EX-10.1 AGREEMENT AND PLAN OF MERGER

 

TABLE OF CONTENTS

 

ARTICLE I	THE MERGER
Section 1.1	The Merger
Section 1.2	Closings
Section 1.3	Effective Time
Section 1.4	Effects of the Merger
Section 1.5	Certificate of Incorporation
Section 1.6	Bylaws
Section 1.7	Directors
Section 1.8	Officers
ARTICLE II	EFFECT OF THE MERGER ON CAPITAL STOCK
Section 2.1	Conversion of Capital Stock
Section 2.2	Surrender of Certificates
Section 2.3	Escrow Fund; Payment of Deferred Merger Consideration
Section 2.4	Stock Options
Section 2.5	Dissenting Shares
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1	Organization, Standing and Power
Section 3.2	Subsidiaries
Section 3.3	Capital Structure
Section 3.4	Authority; Noncontravention
Section 3.5	Governmental Approvals
Section 3.6	Financial Statements; No Undisclosed Liabilities
Section 3.7	Absence of Certain Changes or Events
Section 3.8	Litigation
Section 3.9	Contracts
Section 3.10	Compliance with Laws
Section 3.11	Environmental Matters
Section 3.12	Employees
Section 3.13	Employee Benefit Plans
Section 3.14	Taxes
Section 3.15	Leases
Section 3.16	Intellectual Property
Section 3.17	Privacy Policy
Section 3.18	Customer Accounts Receivable
Section 3.19	Brokers and Other Advisors
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF PARENT
Section 4.1	Organization, Standing and Power
Section 4.2	Authority; Noncontravention
Section 4.3	Governmental Approvals
Section 4.4	Litigation

 

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Section 4.5	Interim Operations of Merger Sub
Section 4.6	Parent Company Common Stock, Warrant and Options
Section 4.7	Opinion of Financial Advisor
ARTICLE V	COVENANTS
Section 5.1	Conduct of Business of the Company
Section 5.2	Other Actions
Section 5.3	Access to Information; Confidentiality
Section 5.4	No Solicitation; No Public Offering
Section 5.5	Notices of Certain Events
Section 5.6	Directors’ and Officers’ Indemnification and Insurance
Section 5.7	Commercially Reasonable Efforts
Section 5.8	Consents; Filings; Further Action
Section 5.9	Public Announcements
Section 5.10	Fees, Costs and Expenses
Section 5.11	Defense of Litigation
Section 5.12	Tax Matters
Section 5.13	Maintenance and Prosecution of Intellectual Property
Section 5.14	Sarbanes-Oxley; Accounting
Section 5.15	Exercise of Warrants
Section 5.16	Charter Amendment and Exchange
Section 5.17	Financing
Section 5.18	Parent Company Options
Section 5.19	Waiver Under Credit Agreement
ARTICLE VI	CONDITIONS
Section 6.1	Conditions to Each Party’s Obligation to Effect the Merger
Section 6.2	Conditions to Obligations of Parent and Merger Sub
Section 6.3	Conditions to Obligations of the Company
Section 6.4	Frustration of Closing Conditions
ARTICLE VII	INDEMNIFICATION
Section 7.1	Survival of Representations and Warranties
Section 7.2	Indemnification by the Principal Company Stockholder and Other Holders
Section 7.3	Indemnification by Parent
Section 7.4	Procedure for Indemnification
Section 7.5	Limits on Indemnification
Section 7.6	Assignment of Claims; Contribution
ARTICLE VIII	TERMINATION, AMENDMENT AND WAIVER
Section 8.1	Termination by Mutual Consent
Section 8.2	Termination by Either Parent or the Company
Section 8.3	Termination by Parent

 

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Section 8.4	Termination by the Company
Section 8.5	Effect of Termination
Section 8.6	Amendment
Section 8.7	Extension; Waiver
Section 8.8	Transfer Taxes
ARTICLE IX	MISCELLANEOUS
Section 9.1	Certain Definitions
Section 9.2	Interpretation
Section 9.3	Survival
Section 9.4	Governing Law
Section 9.5	Submission to Jurisdiction
Section 9.6	WAIVER OF JURY TRIAL
Section 9.7	Notices
Section 9.8	Entire Agreement
Section 9.9	No Third-Party Beneficiaries
Section 9.10	Rules of Construction
Section 9.11	Assignment
Section 9.12	Remedies
Section 9.13	Specific Performance
Section 9.14	Counterparts; Effectiveness

 

Exhibits

 

Exhibit A  Principal Stockholders Agreement

Exhibit B  Redemption Agreement

Exhibit C  Letter of Transmittal

Exhibit D  Escrow Agreement

 

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INDEX OF DEFINED TERMS

 

Term		Section
2005 Business Plan		Section 5.1(e)
228 Notice		Section 3.4(a)
affiliated group		Section 3.14(a)
Agreement		Preamble
Annual Financial Statements		Section 3.6(a)
Appraisal Notice		Section 3.4(a)
Certificate of Merger		Section 1.3
Certificates		Section 2.1(c)
Charter Amendment		Section 5.15
Claimant		Section 7.4(a)
Code		Section 2.2(e)
Company		Preamble
Company Board Recommendation		Section 3.4(a)
Company Bylaws		Section 3.1
Company Charter		Section 3.1
Company Class B Common Stock		Section 2.1(d)
Company Common Stock		Recitals
Company Disclosure Letter		ARTICLE III
Company Intellectual Property		Section 3.16(a)
Company Option Plans		Section 2.4(a)
Company Plans		Section 3.13(a)
Company Stock Option		Section 2.4(a)
Confidentiality Agreement		Section 5.3(b)
Copyright Office		Section 5.13(b)
Credit Agreement		Section 5.19
Customer Information		Section 3.17
D&O Indemnified Parties		Section 5.6(a)
debt obligations		Section 3.9(a)(iii)
DGCL		Recitals
Dissenting Shares		Section 2.5(a)
Dissenting Stockholder		Section 2.5(a)
Effective Time		Section 1.3
Environmental Laws		Section 3.11
ERISA		Section 3.13(a)
Escrow Account		Section 2.3(a)
Escrow Agent		Section 2.3(a)
Escrow Agreement		Section 2.3(a)
Escrow Earnings		Section 2.3(a)
Escrow Fund		Section 2.3(a)
Exchange		Section 5.16
Excluded Shares		Section 2.1(b)
Financial Statements		Section 3.6(a)
Financing		Section 5.17

 

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Term		Section
First Closing		Section 1.2(a)
First Closing Date		Section 1.2(a)
Foreign Plan		Section 3.13(b)
Governmental Consents		Section 6.1(c)
Governmental Entity		Section 6.1(c)
Holder Representative		Section 2.3(c)
HSR Act		Section 3.5
Indemnified Parties		Section 7.2(a)
Indemnifier		Section 7.4(a)
Interim Financial Statements		Section 3.6(a)
Invus		Section 1.7
IRS		Section 3.14(m)
Leased Property		Section 3.15(a)
Legal Action		Section 3.8
Letter of Transmittal		Section 2.2(c)(i)
Merger		Recitals
Merger Payments		Section 2.2(c)(iv)
Merger Sub		Preamble
Off-the-Shelf Software		Section 3.16(c)
Option Payment Procedures		Section 2.4(a)
Other Agreements		Section 8.6(b)
Other Holders		Section 2.3(c)
P/C Option Plan		Section 4.6
Parent		Preamble
Parent Company Options		Section 4.6
Paying Agent		Section 2.2(a)
Payment Fund		Section 2.2(b)
Permits		Section 3.10
Post-Signing Returns		Section 5.12(a)
Potential Contributor		Section 7.6(a)
Principal Company Stockholder		Recitals
Principal Stockholders Agreement		Recitals
Principal Stockholders Consent		Recitals
Privacy Policy		Section 3.17
Pro Rata Portion		Section 7.5(b)
Proportionate Damages		Section 7.2(a)
Redemption		Recitals
Redemption Agreement		Recitals
Second Closing		Section 1.2(b)
Second Closing Date		Section 1.2(b)
Secretary		Recitals
Section 3.9 Contracts		Section 3.9(a)
SOXA		Section 5.14
SOXA Obligations		Section 5.14
Stockholder Indemnified Parties		Section 7.3
Stockholders		Section 7.5(b)

