EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AMONG
VIRTUAL COMMUNITIES, INC.,
HEURISTIC DEVELOPMENT GROUP, INC.,
AND HDG ACQUISITION SUB, INC.
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June __, 1999 (this
"Agreement"), among VIRTUAL COMMUNITIES, INC., a Delaware corporation (the
"Company"), HEURISTIC DEVELOPMENT GROUP, INC., a Delaware corporation
("HDG"), and HDG ACQUISITION SUB, INC., a Delaware corporation and wholly
owned subsidiary of HDG ("HDG Sub").
RECITALS:
1. WHEREAS, the Boards of Directors of HDG, HDG Sub and the Company
have approved the merger (the "Merger") of HDG Sub with and into the Company
pursuant to this Agreement and the transactions contemplated hereby upon the
terms and subject to the conditions set forth herein;
2. Pursuant to the Merger, among other things and subject to the terms
and conditions of this Agreement, the outstanding shares of the Company
Common Stock shall be converted into the right to receive shares of HDG
Common Stock in accordance with the Conversion Ratio as set forth in Section
3.1 hereof;
3. It is intended that the Merger shall qualify for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code");
4. HDG, HDG Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger;
5. Concurrently with the execution of this Agreement, the holders of
not less than 50% of all outstanding shares of the capital stock of the
Company have delivered to HDG their agreement in substantially the form of
EXHIBIT VII to vote their shares of the Company in favor of the Merger;
6. Concurrently with the execution of this Agreement, Gregory L. Zink,
the Seybold Family Trust, Nautilus Group Japan, Ltd., the Alfred C. Clark
Trust U/D/T 6/30/69, and Clark Management Co. Inc. shall have delivered to
the Company their agreement in substantially the form of EXHIBIT VIII to vote
their shares of HDG in favor of the Merger; and
7. Concurrently with the execution of this Agreement, D.H. Blair
Investment Banking Corp. ("Blair"), J. Morton Davis and D.H. Blair & Co. Inc.
shall have delivered to the Company and HDG letter agreements, in
substantially the form of EXHIBIT XIV (the "Blair Letters").
NOW, THEREFORE, in consideration of the recitals, representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
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THE MERGER
A1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 below), HDG Sub
shall be merged with and into the Company in accordance with the provisions
of Section 251 of the Delaware General Corporation Law (the "DGCL") with the
effects provided in Sections 259 through 261 of the DGCL, and the separate
existence of HDG Sub shall thereupon cease. The Company shall be the
surviving corporation in the Merger (hereinafter sometimes referred to as
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time of the Merger: (a) the Surviving
Corporation shall possess all assets and property of every description, and
every interest therein, wherever located, and the rights, privileges,
immunities, powers, franchises and authority, of a public as well as of a
private nature, of each of HDG Sub and the Company, (b) all obligations
belonging to or due each of HDG Sub and the Company shall be vested in, and
become the obligations of, the Surviving Corporation without further act or
deed, (c) title to any real estate or any interest therein vested in either
of HDG Sub or the Company shall not revert or in any way be impaired by
reason of the Merger, (d) all rights of creditors and all liens upon any
property of any of HDG Sub and the Company shall be preserved unimpaired, and
(e) the Surviving Corporation shall be liable for all of the obligations of
each of HDG Sub and the Company, and any claim existing, or action or
proceeding pending, by or against either of HDG Sub or the Company may be
prosecuted to judgment with right of appeal, as if the Merger had not taken
place. As of the Effective Time, the Surviving Corporation shall be a wholly
owned subsidiary of HDG.
A1.2 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective at
such time (the "Effective Time") as a duly executed Certificate of Merger, in
substantially the form set forth as EXHIBIT I hereto, is filed by the
Surviving Corporation with the Secretary of State of the State of Delaware
(the "Merger Filing"). Such filing shall be made on the Closing Date
simultaneously with or as soon as practicable after the Closing (as such
capitalized terms are defined in Section 3.5 below).
A1.3 [Intentionally Omitted]
A1.4 DISCLOSURE SCHEDULES. Simultaneously with the execution of this
Agreement (a) the Company shall deliver a schedule relating to the Company
(the "Company Disclosure Schedule"), and (b) HDG shall deliver a schedule
relating to HDG, HDG Sub and the HDG Subsidiaries (as defined in Section
5.1(b) hereof) (the "HDG Disclosure Schedule" and collectively, with the
Company Disclosure Schedule, the "Disclosure Schedules") setting forth the
matters required to be set forth in the Disclosure Schedules as described
elsewhere in this Agreement. Any agreement, document, fact or set of facts
which is disclosed in one section of the Disclosure Schedules shall be deemed
disclosed with respect to all other sections of the Disclosure Schedules if
such applicability is reasonably apparent from the disclosure actually made,
even if not specifically cross-referenced.
A1.5 PLAN OF REORGANIZATION. It is the intention of the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code.
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SURVIVING CORPORATION
A2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of the
Company as in effect immediately prior to the Effective Time shall be amended
and restated in substantially the form set forth in the Merger Filing, and
such amended and restated Certificate of Incorporation
shall be the Certificate of Incorporation of the Surviving Corporation at and
after the Effective Time, until duly amended in accordance with the terms
thereof and of the DGCL.
A2.2 BY-LAWS. The By-laws of the Company as in effect immediately prior to
the Effective Time shall be amended and restated in substantially the form
set forth as EXHIBIT II hereto, and such amended and restated By-laws shall
be the By-laws of the Surviving Corporation at and after the Effective Time,
and thereafter may be amended in accordance with their terms and as provided
by the Certificate of Incorporation of the Surviving Corporation and the DGCL.
A2.3 DIRECTORS. The directors of the Company immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until
their respective successors have been duly elected or appointed and qualified
or until death, resignation or removal in accordance with the Certificate of
Incorporation and By-laws, as applicable, of the Surviving Corporation.
A2.4 OFFICERS. The officers of the Company immediately prior to the Effective
Time shall be the officers of the Surviving Corporation until their respective
successors have been duly elected or appointed and qualified or until death,
resignation or removal in accordance with the Certificate of Incorporation and
By-Laws, as applicable, of the Surviving Corporation.
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CONVERSION OF SHARES
A3.1 CONVERSION OF COMPANY SHARES IN THE MERGER. At the Effective Time, by
virtue of the Merger and without any action on the part of HDG, HDG Sub, the
Company or any holder of any capital stock of any of the foregoing parties
(except as provided in Section 3.1(f) hereof):
(a) Each share of common stock, $.0001 par value, of the Company ("Company
Common Stock"), issued and outstanding immediately prior to the Effective Time
(other than Dissenting Stock (as defined in Section 3.4 below), Company Common
Stock held in the Company's treasury or as provided for in Section 3.1(c)),
subject to the terms and conditions of this Agreement, shall be converted,
without any further action, into the right to receive, and become exchangeable
for, the following consideration (the "Merger Consideration"): such number of
fully paid and nonassessable
registered shares of common stock, $.01 par value, of HDG ("HDG Common
Stock") as is equal to the following fraction (the "Conversion Ratio"): (x)
the numerator of which shall be a fraction equal to (A) the VCI Valuation (as
defined below) divided by (B) the VCI Common (as defined below); and (y) the
denominator of which shall be the Transaction Price (as defined below);
provided, however, that cash adjustments shall be paid in lieu of the
issuance of fractional shares as provided in Section 3.3 hereof.
