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EXECUTION COPY
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
BY AND AMONG
LIBERATE TECHNOLOGIES
LIBERATE ACQUISITION CO.
SOURCESUITE LLC
SOURCESUITE ACQUISITION LLC
SOURCE MEDIA, INC.
INSIGHT INTERACTIVE, LLC
AND
INSIGHT COMMUNICATIONS COMPANY, INC.
Dated as of January 12, 2000
TABLE OF CONTENTS
PAGE
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ARTICLE 1 THE MERGER.............................................................................................2
1.1 The Merger..........................................................................................2
1.2 Effective Time......................................................................................2
1.3 Effect of the Merger on Constituent Companies.......................................................3
1.4 Certificate of Formation, Limited Liability Company Agreement and Management Committee of Surviving
Corporation......................................................................................3
1.5 Maximum Number of Shares of Parent Common Stock to be Issued; Effect on Target Units................3
1.6 Exchange Procedures.................................................................................4
1.7 No Further Ownership Rights in Target...............................................................5
1.8 Exemption from Registration; California Permit......................................................5
1.9 Further Action......................................................................................5
1.10 Reduction in Cash Consideration....................................................................6
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TARGET...............................................................6
2.1 Organization and Qualification......................................................................6
2.2 Authority Relative to this Agreement................................................................7
2.3 Capitalization......................................................................................7
2.4 Subsidiaries........................................................................................8
2.5 No Conflicts........................................................................................8
2.6 Books and Records; Organizational Documents.........................................................8
2.7 Target Financials...................................................................................9
2.8 Absence of Changes..................................................................................9
2.9 No Undisclosed Liabilities.........................................................................12
2.10 Taxes.............................................................................................12
2.11 Legal Proceedings.................................................................................15
2.12 Compliance with Laws and Orders...................................................................15
2.13 Employee Benefit Plans............................................................................15
2.14 Title to Property.................................................................................16
2.15 Intellectual Property.............................................................................17
2.16 Contracts.........................................................................................20
2.17 Insurance.........................................................................................21
2.18 Affiliate Transactions............................................................................21
2.19 Employees; Labor Relations........................................................................22
2.20 Environmental Matters.............................................................................23
2.21 Other Negotiations; Brokers; Third Party Expenses.................................................24
2.22 Foreign Corrupt Practices Act.....................................................................24
2.23 Approvals.........................................................................................25
2.24 Disclosure........................................................................................25
2.25 Permit Application; Information Statement.........................................................25
2.26 Investment Advisors...............................................................................26
2.27 Due Diligence.....................................................................................26
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PAGE
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR............................................................26
3.1 Organization and Qualification.....................................................................26
3.2 Authority Relative to this Agreement...............................................................26
3.3 SEC Documents; Parent Financial Statements.........................................................27
3.4 No Conflicts.......................................................................................28
3.5 Information to be Supplied by Parent...............................................................28
3.6 Ownership of Merger Sub; No Prior Activities.......................................................28
3.7 Investment Advisors................................................................................29
3.8 Third Party Consents...............................................................................29
ARTICLE 4 ADDITIONAL AGREEMENTS.................................................................................29
4.1 Information Statement; Permit Application..........................................................29
4.2 Target Units Holders Approval......................................................................30
4.3 Access to Information..............................................................................31
4.4 Confidentiality....................................................................................31
4.5 Expenses...........................................................................................31
4.6 Public Disclosure..................................................................................32
4.7 Approvals..........................................................................................32
4.8 Notification of Certain Matters....................................................................32
4.9 Additional Documents and Further Assurances........................................................32
4.10 NNM Listing.......................................................................................33
4.11 Auditors..........................................................................................33
4.12 Benefit Arrangements..............................................................................33
4.18 Noncompete........................................................................................34
ARTICLE 5 CONDITIONS TO THE MERGER..............................................................................34
5.1 Conditions to Obligations of Each Party to Effect the Merger.......................................34
5.2 Additional Conditions to Obligations of Target.....................................................35
5.3 Additional Conditions to the Obligations of Parent and Merger Sub..................................36
ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.....................................38
6.1 Survival of Representations, Warranties, Covenants and Agreements..................................38
6.2 Indemnification by Target and the Holder Indemnitors...............................................38
6.3 Market Stand-Off...................................................................................39
6.4 Limitation of Liability............................................................................39
ARTICLE 7 CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................................40
7.1 Conduct of Business................................................................................40
7.2 No Solicitation....................................................................................40
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER.....................................................................41
8.1 Termination........................................................................................41
8.2 Effect of Termination..............................................................................42
8.3 Amendment..........................................................................................42
8.4 Extension; Waiver..................................................................................43
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PAGE
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ARTICLE 9 MISCELLANEOUS PROVISIONS..............................................................................43
9.1 Notices............................................................................................43
9.2 Entire Agreement...................................................................................45
9.3 Further Assurances; Post-Closing Cooperation.......................................................45
9.4 Waiver.............................................................................................45
9.5 Third Party Beneficiaries..........................................................................46
9.6 No Assignment; Binding Effect......................................................................46
9.7 Headings...........................................................................................46
9.8 Invalid Provisions.................................................................................46
9.9 Governing Law......................................................................................46
9.10 Construction......................................................................................46
9.11 Counterparts......................................................................................46
9.12 Specific Performance..............................................................................46
9.13 No Solicitation of Employees......................................................................47
9.14 Exculpation.......................................................................................47
ARTICLE 10 DEFINITIONS..........................................................................................47
10.1 Definitions.......................................................................................47
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TABLE OF CONTENTS
PAGE
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EXHIBITS & SCHEDULES
Exhibit A - Forms of Ancillary Agreements
A.1--Programming Services Agreement
A.2--VirtualModem License Agreement
A.3--Preferred Content Provider Agreement
A.4--Registration Rights Agreement
Exhibit B - Form of Delaware Certificate of Merger
Exhibit C - Form of Stockholders Certificate
Exhibit D - Form of Parent Officer's Certificates
Exhibit E - Matters to be Covered by Legal Opinion of Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP
Exhibit F - Form of Target Management Committee's Certificates
Exhibit G - Matters to be Covered by Legal Opinion of Cooperman Levitt Winkoff Lester & Newman,
P.C.
Exhibit H - Form Parent Officer's Tax Certificate
Exhibit 4.2 - Support Agreement
iv
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the
"AGREEMENT") is made and entered into as of January 12, 2000, by and among
LIBERATE TECHNOLOGIES, a Delaware corporation (the "PARENT"), SOURCESUITE
LLC, a Delaware limited liability company (the "TARGET"), SOURCE MEDIA, INC.,
a Delaware corporation ("SOURCE MEDIA"), INSIGHT COMMUNICATIONS COMPANY,
INC., a Delaware corporation ("INSIGHT COMMUNICATIONS") and Insight
Interactive, LLC, a Delaware limited liability company and wholly owned
subsidiary of Insight Communications ("INSIGHT INTERACTIVE"). This Agreement
shall be entered into by LIBERATE ACQUISITION CO., a Delaware limited
liability company and a wholly owned subsidiary of Parent (the "MERGER SUB"),
and by SOURCESUITE ACQUISITION LLC, a Delaware limited liability company (the
"OTHER ASSETS COMPANY"), on or before the Closing. Capitalized terms used and
not otherwise defined herein have the meanings set forth in ARTICLE 10.
RECITALS
A. Source Media and Insight Interactive are the holders
(individually a "Holder," collectively the "Holders") of all of the capital
ownership interests in Target ("TARGET UNITS"); the affairs of Target and the
conduct of its business is as set forth in the Limited Liability Company
Agreement between Source Media and Insight Interactive dated as of November
17, 1999 ("TARGET LLC AGREEMENT"); and a management committee has the final
authority with respect to the management of the business and affairs of
Target ("TARGET MANAGEMENT COMMITTEE").
B. Target and Other Assets Company will enter into
agreement(s) whereby the assets of Target prior to the effectiveness of such
agreement(s) will be separated such that the business, all assets and
properties used in and/or necessary to the conduct of the business, and
certain liabilities associated with the business, each relating to the
VirtualModem Products will remain within Target and all other businesses,
assets, properties and liabilities will be purchased by Other Assets Company
at a price equal to their fair market value as determined by KPMG Peat
Marwick in its valuation (the "KPMG Value").
C. The Board of Directors of Parent and the Management
Committees of each of Merger Sub and Target believe it is in the best
interests of Parent, Merger Sub and Target and their respective stockholders
and members that Parent acquire Target through the merger of Merger Sub with
and into Target (the "MERGER") and, in furtherance thereof, have approved the
Merger.
D. The Board of Directors of Parent and the Management
Committees of each of Merger Sub and Target have approved the Merger and this
Agreement and the transactions contemplated hereby.
E. Pursuant to the Merger, among other things, and subject
to the terms and conditions of the Agreement, all of the Target Units which
are outstanding immediately prior to the Effective Time of the Merger shall
be converted into the right to receive shares of Common Stock of Parent
("PARENT COMMON STOCK").
F. On the Closing Date, Target and Other Assets Company
shall enter into the Programming Services Agreement; Other Assets Company and
Parent shall enter into the Preferred Content Provider Agreement; Target and
Insight Communications shall enter into the VirtualModem License Agreement;
and Parent and the Holders shall enter into the Registration Rights
Agreement, all in the forms attached hereto as EXHIBIT A.1 THROUGH A.4.
G. Target and Parent desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger.
H. For United States federal income tax purposes, it is
intended that the Merger qualify as a "reorganization" within the meaning of
Section 368 of the Internal Revenue Code.
NOW, THEREFORE, in consideration of the covenants,
promises, representations and warranties set forth herein, and for other good
and valuable consideration (the receipt and sufficiency of which are hereby
acknowledged by the parties), and intending to be legally bound hereby, the
parties agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. At the Effective Time and subject to and
upon the terms and conditions of this Agreement and the applicable provisions
of the DLLCA, and, to the extent applicable, the California Code, Merger Sub
shall be merged with and into Target, the separate existence of Merger Sub
shall cease, and Target shall continue as the surviving company and as a
wholly owned subsidiary of Parent (the "SURVIVING COMPANY").