 

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Term		Section
Substitute Business Plan		Section 5.1(e)
Surviving Bylaws		Section 1.6
Surviving Charter		Section 1.5
Surviving Corporation		Section 1.1
Tax Sharing Agreements		Section 3.14(j)
Transfer Taxes		Section 8.8
Unregistered Holder		Section 2.2(c)(iii)
Unvested Stock Option		Section 2.4(b)
USPTO		Section 5.13(b)
Vested Stock Option		Section 2.4(a)
Waiver		Section 5.19
Warrants		Section 5.15

 

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AGREEMENT AND PLAN OF MERGER

 

AGREEMENT AND PLAN OF MERGER, dated as of June 13, 2005 (this “ Agreement ”), by and among WEIGHT WATCHERS INTERNATIONAL, INC., a Virginia corporation (“ Parent ”), SCW MERGER SUB, INC., a Delaware corporation and a wholly-owned subsidiary of Parent (“ Merger Sub ”), and WEIGHTWATCHERS.COM, INC., a Delaware corporation (the “ Company ”).

 

RECITALS

 

WHEREAS, the respective boards of directors of Merger Sub and the Company have approved and declared advisable, and the board of directors of Parent (based on the unanimous recommendation of the Special Committee) has approved, this Agreement and the merger of Merger Sub with and into the Company (the “ Merger ”) upon the terms and subject to the conditions set forth in this Agreement.

 

WHEREAS, subject to certain exceptions, by virtue of the Merger, all of the issued and outstanding shares of common stock, par value $0.01 per share, of the Company (the “ Company Common Stock ”) will be converted into the right to receive the Initial Per Share Merger Consideration in cash on the terms and conditions set forth in this Agreement plus, subject to the contingencies and other provisions set forth in the Escrow Agreement and this Agreement, the Deferred Per Share Merger Consideration.  The Initial Per Share Merger Consideration plus the full amount of the Deferred Per Share Merger Consideration shall equal $25.21.

 

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to the willingness of Parent and Merger Sub to enter into this Agreement, Artal Luxembourg S.A. (the “ Principal Company Stockholder ”), the holder of shares of Company Common Stock representing a majority of the voting power of the capital stock of the Company, the Company and Parent are entering into an agreement (the “ Principal Stockholders Agreement ”), in the form attached hereto as Exhibit A pursuant to which the Principal Company Stockholder and Parent each agree, among other things, to take certain actions in furtherance of the Merger, including causing the execution and delivery of written consents in accordance with Section 228 of the DGCL (the “ Principal Stockholders Consent ”) by which the Principal Company Stockholder and Parent will consent to the adoption of this Agreement and the approval of the Merger and the Charter Amendment, without meeting, without prior notice and without any additional stockholder vote.

 

WHEREAS, simultaneously with the execution and delivery of this Agreement and as a condition and inducement to the willingness of Parent and Merger Sub to enter into this Agreement, the Principal Company Stockholder, the Company and Parent are entering into an agreement (the “ Redemption Agreement ”), in the form attached hereto as Exhibit B, pursuant to which the Principal Company Stockholder, the Company and Parent agree to, among other things, the repurchase by the Surviving Corporation (the “ Redemption ”) of the Principal Company Stockholder’s Common Stock, par value $0.01 per share, of the Surviving Corporation, on the terms and conditions set forth therein,

 

 

which Common Stock the Principal Company Stockholder will receive in the Merger in accordance with Section 2.1(d).

 

WHEREAS, immediately following the execution and delivery of this Agreement, the Principal Company Stockholder and Parent will each execute a Principal Stockholders Consent and deliver it to the Secretary of the Company (the “ Secretary ”), and the Secretary shall certify and acknowledge that this Agreement has been adopted and the Merger has been approved by the written consent of the holders of a majority of the shares of the Company entitled to vote in accordance with Section 228 of the Delaware General Corporation Law (the “ DGCL ”).

 

WHEREAS, promptly following the execution and delivery of the Principal Stockholders Consent, notice shall be given by the Company to the holders of Company Common Stock entitled to receive such notice under Section 228(e) of the DGCL.

 

WHEREAS, certain capitalized terms used in this Agreement have the meanings specified in Section 9.1.

 

Accordingly, in consideration of the mutual representations, warranties, covenants and agreements contained in this Agreement, the parties to this Agreement, intending to be legally bound, agree as follows:

 

ARTICLE I

 

THE MERGER

 

Section 1.1              The Merger .  Upon the terms and subject to the conditions set forth in this Agreement, and in accordance with the DGCL, at the Effective Time (a) Merger Sub shall be merged with and into the Company, (b) the separate corporate existence of Merger Sub shall cease and the Company shall continue its corporate existence under Delaware law as the surviving corporation in the Merger (the “ Surviving Corporation ”) and (c) the Surviving Corporation shall become a majority owned subsidiary of Parent.

 

Section 1.2              Closings .

 

(a)            Subject to the satisfaction or waiver of all of the conditions to closing contained in ARTICLE VI, the closing of the Merger (the “ First Closing ”) shall take place (i) at the offices of Paul, Weiss, Rifkind, Wharton & Garrison LLP, 1285 Avenue of the Americas, New York, New York, at 10:00 a.m. on July 1, 2005, effective as of July 2, 2005 or (ii) at such other place and time or on such other date as Parent and the Company may agree in writing.  The date on which the First Closing is deemed effective is herein referred to as the “ First Closing Date .”

 

(b)            The closing of the Redemption shall occur as provided for in the Redemption Agreement (the “ Second Closing ”).  The date on which the Second Closing occurs is herein referred to as the “ Second Closing Date .”

 

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Section 1.3              Effective Time .  Immediately following the First Closing, Parent and the Company shall cause a certificate of merger (the “ Certificate of Merger ”) to be executed, signed, acknowledged and filed with the Secretary of State of the State of Delaware as provided in Section 251 of the DGCL.  The Merger shall become effective at 23:59 (Eastern Time) on July 2, 2005 as set forth in the Certificate of Merger to be duly filed with the Secretary of State of the State of Delaware or at such other subsequent date or time as Parent and the Company may agree and specify in the Certificate of Merger in accordance with the DGCL (the “ Effective Time ”).

 

Section 1.4              Effects of the Merger .  The Merger shall have the effects set forth in Section 259 of the DGCL.

 

Section 1.5              Certificate of Incorporation .  The amended and restated certificate of incorporation of the Company in effect immediately prior to the Effective Time in the form agreed upon by Parent and the Company shall be, from and after the Effective Time, the certificate of incorporation of the Surviving Corporation (the “ Surviving Charter ”) until amended as provided in the Surviving Charter or by applicable Laws.

