▇.▇▇. 651 et seq., and the Toxic Substances Control
Act, 15 ▇.▇.▇.▇▇. 2601 et seq.
(s) Labor Relations; Employees. As of April 9, 2001, the Company
employed a total of 71 full-time employees and Carnegie employed a total of 26
full-time employees. Except as set forth in Section 3.1(s) of the Disclosure
Schedule, (A) neither the Company nor Carnegie is delinquent in payments to any
of its employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed by them to date or amounts required to
be reimbursed to such employees, (B) upon termination of the employment of any
such employees, neither the Company, Carnegie, any other subsidiary, Alloy nor
the Surviving Corporation will by reason of anything done prior to the Closing
be liable to any of such employees for so-called "severance pay" or any other
payments, (C) there is no unfair labor practice complaint against the Company or
Carnegie pending before the National Labor Relations Board or any comparable
Governmental Authority, and none of the Company's or any subsidiary's employment
policies or practices is currently being audited or investigated by any federal,
state or local government agency, (D) there is no labor strike, dispute, claim,
charge, lawsuit, proceeding, labor slowdown or stoppage pending or overtly
threatened against or involving the Company or Carnegie, (E) to the Company's,
Carnegie's and the Stockholders' knowledge, no labor union has taken any action
with respect to organizing the employees of the Company or Carnegie, (F) neither
any grievance nor any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claim therefor has been asserted against
the Company or Carnegie, and (G) no employee has informed any officer of the
Company or Carnegie that such employee will terminate his or her employment or
engagement with Carnegie or the Surviving Corporation. To the best knowledge of
the Company, Carnegie
19
and the Stockholders, neither the Company nor Carnegie nor any employee of the
Company or Carnegie is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of such employee with the Company or Carnegie or any other party
because of the nature of the business conducted or proposed to be conducted by
the Company or Carnegie. All individuals considered by the Company or Carnegie
to be independent contractors are, and could only be reasonably considered to
be, in fact "independent contractors" and are not "employees" or "common law
employees" for tax, benefits, wage, labor or any other legal purpose.
(t) Employee Benefit Plans.
(i) Section 3.1(t) of the Disclosure Schedule identifies all
"employee benefit plans" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and all
bonus, phantom stock, stock appreciation rights, incentive, deferred
compensation, retirement or supplemental retirement, severance, golden
parachute, vacation, cafeteria, dependent care, medical care, employee
assistance program, education or tuition assistance programs, voluntary
employee beneficiary association, insurance and other similar
compensation, fringe or employee benefit plans, programs or
arrangements, and any current or former employment or executive
compensation or severance agreements, written or otherwise, for the
benefit of, or relating to, any present or former employee of the
Company and Carnegie or any trade or business (whether or not
incorporated) which is a member of a controlled group or which is under
common control with the Company within the meaning of Section 414 of
the Code and the regulations promulgated thereunder (an "ERISA
Affiliate") and all other written or formal plans or agreements
involving direct or indirect compensation (including any employment
agreements entered into between the Company or Carnegie and any
employee, but excluding workers' compensation, unemployment
compensation, other government-mandated programs and Company's or
Carnegie's salary and wage arrangements) currently or previously
maintained, contributed to or entered into by Company or Carnegie, or
any ERISA Affiliate thereof for the benefit of any employee or former
employee under which Company or any ERISA Affiliate thereof has any
present or future obligation or liability (the "Employee Plans"),
whether or not such plan or arrangement has been terminated. The
Company has provided to Alloy true and complete copies of all Employee
Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof, and (where applicable) (A)
all summary plan descriptions, summaries of material modifications, and
corporate resolutions related to such plans (B) the three most recent
determination letters received from the IRS, (C) the three most recent
Form 5500 Annual Reports, with all attachments, (D) the most recent
audited financial statement and actuarial valuation, and (E) all
related agreements, insurance contracts and other agreements which
implement each such Employee Plan. Any Employee Plan that individually
or collectively would constitute an "employee pension benefit plan", as
defined in Section 3(2) of ERISA, but which are not Multiemployer Plans
(collectively, the "Pension Plans"), are identified as such in
Disclosure Schedule. For purposes of Section 3.1(t), "employee" means
any common law employee, consultant or director of Company or Carnegie;
20
(ii) Each Employee Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified
during the period from its adoption to the date hereof, and each trust
forming a part thereof is exempt from tax pursuant to Section 501(a) of
the Code, and nothing has occurred which may be expected to cause the
loss of such qualification or exemption. There has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Employee Plan; there are
no claims pending (other than routine claims for benefits) or overtly
threatened against any Employee Plan or against the assets of any
Employee Plan, nor are there any current or overtly threatened liens on
the assets of such plans; all Employee Plans conform to, and in their
operation and administration are in all material respects in compliance
with the requirements prescribed by any and all statutes (including
ERISA and the Code), orders, or governmental rules and regulations
currently in effect with respect thereto (including all applicable
requirements for notification, reporting and disclosure to participants
of the Department of Labor ("DOL"), Internal Revenue Service ("IRS") or
Secretary of the Treasury), including specifically but without
limitation the timely filing of the appropriate form of Annual
Return/Report of Employee Benefit Plan with all required schedules and
attachments for each plan year of each Employee Plan for which such and
Annual Return/Report is required, and the Company and each of its ERISA
Affiliates have performed all obligations required to be performed by
them under, are not in default under or violation of, and have no
knowledge of any default or violation by any other party to, any of the
Employee Plans; all contributions required to be made to any Employee
Plan pursuant to Section 412 of the Code, the terms of the Employee
Plan or any collective bargaining agreement, have been made on or
before their due dates and a reasonable amount has been accrued for
contributions to each Employee Plan for the current plan years; each
contribution by the Company or Carnegie to or in respect of an Employee
Plan has been deductible to the Company or Carnegie; the transaction
contemplated herein will not directly or indirectly result in an
increase of benefits, acceleration of vesting or acceleration of timing
for payment of any benefit to any participant or beneficiary; Company
has reviewed the fees assessed by all third parties for services
provided in relation to any aspect of the operation of each Employee
Plan which includes a cash or deferred arrangement under Code section
401(k) and has determined that such fees are reasonable and has fully
disclosed the nature and amount of such fees to each participant and
beneficiary of such Employee Plan; each Employee Plan, if any, which is
maintained outside of the United States has been operated in all
material respects in conformance with the applicable statutes or
governmental regulations and rulings relating to such plans in the
jurisdictions in which such Employee Plan is present or operates and,
to the extent relevant, the United States.
(iii) Except as set forth in Section 3.1(t)(iii) of the
Disclosure Schedule, no Employee Plan constitutes or since the
enactment of ERISA has constituted (A) a "multiemployer plan", as
defined in Section 3(37) of ERISA (a "Multiemployer Plan") (B) a plan
covered under Title IV of ERISA, or (C) a "multiple employer plan," as
defined in Section 413(c) of the Code. Company has never incurred any
material liability under Title IV of ERISA arising in connection with
the termination of any Pension Plan or the complete or partial
withdrawal from any Multiemployer Plan. With respect to the terminated
▇▇▇▇▇▇ Associates, Inc. Pension Trust (the "Pension Trust"), such
Pension
21
Trust has been terminated in a "standard termination" under ERISA
Section 4041(b) and all benefit liabilities of the Pension Trust have
been fully discharged; and neither the Company, Carnegie nor the
Pension Trust has any liability to any participant therein (or any
beneficiary, spouse, alternate payee or other person claiming through
any participant therein) or to the Pension Benefit Guaranty Corporation
(PBGC), or to any other person, and there are no grounds or basis for
any such participant (or beneficiary, spouse, alternate payee or other
person claiming through a participant) or PBGC or other person to
assert any claim or liability against the Company, Carnegie or the
Pension Trust, in either case in respect of such terminated Pension
Trust.
(iv) Each Employee Plan which is a "group health plan" (as
defined in Section 5000 of the Code) has been maintained in compliance
with Section 4980B of the Code and Title I, Subtitle B, Part 6 of ERISA
("COBRA Coverage"), and no tax payable on account of Section 4980B of
the Code has been or is expected to be incurred with respect to any
current or former Employees of Company. Each Employee Plan which is a
group health plan has been maintained in compliance in all material
respects with Section 4980D of the Code and Sections 701 through 707 of
ERISA, Title XXII of the Public Health Service Act and the provisions
of the Social Security Act, to the extent such requirements are
applicable. Each Employee Plan that is subject to Section 1862(b) (1)
of the Social Security Act has been operated in compliance in all
material respects with the secondary payor requirements of Section
1862(b)(1) of such Act.
(v) All contributions due and payable on or before the Closing
Date in respect of any Employee Plan have been made in full and proper
form, or adequate accruals in accordance with generally accepted
accounting principles have been provided for in Company Financial
Statements for all other contributions or amounts in respect of the
Employee Plans for periods ending on the Closing Date.
(vi) Except as set forth on Section 3.1(t)(vi) of the
Disclosure Schedule, no Employee Plan currently or previously
maintained by Company or any of its ERISA Affiliates provides any
post-termination health care or life insurance benefits, and neither
Company nor its ERISA Affiliates has any obligations (whether written
or real) to provide any post-termination benefits in the future (except
for COBRA Coverage).
(vii) The consummation of the transactions contemplated by
this Agreement will not (A) entitle any individual to severance or
separation pay, or (B) except as set forth in the relevant Employee
Plans, accelerate the time of payment or vesting, or increase the
amount, of compensation due to any individual. No payment made or
contemplated under any Employee Plan or Benefit Arrangement constitutes
an "excess parachute payment" within the meaning of Section 280G of the
Code.
(viii) With respect to each Employee Plan, (A) Company has
expressly reserved in itself the right to amend, modify or terminate
any such Employee Plan, or any portion of it, and has made no
representations (overtly or in writing) which would conflict with or
contradict such reservation of right; and (B) Company has satisfied any
bond coverage requirement of ERISA.
22
(u) Insurance. The Company and Carnegie maintain insurance coverage
that is customary among entities of similar size engaged in similar lines of
business as the Company and Carnegie. All material policies of insurance are in
full force and effect and all premiums with respect thereto are currently paid
and, to the best knowledge of the Company, Carnegie and the Stockholders, no
basis exists for termination of any thereof on the part of the insurer. Such
policies of insurance will continue to be in full force and effect in all
material respects following the Effective Time. To the best knowledge of the
Company, Carnegie and the Stockholders, the amounts of coverage under such
policies of insurance are adequate for the assets and properties of the Company
and Carnegie. To the best knowledge of the Company, Carnegie and the
Stockholders, neither the Company nor Carnegie has, since its inception, been
denied or had revoked or rescinded any policy of insurance.
(v) Non-Contravention; Consents. Neither (1) the execution, delivery or
performance of this Agreement, the Certificate of Merger and the Related
Agreements, nor (2) the consummation of the Merger or any of the other
transactions contemplated by this Agreement or the Related Agreements, will
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with or result in a violation of any of
the provisions of the Charter or bylaws of the Company or
Carnegie;
(ii) contravene, conflict with or result in a violation in any
material respect of, any Legal Requirement or any order, writ,
injunction, judgment or decree to which the Company or
Carnegie is subject or bound, or pursuant to which any
material assets owned or used by the Company or Carnegie is
subject or bound or result in the creation of any Encumbrance
on any material asset of the Company or Carnegie;
(iii) contravene, conflict with or result in a violation of any of
the terms or requirements of any Governmental Authorization
issued, granted given or otherwise made available by or under
the authority of any Governmental Authority, that is held by
the Company or Carnegie or that otherwise relates to the
business of the Company or Carnegie or to any material assets
owned or used by the Company or Carnegie; or
(iv) contravene, conflict with or result in a violation or breach
in any material respect of, or result in a default in any
material respect under, any Contract.
