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AGREEMENT AND PLAN OF MERGER
Among
INTERACTIVE IMAGINATIONS, INC.,
24/7 ACQUISITION CORP.,
PETRY INTERACTIVE, INC.
and
ADVERCOMM, INC.
Dated as of February 2, 1998
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TABLE OF CONTENTS
Section Page
ARTICLE I THE MERGER......................................................... 1
SECTION 1.1. The Merger................................................ 1
SECTION 1.2. Effective Time............................................ 1
SECTION 1.3. Effect of the Merger...................................... 2
SECTION 1.4. Certificate of Incorporation; By-Laws..................... 2
SECTION 1.5. Directors and Officers.................................... 2
SECTION 1.6. Conversion of Securities.................................. 2
SECTION 1.7. Surrender and Payment..................................... 3
SECTION 1.8. Options and Restricted Shares............................. 3
SECTION 1.9. Closing................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
INTERACTIVE AND THE SUBSIDIARY ........................................ 4
SECTION 2.1. Corporate Organization, Good Standing and Qualification... 4
SECTION 2.2. Capitalization............................................ 4
SECTION 2.3 Authority; Execution and Delivery; Requisite Consents,
Nonviolation............................................. 5
SECTION 2.4 Subsidiaries............................................. 6
SECTION 2.5 Financial Information.................................... 6
SECTION 2.6 Certain Changes or Events................................ 7
SECTION 2.7 Title to Assets.......................................... 7
SECTION 2.8 Contracts................................................ 8
SECTION 2.9 Intellectual Property.................................... 9
SECTION 2.10 Insurance................................................ 10
SECTION 2.11 Labor Union Activities; Employee Relations............... 10
SECTION 2.12 ERISA.................................................... 11
SECTION 2.13 Litigation............................................... 11
SECTION 2.14 Compliance with Laws; Permits............................ 11
SECTION 2.15 Taxes.................................................... 12
SECTION 2.16 Books and Records........................................ 12
SECTION 2.17 Environmental Matters.................................... 12
SECTION 2.18 Transactions with Affiliates............................. 13
SECTION 2.19 Registration Rights...................................... 13
SECTION 2.20 No Brokers or Finders.................................... 13
SECTION 2.21 Investment Company Act................................... 13
SECTION 2.22 Disclosure............................................... 13
SECTION 2.23 Public Announcements..................................... 14
SECTION 2.24. Board Recommendation..................................... 14
SECTION 2.25. Certificate of Incorporation and By-Laws................. 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PETRY......................... 14
SECTION 3.1. Corporate Organization, Good Standing and Qualification.. 14
SECTION 3.2 Capitalization........................................... 14
SECTION 3.3. Authority; Execution and Delivery; Requisite Consents,
Nonviolation............................................. 15
SECTION 3.4 Subsidiaries............................................. 16
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SECTION 3.5. Financial Information.................................... 16
SECTION 3.6. Certain Changes or Events................................ 16
SECTION 3.7 Title to Assets.......................................... 17
SECTION 3.8. Contracts................................................ 17
SECTION 3.11. Labor Union Activities; Employee Relations............... 19
SECTION 3.12. ERISA.................................................... 20
SECTION 3.13 Litigation............................................... 20
SECTION 3.14 Compliance with Laws; Permits............................ 20
SECTION 3.15. Taxes.................................................... 20
SECTION 3.16. Books and Records........................................ 21
SECTION 3.17. Environmental Matters.................................... 21
SECTION 3.18. Transactions with Affiliates............................. 21
SECTION 3.19. Registration Rights...................................... 21
SECTION 3.20. No Brokers or Finders.................................... 21
SECTION 3.21. Investment Company Act................................... 22
SECTION 3.22 Disclosure............................................... 22
SECTION 3.23 Public Announcements..................................... 22
SECTION 3.24. Board and Stockholders Recommendation.................... 22
SECTION 3.25. Certificate of Incorporation and By-Laws................. 22
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ADVERCOMM...................... 22
SECTION 4.1. Corporate Organization, Good Standing and Qualification.. 23
SECTION 4.2 Capitalization........................................... 23
SECTION 4.3. Authority; Execution and Delivery; Requisite Consents,
Nonviolation............................................. 23
SECTION 4.4 Subsidiaries............................................. 24
SECTION 4.5. Financial Information.................................... 24
SECTION 4.6. Certain Changes or Events................................ 25
SECTION 4.7 Title to Assets.......................................... 25
SECTION 4.8. Contracts................................................ 26
SECTION 4.9. Intellectual Property.................................... 27
SECTION 4.11. Labor Union Activities; Employee Relations............... 28
SECTION 4.12. ERISA.................................................... 28
SECTION 4.13 Litigation............................................... 28
SECTION 4.14 Compliance with Laws; Permits............................ 28
SECTION 4.15. Taxes.................................................... 29
SECTION 4.16. Books and Records........................................ 29
SECTION 4.17. Environmental Matters.................................... 29
SECTION 4.18. Transactions with Affiliates............................. 30
SECTION 4.19. Registration Rights...................................... 30
SECTION 4.20. No Brokers or Finders.................................... 30
SECTION 4.21. Investment Company Act................................... 30
SECTION 4.22 Disclosure............................................... 30
SECTION 4.23 Public Announcements..................................... 30
SECTION 4.24. Board and Stockholders Recommendation.................... 31
SECTION 4.25. Certificate of Incorporation and By-Laws................. 31
ARTICLE V COVENANTS OF THE PARTIES.......................................... 31
SECTION 5.1 Conduct of Business by the Parties Pending the Merger.... 31
SECTION 5.2 No Solicitation of Transactions.......................... 33
SECTION 5.3 Option Plans, Convertible Debt, Options, and Warrants.... 34
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SECTION 5.4 Consents and Approvals................................... 34
SECTION 5.5 Directors' and Officers' Indemnification................. 34
SECTION 5.6 Reincorporation in Delaware.............................. 34
SECTION 5.7 Approval of Shareholders................................. 34
ARTICLE VI ADDITIONAL AGREEMENTS OF THE PARTIES............................. 35
SECTION 6.1 Access to Information; Confidentiality................... 35
SECTION 6.2 Notification of Certain Matters.......................... 35
SECTION 6.3 Further Action........................................... 35
SECTION 6.4 Public Announcements..................................... 36
SECTION 6.5 Government Compliance.................................... 36
ARTICLE VII CONDITIONS OF THE MERGER........................................ 36
SECTION 7.1 Conditions to Obligations of Each Party to
Effect the Merger........................................ 36
ARTICLE VIII TERMINATION, AMENDMENT, AND WAIVER............................. 38
SECTION 8.1 Termination.............................................. 38
SECTION 8.2 Effect of Termination.................................... 39
SECTION 8.3 Fees and Expenses........................................ 39
SECTION 8.4 Amendment................................................ 39
SECTION 8.5 Waiver................................................... 40
ARTICLE IX GENERAL PROVISIONS............................................... 40
SECTION 9.1 Survival of Representations, Warranties, and Agreements.. 40
SECTION 9.2 Notices.................................................. 40
SECTION 9.3 Headings................................................. 41
SECTION 9.4 Entire Agreement......................................... 41
SECTION 9.5 Parties in Interest; Assignment.......................... 41
SECTION 9.6 Governing Law............................................ 42
SECTION 9.7 Counterparts............................................. 42
SECTION 9.8 Severability............................................. 42
SECTION 9.9 Specific Performance..................................... 42
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 2, 1998 (this
"Agreement"), among Interactive Imaginations, Inc., a New York corporation
("Interactive"), 24/7 Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Interactive (the "Subsidiary"), Petry Interactive,
Inc., a Delaware corporation ("Petry") and Advercomm, Inc. ("Advercomm"), a
Delaware corporation (each, a "Party," and collectively, the "Parties").
WHEREAS, the Boards of Directors of Interactive, the Subsidiary, Petry
and Advercomm have each approved the merger (the "Merger") of Petry and
Advercomm with and into the Subsidiary, in accordance with the General
Corporation Law of the State of Delaware ("Delaware Law") and upon the terms and
subject to the conditions set forth herein; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger, as defined herein, shall qualify as a reorganization within the meaning
of Section 368(c) of the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Interactive, the Subsidiary, Petry and Advercomm hereby agree as
follows:
ARTICLE I
SECTION 1.1. The Merger
At the Effective Time (as defined in Section 1.2) and subject to and
upon the terms and conditions of this Agreement and Delaware Law, each of Petry
and Advercomm shall be merged with and into the Subsidiary, the separate
corporate existence of each of Petry and Advercomm shall cease, and the
Subsidiary shall continue as the surviving corporation. The Subsidiary as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
SECTION 1.2. Effective Time
As promptly as practicable after the satisfaction or waiver of the
conditions set forth in Article VII and after the Closing referred to in Section
1.8, the parties hereto shall cause the Merger to be consummated by delivering a
Certificate of Merger (the "Certificate of Merger") to the Secretary of State of
the State of Delaware, in such form as required by, and executed in accordance
with the relevant provisions of, Delaware Law, for filing by the Secretary of
State (the time of such filing being the "Effective Time").
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SECTION 1.3. Effect of the Merger
At the Effective Time, the effect of the Merger shall be as provided in
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the rights,
privileges, powers, franchises, and property of Petry, Advercomm and the
Subsidiary shall vest in the Surviving Corporation, and all restrictions,
disabilities, duties, debts, and liabilities of Petry, Advercomm and the
Subsidiary shall become the restrictions, disabilities, duties, debts, and
liabilities of the Surviving Corporation.
SECTION 1.4. Certificate of Incorporation; By-Laws
At the Effective Time, the Certificate of Incorporation and By-Laws of
the Subsidiary shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation until thereafter amended, except that, effective as of the
Effective Time, such Certificate of Incorporation will be amended in order to
change the name of the Surviving Corporation to "24/7 Media, Inc."
SECTION 1.5. Directors and Officers
The directors of the Subsidiary immediately prior to the Effective Time
shall be the directors of the Surviving Corporation and the officers of the
Subsidiary immediately prior to the Effective Time shall be the officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified. The persons set forth on Schedule I.A.
hereto shall become directors of Interactive at the Effective Time. The persons
set forth on Schedule I.B. shall become the officers of Interactive at the
Effective Time.
SECTION 1.6. Conversion of Securities
At the Effective Time, by virtue of the Merger and without any action
on the part of the Subsidiary, Petry or Advercomm, or the holders of any of the
following securities:
(a) each share of common stock, par value $.01 per share, of Petry
("Petry Common Stock") then issued and outstanding shall be canceled and
converted into and become the right to receive 83,954.95 shares of Common Stock,
par value $.01 per share ("Interactive Common Stock"), of Interactive (an
aggregate of 10,494,366 shares of Interactive Common Stock) (the "Petry Merger
Consideration");
(b) each share of common stock, par value $.01 per share, of Advercomm
("Advercomm Common Stock") then issued and outstanding shall be canceled and
converted into and become the right to receive 1,049.44 shares of Interactive
Common Stock (an aggregate of 6,821,335 shares of Interactive Common Stock) (the
"Advercomm Merger Consideration"); and
(c) each share of common stock, par value $.01 per share, of the
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and thereupon and thereafter shall represent one validly
issued, fully paid, and nonassessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
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SECTION 1.7. Surrender and Payment
(a) Each holder of shares of common stock of Petry or Advercomm that
have been converted into a right to receive the Petry Merger Consideration or
Advercomm Merger Consideration, respectively, upon surrender at Closing of a
certificate or certificates representing such shares of Petry Common Stock or
Advercomm Common Stock, together with properly executed stock powers and stock
transfer stamps covering such shares of Petry Common Stock or Advercomm Common
Stock, will be entitled to receive the Petry or Advercomm Merger Consideration
payable in respect of such shares, which Petry or Advercomm Merger Consideration
shall be delivered at Closing.
(b) After the Effective Time, there shall be no further registration or
transfers of shares of Petry Common Stock or Advercomm Common Stock outstanding
prior to the Effective Time. All certificates representing shares of Petry
Common Stock or Advercomm Common Stock outstanding prior to the Effective Time
shall be presented to the Surviving Corporation at the Closing and shall be
cancelled and exchanged for the Petry Merger Consideration or Advercomm Merger
Consideration provided for, and in accordance with the procedures set forth, in
this Agreement.
(c) No fractional shares of Interactive Common Stock shall be issued
upon conversion of Petry Common Stock or Advercomm Common Stock into Interactive
Common Stock. In lieu of any fractional share of Interactive Common Stock to
which the holder of Petry Common Stock or Advercomm Common Stock would otherwise
be entitled, Interactive shall round down to the nearest whole share of
Interactive Common Stock.
SECTION 1.8. Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Proskauer Rose LLP, 1585 Broadway,
New York, New York, at 8:30 a.m., local time, on the day on which the conditions
set forth in Article VII hereof are satisfied or waived, or at such other place
and time and on such other date as Interactive, the Subsidiary, Petry and
Advercomm shall agree (the "Closing Date").