 

Section 1.6              Bylaws .  The bylaws of Merger Sub in effect immediately prior to the Effective Time in the form agreed upon by Parent and the Company shall be, from and after the Effective Time, the bylaws of the Surviving Corporation (the “ Surviving Bylaws ”) until amended as provided in the Surviving Charter, in the Surviving Bylaws or by applicable Laws.

 

Section 1.7              Directors .  From and after the Effective Time, Parent shall have the right to nominate a majority of the directors of the Surviving Corporation (which majority shall not include any Affiliates of the Principal Company Stockholder or of The Invus Group LLC (“ Invus ”), other than Persons who may be deemed to be Affiliates solely through being directors or officers of Parent) and the Principal Company Stockholder shall have the right to nominate the remaining directors (who may include Affiliates of the Principal Company Stockholder).  The number of directors of the Surviving Corporation, as well as the nomination procedure to carry out the agreement set forth in this Section 1.7, shall be as set forth in the Surviving Bylaws.

 

Section 1.8              Officers .  The officers of the Company immediately prior to the Effective Time, as agreed upon by Parent and the Company, shall be, from and after the Effective Time, the officers of the Surviving Corporation until their successors are duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the Surviving Charter, the Surviving Bylaws and the DGCL.

 

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ARTICLE II

 

EFFECT OF THE MERGER ON CAPITAL STOCK

 

Section 2.1              Conversion of Capital Stock .  At the Effective Time, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holder of any shares of capital stock of Merger Sub or the Company:

 

(a)            Conversion of Merger Sub Capital Stock .  The sole share of common stock, par value $0.01 per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become the number of fully paid and non-assessable shares of common stock, par value $0.01 per share, of the Surviving Corporation equal to the sum of (i) the number of shares of Company Common Stock issued and outstanding immediately prior to the Effective Time (and after the Exchange) (other than Dissenting Shares, if any) (which shares of Company Common Stock are being converted pursuant to Section 2.1(c)), plus (ii) the number of Option Shares immediately prior to the Effective Time.

 

(b)            Cancellation of Treasury Stock .  Each share of Company Common Stock owned by the Company or any of its wholly-owned Subsidiaries immediately prior to the Effective Time shall cease to exist (collectively, the “ Excluded Shares ”), and no consideration shall be paid for those Excluded Shares.

 

(c)            Conversion of Company Common Stock .  Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (and after the Exchange) (other than Dissenting Shares, if any) shall automatically be converted into the right to receive an amount per share in cash equal to the Initial Per Share Merger Consideration payable without interest in accordance with Section 2.2, plus, subject to the contingencies and other provisions set forth in the Escrow Agreement and Section 2.3, the Deferred Per Share Merger Consideration.  Upon receipt of the requisite shareholder approval and adoption of this Agreement and the Merger, all holders of Company Common Stock will be bound by the terms of this Agreement, including, without limitation, the terms of payment of the applicable amounts of the Initial Per Share Merger Consideration and the Deferred Per Share Merger Consideration.  All shares of Company Common Stock that have been converted pursuant to this Section 2.1(c) shall be cancelled automatically and shall cease to exist, and the holders of any certificates that immediately prior to the Effective Time represented those shares (“ Certificates ”) shall cease to have any rights with respect to each of those shares, other than the right to receive the Initial Per Share Merger Consideration upon surrender of their Certificates in accordance with Section 2.2 plus, subject to the contingencies and other provisions set forth in the Escrow Agreement and Section 2.3, the Deferred Per Share Merger Consideration.

 

(d)            Conversion of the Company Class B Common Stock .  Each share of Class B Common Stock, par value $0.01 per share, of the Company (the “ Company Class B Common Stock ”) issued and outstanding immediately prior to the Effective Time (and after the Exchange) shall be converted into and become one fully paid and non-assessable

 

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share of common stock, par value $0.01 per share, of the Surviving Corporation.

 

Section 2.2              Surrender of Certificates .

 

(a)            Paying Agent .  Prior to the Effective Time, (i) Parent and the Company shall select a bank or trust company, satisfactory to the Company in its reasonable discretion, to act as the paying agent in the Merger (the “ Paying Agent ”) and (ii) Parent shall enter into a paying agent agreement with the Paying Agent and the Company, the terms and conditions of which are satisfactory to the Company in its reasonable discretion.

 

(b)            Payment Fund .  Promptly following the Effective Time, Parent shall provide funds to the Paying Agent in an amount equal to the aggregate Initial Merger Consideration payable under Section 2.1(c) upon surrender of the Certificates (including shares represented by a book-entry account statement as described in Section 2.1(c)).  Such funds provided to the Paying Agent are referred to as the “ Payment Fund .”

 

(c)            Payment Procedures .

 

(i)             Letter of Transmittal .  Promptly after the Effective Time, and to the extent not previously provided, Parent shall cause the Paying Agent to mail to each holder of record of Company Common Stock (A) a letter of transmittal in substantially the form attached as Exhibit C hereto (“ Letter of Transmittal ”) as may be amended by the Company prior to the Effective Time, specifying (x) that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of Certificates to the Paying Agent, (or, if such shares of Company Common Stock are held in book-entry or other uncertificated form, upon the entry through the Company of the surrender of such shares of Company Common Stock on a book-entry account statement (it being understood that any references in this Agreement to “Certificates” shall be deemed to include references to book-entry account statements relating to the ownership of such shares and any references to the surrender of Certificates shall include the surrender of such Company Common Stock on a book-entry account statement)), (y) that by signing the Letter of Transmittal such holder agrees to and confirms acknowledgment of the terms of the Merger, including, without limitation, the indemnification provisions set out in Article VII, the right to receive the applicable amount of Deferred Merger Consideration, the terms and conditions of the Escrow Agreement, the appointment of the Escrow Agent, the appointment of the Principal Company Stockholder as Holder Representative (upon the terms set out in this Agreement and the Escrow Agreement, including, without limitation, the release of the Principal Company Stockholder from any and all claims which they may have against the Principal Company Stockholder in connection with the Merger) and other transactions contemplated by this Agreement and (B) instructions for surrendering Certificates.

 

(ii)            Surrender of Certificates .  Upon surrender of a Certificate for cancellation to the Paying Agent, together with a duly executed Letter of Transmittal and any other documents required by the Paying Agent, the holder of that Certificate

 

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shall be entitled to receive in exchange therefor the product of (A) the number of shares of Company Common Stock evidenced by such Certificate and (B) the result of the Initial Per Share Merger Consideration plus, subject to the contingencies and other provisions set forth in the Escrow Agreement and Section 2.3, the Deferred Per Share Merger Consideration, less any required withholding of Taxes.  Any Certificates so surrendered shall be cancelled immediately.  No interest shall accrue or be paid on any amount payable upon surrender of Certificates.

 

(iii)           Unregistered Holders .  If any Merger Consideration is to be paid to a Person (“ Unregistered Holder ”) other than the Person in whose name the surrendered Certificate is registered, then the applicable amount of the Merger Consideration may be paid to such Unregistered Holder so long as (A) the surrendered Certificate is accompanied by all documents required to evidence and effect that transfer or the Unregistered Holder’s rights and (B) the Unregistered Holder requesting such payment (1) pays any applicable transfer Taxes or (2) establishes to the satisfaction of Parent and the Paying Agent that any such Taxes have already been paid or are not applicable.

 

(iv)           No Other Rights .  Until surrendered in accordance with this Section 2.2(c), each Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive the amounts referred to in Section 2.2(c)(ii) (“ Merger Payments ”).  Any such amounts paid upon or following the surrender of any Certificate shall be deemed to have been paid in full satisfaction of all rights pertaining to that Certificate and the shares of Company Common Stock formerly represented by it.