Except as may be required by the MBCL, the Company is not or will not
be required to make any filing with or give any notice to, or to obtain any
consent from, any Person in connection with (x) the execution, delivery or
performance of this Agreement, the Certificate of Merger, the Articles of Merger
or the Related Agreements or (y) the consummation of the Merger or any of the
other transactions contemplated by this Agreement, except where the failure to
take such actions will not have a Material Adverse Effect or a material adverse
effect on the ability of the Company or the Stockholders to consummate the
transactions contemplated
23
hereby or by the Related Agreements. Except as may be set forth in Section
3.1(v) of the Disclosure Schedule, the Company is not or will not be required to
make any filing with or give any notice to, or to obtain any consent from, any
Person in connection with the consummation of the Asset Sale.
(w) Bank Accounts; Powers of Attorney. Section 3.1(w) of the Disclosure
Schedule sets forth a true and complete list of (i) all bank accounts and safe
deposit boxes of Company and Carnegie and all persons who are signatories
thereunder or who have access thereto, and (ii) the names of all persons, firms,
associations, corporations or business organizations holding general or special
powers of attorney from Company and Carnegie and a summary of the terms thereof.
(x) Brokers. The Company has not, nor have any of its officers,
directors, securityholders or employees, employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby other than a fee due and
payable by the Company to Veronis, Suhler & Associates, LLC upon the
effectiveness of the Merger (the "VS&A Fee"), which fee will be paid by the
Stockholders.
(y) Related Transactions. No current or former director, officer or
securityholder of Company or Carnegie that is an Affiliate (as defined in
Section 8.1) of the Company or Carnegie or any associate thereof, is now or has
been at any time since January 1, 1998 a party to any transaction with Company
or Carnegie (including, but not limited to, any contract, agreement or other
arrangement providing for the furnishing of services by, or rental of real or
personal property from, or borrowing money from, or otherwise requiring payments
to, any such director, officer or affiliated stockholder of Company or Carnegie
or associate thereof), or is now or has been at any time since January 1, 1998,
the direct or indirect owner of an interest in any corporation, firm,
association or business organization which is a present or potential competitor,
supplier or customer of Company or Carnegie (other than non-affiliated holdings
in publicly-held companies), nor does any such person receive income from any
source other than Company or Carnegie which relates to the business of, or
should properly accrue to, Company or Carnegie. Section 3.1(y) of the Disclosure
Schedule contains a true and complete list of all Persons who, to the knowledge
of the Company, Carnegie and the Stockholders, may be deemed to be Affiliates of
the Company or Carnegie, including, without limitation, all directors and
executive officers of the Company and Carnegie.
(z) Customers. Section 3.1(z) of the Disclosure Schedule sets forth a
true and complete list of the 20 largest revenue producing customers of Carnegie
during calendar year 2000.
(aa) Certain Agreements. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of Company or Carnegie from Company or the Surviving Corporation
under any Employee Plan, Benefit Arrangement or otherwise, (ii) with respect to
any current or former director, officer or key employee of Company or Carnegie,
materially increase any benefits otherwise payable under any Employee Plan or
the Benefit
24
Arrangement or (iii) result in the acceleration of the time of payment or
vesting of any such benefits.
(bb) Minute Books. Except as disclosed in Section 3.1(bb) of the
Disclosure Schedule, (i) the minute books of Carnegie provided to Alloy for
review contain a complete summary of all meetings of and actions required by its
directors and stockholders the time of its incorporation to the date of such
review and reflect all actions referred to in such minutes accurately in all
material respects and (ii) the minute books of the Company provided to Alloy for
review contain a complete summary of all meetings of and actions required by its
directors and stockholders from April 19, 1996 to the date of such review and
reflect all actions referred to in such minutes accurately in all material
respects.
(cc) Business Generally. There have been no events or transactions, or
information which has come to the attention of the Company or any officer,
director or key employee thereof that could reasonably be expected to have a
Material Adverse Effect, neither the Company nor Carnegie is subject to any
Charter or other corporate restriction or, to the Company's, Carnegie's and the
Stockholders' best knowledge, neither the Company nor Carnegie is obligated
under any Contract, in any event which could have a Material Adverse Effect.
(dd) Board Approval. The Board of Directors of the Company has by
majority vote (i) approved this Agreement, the Certificate of Merger, the
Articles of Merger and each of the other Related Agreements to which the Company
is a party and the transactions contemplated hereby and thereby, (ii) determined
that the Merger is in the best interests of the stockholders of the Company and
is on terms that are fair to such stockholders of the Company and (iii)
recommended that the stockholders of the Company approve the Merger in
accordance with the Certificate of Merger, the Articles of Merger and the MBCL.
(ee) Vote Required. The affirmative vote of at least a majority of the
outstanding shares of Company Common Stock approving this Agreement, the Merger,
the Certificate of Merger and the Articles of Merger are the only votes of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the Certificate of Merger and the
transactions contemplated hereby and thereby.
(ff) Operation of Business. With respect to the businesses of the
Company and Carnegie, as of the Closing Date, the Company and Carnegie, as
applicable, shall have paid all refunds due and issued all credits due relating
to or arising out of orders, merchandise returns, allowances, cancellations and
overpayments processed and due in the ordinary course of business since the
Company Balance Sheet Date. For purposes of this Agreement, a transaction shall
be deemed processed when it is entered into the mail order computer system of
the Company or Carnegie, as applicable.
(hh) Disclosure. Neither Section 3.1 of this Agreement nor any
financial statement, certificate, exhibit or disclosure schedule attached hereto
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary in order to make the statements or
facts contained herein and therein not misleading in light of the circumstances
under which they were made.
25
3.2 Additional Representations and Warranties of Each of the
Stockholders. Each Stockholder jointly and severally represents and warrants to
Alloy as follows:
(a) Title; Absence of Certain Agreements. The Stockholder is the lawful
and record and beneficial owner of, and has good and marketable title to, the
number of shares of outstanding shares of Company Common Stock set forth
opposite such Stockholder's name in Section 3.1(c) of the Disclosure Schedule,
with the full power and authority to vote such Company Common Stock and transfer
and otherwise dispose of such Company Common Stock, and any and all rights and
benefits incident to the ownership thereof free and clear of all Encumbrances,
and there are no agreements or understandings between the Stockholder and the
Company and/or any other person with respect to the voting, sale or other
disposition of Company Common Stock or any other matter relating to Company
Common Stock.
(b) Organization, Good Standing and Power. Each Stockholder that is
other than a natural person is duly organized or formed and validly existing
under the laws of the jurisdiction of its incorporation or formation and has the
corporate or other organizational power and authority under such laws to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. Each Stockholder has full and absolute power
and authority to enter into this Agreement and each Related Agreement being
executed and delivered by such Stockholder simultaneously herewith and this
Agreement and each Related Agreement to which such Stockholder is a party, and,
if such Stockholder is other than a natural person, has been duly authorized by
all requisite action on the part of the Stockholder; and this Agreement and each
Related Agreement to which the Stockholder is a party has been duly executed and
delivered by the Stockholder, and is the valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with its terms.
Neither the execution, delivery and performance of this Agreement and each
Related Agreement to which the Stockholder is a party, nor the consummation of
the transactions contemplated hereby or thereby nor compliance by the
Stockholder with any of the provisions hereof or thereof will (A) conflict with,
(B) result in any violations of, (C) cause a default under (with or without due
notice, lapse of time or both), (D) give rise to any right of termination,
amendment, cancellation or acceleration of any obligation contained in or the
loss of any material benefit under or (E) result in the creation of any
Encumbrance upon or against any Company Common Stock held by such Stockholder
under any term, condition or provision of (x) any agreement or instrument to
which the Stockholder is a party, or by which the Stockholder or any of his or
its properties, assets or rights may be bound, or (y) any law, statute, rule,
regulation, order, writ, injunction, decree, permit, concession, license or
franchise of any Governmental Authority applicable to the Stockholder or any of
his or its properties, assets or rights which conflict, breach, default or
violation or other event would prevent, hinder or impede the consummation of the
transactions contemplated by this Agreement, the Certificate of Merger, the
Articles or Merger or any Related Agreement to which the Stockholder is a party.
Except as set forth in Section 3.2(b) of the Disclosure Schedule (which, if so
disclosed shall have been effectively made or obtained (as the case may be) on
or prior to the Closing, unless otherwise waived by Alloy) no permit,
authorization, consent or approval of or by, or any notification of or filing
with, any Governmental Authority or other person is required in connection with
the execution, delivery and performance by such Stockholder of this Agreement,
each Related Agreement to which such
26
Stockholder is a party or the consummation by such Stockholder of the
transactions contemplated hereby or thereby.
(c) Brokers. Such Stockholder does not have, nor have any of its
officers, directors, trustees, members or employees (if any) employed, any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby.
(d) Representation by Legal Counsel. The Stockholder has been advised
by legal counsel in connection with the negotiation, execution and delivery of
this Agreement, the Certificate of Merger, the Articles of Merger and the
Related Agreements and the performance of the transactions contemplated hereby
an thereby.
3.3 Representations and Warranties of Alloy . Alloy hereby represents
and warrants to the Company as follows:
(a) Organization; Good Standing; Qualification and Power. Alloy (i) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and (ii) has all requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as now being conducted, to enter into this Agreement, the
Certificate of Merger and each of the Related Agreements to which it is a party,
to perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. Alloy has delivered to the Company
true and complete copies of its Charter and by-laws.
(b) Capital Stock. Alloy's Quarterly Report on Form 10-Q filed with the
SEC with respect to the fiscal quarter ended October 31, 2000 (the "Form 10-Q"),
sets forth a true and complete description of the authorized and outstanding
shares of capital stock of Alloy as of such date. Alloy has duly authorized and
reserved for issuance the Merger Shares and the Additional Merger Shares, and,
when issued in accordance with the terms of Article II, the Merger Shares,
Additional Merger Shares and any shares of Alloy Common Stock issuable upon
exercise of the Warrants will be validly issued, fully paid and non-assessable
and free of preemptive rights. Alloy has duly authorized the Warrants, and there
exist a sufficient number of authorized but unissued shares of Alloy Common
Stock to allow for the exercise in full of the Warrants. Upon issuance of any
shares of Alloy Common Stock upon exercise of the Warrants, such shares will be
validly issued, fully paid and non-assessable and free of preemptive rights. No
further action by the Board of Directors of Alloy is required for the issuance
of the Merger Shares, Additional Merger Shares or any shares of Alloy Common
Stock issuable upon exercise of the Warrants.
(c) Authority. The execution, delivery and performance by Alloy of this
Agreement and each of the Related Agreements to which it is a party, including,
without limitation, the Warrants, and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Alloy. This Agreement and each of the Related
Agreements to which Alloy is a party, including, without limitation, the
Warrants, are valid and binding obligations of Alloy, enforceable against Alloy
in accordance with their respective terms. Neither the execution, delivery and
performance by Alloy of this Agreement
27
and the Related Agreements, nor the consummation of the transactions
contemplated hereby or thereby, will in any material respect (A) conflict with,
(B) result in any violations of, (C) cause a default under (with or without due
notice, lapse of time or both), (D) give rise to any right of termination,
amendment, cancellation or acceleration of any obligation contained in or the
loss of any material benefit under, (E) result in the creation of any
Encumbrance on or against any assets, rights or property of Alloy under any
term, condition or provision of (x) any instrument or agreement to which Alloy
is a party, or by which Alloy or any of its properties, assets or rights may be
bound, (y) any law, statute, rule, regulation, order, writ, injunction, decree,
permit, concession, license or franchise of any Governmental Authority
applicable to Alloy or any of its properties, assets or rights or (z) Alloy's
Charter or by-laws, as amended through the date hereof, respectively, in each
case, which conflict, breach, default or violation or other event would prevent
the consummation of the transactions contemplated by this Agreement, the
Certificate of Merger or any Related Agreement to which Alloy is a party. Except
as contemplated by this Agreement, no permit, authorization, consent or approval
of or by, or any notification of or filing with, any Governmental Authority or
other person is required in connection with the execution, delivery and
performance by Alloy of this Agreement, the Certificate of Merger and Articles
of Merger or the Related Agreements or the consummation of the transactions
contemplated hereby or thereby, other than (i) the filing with the SEC of such
reports and information, if any, under the Securities and Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations promulgated by
the SEC thereunder, as may be required in connection with this Agreement and the
transactions contemplated hereby, (ii) the filing of such documents with, and
the obtaining of such orders from, various state securities and blue-sky
authorities as are required in connection with the transactions contemplated
hereby, (iii) the filing of the Certificate of Merger with the Secretary of
State of the State of Delaware and the Articles of Merger with the Secretary of
the Commonwealth of the Commonwealth of Massachusetts and (iv) such other
consents, waivers, authorizations, filings, approvals and registrations which if
not obtained or made would materially impair the ability of Alloy to consummate
the transactions contemplated by this Agreement, including, without limitation,
the Merger.