(b) For purposes of this Agreement, the following terms shall have the
following meanings:
(i) "VCI Common" shall mean the total number of shares of Company
Common Stock outstanding immediately prior to the Effective Time, including
the shares of Company Common Stock issuable upon the conversion of the
outstanding shares of Company preferred stock prior to or concurrent
with the Merger;
(ii) "VCI Valuation" shall mean the sum of (x) $22,000,000 plus (y)
any additional gross proceeds raised by the Company between the date of
this Agreement and the Effective Time through the sale of Company Common
Stock or equivalents thereto, including, without limitation, the Company
Placement (as defined in Section 6.2(d) hereof);
(iii) "Transaction Price" shall mean a fraction, the numerator of which
is the product of (x) the Cash Value (as defined below), multiplied by (y)
one of the following amounts (the "Multiple") depending upon the Cash Value
as set forth below:
IF THE CASH VALUE EQUALS: THEN THE MULTIPLE SHALL BE:
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$2,650,000 or more 1.15
$2,600,000 to $2,649,999.99 1.125
$2,550,000 to $2,599,999.99 1.075
less than $2,550,000 1.00
and the denominator of which shall be the total number of shares of
HDG Common Stock outstanding immediately prior to the Effective Time,
excluding the Escrow Shares, HDG Options and HDG Warrants (as defined in
Section 5.2 hereof); and
(iv) "Cash Value" shall equal the total amount of HDG's cash and cash
equivalents immediately prior to the Effective Time, plus the
Post-Effective Time Premium Amount (as defined in Section 9.1(d)) and the
J&L Registration Expenses (as hereinafter defined) to the extent such
amounts have been paid by HDG prior to the Effective Time, less the sum of
the following fees and expenses owed, incurred or accrued by HDG and HDG
Sub on or prior to the Closing Date: (a) severance costs, bonuses or other
termination fees due to directors, officers, employees, affiliates and
agents of HDG and HDG Sub; (b) costs arising out of, or in connection
with, the administration, operation or termination of any of HDG's and
HDG Sub's businesses or operations immediately prior to the
Effective Time (except for the Post-Effective Time Premium Amount, but
including the costs, fees and expenses referred to in Section
8.2(s)(i)); and (c) HDG's and HDG Sub's accounting, consultant,
insurance, investment banking and legal fees and expenses, whether or
not in connection with the transactions contemplated by this Agreement,
except for: (X) financial advisor fees due to Jesup & Lamont Securities
Corp. in connection with the Merger pursuant to Section 5.17 hereof; and
(Y) the costs, fees and expenses incurred in connection with the J&L
Registration Statement as defined in Section 7.2 (the "J&L Registration
Expenses") as contemplated by Section 10.5(a)(iii) hereof.
(c) Each share of Company Common Stock, if any, owned by HDG, or any
HDG Subsidiary (as defined in Section 5.1(b) hereof) or held in the treasury
of the Company immediately prior to the Effective Time shall be cancelled and
shall cease to exist from and after the Effective Time. Each issued and
outstanding share of the capital stock of HDG Sub shall be converted into and
become one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(d) All of the Company's options (the "Company Options") authorized,
granted and outstanding under the Company's 1997 Stock Option Plan, the
Company's 1998 Stock Option Plan and the Company's 1999 Stock Option Plan
immediately prior to the Effective Time (collectively, the "Company Stock
Option Plan"), whether or not such Company Options are exercisable or vested,
immediately prior to the Effective Time, shall remain outstanding following
the Effective Time. At the Effective Time, the Company Options shall, by
virtue of the Merger and without any further action on the part of the
Company or the holders of such options, be assumed by HDG in such manner that
HDG (i) is a corporation "assuming a stock option in a transaction to which
Section 424(a) applied" within the meaning of Section 424 of the Code, or
(ii) to the extent that Section 424 of the Code does not apply to any such
Company Options, would be such a corporation were Section 424 of the Code
applicable to such Company Options. In the case of any Company Option to
which Section 421 of the Code applies by reason of its qualification under
any of Sections 422-424 of the Code ("incentive stock options"), the option
price, the number of shares purchasable pursuant to such option and the terms
and conditions of exercise of such option shall
comply with Section 424(a) of the Code. From and after the Effective Time,
all references to the Company in the Company Stock Option Plan and the
applicable stock option agreements issued thereunder shall be deemed to refer
to HDG. Each Company Option assumed by HDG shall be exercisable, upon the
same terms and conditions as under the applicable Company Stock Option Plan
and the applicable stock option agreement issued thereunder, except that (A)
each such Company Option shall be exercisable for that whole number of shares
of HDG Common Stock (to the nearest whole share) into which the number of
shares of Company Common Stock subject to such Company Option (assuming the
aggregation of all Company Options held by any holder thereof) immediately
prior to the Effective Time would be converted under Section 3.1(a) hereof
and (B) the option price per share of each such Company Option shall be an
amount equal to the option price per share of Company Common Stock subject to
such Company Option in effect immediately prior to the Effective Time divided
by the Conversion Ratio (the option price per share, as so determined, being
rounded upward to the nearest full cent). No payment shall be made for
fractional shares. The consummation of the Merger shall not be treated as a
termination of employment for purposes of the Company Options. HDG agrees
that as soon as practicable after the Effective Time it will cause to be
filed one or more registration statements on Form S-8 under the Securities
Act of 1933, as amended, or amendments to any existing registration
statements on Form S-8 or amendments to the Registration Statement (as
defined in Section 4.10), in order to register the shares of HDG Common Stock
issuable upon exercise of the aforesaid converted Company Options.
(e) All warrants issued and outstanding of the Company to purchase
shares of Company Common Stock (the "Company Warrants"), whether or not
exercisable and whether or not vested immediately prior to the Effective
Time, shall remain outstanding following the Effective Time. At the Effective
Time, the Company Warrants shall, by virtue of the Merger and without any
further action on the part of the Company or the holders of such Company
Warrants, be assumed by HDG and each Company Warrant assumed by HDG shall be
exercisable upon the same terms and conditions as under the applicable
warrant agreements with respect to such Company Warrants, except that (A)
each such Company Warrant shall be exercisable for that whole number of
shares of HDG Common Stock (to the nearest whole share) into which the number
of shares of Company Common Stock subject to such Company Warrant (assuming
the aggregation of all Company Warrants held by any holder thereof)
immediately prior to the Effective Time would be converted under Section
3.1(a) hereof, and (B) the exercise price per share of each such Company
Warrant shall be an amount equal to the exercise price per share of Company
Common Stock subject to such Company Warrant in effect immediately prior to
the Effective Time divided by the Conversion Ratio (the exercise price per
share, as so determined, being rounded upward to the nearest full cent).