SECTION 1.9. Related Agreements. Prior to, or simultaneously with, the
Closing, the following agreements (the "Related Agreements") shall be executed
and delivered by the parties:
(a) Employment Agreements, substantially in the form attached hereto as
Exhibit A, between Interactive and each of the executives listed on Schedule
I.B. attached hereto;
(b) A Termination/Separation Agreement, substantially in the form
attached hereto as Exhibit B, between Interactive and Michael Paolucci;
(c) A Consulting Agreement, substantially in the form attached hereto
as Exhibit C, between Interactive and Neterprises, Inc.;
(d) A Letter Agreement, substantially in the form attached hereto as
Exhibit D, between Petry and Petry Media Corporation ("PMC"), setting forth the
understanding and agreement of Petry and PMC with respect to the treatment and
repayment of certain payments by Petry to PMC pursuant to Sections 5.4 and 5.6
of that certain Stock
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Purchase Agreement, dated as of September 29, 1997, between PMC and Interactive
Holdings, LLC.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
INTERACTIVE AND THE SUBSIDIARY
Interactive and the Subsidiary hereby jointly and severally represent
and warrant to Petry and Advercomm that, except as set forth on the Schedule of
Exceptions attached hereto as Schedule II, specifically identifying the relevant
subsection hereof, which exceptions shall be deemed to be representations and
warranties as if made hereunder:
SECTION 2.1. Corporate Organization, Good Standing and Qualification
Interactive is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. The Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Interactive and the Subsidiary each have all requisite
power and authority to carry on its business as now conducted and as proposed to
be conducted. The Subsidiary is a newly formed corporation which has not engaged
in any business other than in connection with its organization and the
transactions contemplated by this Agreement. Interactive and the Subsidiary each
is duly qualified to transact business and in good standing in each jurisdiction
in which the failure so to qualify could have a Material Adverse Effect on its
business, properties, results of operations, earnings, assets, liabilities,
condition (financial or otherwise) or prospects (collectively, "Condition").
The term "Material Adverse Effect," as used in this Agreement with
respect to any Party, means any change or effect that is materially adverse to
the Condition of such Party.
SECTION 2.2. Capitalization
Without giving effect to the transactions contemplated by this
Agreement, the Stock Purchase Agreement, the Shareholders' Agreement, and the
Registration Rights Agreement, each as hereinafter defined, the capital stock of
Interactive, as authorized by its Certificate of Incorporation, consists of: (i)
30,000,000 shares of Common Stock, of which 4,595,047 shares are issued and
outstanding, 1,142,642 shares are reserved for issuance to key employees,
officers and directors of, and consultants to, Interactive under stock
incentives that have been granted or are available for grant by Interactive
(collectively, the "Stock Incentives"), 3,243,585 shares are reserved for
issuance pursuant to convertible debt securities of Interactive; 2,171,633
shares are reserved for issuance pursuant to issued and outstanding Series A
Stock (as hereinafter defined), 484,104 shares are reserved for issuance
pursuant to warrants to purchase common stock of Interactive, and no other
shares are reserved for any purpose; (ii) 2,000,000 shares of preferred stock,
of which 500,000 shares have been designated as Series A Convertible Preferred
Stock (the "Series A Stock"), 158,144 of which are outstanding. The rights,
privileges and preferences of the Common Stock and Series A Stock are as stated
in the Certificate of Incorporation. Neither this Agreement nor the transactions
contemplated thereby will cause any anti-dilution adjustment or accelerated
vesting of any options. Assuming receipt by Interactive of the consents,
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approvals and agreements contemplated by Section 5.3 herein as of the Closing,
Interactive will have 10,494,369 shares of Common Stock outstanding, and except
for the Stock Incentives specified above and 2,500,000 Warrants to be issued in
connection with the Termination Agreement contemplated by Section 1.9(b) above,
will not (i) have outstanding any capital stock or other securities convertible
into or exchangeable for any shares of its capital stock and no person will have
any right to subscribe for or to purchase (including conversion or preemptive
rights), or any options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, any calls, commitments or other claims of
any character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of Interactive; (ii) have
any capital stock, equity interests or other securities reserved for issuance
for any purpose; or (iii) be subject to any obligation (contingent or otherwise)
to repurchase or otherwise acquire or retire any shares of its capital stock or
any convertible securities, rights or options of the type described in the
preceding clause (i). All of the issued and outstanding shares of Common Stock
have been duly and validly issued and, subject to Section 630 of the New York
Business Corporation Law, are fully paid and nonassessable. To the best
knowledge of Interactive, there are no agreements among Interactive's
shareholders with respect to the voting or transfer of Interactive's capital
stock. Part 2.2 of Schedule II includes a complete and correct list of the name
of each of Interactive's shareholders and the number of shares of capital stock
(and class or series) owned by such shareholder, the name of each holder of an
outstanding stock option and/or warrant and the number of options and/or
warrants to purchase capital stock owned by such holder and the exercise price
at which such option(s) or warrants may be exercised, and the name of each
holder of convertible debt securities of Interactive, the face amount of such
securities, and the number of shares of Interactive Common Stock issuable upon
conversion of such debt securities. The authorized capital stock of the
Subsidiary consists of 1,000 shares of common stock, of which 100 are
outstanding as of the date hereof. Interactive owns all of the issued and
outstanding shares of the Subsidiary.
SECTION 2.3 Authority; Execution and Delivery; Requisite Consents,
Nonviolation
Interactive and the Subsidiary have, and as of the Closing will have,
all requisite power and authority to execute, deliver and perform this Agreement
and each other document or instrument executed by them, or any of their
officers, in connection herewith or pursuant hereto (this Agreement, together
with all of the foregoing documents and instruments, are sometimes collectively
referred to herein as the "Interactive Documents"), and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement and the other Interactive Documents and the consummation of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of Interactive and the
Subsidiary. This Agreement and each of the other Interactive Documents that has
been executed as of the date hereof is, and each of the Interactive Documents
will be as of the Closing, duly executed and delivered by Interactive and the
Subsidiary, and constitute the legal, valid and binding obligation of
Interactive and the Subsidiary, enforceable against Interactive and the
Subsidiary in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights in general or by general principles of
equity. The execution, delivery and performance of this Agreement and the other
Interactive Documents, and the consummation by Interactive and the Subsidiary of
the transactions contemplated hereby and thereby will not (a) require the
consent, license, permit, waiver, approval, authorization or other action of, by
or with respect to, or registration, declaration or filing with, any court or
governmental authority,
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department, commission, board, arbitrator, bureau, agency or instrumentality,
domestic or foreign ("Governmental Authority") or any other individual,
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "Person"); (b) violate
or conflict with any provision of the Certificate of Incorporation or of the
By-Laws of Interactive or the Subsidiary as in effect immediately prior to the
execution and delivery of this Agreement; or (c) constitute a default under
(with or without notice or lapse of time or both), violate or conflict with,
give rise to a right of termination, cancellation, acceleration or modification
under or result in a loss of a material benefit under, any Law (as defined in
Section 2.14 below), Interactive Scheduled Contract (as defined in Section 2.8
below), rights relating to Intellectual Property (as defined in Section 2.9
below), Permit (as defined in Section 2.14 below) or Order (as defined in
Section 2.13 below) to which Interactive or the Subsidiary is a party or by
which Interactive, the Subsidiary, or their properties are bound.
SECTION 2.4 Subsidiaries
Interactive does not, and prior to the Closing will not, own or
control, directly or indirectly, any partnership interests, stock or other
equity interests in any partnership, corporation or other entity or any voting
rights or right to control the policies and direction of any partnership,
corporation or other entity, other than the Subsidiary. The Subsidiary does not,
and prior to the Closing will not, own or control, directly or indirectly, any
partnership interests, stock or other equity interests in any partnership,
corporation or other entity or any voting rights or right to control the
policies and direction of any partnership, corporation or other entity.
SECTION 2.5 Fiancial Information
Interactive has previously delivered to Petry and Advercomm its
historical audited balance sheets as at December 31, 1996, and the historical
audited statements of income, shareholders' equity and cash flows for the year
then ended (collectively, the "Financial Statements"). Such Financial Statements
have been prepared from the books and records of Interactive and present fairly
the financial position and the results of operations and cash flows of
Interactive as at and for the periods indicated, in each case in conformity with
generally accepted accounting principles ("GAAP") consistently applied (except
as described in such statements or the notes thereto).
Interactive has previously delivered to Petry and Advercomm an
historical unaudited balance sheet of Interactive as at September 30, 1997 and
an historical unaudited statement of income, shareholders' equity and cash flows
for the nine-month period then ended (the "Interim Financial Statements"). Such
Interim Financial Statements have been prepared from the books and records of
Interactive and, subject to customary year or period end adjustments and
accruals and the absence of notes thereto, present fairly the financial position
and the results of operations of Interactive as at and for the period indicated,
in each case in conformity with GAAP (except as previously noted) consistently
applied.
Except as disclosed in the Financial Statements or Interim Financial
Statements, Interactive has no material liabilities or obligations, absolute or
contingent, except (i) obligations and liabilities incurred in the ordinary
course of business, consistent with past practice, since the date of the Interim
Financial Statements, and (ii) obligations which are not required to be
reflected in the Financial Statements or such Interim Financial Statements and
which would not be required under GAAP to be included in the notes to such
Financial
6
Statements, which individually or in the aggregate are not material to the
financial condition or operating results of Interactive. Except as disclosed in
the Financial Statements or Interim Financial Statements, Interactive is not a
Guarantor or Indemnitor of any Indebtedness of any other Person. Interactive
maintains and will continue to maintain a standard system of accounting
established and administered in accordance with GAAP.
No representation is made hereunder with respect to any forecasts,
projections or forward looking information provided in connection with the
Financial Statements or the Interim Financial Statements or otherwise, except
that Interactive represents that such forecasts, projections and forward looking
information were prepared in good faith and that Interactive reasonably believes
there is a reasonable basis for such forecasts, projections and forward looking
information.
SECTION 2.6 Certain Change or Events
Other than transactions entered into in connection with this Merger,
since October 1, 1997, the business of Interactive has been operated only in the
ordinary course, consistent with past practice, and in addition to, and not in
limitation of the foregoing: (i) there has been no change in the Condition of
Interactive, except for changes in the ordinary course of business consistent
with past practice which have not had, in the aggregate, a Material Adverse
Effect to Interactive; (ii) there has been no revocation or change in any
Contract or Permit or right to do business, and, to the best knowledge of
Interactive, no change of Laws which has resulted, or could reasonably be
expected to result, in a Material Adverse Effect on the Condition of
Interactive; (iii) Interactive has not authorized or made any distributions of,
or declared or paid any dividends, upon or with respect to any of its capital
stock, or other equity interests, nor has Interactive redeemed, purchased or
otherwise acquired, or issued or sold, any of its capital stock or other equity
interests; (iv) Interactive has not entered into any material transaction, other
than in the ordinary course of business and consistent with past practice; (v)
Interactive has not incurred any indebtedness for borrowed money or made any
loans or advances to any Person, except for Indebtedness incurred and intended
to be converted to Common Shares of the Company on or prior to the Closing Date;
(vi) there has been no waiver by Interactive of a valuable right or of a
material debt owed to it; (vii) Interactive has not failed to satisfy or
discharge any Lien (as defined in Section 2.7 below), except in the ordinary
course of business and which is not material to the Condition of Interactive;
(viii) there has not been any damage, destruction or loss, whether or not
covered by insurance, resulting in a Material Adverse Effect on the Condition of
Interactive (as such business is presently conducted and as it is proposed to be
conducted); (ix) there has not been any material change in any compensation
arrangement or agreement with any employee of Interactive; (x) there has not
been any sale, assignment or transfer of any patents, trademarks, copyrights,
trade secrets or other intangible assets of Interactive; (xi) there has not been
any resignation or termination of employment of any key officer or employee of
Interactive and Interactive, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer or
employee; (xii) there has been no receipt of notice that there has been a loss
of, or material order cancellation by, any major customer of Interactive; (xiii)
there has been no mortgage, pledge or transfer of a security interest in, or
lien, created by Interactive with respect to any of its material properties or
assets, except liens for taxes not yet due or payable; (xiv) there has been no
loans or guarantees made by Interactive to or for the benefit of its employees,
officers or directors, or any members of their immediate families, other than
travel advances and other advances made in the ordinary course of its business;
and (xv) there has been no agreement or commitment by Interactive to do or
perform any of the acts described in this Section 2.6.
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SECTION 2.7 Title to Assets
Interactive and the Subsidiary have good and marketable title to all of
their assets and properties, free and clear of any liens, pledges, assessments,
leases, security interests, claims, encumbrances or other restrictions of any
kind (collectively, "Liens"). With respect to any assets or properties they
lease, Interactive and the Subsidiary hold a valid and subsisting leasehold
interest therein, free and clear of any Liens, are in compliance, in all
material respects, with the terms of the applicable lease, and enjoy peaceful
and undisturbed possession under such lease. The assets and properties of
Interactive and the Subsidiary that are material to the conduct of business as
presently conducted or as proposed to be conducted by Interactive and the
Subsidiary are on an overall basis in good operating condition and repair,
subject to ordinary wear and tear.