(d) SEC Documents.
(i) Alloy has furnished or made available to the Company a
correct and complete copy of Alloy's Quarterly Report on Form 10-Q
("Form 10-Q") filed with the SEC with respect to the fiscal quarter
ended October 31, 2000 and each report, schedule, registration
statement and definitive proxy statement filed by Alloy with the SEC on
or after the date of filing of the Form 10-Q which are all the
documents (other than preliminary material) that Alloy was required to
file (or otherwise did file) with the SEC in accordance with Sections
13, 14 and 15(d) of the Exchange Act on or after the date of filing
with the SEC of the Form 10-Q (collectively, the "Alloy SEC
Documents"). As of their respective filing dates, or in the case of
registration statements, their respective effective times, none of
Alloy SEC Documents (including all exhibits and schedules thereto and
documents incorporated by reference therein) contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and Alloy SEC Documents
28
complied when filed, or in the case of registration statements, as of
their respective effective times, in all material respects with the
then applicable requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations promulgated by the
SEC thereunder.
(ii) The financial statements (including the notes thereto) of
Alloy included in the Form 10-Q for the fiscal quarter then ended,
complied as to form in all material respects with the then applicable
accounting requirements and the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with GAAP during
the periods involved (except as may have been indicated in the notes
thereto) and fairly present the financial position of Alloy as at the
dates thereof and the results of its operations, stockholders' equity
and cash flows for the period then ended.
(iii) Immediately prior to the Effective Time, the authorized
capital stock of Alloy will consist of 50,000,000 shares of Alloy
Common Stock, of which 21,248,403 shares are issued and outstanding,
and 5,000,000 shares of preferred stock, par value $.01 per share, of
which 1,850,000 have been designated as its Series A Convertible
Preferred Stock (the "Series A Preferred") pursuant to a Certificate of
Designation filed with the Secretary of State of the State of Delaware
on February 16, 2001, and 1,052,632 shares of which are issued and
outstanding.
(iv) As of March 1, 2001, the outstanding subscriptions,
options, warrants, calls, contracts, demands, commitments and
convertible securities of Alloy under which Alloy is obligated to issue
any securities of any kind representing an ownership interest in Alloy,
consisted of the shares of Series A Preferred, warrants to purchase
307,018 shares of Alloy Common Stock issued in connection with Alloy's
issuance and sale of the Series A Preferred and outstanding stock
options in respect of 4,596,518 shares of Alloy Common Stock with an
average strike price of $12.54 per share and warrants in respect of
232,865 shares of Alloy Common Stock with an average exercise price of
$5.06. Since March 1, 2001, Alloy has issued similar rights in respect
of not more than 100,000 shares of Alloy Common Stock.
(e) Brokers. Neither Alloy nor any of its officers, directors, or
employees have employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders' fees in connection with the transactions
contemplated hereby.
(f) Financial Information. The results of operations announced by Alloy
in its March 15, 2001 earnings press release fairly present the results of
operations of Alloy and its consolidated subsidiaries for its fiscal year 2001,
subject to changes resulting from normal year-end audit adjustments, which
adjustments shall not in any event result in a material adverse change thereto,
taken as a whole.
(g) Disclosure. None of the Alloy SEC Documents contains any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements or facts contained herein and therein
not misleading in light of the circumstances under which they were made.
29
(h) Acknowledgements. Alloy acknowledges that: (i) it will have
completed to its satisfaction its own due diligence review with respect to the
Company and Carnegie; (ii) it has had access to its satisfaction to the Company
and Carnegie and their respective businesses and affairs; (iii) the occurrence
of the Closing shall be deemed to constitute the satisfaction and/or waiver of
each of the conditions precedent set forth in Article VI hereof.
(i) Derivative Securities. Alloy is not obligated to issue any shares
of Alloy Common Stock or any securities convertible into Alloy Common Stock, or
any warrants, options or other rights to acquire (directly or indirectly), any
Alloy Common Stock, pursuant to which the price payable for any such Alloy
Common Stock is or is to be, in whole or in part, based on or derived from or by
reference to any trading price or other measure of value of Alloy Common Stock.
The holder of the Series A Preferred has agreed not to effect, directly or
indirectly, any "short sales" (as defined in Rule 3b-3 of the Exchange Act) of
any Alloy Common Stock or any securities convertible into any Alloy Common
Stock, and to not engage in any other transactions involving any hedging of such
holder's shares of Alloy Common Stock or any securities convertible into any
Alloy Common Stock or use of any puts, calls or other derivatives in connection
with any of such holder's shares of Alloy Common Stock or any securities
convertible into any Alloy Common Stock. Such restrictions expire on the earlier
of (i) February 15, 2004 and (ii) the date on which Alloy exercises its right to
require the conversion of Series A Preferred into Alloy Common Stock as provided
in Section 8.4 of the Certificate of Designation creating the Series A
Preferred.
(j) Tax Matters. Alloy has no plan or intention to sell or otherwise
dispose of any of the assets of the Company acquired in the Merger except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code. Except as otherwise provided in this
Agreement, no liabilities of any person other than the Company will be assumed
by Alloy in connection with the Merger. Following the Merger, one or more
members of Alloy's qualified group as defined in Treas. Reg. Section
1.368-1(d)(4)(ii) will either continue the historic private colleges and
universities business of the Company or use a significant portion of the
Company's historic business assets (i.e. not less than fifty percent of the
historic business assets of Carnegie received in this Merger) in a business.
Alloy is not an "investment company" within the meaning of Section
368(a)(2)(F)(iii) of the Code.
ARTICLE IV
RELATED AGREEMENTS
4.1 Related Agreements. At the Closing, the following agreements (such
agreements, together with the Escrow Agreement being herein collectively
referred to as the "Related Agreements") shall be executed and delivered by the
respective parties thereto:
(a) Lock-Up Agreements. Each Stockholder shall execute and deliver an
Investment Representation and Lock-Up Agreement with Alloy in a form reasonably
acceptable
30
to Alloy, effective as of the Effective Time (the "Lock-Up Agreements"),
providing, among other matters, that the Stockholders and their transferees
shall not transfer their shares of Alloy Common Stock following the Effective
Time except as provided therein and including a representation as to such
person's intentions with respect thereto. Alloy shall be entitled to place
legends on the certificates evidencing any Alloy Common Stock to be received by
a Stockholder and its transferees pursuant to the terms of this Agreement and
the Certificate of Merger, and to issue appropriate stop transfer instructions
to the transfer agent for Alloy Common Stock, consistent with the terms of the
Lock-Up Agreement, whether or not the Lock-Up Agreement is actually delivered to
Alloy.
(b) Escrow Agreement. Alloy, the Stockholders and the Escrow Agent
shall enter into the Escrow Agreement.
(c) Non-Competition Agreements. Each of the Stockholders and, with
respect to those Stockholders that are trusts, the beneficiaries of such trusts
(collectively, the "Trust Beneficiaries") shall enter into an agreement with
Alloy in a form reasonably acceptable to Alloy, to be effective as of the
Effective Time (the "Non-Competition Agreements"), providing for, among other
things, a three-year restriction upon such person from competing with the
businesses of Alloy, Carnegie and the Surviving Corporation.
(d) Registration Rights Agreement. The Stockholders and Alloy shall
enter into a Registration Rights Agreement effective as of the Effective Time
(the "Registration Rights Agreement"), providing for certain registration rights
with respect to the Merger Shares and shares issuable upon exercise of the
Warrants, if any.
(e) Employment Agreement. Alloy and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ shall enter into a
mutually acceptable employment agreement effective immediately following the
Effective Time.
(f) Release Agreements. Each Stockholder and each officer of the
Company and Carnegie shall enter into a Release Agreement, effective as of the
Effective Time (the "Release Agreements"), providing for, among other things,
release of the Company, Carnegie, Alloy and Alloy's affiliates from any and all
claims, known and unknown, that such person may have against the Company or
Carnegie through the Effective Time.
(g) Sublease. Carnegie and Carnegie Communications LLC shall enter into
a sublease, in form and substance satisfactory to Alloy, pursuant to which
Carnegie shall sublease from Carnegie Communications LLC space in the building
currently occupied by the Company and Carnegie in Westford, Massachusetts.
ARTICLE V
CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME;
ADDITIONAL AGREEMENTS
31
5.1 Preparation of Filings. As promptly as practicable after the date
of this Agreement, Alloy and the Stockholders shall properly prepare and file
any filings required under the Exchange Act, the Securities Act or any other
Federal or state laws, and Alloy shall properly prepare and file any filings
required under state securities or "blue sky" laws, in each case relating to the
Merger and the transactions contemplated by this Agreement (collectively, the
"Filings"). The Company shall promptly furnish Alloy with all information
concerning the Company and the Stockholders as may be reasonably requested by
Alloy in connection with any action contemplated by this Section 5.1. Alloy, the
Company and the Stockholders will notify the others promptly of the receipt of
any comments from any government officials for amendments or supplements to any
Filing or for additional information and will supply the other with copies of
all correspondence between such party or any of its representatives, on the one
hand, and any government officials, on the other hand, with respect to the
Merger or any Filing. Except as may be prohibited by any Legal Requirement or
any Governmental Authority, Alloy and the Company shall promptly provide the
other (or its counsel) with copies of all filings made by such party with any
Governmental Authority in connection with this Agreement and the transactions
contemplated hereby and thereby. The Filings shall comply in all material
respects with all applicable requirements of law. Whenever any event occurs
which should be set forth in an amendment or supplement to any Filing, Alloy,
the Company and the Stockholders, as the case may be, shall promptly inform the
other parties of such occurrence and cooperate in filing with any government
officials, such amendment or supplement.
5.2 Approval. The Company shall (a) take or cause to be taken all such
other action as may be required by the MBCL and any other applicable law in
connection with the Merger and this Agreement, in each case as promptly as
reasonably possible and (b) reasonably cooperate with and assist Alloy and its
representatives in taking any such actions as may reasonably be required to
consummate the Merger, including obtaining the consent and approval of any third
parties or Governmental Authority.
5.3 Financial Statements. The Company will provide Alloy at or prior to
the Effective Time with a draft of the audited consolidated balance sheet of
Carnegie and related drafts of the audited consolidated statements of income,
cash flow and shareholders' equity as of and for the most recently completed
fiscal year-end of Carnegie (the "Draft Financials"), and will retain the
services of ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ LLP to review the audit of the Draft Financials
and opinion, footnotes and other documentation required for filing of the
audited financial statements of Carnegie with the Form 8-K required to be filed
by Alloy following consummation of the Merger; provided, however, that no later
than fifteen (15) days following the Closing Date the Stockholders will provide
Alloy with the final audited consolidated balance sheet of Carnegie and related
final audited consolidated statements of income, cash flow and shareholders'
equity as of and for the most recently completed fiscal year-end of the Company
that will not materially differ from the Draft Financials. Alloy shall pay, or
if not so paid, reimburse the Stockholders after the Closing for, the fees and
expenses of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇.
5.4 Stock Exchange Listing. Alloy shall use all commercially reasonable
efforts to have authorized for quotation on NASDAQ National Market System, upon
official notice of issuance, the Merger Shares and shares of Alloy Common Stock,
if any, issuable upon exercise of the Warrant.