1.2 EFFECTIVE TIME. Unless this Agreement is earlier
terminated pursuant to SECTION 8.1, the closing and consummation of the
Merger (the "CLOSING") will take place as promptly as practicable, but in no
event later than two (2) Business Days, following satisfaction or waiver of
the conditions set forth in ARTICLE 5, at the offices of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP, unless another place or time is
agreed to by Parent and Target. The date upon which the Closing actually
occurs is herein referred to as the "CLOSING DATE." On the Closing Date, the
parties hereto shall cause the Merger to be consummated by filing a
certificate of merger in form reasonably acceptable to the parties, in form
and substance to be agreed upon by Parent and Holders and to be set forth as
EXHIBIT B (the "DELAWARE CERTIFICATE OF MERGER"), in accordance with the
relevant provisions of applicable law (the time of acceptance by the
Secretary of State of the State of Delaware of such filing, or such later
time agreed to by the parties and set forth in the Delaware Certificate of
Merger, being referred to herein as the "EFFECTIVE TIME"). The Delaware
Certificate of Merger shall provide that the Surviving Company shall change
its name, and Parent and the Surviving Company shall take all
2
actions reasonably requested by the Related Parties to allow the Other Assets
Company to use the name "SourceSuite."
1.3 EFFECT OF THE MERGER ON CONSTITUENT COMPANIES. At the
Effective Time, the effect of the Merger shall be as provided in the
applicable provisions of the DLLCA. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of Merger Sub and Target shall vest
in the Surviving Company, and all debts, liabilities, obligations,
restrictions, disabilities and duties of Merger Sub and Target shall become
the debts, liabilities, obligations, restrictions, disabilities and duties of
the Surviving Company.
1.4 CERTIFICATE OF FORMATION, LIMITED LIABILITY COMPANY
AGREEMENT AND MANAGEMENT COMMITTEE OF SURVIVING COMPANY.
(a) At the Effective Time, the Certificate of
Formation of Target, as in effect immediately prior to the Effective Time
shall be the Certificate of Formation of the Surviving Company from and after
the Effective Time until thereafter amended as provided by applicable law and
such Certificate of Formation.
(b) At the Effective Time, the Limited Liability
Company Agreement of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Limited Liability Company Agreement of the
Surviving Company until thereafter amended as provided by applicable law.
(c) At the Effective Time, the Target Management
Committee shall no longer have any rights, power or authority to manage the
business or affairs of Target or the Surviving Company and Parent shall
designate the manager(s) of the Surviving Company.
1.5 MAXIMUM NUMBER OF SHARES OF PARENT COMMON STOCK TO BE
ISSUED; EFFECT ON TARGET UNITS. The maximum number of shares of Parent Common
Stock to be issued in exchange for the acquisition by Parent of all Target
Units which are outstanding immediately prior to the Effective Time shall not
exceed the Maximum Share Number. On the terms and subject to the conditions
of this Agreement, as of the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Merger Sub or Target or any holder
of any Target Units, the following shall occur:
(a) TRANSFER OF TARGET UNITS. At the Effective
Time, each Target Unit that is outstanding immediately prior to the Effective
Time will be transferred to Parent in exchange for the issuance by Parent of
that number of shares of Parent Common Stock equal to the Exchange Ratio,
rounded down to the nearest whole share of Parent Common Stock, subject to
adjustment in accordance with SECTION 1.8, plus as a working capital
adjustment an amount of cash equal to the quotient of (X) the excess of (A)
the amount of Target's cash and cash equivalents at the Effective Time over
(B) any taxes payable by Target on the sale of assets to the Other Assets
Company which shall be estimated as of the Closing Date (in calculating taxes
payable for this purpose, any losses incurred by Target prior to the
Effective Time shall offset any gain that would otherwise be recognized on
such sale), divided by (Y) the aggregate number of Target Units that are
outstanding immediately prior to the Effective Time. At the Effective
3
Time, the taxes payable in clause (B) above shall be estimated, based on the
sales price of the assets sold to the Other Assets Company. Adjustments to
the taxes payable, if any, shall be made following the preparation of
Target's federal income tax return for the period ending on the Closing Date;
if the estimated taxes payable as determined on the Closing Date are higher
than the taxes reported on such return, Parent shall make a cash payment to
each Holder equal to one half of such difference, and if the estimated taxes
payable are lower than the taxes reported on such return each Holder shall
make a cash payment to Parent equal to one half of such difference.
(b) ADJUSTMENTS TO EXCHANGE RATIO. The Exchange
Ratio shall be equitably adjusted to reflect fully the effect of any stock
split, reverse split, stock combination, stock dividend (including any
dividend or distribution of securities convertible into Parent Common Stock),
reorganization, reclassification, recapitalization or other like change with
respect to Parent Common Stock occurring after the date hereof and prior to
the Effective Time.
(c) FRACTIONAL SHARES. No fraction of a share
of Parent Common Stock will be issued in the Merger, but in lieu thereof,
each holder of a Target Unit who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock to be received by such holder) shall be entitled to
receive from Parent an amount of cash (rounded to the nearest whole cent)
equal to the product of (a) such fraction, multiplied by (b) the average of
the closing prices of Parent's Common Stock for the ten (10) trading days
ended on the second trading day immediately preceding the Closing Date.
1.6 EXCHANGE PROCEDURES.
(a) PARENT COMMON STOCK. As soon as practicable
after the Effective Time, but in no event later than two (2) Business Days
after the Effective Time, Parent shall transfer to each Holder a certificate
for the aggregate number of shares of Parent Common Stock issuable in
exchange for outstanding Target Units owned by such Holder pursuant to
SECTION 1.5 and cash in an amount sufficient to permit the payment of all
cash payable in lieu of fractional shares pursuant to SECTION 1.5(c).
(b) EXCHANGE PROCEDURES. As soon as practicable
after the Effective Time, but in no event later than two (2) Business Days
after the Effective Time, each Holder shall transfer the Target Units owned
by it to the Parent. Until so transferred, each outstanding Target Unit prior
to the Effective Time will be deemed from and after the Effective Time, for
all corporate purposes, to evidence the ownership of the number of full
shares of Parent Common Stock into which such Target Units shall be so
transferable and the right to receive cash in lieu of fractional shares as
provided herein.
(c) DISTRIBUTIONS WITH RESPECT TO TRANSFERRED
TARGET UNITS. No dividends or other distributions with respect to Parent
Common Stock declared or made after the Effective Time and with a record date
after the Effective Time will be paid to any Holder of any untransferred
Target Units with respect to the shares of Parent Common Stock represented
thereby until the holder of record of such Target Units shall transfer such
Target Units as provided in this SECTION 1.6 or as otherwise accepted by
Parent. Subject to applicable law,
4
following surrender of any such Target Units, there shall be paid to the
record holder of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the time of such
transfer, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable (but for the provisions of this
SECTION 1.5(c)) with respect to such whole shares of Parent Common Stock.
1.7 NO FURTHER OWNERSHIP RIGHTS IN TARGET. All shares of
Parent Common Stock issued upon the transfer of Target Units in accordance
with the terms hereof (including any cash in lieu of fractional shares) shall
be deemed to have been issued in full satisfaction of all rights pertaining
to such Target Units, and there shall be no further registration of transfers
on the records of Target of Target Units which were outstanding immediately
prior to the Effective Time.
1.8 EXEMPTION FROM REGISTRATION; CALIFORNIA PERMIT. The
shares of Parent Common Stock to be issued pursuant to SECTION 1.6 in
connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act, by reason of Section 3(a)(10) thereof,
or pursuant to SECTION 4.1, by reason of Section 4(2) of the Securities Act
and SEC rules and regulations promulgated thereunder. Subject to the
provisions of SECTION 4.1, the shares of Parent Common Stock to be issued
pursuant to SECTION 1.6 in connection with the Merger will be qualified under
the California Code, pursuant to Section 25121 thereof, after a fairness
hearing has been held pursuant to the authority granted by Section 25142 of
such law. Parent shall use all requisite commercially reasonable efforts,
with the cooperation of Target, (i) to file, as promptly as practicable
following the execution and delivery of this Agreement and in any event on or
before January 21, 2000, an application for issuance of a permit pursuant to
Section 25121 of the California Code to issue such securities (the
"CALIFORNIA PERMIT") and (ii) to obtain the California Permit as promptly as
practicable and in any event no later than March 10, 2000. If the parties are
unable to obtain the California Permit for whatever reason by March 10, 2000,
as required by Section 5.1(c), Source Media shall be entitled to receive for
each Target Unit then held by Source Media an amount of cash equal to $15
million divided by the number of Target Units then held by Source Media (plus
any cash for each such Target Unit payable pursuant to Section 1.5(a)
hereof), and the number of shares of Parent Common Stock to which Source
Media shall be entitled to receive pursuant to Section 1.5 shall be reduced
by the number of shares by which the Maximum Share Number is reduced,
PROVIDED, HOWEVER, that if the cash payable pursuant to this Section 1.8 is
reduced in accordance with SECTION 1.10, the number of shares of Parent
Common Stock to which Source Media shall be entitled to receive shall be
increased by the increase in the Maximum Share Number determined in
accordance with SECTION 1.10.
1.9 FURTHER ACTION. If, at any time after the Effective
Time, any such further action is necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Company with full right,
title and possession to all assets, property, rights, privileges, powers and
franchises of Target, Parent is fully authorized to take, and will take, all
such lawful and necessary action.
1.10 REDUCTION IN CASH CONSIDERATION. Anything to the
contrary herein notwithstanding, the aggregate amount of cash payable
pursuant to SECTION 1.5(a) and SECTION 1.8 shall be reduced such that the sum
of (A) the cash payable pursuant to SECTION 1.5(a),
5
(B) the cash payable pursuant to SECTION 1.8, (C) the KPMG Value (as defined
in the Recitals of this Agreement) and (D) the value of the royalty-free
license granted to Other Assets Company pursuant to the Programming Services
Agreement by Parent or Target as determined by KPMG Peat Marwick, will not
exceed 19.9% of the total aggregate consideration payable to the Holders
calculated based on the fair market value of the Parent Common Stock at the
Effective Time. Any such reduction shall first be made from the amount of
cash payable pursuant to SECTION 1.8. If the amount of cash payable is
reduced in accordance with this SECTION 1.10, the Maximum Share Number shall
be increased by a number of shares equal to such reduction divided by
$232.6875 per share; PROVIDED, HOWEVER, that in no event shall the Maximum
Share Number be increased above 886,000.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TARGET
Target, Target Subsidiary, the Holders and Insight
Communications, jointly and severally, hereby represent and warrant to
Parent, subject to such exceptions and qualifications as specifically
disclosed with respect to the specific numbered and lettered sections and
subsections of this ARTICLE 2 in the Target disclosure schedule and schedule
of exceptions of Target (the "TARGET DISCLOSURE SCHEDULE") delivered herewith
and which shall become a part hereof, dated as of the date hereof, and
numbered with corresponding numbered and lettered sections and subsections,
as follows:
2.1 ORGANIZATION AND QUALIFICATION. Target is a limited
liability company and Target Subsidiary is a corporation; each such entity is
duly organized, validly existing and in good standing under the laws of the
state or province of its formation or incorporation, and each of Target and
Target Subsidiary has all requisite power and authority to conduct its
business as now conducted and as currently proposed to be conducted and to
own, use, license and lease its Assets and Properties. Each of Target and
Target Subsidiary is duly qualified to do business and is in good standing as
a limited liability company or a foreign corporation in each jurisdiction in
which the ownership, use, licensing or leasing of its Assets and Properties,
or the conduct or nature of its business, makes such qualification, licensing
or admission necessary, except for such failures to be so duly qualified,
licensed or admitted and in good standing that could not reasonably be
expected to have a Material Adverse Effect on Target. SECTION 2.1 OF THE
TARGET DISCLOSURE SCHEDULE sets forth each jurisdiction where each of Target
and Target Subsidiary is so qualified to do business and separately lists
each other jurisdiction in which each of Target and Target Subsidiary owns,
uses, licenses or leases any material Assets and Properties, conducts
business, or has employees or engages independent contractors.