SECTION 2.8 Contracts
Interactive and the Subsidiary are not parties to, nor is Interactive,
the Subsidiary, or any of their assets or properties bound by, or subject to,
any contracts, agreements, notes, instruments, franchises, leases, licenses,
commitments, arrangements or understandings, written or oral (collectively,
"Contracts") of the following types, except for those (the "Scheduled
Contracts") listed in Part 2.8 of Schedule II hereto:
(a) any Contracts pursuant to which Interactive or the
Subsidiary, or another party thereto, is obligated to pay in excess of
fifty thousand dollars ($50,000);
(b) any Contracts pursuant to which Interactive or the
Subsidiary acquired the right to use any Intellectual Property (as
defined in Section 2.9 below) or information that is material to or
necessary in the business of Interactive or the Subsidiary, or pursuant
to which Interactive or the Subsidiary has granted to others the right
to use, or which otherwise relates to, its Intellectual Property;
(c) any Contracts (other than advances of expenses to
employees in the ordinary course of business) involving loans, loan
agreements, debt securities, mortgages, deeds of trust, security
agreements, suretyships or guarantees;
(d) any Contracts between Interactive, on the one hand, and
any of its officers, directors, employees or any Persons that
beneficially own in excess of 10.0% of the outstanding equity interest
(each a "Principal Owner") of Interactive, or any Affiliate or
relative, or Affiliate of a relative, of any of the foregoing, on the
other; ("Affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person, and
"control" means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the
management policies of a person, whether through the ownership of
stock, as trustee or executor, by contract or credit arrangement or
otherwise);
(e) any deferred compensation agreements, bonus, pension,
profit sharing, stock option and incentive plans or arrangements,
hospitalization, medical and insurance plans, agreements and policies,
retirement and severance plans and other employee compensation policies
and agreements affecting employees of Interactive or the Subsidiary;
8
(f) any Contracts with any labor union affecting employees of
Interactive or the Subsidiary;
(g) all partnership, joint venture, shareholders' or similar
Contracts with any Person;
(h) all Contracts that limit or contain restrictions on the
ability of Interactive or the Subsidiary to declare or pay dividends,
to make distributions in respect of or to issue or purchase, redeem or
otherwise acquire any of its capital stock or require the Company or
any Subsidiary to maintain specified financial ratios or levels of net
worth or other indicia of financial condition;
(i) any Contracts which restrict Interactive or the Subsidiary
from freely engaging in business or competing anywhere; and
(j) any Contracts which otherwise are material to the
Condition of Interactive or the Subsidiary.
True and correct copies of all Scheduled Contracts have been made
available to Petry and Advercomm. All of the Scheduled Contracts are in full
force and effect and constitute legal, valid and binding obligations of
Interactive and the Subsidiary and, to the best knowledge of Interactive and the
Subsidiary, the other parties thereto; to the best of Interactive's and the
Subsidiary's knowledge, no circumstances exist which would give rise to an
Action (as defined in Section 2.13) against or by Interactive or the Subsidiary
in connection with any Scheduled Contract or any default thereunder; and the
validity, effectiveness and continuation of all Scheduled Contracts will not be
adversely affected by the transactions contemplated by this Agreement or require
any third party consents.
SECTION 2.9 Intellutual Property
(i) With respect to any patents, trademarks, service marks, trade
names, and any applications for any of the foregoing (collectively, the
"Intellectual Property") of any kind in which Interactive has an interest or
which is otherwise used in, or relates to the business of, Interactive, or any
brand name, computer software or program, technology, know-how or process or
registered copyright (collectively (including without limitation the
Intellectual Property), the "Operating IP") or trade secret that is used in or
that relates to its business, Interactive owns or has the right to use such
Operating IP or trade secret in its business. Interactive owns or has the right
to use all Operating IP and trade secrets that are necessary to its business.
(ii) Each of the material licenses or agreements relating to the rights
of Interactive to any of the Operating IP (defined above) or any trade secret
material of Interactive (the "Intellectual Property Licenses") constitutes a
legal, valid, binding and enforceable obligation in accordance with its terms
against Interactive, and, to the best knowledge of Interactive, each other party
thereto, and to the best knowledge of Interactive is in full force and effect.
Interactive has performed all obligations required to have been performed by it
under each of the Intellectual Property Licenses to which it is a party. Neither
Interactive nor, to the best knowledge of Interactive, any other party thereto
is in default thereunder, nor, to the best knowledge of Interactive, is there
any event that with notice or lapse of time, or both, would constitute a default
thereunder. Interactive has not received any notice that any other party to any
of the Intellectual Property Licenses intends
9
to cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder (other than in the ordinary course
of business). No licenses, sublicenses, covenants or agreements have been
granted or entered into by Interactive in respect of any of the Operating IP or
any material trade secret of Interactive, except the Intellectual Property
Licenses. No director, officer, shareholder, employee or other Affiliate of
Interactive owns, directly or indirectly, in whole or in part, any of the
Operating IP or any trade secret material used by Interactive. To the best
knowledge of Interactive, none of the officers, employees, consultants,
distributors, agents, representatives or advisors of Interactive have entered
into any agreement relating to Interactive's business regarding know-how, trade
secrets, assignment of rights in inventions, or prohibition or restriction of
competition or solicitation of customers, or any other similar restrictive
agreement or covenant, whether written or oral, with any Person other than
Interactive.
(iii) The consummation of the transactions contemplated hereby will not
alter or impair the rights of Interactive to any of the Operating IP, to any
trade secret material to Interactive, or under any of the Intellectual Property
Licenses.
(iv) To the best knowledge of Interactive, no claim with respect to the
Operating IP, any trade secret or any Intellectual Property License is currently
pending or has been asserted or overtly threatened by any Person, nor does
Interactive know of any grounds for any claim, (A) to the effect that any
operation or activity of Interactive presently occurring or contemplated
infringes or misappropriates any United States or foreign copyright, patent,
trademark, service mark or trade secret; (B) to the effect that any other Person
infringes on the Operating IP or misappropriates any trade secret or know-how or
other proprietary rights of Interactive; (C) challenging the ownership, validity
or effectiveness of any of the Operating IP or any trade secret of Interactive;
or (D) challenging the license of Interactive to, or other legally enforceable
right under, any Operating IP or the Intellectual Property Licenses.
(v) Interactive is not aware of any presently existing United States or
foreign patents or any patent applications which, if issued as patents, would be
infringed by Interactive in connection with conducting its business in the usual
course.
SECTION 2.10 Insurance
Interactive has in full force and effect fire and casualty insurance
policies, with extended coverage, general liability insurance, and directors'
and officers' insurance in amounts customary for companies similarly situated.
Each insurance policy is valid and binding and in full force and effect, no
premiums due thereunder have not been paid and neither Interactive, any
Subsidiary nor the Person to whom such policy has been issued has received any
notice of cancellation or termination in respect of any such policy or is in
default thereunder. Such insurance policies are placed with financially sound
and reputable insurers and, in light of the respective business, operations and
assets and properties of Interactive, are in amounts and have coverages that are
reasonable and customary for Persons engaged in such businesses and operations
and having such assets and properties. Neither Interactive nor the Person to
whom such policy has been issued has received notice that any insurer under any
policy referred to in this Section is denying liability with respect to a claim
thereunder or defending under a reservation of rights clause.
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SECTION 2.11 Labor Union Activities: Employee Relations
No employee of Interactive is represented by any labor union or covered
by any collective bargaining agreement in connection with their employment with
Interactive; nor, to the best knowledge of Interactive, has any labor union
sought to represent any employee of Interactive. There is no strike or other
labor dispute involving Interactive pending, or to the best knowledge of
Interactive, threatened. To the best knowledge of Interactive, no officer or key
employee of Interactive is a party to or bound by any Contract, or subject to
any restrictions (including, without limitation, any non-competition
restriction), which would restrict the right of such person to participate in
the affairs of Interactive.
SECTION 2.12 ERISA
There are no employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA")) covering former or
current employees of Interactive or the Subsidiary, or under which Interactive
or the Subsidiary has any obligation or liability. Interactive and the
Subsidiary have not incurred any liability under Title IV of ERISA, including
any liability to the Pension Benefit Guaranty Corporation. Part 2.12 of Schedule
II lists all material plans, contracts, bonus and commission arrangements,
profit-sharing, savings, stock option plans, insurance, deferred compensation,
or other similar fringe or employee benefits covering former or current
employees of Interactive or under which Interactive has any obligation or
liability (each, a "Benefit Arrangement"). The Benefit Arrangements are and have
been administered in substantial compliance with their terms and with the
requirements of applicable law. No unfair labor practice has been brought during
the last three years against Interactive.
SECTION 2.13 Litigation
There is no action, suit, proceeding, audit, arbitration, investigation
or governmental approval process (collectively, "Action") pending or, to the
best knowledge of Interactive and the Subsidiary, threatened against, relating
to or affecting Interactive or the Subsidiary or affecting any of the properties
or assets of Interactive or the Subsidiary (including, without limitation, any
of their Permits), nor, to the best knowledge of Interactive and the Subsidiary,
is there any basis for any such Action. Neither Interactive and the Subsidiary
nor any of their assets or properties are subject to any order, judgment, writ,
injunction, decree, ruling or decision (collectively, an "Order") of any
Governmental Authority which is material to the Condition of Interactive or the
Subsidiary. There is no Action by Interactive or the Subsidiary currently
pending or which Interactive or the Subsidiary intends to initiate.
SECTION 2.14 Compliance with Laws; Permits
Interactive and the Subsidiary have not violated or failed to comply
with, in any material respect, any statute, law, ordinance, rule, regulation or
policy of any Governmental Authority (collectively, "Laws") to which they or any
of their properties or assets are subject. Interactive and the Subsidiary have
all permits, licenses, orders, certificates, authorizations and approvals of any
Governmental Authority (collectively, the "Permits") that are material to the
conduct of their business as presently conducted and as proposed to be
conducted. All such Permits are, and as of the Closing will be, in full force
and effect. No violations or notices of failure to comply have been issued or
recorded in respect of any such Permits. All applications, reports, notices and
other documents required to be filed by Interactive or the
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Subsidiary with all Governmental Authorities have been timely filed and are
complete and correct in all material respects as filed or as amended prior to
the date hereof.
SECTION 2.15 Taxes
All federal, state, city, county, local and foreign income, franchise,
sales, use and value added tax returns and reports, and all other material tax
returns and reports required to be filed by Interactive in those or in any other
jurisdiction (collectively, "Returns") have been timely filed. All such Returns
are true, correct and complete in all material respects. All taxes, assessments,
fees, interest, penalties and other charges with respect thereto (collectively,
"Taxes") due or claimed to be due from Interactive or the Subsidiary have been
paid except to the extent reserved against on the Financial Statements or
incurred in the ordinary course of business since the date of the Interim
Financial Statements. No income tax return of Interactive has been audited by
the applicable Governmental Authority, and there are in effect no waivers of the
applicable statute of limitations for Taxes in any jurisdiction for Interactive
or the Subsidiary for any period. The provision for taxes of Interactive as
shown in the Interim Financial Statements is adequate for taxes due or accrued
as of the date thereof. Neither Interactive nor the Subsidiary has elected
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be
treated as a Subchapter S corporation or a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor have they made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a Material
Adverse Effect on the Condition of Interactive. Interactive has never had any
tax deficiency proposed or assessed against it. Since the date of the Interim
Statements, Interactive has made adequate provisions on its books of account for
all taxes, assessments and governmental charges with respect to its business,
properties and operations for such period. Interactive has withheld or collected
from each payment made to each of its employees, the amount of all taxes
(including, but not limited to, federal income taxes, Federal Insurance
Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be
withheld or collected therefrom, and has paid the same to the proper tax
receiving officers or authorized depositories.
SECTION 2.16 Book and Records
The books of account, ledgers and records of Interactive and the
Subsidiary accurately and completely reflect in all material respects all
information relating to their business; the nature, acquisition, maintenance,
location and collection of their assets; and the nature of all transactions
giving rise to their obligations or accounts receivable. The minutes and minute
books of Interactive and the Subsidiary provided to Petry and Advercomm prior to
the date hereof constitute a true, complete and correct copy of the entire
minutes and minute books of Interactive and the Subsidiary.
SECTION 2.17 Evironmental Matters
The business, assets and properties of Interactive are and have been
operated and maintained in compliance with all applicable federal, state, city,
county and local environmental protection laws and regulations (collectively,
the "Environmental Laws"). No event has occurred which, with or without the
passage of time or the giving of notice, or both, would constitute a
non-compliance by Interactive with, or a violation by Interactive of, the
Environmental Laws. Neither Interactive nor any of its predecessor companies
have caused or permitted to exist, as a result of an intentional or
unintentional act or omission, a
12
disposal, discharge or release of solid wastes, pollutants or hazardous
substances, on or from any site which currently is or formerly was owned,
leased, occupied or used by Interactive or any predecessor company, except where
such disposal, discharge or release was in compliance with the Environmental
Laws.
SECTION 2.18 Transaction with Affiliates
Interactive and the Subsidiary do not have any direct or indirect
dealings with any Principal Owner of Interactive or the Subsidiary or with any
of his Affiliates, associates (as such term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934, as amended) or relatives (or Affiliates
thereof). Interactive and the Subsidiary do not have any obligation to or claim
against any Principal Owner of Interactive or the Subsidiary, or any of his or
its Affiliates, associates or relatives, and no such Person has any obligation
to or claim against Interactive or the Subsidiary. All products, services or
benefits provided to Interactive or the Subsidiary by any such Person, or
provided by Interactive or the Subsidiary to any such Person, are set forth on
Part 2.18 of Schedule II and are provided at a charge equal to the fair market
value of such products, services or benefits. To the best knowledge of
Interactive and the Subsidiary, no Principal Owner of Interactive or the
Subsidiary, nor any of his Affiliates, associates or relatives, has any direct
or indirect interest of any kind in any business or entity which is competitive
with Interactive or the Subsidiary.
SECTION 2.19 Registration Rights
No Person has, and as of the Closing no Person shall have, demand,
"piggy-back," or other rights to cause Interactive or the Subsidiary to file any
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") relating to any securities of Interactive or the Subsidiary.
SECTION 2.20 No Brokers or Finders
Neither Interactive and the Subsidiary nor any of their Affiliates have
entered or will enter into any agreement pursuant to which Interactive, the
Subsidiary, Petry or Advercomm will be liable, as a result of the transactions
contemplated by this Agreement or any Interactive Documents, for any claim of
any person for any commission, fee or other compensation as finder or broker.