Pursuant to Sections 7.2 and 8.1(c) hereof, prior to the Closing Date, all of
the common shares underlying the Company Warrants shall be registered on the
J&L Registration Statement. From and after the Effective Time, all
references to the Company in the respective warrant agreements for the
Company Warrants shall be deemed to refer to HDG. No payment shall be made
for fractional shares.
(f) HDG shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HDG Common Stock for delivery
pursuant to the terms set forth in Sections 3.1(a), 3.1(d) and 3.1(e) hereof.
A3.2 EXCHANGE OF CERTIFICATES.
(a) From and after the Effective Time, each holder of an outstanding
certificate which immediately prior to the Effective Time represented shares
of Company Common Stock (the "Company Certificates") shall cease to have any
right as a stockholder of the Company and such holder's sole rights shall be
to receive in exchange for such holder's Company Certificates, upon surrender
thereof to an exchange agent selected by the Company (the "Exchange Agent"),
a certificate or certificates representing the number of whole registered
shares of HDG Common Stock which such holder is entitled to receive pursuant
to Section 3.1(a) plus cash in lieu of fractional shares, as provided in
Section 3.3 hereof. Notwithstanding any other provision of this Agreement (i)
until holders of Company Certificates theretofore representing shares of
Company Common Stock have surrendered such certificates for exchange as
provided herein (A) no dividends shall be paid by HDG with respect to any
shares of HDG Common Stock to be received upon the exchange of Company
Certificates as provided in this Section 3.2 and (B) no payment for
fractional shares shall be made; provided, in the case of (A) or (B), that
upon surrender of such Company Certificates, the surrendering holder shall
receive all such dividends and payments for fractional shares and (ii)
without regard to when such Company Certificates are surrendered for exchange
as provided herein, no interest shall be paid on any such dividend or payment
for fractional shares. If any certificate for shares of HDG Common Stock is
to be issued in a name other than that in which the Company Certificate for
shares of Company Common Stock surrendered in exchange therefor is
registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay any transfer or other taxes required by
reason of the issuance of certificates for such shares of HDG Common Stock in
a name other than that of the registered holder of the Company Certificate
surrendered or shall establish to the satisfaction of HDG that such tax has
been paid or is not applicable. No transfers of Company Common Stock shall be
made on the stock transfer books of the Company after the close of business
on the day prior to the date of the Effective Time.
(b) Before the Effective Time, HDG shall make available to the Exchange
Agent a sufficient number of certificates representing shares of HDG Common
Stock required to effect the exchange referred to in Section 3.2(a) hereof.
(c) Promptly after the Effective Time, the Surviving Corporation shall
cause the Exchange Agent to mail to each holder of record of the Company
Certificates (i) a form letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company
Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the
Company Certificates in exchange for certificates representing shares of HDG
Common Stock. Upon surrender of the Company Certificates for cancellation to
the Exchange Agent, together with a duly executed letter of transmittal and
such other documents as the Exchange Agent shall reasonably require, the
holder of such Company Certificates shall be entitled to receive in exchange
therefor one or more certificates representing that number of whole shares of
HDG Common Stock into which the shares of Company Common Stock theretofore
represented by the Company Certificates so surrendered shall have been
converted pursuant to the provisions of Section 3.1(a), in addition to
payment for any fractional share of HDG Common Stock, and the Company
Certificates so surrendered shall forthwith be cancelled. Until so
surrendered and subject to Section 3.4 hereof, the Company Certificates shall
represent solely the right to receive the number of whole shares of HDG
Common Stock that shall be issued in exchange for Company Common Stock and
any cash in lieu of the fractional HDG Common Stock as contemplated by
Section 3.3 hereof. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Company Common
Stock for any shares of HDG Common Stock delivered to a public official as
required by applicable abandoned property, escheat or similar laws. The
Exchange Agent shall not be entitled to vote or exercise any rights of
ownership with respect to HDG Common Stock held by it from time to time
hereunder.
(d) Any certificates of HDG Common Stock which remain unclaimed by the
holders of Company Certificates for twelve months after the Effective Time
shall be returned by the Exchange Agent to HDG, and any holders of Company
Certificates who have not theretofore complied with Section 3.2 shall
thereafter receive delivery (subject to abandoned property, escheat or other
similar laws) of the HDG Common Stock issuable upon the conversion of their
Company Certificates and any dividends payable on such shares of HDG Common
Stock, without any interest thereon only after delivering their Company
Certificates and letters of transmittal to HDG, and otherwise complying with
Section 3.2.
A3.3 NO FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, no certificates or scrip for fractional shares of HDG Common Stock
shall be issued in the Merger and no HDG Common Stock dividend,
reclassification, stock split or interest shall be paid or have effect with
respect to any fractional interest in a share of HDG Common Stock, and such
fractional interests shall not entitle the owner thereof to vote or to any
other rights of a security holder. In lieu of any such fractional shares,
each holder of Company Common Stock who would otherwise have been entitled to
receive a fraction of a share of HDG Common Stock upon surrender of the
Company Certificates for exchange pursuant to this Article III will be paid
an amount in cash therefor (without interest) equal to the average of the
last reported closing bid prices of HDG Common Stock on the NASDAQ SmallCap
Market ("NASDAQ") for each of the twenty consecutive trading days ending with
the third trading day prior to the Closing Date (as defined in Section 3.5)
multiplied by the fractional interest of such stockholder in a share of HDG
Common Stock. For purposes of determining whether and to what extent a
particular stockholder is entitled to receive
cash adjustments pursuant to this Section 3.3, shares of record held by such
holder and represented by two or more Company Certificates shall be
aggregated.
A3.4 DISSENTING SHARES. Subject only to Section 8.2(j) hereof, shares
of Company Common Stock that are outstanding immediately prior to the
Effective Time and which are held by stockholders of the Company who shall
not have voted in favor of the Merger or consented thereto in writing, who
shall have demanded properly in writing the fair value for such shares of
Company Common Stock, who otherwise duly demanded and perfected their right
to an appraisal, and who have not effectively withdrawn or forfeited prior to
the Effective Time in accordance with Section 262 of the DGCL (collectively,
"Dissenting Stock"), shall not be converted into or represent the right to
receive shares of HDG Common Stock. Such stockholders shall be entitled to
receive payment (which payment shall be made by HDG (post-Effective Time) or,
at such entity's sole discretion, by the Surviving Corporation) of the fair
value of such shares of Company Common Stock held by them in accordance with
the provisions of Section 262 of the DGCL, except that all Dissenting Stock
held by stockholders who have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares of Company Common
Stock under Section 262 of the DGCL shall thereupon be deemed to have been
converted into and to have become exchangeable for, as of the Effective Time,
the right to receive shares of HDG Common Stock, without any interest
thereon, upon surrender, in the manner provided in Section 3.2 hereof, of the
Company Certificates that evidence such shares of Company Common Stock.