 

(d)            Post-Closing Transfers .  The stock transfer books of the Surviving Corporation shall remain open following the First Closing.

 

(e)            Required Withholding .  Parent, the Surviving Corporation, the Paying Agent and the Escrow Agent shall be entitled to deduct and withhold from any Merger Payments payable under this Agreement such amounts as may be required to be deducted or withheld therefrom under (i) the Internal Revenue Code of 1986, as amended (the “ Code ”), or (ii) any applicable state, local or foreign Tax Laws.  To the extent that any amounts are so deducted and withheld, those amounts shall be treated as having been paid to the Person in respect of whom such deduction or withholding was made for all purposes under this Agreement.

 

(f)             No Liability .  None of Parent, the Surviving Corporation, Paying Agent or the Principal Company Stockholder shall be liable to any holder of Certificates for any amount properly paid to a public official under any applicable abandoned property, escheat or similar Laws.

 

(g)            Investment of Payment Fund .  The Paying Agent shall invest the Payment Fund as directed by Parent.  Any interest and other income resulting from such investment shall become a part of the Payment Fund, and any amounts in excess of the amounts payable under Section 2.1(c) shall be applied towards the fees and expenses of the Paying Agent, and thereafter shall be paid promptly to Parent.

 

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(h)            Termination of Payment Fund .  Any portion of the Merger Payments that remains unclaimed by the holders of Certificates at the end of 18 months and one week after the Effective Time shall, subject to any funds held in escrow, be delivered by the Paying Agent to Parent upon demand.  Thereafter, any holder of Certificates who has not complied with this ARTICLE II shall look only to Parent for payment of the applicable Merger Payments.

 

(i)             Lost, Stolen or Destroyed Certificates .  If any Certificate is lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and the posting by such Person of a bond in the form required by Parent as indemnity against any claim that may be made against Parent or Principal Company Stockholder on account of the alleged loss, theft or destruction of such Certificate, the Paying Agent shall pay the applicable Initial Merger Consideration to such Person in exchange for such lost, stolen or destroyed Certificate and the Principal Company Stockholder shall cause the Escrow Agent to pay the applicable Deferred Merger Consideration, on the basis, subject to the contingencies and in the manner set forth in the Escrow Agreement and Section 2.3.

 

Section 2.3              Escrow Fund; Payment of Deferred Merger Consideration .

 

(a)            At or prior to the Effective Time, Parent shall, or shall cause Merger Sub to, deposit with a bank or trust company satisfactory to the Company in its reasonable discretion (who may be the same as the Paying Agent) (the “ Escrow Agent ”), the Deferred Merger Consideration (as such amount may be increased or decreased from time to time in accordance with the terms of this Agreement and the Escrow Agreement, the “ Escrow Fund ”), which shall be held by the Escrow Agent in a separate bank account (the “ Escrow Account ”) pursuant to the terms of an escrow agreement, substantially in the form attached as Exhibit D to this Agreement, which is expressly incorporated into this Agreement as if set out here in full (the “ Escrow Agreement ”), to serve as a source of payment and/or remedy (as appropriate) as set forth in the Escrow Agreement.  The Escrow Account shall relate only to the funds payable to or by the Principal Company Stockholder and the Other Holders and in no event shall it relate to the Dissenting Stockholders nor shall any such Dissenting Stockholders have any rights in relation to the Deferred Merger Consideration or the Escrow Fund.  Subject to the terms of the Escrow Agreement, during the period in which the Escrow Fund is retained in the Escrow Account, all interest or other income earned from the investment of the Escrow Fund (the “ Escrow Earnings ”) shall be retained in the Escrow Account as additional Escrow Fund.

 

(b)            The Escrow Fund shall be held, invested and distributed by the Escrow Agent in accordance with the terms of the Escrow Agreement.

 

(c)            Appointment of Representative .  The Principal Company Stockholder will be, and hereby is, upon the receipt of the appropriate stockholder adoption of the Merger Agreement and approval of the Merger, appointed as the representative of (i) all Shareholders of Company Common Stock immediately prior to the Effective Time who are entitled to receive Merger Payments, both before and after the First Closing, (ii) the holders of Vested Stock Options immediately prior to the

 

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Effective Time, and (iii) the holders of Unvested Stock Options immediately prior to the Effective Time ((i) and (ii) being collectively, the “ Other Holders ”) and shall be designated the holder representative (the “ Holder Representative ”) with the rights and obligations as set forth in this Agreement, the Letter of Transmittal and the Escrow Agreement.  Notice or communications to or from the Holder Representative pursuant to this Section 2.3 or the Escrow Agreement shall constitute notice to or from each of the Other Holders and the Unvested Stock Option holders.  The Holder Representative shall not be liable for any action taken or not taken as Holder Representative, and no Other Holder, Unvested Stock Option holder or any other Person shall have any cause of action against the Holder Representative for any action taken, decision made or instruction given by the Holder Representative under this Section 2.3 or the Escrow Agreement except for fraud or for willfully disregarding its duties as Holder Representative under this Agreement and the Escrow Agreement.  A decision, act, consent or instruction (or failure to take such actions) of the Holder Representative pursuant to this Section 2.3 or the Escrow Agreement shall constitute a decision of all the Other Holders and the Unvested Stock Option holders, and shall be final, binding and conclusive upon each of the Other Holders and the Unvested Stock Option holders, and Parent may rely upon any decision, act, consent or instruction of the Holder Representative for all purposes hereunder.  Parent shall not be a third party beneficiary under, or be entitled to any rights or remedies pursuant to, the Escrow Agreement.

 

Section 2.4              Stock Options .

 

(a)            The Company shall take all requisite action (through its Board of Directors or an appropriate committee thereof) so that, as of the Effective Time, each option (a “ Company Stock Option ”) awarded under the Company’s 2000 Stock Purchase and Option Plan and 2002 Stock Purchase and Option Plan (collectively, the “ Company Option Plans ”) to acquire shares of Company Common Stock, outstanding immediately prior to the Effective Time, to the extent then vested, whether or not then exercisable (“ Vested Stock Option ”), shall be, by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company, the Surviving Corporation or the holder of each Vested Stock Option, converted into the right to receive solely an amount in cash, without interest, equal to the Initial Option Merger Price plus, subject to the contingencies and other provisions set forth in Section 2.3 and the Escrow Agreement, the Deferred Per Share Merger Consideration.  Parent shall contribute to Merger Sub an aggregate amount in cash equal to the aggregate exercise price of the Vested Stock Options plus the aggregate amount of the Option Merger Price for the Option Shares subject thereto.  The payment of the Initial Option Merger Price to the holder of a Vested Stock Option shall be reduced by any income, employment or excise Tax withholding required under (i) the Code or (ii) any applicable state, local or foreign Tax Laws.  To the extent that any amounts are so withheld, those amounts shall be treated as having been paid to the holder of that Vested Stock Option for all purposes under this Agreement and the Company Option Plans.  Following the Effective Time, the Initial Option Merger Price shall be paid by the Surviving Corporation to the Paying Agent for payment to each holder of a Vested Stock Option, and the Deferred Per Share Merger Consideration with respect to such Vested Stock Option shall be placed in the Escrow Fund, at which time

 

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such Vested Stock Option shall be cancelled.  The Surviving Corporation will set up appropriate payment procedures substantially similar to those for Parent under Section 2.2, including, without limitation, the required Letters of Transmittal (“ Option Payment Procedures ”).