SECTION 2.21 Investment Company Act
Neither Interactive nor the Subsidiary is an "investment company" nor
is Interactive or the Subsidiary directly or indirectly controlled by or acting
on behalf of any Person which is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
SECTION 2.22 Disclosure
In connection with this Agreement, Interactive and the Subsidiary have
disclosed to Petry and Advercomm all material facts and information known to
Interactive and the Subsidiary concerning Interactive and the Subsidiary and
their respective Conditions, and have not made any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements contained herein or in any other Interactive Documents not
misleading.
13
SECTION 2.23 Public Announcements.
Except as otherwise required by law or by the rules of (or any agreement of
the parties or their affiliates with) any stock exchange and except as have
already been made by the parties prior to the date hereof, Interactive and the
Subsidiary agree that there will prior to the Merger be no press releases or
other statements with respect to this Agreement or the transactions contemplated
hereby and that they will consult with Petry and Advercomm before issuing any
press release or otherwise making any public statement with respect to this
Agreement and the transactions contemplated hereby and that Interactive, the
Subsidiary, Petry and Advercomm shall not issue any such press release or make
any such public statement prior to such consultation and approval of any such
release or statement by the other Parties.
SECTION 2.24. Board Recommendation.
Each of the Board of Directors of Interactive, by unanimous written consent
dated February 2, 1998, and the Board of Directors of the Subsidiary by
unanimous written consent dated January 29, 1998, approved and adopted this
Agreement, the Merger, and the other transactions contemplated hereby.
SECTION 2.25. Certificate of Incorporation and By-Laws.
Interactive and the Subsidiary have heretofore furnished to Petry and
Advercomm a complete and correct copy of their respective Certificates of
Incorporation and By-Laws, each as amended to date. Such Certificates of
Incorporation and By-Laws are in full force and effect. Neither Interactive nor
the Subsidiary is in violation of any of the provisions of its Certificate of
Incorporation or By-Laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PETRY
Petry hereby represents and warrants to Interactive, the Subsidiary and
Advercomm that, except as set forth on the Schedule of Exceptions attached
hereto as Schedule III, specifically identifying the relevant subsection hereof,
which exceptions shall be deemed to be representations and warranties as if made
hereunder:
SECTION 3.1. Corporate Organization, Good Standing and Qualification.
Petry is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Neither this Agreement nor the
transactions contemplated thereby will cause any anti-dilution adjustment or
accelerated vesting of any options. Petry has all requisite power and authority
to carry on its business as now conducted and as proposed to be conducted. Petry
is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure so to qualify could have a material adverse
effect on its Condition.
14
SECTION 3.2 Capitalization.
The capital stock of Petry, as authorized by its Certificate of
Incorporation, consists of: (i) 200,000 shares of Petry Common Stock, of which
100 shares are issued and outstanding, 25 shares are reserved for issuance upon
the exercise of currently outstanding warrants to purchase Petry Common Stock,
and no other shares are reserved for issuance for any purpose. The rights,
privileges and preferences of the Petry Common Stock are as stated in the
Certificate of Incorporation. Petry as of the Closing will not (i) have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock and no person will have any
right to subscribe for or to purchase (including conversion or preemptive
rights), or any options for the purchase of, or any agreements providing for the
issuance (contingent or otherwise) of, any calls, commitments or other claims of
any character relating to, any capital stock or any stock or securities
convertible into or exchangeable for any capital stock of Petry; (ii) have any
capital stock, equity interests or other securities reserved for issuance for
any purpose; or (iii) be subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its capital stock or any
convertible securities, rights or options of the type described in the preceding
clause (i). All of the issued and outstanding shares of Petry Common Stock have
been duly and validly issued and are fully paid and nonassessable. To the best
knowledge of Petry, there are no agreements among Petry's stockholders with
respect to the voting or transfer of Petry's capital stock. Part 3.2 of Schedule
III includes a complete and correct list of the name of each of Petry's
stockholders and the number of shares of capital stock (and class or series)
owned by such stockholder.
SECTION 3.3. Authority; Execution and Delivery; Requisite Consents,
Nonviolation.
Petry has, and as of the Closing will have, all requisite power and
authority to execute, deliver and perform this Agreement, and each other
document or instrument executed by it, or any of its officers, in connection
herewith or therewith or pursuant hereto or thereto (this Agreement, together
with all of the foregoing documents and instruments, are sometimes collectively
referred to herein as the "Petry Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the other Petry Documents and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary action on the part of Petry. This Agreement and each of the other
Petry Documents that has been executed as of the date hereof is, and each of the
Petry Documents will be as of the Closing, duly executed and delivered by Petry,
and constitute the legal, valid and binding obligation of Petry, enforceable
against Petry in accordance with its terms, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws affecting the
enforceability of creditors' rights in general or by general principles of
equity. The execution, delivery and performance of this Agreement and the other
Petry Documents, and the consummation by Petry of the transactions contemplated
hereby and thereby will not (a) require the consent, license, permit, waiver,
approval, authorization or other action of, by or with respect to, or
registration, declaration or filing with, any Governmental Authority or any
other Person; (b) violate or conflict with any provision of the Certificate of
Incorporation or of the By-Laws of Petry as in effect immediately prior to the
execution and delivery of this Agreement; or (c) constitute a default under
(with or without notice or lapse of time or both), violate or conflict with,
give rise to a right of termination, cancellation, acceleration or modification
under or result in a loss of a material benefit under, any Law, Petry Scheduled
15
Contract (as defined in Section 3.8 below), rights relating to Intellectual
Property, Permit or Order to which Petry is a party or by which Petry or its
properties are bound.
SECTION 3.4 Subsidiaries.
Petry does not, and prior to the Closing will not, own or control, directly
or indirectly, any partnership interests, stock or other equity interests in any
partnership, corporation or other entity or any voting rights or right to
control the policies and direction of any partnership, corporation or other
entity.
SECTION 3.5. Financial Information.
Petry has previously delivered to Interactive and Advercomm certain
financial information (the "Petry Financial Information"), dated as of December
31, 1997. Such Petry Financial Information has been prepared from the books and
records of Petry, and, subject to customary year or period end adjustments and
accruals and the absence of notes thereto, presents fairly the financial
position and the results of operations and cash flows of Petry as at and for the
periods indicated.
Except as disclosed in the Petry Financial Information, Petry has no
material liabilities or obligations, absolute or contingent, except obligations
and liabilities incurred in the ordinary course of business, consistent with
past practice, since the date of the Petry Financial Information. Except as
disclosed in the Petry Financial Information, Petry is not a Guarantor or
Indemnitor of any Indebtedness of any other Person.
No representation is made hereunder with respect to any forecasts,
projections or forward looking information provided to Interactive, the
Subsidiary or Advercomm in connection with the Petry Financial Information or
otherwise, except that Petry represents that such forecasts, projections and
forward looking information were prepared in good faith and that Petry
reasonably believes there is a reasonable basis for such forecasts, projections
and forward looking information.
SECTION 3.6. Certain Changes or Events.
Other than transactions entered into in connection with this Merger,
since October 1, 1997, the business of Petry has been operated only in the
ordinary course, consistent with past practice, and in addition to, and not in
limitation of the foregoing: (i) there has been no change in the Condition of
Petry, except for changes in the ordinary course of business consistent with
past practice which have not had, in the aggregate, Materially Adverse Effect on
the Condition of Petry; (ii) there has been no revocation or change in any
Contract or Permit or right to do business, and, to the best knowledge of Petry,
no change of Laws which has resulted, or could reasonably be expected to result,
in a material adverse change in the Condition of Petry; (iii) Petry has not
authorized or made any distributions of, or declared or paid any dividends, upon
or with respect to any of its capital stock, or other equity interests, nor has
Petry redeemed, purchased or otherwise acquired, or issued or sold, any of its
capital stock or other equity interests; (iv) Petry has not entered into any
material transaction, other than in the ordinary course of business and
consistent with past practice; (v) Petry has not incurred any indebtedness for
borrowed money or made any loans or advances to any Person; (vi) there has been
no waiver by Petry of a valuable right or of a material debt owed to it; (vii)
Petry has not failed to satisfy or discharge any Lien, except in the ordinary
course of business and which is not material to the Condition of Petry (as such
16
business is presently conducted and as it is proposed to be conducted); (viii)
there has not been any damage, destruction or loss, whether or not covered by
insurance, resulting in a Material Adverse Effect on the condition of the
assets, properties, financial condition, operating results, prospects or
business of Petry; (ix) there has not been any material change in any
compensation arrangement or agreement with any employee of Petry; (x) there has
not been any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets of Petry; (xi) there has
not been any resignation or termination of employment of any key officer or
employee of Petry and Petry, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer or
employee; (xii) there has been no receipt of notice that there has been a loss
of, or material order cancellation by, any major customer of Petry; (xiii) there
has been no mortgage, pledge or transfer of a security interest in, or lien,
created by Petry with respect to any of its material properties or assets,
except liens for taxes not yet due or payable; (xiv) there has been no loans or
guarantees made by Petry to or for the benefit of its employees, officers or
directors, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business; and
(xv) there has been no agreement or commitment by Petry to do or perform any of
the acts described in this Section 3.6.
SECTION 3.7 Title to Assets.
Petry has good and marketable title to all of its assets and properties,
free and clear of any Liens. With respect to any assets or properties it leases,
Petry holds a valid and subsisting leasehold interest therein, free and clear of
any Liens, is in compliance, in all material respects, with the terms of the
applicable lease, and enjoys peaceful and undisturbed possession under such
lease. The assets and properties of Petry that are material to the conduct of
business as presently conducted or as proposed to be conducted by Petry are on
an overall basis in good operating condition and repair, subject to ordinary
wear and tear.
SECTION 3.8. Contracts.
Petry is not a party to, nor is Petry or any of its assets or properties
bound by, or subject to, any Contracts of the following types, except for those
(the "Petry Scheduled Contracts") listed in Part 3.8 of Schedule III hereto:
(a) any Contracts pursuant to which Petry, or another party
thereto, is obligated to pay in excess of fifty thousand dollars ($50,000);
(b) any Contracts pursuant to which Petry acquired the right to
use any Intellectual Property or information that is material to or
necessary in the business of Petry, or pursuant to which Petry has granted
to others the right to use, or which otherwise relates to, its Intellectual
Property;
(c) any Contracts (other than advances of expenses to employees
in the ordinary course of business) involving loans, loan agreements, debt
securities, mortgages, deeds of trust, security agreements, suretyships or
guarantees;
(d) any Contracts between Petry, on the one hand, and any of its
Principal Owners, or any Affiliate or relative, or Affiliate of a relative,
of any of the foregoing, on the other;
17
(e) any deferred compensation agreements, bonus, pension, profit
sharing, stock option and incentive plans or arrangements, hospitalization,
medical and insurance plans, agreements and policies, retirement and
severance plans and other employee compensation policies and agreements
affecting employees of Petry;
(f) any Contracts with any labor union affecting employees of
Petry;
(g) all partnership, joint venture, shareholders' or similar
Contracts with any Person;
(h) all Contracts that limit or contain restrictions on the
ability of Petry to declare or pay dividends, to make distributions in
respect of or to issue or purchase, redeem or otherwise acquire any of its
capital stock or require Petry to maintain specified financial ratios or
levels of net worth or other indicia of financial condition;
(i) any Contracts which restrict Petry from freely engaging in
business or competing anywhere; and
(j) any Contracts which otherwise are material to the Condition
of Petry.
True and correct copies of all Scheduled Contracts have been made available
to Interactive, the Subsidiary and Advercomm. All of the Scheduled Contracts are
in full force and effect and constitute legal, valid and binding obligations of
Petry and, to the best knowledge of Petry, the other parties thereto; to the
best of Petry's knowledge, no circumstances exist which would give rise to an
Action against or by Petry in connection with any Scheduled Contract or any
default thereunder; and the validity, effectiveness and continuation of all
Scheduled Contracts will not be adversely affected by the transactions
contemplated by this Agreement or require third party consent.
SECTION 3.9. Intellectual Property.
(i) With respect to any Intellectual Property of any kind in which
Petry has an interest or which is otherwise used in, or relates to the business
of, Petry, or any Operating IP or trade secret that is used in or that relates
to its business, Petry owns or has the right to use such Operating IP or trade
secret in its business. Petry owns or has the right to use all Operating IP and
trade secrets that are necessary to its business.
(ii) Each Intellectual Property License constitutes a legal, valid,
binding and enforceable obligation in accordance with its terms against Petry,
and, to the best knowledge of Petry, each other Person party thereto, and to the
best knowledge of Petry is in full force and effect. Petry has performed all
obligations required to have been performed by it under each of the Intellectual
Property Licenses to which it is a party. Neither Petry nor, to the best
knowledge of Petry, any other party thereto is in default thereunder, nor, to
the best knowledge of Petry, is there any event that with notice or lapse of
time, or both, would constitute a default thereunder. Petry has not received any
notice that any other party to any of the Intellectual Property Licenses intends
to cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder (other than in the ordinary course
of business). No licenses, sublicenses, covenants or agreements have been
18
granted or entered into by Petry in respect of any of the Operating IP or any
material trade secret of Petry, except the Intellectual Property Licenses. No
director, officer, shareholder, employee or other Affiliate of Petry owns,
directly or indirectly, in whole or in part, any of the Operating IP or any
trade secret material used by Petry. None of the officers, employees,
consultants, distributors, agents, representatives or advisors of Petry have
entered into any agreement relating to Petry's business regarding know-how,
trade secrets, assignment of rights in inventions, or prohibition or restriction
of competition or solicitation of customers, or any other similar restrictive
agreement or covenant, whether written or oral, with any Person other than
Petry.
(iii) The consummation of the transactions contemplated hereby will not
alter or impair the rights of Petry to any of the Operating IP, to
any trade secret material to Petry, or under any of the Intellectual Property
Licenses.