2.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Subject only to
the requisite approval of the Merger, this Agreement and the other agreements
attached as Exhibits A.1 to A.4 hereto (the "ANCILLARY AGREEMENTS") by the
holders of Target Units, each of Target, Other Assets Company, Source Media,
Insight Communications and Insight Interactive (individually, a "Related
Party;" collectively, the "Related Parties") (i) has all requisite power and
authority to execute and deliver this Agreement and each Ancillary Agreement
to which it is a party, to perform its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by each
6
Related Party of this Agreement and the Ancillary Agreements to which it is a
party and the consummation by each Related Party of the transactions
contemplated hereby and thereby, and the performance by each Related Party of
its obligations hereunder and thereunder, have been duly and validly
authorized by all necessary action by each Related Party; and no other action
on the part of such governing bodies is required to authorize the execution,
delivery and performance by each Related Party of this Agreement and the
Ancillary Agreements to which it is a party and the consummation by each
Related Party of the transactions contemplated hereby and thereby. The
consummation by Source Media of the transactions contemplated hereby shall at
Closing have received all requisite approvals of the Source Media
Bondholders. This Agreement and the Ancillary Agreements to which such
Related Party is a party have been duly and validly executed and delivered by
such Related Party and, assuming the due authorization and valid execution
and delivery hereof by Parent and each other party to such agreement, each
constitutes a legal, valid and binding obligation of such Related Party
enforceable against such Related Party in accordance with its respective
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar Laws relating to the enforcement of creditors' rights generally and
by general principles of equity.
2.3 CAPITALIZATION. The authorized capital ownership
interests of Target consists only of 1,000,000 Target Units, all of which are
outstanding. All of the outstanding Target Units are validly issued, fully
paid and nonassessable and have been issued in compliance with all applicable
federal, state and foreign securities Laws. SECTION 2.3 OF THE TARGET
DISCLOSURE SCHEDULE lists the name of each holder of Target Units. Except as
set forth in SECTION 2.3 OF THE TARGET DISCLOSURE SCHEDULE, Target has not
authorized or issued any other units or other measures of capital ownership
of Target. Except as set forth in SECTION 2.3 OF THE TARGET DISCLOSURE
SCHEDULE, there are no agreements, arrangements or understandings to which
Target is a party (written or oral) to issue any other units or other
measures of capital ownership of Target, there are no options or other rights
to require such units or other measures of capital ownership and there are no
preemptive rights or agreements, arrangements or understandings to issue
preemptive rights with respect to the issuance or sale of any units or other
measures of capital ownership of Target created by statute, the Certificate
of Formation or the Target LLC Agreement, or any agreement or other
arrangement to which Target is a party or to which it is bound and there are
no agreements, arrangements or understandings to which Target is a party
(written or oral) pursuant to which Target has the right to elect to satisfy
any Liability by issuing any units or other measures of capital ownership of
Target. Other than the Target LLC Agreement, Target is not a party or subject
to any agreement or understanding, and, to Target's knowledge, there is no
agreement, arrangement or understanding between or among any Persons which
affects, restricts or relates to voting, giving of written consents,
distributions, allocation of profits and losses, or transferability of units
or other measures of capital ownership of Target, including any voting trust
agreement or proxy.
2.4 SUBSIDIARIES. SourceSuite Canada Inc., a Canadian
federal corporation ("TARGET SUBSIDIARY") is a wholly owned subsidiary of
Target. Except for Target Subsidiary, Target has (and prior to the Closing
will have) no Subsidiaries and does not (and prior to the Closing will not)
otherwise hold any equity, membership, partnership, joint venture or other
ownership interest in any Person.
7
2.5 NO CONFLICTS. The execution and delivery by Target of
this Agreement does not, and the performance by Target of its obligations
under this Agreement and the consummation of the transactions contemplated
hereby do not and will not:
(a) conflict with or result in a violation or
breach of any of the terms, conditions or provisions of the Certificate of
Formation of Target or the Target LLC Agreement or the Certificate of
Incorporation or Bylaws of Target Subsidiary or the charter documents of the
Related Parties (other than Target);
(b) subject to obtaining the consents, approvals
and actions, making the filings and giving the notices disclosed in SECTION
2.5 OF THE TARGET DISCLOSURE SCHEDULE, if any, conflict with or result in a
violation or breach of any Law or Order applicable to Target or Target
Subsidiary, any of their respective Assets and Properties or any Related
Party (other than Target); or
(c) except as would not have a Material Adverse
Effect on Target or as disclosed in SECTION 2.5 OF THE DISCLOSURE SCHEDULE
(i) conflict with or result in a violation or breach of, (ii) constitute a
default (or an event that, with or without notice or lapse of time or both,
would constitute a default) under, (iii) require Target, Target Subsidiary or
any Related Party (other than Target) to obtain any consent, approval or
action of, make any filing with or give any notice to any Person (other than
the filing of the Delaware Certificate of Merger together with the required
officers' certificates, any filing required under the HSR Act and regulations
promulgated thereunder, and such consents' approvals, orders, authorizations,
registrations, declarations and filings as may be required under state or
federal securities laws) as a result or under the terms of, (iv) result in or
give to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any material Lien upon
Target or Target Subsidiary or any of their respective material Assets and
Properties under or (vii) result in the loss of a material benefit under, any
material Contract or License to which Target or Target Subsidiary is a party
or by which any of Target's or Target Subsidiary's material Assets and
Properties are bound.
2.6 BOOKS AND RECORDS; ORGANIZATIONAL DOCUMENTS. The minute
books and capital interests record books and other similar records of Target
and Target Subsidiary have been provided or made available to Parent or its
counsel prior to the execution of this Agreement as set forth in SECTION 2.6
OF THE DISCLOSURE SCHEDULE, are complete and correct in all material respects
and have been maintained in accordance with customary business practices.
Such minute books contain a true and complete record of all actions taken at
all meetings and by all written consents in lieu of meetings of the members
of Target and Target Management Committee and of the directors, stockholders
and committees of the Board of Directors of Target Subsidiary from the date
of Target's and Target Subsidiary's respective formation or incorporation
through the date hereof. Target has prior to the execution of this Agreement
delivered to Parent true and complete copies of its Certificate of Formation
and limited liability company agreement and of Target Subsidiary's
Certificate and Articles of Incorporation and Bylaws, as amended through the
date hereof. Target is not in violation of any provisions of its
8
Certificate of Formation or Target LLC Agreement, as so amended, nor is
Target Subsidiary in violation of any provisions of its Articles of
Incorporation or Bylaws.
2.7 TARGET FINANCIALS. SECTION 2.7 OF THE TARGET DISCLOSURE
SCHEDULE sets forth Target Financials. Target Financials delivered to Parent
are correct and complete in all material respects and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
(except, with respect to any Target Financials that are unaudited, for the
absence of notes thereto and the effect of the absence of notes thereto and
the effect of the absence of year-end audit adjustments) indicated and
consistent with each other (except as indicated in the notes thereto, as
delivered to Parent prior to the date hereof). Target Financials present
fairly the financial condition and operating results of Target as of the
dates and during the periods indicated therein. The accounts and notes
receivable of Target reflected on Target Financials, and all accounts and
notes receivable arising subsequent to November 30, 1999, (a) arose from bona
fide sales transactions, and are payable on ordinary trade terms net of
applicable reserves, (b) are legal, valid and binding obligations of the
respective debtors enforceable in accordance with their respective terms, (c)
are not subject to any known valid set-off or counterclaim net of applicable
reserves and (d) do not represent obligations for goods sold on consignment,
on approval or on a sale-or-return basis or subject to any other repurchase
or return arrangement (except that software licensed by Target is subject to
acceptance by Target). All inventory of Target reflected on the balance sheet
included in the Target Financials consisted, and all such inventory acquired
since November 30, 1999 consists of a quality and quantity usable and salable
in the ordinary course of business net of applicable reserves. None of the
items included in the inventory of Target have been pledged as collateral, is
held by Target on consignment from others; all of the items included in the
inventory of Target conform in all material respects to all standards
applicable to such inventory or its use or sale imposed by Governmental or
Regulatory Authorities. All intercompany indebtedness of Target and Target
Subsidiary to any Holder or other Related Party shall be cancelled or settled
on or before the Closing, provided that Lucky shall pay up to $50,000 of
prepaid expenses for goods and services to be received by Target or Target
Subsidiary after the Closing.
2.8 ABSENCE OF CHANGES. Since the Financial Statement Date,
there has not been any material adverse change in the Business or Condition
of Target or any occurrence or event which, individually or in the aggregate,
is expected to have Material Adverse Effect on Target. In addition, without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement or as set forth in SECTION 2.8 OF THE TARGET DISCLOSURE
SCHEDULE, since the Financial Statement Date:
(a) neither Target nor Target Subsidiary has
entered into any Contract or other material commitment or transaction and no
other Related Party has entered into a contract relating to the VirtualModem
Business;
(b) Target has not entered into any Contract in
connection with any transaction involving a Business Combination;
(c) there has not been any material amendment or
other material modification (or agreement to do so), or material violation of
the terms of, any of the Contracts set forth or described in SECTION 2.16 OF
THE TARGET DISCLOSURE SCHEDULE;
9
(d) neither Target not Target Subsidiary has
entered into any transaction with any member, manager, officer, director,
Affiliate or Associate of Target, other than pursuant to any Contract
disclosed to Parent pursuant to (and so identified in) SECTION 2.8(d) OF THE
TARGET DISCLOSURE SCHEDULE.