32
5.5 Dissenter's Rights. By their execution hereof, each of the
Stockholders hereby waives all dissenters' rights and similar rights of
appraisal, if any, they may have under the provisions of the MBCL in connection
with the Merger and the transactions contemplated by the Asset Purchase
Agreements.
5.6 Rule 144. With a view to making available to the Stockholders the
benefits of Rule 144 and any other rule or regulation of the SEC that may at any
time permit the Stockholders to sell Common Stock to the public without
registration or pursuant to registration, Alloy covenants that:
(a) it will file the reports required to be timely filed by
Alloy under the Securities Act and the Exchange Act, so as to enable
the Stockholders to sell shares of Alloy Common Stock received
hereunder pursuant to Rule 144 under the Securities Act;
(b) subject to the provisions of the Lock-Up Agreements, it
shall cooperate with any Stockholder in connection with any sale,
transfer or other disposition by such Stockholder of any shares of
Alloy Common Stock received hereunder pursuant to Rule 144 under the
Securities Act; and
(c) it will take such action as any Stockholder may reasonably
request, including, without limitation, furnishing to such Stockholder,
upon its written request, a written statement signed by Alloy and
addressed to such Stockholder stating whether or not Alloy is in
compliance with the filing requirements of Section 13 or 15(d) of the
Securities Act during the preceding 12 months, all to the extent
required from time to time to enable such Stockholder to sell shares of
Alloy Common Stock received hereunder without registration under the
Securities Act within the limitation of the exemptions provided by Rule
144 promulgated under the Securities Act.
For purposes hereof, "Rule 144" means Rule 144 promulgated by the
Commission pursuant to the Securities Act, as such Rule may be amended from time
to time, or any similar rule or regulation hereafter adopted by the Commission
having substantially the same effect as such Rule.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligations. The obligations of each
party to perform this Agreement and to effect the Merger are subject to the
satisfaction of the following conditions, at or prior to the Closing unless
waived (to the extent such conditions can be waived) by all parties hereto:
(a) Approvals. All authorizations, consents, orders or approvals of, or
declarations or filings with or expiration of waiting periods imposed by any
Governmental Authority or any
33
other Person (including, without limitation, by contract) necessary for the
consummation of the transactions contemplated hereby shall have been obtained or
made or shall have occurred.
(b) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any Federal or state court or other
Governmental Authority and remain in effect.
(c) Legislation. No Federal, state, local or foreign statute, rule or
regulation shall have been enacted which prohibits the consummation of the
transactions contemplated by this Agreement or any of the conditions to the
consummation of such transactions.
6.2 Conditions to Obligations of Alloy. The obligations of Alloy to
perform this Agreement and effect the Merger are subject to the satisfaction of
the following conditions at or prior to the Closing unless waived (to the extent
such conditions can be waived) by Alloy:
(a) Representations and Warranties of the Company, Carnegie and the
Stockholders. The representations and warranties of the Company, Carnegie and
the Stockholders set forth in Section 3.1 and 3.2 hereof shall be true and
correct in all material respects (except for any representation or warranty that
by its term is qualified by materiality, in which case it shall be true and
correct in all respects) as of the Effective Time (excluding any representation
or warranty that refers specifically to the date of this Agreement, "the date
hereof" or any other date other than the Effective Time) as though made on and
as of the Effective Time, and Alloy shall have received certificates signed by
the Chief Executive Officer or President of the Company and the Stockholders to
that effect.
(b) Performance of Obligations of the Company, Carnegie and the
Stockholders. The Company, Carnegie and the Stockholders shall have performed in
all material respects the obligations required to be performed by it and them,
respectively, under this Agreement prior to or as of the Effective Time, and
Alloy shall have received a certificate signed by the Chief Executive Officer on
behalf of the Company and the Stockholders, respectively, to that effect.
(c) Authorization of Merger. All actions necessary to authorize the
execution, delivery and performance of this Agreement, the Certificate of Merger
and the Related Agreements by the Company and Carnegie and the consummation of
the Merger and the other transactions contemplated hereby and thereby shall have
been duly and validly taken by the Board of Directors of the Company and
Carnegie, and the Company and the Stockholders shall have full power and right
to effect the Merger on the terms provided herein.
(d) Opinion of the Company's Counsel. Alloy shall have received an
opinion dated the Closing Date of ▇▇▇▇▇▇▇ ▇▇▇▇ LLP, counsel to the Company, in
form and substance reasonably acceptable to Alloy.
(e) Consents and Approvals. Alloy shall have received duly executed
copies of all consents and approvals contemplated by this Agreement or the
Disclosure Schedule, in form and substance satisfactory to Alloy, including,
without limitation, all consents and approvals required to effect consummation
of the Asset Sale.
34
(f) Government Consents, Authorizations, Etc. All consents,
authorizations, orders or approvals of, and filings or registrations with, any
Governmental Authority, if any, which are required for the consummation by the
Company or Carnegie of the transactions contemplated hereby and thereby shall
have been obtained or made.
(g) Related Agreements. Each of the Related Agreements shall be in full
force and effect as of the Effective Time or the Closing Date, as the case may
be, and become effective in accordance with the respective terms thereof and the
actions required to be taken thereunder by the parties thereto immediately prior
to the Effective Time or the Closing Date, as the case may be, shall have been
taken, and each person or entity who or which is required or contemplated by the
parties hereto to be a party to any Related Agreement who or which did not
theretofore enter into such Related Agreement shall execute and deliver such
Related Agreement. In addition, all of the Stockholders shall have entered into
Lock-Up Agreements with Alloy.
(h) Absence of Material Adverse Change. There shall have been no change
in the Business or financial condition of the Company or Carnegie having or
which is reasonably likely to have a Material Adverse Effect prior to the
Effective Time; provided, however, that for purposes of determining whether
there shall have been a Material Adverse Effect, (i) any adverse change
resulting from or relating to general business or economic conditions shall be
disregarded, (ii) any adverse changes resulting from or relating to conditions
generally affecting the industry in which the Company competes shall be
disregarded, (iii) any adverse change resulting from or relating to the
announcement or pendency of the Merger or any of the other transactions
contemplated by this Agreement shall be disregarded, and (iv) any adverse
changes resulting from or relating to the taking of any action contemplated by
this Agreement shall be disregarded.
(i) Asset Sale. The Company and ▇▇▇▇▇▇ Media Group, LLC, on the one
hand, and Carnegie and Carnegie Communications, LLC, on the other hand, shall
have entered into Asset Purchase Agreements and related bills of sale,
assignment and assumption agreements and such other documents and instruments,
in form and substance reasonably satisfactory to Alloy, as may be required to
effect and consummate the Asset Sale immediately prior to the Effective Time
(collectively, the "Asset Sale Agreements"), and the Asset Sale shall have been
consummated in accordance with the provisions of the Asset Sale Agreements.
(j) Resignation of Directors and Officers. The directors and officers
of Carnegie immediately prior to the Effective Time shall have resigned as
directors and officers of Carnegie effective as of the Effective Time.
(k) Delivery of Closing Financial Certificate. Alloy shall have
received a certificate prepared by the Company and dated as of the Closing Date
(the "Closing Financial Certificate"), setting forth an estimate of the Net
Working Capital of the Company as of the Closing Date (the "Estimated Company
Net Working Capital"). The parties acknowledge and agree that for the purposes
of determining Estimated Company Net Working Capital and Actual Company Net
Working Capital (defined below), the liabilities of the Company shall not
include the VS&A Fee.
35
(l) Additional Documents. Alloy shall have received the following
documents:
(i) from Carnegie a certificate of good standing of Carnegie issued
by the Secretary of State of the State of Delaware dated within 7 business days
of the Effective Time and certificates signed by the Secretary of Carnegie that
certify the Charter, By-laws and Board resolutions for Carnegie and by the
President of Carnegie that certify that the representations and warranties of
Carnegie made herein are true as of the Effective Time;
(ii) from the Company (1) a certificate of good standing of the
Company issued by the Secretary of State of the State of Massachusetts dated
within 7 business days of the Effective Time, (2) a certificate as to the
Company's due qualification and license to do business issued by the Secretary
of State of the States and other jurisdictions listed in Section 3.1 of the
Disclosure Schedule and dated within 7 business days of the Effective Time and
(3) certificates signed by the Secretary of the Company that certify the
Charter, By-laws and Board resolutions for the Company and by the President of
the Company that certify that the representations and warranties of the Company
made herein are true as of the Effective Time; and
(iii) from each of the Stockholders, certificates that certify that
the representations and warranties of such Stockholder made herein are true as
of the Effective Time.
(m) Employee Benefit Plans. In connection with the Asset Sale, the
Company and/or Carnegie, as applicable, shall assign, and the Purchasers shall
assume, each of the Employee Plans; and the Purchasers shall assume any and all
liabilities and obligations of the Company and/or Carnegie of any nature
(whether matured or unmatured, fixed or contingent, past or future, accrued,
absolute or otherwise) arising out of or in any way related to, directly or
indirectly, any Employee Plan.
6.3 Conditions to Obligations of the Company and Carnegie. The
obligations of the Company and Carnegie to perform this Agreement and the
Certificate of Merger are subject to the satisfaction of the following
conditions unless waived (to the extent such conditions can be waived) by the
Company:
(a) Representations and Warranties of Alloy. The representations and
warranties of Alloy set forth in Section 3.3 hereof shall be true and correct in
all material respects (except for any representation or warranty that by its
terms is qualified by materiality, in which case it shall be true and correct in
all respects) as of the Effective Time (excluding any representation or warranty
that refers specifically to "the date of this Agreement, "the date hereof" or
any other date other than the Effective Time) as though made on and as of the
Effective Time, and the Company shall have received a certificate signed by the
Chief Executive Officer or President of Alloy to that effect.
(b) Performance of Obligations of Alloy Alloy shall have performed in
all material respects its obligations required to be performed by it under this
Agreement and the Certificate of Merger prior to or as of the Effective Time and
the Company shall have received a certificate signed by a duly authorized
officer of Alloy to that effect.
36
(c) Related Agreements. Alloy shall have executed and delivered the
Related Agreements to which it is a party and all other agreements to which
Alloy is to be party pursuant to the terms of Section 4.1 and each such
agreement shall be in full force and effect in accordance with its terms.
(d) Aggregate Consideration. Alloy shall have delivered an irrevocable
letter to its transfer agent directing the transfer agent to deliver the Merger
Shares to the Stockholders and Escrow Agent, as applicable, shall have delivered
duly executed Warrants to the Stockholders, and shall have delivered the Closing
Cash Payment by means of wire transfer to an account or accounts as may be
specified in writing by the Stockholders to Alloy not later than the Business
Day prior to the Closing Date.
(e) Additional Documents. The Stockholders shall have received the
following documents from Alloy:
(i) a certificate of good standing of Alloy issued by the Secretary
of State of the State of Delaware dated within 7 business days of the Effective
Time, and
(ii) certificates signed by the Secretary of Alloy that certify the
Charter, By-laws and Board resolutions for Alloy and by the President of Alloy
hat certify that the representations and warranties of Alloy made herein are
true as of Effective Time.
(f) Opinion of Alloy's Counsel. The Stockholders shall have received an
opinion dated the Closing Date of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C., counsel to Alloy, in form and substance reasonably acceptable to the
Stockholders.
(g) Related Agreements. Each of the Related Agreements shall be in full
force and effect as of the Effective Time or the Closing Date, as the case may
be, and become effective in accordance with the respective terms thereof and the
actions required to be taken thereunder by the parties thereto immediately prior
to the Effective Time or the Closing Date, as the case may be, shall have been
taken, and each person or entity who or which is required or contemplated by the
parties hereto to be a party to any Related Agreement who or which did not
theretofore enter into such Related Agreement shall execute and deliver such
Related Agreement. In addition, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have delivered a
comfort letter, in form and substance reasonably satisfactory to the
Stockholders, as to ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ undertaking to acquire shares of Alloy
Common Stock from the Stockholders at times when public shares thereof are not
permitted by reason of the withdrawal or suspension of any then effective
registration statement relating thereto.