A3.5 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York, New York, commencing at
10:00 a.m. local time, on the third business day following the date on which
the last of the conditions set forth in Articles VII and VIII hereof are
fulfilled or waived (except for Section 8.2(k) hereof, which shall remain a
condition to Closing, but shall not be included for the purpose of
determining the Closing Date), or at such other time and place as HDG and the
Company shall agree (the date on which the closing occurs being the "Closing
Date"); provided, however, that the physical presence of a party representing
HDG and HDG Sub shall not be required thereat if all appropriate documents
required to be delivered by such parties, and in such form as contemplated
hereby, have been received by mail or overnight courier at said offices of
Morrison & Foerster LLP before the Closing Date.
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REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to HDG and HDG Sub as follows
(subject in each case to such exceptions as are set forth or cross-referenced
in the attached Company Disclosure Schedule in the labeled section
corresponding to the caption of the representation or warranty to which such
exceptions relate):
A4.1 ORGANIZATION AND QUALIFICATION. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware. The Company has all requisite corporate power to carry on its
business as it is now being conducted and is duly qualified to do business as
a foreign corporation and is in good standing in all jurisdictions set forth
in Section 4.1 of the Company Disclosure Schedule, and such jurisdictions are
the only ones in which the properties owned, leased or operated by the
Company or the nature of the business conducted by the Company makes such
qualification necessary, except where the failure to qualify (individually or
in the aggregate) will not have any Material Adverse Effect (as defined in
Section 4.3 below) on the Company. The copies of the Certificate of
Incorporation and By-laws of the Company, as amended to date and delivered to
HDG, are true and complete copies of these documents as now in effect. The
minute books of the Company are accurate in all material respects, and true
and complete copies of all such minutes since the Company's inception have
been delivered to HDG.
(a) Other than as set forth in the Company Disclosure Schedule, there
are no Company Subsidiaries. As used herein, the term "Company Subsidiary"
shall mean any corporation or other entity of which the Company, directly or
indirectly, controls or which the Company owns, directly or indirectly, 50%
or more of the stock or other voting interests, the holders of which are,
ordinarily or generally, in the absence of contingencies (which contingencies
have not occurred) or understandings (which understandings have not yet been
required to be performed) entitled to vote for the election of a majority of
the board of directors or any similar governing body. Except as set forth in
the Company Disclosure Schedule, the Company does not own any capital stock
or other voting interests in any other corporation or similar business
entity, nor is the Company a partner in any partnership.
A4.2 CAPITALIZATION. The authorized capital stock of the Company, the
classes of capital stock, the number of shares of capital stock of each class
or series which are issued and outstanding as of the date hereof, and the par
value thereof, are as set forth in Section 4.2 of the Company Disclosure
Schedule. All of such shares of capital stock that are issued and outstanding
are duly authorized, validly issued and outstanding, fully paid and
nonassessable, and were not issued in violation of the preemptive rights of
any person. Except as set forth in the Company Disclosure Schedule, or as
otherwise disclosed therein and herein, there are no subscriptions, options,
warrants, rights or calls or other commitments or agreements to which the
Company is a party, or by which
it is bound, calling for any issuance, transfer, sale or other disposition of
any class of securities of the Company.
A4.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to the Company Stockholders' Approval (as defined
in Section 7.3 below) and the making of the Merger Filing, to consummate the
transactions contemplated hereby. The Company's execution and delivery of
this Agreement, and its consummation of the transactions contemplated hereby,
have been duly authorized by its Board of Directors and no other corporate
proceedings on its part are necessary to authorize its execution and delivery
of this Agreement and its consummation of the transactions contemplated
hereby, except for the Company Stockholders' Approval and the making of the
Merger Filing. This Agreement has been duly and validly executed and
delivered by the Company, and constitutes its valid and binding agreement,
enforceable against it in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles ((i) and
(ii) collectively, the "Bankruptcy Exception"); provided, however, that the
Company has not initiated, nor to its knowledge has any party initiated,
voluntary or involuntary proceedings under any chapter of the United States
bankruptcy laws.
(b) The Company's execution and delivery of this Agreement does not,
and its consummation of the transactions contemplated hereby will not,
violate, conflict with or result in a breach of any provision of, or
constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination
or acceleration under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of its properties or assets under
any of the terms, conditions or provisions of (i) subject to obtaining
Company Stockholders' Approval, its Certificate of Incorporation or By-Laws,
(ii) subject to obtaining the Required Statutory Approvals (as defined in
Section 5.3(c) below) and the receipt of the Company Stockholders' Approval
and the HDG Stockholders' Approval (as defined in Section 7.3 below), any
statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to it or any of its properties or assets, or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
lease or other instrument, obligation or agreement of any kind to which it is
now a party or by which it or any of its properties or assets may be bound,
excluding from the foregoing clauses (ii) and (iii) such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Material Adverse Effect on the Company. "Material Adverse
Effect" means, with respect to the Company, HDG or HDG Sub (as applicable)
either: (X) a material adverse effect on the business, operations,
properties, assets,
condition (financial or otherwise) or results of operations of such
corporation; (Y) a material adverse effect on such corporation's ability to
consummate the transactions contemplated hereby, except with respect to such
corporation's inability to meet any of the conditions set forth in Article
VIII hereof; or (Z) the occurrence of any shareholder or underwriter claims,
actions, suits, proceedings or other litigation of any kind, whether pending
or, to the knowledge of such corporation, threatened against such corporation
at any time prior to and including the Effective Time; provided, however,
that in the case of clause (X) or (Z) hereof, a Material Adverse Effect must
be a matter that, in the exercise of reasonable judgment made at the earlier
of such matter's occurrence or the time at which such corporation becomes
aware of such matter, is likely to result in a loss, cost or expense to such
corporation, which is not covered by any of such corporation's insurance
policies then in effect, in excess of $400,000.
A4.4 CONTRACTS LISTED; NO DEFAULT. All material contracts, agreements,
licenses, leases, easements, permits, rights of way, commitments, and
understandings, written or oral connected with the Company (the "Company
Contracts"), except employment or other agreements terminable at will, are
valid, binding and enforceable by the Company against the other parties
thereto in accordance with their terms. Copies of all of the Company
Contracts valued in excess of $10,000 have been delivered to HDG. Neither the
Company nor any of the other parties thereto is in material default or breach
of any provision of the Company Contracts. Nor has any event occurred which,
with the lapse of time or action by a third party, could result in a material
default under the terms thereof. No stockholder of the Company has received
any payment in violation of law from any contracting party in connection with
or as an inducement for causing the Company to enter into any Company
Contract.