(e) there has not been any transfer (by way of a
License or otherwise) to any Person (including any Related Party other than
Target) of rights to any material Target Intellectual Property, other than
licenses in the ordinary course of business consistent with past practice;
(f) there has not been any amendment to Target's
Certificate of Formation or Target LLC Agreement or to Target Subsidiary's
Articles of Incorporation or Bylaws;
(g) Target has not declared, set aside or paid
any dividends on or made any other distributions (whether in cash, stock or
property) in respect of any Target Units, or effected or approved any split,
combination or reclassification of any Target Units, or issued or authorized
the issuance of any other securities, in lieu of or in substitution for
Target, or repurchased, redeemed or otherwise acquired, directly or
indirectly, any Target Units;
(h) Target has not issued, granted, delivered,
sold or authorized or proposed to issue, grant, deliver or sell, or purchased
or proposed to purchase, any units or other measures of capital ownership of
Target; and there has been no modification or amendment of the rights of any
holder of any units or other measures of capital ownership of Target;
(i) no Action or Proceeding has been commenced
or, to the knowledge of any Related Party, threatened by or against Target or
Target Subsidiary.
(j) neither Target nor Target Subsidiary has made
any change in accounting policies, principles, methods, practices or
procedures (including for bad debts, contingent liabilities or otherwise,
respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition of
income and expense);
(k) Target and Target Subsidiary have taken all
commercially reasonable action required to procure, maintain, renew, extend
or enforce any material Target Intellectual Property;
(l) there has been no physical damage,
destruction or other casualty loss (whether or not covered by insurance)
affecting any of the real or personal property or equipment of Target or
Target Subsidiary or in an amount exceeding fifty thousand dollars ($50,000)
individually or one hundred fifty thousand dollars ($150,000) in the
aggregate; and
(m) neither Target nor Target Subsidiary has made
or agreed to make any disposition or sale of, waiver of rights to, license or
lease of, or incurrence of any material Lien on, or a material portion of any
Assets and Properties of Target;
10
(n) neither Target nor Target Subsidiary has made
or agreed to make any acquisition of any business, company or corporation,
whether through the purchase of stock, a purchase, lease or License of
assets, a merger, consolidation, tender offer or any other form of business
combination;
(o) neither Target nor Target Subsidiary has made
or agreed to make any purchase of any Assets and Properties of any Person
(including any Related Party other than Target) other than (1) acquisitions
of inventory, or licenses of products, in the ordinary course of business of
Target consistent with past practice and (2) other acquisitions in an amount
not exceeding fifty thousand dollars ($50,000) in the case of any individual
item or one hundred fifty thousand dollars ($150,000) in the aggregate;
(p) neither Target nor Target Subsidiary has made
or agreed to make any capital expenditures or commitments for additions to
property, plant or equipment constituting capital assets in an amount
exceeding fifty thousand dollars ($50,000) individually or one hundred fifty
thousand dollars ($150,000) in the aggregate;
(q) neither Target nor Target Subsidiary has made
or agreed to make any write-off or write-down, any determination to write-off
or write-down, or revalue, any of its Assets and Properties in excess of
applicable reserves, or change in any reserves or liabilities associated
therewith, in an amount exceeding fifty thousand dollars ($50,000)
individually or one hundred fifty thousand dollars ($150,000) in the
aggregate;
(r) neither Target nor Target Subsidiary has made
or agreed to make payment, discharge or satisfaction, in an amount in excess
of fifty thousand dollars ($50,000) in any one case or one hundred fifty
thousand ($150,000) in the aggregate, of any claim, Liability or obligation
(whether absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of Liabilities reflected or reserved against in the Target
Financials and other than Liabilities incurred in the ordinary course of
business since the Financial Statement Date;
(s) neither Target nor Target Subsidiary has
failed to pay or otherwise satisfy any Liabilities presently due and payable
except such Liabilities which are being contested in good faith by
appropriate means or proceedings and which are immaterial in amount;
(t) neither Target nor Target Subsidiary has
incurred any Indebtedness or guaranteed any Indebtedness in any amount
exceeding fifty thousand ($50,000) individually or one hundred fifty thousand
($150,000) in the aggregate or issued or sold any debt securities of Target
or guaranteed any debt securities of others;
(u) neither Target nor Target Subsidiary has
granted any severance or termination pay to any director, officer, employee
or consultant, except payments made pursuant to written Contracts outstanding
on the date hereof, copies of which have been delivered to Parent and the
principal terms of which are disclosed in SECTION 2.8(u) OF THE TARGET
DISCLOSURE SCHEDULE;
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(v) except pursuant to a Contract or otherwise
disclosed to Parent pursuant to SECTION 2.8(d) OF THE TARGET DISCLOSURE
SCHEDULE, neither Target nor Target Subsidiary has granted or approved any
increase of greater than five percent (5%) in salary, rate of commissions,
rate of consulting fees or any other compensation of any current officer,
director, employee, independent contractor or consultant;
(w) Target and Target Subsidiary have taken all
commercially reasonable action required to procure, maintain, renew, extend
or enforce any Target Intellectual Property, including submission of required
documents or fees during the prosecution of patent, trademark or other
applications for Registered Intellectual Property rights;
(x) neither Target nor Target Subsidiary has
entered into or approved any contract, arrangement or understanding or
acquiesced in respect of any arrangement or understanding, to do, engage in
or cause or having the effect of any of the foregoing.
2.9 NO UNDISCLOSED LIABILITIES. Except as reflected or
reserved against in Target Financials (including the notes thereto), Target
does not have, and as of the Closing will not have, any material Liabilities,
other than Liabilities incurred in the ordinary course of business consistent
with past practice since the Financial Statement Date that are not material.
2.10 TAXES.
(a) All Tax Returns required to be filed prior to
the Effective Time by or with respect to Target or Target Subsidiary or, to
the extent such relationship results in a tax lien on or against the assets
of Target or Target Subsidiary or successor tax liability with respect to
Target or Target Subsidiary, any affiliated, consolidated, combined, unitary
or similar group of which Target is or was a member (a "RELEVANT GROUP") with
any Taxing Authority with respect to any Taxable period ending on or before
the Effective Time, have been or will be completed and filed when due
(including any extensions of such due date). All such Tax Returns are true,
accurate and complete as filed. Target has previously provided or made
available to Parent true and correct copies of all Tax Returns. No claim has
ever been made by a Taxing Authority of any jurisdiction in which Target does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. Neither Target nor Target Subsidiary has been granted any
extension or waiver of the limitation period applicable to any Tax Returns
that is still in effect.
(b) The November 30, 1999 balance sheet included
in the Target Financials (the "TARGET BALANCE SHEET") (i) fully accrues all
Target's actual and contingent liabilities for Taxes with respect to all
periods through November 30, 1999 and Target has not and will not incur any
Tax liability in excess of the amount reflected on such Target Balance Sheet
with respect to such periods (excluding any amount thereof that reflects
timing differences between the recognition of income for purposes of GAAP and
for Tax purposes), and (ii) properly accrues in accordance with GAAP all
material liabilities for Taxes payable after November 30, 1999 with respect
to all transactions and events occurring on or prior to such date. All
information set forth in the notes to the Target Financials relating to Tax
matters is true, complete and accurate in all material respects. Except as
contemplated by this Agreement, no material Tax liability since November 30,
1999 has been or will be incurred by Target other than
12
in the ordinary course of business, and adequate provision has been made by
Target for all Taxes since that date in accordance with GAAP on at least a
quarterly basis.
(c) All Taxes due and payable by Target or Target
Subsidiary, whether or not shown on any Tax Return or claimed to be due by
any Taxing Authority, have been paid or accrued on the balance sheet included
in the Target Financials, except for unpaid accruable Taxes incurred by
Target in the ordinary course of its business since November 30, 1999. Target
has withheld and paid to the applicable Taxing Authority all amounts required
to be withheld and paid except where failure to so withhold or pay would not
be material.
(d) There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Target, Target Subsidiary, Source
Media and/or Insight Interactive) investigation now pending or (to the
knowledge of Target, Target Subsidiary, Source Media and/or Insight
Communications) threatened against or with respect to Target or Target
Subsidiary in respect of any Tax or assessment. No notice of deficiency or
similar document of any Taxing Authority asserting the Target and/or Target
Subsidiary has unpaid Tax liability has been received by Target or Target
Subsidiary, and there are no liabilities for Taxes (including liabilities for
interest, additions to Tax and penalties thereon and related expenses) with
respect to the issues that have been raised (and are currently pending) by
any Taxing Authority that could, if determined adversely to Target,
materially and adversely affect the liability of Target for Taxes. There are
no liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of Target or Target Subsidiary. Target has never been a
member of an affiliated group of corporations, within the meaning of Section
1504 of the Code. Target and Target Subsidiary are in full compliance with
all the terms and conditions of any Tax exemptions or other Tax-sharing
agreement or order of a foreign government and the consummation of the Merger
will not have any adverse effect on the continued validity and effectiveness
of any such Tax exemption or other Tax-sharing agreement or order.
(e) Neither Target nor any person on behalf of
Target has entered into or will enter into any agreement or consent pursuant
to the collapsible corporation provisions of Section 341(f) of the Code (or
any corresponding provision of state, local or foreign income tax law) or
agreed to have Section 341(f)(2) of the Code (or any corresponding provision
of state, local or foreign income tax law) apply to any disposition of any
asset owned by Target.
(f) None of the assets of Target or Target
Subsidiary is property that Target is required to treat as being owned by any
other person pursuant to the so-called "safe harbor lease" provisions of
former Section 168(f)(8) of the Code. None of the assets of Target directly
or indirectly secures any debt the interest on which is tax-exempt under
Section 103(a) of the Code. None of the assets of Target is "tax-exempt use
property" within the meaning of Section 168(h) of the Code. Target has not
made and will not make a deemed dividend election under Treas. Reg. Sections
1.1502-32(f)(2) or a consent dividend election under Section 565 of the Code.
Target has never been a party (either as a distributing corporation or as a
corporation that has been distributed) to any transaction intended to qualify
under Section 355 of the Code or any corresponding provision of state law.
Neither Target nor Target Subsidiary has participated in (and will not
participate in) an international boycott within the meaning of Section 999 of
the Code. Except for Canada, Target does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty
or convention
13
between the United States of America and any such foreign country. Target has
never elected to be treated as an S-corporation under Section 1362 of the
Code or any corresponding provision of federal or state law. Target is not
party to any joint venture, partnership, or other arrangement or contract
which could be treated as a partnership for federal income tax purposes.
Target is not currently, and never has been, subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Target is a party that could, individually or
collectively, result in the payment of any amount that would not be
deductible by reason of Sections 280G (as determined without regard to
Section 280G(b)(4) and (5)), 162(a) (by reason of being unreasonable in
amount), 162 (b) through (p) or 404 of the Code. Target is not a party to or
bound by any Tax indemnity, Tax sharing or Tax allocation agreement (whether
written or unwritten or arising under operation of federal law as a result of
being a member of a group filing consolidated Tax returns, under operation of
certain state laws as a result of being a member of a unitary group, or under
comparable laws of other states or foreign jurisdictions) which includes a
party other than Target nor does Target owe any amount under any such
Agreement. Target is not, and has not been, a United States real property
holding corporation (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Other
than by reason of the Merger, Target has not been and will not be required to
include any material adjustment in Taxable income for any Tax period (or
portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(g) Except as contemplated by this Agreement, no
material election with respect to Taxes has been or will be made without the
prior written consent of Parent, which consent will not be unreasonably
withheld or delayed.