ARTICLE VII
ADDITIONAL AGREEMENTS
37
7.1 Certain Information Required by the Code. Each holder of Company
Common Stock or Convertible Securities who holds ten percent (10%) or more (by
value) of the interests in the Company immediately prior to the Merger, within
the meaning of Section 1060(e) of the Code, and who, in connection with the
Merger, enters into a Non-Competition Agreement or other agreement with the
Company or the Surviving Corporation (or is related to any person who enters
into any such contract or agreement, within the meaning of Section 267(b) or
Section 707(b)(1) of the Code) shall furnish Alloy with any information required
pursuant to Section 1060(e) of the Code at such time and in such manner as Alloy
may request in order to comply with Section 1060(e) and any regulations
promulgated thereunder.
7.2 Restriction on Transfer.
(a) The shares of Alloy Common Stock to be issued to the Stockholders
pursuant to the Merger and any shares of capital stock or other securities
received with respect thereto (collectively, the "Restricted Securities") shall
not be sold, transferred, assigned, pledged, encumbered or otherwise disposed of
(each, a "Transfer") except upon the conditions specified in this Section 7.2,
which conditions are intended to insure compliance with the provisions of the
Securities Act. The Stockholders shall observe and comply with the Securities
Act and the rules and regulations promulgated by the SEC thereunder as now in
effect or hereafter enacted or promulgated, and as from time to time amended, in
connection with any Transfer of Restricted Securities beneficially owned by the
stockholders.
(b) Each certificate representing Restricted Securities issued to the
Stockholders and each certificate for such securities issued to subsequent
transferees of any such certificate shall (unless otherwise permitted by the
provisions of Sections 7.2(c) and 7.2(d) hereof) be stamped or otherwise
imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES OR "BLUE-SKY" LAWS. THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM. ADDITIONALLY, THE TRANSFER OF THESE
SECURITIES IS SUBJECT TO THE CONDITIONS SPECIFIED IN SECTION
7.2 OF THE AGREEMENT AND PLAN OF MERGER DATED AS OF APRIL 11,
2001, BY AND BETWEEN ALLOY ONLINE, INC., ▇▇▇▇▇▇ MEDIA GROUP,
INC. AND THE OTHER SIGNATORIES THERETO AND NO TRANSFER OF
THESE SECURITIES SHALL BE VALID OR EFFECTIVE UNTIL SUCH
CONDITIONS HAVE BEEN FULFILLED. UPON THE FULFILLMENT OF
CERTAIN OF SUCH CONDITIONS, ALLOY ONLINE INC. HAS AGREED TO
DELIVER TO THE HOLDER HEREOF AN ALLOY ONLINE INC. CERTIFICATE,
NOT
38
BEARING THIS LEGEND, FOR THE SECURITIES REPRESENTED HEREBY AND
REGISTERED IN THE NAME OF THE HOLDER HEREOF. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE
BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF ALLOY ONLINE INC. THESE SECURITIES ARE ALSO SUBJECT TO AN
INVESTMENT REPRESENTATION AND LOCKUP AGREEMENT WITH THE ISSUER
WHICH RESTRICTS THE TRANSFER THEREOF, A COPY OF WHICH CAN BE
OBTAINED FROM THE ISSUER AT ITS EXECUTIVE OFFICES."
(c) Upon approval of the Merger by the Stockholders as contemplated
hereby, the Stockholders are deemed to agree (and by execution and delivery of
this Agreement and the Lock-Up Agreement the Stockholders confirm their
agreement) that, prior to any Transfer of Restricted Securities, to give written
notice to Alloy of the Stockholder's intention to effect such Transfer and to
comply in all other respects with the provisions of this Section 7.2. Each such
notice shall describe the manner and circumstances of the proposed Transfer and,
if reasonably requested by Alloy, shall be accompanied by the written opinion,
addressed to Alloy, of counsel for the holder of such Restricted Securities,
stating that in the opinion of such counsel (which opinion and counsel shall be
reasonably satisfactory to Alloy) such proposed transfer does not involve a
transaction requiring registration or qualification of such Restricted
Securities under the Securities Act or the securities or "blue-sky" laws of any
relevant state of the United States. The holder thereof shall thereupon be
entitled to Transfer such Restricted Securities in accordance with the terms of
the notice delivered by it to Alloy. Each certificate or other instrument
evidencing the securities issued upon the Transfer of any such Restricted
Securities (and each certificate or other instrument evidencing any
untransferred balance of such Restricted Securities) shall bear the legend set
forth in Section 7.2(b) unless (x) in such opinion of counsel of Alloy
registration of any future Transfer is not required by the applicable provisions
of the Securities Act or (y) Alloy shall have waived the requirement of such
legends. No holder of any Restricted Securities shall Transfer any Restricted
Securities until such opinion of counsel has been given (unless waived by Alloy
or unless such opinion is not required in accordance with the provisions of this
Section 7.2(c)).
(d) Notwithstanding the foregoing provisions of this Section 7.2, the
restrictions imposed by this Section 7.2 upon the transferability of Restricted
Securities shall cease and terminate when (i) any such shares are sold or
otherwise disposed of pursuant to an effective registration statement under the
Securities Act or as otherwise contemplated by Section 7.2(c) and, pursuant to
Section 7.2(c), the securities so transferred are not required to bear the
legend set forth in Section 7.2(b) or (ii) the holder of such Restricted
Securities has met the requirements for Transfer of such Restricted Securities
pursuant to subparagraph (k) of Rule 144. Whenever the restrictions imposed by
this Section 7.2 shall terminate, as herein provided, the holder of Restricted
Securities as to which such restrictions have terminated shall be entitled to
receive from Alloy, without expense, a new certificate not bearing the
restrictive legend set forth in Section 7.2(b) and not containing any other
reference to the restrictions imposed by this Section 7.2.
39
(e) To enforce the restrictions set forth in this Section 7.2, the
Stockholders understand and agree that Alloy, at its discretion, may cause stop
transfer orders to be placed with its transfer agent with respect to
certificates for Restricted Securities owned by a Stockholder but not as to
certificates for such shares of Alloy Common Stock as to which the legend set
forth in paragraph (b) of this Section 7.2 is no longer required because one or
more of the conditions set forth in Section 7.2(d) shall have been satisfied, in
the event of a proposed transfer in violation or breach of this Section 7.2 or
that is or may otherwise be unlawful.
7.3 Confidentiality.
(a) The Stockholders acknowledge and recognize that the Subject
Business (as defined below) has been conducted or is currently planned to be
conducted by Alloy, the Surviving Company and Carnegie, and further acknowledge
and recognize the highly competitive nature of the industry in which the Subject
Business is involved and that, accordingly, in consideration of the premises
contained herein, the consideration to be received hereunder and the direct and
indirect benefits to the Stockholders of the transactions contemplated hereby,
and in consideration of and as an inducement to Alloy to enter into to this
Agreement and to consummate the transactions contemplated hereby, from and after
the Effective Time, the Stockholders shall not (and shall cause each of their
respective Affiliates and subsidiaries, and the officers, directors, employees,
equityholders, advisors and agents of them and their Affiliates and subsidiaries
not to) use or disclose to any person, any Company Confidential Information or
the terms and conditions of this Agreement or any of the Related Agreements, for
any reason or purpose whatsoever, nor shall it or they make use of any of the
Company Confidential Information for its own purposes or for the benefit of any
Person except (i) in order to facilitate the fulfillment of such party's
obligations hereunder, (ii) to Alloy and the Surviving Corporation, (iii) as
required by law or judicial process, (iv) as required to fulfill legal and
regulatory obligations, if any, or (v) to such party's attorneys, accountants,
other advisors, officers, employees, directors and equityholders, as applicable,
provided that such third party agrees to be bound by confidentiality provisions
substantially identical to those contained herein; provided, that after the
filing by Alloy of a Form 8-K relating to the transactions contemplated hereby
and by the Related Agreements, the Stockholders may disclose only of the terms
and conditions thereof as is contained in such Form 8-K. For purposes of this
Agreement, "Company Confidential Information" shall mean the Proprietary Assets
and any other intellectual property rights of the Company, Carnegie or the
Surviving Corporation relating to the Business or Alloy or its Affiliates and
all information of a proprietary nature relating to Carnegie, the Surviving
Corporation, Alloy, its Affiliates or the Subject Business (other than
information that is in the public domain at the time of receipt thereof by the
Company or otherwise becomes public other than as a result of the breach by the
Company or a Stockholder of its agreement hereunder or is rightfully received
from a third party without any obligation of confidentiality to Alloy or the
Company or is independently developed by the Company). As used herein, the term
"Subject Business" shall mean (i) the Business and (ii) the business of Alloy or
any of its Affiliates.
(b) Alloy acknowledges and recognizes that the Stockholder Business (as
defined below) has been conducted or is currently planned to be conducted by one
or more Stockholders
40
and/or their Affiliates, and further acknowledge and recognize the highly
competitive nature of the industry in which the Stockholder Business is involved
and that, accordingly, in consideration of the premises contained herein, the
consideration to be received hereunder and the direct and indirect benefits to
Alloy of the transactions contemplated hereby, and in consideration of and as an
inducement to the Stockholders to enter into to this Agreement and to consummate
the transactions contemplated hereby, from and after the Effective Time, Alloy
shall not (and shall cause its Affiliates and subsidiaries, and the officers,
directors, employees, equityholders, advisors and agents of them and their
Affiliates and subsidiaries not to) use or disclose to any person, any
Stockholder Confidential Information for any reason or purpose whatsoever, nor
shall it or they make use of any of the Stockholder Confidential Information for
its own purposes or for the benefit of any person except (i) in order to
facilitate the fulfillment of such party's obligations hereunder, (ii) to the
Stockholders, (iii) as required by law or judicial process, (iv) as required to
fulfill legal and regulatory obligations, if any, or (v) to such party's
attorneys, accountants, other advisors, officers, employees, directors and
equityholders, as applicable, provided that such third party agrees to be bound
by the confidentiality provisions hereof. For purposes of this Agreement,
"Stockholder Confidential Information" shall mean Intellectual Property Rights
of a Stockholder, or its Affiliates and all information of a proprietary nature
relating to a Stockholder or its Affiliates or a Stockholder's Business (other
than information that is in the public domain at the time of receipt thereof by
Alloy or otherwise becomes public other than as a result of the breach by Alloy
of its agreement hereunder or is rightfully received from a third party without
any obligation of confidentiality to a Stockholder or is independently developed
by Alloy) and the terms and conditions of this Agreement. As used herein, the
term "Stockholder Business" shall refer solely to the business currently being
conducted by the Company and Carnegie that is the subject of the Asset Sale.
Notwithstanding the foregoing, if this Agreement is terminated for any reason
prior to consummation of the Merger and the other transactions contemplated
hereby, the "Stockholder Business" shall be deemed to include the Business and
the "Stockholder Confidential Information" shall be deemed to include the
Intellectual Property Rights of the Company and Carnegie.
7.4 Option Grants. On the Closing Date, Alloy shall grant to those
employees of the Company and Carnegie listed on Schedule 7.4 hereto options to
purchase an aggregate of 50,000 shares of Alloy Common Stock at an exercise
price per share equal to the closing price of a share of Alloy Common Stock on
the NASDAQ for the trading day immediately preceding the Closing Date. Such
options (i) shall be issued to the persons listed on Schedule 7.4 for the number
of shares set forth opposite their names on such schedule, shall be incentive
stock options to the extent possible under Section 422 of the Code and (ii)
shall become exercisable as to 25% of the underlying shares on each anniversary
of the Closing Date.