A4.5 LITIGATION. Except as set forth in Schedule 4.5 of the Company
Disclosure Schedule, there is no (i) claim, action, suit or proceeding
pending or, to the knowledge of the Company, threatened against the Company
before any court or governmental or regulatory authority or body or
arbitration tribunal, or (ii) outstanding judgment, order, writ, injunction
or decree, or application, request or motion therefor, of any court,
governmental agency or arbitration tribunal in a proceeding to which the
Company or any of its assets was or is a party.
A4.6 TAXES. (a) Since the Company's inception, the Company and all the
Company Subsidiaries have filed all Tax returns and reports (Tax returns and
reports are hereinafter collectively referred to as "Tax Returns") that they
were required to file, and all such Tax Returns were correct and complete in
all material respects. Since the Company's inception, all Taxes owed by the
Company and all Company Subsidiaries (whether or not shown on any Tax Return)
have been paid, and neither the Company nor any Company Subsidiary currently
is the beneficiary of any extension of time within which to file any Tax
Return. There is no dispute or claim concerning any Tax liability of the
Company or any Company Subsidiary either (A) claimed or raised by any
governmental authority in writing, or (B) as to which any of the directors
and officers of the
Company or any Company Subsidiary has knowledge based upon personal contact
with any agent of such authority. Section 4.6 of the Company Disclosure
Schedule sets forth a list of all Tax Returns of the Company and all Company
Subsidiaries that have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company and all Company Subsidiaries
have delivered to HDG correct and complete copies of all Tax Returns,
examination reports, and statements of deficiencies assessed against or
agreed to by any of the Company or any Company Subsidiary, since the
Company's inception. Neither the Company nor any Company Subsidiary has
waived any statute of limitations in respect of Taxes or agreed to any
extension of time with respect to Tax assessment or deficiency. Neither the
Company nor any Company Subsidiaries has filed a consent under Code Section
341(f) concerning collapsible corporations. Neither the Company nor any
Company Subsidiary has made any material payments, nor is obligated to make
any material payments, nor is a party to any agreement that as a result of
the transactions contemplated herein or any prior transactions could obligate
it to make any payments that will not be deductible under Code Section 280G.
Neither the Company nor any Company Subsidiary is a party to any Tax
allocation or sharing agreement. Neither the Company nor any Company
Subsidiary (A) has been a member of an affiliated group filing a consolidated
federal income Tax Return or (B) has any liability for the Taxes of any
person under Code regulation Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise. The unpaid Taxes of the Company and all Company Subsidiaries (a)
did not, as of the most recent fiscal month end prior to Closing exceed by
any material amount the reserve for Tax liability (rather than any reserve
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the face of the most recent balance sheet (rather
than in any notes thereto) and (B) will not exceed by any material amount
that reserved as adjusted for operations and transactions through the Closing
Date in accordance with the past custom and practice of the Company and all
Company Subsidiaries in filing their income Tax Returns. "Tax" or "Taxes"
shall mean all federal, state, local and foreign taxes (except stamp taxes),
duties, levies, charges and assessments of any nature, including social
security payments and deductibles relating to wages, salaries and benefits
and payments to subcontractors (to the extent required under applicable Tax
law), and also including all interest, penalties and additions imposed with
respect to such amounts.
A4.7 EMPLOYEE PLANS. Except as disclosed in Section 4.7 of the Company
Disclosure Schedule, the Company has no employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or otherwise.
A4.8 NO VIOLATION OF LAW. Except as set forth in Section
4.8 of the Company Disclosure Schedule, the Company is not in material violation
of and, to its knowledge, has not been given notice or been charged with any
violation of, any law, statute, order, rule, regulation, ordinance or judgment
(including, without limitation, any applicable environmental law, ordinance or
regulation) of any governmental or regulatory body or authority. The Company has
not received any written notice that any investigation or review with respect to
it by any governmental or regulatory body or authority is pending or threatened.
The Company has all material permits, licenses, franchises, variances,
exemptions, orders and other governmental authorizations, consents and
approvals necessary to conduct its business as presently conducted
(collectively, "Permits"). The Company (a) has duly and timely filed all
reports and other information required to be filed with any governmental or
regulatory authority in connection with its Permits, and (b) is not in
material violation of the terms of any of its Permits.
A4.9 PROPERTIES. Except as set forth in Section 4.9 of the Company
Disclosure Schedule, the Company has good and marketable title to all of the
assets and properties which it purports to own as reflected on the most
recent balance sheet comprising a portion of the Company Financial Statements
(as defined in Section 4.12 below) or thereafter acquired, except assets and
properties sold or otherwise disposed of since the date of such balance sheet
in the ordinary course of business and as set forth in Section 4.9 of the
Company Disclosure Schedule. The Company has a valid leasehold interest in
all material properties of which it is the lessee and each such lease is
valid, binding and enforceable against the Company and the other parties
thereto in accordance with its terms, and a copy of each such lease has been
delivered to HDG. Neither the Company nor the other parties thereto are in
default in the performance of any provision thereunder. Neither the whole nor
any portion of the assets of the Company is subject to any governmental
decree or order to be sold or is being condemned, expropriated or otherwise
taken by any public authority with or without payment of compensation
therefor, nor has any such condemnation, expropriation or taking been
proposed. Except as set forth in Section 4.9 of the Company Disclosure
Schedule, none of the material assets of the Company is subject to any
restriction which, by virtue of the Merger, prevent continuation of the use
currently made thereof or adversely affect the value thereof.
A4.10 REGISTRATION STATEMENTS, SB-2 AMENDMENT AND PROXY STATEMENT. None
of the information to be supplied by the Company in writing for inclusion in
(a) the Registration Statement (the "Registration Statement") on Form S-4 to
be filed under the Securities Act of 1933, as amended (the "Securities Act")
with the Securities and Exchange Commission ("SEC") by HDG in connection with
the Merger for the purpose of registering the shares of HDG Common Stock to
be issued in the Merger, (b) the J&L Registration Statement (as defined in
Section 7.2 hereof) to be filed under the Securities Act with the SEC by HDG
in connection with Merger for the purpose of registering the common stock
underlying the Company Warrants to be issued upon the exercise thereof, (c)
the SB-2 Amendment (as defined in Section 7.2 hereof) to be filed under the
Securities Act with the SEC by HDG, or (d) the proxy or information statement
to be distributed in connection with HDG's meeting of stockholders to vote
upon this Agreement and the transactions contemplated hereby (collectively,
the "Proxy Statement" and, together with the prospectus included in the
Registration Statement, the "Proxy Statement/Prospectus") will, in the case
of the Proxy Statement/Prospectus or any amendments thereof or supplements
thereto, at the time of the filing of the Proxy Statement/Prospectus and any
amendments or supplements thereto, or, in the case of the Registration
Statement, the J&L Registration Statement and the SB-2 Amendment, as amended
or supplemented, at the time it becomes effective contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading;
provided, however, that HDG shall not
inaccurately draft, misrepresent or omit any of the aforementioned
information supplied by the Company or its agents; and, provided, further,
that HDG shall furnish the Registration Statement, the J&L Registration
Statement, the SB-2 Amendment and the Proxy Statement/Prospectus, and any
amendments or supplements to each, to the Company for its review at least 5
business days prior to the filing of same with the SEC and at least 5
business days prior to the distribution thereof.