(iv) To the best knowledge of Petry, no claim with respect to the
Operating IP, any trade secret or any Intellectual Property License is currently
pending or has been asserted or overtly threatened by any Person, nor does Petry
know of any grounds for any claim, (A) to the effect that any operation or
activity of Petry presently occurring or contemplated infringes or
misappropriates any United States or foreign copyright, patent, trademark,
service mark or trade secret; (B) to the effect that any other Person infringes
on the Operating IP or misappropriates any trade secret or know-how or other
proprietary rights of Petry; (C) challenging the ownership, validity or
effectiveness of any of the Operating IP or any trade secret of Petry; or (D)
challenging the license of Petry to, or other legally enforceable right under,
any Operating IP or the Intellectual Property Licenses.
(v) Petry is not aware of any presently existing United States or
foreign patents or any patent applications which, if issued as patents, would be
infringed by any activity contemplated by Petry.
SECTION 3.10. Insurance.
Petry has in full force and effect fire and casualty insurance policies,
with extended coverage, products liability insurance, general liability
insurance, errors and omissions insurance, and directors' and officers'
insurance in amounts customary for companies similarly situated. Each insurance
policy is valid and binding and in full force and effect, no premiums due
thereunder have not been paid and neither Petry, any Subsidiary nor the Person
to whom such policy has been issued has received any notice of cancellation or
termination in respect of any such policy or is in default thereunder. Such
insurance policies are placed with financially sound and reputable insurers and,
in light of the respective business, operations and assets and properties of
Petry and the Subsidiary, are in amounts and have coverages that are reasonable
and customary for Persons engaged in such businesses and operations and having
such assets and properties. Neither Petry nor the Person to whom such policy has
been issued has received notice that any insurer under any policy referred to in
this Section is denying liability with respect to a claim thereunder or
defending under a reservation of rights clause.
SECTION 3.11. Labor Union Activities; Employee Relations.
No employee of Petry is represented by any labor union or covered by any
collective bargaining agreement; nor, to the best knowledge of Petry, has any
labor union sought to represent any employee of Petry. There is no strike or
other labor dispute involving Petry
19
pending, or to the best knowledge of Petry, threatened. To the best knowledge of
Petry, no officer or key employee intends to terminate his employment with
Petry. To the best knowledge of Petry, no officer or key employee of Petry is a
party to or bound by any Contract, or subject to any restrictions (including,
without limitation, any non-competition restriction), which would restrict the
right of such person to participate in the affairs of Petry.
SECTION 3.12. ERISA.
There are no employee benefit plans (as defined in ERISA) covering former
or current employees of Petry, or under which Petry has any obligation or
liability. Petry has not incurred any liability under Title IV of ERISA,
including any liability to the Pension Benefit Guaranty Corporation. Part 3.12
of Schedule III lists all material Benefit Arrangements. The Benefit
Arrangements are and have been administered in substantial compliance with their
terms and with the requirements of applicable law. No unfair labor practice has
been brought during the last three years against Petry.
SECTION 3.13 Litigation.
There is no Action pending or, to the best knowledge of Petry, threatened
against, relating to or affecting Petry or affecting any of the properties or
assets of Petry (including, without limitation, any of their Permits), nor, to
the best knowledge of Petry, is there any basis for any such Action. Neither
Petry nor any of its assets or properties are subject to any Order of any
Governmental Authority which is material to the Condition of Petry. There is no
Action by Petry currently pending or which Petry intends to initiate.
SECTION 3.14 Compliance with Laws; Permits.
Petry has not violated or failed to comply with, in any material respect,
any Laws to which it or any of its properties or assets are subject. Petry has
all Permits that are material to the conduct of its business as presently
conducted and as proposed to be conducted; all such Permits are, and as of the
Closing will be, in full force and effect; no violations or notices of failure
to comply have been issued or recorded in respect of any such Permits. All
applications, reports, notices and other documents required to be filed by Petry
with all Governmental Authorities have been timely filed and are complete and
correct in all material respects as filed or as amended prior to the date
hereof.
SECTION 3.15. Taxes.
All Returns have been timely filed. All such Returns are true, correct and
complete in all material respects. All Taxes due or claimed to be due from Petry
have been paid except to the extent reserved against in the Petry Financial
Information. No income tax return of Petry has been audited by the applicable
Governmental Authority, and there are in effect no waivers of the applicable
statute of limitations for Taxes in any jurisdiction for Petry for any period.
The provision for taxes for Petry as shown in the Petry Financial Information is
adequate for taxes due or accrued as of the date thereof. Petry has not elected
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be
treated as a Subchapter S corporation or a collapsible corporation pursuant to
Section 1362(a) or Section 341(f) of the Code, nor has it made any other
elections pursuant to the Code (other than elections that relate solely to
methods of accounting, depreciation or amortization) that would have a Material
Adverse Effect on the Condition of Petry. Petry has never had any tax deficiency
proposed or assessed against it. Since the date of the Petry Financial
Information, Petry has
20
made adequate provisions on their books of account for, all taxes, assessments
and governmental charges with respect to its business, properties and operations
for such period. Petry has withheld or collected from each payment made to each
of its employees, the amount of all taxes (including, but not limited to,
federal income taxes, Federal Insurance Contribution Act taxes and Federal
Unemployment Tax Act taxes) required to be withheld or collected therefrom, and
has paid the same to the proper tax receiving officers or authorized
depositories.
SECTION 3.16. Books and Records.
The books of account, ledgers and records of Petry accurately and
completely reflect in all material respects all information relating to its
business; the nature, acquisition, maintenance, location and collection of its
assets; and the nature of all transactions giving rise to its obligations or
accounts receivable. The minutes and minute books of Petry provided to
Interactive, the Subsidiary and Advercomm prior to the date hereof constitute a
true, complete and correct copy of the entire minutes and minute books of Petry.
SECTION 3.17. Environmental Matters.
The business, assets and properties of Petry are and have been operated
and maintained in compliance with all Environmental Laws. No event has occurred
which, with or without the passage of time or the giving of notice, or both,
would constitute a non-compliance by Petry with, or a violation by Petry of, the
Environmental Laws. Neither Petry nor any of its predecessor companies have
caused or permitted to exist, as a result of an intentional or unintentional act
or omission, a disposal, discharge or release of solid wastes, pollutants or
hazardous substances, on or from any site which currently is or formerly was
owned, leased, occupied or used by Petry or any predecessor company, except
where such disposal, discharge or release was in compliance with the
Environmental Laws.
SECTION 3.18. Transactions with Affiliates.
Petry has not had any direct or indirect dealings with any Principal Owner
of Petry or with any of his Affiliates, associates (as such term is defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended) or relatives
(or Affiliates thereof). Petry does not have any obligation to or claim against
any Principal Owner of Petry, or any of his or its Affiliates, associates or
relatives, and no such Person has any obligation to or claim against Petry. All
products, services or benefits provided to Petry by any such Person, or provided
by Petry to any such Person, are set forth on Part 3.18 of Schedule III and are
provided at a charge equal to the fair market value of such products, services
or benefits. To the best knowledge of Petry, no Principal Owner of Petry, nor
any of his Affiliates, associates or relatives, has any direct or indirect
interest of any kind in any business or entity which is competitive with Petry.
SECTION 3.19. Registration Rights.
No Person has, and as of the Closing no Person shall have, demand,
"piggy-back," or other rights to cause Petry to file any registration statement
under the Securities Act relating to any securities of Petry, or to participate
in any such registration statement.
21
SECTION 3.20. No Brokers or Finders.
Neither Petry nor any of its Affiliates have entered or will enter into
any agreement pursuant to which Interactive, the Subsidiary, Petry or Advercomm
will be liable, as a result of the transactions contemplated by this Agreement
or any Petry Documents, for any claim of any person for any commission, fee or
other compensation as finder or broker.
SECTION 3.21. Investment Company Act.
Petry is not an "investment company" nor is Petry directly or indirectly
controlled by or acting on behalf of any Person which is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 3.22 Disclosure.
In connection with this Agreement, Petry has disclosed to Interactive, the
Subsidiary and Advercomm all material facts and information known to Petry
concerning Petry and its Condition, and has not made any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements contained herein or in any other Petry Documents not misleading.
SECTION 3.23 Public Announcements.
Except as otherwise required by law or by the rules of (or any agreement
of the parties or their affiliates with) any stock exchange and except as have
already been made by the parties prior to the date hereof, Petry agrees that
there will prior to the Merger be no press releases or other statements with
respect to this Agreement or the transactions contemplated hereby and that they
will consult with Interactive, the Subsidiary and Advercomm before issuing any
press release or otherwise making any public statement with respect to this
Agreement and the transactions contemplated hereby and that Interactive, the
Subsidiary, Petry and Advercomm shall not issue any such press release or make
any such public statement prior to such consultation and approval of any such
release or statement by the other Parties.
SECTION 3.24. Board and Stockholders Recommendation.
The Board of Directors and Stockholders of Petry, each by unanimous
written consent dated January 29, 1998, approved and adopted this Agreement, the
Merger, and the other transactions contemplated hereby.
Petry has heretofore furnished to Interactive, the Subsidiary and
Advercomm a complete and correct copy of its Certificate of Incorporation and
By-Laws, each as amended to date. Such Certificate of Incorporation and By-Laws
are in full force and effect. Petry is not in violation of any of the provisions
of its Certificate of Incorporation or By-Laws.
22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ADVERCOMM
Advercomm hereby represents and warrants to Interactive, the
Subsidiary and Petry that, except as set forth on the Schedule of Exceptions
attached hereto as Schedule IV, specifically identifying the relevant subsection
hereof, which exceptions shall be deemed to be representations and warranties as
if made hereunder:
SECTION 4.1. Corporate Organization, Good Standing and
Qualification.
Advercomm is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Advercomm has all requisite
power and authority to carry on its business as now conducted and as proposed to
be conducted. Advercomm is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure so to qualify could have a
material adverse effect on its Condition.
SECTION 4.2 Capitalization.
The capital stock of Advercomm, as authorized by its Certificate of
Incorporation, consists of: (i) 10,000 shares of Advercomm Common Stock, of
which 6,500 shares are issued and outstanding, and no shares are reserved for
issuance for any purpose. The rights, privileges and preferences of the
Advercomm Common Stock are as stated in the Certificate of Incorporation.
Advercomm does not, and as of the Closing will not (i) have outstanding any
capital stock or other securities convertible into or exchangeable for any
shares of its capital stock and no person will have any right to subscribe for
or to purchase (including conversion or preemptive rights), or any options for
the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, any calls, commitments or other claims of any character relating
to, any capital stock or any stock or securities convertible into or
exchangeable for any capital stock of Advercomm; (ii) have any capital stock,
equity interests or other securities reserved for issuance for any purpose; or
(iii) be subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any convertible
securities, rights or options of the type described in the preceding clause (i).
All of the issued and outstanding shares of Advercomm Common Stock have been
duly and validly issued and are fully paid and nonassessable. To the best
knowledge of Advercomm, there are no agreements among Advercomm's stockholders
with respect to the voting or transfer of Advercomm's capital stock. Part 4.2 of
Schedule IV includes a complete and correct list of the name of each of
Advercomm's stockholders and the number of shares of capital stock (and class or
series) owned by such stockholder.
SECTION 4.3. Authority; Execution and Delivery; Requisite Consents,
Nonviolation.
Advercomm has, and as of the Closing will have, all requisite power and
authority to execute, deliver and perform this Agreement and each other document
or instrument executed by it, or any of its officers, in connection herewith or
therewith or pursuant hereto or thereto (this Agreement, together with all of
the foregoing documents and instruments, are sometimes collectively referred to
herein as the "Advercomm Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of this
Agreement and the other Interactive Documents and the consummation
23
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary action on the part of Advercomm. This Agreement and
each of the other Advercomm Documents that has been executed as of the date
hereof is, and each of the Advercomm Documents will be as of the Closing, duly
executed and delivered by Advercomm, and constitute the legal, valid and binding
obligation of Advercomm, enforceable against Advercomm in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency or other similar laws affecting the enforceability of creditors'
rights in general or by general principles of equity. The execution, delivery
and performance of this Agreement and the other Interactive Documents, the
consummation by Advercomm of the transactions contemplated hereby and thereby
will not (a) require the consent, license, permit, waiver, approval,
authorization or other action of, by or with respect to, or registration,
declaration or filing with, any Governmental Authority or any other Person; (b)
violate or conflict with any provision of the Certificate of Incorporation or of
the By-Laws of Advercomm as in effect immediately prior to the execution and
delivery of this Agreement; or (c) constitute a default under (with or without
notice or lapse of time or both), violate or conflict with, give rise to a right
of termination, cancellation, acceleration or modification under or result in a
loss of a material benefit under, any Law, Advercomm Scheduled Contract (as
defined in Section 4.8 below), rights relating to Intellectual Property, Permit
or Order to which Advercomm is a party or by which Advercomm or its properties
are bound.
SECTION 4.4 Subsidiaries.
Advercomm, does not, and prior to the Closing will not, own or control,
directly or indirectly, any partnership interests, stock or other equity
interests in any partnership, corporation or other entity or any voting rights
or right to control the policies and direction of any partnership, corporation
or other entity.
SECTION 4.5. Financial Information.
Advercomm has previously delivered to Interactive and Petry certain
financial information (the "Advercomm Financial Information"). Such Advercomm
Financial Information has been prepared from the books and records of Advercomm,
and, subject to customary year or period end adjustments and accruals and the
absence of notes thereto, presents fairly the financial position and the results
of operations of Advercomm as at and for the periods indicated.