(h) For purposes of this Agreement, the following
terms have the following meanings: "Tax" (and, with correlative meaning,
"Taxes" and "Taxable") means any and all taxes including, without limitation,
(i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, value added,
net worth, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit tax,
custom, duty or other tax governmental fee or other like assessment or charge
of any kind whatsoever, together with any interest or any penalty, addition
to tax or additional amount imposed by any Taxing Authority responsible for
the imposition of any such tax (domestic or foreign), (ii) any liability for
the payment of any amounts of the type described in (i) as a result of being
a member of an affiliated, consolidated, combined or unitary group for any
Taxable period or as the result of being a transferee or successor thereof
and (iii) any liability for the payment of any amounts of the type described
in (i) or (ii) as a result of any express or implied obligation to indemnify
any other person.
(i) Target has validly elected or will elect,
prior to the Closing Date, pursuant to Treas. Reg. Section 301.7701-3(c)(1),
to be classified as a corporation for United States federal income tax
purposes effective as of the date of its formation.
14
2.11 LEGAL PROCEEDINGS. Except as set forth in SECTION 2.11
OF THE TARGET DISCLOSURE SCHEDULE:
(i) there are no Actions or
Proceedings pending or, to the knowledge of any Related Party, threatened
against Target or Target Subsidiary or in which Target or Target Subsidiary
is a party, any of which relate to or affect Target or Target Subsidiary or
their respective Assets and Properties; to the extent that SECTION 2.11 OF
THE TARGET DISCLOSURE SCHEDULE identifies any such Actions or Proceedings,
Target has fully disclosed in writing to Parent all material facts and legal
analyses necessary to enable Parent to make an independent evaluation of the
merits of each Action or Proceeding;
(ii) neither Target nor Target
Subsidiary has received notice, nor does Target, Target Subsidiary, Source
Media and/or Insight Communications otherwise have knowledge of any Orders
outstanding against Target or Target Subsidiary; and
(iii) there are no facts or
circumstances known to any Related Party that is reasonably expected to give
rise to any Action or Proceeding against, relating to or affecting Target or
Target Subsidiary.
2.12 COMPLIANCE WITH LAWS AND ORDERS. Neither Target nor
Target Subsidiary has violated in any material respect, and is not currently
in default in any material respect under, any Law or Order applicable to
Target or Target Subsidiary or any of their respective Assets and Properties.
2.13 EMPLOYEE BENEFIT PLANS.
(a) Neither Target nor Target Subsidiary
maintains, sponsors, is a party to, or contributes to or is obligated to
contribute to, and Target's or Target Subsidiary's employees or former
employees and their dependents or survivors do not receive benefits under,
any of the following (whether or not set forth in a written document):
(i) Any employee benefit plan, as
defined in section 3(3) of ERISA;
(ii) Any bonus, deferred compensation,
incentive, restricted stock, stock purchase, stock option, stock appreciation
right, phantom stock, supplemental pension, executive compensation, cafeteria
benefit, dependent care, director or employee loan, fringe benefit,
sabbatical, severance, termination pay or similar plan, program, policy,
agreement or arrangement (other than any such item provided solely pursuant
to the terms of a written or oral contract with any individual employee that
is disclosed in SECTION 2.13 OF THE TARGET DISCLOSURE SCHEDULE); or
(iii) Any plan, program, agreement,
policy, commitment or other arrangement relating to the provision of any
benefit described in section 3(1) of ERISA to former employees, managers or
directors or to their survivors, other than procedures intended to comply
with COBRA.
15
(b) Neither Target nor any ERISA Affiliate has
terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Except as disclosed in SECTION 2.13 OF THE
TARGET DISCLOSURE SCHEDULE, the consummation of the transactions contemplated
by this Agreement (excluding any employment agreement with Parent entered
into by any employee or director of Target in connection with this Agreement)
will not result in (i) any amount becoming payable to any employee, director
or independent contractor of Target or Target Subsidiary, (ii) the
acceleration of payment or vesting of any benefit, option or right to which
any employee, director or independent contractor of Target or Target
Subsidiary may be entitled, (iii) the forgiveness of any indebtedness of any
employee, director or independent contractor of Target or Target Subsidiary
or (iv) any cost becoming due or accruing to Target or Target Subsidiary or
Parent with respect to any employee, director or independent contractor of
Target or Target Subsidiary.
(d) There are no pending, or, to the best
knowledge of Target, Target Subsidiary, Source Media and/or Insight
Communications, threatened, Actions or Proceedings involving any of the plans
identified in SECTION 2.13(a), or Target and Target Subsidiary, with any of
the IRS, the Department of Labor, the PBGC, or any other person whomsoever.
Target and Target Subsidiary know of no reasonable basis for any such claim,
lawsuit, dispute, action or controversy.
(e) The Related Parties shall indemnify Target
and its Affiliates for any liability of any employee of VirtualModem Employer
who does not become an employee of Target or its Affiliates on or after the
Closing.
2.14 TITLE TO PROPERTY. Except for title to Target
Intellectual Property, which is covered by SECTION 2.15 below, Target and
Target Subsidiary have good and valid title to all of their respective
material properties, interests in properties and assets, real and personal,
reflected in Target Financials or acquired after the Financial Statement Date
(except properties, interests in properties and assets sold or otherwise
disposed of since the Financial Statement Date in the ordinary course of
business), free and clear of all material mortgages, liens, pledges, charges
or encumbrances of any kind or character, except (i) liens for current taxes
not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with
the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii)
liens securing debt which is reflected on Target Financials. The plants,
property and equipment of Target and Target Subsidiary that are used in the
operations of its businesses are in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of
Target and Target Subsidiary are reflected in Target Financials to the extent
generally accepted accounting principles required the same to be reflected as
of the dates of such Target Financials. With respect to properties and assets
leased by Target and Target Subsidiary, Target or Target Subsidiary, as
applicable holds valid leasehold interests in such properties and assets in
accordance with the terms of the agreements governing such leases. The Assets
and Properties of Target and Target Subsidiary that will remain with Target
and Target Subsidiary following the Closing Date are listed in SECTION 2.14A
OF THE TARGET DISCLOSURE SCHEDULE and constitute all the
16
assets and properties used in and/or necessary to the conduct of the
VirtualModem Business as presently conducted and as proposed to be conducted
by any Related Party. The Assets and Properties that will be purchased by
Other Assets Company are listed in SECTION 2.14B OF THE TARGET DISCLOSURE
SCHEDULE, and none of such assets or properties are necessary to the conduct
of the VirtualModem Business as presently conducted or as proposed to be
conducted by any Related Party. For purposes of this Section 2.14, the
VirtualModem Business proposed to be conducted by any Related Party shall
constitute the VirtualModem Business proposed to be conducted by Target
pursuant to any existing contractual commitment of Target and pursuant to the
rollout schedule for the deployment of the VirtualModem Business for Insight
Communications in the form previously furnished to Parent.
2.15 INTELLECTUAL PROPERTY.
(a) SECTION 2.15A OF THE TARGET DISCLOSURE
SCHEDULE lists all Registered Intellectual Property of Target and Target
Subsidiary used in and/or necessary to the conduct of the VirtualModem
Business, and lists any proceeding or actions which to the knowledge of any
Related Party are pending as of the date hereof before any court, tribunal
(including the PTO or equivalent authority anywhere in the world) related to
any of the Registered Intellectual Property of Target and Target Subsidiary
used in and/or necessary to the conduct of the VirtualModem Business. SECTION
2.15B OF THE TARGET DISCLOSURE SCHEDULE lists all Registered Intellectual
Property that will be purchased by Other Assets Company and lists any
proceeding or actions which to the knowledge of any Related Party are pending
as of the date hereof before any court, tribunal (including the PTO or
equivalent authority anywhere in the world) related to any of the Registered
Intellectual Property of Other Assets Company. None of Registered
Intellectual Property of Other Assets Company are used in and/or necessary to
the conduct of the VirtualModem Business.
(b) Each item of Intellectual Property of Target
and/or Target Subsidiary, either is owned exclusively by Target or Target
Subsidiary, as the case may be, free and clear of any Liens, or is licensed
to Target or Target Subsidiary under a valid License granting sufficient
rights to permit Target to conduct the VirtualModem Business. Target and
Target Subsidiary own or have the valid right to use all trademarks, service
marks and trade names used by Target and Target Subsidiary in connection with
the operation or conduct of the VirtualModem Business, including the sale of
any products or technology or the provision of any services by Target. Target
and Target Subsidiary own exclusively, and have good title to, all
copyrighted works that are VirtualModem Products or other works of authorship
that Target and/or Target Subsidiary otherwise purport to own; PROVIDED,
HOWEVER, that such works may incorporate copyrighted works or works of
authorship, trademarks or trade names of third parties which are licensed to
Target or Target Subsidiary or are in the public domain.
(c) Except as otherwise provided in SECTION 2.15A
OF THE TARGET DISCLOSURE SCHEDULE, to the extent that any Intellectual
Property of Target or Target Subsidiary that is used in or necessary to the
VirtualModem Business has been developed or created by any Person other than
Target, Target and/or Target Subsidiary has a written agreement with such
Person with respect thereto and Target and/or Subsidiary has either (i)
obtained ownership of, and is the exclusive owner of, all such Intellectual
Property by operation of law or by valid assignment of any such rights or
(ii) obtained a License under or to such Intellectual Property. In
17
each case in which Target or Target Subsidiary has acquired ownership of any
such Intellectual Property rights from any Person, such party has obtained a
valid and enforceable assignment sufficient to irrevocably transfer all
rights in such Intellectual Property (including the right to seek past and
future damages with respect to such Intellectual Property) to Target and/or
Target Subsidiary, as the case may be, and, to the maximum extent provided
for by, and in accordance with, applicable Laws, Target and/or Target
Subsidiary has recorded each such assignment of Registered Intellectual
Property with the relevant Governmental or Regulatory Authority, including
the PTO, the U.S. Copyright Office, or their respective equivalents in any
relevant foreign jurisdiction, as the case may be.