A4.11 BUSINESS. The Company, since its formation, has engaged in no
business other than to develop, acquire and operate on-line communities on
the World Wide Web, and, except for this Agreement and as otherwise set forth
in Section 4.11 of the Company Disclosure Schedule, is not a party to any
agreement for the acquisition, lease or disposition of an operating business.
A4.12 FINANCIAL STATEMENTS. (a) The financial statements of the Company
(collectively, the "Company Financial Statements") provided to HDG and listed
on Section 4.12 of the Company Disclosure Schedule together with the notes
thereto, present fairly, in all material respects, the financial position and
results of operations of the Company as of the respective dates, years and
periods indicated, prepared in accordance with United States generally
accepted accounting principles ("GAAP"). Without limiting the generality of
the foregoing (i) except as set forth in Section 4.12 of the Company
Disclosure Schedule, there is no basis for any assertion against the Company
as of the date of the most recent balance sheet comprising a portion of the
Company Financial Statements of any debt, liability or obligation of any
nature required to be stated therein consistent with GAAP not fully reflected
or reserved against in the Company Financial Statements or in the notes
thereto; and (ii) there are no assets of the Company, the value of which is
materially overstated in the Company Financial Statements. Except as
disclosed in Section 4.12 of the Company Disclosure Schedule, the Company has
no contingent liabilities (including, without limitation, liabilities for
Taxes). The Company is not a party to any contract or agreement for the
forward purchase or sale of any foreign currency.
A4.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 4.13 of the Company Disclosure Schedule, since December 31, 1998 there
has not been:
(a) any material adverse change in the financial condition, operations,
properties, assets, liabilities or business of the Company;
(b) any material damage, destruction or loss of any material properties
of the Company;
(c) any material change in the manner in which the business of the
Company has been conducted;
(d) any material change in the treatment and protection of trade
secrets or other confidential information of the Company; and
(e) any occurrence not included in paragraphs (a) through (d) of this
Section which has resulted, or which the Company has reason to believe could
reasonably be expected to result, in a Material Adverse Effect on the Company.
A4.14 BOOKS, RECORDS AND ACCOUNTS. The Company's books, records and
accounts fairly and accurately reflect in all respects transactions and
dispositions of assets by the Company, and the system of internal accounting
controls of the Company is sufficient to assure that: (a) transactions are
executed in accordance with management's authorization; (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain accountability for assets; (c) access to
assets is permitted only in accordance with management's authorization; and
(d) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
A4.15 BROKERS AND FINDERS. Except for the financial advisory fee
due by HDG (post-Effective Time) to Jesup & Lamont Securities Corp. as described
in Section 5.17 hereof, and as further set forth in Schedule 4.15 of the Company
Disclosure Schedule, the Company has not employed any investment banker, broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement which would be entitled to any investment
banking, brokerage, finder's or similar fee or commission in connection with
this Agreement or the transactions contemplated hereby.
A4.16 INSURANCE. Section 4.16 of the Company Disclosure Schedule sets
forth the name of the insurer, the name of the policyholder, the name of each
covered insured, the policy number, the period of coverage with respect to
each insurance policy and the annual premium in respect of each such policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability, automobile
insurance, directors and officers insurance, and bond and surety
arrangements; but excluding any Israeli Managers Insurance policies, or such
similar policies, obtained by one of the Company's Subsidiaries and issued in
the name of an employee thereof) to which the Company or any Company
Subsidiary has been a party, a named insured, or otherwise the beneficiary of
coverage at any time since the Company's inception. Except as noted on
Section 4.16 of the Company Disclosure Schedule (i) each such insurance
policy is
enforceable and in full force and effect; (ii) neither the Company nor any
Company Subsidiary is in breach or default (including with respect to the
payment of premiums or the giving of notices) under such policy, and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default or permit termination, modification or acceleration, under
such policy; and (iii) neither the Company nor any Company Subsidiary has
received any notice from the insurer disclaiming coverage or reserving rights
with respect to a particular claim or such policy in general. Neither the
Company nor any Company Subsidiary has incurred any loss, damage, expense or
liability covered by any such insurance policy for which it has not properly
asserted a claim under such policy. The Company and the Company Subsidiaries
are covered by insurance in scope and amount customary and reasonable for the
businesses in which each is engaged. There is no material liability under
any insurance policy in the nature of a retroactive rate adjustment or loss
sharing or similar arrangement except as set forth in Section 4.16 of the
Company Disclosure Schedule.
A4.17 LABOR MATTERS. The Company is not a party to any union contract
or other collective bargaining agreement, other than those set forth in
Section 4.17 in the Company Disclosure Schedule. The Company is in compliance
in all material respects with all applicable laws respecting employment and
employment practices (past and present), terms and conditions of employment
and wages and hours, and the Company is not engaged in any unfair labor
practice. There is no labor strike, slowdown or stoppage pending against or
affecting the Company. No petition for certification has been filed and is
pending before the National Labor Relations Board with respect to any
employees of the Company who are not currently organized.
A4.18 EMPLOYEES. Except as listed in Section 4.18 of the Company
Disclosure Schedule, the Company is not a party to any employment, management
services, consultation or other agreement with any officer, director or
employee or, any entity affiliated with any officer, director or employee,
which provides for annual base compensation in excess of $75,000.
A4.19 INTELLECTUAL PROPERTY; SOFTWARE. (a) Section 4.19(a) of the
Company Disclosure Schedule sets forth a complete and correct list in all
material respects of all patents, trademarks, tradenames, service marks,
service names, brand names and copyright registrations, and applications
therefor, applicable to or used in the business of the Company, together with
a complete list of all licenses granted by or to the Company with respect to
any of the above, except for any intellectual property utilized or licensed
by the Company in the ordinary course of its business, including, without
limitation, the creation or placement by the Company's content partners or
advertisers on the Company's servers, websites and marketing materials. All
such patents, trademarks, tradenames, service marks, service names, brand
names and copyrights are owned by the Company, free and clear of all liens,
claims, security interests and encumbrances of any nature whatsoever, or are
used by the Company pursuant to valid licenses. Except as set forth in
Section 4.19(a) of the Company Disclosure Schedule, the Company is not
currently in receipt of any notice of any violation or infringement of, and
the Company is not knowingly violating or infringing
in any material respect, the rights of others in any patent, unpatented
invention, trademark, tradename, service mark, copyright, trade secret,
know-how, design, process or other intangible asset.