 

(b)            The Company and Parent shall take all requisite action (through its respective Board of Directors or an appropriate committee thereof) so that, as of the Effective Time, each option awarded under the Company Option Plans to acquire shares of Company Common Stock, outstanding immediately prior to the Effective Time, to the extent not then vested, whether or not then exercisable (“ Unvested Stock Option ”), shall be by virtue of the Merger and without any action on the part of Parent, Merger Sub, the Company or the holder of each Unvested Stock Option, converted into the right to receive solely the Unvested Option Merger Price.  Parent shall contribute to Merger Sub an aggregate amount in cash equal to the aggregate exercise price of the Unvested Stock Options and shall (i) pay to the Escrow Agent, subject to the terms of the Escrow Agreement, an amount equal to $.22 per share for each Option Share subject to the Unvested Stock Options and (ii) following the Effective Time, and subject to the appropriate Option Payment Procedures, cause to be delivered to each holder of an Unvested Stock Option the Unvested Option Merger Price per Option Share subject to such Unvested Stock Options.  Upon payment to the holder of an Unvested Stock Option of the Unvested Option Merger Price for the Option Shares subject to such Unvested Stock Option, such Unvested Stock Option shall be cancelled.  The payment of the Unvested Option Merger Price to the holder of an Unvested Stock Option shall be reduced by any income, employment or excise Tax withholding required under (i) the Code or (ii) any applicable state, local or foreign Tax Laws.  To the extent that any amounts are so withheld, those amounts shall be treated as having been paid to the holder of that Unvested Stock Option for all purposes under this Agreement and the Company Option Plans.  The Surviving Corporation shall set up appropriate procedures for payment of the Unvested Option Merger Price as set forth in the Letter of Transmittal.

 

(c)            For avoidance of doubt, from and after the Effective Time no Vested Stock Option or Unvested Stock Option shall confer on any Person the right to receive Company Common Stock, securities or any other property, other than the payments provided for in Section 2.4(a) and 2.4(b).

 

Section 2.5              Dissenting Shares .

 

(a)            Notwithstanding any provision of this Agreement to the contrary, any shares of Company Common Stock for which the holder thereof (i) has not voted in favor of or consented in writing to the adoption of this Agreement and approval of the Merger and (ii) has demanded the appraisal of such shares in accordance with, and has complied in all respects with, Section 262 of the DGCL (collectively, the “ Dissenting Shares ” and such holder being a “ Dissenting Stockholder ”) shall not be converted into the right to receive the applicable Merger Consideration in accordance with Section 2.1(c).  Any Dissenting Stockholder shall instead be entitled to receive payment of the fair value of such holder’s Dissenting Shares in accordance with Section 262 of the

 

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DGCL.  At the Effective Time, (x) all Dissenting Shares shall be cancelled and cease to exist and (y) the Dissenting Stockholders shall be entitled only to such rights as may be granted to them under Section 262 of the DGCL.

 

(b)            Notwithstanding the provisions of Section 2.5(a), if any holder of Dissenting Shares effectively withdraws or loses such appraisal rights (through failure to perfect such appraisal rights or otherwise in accordance with Section 262(k) of the DGCL), then that holder’s shares (i) shall no longer be deemed to be Dissenting Shares and (ii) shall be treated as if they had been converted automatically at the Effective Time into the right to receive the applicable amount of the Initial Merger Consideration, plus, subject to the contingencies and other provisions set forth in the Escrow Agreement and Section 2.3, the Deferred Per Share Merger Consideration without interest thereon, upon surrender of the Certificate representing such shares in accordance with Section 2.2, and Parent shall be obliged to pay to the Escrow Agent as additional Escrow Fund an amount equal to the product of (x) the number of such holder’s shares and (y) the Deferred Per Share Merger Consideration.

 

(c)            The Company shall give Parent (i) prompt notice of any demands for appraisal of any shares of Company Common Stock, the withdrawals of such demands, and any other instrument served on the Company under the provisions of Section 262 of the DGCL and (ii) the right to participate in all negotiations and proceedings with respect to demands for appraisal under the DGCL.  The Company shall not offer to make or make any payment with respect to any demands for appraisal without the prior written consent of Parent.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as set forth in the disclosure letter delivered by the Company to Parent dated as of the date hereof (the “ Company Disclosure Letter ”) (each section of which qualifies the correspondingly numbered representation and warranty to the extent specified therein, as well as all such other representations and warranties to the extent relevant to such other representation and warranty), the Company represents and warrants to Parent and Merger Sub as follows:

 

Section 3.1              Organization, Standing and Power .  Each of the Company and its Subsidiaries (i) is a corporation, limited liability company or other legal entity, duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is incorporated or formed, as the case may be, and (ii) has all requisite power and authority to carry on its business as now being conducted.  Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership, leasing or operation of its properties or other assets makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed individually or in the aggregate has not had and could not reasonably be expected to have a Company Material Adverse Effect.  The Company has made available to Parent true and complete copies of

 

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(x) the certificate of incorporation of the Company as in effect on the date hereof (“ Company Charter ”) and the Bylaws of the Company as in effect on the date hereof (“ Company Bylaws ”) and (y) the minutes of all of the formal meetings of the stockholders, the board of directors and each committee of the board of directors of the Company held since September 1, 2002.

 

Section 3.2              Subsidiaries .  Section 3.2 of the Company Disclosure Letter sets forth a true and complete list of all the Subsidiaries of the Company and, for each such Subsidiary, the jurisdiction of incorporation or formation.  All the outstanding shares of capital stock of, or other equity or voting interests in, each such Subsidiary are duly authorized, validly issued, fully paid and nonassessable and are owned, directly or indirectly, by the Company free and clear of all Liens (other than relating to the WWI Collateral Assignment Agreement), and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other equity or voting interests.  Except for the capital stock of, or other equity or voting interests in, its Subsidiaries, the Company does not beneficially own, directly or indirectly, any capital stock of, or other equity or voting interests in, any Person.

 

Section 3.3              Capital Structure .

 

(a)            The authorized capital stock of the Company consists of (i) 50,000,000 shares of Company Common Stock, par value $0.01 per share, and (ii) 5,000,000 shares of preferred stock, par value $0.01 per share.  As of the date hereof, (i) 16,606,276 shares of Company Common Stock are issued and outstanding, (ii) no shares of Company Common Stock are held in treasury by the Company and its Subsidiaries, (iii) 2,764,974 shares of Company Common Stock are reserved for issuance by the Company under the Company Option Plans for outstanding Company Stock Options, of which 526,968 are currently subject to Unvested Stock Options, (iv) 6,394,997 shares of Company Common Stock are reserved for issuance in connection with the Warrants, and (v) except for the Redemption Agreement, no shares of Company Common Stock will be (x) subject to a right of repurchase by the Company, (y) subject to forfeiture back to the Company or (z) subject to transfer or lock-up restrictions, in each of cases (x), (y) and (z), following the consummation of the Merger.