(d) Neither Target nor Target Subsidiary has
transferred ownership of any Intellectual Property of Target or Target
Subsidiary used in or necessary to the VirtualModem Business, to any other
Person. Except pursuant to agreements described in SECTION 2.15A OF THE
TARGET DISCLOSURE SCHEDULE, neither Target nor Target Subsidiary has granted
any License of or other right to use or authorized the retention of any
rights to use any Intellectual Property used in or necessary to the
VirtualModem Business that is or was Intellectual Property of Target or
Target Subsidiary to any Person. SECTION 2.15A OF THE TARGET DISCLOSURE
SCHEDULE lists all Contracts by which Target or Target Subsidiary have been
granted any License of or other right to use any Intellectual Property of any
other Person used in or necessary to the VirtualModem Business.
(e) The Intellectual Property of Target and
Target Subsidiary listed on SECTION 2.15A OF THE TARGET DISCLOSURE SCHEDULE
constitutes all the Intellectual Property used in and/or necessary to the
conduct of the VirtualModem Business and all Intellectual Property required
for the VirtualModem Products under development by Target as of the date
hereof. None of the Intellectual Property that will be purchased by Other
Assets Company listed on SECTION 2.15B OF THE TARGET DISCLOSURE SCHEDULE or
the Intellectual Property of any Holder constitutes Intellectual Property
used in and/or necessary to the conduct of the VirtualModem Business or
Intellectual Property required for the VirtualModem Products under
development by Target as of the date hereof.
(f) On or before the Effective Time, the
operation of the VirtualModem Business, including Target's design,
development, use, import, manufacture and sale of the products, technology or
services (including products, technology or services currently under
development) in the VirtualModem Business, as they exist on the date hereof
and at the Effective Time: (i) does not infringe the patent, copyright or
trademark rights of any Person; (ii) does not misappropriate the trade
secrets rights of any Person; (iii) does not violate in any material respect
the rights of any Person (including rights to privacy or publicity other than
patent rights or trademark rights described above); or (iv) does not
constitute unfair competition or an unfair trade practice under any Law.
Neither Target nor Target Subsidiary has received notice from any Person
claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
Target infringes or misappropriates the Intellectual Property of any Person
or constitutes unfair competition or trade practices under any Law. Except as
set forth in SECTION 2.11 OF THE TARGET DISCLOSURE SCHEDULE, there is no
Order outstanding and no Action or Proceeding pending, finding or alleging,
and none of Target, Target Subsidiary, Source Media or Insight Communications
has any reason to believe, that any (i) product, technology, service or
publication of Target, (ii) material published
18
or distributed by Target or Target Subsidiary, or (iii) conduct or statements
of Target or Target Subsidiary, constitute material, false advertising or
otherwise violates any Law.
(g) Each item of Registered Intellectual Property
of Target and Target Subsidiary used in or necessary to the conduct of the
VirtualModem Business and/or the development, license, use, marketing and
distribution of the VirtualModem Products is valid and subsisting, and all
necessary registration, maintenance, renewal fees, annuity fees and taxes in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions
in which such Registered Intellectual Property is registered, as the case may
be, for the purposes of maintaining such Registered Intellectual Property.
SECTION 2.15A OF THE TARGET DISCLOSURE SCHEDULE lists all actions that must
be taken by the Surviving Company within one hundred eighty (180) days from
the date hereof, including the payment of any registration, maintenance,
renewal fees, annuity fees and taxes or the filing of any documents,
applications or certificates for the purposes of maintaining , perfecting or
preserving or renewing any Registered Intellectual Property of Target and
Target Subsidiary used in or necessary to the conduct of the VirtualModem
Business and/or the development, license, use, marketing and distribution of
the VirtualModem Products.
(h) There are no Contracts or Licenses between
Target and any other Person with respect to Intellectual Property of Target
or Target Subsidiary under which there is any dispute known to any Related
Party regarding the scope of such Contract or License, or performance under
such Contract or License, including any dispute with respect to any payments
to be made or received by Target or Target Subsidiary thereunder.
(i) Except as set forth on SECTION 2.15(i) OF
THE TARGET DISCLOSURE SCHEDULE, to the knowledge of the Related Parties, no
Person is infringing or misappropriating any Intellectual Property of Target
or Target Subsidiary.
(j) Target has taken all requisite commercially
reasonable steps to maintain and preserve the confidentiality of the
confidential information and trade secrets of Target and Target Subsidiary or
any similar information provided by any other Person to Target subject to a
duty of confidentiality. Without limiting the generality of the foregoing,
each Related Party has, and enforces, a policy requiring each employee,
consultant and independent contractor to execute proprietary information,
confidentiality and invention assignment agreements. All current and former
employees, consultants and independent contractors of each Related Party have
executed such agreements. Copies of all such agreements have been provided to
Parent or made available to Parent for review.
(k) Target has taken all commercially reasonable
actions necessary and appropriate to assure that there shall be no material
adverse change to its business or electronic systems or material
interruptions in the delivery of Target's products and services by reason of
computer software errors or miscalculations associated with the advent of the
year 2000, including that all of its products (including products currently
under development) will, without interruption or manual intervention,
continue to consistently, predictably and accurately record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
19
spans of time including) January 1, 2000, and will consistently, predictably
and accurately calculate any information dependent on or relating to such
dates in substantially the same manner, and with the same functionality, data
integrity and performance, as such products record, store, process, calculate
and present calendar dates on or before December 31, 1999, or calculate any
information dependent on or relating to such dates.
2.16 CONTRACTS.
(a) SECTION 2.16A OF THE TARGET DISCLOSURE
SCHEDULE contains a true and complete list of each of Target's and Target
Subsidiary's Contracts that are material to Target's business, operations or
financial condition (true and complete copies or, if none, reasonably
complete and accurate written descriptions of which, together with all
amendments and supplements thereto and all waivers of any terms thereof, have
been made available to Parent prior to the execution of this Agreement) and
that are used in or necessary to VirtualModem Business. Such Contracts shall
include any license of any patent, copyright, trade secret or other
proprietary right to or from Target or Target Subsidiary, and Contract for or
affecting the development, manufacture or distribution of Target's products
and services and any Contract relating to a joint venture, strategic alliance
or similar arrangement. SECTION 2.16C OF THE TARGET DISCLOSURE SCHEDULE
contains a true and complete list of each Contract to which a Related Party
(other than Target) is a party that is used in or necessary to the
VirtualModem Business. The Holders (A) if reasonably requested by Target,
shall use their commercially reasonable best efforts to assign each such
Contract to Target or, (B), if the Holders are unable to assign any such
Contract to Target after using such commercially reasonable best efforts,
shall use their commercially reasonable best efforts to provide Target with
the benefit of such Contract. SECTION 2.16B OF THE TARGET DISCLOSURE SCHEDULE
contains a true and complete list of each of Target's and Target Subsidiary's
Contracts that are not used in or necessary to the VirtualModem Business,
which will be assigned to Other Assets Company on or before the Closing.
SECTION 2.16D OF THE TARGET DISCLOSURE SCHEDULE contains a true and complete
list of each Contract to which Source Media or any of its subsidiaries is a
party that are not used in or necessary to the Virtual Modem Business.
SECTION 2.16 OF THE TARGET DISCLOSURE SCHEDULE contains a true and complete
list of each Contract of Target and Target Subsidiary not terminable by
Target or Target Subsidiary upon 30 days (or less) notice by Target or Target
Subsidiary without penalty or obligation to make payments based on such
termination.
(b) Except as otherwise disclosed in SECTION 2.16
OF THE TARGET DISCLOSURE SCHEDULE, each Contract required to be disclosed in
SECTION 2.16 OF THE TARGET DISCLOSURE SCHEDULE is in full force and effect
and constitutes a legal, valid and binding agreement of Target or Target
Subsidiary, enforceable against Target or Target Subsidiary in accordance
with its terms (subject to the effect of bankruptcy and other laws affecting
the rights of creditors generally and limitations on the enforcement of
contracts under principles of equity), and, to the knowledge of Target,
Target Subsidiary, Source Media and/or Insight Communications, each other
party thereto (subject to the effect of bankruptcy and other laws affecting
the rights of creditors generally and limitations on the enforcement of
contracts under principles of equity), and, to the knowledge of Target,
Target Subsidiary, Source Media and/or Insight Communications, no other party
to such Contract is, nor has received notice that it is, in material
violation or breach of or default under any such Contract (or with notice or
lapse of time or both, would be in material violation or breach of or default
under any such Contract).
20
(c) Neither Target nor Target Subsidiary is a
party to or bound by any Contract that (i) is material to Target's business
and automatically terminates or allows termination by the other party thereto
upon consummation of the transactions contemplated by this Agreement or (ii)
contains any covenant or other provision which limits Target's or Target
Subsidiary's ability to compete with any Person in any line of business or in
any area or territory.
2.17 INSURANCE. Target and Target Subsidiary have policies
of insurance and bonds of the type and in amounts customarily carried by
companies conducting businesses or owning assets similar to those of Target
and Target Subsidiary. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or
disputed by the underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and Target and
Target Subsidiary are otherwise in compliance with the terms of such policies
and bonds. Neither Target nor Target Subsidiary have knowledge of any
threatened termination of, or material premium increase with respect to, any
of such policies.
2.18 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION
2.8(f) OR 2.18(a) OF THE TARGET DISCLOSURE SCHEDULE, and except invention
assignment or confidentiality agreements in favor of Target or Target
Subsidiary, (i) there are no Contracts or Liabilities between Target or
Target Subsidiary, on the one hand, and (A) any current or former officer,
director, stockholder, or to the knowledge of Target, Target Subsidiary,
Source Media and Insight Communications, any Affiliate or Associate of Target
(including any other Related Party) or (B) any Person who, to the knowledge
of any Related Party, is an Associate of any such officer, director,
stockholder or Affiliate, on the other hand, (ii) neither Target nor Target
Subsidiary provides or causes to be provided any assets, services or
facilities to any such current or former officer, director, stockholder,
Affiliate or Associate, (iii) except pursuant to the Target LLC Agreement,
none of any Related Party or any current or former officer, director,
stockholder, Affiliate or Associate of any Related Party provides or causes
to be provided any assets, services or facilities to Target or Target
Subsidiary and (iv) neither Target nor Target Subsidiary beneficially owns,
directly or indirectly, any Investment Assets of any such current or former
officer, director, stockholder, Affiliate or Associate.
2.19 EMPLOYEES; LABOR RELATIONS.
(a) Neither Target nor Target Subsidiary employs
any Persons or has any employees. Except as set forth on SECTION 2.19(a) OF
THE TARGET DISCLOSURE SCHEDULE, all employees of the VirtualModem Business
are employed by Interactive Channel Technologies Inc. (the "VirtualModem
Employer").