Except as disclosed in the Advercomm Financial Information, Advercomm has
no material liabilities or obligations, absolute or contingent, except
obligations and liabilities incurred in the ordinary course of business,
consistent with past practice, since the date of the Advercomm Financial
Information. Except as disclosed in the Advercomm Financial Information,
Advercomm is not a Guarantor or Indemnitor of any Indebtedness of any other
Person.
No representation is made hereunder with respect to any forecasts,
projections or forward looking information provided to Interactive, the
Subsidiary or Petry in connection with the Advercomm Financial Information or
otherwise, except that Advercomm represents that such forecasts, projections and
forward looking information were prepared in good faith and that Advercomm
reasonably believes there is a reasonable basis for such forecasts, projections
and forward looking information.
24
SECTION 4.6. Certain Changes or Events.
Other than transactions entered into in connection with this Merger, since
October 1, 1997, the business of Advercomm has been operated only in the
ordinary course, consistent with past practice, and in addition to, and not in
limitation of the foregoing: (i) there has been no change in the Condition of
Advercomm, except for changes in the ordinary course of business consistent with
past practice which have not had, in the aggregate, a Material Adverse Effect on
the Condition of Advercomm; (ii) there has been no revocation or change in any
Contract or Permit or right to do business, and, to the best knowledge of
Advercomm, no change of Laws which has resulted, or could reasonably be expected
to result, in a material adverse change in the Condition of Advercomm; (iii)
Advercomm has not authorized or made any distributions of, or declared or paid
any dividends, upon or with respect to any of its capital stock, or other equity
interests, nor has Advercomm redeemed, purchased or otherwise acquired, or
issued or sold, any of its capital stock or other equity interests; (iv)
Advercomm has not entered into any material transaction, other than in the
ordinary course of business and consistent with past practice; (v) Advercomm has
not incurred any indebtedness for borrowed money or made any loans or advances
to any Person; (vi) there has been no waiver by Advercomm of a valuable right or
of a material debt owed to it; (vii) Advercomm has not failed to satisfy or
discharge any Lien, except in the ordinary course of business and which is not
material to the Condition of Advercomm (as such business is presently conducted
and as it is proposed to be conducted); (viii) there has not been any damage,
destruction or loss, whether or not covered by insurance, resulting in a
Material Adverse Effect on the Condition of Advercomm (as such business is
presently conducted and as it is proposed to be conducted); (ix) there has not
been any material change in any compensation arrangement or agreement with any
employee of Advercomm; (x) there has not been any sale, assignment or transfer
of any patents, trademarks, copyrights, trade secrets or other intangible assets
of Advercomm; (xi) there has not been any resignation or termination of
employment of any key officer or employee of Advercomm and Advercomm, to the
best of its knowledge, does not know of the impending resignation or termination
of employment of any such officer or employee; (xii) there has been no receipt
of notice that there has been a loss of, or material order cancellation by, any
major customer of Advercomm; (xiii) there has been no mortgage, pledge or
transfer of a security interest in, or lien, created by Advercomm with respect
to any of its material properties or assets, except liens for taxes not yet due
or payable; (xiv) there has been no loans or guarantees made by Advercomm to or
for the benefit of its employees, officers or directors, or any members of their
immediate families, other than travel advances and other advances made in the
ordinary course of its business; and (xv) there has been no agreement or
commitment by Advercomm to do or perform any of the acts described in this
Section 4.6.
SECTION 4.7 Title to Assets.
Advercomm has good and marketable title to all of its assets and
properties, free and clear of any Liens, pledges. With respect to any assets or
properties it leases, Advercomm holds a valid and subsisting leasehold interest
therein, free and clear of any Liens, is in compliance, in all material
respects, with the terms of the applicable lease, and enjoys peaceful and
undisturbed possession under such lease. The assets and properties of Advercomm
that are material to the conduct of business as presently conducted or as
proposed to be conducted by Advercomm are on an overall basis in good operating
condition and repair, subject to ordinary wear and tear.
SECTION 4.8. Contracts.
25
Advercomm is not a party to, nor is Advercomm or any of its assets or
properties bound by, or subject to, any Contracts of the following types, except
for those (the "Advercomm Scheduled Contracts") listed in Part 4.8 of Schedule
IV hereto:
(a) any Contracts pursuant to which Advercomm, or another
party thereto, is obligated to pay in excess of fifty thousand dollars
($50,000);
(b) any Contracts pursuant to which Advercomm acquired the
right to use any Intellectual Property or information that is material to
or necessary in the business of Advercomm, or pursuant to which Advercomm
has granted to others the right to use, or which otherwise relates to, its
Intellectual Property;
(c) any Contracts (other than advances of expenses to
employees in the ordinary course of business) involving loans, loan
agreements, debt securities, mortgages, deeds of trust, security
agreements, suretyships or guarantees;
(d) any Contracts between Advercomm, on the one hand, and
any of its Principal Owners, or any Affiliate or relative, or Affiliate of
a relative, of any of the foregoing, on the other;
(e) any deferred compensation agreements, bonus, pension,
profit sharing, stock option and incentive plans or arrangements,
hospitalization, medical and insurance plans, agreements and policies,
retirement and severance plans and other employee compensation policies
and agreements affecting employees of Advercomm;
(f) any Contracts with any labor union affecting employees
of Advercomm;
(g) all partnership, joint venture, shareholders' or similar
Contracts with any Person;
(h) all Contracts that limit or contain restrictions on the
ability of Advercomm to declare or pay dividends, to make distributions in
respect of or to issue or purchase, redeem or otherwise acquire any of its
capital stock or require Advercomm to maintain specified financial ratios
or levels of net worth or other indicia of financial condition;
(i) any Contracts which restrict Advercomm from freely
engaging in business or competing anywhere; and
(j) any Contracts which otherwise are material to the
Condition of Advercomm.
True and correct copies of all Scheduled Contracts have been made
available to Interactive, the Subsidiary and Petry. All of the Scheduled
Contracts are in full force and effect and constitute legal, valid and binding
obligations of Advercomm and, to the best knowledge of Advercomm, the other
parties thereto; to the best of Advercomm's knowledge, no circumstances exist
which would give rise to an Action against or by Advercomm in connection with
any Scheduled Contract or any default thereunder; and the validity,
26
effectiveness and continuation of all Scheduled Contracts will not be adversely
affected by the transactions contemplated by this Agreement or require third
party consents.
SECTION 4.9. Intellectual Property.
(i) With respect to any Intellectual Property of any kind in which
Advercomm has an interest or which is otherwise used in, or relates to the
business of, Advercomm, or any Operating IP of Advercomm or trade secret that is
used in or that relates to its business, Advercomm owns or has the right to use
such Operating IP or trade secret in its business. Advercomm owns or has the
right to use all Operating IP and trade secrets that are necessary to its
business.
(iii) Each Intellectual Property License of Advercomm constitutes a
legal, valid, binding and enforceable obligation in accordance with its terms
against Advercomm, and, to the best knowledge of Advercomm, each other Person
party thereto, and to the best knowledge of Advercomm is in full force and
effect. Advercomm has performed all obligations required to have been performed
by it under each of the Intellectual Property Licenses to which it is a party.
Neither Advercomm nor, to the best knowledge of Advercomm, any other party
thereto is in default thereunder, nor, to the best knowledge of Advercomm, is
there any event that with notice or lapse of time, or both, would constitute a
default thereunder. Advercomm has not received any notice that any other party
to any of the Intellectual Property Licenses intends to cancel, terminate or
refuse to renew the same or to exercise or decline to exercise any option or
other right thereunder (other than in the ordinary course of business). No
licenses, sublicenses, covenants or agreements have been granted or entered into
by Advercomm in respect of any of the Operating IP or any material trade secret
of Advercomm, except the Intellectual Property Licenses. No director, officer,
shareholder, employee or other Affiliate of Advercomm owns, directly or
indirectly, in whole or in part, any of the Operating IP or any trade secret
material used by Advercomm. None of the officers, employees, consultants,
distributors, agents, representatives or advisors of Advercomm have entered into
any agreement relating to Advercomm's business regarding know-how, trade
secrets, assignment of rights in inventions, or prohibition or restriction of
competition or solicitation of customers, or any other similar restrictive
agreement or covenant, whether written or oral, with any Person other than
Advercomm.
(iv) The consummation of the transactions contemplated hereby will
not alter or impair the rights of Advercomm to any of the Operating IP, to any
trade secret material to Advercomm, or under any of the Intellectual Property
Licenses.
(v) To the best knowledge of Advercomm, no claim with respect to
the Operating IP, any trade secret or any Intellectual Property License is
currently pending or has been asserted or overtly threatened by any Person, nor
does Advercomm know of any grounds for any claim, (A) to the effect that any
operation or activity of Advercomm presently occurring or contemplated infringes
or misappropriates any United States or foreign copyright, patent, trademark,
service mark or trade secret; (B) to the effect that any other Person infringes
on the Operating IP or misappropriates any trade secret or know-how or other
proprietary rights of Advercomm; (C) challenging the ownership, validity or
effectiveness of any of the Operating IP or any trade secret of Advercomm; or
(D) challenging the license of Advercomm to, or other legally enforceable right
under, any Operating IP or the Intellectual Property Licenses.
27
(vi) Advercomm is not aware of any presently existing United States
or foreign patents or any patent applications which, if issued as patents, would
be infringed by any activity contemplated by Advercomm.
SECTION 4.10. Insurance.
Advercomm does not maintain any insurance policies.
SECTION 4.11. Labor Union Activities; Employee Relations.
No employee of Advercomm is represented by any labor union or covered by
any collective bargaining agreement; nor, to the best knowledge of Advercomm,
has any labor union sought to represent any employee of Advercomm. There is no
strike or other labor dispute involving Advercomm pending, or to the best
knowledge of Advercomm, threatened. To the best knowledge of Advercomm, no
officer or key employee intends to terminate his employment with Advercomm. To
the best knowledge of Advercomm, no officer or key employee of Advercomm is a
party to or bound by any Contract, or subject to any restrictions (including,
without limitation, any non-competition restriction), which would restrict the
right of such person to participate in the affairs of Advercomm.
SECTION 4.12. ERISA.
There are no employee benefit plans (as defined in ERISA) covering former
or current employees of Advercomm, or under which Advercomm has any obligation
or liability. Advercomm has not incurred any liability under Title IV of ERISA,
including any liability to the Pension Benefit Guaranty Corporation. Advercomm
maintains no material Benefit Arrangements. No unfair labor practice has been
brought during the last three years against Advercomm.
SECTION 4.13 Litigation.
There is no Action pending or, to the best knowledge of Advercomm,
threatened against, relating to or affecting Advercomm or affecting any of the
properties or assets of Advercomm (including, without limitation, any of their
Permits), nor, to the best knowledge of Advercomm, is there any basis for any
such Action. Neither Advercomm nor any of its assets or properties are subject
to any Order of any Governmental Authority which is material to the Condition of
Advercomm. There is no Action by Advercomm currently pending or which Advercomm
intends to initiate.
SECTION 4.14 Compliance with Laws; Permits.
Advercomm has not violated or failed to comply with, in any material
respect, any Laws to which it or any of its properties or assets are subject.
Advercomm has all Permits that are material to the conduct of its business as
presently conducted and as proposed to be conducted; all such Permits are, and
as of the Closing will be, in full force and effect; no violations or notices of
failure to comply have been issued or recorded in respect of any such Permits.
All applications, reports, notices and other documents required to be filed by
Advercomm with all Governmental Authorities have been timely filed and are
complete and correct in all material respects as filed or as amended prior to
the date hereof. Advercomm has not violated or failed to comply with its
certificate of incorporation or by-laws.
28
SECTION 4.15. Taxes.
All Returns have been timely filed. All such Returns are true, correct and
complete in all material respects. All Taxes due or claimed to be due from
Advercomm have been paid except to the extent reserved against in the Advercomm
Financial Information. No income tax return of Advercomm has been audited by the
applicable Governmental Authority, and there are in effect no waivers of the
applicable statute of limitations for Taxes in any jurisdiction for Advercomm
for any period. The provision for taxes for Advercomm as shown in the Advercomm
Financial Information is adequate for taxes due or accrued as of the date
thereof. Advercomm has not elected pursuant to the Internal Revenue Code of
1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a
collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the
Code, nor has it made any other elections pursuant to the Code (other than
elections that relate solely to methods of accounting, depreciation or
amortization) that would have a material effect on Advercomm, its financial
condition, its business as presently conducted or proposed to be conducted or
any of their properties or material assets. Advercomm has never had any tax
deficiency proposed or assessed against it and has not executed any waiver of
any statute of limitations on the assessment or collection of any tax or
governmental charge. Since the date of the Advercomm Financial Information,
Advercomm has made adequate provisions on their books of account for, all taxes,
assessments and governmental charges with respect to its business, properties
and operations for such period. Advercomm has withheld or collected from each
payment made to each of its employees, the amount of all taxes (including, but
not limited to, federal income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper tax receiving officers or
authorized depositories.
SECTION 4.16. Books and Records.
The books of account, ledgers and records of Advercomm accurately and
completely reflect in all material respects all information relating to its
business; the nature, acquisition, maintenance, location and collection of its
assets; and the nature of all transactions giving rise to its obligations or
accounts receivable. The minutes and minute books of Advercomm provided to
Interactive, the Subsidiary and Petry prior to the date hereof constitute a
true, complete and correct copy of the entire minutes and minute books of
Advercomm.
SECTION 4.17. Environmental Matters.