 

(b)            Section 3.3 of the Company Disclosure Letter sets forth, as of the date hereof, a true and complete list of all Vested Stock Options and all Unvested Stock Options, and all other rights to purchase or receive Company Common Stock (other than the Warrants and Parent Company Options), the number of shares of Company Common Stock subject to each such Vested Stock Option or other such right (other than the Warrants and Parent Company Options), the grant dates and exercise prices and vesting schedule of each such Company Stock Option, or other right (other than the Warrants and Parent Company Options) and the names of the holder of each such Company Stock Option or other right (other than the Warrants and Parent Company Options).  The Company has no obligation to any employee or other Person to grant any options for Company Common Stock, other than the Vested Stock Options and Unvested Stock Options outstanding as of the date hereof.  Except as set forth in Section 3.3(a) or in

 

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relation to the Warrants and/or Parent Company Options, (i) as of the date hereof, there are not issued, reserved for issuance or outstanding any (A) shares of capital stock of, or other equity or voting interests in, the Company, (B) securities of the Company or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or (C) options, warrants or other rights to acquire from the Company or any of its Subsidiaries any capital stock of, or other equity or voting interests in, or securities convertible into or exchangeable or exercisable for capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries and (ii) as of the date of this Agreement, there exists no obligation of the Company or any of its Subsidiaries to issue any capital stock of, or other equity or voting interests in, or securities convertible into or exchangeable or exercisable for capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries.  Except as set forth in Section 3.3(a), as of the date hereof, there are no outstanding stock appreciation rights, rights to receive shares of Company Common Stock on a deferred basis or otherwise or other rights that are linked in any way to the value of Company Common Stock issued or granted pursuant to or under the Company Stock Plans or otherwise by the Company.  From December 31, 2004 to the date hereof, there have been no issuances by the Company or any of its Subsidiaries of (i) shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries, (ii) securities of the Company or any of its Subsidiaries convertible into or exchangeable or exercisable for shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or (iii) options, warrants or other rights to acquire from the Company or any of its Subsidiaries any capital stock of, or other equity or voting interests in, or securities convertible into or exchangeable or exercisable for capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries.

 

(c)            All outstanding shares of capital stock of the Company are, and all shares which may be issued upon exercise of the Company Stock Options, Unvested Stock Options, or Warrants, as the case may be, will be, when issued in accordance with the terms thereof, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights.  Except for the Redemption Agreement, those Contracts set forth in Section 3.3(c)(1) of the Company Disclosure Letter or to which Parent or a Subsidiary of Parent is a party, there are no Contracts of any kind to which the Company or any of its Subsidiaries is a party or is bound that obligate the Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire (i) shares of capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries or (ii) options, warrants or other rights to acquire shares of capital stock of, or other equity or voting interests in, or securities convertible into or exchangeable for capital stock of, or other equity or voting interests in, the Company or any of its Subsidiaries.  Other than the Principal Stockholders Agreement or except for those Contracts set forth in Section 3.3(c)(2) of the Company Disclosure Letter or to which Parent or a Subsidiary of Parent is a party, to the Knowledge of the Company, there are no irrevocable proxies and no voting Contracts (or Contracts to execute a written consent or a proxy) with respect to any shares of Company Common Stock or any other voting securities of the Company.

 

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Section 3.4              Authority; Noncontravention .

 

(a)            The Company has all requisite corporate power and authority to execute and deliver this Agreement and the Principal Stockholders Agreement and to consummate the Merger and the other transactions contemplated hereby and thereby, subject, in the case of the transactions contemplated by this Agreement, only to receipt of the Principal Stockholders Consent.  The execution and delivery of this Agreement and the Principal Stockholders Agreement by the Company and the consummation of the Merger and the other transactions contemplated hereby and thereby and the compliance by the Company with the provisions of this Agreement and the Principal Stockholders Agreement have been duly authorized by all necessary corporate action on the part of the Company and no other corporate proceedings on the part of the Company are necessary to authorize or approve this Agreement or the Principal Stockholders Agreement or to consummate the Merger or the other transactions contemplated hereby or thereby, subject, in the case of the transactions contemplated by this Agreement, only to receipt of the Principal Stockholders Consent and the filing of the Certificate of Merger in accordance with the DGCL.  This Agreement and the Principal Stockholders Agreement have been duly executed and delivered by the Company and, assuming the due authorization, execution and delivery by each of the other parties hereto and thereto, constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with each of their respective terms (subject to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other Laws affecting creditors’ rights generally from time to time in effect and to general equity principles).  The board of directors of the Company, at a meeting duly called and held, at which all directors of the Company were present, duly and unanimously adopted resolutions (i) approving, adopting and declaring advisable this Agreement, the Principal Stockholders Agreement, the Merger, the Charter Amendment and the other transactions contemplated hereby and thereby, (ii) declaring that the Merger, the Charter Amendment and the other transactions contemplated hereby are in the best interests of the stockholders of the Company, (iii) fixing the record date to determine the stockholders entitled to consent to the adoption of this Agreement and approve the Merger and the Charter Amendment and the other transactions contemplated hereby and thereby, which date is the date hereof, (iv) directing that this Agreement and the Charter Amendment be submitted to the Principal Company Stockholder and Parent immediately following the execution and delivery of this Agreement by each of the parties hereto for such stockholders to consider whether to adopt this Agreement and approve the Merger and the Charter Amendment and the other transactions contemplated hereby and thereby, and (v) recommending that the stockholders of the Company adopt this Agreement in accordance with Section 228 of the DGCL and approve the Merger and the Charter Amendment and the other transactions contemplated hereby (the “ Company Board Recommendation ”), which resolutions have not been subsequently rescinded, modified or withdrawn in any way.  The only notices required to be delivered to stockholders of the Company with respect to this Agreement and the Merger and the Charter Amendment are the notices required pursuant to Section 262 of the DGCL with respect to the Merger (the “ Appraisal Notice ”), and the notice of action by written consent under Section 228 of the DGCL with respect to the Merger and the Charter Amendment (the “ 228 Notice ”).

 

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(b)            The execution and delivery of this Agreement and the Principal Stockholders Agreement do not, and the consummation of the Merger and the other transactions contemplated hereby and thereby and compliance with the provisions hereof and thereof do not and will not, conflict with, or result in any violation or breach of, or constitute a default (with or without notice or lapse of time or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, or to the loss of a benefit under, or result in the creation of any Lien in or upon any of the properties or other assets of the Company or any of its Subsidiaries under, (i) the Company Organizational Documents or the comparable organizational documents of any Subsidiary of the Company, (ii) any loan or credit agreement, bond, debenture, note, mortgage, indenture, lease or other Contract, commitment, agreement, instrument, obligation, option, undertaking, concession, franchise or license, binding arrangement or binding understanding to which the Company or any of its Subsidiaries is a party or is bound or any of their respective properties or other assets is bound by or subject to or otherwise under which the Company or any of its Subsidiaries has any rights or benefits, or (iii) subject to the governmental filings and other matters referred to in Section 3.5, any Law applicable to the Company or any of its Subsidiaries or their respective properties or other assets, other than in the case of clauses (ii) and (iii), (A) any Contracts to which Parent or a Subsidiary of Parent is a party or (B) any such conflicts, violations, breaches, defaults, rights, results, losses or Liens that individually or in the aggregate have not had and could not reasonably be expected to have a Company Material Adverse Effect.

 

Section 3.5              Governmental Approvals .  No consent, approval, order or authorization of, action by or in respect of, or registration, declaration or filing with, any domestic or foreign (whether supernational, national, federal, state, provincial, local or otherwise) government or any court, administrative, regulatory or other governmental agency, commission or authority or any nongovernmental self-regulatory agency, commission or authority is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement or the Principal Stockholders Agreement by the Company or the consummation by the Company of the Merger or the other transactions contemplated hereby or thereby, except for (a) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “ HSR Act ”), if required, (b) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (c) such other consents, approvals, orders, authorizations, registrations, declarations and filings the failure of which to be obtained or made individually or in the aggregate have not had and could not reasonably be expected to have a Company Material Adverse Effect or that arise as a result of any facts or circumstances relating to Parent or any of its Subsidiaries.

 

Section 3.6              Financial Statements; No Undisclosed Liabilities .