(b) The VirtualModem Employer is not party to any
collective bargaining agreement and there is no unfair labor practice or
labor arbitration proceedings pending with respect to Target or Target
Subsidiary, or, to the knowledge of any Related Party, threatened, and there
are no facts or circumstances known to Target, Target Subsidiary, Source
Media and/or Insight Communications that could reasonably be expected to give
rise to such complaint or claim. To the knowledge of Target, Target
Subsidiary, Source Media and/or Insight Communications, there are no
organizational efforts presently underway or threatened involving any
employees of the VirtualModem Employer or any of the employees performing
work for
21
Target or Target Subsidiary but provided by an outside employment agency, if
any. There has been no work stoppage, strike or other concerted action by
employees of the VirtualModem Employer.
(c) Except as set forth on Section 2.19(c) of the
Target Disclosure Schedule, all employees of the VirtualModem Employer
providing services to Target and Target Subsidiary are employed at will.
SECTION 2.19(c) OF THE TARGET DISCLOSURE SCHEDULE sets forth, individually
and by category, the name of each officer, employee and consultant, together
with such person's position or function. The annual base salary or wage and
any incentive, severance or bonus arrangements with respect to each person
set forth in SECTION 2.19 OF THE TARGET DISCLOSURE SCHEDULE has been provided
to Parent. To the knowledge of any Related Party, no employee of the
VirtualModem Employer providing services to or on behalf of Target or Target
Subsidiary has made any threat, or otherwise revealed an intent, to terminate
such employee's relationship with the VirtualModem Employer, for any reason,
including because of the consummation of the transactions contemplated by
this Agreement. Neither Target nor Target Subsidiary is a party to any
agreement for the provision of labor from any outside agency. To the
knowledge of any Related Party, there have been no claims by employees of
such outside agencies, if any, with regard to employees assigned to work for
Target or Target Subsidiary, and no claims by any governmental agency with
regard to such employees except as set forth in SECTION 2.19(c) OF THE TARGET
DISCLOSURE SCHEDULE.
(d) There have been no federal or state claims
based on sex, sexual or other harassment, age, disability, race or other
discrimination or common law claims, including claims of wrongful
termination, by any employees providing services to or on behalf of Target or
Target Subsidiary or by any of the employees performing work for the
VirtualModem Employer but provided by an outside employment agency, and there
are no facts or circumstances known to any Related Party that could
reasonably be expected to give rise to such complaint or claim. Target,
Target Subsidiary and the VirtualModem Employer have complied in all material
respects with all laws related to the employment of employees and, except as
set forth in SECTION 2.19(d) OF THE TARGET DISCLOSURE SCHEDULE, none of
Target, Target Subsidiary or the VirtualModem Employer has received any
notice of any claim that it has not complied in any material respect with any
Laws relating to the employment of employees, including any provisions
thereof relating to wages, hours, collective bargaining, the payment of
Social Security and similar taxes, equal employment opportunity, employment
discrimination, the WARN Act, employee safety, or that it is liable for any
arrearages of wages or any taxes or penalties for failure to comply with any
of the foregoing.
(e) None of Target, Target Subsidiary or the
VirtualModem Employer has written policies and/or employee handbooks or
manuals except as described in SECTION 2.19(e) OF THE TARGET DISCLOSURE
SCHEDULE.
(f) To the knowledge of any Related Party, no
officer, employee or consultant of or providing service to or on behalf of
Target or Target Subsidiary is obligated under any Contract or other
agreement or subject to any Order or Law that would interfere with Target's
or Target Subsidiary's business as currently conducted. To the knowledge of
any Related Party, none of the execution, delivery or performance by any
Related Party of this Agreement or any Ancillary Agreement to which it is a
party, nor the carrying on of Target's or
22
Target Subsidiary's business as presently conducted nor any activity of such
officers, employees or consultants in connection with the carrying on of
Target's or Target Subsidiary's business as presently conducted, will
conflict with or result in a breach of the terms, conditions or provisions
of, constitute a default under, or trigger a condition precedent to any
rights under, any Contract or other agreement under which any of such
officers, employees or consultants is now bound.
(g) Target, Target Subsidiary and the
VirtualModem Employer have complied in all material respects with the
verification requirements and the record-keeping requirements of the
Immigration Reform and Control Act of 1986 ("IRCA"); to the best knowledge of
Target, Target Subsidiary, Source Media and Insight Communications, the
information and documents on which Target and Target Subsidiary relied to
comply with IRCA are true and correct; and there have not been any
discrimination complaints filed against Target, Target Subsidiary or the
VirtualModem Employer pursuant to IRCA, and to the best knowledge of Target,
Target Subsidiary, Source Media and Insight Communications, there is no basis
for the filing of such a complaint.
2.20 ENVIRONMENTAL MATTERS.
(a) Target and Target Subsidiary possess all
Environmental Permits required for the operation of their business. Target
will obtain, prior to the Closing, all Environmental Permits that must be
obtained as of or immediately after the Closing in order for Merger Sub, the
Surviving Company and/or Target to conduct the business of Target as it was
conducted prior to the Closing.
(b) Target and Target Subsidiary are in
compliance in all material respects with (i) all terms, conditions and
provisions of its Environmental Permits; and (ii) all Environmental Laws.
(c) None of Target or Target Subsidiary or, to
the knowledge of any Related Party, any predecessor of Target or Target
Subsidiary nor any entity previously owned by Target or Target Subsidiary has
any obligation or liability with respect to any Hazardous Material, including
any Release or threatened or suspected Release of any Hazardous Material, and
there have been no events, facts or circumstances since the date of formation
of Target or incorporation of Target Subsidiary, which could reasonably be
expected to form the basis of any such obligation or liability. Neither
Target or Target Subsidiary nor, to the knowledge of any Related Party, any
predecessor of Target nor any entity previously owned by Target has received
any notice of alleged, actual or potential responsibility for, or any inquiry
regarding, (i) any Release or threatened or suspected Release of any
Hazardous Material, or (ii) any violation of Environmental Law.
(d) No Releases of Hazardous Material(s) have
occurred at, from, in, to, on, or under any Site while Target has occupied
the Site and, to Target's knowledge, no Hazardous Material is present in, on,
about or migrating to or from any Site. There have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted
by or for Target or Target Subsidiary or, to the knowledge of Target, Target
Subsidiary, Source Media and/or Insight Communications, by or for any Other
Person with respect to any Site while Target or Target Subsidiary has
occupied the Site, which have not been delivered to Parent prior to
23
execution of this Agreement. The Site has not been listed or proposed to be
listed as an Environmental Clean-up Site.
2.21 OTHER NEGOTIATIONS; BROKERS; THIRD PARTY EXPENSES. No
Related Party nor, to the knowledge of any Related Party, any of their
Affiliates (nor any investment banker, financial advisor, attorney,
accountant or other Person retained by or acting for or on behalf of Target
or at Target's direction) (a) has entered into any Contract that conflicts
with any of the transactions contemplated by this Agreement or the Ancillary
Agreements or (b) has entered into any Contract or had any discussions with
any Person regarding any transaction involving Target which could reasonably
be expected to result in any Related Party in or any general partner, limited
partner, manager, officer, director, employee, agent or Affiliate of any of
them being subject to any claim for liability to said Person as a result of
entering into this Agreement or consummating the transactions contemplated
hereby. There is no Contract with respect to Third Party Expenses expected to
be incurred by Target in connection with the negotiation and effectuation of
the terms and conditions of this Agreement, the Ancillary Agreements and the
transactions contemplated hereby and thereby, including any fee or commission
payable to any broker, investment broker, finder or financial advisor in
connection with this Agreement and the transactions contemplated hereby.
2.22 FOREIGN CORRUPT PRACTICES ACT. Neither Target, Target
Subsidiary, nor to the knowledge of any Related Party, any agent, employee or
other Person acting on behalf of Target or Target Subsidiary has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any unlawful payment to foreign or domestic government officials or employees
or to foreign or domestic political parties or campaigns from corporate
funds, violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other similar unlawful payment.
2.23 APPROVALS.
(a) SECTION 2.23(a) OF THE TARGET DISCLOSURE
SCHEDULE contains a list of all material Approvals of Governmental or
Regulatory Authorities relating to the business conducted by Target
(including the VirtualModem Business) which are required to be given to or
obtained by Target prior to the Closing from any and all Governmental or
Regulatory Authorities in connection with the consummation of the
transactions contemplated by this Agreement.
(b) SECTION 2.23(b) OF THE TARGET DISCLOSURE
SCHEDULE contains a list of all material Approvals which are required to be
given to or obtained by Target prior to Closing from any and all third
parties other than Governmental or Regulatory Authorities in connection with
the consummation of the transactions contemplated by this Agreement and the
Ancillary Agreements.
(c) Target has obtained all material Approvals
from Governmental or Regulatory Authorities necessary to conduct the business
conducted by Target (including the VirtualModem Business) in the manner as it
is currently being conducted and there has been no written notice received by
Target of any material violation or material non-compliance with any such
Approvals. All material Approvals from Governmental or Regulatory Authorities
24
necessary to conduct the business conducted by Target as it is currently
being conducted are set forth in SECTION 2.23(c) OF THE TARGET DISCLOSURE
SCHEDULE.
(d) The affirmative vote or consent of the
holders of the Target Units outstanding as of the applicable record date is
the only vote of the holders of any of Target capital ownership interests
necessary to approve this Agreement and the Merger and the transactions
contemplated hereby.
2.24 DISCLOSURE. No representation or warranty contained in
ARTICLE 2 of this Agreement, and no statement contained in the Target
Disclosure Schedule or in any certificate, list or other writing furnished to
Parent pursuant to any provision of this Agreement (including Target
Financials and the notes thereto) contains any untrue statement of a material
fact or omits to state a material fact necessary to make the representations
and warranties of Target and Target Subsidiary in ARTICLE 2 (as modified by
the Target Disclosure Schedule), in the light of the circumstances under
which they were made, not misleading.
2.25 PERMIT APPLICATION; INFORMATION STATEMENT. The
information supplied in writing to Parent, or its counsel or auditors, by
Target and Holders for inclusion in the application for issuance of a
California Permit pursuant to which the shares of Parent Common Stock to be
issued in the Merger under the California Code (the "PERMIT APPLICATION")
shall not, at the time the fairness hearing is held pursuant to Section 25142
of the California Code and the time the qualification of such securities is
effective under Section 25122 of the California Code contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
information supplied by Target and Holders for inclusion in any information
statement to be sent to the holders of Target Units in connection with such
holders' consideration of the Merger (the "TARGET UNITS HOLDERS ACTION")
(such information statement as amended or supplemented is referred to herein
as the "INFORMATION STATEMENT") shall not, on the date the Information
Statement is first mailed to holders of Target Units, at the time of the
Target Units Holders Action and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
Target Units Holders Action which has become false or misleading.
Notwithstanding the foregoing, Target makes no representation, warranty or
covenant with respect to any information supplied by Parent or Merger Sub
that is contained in the Permit Application or the Information Statement.