(a) Except as set forth on Schedule 4.19(b) of the Company Disclosure
Schedule, the Company has title to all computer software ("Company Owned
Software") owned by the Company, other than "off-the-shelf" software not
customized for its use, free and clear of all liens, claims, security
interests and encumbrances, including claims or rights of employees, agents,
consultants, customers, licensees or other parties involved in the
development, creation, documentation, marketing, maintenance, enhancement or
licensing of such computer software, except for any intellectual property
licensed by the Company in the ordinary course of its business to its content
partners; and provided, however, that such title shall remain subject to
applicable laws, including, without limitation, a foreign jurisdiction's
moral rights. Except as set forth in Section 4.19(b) or (c) of the Company
Disclosure Schedule, the Company Owned Software is not dependent on any
Company Licensed Software (as defined in subsection (c) below) in order to
operate fully in the manner in which it is intended. The source code of any
Company Owned Software has not been published or knowingly disclosed to any
other parties, except as set forth on Section 4.19(b) of the Company
Disclosure Schedule, and except pursuant to contracts requiring such other
parties to keep the source code of any Company Owned Software confidential;
to the Company's knowledge, no such other party has breached any such
obligation of confidentiality.
(b) Section 4.19(c) of the Company Disclosure Schedule also sets forth
a list of the agreements which require the payment of license fees, rents,
royalties or other charges by the Company with respect to all software (other
than "off-the-shelf" software that has not been customized for its use) under
which the Company is a licensee, lessee or otherwise has obtained the right
to use software and the Company pays a royalty for the use of such software
(the "Company Licensed Software"), and copies of all such agreements have
been provided to HDG. The Company, as applicable, has the right and license
to use, sublicense, modify and copy Company Licensed Software, free and clear
of any limitations or encumbrances, except as may be set forth in Section
4.19(c) of the Company Disclosure Schedule or in the agreements referenced
therein. The Company is in compliance with all provisions of each license,
lease or other similar agreement pursuant to which it has rights to use the
Company Licensed Software. Except as disclosed on Section 4.19(c) of the
Company Disclosure Schedule, none of the Company Licensed Software has been
incorporated into or made a part of any Company Owned Software or any other
Company Licensed Software. The Company has not published or disclosed any
Company Licensed Software to any other party, except for any Company
Subsidiary. To the Company's knowledge, no party to whom the Company has
disclosed Company Licensed Software has breached such obligation of
confidentiality.
(c) The Company Owned Software and Company Licensed Software, other
than "off-the-shelf" software, constitute all software currently used in the
business of the Company (collectively, the "the Company Software"). The
transactions contemplated herein will not cause a material breach
or default under any license, leases or similar agreements relating to the
Company Software or impair the ability of the Company to use the Company
Software subsequent to the Effective Time in the same manner as the Company
Software is currently used by the Company. Except as set forth in Section
4.19(a), the Company is not knowingly infringing in any material respect any
intellectual property rights of any other person or entity with respect to
the Company Software, and no other person or entity is infringing any
intellectual property rights of the Company with respect to the Company
Software.
A4.20 BUSINESS LOCATIONS. The Company owns or leases no real property
in any state or country except as set forth in Section 4.20 of the Company
Disclosure Schedule. The Company has no executive offices or places of
business except as otherwise set forth on the Company Disclosure Schedule.
A4.21 COMPENSATION OF DIRECTORS, OFFICERS AND EMPLOYEES. There is set
forth in Section 4.21 of the Company Disclosure Schedule a true and complete
list showing (a) the names of all directors and officers of the Company, and
(b) the names of all employees of the Company with an annual base
compensation in excess of $75,000, together with a statement of the full
amount paid or required to be paid to each such person for services in all
capacities rendered in the year ending December 31, 1998 and to be rendered
for the 6 months ending June 30, 1999, separately including the amounts paid
or payable, or expected to be paid or payable, under bonus, incentive or
accrued vacation/sick time arrangements, if any.
A4.22 COMPANY PLACEMENT; COMPLIANCE WITH LAW. The Company Placement
(as defined in Section 6.2(d) below) has been and will be made in accordance
with all applicable federal and state securities laws; provided, however,
that the Company shall have no obligation under this Agreement to consummate
the Company Placement in full or in part. The private placement memorandum,
any supplements thereto, all other material disseminated by the Company to
any investor or potential investor in connection with the Company Placement,
and any materials filed by the Company with the SEC or any state securities
regulatory agency (collectively, the "Placement Documents") complied and will
comply in all material respects with all applicable federal and state
securities laws, rules and regulations. Copies of all of the Placement
Documents have been provided to HDG.
A4.23 NO OMISSIONS OR UNTRUE STATEMENTS. No representation or warranty
made by the Company to HDG and HDG Sub in this Agreement or the Company
Disclosure Schedule contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to
make the statements contained herein or therein in light of the circumstances
in which made not misleading as of the date hereof and as of the Closing Date.
AI
REPRESENTATIONS AND WARRANTIES OF HDG AND HDG SUB
HDG and HDG Sub hereby represent and warrant to the Company as follows
(subject in each case to such exceptions as are set forth or cross-referenced
in the attached HDG Disclosure Schedule in the labeled section corresponding
to the caption of the representation or warranty to which such exceptions
relate):
A5.1 ORGANIZATION AND QUALIFICATION. (a) Each of HDG and HDG Sub is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of HDG and HDG Sub has all requisite
corporate power to carry on its business as it is now being conducted and HDG
is duly qualified to do business as a foreign corporation and is in good
standing in all jurisdictions set forth in Section 5.1 of the HDG Disclosure
Schedule, and such jurisdictions are the only ones in which the properties
owned, leased or operated by HDG or the nature of the business conducted by
HDG makes such qualification necessary, except where the failure to qualify
(individually or in the aggregate) will not have any Material Adverse Effect
on HDG. The copies of the Certificate of Incorporation and By-laws of each of
HDG and HDG Sub, as amended to date and delivered to the Company, are true
and complete copies of these documents as now in effect. The minute books of
each of HDG and HDG Sub are accurate in all material respects, and true and
complete copies of all such minutes since each corporation's inception have
been delivered to the Company.
(a) Other than as set forth in the HDG Disclosure Schedule and HDG Sub,
there are no HDG Subsidiaries. As used herein, the term "HDG Subsidiary"
shall mean any corporation or other entity of which HDG, directly or
indirectly, controls or which HDG owns, directly or indirectly, 50% or more
of the stock or other voting interests, the holders of which are, ordinarily
or generally, in the absence of contingencies (which contingencies have not
occurred) or understandings (which understandings have not yet been required
to be performed) entitled to vote for the election of a majority of the board
of directors or any similar governing body. Except as set forth in the HDG
Disclosure Schedule and HDG Sub, HDG does not own any capital stock or other
voting interests in any other corporation or similar business entity nor is
HDG a partner in any partnership. Neither HDG, HDG Sub, nor any HDG
Subsidiary has any Israeli affiliates.