 

(a)            Section 3.6 of the Company Disclosure Letter is a copy of the Company’s audited financial statements for the three fiscal years ended December 31,

 

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2004 (the “ Annual Financial Statements ”) , and its unaudited financial statements for the three month period ended March 31, 2005 (the “ Interim Financial Statements ” and together with the Annual Financial Statements, the “ Financial Statements ”), all of which fairly present, in all material respects, the financial position of the Company as at the dates thereof and the results of operations and cash flows for the periods indicated therein on a consolidated basis in accordance with GAAP (except as may be indicated in the notes thereto), subject to normal year end audit adjustments and the absence of notes, in the case of the Interim Financial Statements.

 

(b)            The Company and its Subsidiaries do not have any Liabilities required to be included in the Financial Statements (including any notes thereto) or otherwise disclosed in accordance with GAAP, except for Liabilities (i) included or reserved in, or disclosed by, the Financial Statements, (ii) incurred after March 31, 2005, in the ordinary course of business consistent with past practice and in accordance with the terms hereof, (iii) owed to Parent or to any of its Subsidiaries and (iv) incurred after March 31, 2005 that individually or in the aggregate have not had and could not reasonably be expected to have a Company Material Adverse Effect.

 

(c)            Neither the Company nor any of its Subsidiaries is a party to, or has any commitment to become a party to, any joint venture, off-balance sheet partnership or any similar Contract (including any Contract or arrangement relating to any transaction or relationship between or among the Company and any of its Subsidiaries, on the one hand, and any unconsolidated Affiliate, including any structured finance, special purpose or limited purpose entity or Person, on the other hand, or any “off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of the SEC)), where the result, purpose or effect of such Contract is to avoid disclosure of any material transaction involving, or material Liabilities of, the Company or any of its Subsidiaries in the Financial Statements.

 

(d)            The Company maintains a system of internal accounting controls which is sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) access to monetary funds is permitted only in accordance with management’s general or specific authorization and (iii) the recorded accountability for monetary funds is compared with the existing monetary funds at reasonable intervals and appropriate action is taken with respect to any differences.

 

(e)            As of the date hereof, except with respect to any arrangements and agreements between the Company and Parent, the Company and its Subsidiaries have no outstanding indebtedness for borrowed money.  As of the date hereof, there are no guarantees by the Company or any of its Subsidiaries of indebtedness in respect of borrowed money of any person.

 

Section 3.7              Absence of Certain Changes or Events .  Since March 31, 2005, the Company and its Subsidiaries have conducted their respective businesses only in the ordinary course consistent with past practice, and there have not been:

 

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(a)            any events that individually or in the aggregate have had or could reasonably be expected to have a Company Material Adverse Effect;

 

(b)            (i) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock, property or other assets) in respect of any of the Company’s or any of its Subsidiaries’ capital stock, or other equity or voting interests, other than dividends or distributions by a direct or indirect wholly owned Subsidiary of the Company to its parent, (ii) any split, combination or reclassification of any of the Company’s or any of its Subsidiaries’ capital stock, or other equity or voting interests, or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of such capital stock, or other equity or voting interests, or (iii) any purchase, redemption or other acquisition of any shares of capital stock, or other equity or voting interests or any other securities of the Company or any of its Subsidiaries or any warrants, options or other rights to acquire any such shares or other securities except for forfeitures of Company Stock Options or Restricted Stock Awards in accordance with the Company Plan;

 

(c)            any granting by the Company or any of its Subsidiaries to any current or former director, officer, employee or consultant (other than attorneys, accountants or other similar professional service providers) of the Company or any of its Subsidiaries of any increase in compensation, bonus or other benefits or any such granting of any type of compensation, bonus or other benefits to any current or former director, officer, employee or consultant (other than attorneys, accountants or other similar professional service providers) of the Company or any of its Subsidiaries not previously receiving or entitled to receive such type of compensation, bonus or other benefit, except for increases of cash compensation, bonus or other benefits (i) in the ordinary course of business consistent with past practice, or (ii) as was required under any Company Plan or employment agreement as in effect on December 31, 2004;

 

(d)            any entering into, or any amendment or termination of, any employment, deferred compensation, supplemental retirement, severance, retention, “change in control” or other similar Material Contract with any current or former director, officer, employee or consultant (other than attorneys, accountants or other similar professional service providers) of the Company or any of its Subsidiaries other than Contracts with employees, directors, officers or consultants whose base salary (or equivalent) is less than $150,000 per annum or any Company Plan;

 

(e)            any change in financial or tax accounting methods, principles or practices by the Company or any of its Subsidiaries, except insofar as may have been required by a change in GAAP;

 

(f)             any material election with respect to Taxes by the Company or any of its Subsidiaries or any settlement or compromise of any material Tax liability or refund that is reasonably likely to have a material and adverse effect on the Tax liability of the Company or any of its Subsidiaries after the Effective Time; or

 

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(g)            any revaluation by the Company or any of its Subsidiaries of any material assets of the Company or any of its Subsidiaries, except as requested by Parent or its Subsidiaries.

 

Section 3.8              Litigation .  There is no claim, suit, action, investigation or other proceeding to which Parent (or any of its Subsidiaries) is not a party (collectively, a “ Legal Action ”), pending or, to the Knowledge of the Company, threatened in writing against the Company or any of its Subsidiaries or any of their respective properties or other assets that individually or in the aggregate has had or could reasonably be expected to have a Company Material Adverse Effect, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against, or, to the Knowledge of the Company, investigation, proceeding, notice of violation, order of forfeiture or complaint by any Governmental Entity involving the Company or any of its Subsidiaries that individually or in the aggregate have had or could reasonably be expected to have a Company Material Adverse Effect.  The Company has no plans to initiate any Legal Action against any third party.

 

Section 3.9              Contracts .

 

(a)            Other than those Contracts to which Parent or a Subsidiary of Parent is a party, or as contemplated by this Agreement, Section 3.9 of the Company Disclosure Letter sets forth (with specific reference to the Subsection to which it relates), as of the date hereof, a true and complete list of, and the Company has made available to Parent true and complete copies of (collectively, the “ Section 3.9 Contracts ”):

 

(i)             all Material Contracts with vendors, suppliers, licensors, licensees, distributors, resellers, service providers, developers, and consultants to which the Company or any of its Subsidiaries is a party, including without limitation Material Contracts that relate to (A) marketing, advertising, and sponsorship, (B) outsourcing, (C) web-hosting, (D) equipment leases and other leases not otherwise disclosed, (E) network communication, (F) software and hardware maintenance and support, (G) disaster recovery, (H) credit card processing, (I) telecommunications, (J) creative design and (K) co-branding, linking or framing.

 

(ii)            all Material Contracts with suppliers, distributors or service providers for revenue sharing, “bounties,” the rebating of charges or other similar arrangements.