7.5 Name Change. Alloy agrees that it shall, within 15 days after the
Effective Time, change the corporate name of Carnegie to a name that does not
include the word "Carnegie." In connection with such name change, Alloy and
Carnegie shall execute any and all documents and instruments as reasonably may
be requested by the Stockholders to transfer to them all of Carnegie's rights to
use the name Carnegie. Alloy shall, however, be entitled to use all of its then
existing sales, marketing, advertising materials, letterhead, checks and similar
materials containing the "Carnegie" name for a reasonable period of time, not to
exceed one year, from the date of any such name change, and shall be entitled to
sell off all of its then
41
existing inventory containing the "Carnegie" name regardless of the time
necessary to accomplish such sell off. In addition, Alloy hereby covenants and
agrees not to use the names "Carnegie" or "▇▇▇▇▇▇" after the Closing for any
purpose or purposes other than as set forth in this Section 7.5.
7.6 Litigation Cooperation. If a party hereto shall become engaged in
or participate in any investigation, claim, litigation, arbitration, mediation,
or other proceeding with any third party relating in any way to the Business or
any of the assets that are subject to the Asset Sale, the other parties shall
cooperate in all reasonable respects with such party in connection therewith,
including, without limitation, making available to such parties, without cost,
all relevant records and using its best efforts to make available to the other
the then employees of the parties or their affiliates who may be helpful with
respect to such claim or litigation.
7.7 Record Maintenance. Each party shall, in connection with the
preparation by the others of tax and financial reporting matters and other bona
fide business purposes, for a period of 5 years from the Closing Date afford to
the other parties and their representatives the opportunity, upon reasonable
advance notice, to examine and make copies of the books and records of the
other, or portions thereof, which relate to the Business or the assets that are
the subject of the Asset Sale, as applicable, for any period prior to the
Closing, except to the extent that such access is precluded pursuant to the
provisions of a confidentiality agreement between such party and another person
that is not an affiliate of such party or is otherwise precluded by law, and
shall maintain such records for a period of 5 years from the date hereof;
provided, that any party may destroy any record which was first offered to the
other parties and not claimed or picked up by one or more of the other parties
within 30 days, and shall not destroy any record without first providing the
other parties at least 30 days' prior written notice of its intent to destroy
such record.
7.8 Tax Returns. The Company shall, and shall cause Carnegie to, timely
file all federal and state income tax returns due after the Effective Time for
taxable periods ending on or prior to the Effective Time and each shall have
paid or will pay all Taxes amounts shown thereon to be due. Such returns shall
be prepared and filed in accordance with applicable law and in a manner
consistent with past practices and shall be subject to review and comment by
Alloy.
ARTICLE VIII
INDEMNIFICATION
8.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
(a) "Affiliate" as to any person means any entity, directly or
indirectly, through one or more intermediaries, controlling, controlled by or
under common control with such person.
(b) "Event of Indemnification" shall mean the following:
42
(i) with respect to Alloy (an "Alloy Event of
Indemnification"),
(1) the breach or misrepresentation of any
representation or warranty contained in Section 3.1 or 3.2 of
this Agreement or in any Related Agreement;
(2) the breach of any agreement or covenant of the
Company, Carnegie or a Stockholder contained in this Agreement
or in any Related Agreement;
(3) any claim, demand, Liability or obligation of any
nature whatsoever, which arose or was incurred on or before
the Effective Time, or which was based on events occurring on
or before the Effective Time, or which was based on products
sold or services performed by the Company, Carnegie, or the
stockholders of the Company on or before the Effective Time,
notwithstanding that the date on which the claim, demand,
liability or obligation may arise or become manifest is after
the Effective Time, other than liabilities or obligations of
the Company or Carnegie arising after the Effective Time under
contracts and agreements or other obligations entered into
prior to the Effective Time that are disclosed on the
Disclosure Schedule or were not required to be disclosed
thereon pursuant to the provisions of the applicable
representation;
(4) any claim, demand, Liability or obligation
sustained or suffered by the Company, Carnegie, or Alloy, or
any of them, arising from or in connection with (A) the action
of the Stockholders required to approve the transactions
contemplated by this Agreement, the Related Agreements, or (B)
any assertion of a Loss arising out of any claim that is the
subject to a Release Agreement; provided, however, that an
Alloy Event of Indemnification shall not include (x)
liabilities set forth on the Company Financial Statements, (y)
liabilities set forth on Section 3.1(f) to the Disclosure
Schedule, or (z) liabilities accrued in the ordinary course of
business after the Company Balance Sheet Date other than any
such liabilities under this clause (z) that should have been
disclosed on the Disclosure Schedule but were not;
(5) any claim, demand, Liability or obligation
sustained or suffered by the Company, Carnegie, Alloy or the
Surviving Corporation, or any of them, arising out of or in
connection with the Asset Sale or the operation, before the
Effective Time, of any of the assets, rights and properties
constituting "Acquired Assets", as such term is defined in
each Asset Sale Agreement between a Purchaser and the other
parties thereto and pursuant to which each Asset Sale is being
effected (the "Asset Sale Liability");
(6) any claim, demand, Liability or obligation
sustained or suffered by the Company, Carnegie or Alloy, or
any of them, as a result of the breach by the Purchasers of
any of their obligations under the Asset Sale Agreements
(including specifically, but without implied limitation, the
Purchaser's assumption of all
43
liabilities and obligations relating to the Employee Plans
under Section 6.2(o) above);
(7) the failure of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ to remain in the
employment of the Surviving Corporation for a period of not
less than one (1) year after the Effective Time for any reason
other than (i) a termination of such employment by the
Surviving Corporation without cause or (ii) his resignation
for "Good Cause" (as such term is defined in his employment
agreement with the Company being executed in connection with
the transactions contemplated hereby).
(ii) with respect to a Stockholder (a "Stockholder Event of
Indemnification"),
(1) the breach or misrepresentation by Alloy of any
representation or warranty contained in Section 3.3 of this
Agreement or any Related Agreement; or
(2) the breach or misrepresentation of any agreement
or covenant of Alloy contained in this Agreement, any Related
Agreement or any other document or instrument delivered in
connection herewith.
(c) "Indemnified Persons" shall mean and include:
(i) with respect to an Alloy Event of Indemnification, Alloy
and Carnegie and their respective Affiliates, successors and assigns,
and the respective officers and directors of each of the foregoing; or
(ii) with respect to a Stockholder Event of Indemnification, a
Stockholder and his, her or its respective Affiliates, successors and
assigns, and the respective officers and directors of each of the
foregoing.
(d) "Indemnifying Persons" shall mean and include:
(i) with respect to an Alloy Event of Indemnification, prior
to the Effective Time, the Company, Carnegie, a Stockholder and each of
its, her or his respective successors, assigns, heirs and legal
representatives and estates, as the case may be, and on and after the
Effective Time, each Stockholder and its, his or her respective
successors, assigns, heirs and legal representatives and estates, as
the case may be (the "Stockholder Indemnifying Parties"); or
(ii) with respect to a Stockholder Event of Indemnification,
Alloy and each of its successors and assigns (the "Alloy Indemnifying
Parties").
(e) "Losses" shall mean any and all losses, demands, actions or causes
of action, suits, proceedings, investigations, arbitrations, claims,
assessments, shortages, damages, Liabilities (contingent or otherwise),
payments, obligations, expenses (including reasonable and
44
documented attorneys' and accountants' fees), assessments, Taxes (including
interest or penalties thereon) actually sustained, suffered or incurred by any
Indemnified Person arising from or in connection with any such matter that is
the subject of indemnification under Section 8.2 hereof.
8.2 Indemnification Generally.
(a) The Indemnifying Persons shall indemnify the Indemnified Persons
from and against any and all Losses arising from or in connection with any Event
of Indemnification.
(b) Any Losses arising from an Alloy Event of Indemnification first
shall be paid from the Escrow Fund (as defined in the Escrow Agreement) in
accordance with the terms and conditions of the Escrow Agreement. If the Escrow
Shares are depleted as a result of satisfying an Alloy Event of Indemnification,
any additional claim for Losses made by an Alloy Indemnified Person will be made
in the manner set forth in Sections 8.3 and 8.4 hereunder.
(c) Except as otherwise set forth in subsection (e) below, and
notwithstanding any of the other provisions hereof, the indemnification
obligations of the Stockholder Indemnifying Parties under this Article VII shall
be limited to $5,000,000. The parties acknowledge that this limitation is a
material inducement to the Stockholders to enter into this Agreement and the
Related Agreements. The parties hereto further agree and acknowledge that,
notwithstanding any contrary provision herein or in any of the Related
Agreements, the Stockholder Indemnifying Parties shall not be obligated under
any circumstances to indemnify any person solely as a result of any downward
adjustment to the Aggregate Consideration effected pursuant to Sections
2.1(a)(iii), above, or 8.6, below or to the extent of, but only to the extent
of, any accrual for any Loss set forth on the Company Interim Balance Sheet.
(d) No payment for Losses shall be made to an Indemnified Person until
the aggregate amount of Losses incurred by such Indemnified Person exceeds
$100,000 after which point the Indemnifying Persons shall indemnify the
Indemnified Person for all accrued Losses, including the first $100,000 of such
Losses.
(e) Notwithstanding any of the foregoing, nothing contained in this
Section 8.2 shall in any way limit, impair, modify or otherwise affect the
rights of the Indemnified Persons (including rights available under the
Securities Act or the Exchange Act) nor shall there be any limitation of
liability of Indemnifying Persons in connection with any of such rights of the
Indemnified Persons (A) to bring any claim, demand, suit or cause of action
otherwise available to the Indemnified Persons based upon (i) an allegation or
allegations that the Company and/or the Indemnifying Persons, or any of them,
had an intent to defraud or made a willful, intentional or reckless
misrepresentation or willful omission of a material fact in connection with this
Agreement, the Certificate of Merger or the Related Agreements and the
transactions contemplated hereby or thereby ("Fraud Claims"), (ii) any alleged
breach of any of the representations or warranties contained in Sections 3.1(c),
3.1(h), 3.1(t), 3.1(x) or 3.2(a) (a "Title or Tax Claim"), (iii) the Asset Sale
Liability, (iv) any breach by the Purchasers of any of their respective
obligations under the Asset Sale Agreements (the claims referenced in clauses
(iii) and (iv) hereof are hereafter referred to as the "Asset Sale Liability
Claims"), or (v) any Losses arising out of or in connection with (x) the
administrative proceeding styled ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
45
Media Group, MCAD Case No. 00131133 (filed 4/26/00), currently pending before
the Massachusetts Commission Against Discrimination or any court or other
proceeding relating to such action, or (y) the classification of employees of
either the Company or Carnegie as "exempt" or "non-exempt" (collectively, the
"Employee Matters"), or (B) to enforce any judgment of a court of competent
jurisdiction which finds or determines that the Company and/or the Indemnifying
Persons, or any of them, had an intent to defraud or made a willful
misrepresentation or omission of a material fact in connection with this
Agreement or the Certificate of Merger and Articles of Merger and the
transactions contemplated hereby or thereby.
(f) At no time may an Indemnifying Party assert as a defense to its
obligation to provide indemnification as set forth in this Article VIII that an
Indemnified Party or any of its employees or agents, including any former
employees of the Indemnifying Party, Carnegie or the Company who may become
employees of the Indemnified Party, had any knowledge of the matter to which the
claim for indemnification relates, or conducted any investigation relating
thereto prior to the Closing, and each party hereby irrevocably waives all such
defenses.
(g) The parties agree that the amount of any indemnification payment
otherwise required to be made by any Indemnifying Party hereunder shall be
reduced by (or, if applicable, that the Indemnifying Party shall promptly
receive a refund from the Indemnified Party in respect of any corresponding
overpayments in an amount of) (i) the net present value of any tax benefits to
which the Indemnified Party is entitled in respect of the Losses as to which
such indemnification payment relates, and (ii) any insurance proceeds or other
third party recoveries received by the Indemnified Party with respect thereto;
provided, that the Indemnified Party shall not be obligated to seek any payment
pursuant to the terms of any insurance policy in respect of any Loss except to
the extent such Loss is covered by an insurance policy of Carnegie or the
Company in force with respect to the Company and/or Carnegie pursuant to
premiums paid by the Company, Carnegie and/or any other Person (other than Alloy
or any of its subsidiaries or affiliates) prior to the Effective Time.