The business, assets and properties of Advercomm are and have been
operated and maintained in compliance with all Environmental Laws. No event has
occurred which, with or without the passage of time or the giving of notice, or
both, would constitute a non-compliance by Advercomm with, or a violation by
Advercomm of, the Environmental Laws. Neither Advercomm nor any of its
predecessor companies have caused or permitted to exist, as a result of an
intentional or unintentional act or omission, a disposal, discharge or release
of solid wastes, pollutants or hazardous substances, on or from any site which
currently is or formerly was owned, leased, occupied or used by Advercomm or any
predecessor company, except where such disposal, discharge or release was in
compliance with the Environmental Laws.
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SECTION 4.18. Transactions with Affiliates.
Advercomm has not had any direct or indirect dealings with any Principal
Owner of Advercomm or with any of his Affiliates, associates (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) or
relatives (or Affiliates thereof). Advercomm does not have any obligation to or
claim against any Principal Owner of Advercomm, or any of his or its Affiliates,
associates or relatives, and no such Person has any obligation to or claim
against Advercomm. All products, services or benefits provided to Advercomm by
any such Person, or provided by Advercomm to any such Person, are set forth on
Part 4.18 of Schedule IV and are provided at a charge equal to the fair market
value of such products, services or benefits. To the best knowledge of
Advercomm, no Principal Owner of Advercomm, nor any of his Affiliates,
associates or relatives, has any direct or indirect interest of any kind in any
business or entity which is competitive with Advercomm.
SECTION 4.19. Registration Rights.
No Person has, and as of the Closing no Person shall have, demand,
"piggy-back," or other rights to cause Advercomm to file any registration
statement under the Securities Act relating to any securities of Advercomm, or
to participate in any such registration statement.
SECTION 4.20. No Brokers or Finders.
Neither Advercomm nor any of its Affiliates have entered or will enter
into any agreement pursuant to which Interactive, the Subsidiary, Petry or
Advercomm will be liable, as a result of the transactions contemplated by this
Agreement or any Advercomm Documents, for any claim of any person for any
commission, fee or other compensation as finder or broker.
SECTION 4.21. Investment Company Act.
Advercomm is not an "investment company" nor is Advercomm directly or
indirectly controlled by or acting on behalf of any Person which is an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 4.22 Disclosure.
In connection with this Agreement, Advercomm has disclosed to Interactive,
the Subsidiary and Petry all material facts and information known to Advercomm
concerning Advercomm and its Condition, and has not made any untrue statement of
a material fact or omitted to state any material fact necessary in order to make
the statements contained herein or in any other Advercomm Documents not
misleading.
SECTION 4.23 Public Announcements.
Except as otherwise required by law or by the rules of (or any agreement
of the parties or their affiliates with) any stock exchange and except as have
already been made by the parties prior to the date hereof, Advercomm agrees that
there will prior to the Merger be no press releases or other statements with
respect to this Agreement or the transactions contemplated hereby and that it
will consult with Interactive, the Subsidiary and Petry before issuing any press
release or otherwise making any public statement with respect to this Agreement
and the transactions contemplated hereby and that Interactive, the Subsidiary,
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Petry and Advercomm shall not issue any such press release or make any such
public statement prior to such consultation and approval of any such release or
statement by the other parties.
SECTION 4.24. Board and Stockholders Recommendation.
The Board of Directors and Stockholders of Advercomm, each by unanimous
written consent dated February 2, 1998, approved and adopted this Agreement, the
Merger, and the other transactions contemplated hereby.
SECTION 4.25. Certificate of Incorporation and By-Laws.
Advercomm has heretofore furnished to Interactive, the Subsidiary and
Petry a complete and correct copy of its Certificate of Incorporation and
By-Laws, each as amended to date. Such Certificate of Incorporation and By-Laws
are in full force and effect. Advercomm is not in violation of any of the
provisions of its Certificate of Incorporation or By-Laws.
ARTICLE V
COVENANTS OF THE PARTIES
SECTION 5.1 Conduct of Business by the Parties Pending the Merger.
The Parties covenant and agree that, between the date of this
Agreement and the Effective Time, except as otherwise contemplated by this
Agreement or unless the other Parties shall otherwise give their prior written
consent, the business of each Party shall be conducted only in, and each Party
shall not take any action except in, the ordinary course of business and in a
manner consistent with past practice (including financial and other controls of
each Party instituted since the commencement of the current fiscal year); each
Party will use its commercially reasonable efforts to continue its business
development activities, to maintain in effect all licenses, approvals, and
authorizations, to preserve intact its business organization and to maintain
existing relationships with licensors, licensees, suppliers, contractors,
distributors, customers, and others having business relationships with it; and
each Party agrees to cooperate reasonably with each other Party in connection
with the foregoing. By way of amplification and not limitation, except as
contemplated by this Agreement, no Party shall, between the date of this
Agreement and the Effective Time, do or agree to do any of the following without
the prior written consent of each other Party:
(a) amend or otherwise change its Certificate of Incorporation or
By-Laws;
(b) issue, sell, pledge, dispose of, encumber, or authorize the
issuance, sale, pledge, disposition, or encumbrance of (i) any shares of capital
stock of any class, or any options, warrants, convertible securities,
subscriptions, or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest or equity equivalent, of such Party or
any other securities in respect of, in lieu of, or in substitution for any
outstanding shares (other than, in the case of Interactive, shares of
Interactive Common Stock issuable pursuant to the exercise of outstanding
convertible preferred stock, convertible debt,
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warrants, or Options as set forth in Part 2.2 of Schedule II) or grant or
accelerate any right to convert or exercise or otherwise amend in any respect
any such outstanding convertible debt, warrants, or Options or (ii) any material
assets of such Party, except for sales of goods or services in the ordinary
course of business and in a manner consistent with past practice;
(c) declare, set aside, make, or pay any dividend or other
distribution, payable in cash, stock, property, or otherwise, with respect to
any of its capital stock, any other ownership interest or equity equivalent, or
any other securities, or reclassify, combine, split, subdivide, redeem,
purchase, or otherwise acquire, directly or indirectly, any such capital stock,
ownership interest, equity equivalent, or other securities, or adopt a plan of
complete or partial liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, restructuring, recapitalization, or other
reorganization or, except to the extent required by fiduciary obligations under
applicable law, a merger or consolidation;
(d) (i) except in the ordinary course of business and consistent
with past practice, issue any debt securities or assume, guarantee, or endorse
the obligations of any other person, except for immaterial amounts; (ii) except
in the ordinary course of business and consistent with past practice, make any
loans, advances, or capital contributions to, or investments in, any other
person; (iii) pledge or otherwise encumber shares of capital stock of or other
ownership interests or equity equivalents in such Party; or (iv) except in the
ordinary course of business and consistent with past practice, mortgage or
pledge any of their material assets, tangible or intangible, or create or suffer
to exist any material lien thereupon;
(e) enter into, adopt, establish, or (except as may be required by
law) amend or terminate any collective bargaining agreement, bonus, profit
sharing, thrift, compensation, severance, termination, stock option, stock
appreciation right, restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred compensation, employment, or
other employee benefit agreement, trust, plan, fund, or other arrangement for
the benefit or welfare of any director, officer, or employee, or (except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expenses) increase in any manner the compensation or
benefits of any director, officer, or employee or pay any benefit not required
by any plan or arrangement as in effect as of the date hereof (including,
without limitation, the granting of stock appreciation rights or performance
units), or increase the amount or change in any material respect the terms of
any insurance covering directors or officers;
(f) acquire, sell, license, lease, or dispose of any assets
outside the ordinary course of business which in the aggregate are material to
such Party or enter into any commitment or transaction outside the ordinary
course of business consistent with past practice;
(g) change any of the accounting principles or practices used by
such Party;
(h) (i) acquire (by merger, consolidation, or acquisition of stock
or assets) any corporation, partnership, or other business organization or
division thereof or any interest therein; (ii) enter into any partnership, joint
venture, or similar agreement or arrangement or any contract or agreement other
than in the ordinary course of business consistent with past practice; (iii)
authorize any new capital expenditure(s) which, individually, is in excess of
$10,000 or, in the aggregate, are in excess of $50,000; or (iv) amend or modify
any material
32
existing agreement, arrangement, or understanding which would increase the
obligations or impair or diminish the rights of such Party in any material
respect;
(i) make any tax election or settlement or compromise any income
tax liability material to such Party; or take any action which would jeopardize
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code.
(j) pay, discharge, or satisfy any claims, liabilities, or
obligations (absolute, accrued, asserted, or unasserted, contingent or
otherwise), other than the pay ment, discharge, or satisfaction in the ordinary
course of business consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of such Party or
incurred in the ordinary course of business consistent with past practice,
except for fees and expenses (including legal fees and expenses) incurred in
connection with this Agreement, the Stock Purchase Agreement of even date
herewith and the transactions contemplated hereby and thereby and except as
required by applicable law;
(k) enter into (in writing or otherwise) any contract, agreement,
commitment, arrangement, or understanding to do any of the foregoing; or
(l) take, or agree to take, any action which would make any
representation or warranty untrue or incorrect in any material respect.
SECTION 5.2 No Solicitation of Transactions.
From and after the date hereof through the earlier to occur of the
Effective Date and the date of termination of this Agreement, each Party shall
not, directly or indirectly, through any officer, director, agent, or otherwise,
solicit, initiate, or encourage submission of, proposals or offers from any
person relating to any acquisition or purchase of all or a substantial portion
of the assets of, or any equity interest in, such Party or any business
combination with such Party or participate in any negotiations regarding, or
furnish to any other person any information with respect to, or encourage, any
effort or attempt by any other person to do or seek any of the foregoing;
provided, however, that nothing contained in this Section 5.2 shall prohibit any
Party or its Board of Directors from making disclosures to such Party's
stockholders which, in the judgment of the Board of Directors with advice of
counsel, may be required under applicable law. Each Party will immediately cease
and cause to be terminated any existing activities, discussions, or negotiations
with any parties conducted heretofore with respect to any of the foregoing, and
shall immediately demand the return or destruction of any non-public information
concerning such Party distributed to other persons for the purpose of soliciting
or encouraging any of the foregoing.
SECTION 5.3 Option Plans, Convertible Debt, Options, and Warrants.
Interactive shall use its best efforts to cause all outstanding shares of
Series A Stock and all outstanding debt securities convertible into common stock
to be converted into Interactive Common Stock and shall use its best efforts to
cause all warrants exercisable for Interactive Common Stock to be surrendered in
exchange for Interactive Common Stock. Petry shall use its best efforts to cause
all outstanding warrants exercisable for Petry Common stock to be surrendered in
exchange for Petry Common Stock.
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SECTION 5.4 Consents and Approvals.
Each Party shall use commercially reasonable efforts to obtain all
consents and approvals required with respect to this Agreement and the
transactions contemplated thereby.
SECTION 5.5 Directors' and Officers' Indemnification.
From and after the Effective Time, Interactive and the Surviving
Corporation shall jointly and severally indemnify, defend, and hold harmless the
present officers and directors (the "Indemnified Parties") of each of Petry and
Advercomm against all losses, claims, damages, or liabilities ("Claims") arising
out of actions or omissions occurring at or prior to the Effective Time that are
based on or arising out of the fact that such person is or was a director or
officer of Petry or Advercomm prior to the Effective Time, including, without
limitation, any Claim arising out of this Agreement or the transactions
contemplated hereby and thereby, to the greatest extent permissible under
applicable law.
SECTION 5.6 Reincorporation in Delaware
As soon as practicable after the Effective Time, Interactive shall
take all such steps as may be required under applicable law for Interactive to
reincorporate in the State of Delaware.
SECTION 5.7 Approval of Shareholders.
Interactive shall as promptly as reasonably practicable take all
action necessary in accordance with New York Law and its Certificate of
Incorporation and By-Laws duly to call, convene, and hold a meeting of its
shareholders. Interactive shall use reasonable efforts to solicit from
Interactive shareholders proxies in favor of (i) the Merger, (ii) an increase in
the number of authorized shares of capital stock to 100,000,000 Common Shares,
par value $.01 per share, and 30,000,000 Preferred Shares, par value $.01 per
share (the "Amendment Proposal"), (iii) adoption of the 1998 Interactive
Imaginations, Inc. Stock Incentive Plan, and (iv) the election of the six
nominees for director set forth on Schedule I.A hereto, and shall take such
other action as is reasonably necessary to secure the vote of stockholders
required by New York Law to effect the Merger and the transactions contemplated
thereby.
ARTICLE VI
ADDITIONAL AGREEMENTS OF THE PARTIES
SECTION 6.1 Access to Information; Confidentiality.
(a) Subject to applicable law, from the date hereof to the
Effective Time, each Party shall afford the officers, employees, and authorized
agents of each other Party reasonable access, during normal business hours and
upon reasonable notice, to their respective officers, employees, authorized
agents, properties, offices, books, and records and shall furnish each other
Party with its financial and operating data and other information
34
regarding their assets, properties, goodwill, and business as such other Parties
may from time to time reasonably request.
(b) In the event of the termination of this Agreement (under
Section 8.1 below), each Party shall, and shall cause their respective
affiliates and their officers, directors, employees, and agents to (i) return
promptly every document furnished to them by any other Party or any of its
officers, directors, employees, and agents in connection with the transactions
contemplated hereby and any copies thereof, and shall use its best efforts to
cause others to whom such documents may have been furnished promptly to return
such documents and any copies thereof any of them may have made, and (ii)
destroy promptly all documents created by them from any data, information, or
document furnished by any other Party or any of its officers, directors,
employees, and agents in connection with the transactions contemplated hereby
and any copies thereof, and shall use its best efforts to cause others to whom
such documents may have been furnished promptly to destroy the same and any
copies thereof, other than documents created from data, information or documents
otherwise publicly available.
(c) No investigation pursuant to this Section 6.1 or other
investigation shall affect any representations or warranties of the parties
herein or the conditions to the obligations of the parties hereto.