2.26 INVESTMENT ADVISORS. Except as set forth in SECTION
2.26 OF THE TARGET DISCLOSURE SCHEDULE, no broker, investment banker,
financial advisor or other Person is entitled to any broker's, finder's,
financial advisor's or similar fee or commission in connection with this
Agreement and the transactions contemplated hereby based on arrangements made
by or on behalf of Target.
25
2.27 DUE DILIGENCE. The Company has delivered or made
available true and complete copies of each material document (to the extent
such documents exist), or true and complete summaries thereof, requested by
Parent in writing prior to the date of this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub jointly and severally hereby
represent and warrant to Related Parties, subject to such exceptions as
specifically disclosed with respect to specific sections of this ARTICLE 3 in
the Parent disclosure schedule (the "PARENT DISCLOSURE SCHEDULE") delivered
herewith and which shall become a part hereof, dated as of the date hereof,
and numbered with corresponding numbered and lettered sections and
subsections, as follows
3.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation
and Merger Sub is a limited liability company, each duly organized, validly
existing and in good standing under the Laws of the State of Delaware. Each
of Parent and Merger Sub has all requisite corporate power and authority to
conduct its business as now conducted and as currently proposed to be
conducted and to own, use and lease its Assets and Properties. Each of Parent
and Merger Sub is duly qualified, licensed or admitted to do business and is
in good standing in each jurisdiction in which the ownership, use, licensing
or leasing of its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except
for such failures to be so duly qualified, licensed or admitted and in good
standing that could not reasonably be expected to have a Material Adverse
Effect on Parent.
3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Merger Sub has full corporate power and authority to execute and deliver
this Agreement and the Ancillary Agreements, to perform its respective
obligations hereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Parent and Merger Sub of this
Agreement and the Ancillary Agreements to which Parent or Merger Sub is a
party and the consummation by Parent and Merger Sub of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action of Parent and Merger Sub, and no other corporate
action on the part of either Parent or Merger Sub is required to authorize
the execution, delivery and performance of this Agreement and the Ancillary
Agreements to which Parent or Merger Sub is a party and the consummation by
Parent and Merger Sub of the transactions contemplated hereby and thereby.
This Agreement and the Ancillary Agreements to which Parent or Merger Sub is
a party has been duly and validly executed and delivered by Parent and,
assuming the due authorization and the valid execution and delivery hereof by
Target, constitutes a legal, valid and binding obligation of Parent and
Merger Sub enforceable against Parent and Merger Sub in accordance with its
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar Laws relating to the enforcement of creditors' rights generally
and by general principles of equity. The Parent Common Stock issued to the
Holders pursuant to Section 1.5 hereof, when issued to the Holders subject to
the terms and conditions of this Agreement, shall be duly and validly
authorized, validly issued and fully paid and nonassessable.
26
3.3 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has
furnished or made available to Target true and complete copies of all SEC
Documents filed by it with the SEC since July 28, 1999, all in the form so
filed. Parent has timely filed all SEC Documents required to be filed by it
since such date. As of the respective filing dates, such SEC Documents filed
by Parent and all SEC Documents filed after the date hereof but before the
Closing complied or will comply in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the SEC thereunder, as the case may be, and none of the SEC
Documents contained or will contain any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading, except to the extent such SEC
Documents have been corrected, updated or superseded by a document
subsequently filed with the SEC. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "PARENT
FINANCIAL STATEMENTS") comply as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto, or in the case of unaudited statements, as
permitted by Form 10-Q under the Exchange Act) and present fairly the
consolidated financial position of Parent at the dates thereof and the
consolidated results of its operations and cash flows for the period then
ended (subject, in the case of unaudited financial statements, to normal
year-end adjustments). There has been no change in Parent's accounting
policies except as described in the notes to the Parent Financial Statements.
Except as reflected or reserved against in the Parent Financial Statements,
Parent has no material Liabilities, except for Liabilities and obligations
(i) incurred in the ordinary course of business consistent with past practice
since the date of the most recent Parent Financial Statements or (ii) that
would not be required to be reflected or reserved against in the balance
sheet of Parent prepared in accordance with GAAP.
3.4 NO CONFLICTS. The execution and delivery by Parent and
Merger Sub of this Agreement does not, and the performance by Parent of its
obligations under this Agreement and the consummation of the transactions
contemplated hereby do not and will not:
(a) conflict with or result in a violation or
breach of any of the terms, conditions or provisions of the Certificate of
Incorporation or Bylaws of Parent or the Certificate of Formation of Merger
Sub;
(b) conflict with or result in a violation or
breach of any Law or Order applicable to Parent or Merger Sub or their
respective Assets or Properties;
(c) except as would not have a Material
Adverse Effect on Parent, (i) conflict with or result in a violation or
breach of, (ii) constitute a default (or an event that, with or without
notice or lapse of time or both, would constitute a default) under, (iii)
require Parent to obtain any consent, approval or action of, make any filing
with or give any notice to any Person as a result of the terms of, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to
any person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi) result in the
creation or imposition of (or the obligation to create or impose) any
material Lien upon Parent or any of their respective material Assets or
Properties, or (vii) result in the loss of a material benefit under, any of
the terms, conditions or provisions of
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any Contract or License to which Parent is a party or by which any of their
material Assets and Properties are bound.
3.5 INFORMATION TO BE SUPPLIED BY PARENT. The information
supplied by Parent and Merger Sub for inclusion in the Permit Application
shall not, at the time the fairness hearing is held pursuant to Section 25142
of the California Code and the time the qualification of such securities is
effective under Section 25122 of the California Code, contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were mad, not misleading. The information supplied by Parent for
inclusion in the Information Statement shall not, on the date the Information
Statement is first mailed to holders of Target Units, at the time of the
Target Units Holders Action and at the Effective Time, contain any statement
which, at such time, is false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
Target Units Holders Action which has become false or misleading.
Notwithstanding the foregoing, Parent and Merger Sub make no representation,
warranty or covenant with respect to any information supplied by Target that
is contained any of the foregoing documents.
3.6 OWNERSHIP OF MERGER SUB; NO PRIOR ACTIVITIES. As of the
date hereof and the Effective Time, except for obligations or Liabilities
incurred in connection with its incorporation or organization and the
transactions contemplated by this Agreement and except for this Agreement and
any other agreements or arrangements contemplated by this Agreement, Merger
Sub has not and will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person other than in connection with the
Merger.
3.7 INVESTMENT ADVISORS. Except as set forth in SECTION 3.7
OF THE DISCLOSURE SCHEDULE, no broker, investment banker, financial advisor
or other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the
transactions contemplated hereby based on arrangements made by or on behalf
of Parent.
3.8 THIRD PARTY CONSENTS. Neither Parent nor Merger Sub is
required to obtain from any third party any consent, waiver or approval for
the consummation of the Merger (other than consents which will be obtained at
or prior to the Closing and consents, the absence of which could not
reasonably be expected to have a Material Adverse Effect on Parent or to
prevent the consummation of the transactions contemplated by this Agreement).
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ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 INFORMATION STATEMENT; PERMIT APPLICATION.
(a) As soon as practicable after the
execution of this Agreement, Target shall prepare, with the cooperation of
Parent, the Information Statement for the holders of Target Units to approve
this Agreement and the transactions contemplated hereby. The Information
Statement shall constitute a disclosure document for the offer and issuance
of the shares of Parent Common Stock to be received by the holders of Target
Units in the Merger. Parent and Target shall each use reasonable commercial
efforts to cause the Information Statement to comply with applicable federal
and state securities laws requirements. Each of Parent and Target agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the
providing party or its counsel, may be required or appropriate for inclusion
in the Information Statement, or in any amendments or supplements thereto,
and to cause its counsel and auditors to cooperate with the other's counsel
and auditors in the preparation of the Information Statement. Target will
promptly advise Parent, and Parent will promptly advise Target, in writing if
at any time prior to the Effective Time either Target or Parent shall obtain
knowledge of any facts that might make it necessary or appropriate to amend
or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply
with applicable law. The Information Statement shall contain the
recommendation of the Target Management Committee that the holders of the
Target Units approve the Merger and this Agreement and the conclusion of the
Target Management Committee Board that the terms and conditions of the Merger
are advisable and fair and reasonable to the holders of the Target Units.
Anything to the contrary contained herein notwithstanding, Target shall not
include in the Information Statement any information with respect to Parent
or its affiliates or associates, the form and content of which information
shall not have been approved by Parent prior to such inclusion.
(b) As soon as practicable after the
execution of this Agreement, and subject to Section 4.1(a), Parent shall
prepare, with the cooperation of Target, the Permit Application. Parent and
Target shall each use commercially reasonable efforts to cause the Permit
Application to comply with the requirements of applicable federal and state
laws. Each of Parent and Target agrees to provide promptly to the other such
information concerning its business and financial statements and affairs as,
in the reasonable judgment of the providing party or its counsel, may be
required or appropriate for inclusion in the Permit Application, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Permit Application. Target will promptly advise Parent, and Parent will
promptly advise Target, in writing if at any time prior to the Effective Time
either Target or Parent shall obtain knowledge of any facts that might make
it necessary or appropriate to amend or supplement the Permit Application in
order to make the statements contained or incorporated by reference therein
not misleading or to comply with applicable law. Anything to the contrary
contained herein notwithstanding, Parent shall not include in the Permit
Application any information with respect to Target or its affiliates or
associates, the form and content of which information shall not have been
approved by Target prior to such inclusion.
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(c) In the event that the California Permit
cannot be obtained by March 10, 2000, Parent shall effect the issuance of the
shares of Parent Common Stock to be issued pursuant to SECTION 1.6 in a
private placement pursuant to Section 4(2) of the Securities Act. The parties
hereto acknowledge and agree that in such event: (i) in accordance with
SECTION 1.8, Parent will at Closing deliver to Source Media Fifteen Million
Dollars ($15,000,000) in cash and the Maximum Share Number shall be adjusted
accordingly; (ii) as a condition to effecting such issuance as a private
placement pursuant to Section 4(2) of the Securities Act, Parent shall be
entitled to obtain from each Holder of Target Units a Certificate in form and
substance to be agreed upon by Parent and Holders and to be set forth as
EXHIBIT C (or such other form as shall be reasonably satisfactory to Parent)
and that Parent will be relying upon the representations made by each Holder
of Target Units in the applicable Certificate in connection with the issuance
of Parent Common Stock to such Holder; (iii) at the Closing, Parent and the
Holders shall execute and deliver the Registration Rights Agreement in form
and substance to be agreed upon by Parent and Holders, providing that the
Holders shall be granted a demand registration right on a Form S-3
registration statement under the Securities Act exercisable by the Holders at
any time on and after July 28, 2000 and before eighteen (18) months following
the Closing Date, and to be set forth as EXHIBIT A-