(h) The parties agree that payment pursuant to an indemnification
obligation under this Article shall be treated for federal income tax purposes
as an adjustment to the Aggregate Consideration.
8.3 Assertion of Claims. No claim shall be brought under Section 8.2
hereof unless the Indemnified Persons, or any of them, at any time prior to the
applicable Survival Date, give a Stockholder (a) written notice of the existence
of any such claim, specifying the nature and basis of such claim and the amount
thereof, to the extent known or (b) written notice pursuant to Section 8.4 of
any third party claim, the existence of which might give rise to such a claim
but the failure so to provide such notice to the Stockholders will not relieve
the Indemnifying Persons from any liability which they may have to the
Indemnified Persons under this Agreement or otherwise (unless and only to the
extent that such failure results in the loss or compromise of any rights or
defenses of the Indemnifying Persons and they were not otherwise aware of such
action or claim). Upon the giving of such written notice as aforesaid, the
Indemnified Persons, or any of them, shall have the right to commence legal
proceedings prior or subsequent to the Survival Date for the enforcement of
their rights under Section 8.2 hereof.
46
8.4 Notice and Defense of Third Party Claims. Losses resulting from the
assertion of liability by third parties (each, a "Third Party Claim") shall be
subject to the following terms and conditions:
(a) The Indemnified Persons shall promptly give written notice to the
Indemnifying Persons of any Third Party Claim that might give rise to any Loss
by the Indemnified Persons, stating the nature and basis of such Third Party
Claim, and the amount thereof to the extent known. Such notice shall be
accompanied by copies of all relevant documentation with respect to such Third
Party Claim, including, without limitation, any summons, complaint or other
pleading that may have been served, any written demand or any other document or
instrument. Notwithstanding the foregoing, the failure to provide notice as
aforesaid any Indemnifying Person will not relieve such Indemnifying Person from
any liability which they may have to the Indemnified Persons under this
Agreement or otherwise unless and only to the extent that such failure directly
results in the loss or compromise of any rights or defenses of the Indemnifying
Person and they were not otherwise aware of such action or claim.
(b) The Indemnified Persons shall defend any Third Party Claims with
counsel of their own choosing, and shall act reasonably and in accordance with
their good faith business judgment in handling such Third Party Claims. The
Indemnifying Persons shall be entitled, at their expense, to participate in the
defense of any Third Party Claims. The Indemnifying Persons, on the one hand,
and the Indemnified Persons, on the other hand, shall make available to each
other and their counsel and accountants all books and records and information
relating to any Third Party Claims, keep each other fully apprised as to the
details and progress of all proceedings relating thereto and render to each
other such assistance as may be reasonably required to ensure the proper and
adequate defense of any and all Third Party Claims. The Indemnified Persons
shall have the right to settle, adjust or compromise such Third Party Claims
with the consent of the Indemnifying Persons, such consent not to be
unreasonably withheld; provided, however, that any such settlement, adjustment
or compromise shall include full and complete waivers and releases (documented
in writing) of the Indemnifying Persons from all applicable Third Party Claims.
Notwithstanding anything contained herein to the contrary, however, (A) Alloy
shall control, through counsel of its choosing, the defense of all Third Party
Claims, regardless of whether they are brought against any or all of Alloy,
Carnegie, the Stockholders and/or NewCo, (i) which relate to the operation of
the Business or (ii) that, individually or when combined with all other Third
Party Claims which are pending or which previously have been determined or
settled, presents, in Alloy's reasonable judgment, an unreasonable risk that
Alloy or Carnegie may be found liable for, or suffer or incur, Losses in respect
of which it would not be indemnified by the Indemnifying Persons by virtue of
the limitation contained in Section 8.2(c), and the Stockholders shall control,
through counsel of their choosing, the defense of all Third Party Claims,
regardless of whether they are brought against any or all of Alloy, Carnegie,
the Stockholders and/or NewCo, which relate to the operation of the assets that
are the subject of the Asset Sale Agreements.
8.5 Survival of Representations and Warranties. Subject to the further
provisions of this Section 8.5, the representations and warranties of the
parties hereto shall survive the Effective Time until the date that is fifteen
(15) months after the Closing Date; provided,
47
however, that the representations and warranties contained in Sections 3.1(a),
(b), (c), (h), (r) and (t), and 3.2(a), (b), (c) and (d), and the
indemnification relating to Fraud Claims, Asset Sale Liability Claims and
Employee Matters shall survive in accordance with the applicable statute of
limitations related to such representations and warranties, such Fraud Claims,
Asset Sale Liability Claims and Employee Matters. For convenience of reference,
the date upon which any representation and warranty contained herein shall
terminate is referred to herein as the "Survival Date." Anything contained
herein to the contrary notwithstanding, the representations and warranties of
the Company contained in this Agreement (including, without limitation, the
Disclosure Schedule) (i) are being given by the Company on behalf of the
stockholders of the Company and for the purpose of binding the Stockholders of
the Company to the terms and provisions of this Article VIII and the
Indemnification Escrow Agreement, and as an inducement to Alloy to enter into
this Agreement and to approve the Merger (and the Company acknowledges that
Alloy has expressly relied thereon) and (ii) are solely for the benefit of the
Indemnified Persons and each of them. Accordingly, no third party (including,
without limitation, a stockholder of the Company or anyone acting on behalf of
any thereof) other than the Indemnified Persons, and each of them, shall be a
third party or other beneficiary of such representations and warranties and no
such third party shall have any rights of contribution against the Company or
the Surviving Corporation with respect to such representations or warranties or
any matter subject to or resulting in indemnification by such third party under
this Article VIII or otherwise.
8.6 Potential Additional Adjustment; Additional Merger Shares.
(a) Notwithstanding the above indemnification, the parties acknowledge
and agree that as promptly as practicable following the Effective Time, Alloy
shall cause the Surviving Company, with the assistance of Gosule, ▇▇▇▇▇▇ &
▇▇▇▇▇▇, LLP (the "Auditor"), to prepare an audit of balance sheet of the Company
as at the Closing Date (the "Audited Closing Date Balance Sheet"). The Audited
Closing Date Balance Sheet shall include the figure for accumulated Tax
liability of the Company, if any, for the period from January 1, 2001 through
the Closing Date (the "Actual 2001 FY Tax Liability"), but shall exclude the
assets and liabilities which are the subject of the Asset Sale and Asset Sale
Liability, The parties agree that during the preparation of the Audited Closing
Date Balance Sheet, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP will be provided with (i) regular
updates as to the status of the preparation, and (ii) copies of all
documentation relevant to the preparation, including copies of documentation
that ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP may reasonably request. The Audited Closing Date
Balance Sheet shall promptly be delivered to Alloy and the Stockholders upon
completion. For purposes hereof, "Actual Company Net Working Capital" shall mean
the Net Working Capital of the Company as of the Closing Date set forth in the
Audited Closing Date Balance Sheet. Promptly after its receipt of the Audited
Closing Date Balance Sheet, Alloy shall deliver a written notice (the "Financial
Adjustment Notice") to the Stockholders setting forth the Actual Company Net
Working Capital shown therein (hereinafter sometimes referred to as the "Revised
Amount").
(b) If the Revised Amount is equal to the Estimated Company Net Working
Capital, no further adjustment will be made to the Aggregate Consideration.
48
(c) If the Revised Amount is (i) lower than the Estimated Company Net
Working Capital which is itself lower than the Presumed Company Net Working
Capital or (ii) higher than the Presumed Company Net Working Capital, the
Financial Adjustment Notice shall specify adjustments that shall be made to the
Aggregate Consideration in the manner set forth below.
(d) If the Actual 2001 FY Tax Liability is greater than $150,000, the
Stockholders shall pay to Alloy an amount equal to the difference. If the Actual
2001 FY Tax Liability is less than $150,000, Alloy shall pay to the Stockholders
an amount equal to the difference, such amount to be paid to the Stockholders
pro rata based on their respective interests in the Outstanding Company Shares
as of the Effective Time. Any such payment shall be made on or prior to the date
that is ten (10) Business Days after delivery of the Audited Closing Date
Balance Sheet.
(e) In any event, either Alloy or Stockholders that formerly held not
less than a majority in interest of the Outstanding Company Shares (the
"Disputing Party") shall have 30 days from the delivery or receipt, as the case
may be, of the Financial Adjustment Notice to deliver to the other(s) (the
"Receiving Party") a written notice (the "Final Adjustment Dispute Notice")
stating the Disputing Party disputes such Financial Adjustment Notice. If the
Receiving Party has received the Final Adjustment Dispute Notice within such
30-day period, then the Receiving Party and the Disputing Party shall mutually
agree on an independent accounting firm to review the Closing Financial
Certificate and the Financial Adjustment Notice (and related information). If
the Receiving Party and the Disputing Party cannot agree on an independent
accounting firm, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP shall select such independent accounting
firm. The determination of such independent accounting firm of the Revised
Amount (the "Final Revised Amount") shall be final and binding on the parties
hereto. If a Final Adjustment Dispute Notice is not delivered within the 30-day
period described above, the Revised Amount shall be final and binding on the
parties hereto and shall be the "Final Revised Amount". The costs, if any, of
the independent accounting firm shall be borne by the Disputing Party if the
calculation of the Final Revised Amount works in the favor of the Receiving
Party or if there is no difference between the Revised Amount and the Final
Revised Amount and by the Receiving Party if the calculation of the Final
Revised Amount works in the favor of the Disputing Party.
(f) If the Final Revised Amount is less than the Estimated Company Net
Working Capital, Alloy shall, promptly after receiving written notice of the
determination of the Final Revised Amount, deliver written notice to the Escrow
Agent and Alloy specifying (A) the Working Capital Adjustment Factor that would
have been applicable pursuant to Section 2.1(a) had the Final Revised Amount
been reflected on the Closing Financial Certificate, and (B) the additional
shares of Alloy Common Stock, calculated to the nearest whole number of shares,
that would have been deducted from the Total Alloy Share Amount had the Final
Revised Amount been used in the calculations pursuant to Section 2.1(a) (the
"Additional Adjustment Shares"). Promptly after its receipt of the written
notice described in the foregoing sentence, the Escrow Agent shall distribute to
Alloy such number of Escrow Shares as is equal to the number of Additional
Adjustment Shares. If the number of Escrow Shares remaining in the Escrow Fund
(as such term is defined in the Escrow Agreement) is less than the number of
Additional Adjustment Shares, the Stockholders shall make up any such shortfall
by delivery to Alloy of an aggregate amount of Merger Shares as is equal to such
shortfall, such delivery to be made not
49
later than five (5) Business Days after determination of the Final Revised
Amount. If the number of Escrow Shares remaining in the Escrow Fund and the
number of then Merger Shares held by the Stockholders is less than the number of
Additional Adjustment Shares as of the date of determination of the Final
Revised Amount, the Stockholders shall, at the same time as they deliver their
remaining Merger Shares to Alloy, make a cash payment to Alloy in an amount
equal, in the aggregate, to such shortfall multiplied by the Stipulated Price.
Any such delivery or payment shall be made by the Stockholders pro rata in
proportion to the Aggregate Consideration received by each at the Effective
Time. Each Stockholder hereby covenants that he, she or it shall, until the
determination of the Final Revised Amount and for a reasonable time thereafter
to allow Alloy to send the notice specified above, retain possession of and not
to transfer to any other party such number of Merger Shares as reasonably may be
required to comply with the provisions of this Section 8.6(e).
(g) If the Final Revised Amount is greater than the Presumed Company
Net Working Capital, Alloy shall, promptly after receiving written notice of the
determination of the Final Revised Amount, issue to the Stockholders, pro rata
in proportion to the Aggregate Merger Consideration issued to each at the
Closing, additional shares of Alloy Common Stock, the Stipulated Value of which
is equal to the difference between the Final Revised Amount and the Presumed
Company Net Working Capital (the "Additional Merger Shares"); provided, that if
the Final Revised Amount is determined prior to the first anniversary of the
Closing Date, Alloy shall issue and deliver to the Escrow Agent such number of
shares of Alloy Common Stock as is equal to fifteen percent (15%) of the
aggregate number of Additional Merger Shares, rounded up to the nearest whole
number, and shall deliver the balance of such shares to the Stockholders.