SECTION 6.2 Notification of Certain Matters.
Each Party shall give prompt notice to each of the other Parties of
(i) the occurrence, or non-occurrence, of any event, the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
of such Party contained in this Agreement to be untrue or inaccurate at or prior
to the Effective Time and (ii) any failure of a Party to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.2 shall not limit or otherwise affect the remedies available here
under to the Party receiving such notice.
SECTION 6.3 Further Action.
Upon the terms and subject to the conditions hereof, and subject to
the exercise by the Boards of Directors of each Party of their fiduciary
obligations, each of the Parties hereto shall use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
other things necessary, proper, or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement and to
obtain in a timely manner all necessary waivers, consents, and approvals and to
effect all necessary registrations and filings, including, but not limited to:
(i) reasonable efforts to lift or rescind any injunction or restraining order or
other order which may be entered; (ii) cooperation in reasonable tax planning
measures in light of the transactions contemplated hereby so long as no action
shall be required to be taken which would result in adverse tax consequences to
the stockholders of the Parties or, if the Merger does not occur, to the
Parties; and (iii) reasonable cooperation in respect of any filings to be made
in connection with the Merger and the transactions contemplated hereby.
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SECTION 6.4 Public Announcements.
Each Party shall consult with the others before issuing any further
press release or otherwise making any public statements with respect to the
Merger and neither shall issue any such press release or make any such public
statement, except as may be required by law, without the prior consent of the
others, which consent shall not be unreasonably withheld or delayed.
SECTION 6.5 Government Compliance.
Each Party agrees promptly to effect all necessary registrations,
filings, applications, and submissions of information requested by governmental
authorities.
ARTICLE VII
CONDITIONS OF THE MERGER
SECTION 7.1 Conditions to Obligations of Each Party to Effect the
Merger.
The respective obligations of each party to effect the Merger shall
be subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) The shareholders of Interactive shall have approved and
adopted: (i) this Agreement; (ii) the Amendment Proposal; and (iii) the election
of the six nominees for director set forth on Schedule I.A hereto, in each case
by the requisite vote of the shareholders of Interactive in accordance with its
Certificate of Incorporation and New York state law.
(b) Each Party shall have received evidence, in form and substance
reasonably satisfactory to each other Party, that such licenses, permits,
consents, approvals, authorizations, qualifications, orders of governmental
authorities, and third parties as are required in connection with the
consummation of the transactions contemplated hereby or necessary to conduct the
business of each Party as presently conducted have been obtained and are in full
force and effect other than those which, if not obtained, would not, either
individually or in the aggregate, have a Material Adverse Effect on such Party.
(c) At the Effective Time, there shall be no effective injunction,
writ, or preliminary restraining order or any order of any nature issued by a
court or governmental agency of competent jurisdiction directing that the
transactions provided for herein not be consummated as herein provided.
(d) Each Party shall in all material respects have performed each
obligation to be performed by it hereunder on or prior to the Effective Time.
(e) The representations and warranties of each Party set forth in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time as if made at and as of such time, except for changes
contemplated by this Agreement and by the Disclosure Schedule and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty
36
shall have been true and correct in all material respects as of such date.
(f) Each Party shall have received an opinion from counsel to each
other Party, dated the Closing Date, in form and substance reasonably
satisfactory to such Party, as to (i) the valid existence and good standing of
such Party in its jurisdiction of incorporation, (ii) the corporate power and
authority of such Party to own its properties and to conduct its business, (iii)
the corporate power and authority of such Party to execute and deliver this
Agreement and the due authorization thereof, (iv) the due execution and delivery
and enforceability of this Agreement, (v) the absence of conflicts with the
charter, bylaws or material agreements of such Party, (vi) the absence of
material consents or approvals required to consummate the transactions
contemplated by this Agreement, and (vii) the absence of litigation regarding
the transaction.
(g) All actions, proceedings, instruments, and documents required
to carry out the transactions contemplated hereby or incidental hereto and all
other related legal matters shall have been reasonably satisfactory to and
approved by counsel for each Party and such counsel shall have been furnished
with such certified copies of such corporate actions and proceedings and such
other instruments and documents as it shall have reasonably requested.
(h) There shall not have been any action taken, or any statute,
rule, regulation, or order enacted, promulgated, or issued or deemed applicable
to the Merger by any Federal or state government or governmental authority or
court, which would (i) prohibit the Surviving Corporation's or Interactive's
ownership or operation of all or a material portion of Petry's or Advercomm's
business or assets, or compel the Surviving Corporation or Interactive to
dispose of or hold separate all or a material portion of Petry's or Advercomm's
business or assets, as a result of the Merger; (ii) render the Subsidiary unable
to consummate the Merger; (iii) make such consummation illegal; or (iv) impose
or confirm material limitations on the ability of Interactive effectively to
exercise full rights of ownership of shares of the capital stock of the
Surviving Corporation, including without limitation, the right to vote any such
shares on all matters properly presented to the stockholders of the Surviving
Corporation, and no such action shall have been taken or any such statute, rule,
regulation, or order enacted, promulgated, issued, or deemed applicable to the
Merger which in the reasonable judgment of Interactive will produce such result.
(i) Interactive shall have obtained the approval, agreement and/or
consent of its security holders as contemplated by Section 5.3 and all shares of
Series A Stock, all outstanding debt securities of Interactive and all warrants
exercisable for Interactive Common Stock shall have been converted or exercised
or shall be subject to mandatory conversion or exercise into a number of shares
of Interactive Common Stock less than or equal to 5,899,322 shares.
(j) All warrants to purchase shares of Petry Common Stock shall
have been exercised.
(k) Each Party shall have obtained change of control waivers from
of its employees that are party to an employment contract that provides for
benefits upon the occurrence of a change in control.
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(l) The investment of at least $10,000,000 in the securities of
Interactive, pursuant to the Securities Purchase Agreement, a draft of which is
attached hereto as Exhibit E, shall have been consummated substantially on the
terms set forth in such securities purchase agreement, in the draft Restated
Certificate of Incorporation attached hereto as Exhibit F, and in the form of
Warrant attached hereto as Exhibit G, and the Shareholders' Agreement and
Registration Rights Agreement attached hereto as Exhibit H and Exhibit I shall
have been duly executed by all parties thereto substantially in the form
attached hereto;
(m) Petry and Advercomm shall have obtained from each of their
stockholders a letter agreement in the form attached as Exhibit J hereto,
relating to certain tax matters.
(n) The Related Agreements contemplated by Section 1.9 shall have
been executed and delivered by the parties thereto;
(o) Each Party shall have received a certificate of each other
Party, dated the Closing Date, signed by the Chief Executive Officer of such
Party, to the effect that, to the best of the knowledge, information, and belief
of such officer, all of the conditions set forth above have been fulfilled.
(p) Each Party shall have received a certificate of each other
Party, dated the Closing Date, signed by the Chief Executive Officer of such
Party, as to such other matters as may be reasonably requested by the Parties,
including, but not limited to, certificates with respect to the Party's
Certificate of Incorporation, By-laws, Board of Directors' resolutions relating
to the transactions contemplated hereby and the incumbency and signatures of
each of the officers of the Party who shall execute on behalf of the Party any
document delivered on the Closing Date.
ARTICLE VIII
TERMINATION, AMENDMENT, AND WAIVER
SECTION 8.1 Termination.
This Agreement may be terminated at any time prior to the Effective
Time, whether prior to or after approval hereof by the stockholders of the
Parties:
(i) By mutual written consent duly authorized by the Boards of
Directors of each Party;
(ii) By any Party if the Board of Directors of any other Party
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger or shall have approved or recommended another offer or
proposal;
(iii) By any Party if Interactive shall not have obtained the
consents and approvals of its security holders and caused to be effected the
conversion or exercise of all Series A Stock, convertible debt securities and
warrants as contemplated by Section 5.3 and 7.1(i);
38
(iv) By any Party if the Merger shall not have been consummated by
February 20, 1998, unless the absence of such consummation shall be due to the
failure of the Party seeking to terminate this Agreement (or its affiliates) to
perform its obligations under this Agreement required to be performed by it at
or prior to the Effective Time;
(v) By any Party, if the stockholders of Interactive fail to
approve and adopt this Agreement and the Merger;
(vi) By any Party if a United States or state governmental
authority, agency, or commission or United States or state court of competent
jurisdiction shall have issued an order, decree, or ruling or taken any other
action (which order, decree, ruling, or action the Parties hereto shall use
their best efforts to lift), in each case permanently restraining, enjoining, or
otherwise prohibiting the Merger, and such order, decree, ruling, or action
shall have become final and non-appealable; or
(vii) By any Party if any other Party shall breach or fail to
perform in any material respect any of its material covenants or agreements
contained herein.
SECTION 8.2 Effect of Termination.
In the event of termination of this Agreement as provided in Section
8.1, (i) there shall be no liability or further obligation on the part of any
Party hereto except as set forth in Sections 8.3 and 9.1 hereof and (ii) nothing
herein shall relieve any Party from liability for any breach of this Agreement.
SECTION 8.3 Fees and Expenses.
All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Party incurring
such expenses. No Party shall incur liability to its stockholders for any such
fees and expenses.
SECTION 8.4 Amendment.
This Agreement may be amended by the parties hereto by action taken
by or on behalf of their respective Boards of Directors at any time prior to the
Effective Time; provided, however, that, after approval of the Merger by the
stockholders of the Parties, no amendment may be made which would change the
Petry Merger Consideration or the Advercomm Merger Consideration. This Agreement
may not be amended except by an instrument in writing signed by the Parties
hereto.
SECTION 8.5 Waiver.
At any time prior to the Effective Time, any party hereto may (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto, and
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the parties hereto. The failure of any party hereto to assert
any of its rights hereunder shall not constitute a waiver of such rights.
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ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Survival of Representations, Warranties, and Agreements.
The representations, warranties, and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Sections 1.6 and 1.7 and 6.5 shall survive the Effective Time
indefinitely and those set forth in 6.1(b) and 6.4 shall survive termination
indefinitely.
SECTION 9.2 Notices.
All notices and other communications given or made pursuant hereto
shall be in writing and shall be deemed to have been duly given or made as of
the date delivered, if delivered personally or mailed by registered or certified
mail (postage prepaid, return receipt requested) or sent by Federal Express or
similar overnight delivery or courier service or by telecopy to the parties at
the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to Interactive or the Subsidiary:
915 Broadway, Suite 1608
New York, New York 10010
Attention: Michael P. Paolucci
with a copy to:
Carter Ledyard & Milburn
Two Wall Street
New York, NY 10005
Attention: David McDonald, Esq.
40
(b) if to Petry:
1290 Avenue of the Americas
New York, New York 10104
Attention: David J. Moore
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Mark E. Moran, Esq.
(c) if to Advercomm:
125 E. 55th Street
New York, New York 10019
Attention: Jay Friesel
with a copy to:
Duquette & Tipton LLP
405 Lexington Avenue, Suite 4500
New York, New York 10174
Attention: David Duquette, Esq.
SECTION 9.3 Headings.
The headings contained in this Agreement and the Disclosure
Schedules are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement or the Disclosure Schedule.
SECTION 9.4 Entire Agreement.
This Agreement constitutes the entire agreement and supersedes all
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof and, except as otherwise
expressly provided herein, is not intended to confer upon any other person any
rights or remedies hereunder.
SECTION 9.5 Parties in Interest; Assignment.
This Agreement shall not be assigned by operation of law or
otherwise. This Agreement shall be binding upon and inure solely to the benefit
of each party hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under this Agreement, except that any of the Indemnified Parties
shall be entitled after the Effective Time to enforce the provisions of Section
6.1.
SECTION 9.6 Governing Law.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York applicable to contracts executed in and
to be performed in that State, without regard to conflicts of laws, except that
Delaware Law shall apply to the Merger.
SECTION 9.7 Counterparts.
This Agreement may be executed in one or more counterparts, and by
the different parties hereto in separate counterparts, each of which when
executed shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
41
SECTION 9.8 Severability.
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
SECTION 9.9 Specific Performance.
Since a breach of the provisions of this Agreement could not
adequately be compensated by money damages, any Party shall be entitled, in
addition to any other right or remedy available to it, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement, and in either case no bond or other
security shall be required in connection therewith, and the parties hereby
consent to the issuance of such injunction and to the ordering of specific
performance.
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IN WITNESS WHEREOF, Interactive, the Subsidiary, Petry and Advercomm
have caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
INTERACTIVE IMAGINATIONS, INC.
By: /s/ Michael P. Paolucci
--------------------------------
Michael P. Paolucci
Chairman and Chief Executive Officer
24/7 ACQUISITION CORP.
By: /s/ David J. Moore
--------------------------------
David J. Moore
Chief Executive Officer
PETRY INTERACTIVE, INC.
By: /s/ David J. Moore
--------------------------------
David J. Moore
Chairman and Chief Executive Officer
ADVERCOMM, INC.
By: /s/ Jacob I. Freisel
--------------------------------
Jacob I. Friesel
Chairman and Chief Executive Officer
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SCHEDULE IA.
David J. Moore
Michael P. Paolucci
Jacob I. Friesel
Jack Rivkin
Ronald Celmer
Kristopher Wood
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SCHEDULE IB.
David J. Moore Chief Executive Officer
Jacob I. Friesel Executive Vice President
Gary Cecchini Senior Vice President
Scott Cohen Senior Vice President
Mark Burchill Senior Vice President
Geoffrey Judge Senior Vice President
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Agreement and Plan of Merger - Interactive Imaginations Inc., Petry Interactive Inc. and Advercomm Inc.
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