 

(iii)           (A) all Material Contracts pursuant to which any indebtedness of the Company or any of its Subsidiaries is outstanding or may be incurred, (collectively, “ debt obligations ”), (B) all Material Contracts of or by the Company or any of its Subsidiaries guaranteeing any debt obligations of any other person (other than the Company or any of its Subsidiaries), including the respective aggregate principal amounts outstanding as of the date hereof, and (C) all Material Contracts involving any “keep well” arrangements or pursuant to which the Company or any of its Subsidiaries has agreed to maintain any financial statement condition of another person, other than the

 

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Company with respect to its Subsidiaries, or any such Subsidiary with respect to its Subsidiary;

 

(iv)           (A) all Contracts pursuant to which the Company or any of its Subsidiaries has agreed not to, or which, following the consummation of the Merger, could restrict the ability of Parent or any of its Subsidiaries, including the Company and its Subsidiaries, to compete with any person in any business or in any geographic area or to engage in any business or other activity, including any restrictions relating to “exclusivity” or any similar requirement in favor of any person other than the Company or any of its Subsidiaries or pursuant to which any benefit is required to be given or lost as a result of so competing or engaging, and (B) all Material Contracts pursuant to which the Company or any of its Subsidiaries has agreed not to, or which, following the consummation of the Merger, could restrict the ability of Parent or any of its Subsidiaries, including the Company and its Subsidiaries, to solicit or to hire any person for positions in which annual compensation would be expected to exceed $150,000 to work for the Company or any of its Subsidiaries (either as an employee or as an independent contractor or other agent) or pursuant to which any benefit is required to be given or lost as a result of so soliciting or hiring;

 

(v)            all Contracts of the Company or any of its Subsidiaries granting the other party to such Contract or a third party “most favored nation” or similar status;

 

(vi)           all joint venture, limited liability company, partnership or other similar Contracts (including all amendments thereto) in which the Company or any of its Subsidiaries holds an interest;

 

(vii)          all standstill or similar Contracts to which the Company or any of its Subsidiaries is a party that impose restrictions on the activities of the Company or any of its Subsidiaries or that, following the Effective Time, would impose restrictions on the activities of Parent or any of its Subsidiaries, including the Surviving Corporation;

 

(viii)         all Contracts and agreements relating to voting rights or obligations of a stockholder of the Company;

 

(ix)            all Contracts regarding the acquisition, issuance or transfer of any securities and each Contract affecting or dealing with any securities of the Company, including, without limitation, any restricted stock agreements or escrow agreements; and

 

(x)             each other Contract of the Company or any of its Subsidiaries involving aggregate annual payments by or to the Company or any of its Subsidiaries, of more than $250,000 (and not otherwise disclosed pursuant to this Section 3.9).

 

(b)            Neither the Company nor any of its Subsidiaries is in violation or breach of or in default under (nor, to the Knowledge of the Company, does there exist

 

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any condition which upon the passage of time or the giving of notice or both would cause such a violation or breach of or default under) any Contract to which it is a party or is bound or by which it or any of its properties or other assets is bound by or subject to or otherwise under which the Company or any of its Subsidiaries has any rights or benefits, except for violations or defaults of any Contract between the Company and Parent or that individually or in the aggregate have not had and could not reasonably be expected to have a Company Material Adverse Effect.

 

(c)            As of the date hereof, no Person that is or was a party to a Section 3.9 Contract (other than the Company or Parent or their respective Subsidiaries) at any time during the period from March 31, 2005 through the date hereof has terminated (including delivering a notice to the Company having such effect) any Section 3.9 Contract or any of its existing relationships with the Company or any of its Subsidiaries or failed to renew or requested any amendment to any Section 3.9 Contract that individually or in the aggregate have had or could reasonably be expected to have a Company Material Adverse Effect.

 

Section 3.10            Compliance with Laws .  Except (i) to the extent that such non-compliance would not individually or in the aggregate reasonably be expected to have a Company Material Adverse Effect, (ii) in relation to actions taken by Parent (or any of its Subsidiaries) on behalf of the Company (or any of its Subsidiaries) and (iii) with respect to Environmental Laws and Taxes, which are the subject of Section 3.11 and Section 3.14, respectively, to the Knowledge of the Company, each of the Company and its Subsidiaries is, and since January 1, 2001, has been, in compliance in all material respects with (a) all Laws applicable to it, its personnel, properties or other assets or its business or operations, and (b) all permits, licenses, variances, exemptions, authorizations, operating certificates, franchises, orders and approvals of all Governmental Entities (collectively, “ Permits ”) issued to the Company or any of its Subsidiaries.  None of the Company and its Subsidiaries have received, since January 1, 2001, a notice or other written communication alleging or relating to a possible material violation of any Law applicable to it, its personnel, properties or other assets or its businesses or operations that individually or in the aggregate could reasonably be expected to have a Company Material Adverse Effect.  Except to the extent that such non-compliance could not individually or in the aggregate reasonably be expected to result in a Company Material Adverse Effect, (i) the Company and its Subsidiaries have in effect all Permits necessary for them to own, lease or operate their properties and other assets and to carry on their businesses operations as now conducted and (ii) there is no event that has occurred that, to the Knowledge of the Company, has resulted in or is reasonably likely to result in the revocation, cancellation, nonrenewal or adverse modification of any Permit.

 

Section 3.11            Environmental Matters .  Each of the Company and its Subsidiaries is in compliance in all material respects with all applicable Environmental Laws, and there is no environmental condition, claim, suit, action, investigation or other proceeding existing or pending, or, to the Knowledge of the Company, threatened in writing, against or affecting the Company or any of its Subsidiaries alleging

 

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noncompliance with Environmental Laws that individually or in the aggregate could reasonably be expected to have a Company Material Adverse Effect.  For purposes of this Agreement, “ Environmental Laws ” shall mean all applicable Laws in effect as of the date hereof relating to the protection of the environment or natural resources and applicable Permits and licenses issued pursuant to such Environmental Laws.

 

Section 3.12            Employees .

 

(a)            None of the employees of the Company nor any of its Subsidiaries is represented in his or her capacity as an employee by any labor union or similar organization.

 

(b)            Each of the Company and its Subsidiaries is in compliance with all applicable Laws respecting labor, employment, fair employment practices, terms and conditions of employment, workers’ compensation, occupational safety, plant closings, mass layoffs, and wages and hours, except to the extent that such non-compliance could not, individually or in the aggregate, reasonably be expected to result in a Company Material Adverse Effect.

 

Section 3.13            Employee Benefit Plans .

 

(a)            Section 3.13(a) of the Company Disclosure Letter sets forth a true and complete list, as of the date hereof, of (i) except with respect to such Plans sponsored by Parent or its Subsidiaries, all “employee benefit plans”, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ ERISA ”), and all other material employee benefit or compensation plans, programs, policies, arrangements or payroll practices maintained or required to be maintained by the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries contributed or is obligated to contribute thereunder for any current or former director, officer, employee or consultant of the Company or any of its Subsidiaries (the “ Company Plans ”) and (ii) all Company Employment Agreements.  There are no Company Plans other than (i) the Company Option Plans and (ii) the Company Plans sponsored or maintained by Parent or its Subsidiaries in which employees of the Company participate.  None of the Company Employment Agreements provides for postemployment life or health insurance, benefits or coverage for any participant or any beneficiary of a participant, except as may be required by applicable Law or at the sole expense of the participant or the participant’s beneficiary.

 

(b)            To the Knowledge of the Company with respect to each Company Plan maintained outside the jurisdiction of the United States, including any such plan required to be maintained or contributed to by applicable law, custom or rule of the relevant jurisdiction (“ Foreign Plan ”) and except with respect to such Plans sponsored by Parent or its Subsidiaries:

 

(i)             all employer and employee contributions to each Foreign Plan required by law or by the terms of such Foreign Plan have been made, or, if applicable, accrued in accordance with normal accounting practices;

 

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(ii)            the fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the Effective Time, with respect to all current or former participants in such plan according to the actuarial assumptions and valuations most recently used to determine employer contributions to such Foreign Plan and no transaction contemplated by this Agreement shall cause such assets or insurance obligations to be less than such benefit obligations; and

 

(iii)           each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities.

 

(c)            Each Company Employment Agreement has been