ARTICLE IX
TERMINATION; AMENDMENT, MODIFICATION AND WAIVER
9.1 Termination. This Agreement may be terminated, and the Merger
abandoned, notwithstanding the approval by Alloy and the Company of this
Agreement, at any time prior to the Effective Time, by:
(a) the written mutual consent of Alloy and the Company; or
(b) either Alloy or Company, if the conditions set forth in Section 6.1
hereof shall not have been met by April 30, 2001, except if such conditions have
not been met solely as a result of the action or inaction of the party seeking
to terminate; or
(c) Alloy if the conditions set forth in Section 6.2 hereof shall not
have been met, and the Company if the conditions set forth in Section 6.3 hereof
shall not have been met, in either case by April 30, 2001, except if such
conditions have not been met solely as a result of the action or inaction of the
party seeking to terminate.
Any termination pursuant to this Section 9.1 shall be effected by
written notice from the party or parties so terminating to the other parties
hereto.
50
9.2 Effect of Termination. Except as provided in this Section 9.2, in
the event of the termination of this Agreement pursuant to Section 9.1, this
Agreement shall be of no further force or effect, except for Section 7.3, this
Section 9.2 and Article X, each of which shall survive the termination of this
Agreement; provided, however, that the liability of any party for any breach by
such party of the representations, warranties, covenants or agreements of such
party set forth in this Agreement occurring prior to the termination of this
Agreement shall survive the termination of this Agreement.
9.3 Specific Performance. The transactions contemplated by this
Agreement, including the Merger, are unique transactions and any failure on the
part of a party to complete the transactions contemplated by this Agreement or
any of the Related Agreements, including the Merger, on the terms of this
Agreement or any of the Related Agreements will not be fully compensable in
damages and the breach or threatened breach of the provisions of this Agreement
or any of the Related Agreements would cause the other parties irreparable harm.
Accordingly, in addition to and not in limitation of any other remedies
available to a party for a breach or threatened breach of this Agreement or any
of the Related Agreements, such party will be entitled to specific performance
of this Agreement or any of the Related Agreements upon any breach by the other
party Stockholder, and to an injunction restraining any such party from such
breach or threatened breach.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. As used in this Agreement, "Transaction Costs" shall
mean, with respect to any party, all actual, out-of-pocket expenses incurred by
such party to third parties, in connection with this Agreement, the Merger and
all other transactions provided for herein and therein; but shall not in any
event include general overhead; the time spent by employees of such party
internally; postage, telephone, telecopy, photocopy and delivery expenses;
permit and filing fees; and other non-material expenses that are incidental to
the ordinary course of business. Each party hereto shall bear its own fees and
expenses in connection with the transactions contemplated hereby; provided,
however, that if the Merger shall be consummated, (a) Alloy shall bear all
Transaction Costs of Alloy and (b) the Stockholders shall bear all Transaction
Costs of the Company, Carnegie and the Stockholders whether or not such fees and
expenses have been paid by the Company, Carnegie or the Stockholders on or
before the Closing Date and whether or not such fees and expenses are reflected
in the Disclosure Schedule.
10.2 Entire Agreement. This Agreement (including the Disclosure
Schedule) and the other writings referred to herein contain the entire agreement
among the parties hereto with respect to the transactions contemplated hereby
and supersede all prior agreements or understandings, written or oral, among the
parties with respect thereto.
10.3 Interpretation. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be
51
followed by the words "without limitation." The word "herein" and similar
references mean, except where a specific Section or Article reference is
expressly indicated, the entire Agreement rather than any specific Section or
Article. The table of contents and the headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.4 Notices. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by nationally-recognized overnight courier or by registered or certified
mail, postage prepaid, return receipt requested, or by electronic mail with a
copy thereof to be delivered by mail (as aforesaid) within 24 hours of such
electronic mail, or by telecopier, with confirmation as provided above addressed
as follows:
(i) if to Alloy, to:
Alloy Online, Inc.
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
E-Mail: ▇▇▇▇@▇▇▇▇▇.▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
E-Mail: ▇▇▇▇▇@▇▇▇▇▇.▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
(ii) if to the Company, Carnegie or the Stockholders, to:
c/o ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇;
E-Mail: ▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
52
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. All such notices
or communications shall be deemed to be received (a) in the case of personal
delivery, on the date of such delivery, (b) in the case of nationally-recognized
overnight courier, on the next business day after the date when sent, (c) in the
case of facsimile transmission or telecopier or electronic mail, upon confirmed
receipt, and (d) in the case of mailing, on the third business day following the
date on which the piece of mail containing such communication was posted.
10.5 Counterparts. This Agreement may be executed in any number of
counterparts by original or facsimile signature, each such counterpart shall be
an original instrument, and all such counterparts together shall constitute one
and the same agreement.
10.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without reference to its
conflicts of laws provisions.
10.7 Benefits of Agreement. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns. This Agreement shall not
be assignable by any party hereto without the consent of the other parties
hereto; provided, however, that any of the rights granted to and obligations of
Alloy under this Agreement (other than the payment of the Aggregate
Consideration) may be exercised or performed by any entity controlled by or
under common control with Alloy (each, a "Alloy Affiliate"); provided that such
Alloy Affiliate agrees to be bound by all of the applicable provisions hereof
governing such exercise or performance and that the Company and the Stockholders
promptly receive written notice of any such exercise or performance, provided
that in any such instance Alloy remains ultimately liable for the performance of
its obligations hereunder.
10.8 Pronouns. As used herein, all pronouns shall include the
masculine, feminine, neuter, singular and plural thereof whenever the context
and facts require such construction.
10.9 Amendment, Modification and Waiver. This Agreement shall not be
altered or otherwise amended except pursuant to an instrument in writing signed
by the party against whom or which enforcement thereof is sought ; provided,
however, that any party to this Agreement may waive in writing any obligation
owed to it by any other party under this Agreement. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach.
10.10 No Third Party Beneficiaries. Nothing expressed or implied in
this Agreement is intended to confer, nor shall anything herein confer, upon any
person other than the parties and the respective successors or assigns of the
parties, any rights, remedies, obligations or liabilities whatsoever.
53
10.11 Consents. Except as otherwise expressly provided in this
Agreement, any consent or approval of Alloy requested or permitted hereunder may
be given or withheld in Alloy's sole discretion.
10.12 Interpretation. This Agreement has been negotiated between the
parties and will not be deemed to be drafted by, or the product of, any party.
As such, this Agreement will not be interpreted in favor of, or against, any
party.
10.13 No Joint Venture. No party hereto shall make any warranties or
representations, or assume or create any obligations, on the other party's
behalf except as may be expressly permitted hereunder or in writing by such
other party. Each party hereto shall be solely responsible for the actions of
all its respective employees, agents and representatives.
[Remainder of this page intentionally left blank]
54
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement and Plan of Merger to be executed on its behalf as of the day and year
first above written.
ALLOY ONLINE, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Financial
Officer/Secretary
▇▇▇▇▇▇ MEDIA GROUP, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
--------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: President
CARNEGIE COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
Title: Chief Executive Officer
STOCKHOLDERS:
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
---------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
55
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ REVOCABLE
COMMON TRUST DATED 5/7/79
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ IRREVOCABLE NVC
TRUST DATED DECEMBER 31, 1976
F/B/O ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ IRREVOCABLE NVC
TRUST DATED DECEMBER 31, 1976
F/B/O ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ IRREVOCABLE NVC
TRUST DATED DECEMBER 31, 1976
F/B/O ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
56
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ IRREVOCABLE NVC
TRUST DATED DECEMBER 31, 1976
F/B/O ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
Witness: THE ▇▇▇▇ ▇. ▇▇▇▇▇▇ IRREVOCABLE NVC
TRUST DATED DECEMBER 31, 1976
F/B/O ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------ ---------------------------------
Print Name: ▇▇▇▇▇▇▇ ▇▇▇▇ Print Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Trustee
57
Index of Defined Terms
Actions.......................................................................17
Actual Company Net Working Capital............................................36
Additional Adjustment Shares..................................................50
Affiliate.....................................................................43
Aggregate Consideration........................................................3
Agreement......................................................................1
Alloy Affiliate...............................................................53
Alloy Certificate..............................................................6
Alloy Common Stock.............................................................1
Alloy Event of Indemnification................................................43
Alloy Indemnifying Parties....................................................45
Alloy SEC Documents...........................................................29
Asset Sale Agreement..........................................................35
Asset Sale Liability..........................................................44
Business Day...................................................................3
CERCLA........................................................................19
Certificate of Merger..........................................................1
Closing........................................................................3
Closing Date...................................................................3
Closing Financial Certificate.................................................36
Code...........................................................................2
Company........................................................................1
Company Accountants...........................................................11
Company Audited Balance Sheet.................................................10
Company Audited Balance Sheet Date............................................10
Company Certificate............................................................6
Company Confidential Information..............................................40
Company Disclosure Schedule....................................................8
Company Financial Statements..................................................10
Company Interim Balance Sheet.................................................10
Company Interim Financial Statements..........................................10
Company Material Adverse Effect................................................8
Company Option Plan............................................................8
Company Stock..................................................................1
Company Subject Business......................................................41
Constituent Corporations.......................................................2
Contract......................................................................10
DGCL...........................................................................1
Draft Financials..............................................................32
Encumbrances..................................................................15
Environmental Laws............................................................18
Escrow Shares..................................................................6
Event of Indemnification......................................................43
Exchange Act..................................................................28
Excluded Contract.............................................................16
Filings.......................................................................32
Financial Adjustment Notice...................................................49
Form 10-Q.....................................................................27
GAAP..........................................................................11
Governmental Authority........................................................17
Governmental Authorizations...................................................17
Indemnified Persons...........................................................44
Indemnifying Persons..........................................................44
58
Indemnity Escrow Agent.........................................................6
Indemnity Escrow Agreement.....................................................6
Leased Real Property..........................................................15
Leases........................................................................15
Legal Requirements............................................................17
Licensed Software.............................................................16
Lock-Up Agreement.............................................................31
Losses........................................................................45
Merger.........................................................................2
Merger Shares..................................................................5
Net Working Capital Adjustment Factor..........................................6
Outstanding Company Share Amount...............................................4
Outstanding Shares.............................................................3
Presumed Company Net Working Capital...........................................5
Proprietary Asset.............................................................16
Redemption Transaction........................................................11
Registration Rights Agreements................................................31
Related Agreements............................................................31
Release Agreements............................................................31
Revised Amount................................................................49
Stipulated Price...............................................................3
Stockholder....................................................................1
Stockholder Event of Indemnification..........................................44
Survival Date.................................................................48
Surviving Corporation..........................................................2
SWI Business..................................................................41
SWI Confidential Information..................................................41
SWI Distribution...............................................................1
Tax...........................................................................14
Taxes.........................................................................14
Third Party Claim.............................................................47
Total Alloy Share Amount.......................................................3
Total Warrant Share Amount.....................................................4
Warrant........................................................................4
Working Capital Difference.....................................................5
59
SCHEDULE A
----------
Name of Shareholder
-------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
as Trustees of The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Revocable
Trust dated 5/7/79
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇.
The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Irrevocable
Trust dated December 31, 1976
f/b/o ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Irrevocable
Trust dated December 31, 1976
f/b/o ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Irrevocable
Trust dated December 31, 1976
f/b/o ▇▇▇▇ ▇. ▇▇▇▇▇▇ III
The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Irrevocable
Trust dated December 31, 1976
f/b/o ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
The ▇▇▇▇ ▇. ▇▇▇▇▇▇ Irrevocable
Trust dated December 31, 1976
f/b/o ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