A5.2 CAPITALIZATION. The authorized capital stock of HDG consists solely
of: (a) 20,000,000 shares of HDG Common Stock, of which (i) 1,602,056 shares
are issued and outstanding and (ii) 349,370 shares ("Escrow Shares") are
issued and held in escrow, subject to the terms of that certain Escrow
Agreement ("Escrow Agreement"), dated as of November 1996, by and among,
American Stock Transfer & Trust Company ("AST"), HDG, and the stockholders
thereto, and (b) 5,000,000 preferred shares, $.01 par value per share, none
of which are outstanding. In addition, there are authorized, issued and
outstanding: (x) 1,880,000 redeemable Class A Common Stock Purchase Warrants
(the "Class A Warrants") providing for the issuance, upon exercise, of a like
number of shares of HDG Common Stock plus a like number of redeemable Class B
Common Stock Purchase Warrants (the "Class B Warrants," together with the
Class A Warrants, the "HDG Warrants") providing for the issuance upon
exercise, of a like number of shares of HDG Common Stock, and (y) 1,380,000
redeemable Class B Warrants. The Class A Warrants and Class B Warrants are
exercisable at $6.50 and $8.75 per warrant, respectively, subject to the
terms of that certain Warrant Agreement, dated as of February 11, 1997, by
and among HDG, AST and Blair. In addition, Blair holds the right to purchase
from HDG up to 108,000 registered units (the "Units"), each unit consisting
of one share of HDG Common Stock, one Class A Warrant and one Class B
Warrant, subject to the terms of the Unit Purchase Options (the "Unit
Purchase Options") dated February 14, 1997 from HDG to Blair. In addition,
Marc J. Gorlin ("Gorlin") holds the right to purchase from HDG 12,000 Units,
subject to the terms of that certain Finder's Unit Purchase Option (the
"Finder's Unit Purchase Option") dated February 14, 1997 from HDG to Gorlin.
In addition, HDG has 185,674 outstanding options ("HDG Options") granted
pursuant to the terms and conditions of its 1996 Stock Option Plan and the
option agreements executed thereunder, with exercises prices and optionees as
set forth in Section 5.2 of the HDG Disclosure Schedule; such HDG Options
include 50,630 options ("Escrow Options"), each with an exercise price of
$0.50 per option and subject to the terms of the Escrow Agreement. All of the
outstanding securities of HDG are duly authorized, validly issued, fully paid
and non-assessable, and were not issued in violation of the preemptive rights
of any person. The HDG Common Stock to be issued upon effectiveness of the
Merger, when issued in accordance with the terms of this Agreement, shall be
duly authorized, validly issued, fully paid and non-assessable. All of the
outstanding securities of HDG including the HDG Common Stock, the HDG
Warrants and the Units were issued in compliance with all applicable
securities laws. 149,900 shares of capital stock are held in the treasury of
HDG. Other than as stated in this Section 5.2, there are no outstanding
subscriptions, options, warrants, calls or rights of any kind issued or
granted by, or binding upon HDG, to purchase or otherwise acquire any shares
of capital stock of HDG or other securities of HDG. Except as stated in this
Section 5.2, there are no outstanding securities convertible or exchangeable,
actually or contingently, into shares of HDG Common Stock or other securities
of HDG. HDG has 2,115,100 shares of HDG Common Stock issued and outstanding
on a fully diluted basis, excluding HDG Warrants, Units and HDG Options with
exercise prices at or above the Transaction Price (solely for this purpose,
Transaction Price shall be calculated as of the date hereof with a Cash Value
as of the date hereof, and as of Closing with a Cash Value as of the Closing
Date); and HDG has a maximum of 5,620,000 shares of HDG Common Stock which
may be issued upon the exercise of all of HDG's outstanding HDG Warrants,
Units and HDG Options with exercises prices above the Transaction Price
(solely for this purpose, Transaction Price shall be calculated as of the
date hereof with a Cash Value as of the date hereof, and as of Closing with a
Cash Value as of the Closing Date). Section 5.2 of the HDG Disclosure
Schedule sets forth a complete and accurate list of (k) all stockholders of
record of HDG, indicating
the number of HDG Common Stock held of record by each such stockholder, (l)
all holders of HDG Options, indicating the number of HDG Options held of
record by each such optionee and the exercise price thereof, (m) all holders
of HDG Warrants, indicating the number and class of HDG Warrants held of
record by each such warrant holder, and (n) all holders of Units, indicating
the number of Units held of record by each such holder. Except as set forth
in Section 5.2 of the HDG Disclosure Schedule, no person has a right to
register any shares of capital stock or securities of HDG in connection with
the Merger or the Registration Statement. Other than the rights set forth in
this Section 5.2 and those rights waived in the Blair Letters, none of Blair,
J. Morton Davis nor D.H. Blair & Co., Inc. have any rights with respect to
the Merger or the transactions contemplated by this Agreement.
The authorized capital stock of HDG Sub consists solely of 1,000 shares
of Common Stock, $.01 par value ("HDG Sub Common Stock"), of which 100 shares
are issued and outstanding, all of which are held by HDG. All of the
outstanding shares of HDG Sub are duly authorized, validly issued, fully paid
and non-assessable, and were not issued in violation of the preemptive rights
of any person. All of the outstanding shares of HDG Sub were issued in
compliance with all applicable securities laws. Other than as stated in this
Section 5.2, there are no outstanding subscriptions, options, warrants, calls
or rights of any kind issued or granted by, or binding upon HDG Sub, to
purchase or otherwise acquire any shares of capital stock of HDG Sub or other
securities of HDG Sub. Except as stated in this Section 5.2, there are no
outstanding securities convertible or exchangeable, actually or contingently,
into shares of HDG Sub Common Stock or other securities of HDG Sub.
A5.3 AUTHORITY; NON-CONTRAVENTION; APPROVALS.
(a) Each of HDG and HDG Sub has full corporate power and authority to
enter into this Agreement and, subject to the HDG Stockholders' Approval and
the Required Statutory Approvals, to consummate the transactions contemplated
hereby. Each of HDG's and HDG Sub's execution and delivery of this Agreement,
and its consummation of the transactions contemplated hereby, have been duly
authorized by its Board of Directors (and by HDG as the sole stockholder of
HDG Sub) and no other corporate proceedings on its part are necessary to
authorize the consummation of the transactions contemplated hereby, except
for the HDG Stockholders' Approval, and the obtaining of the Required
Statutory Approvals. This Agreement has been duly and validly executed and
delivered by each of HDG and HDG Sub, and constitutes its valid and binding
agreement, enforceable against it in accordance with its terms, except that
such enforcement may be subject to the Bankruptcy Exception; provided,
however, that neither HDG nor HDG Sub has initiated, nor to its knowledge has
any party initiated, voluntary or involuntary proceedings under any chapter
of the United States bankruptcy laws.
(b) Each of HDG's and HDG Sub's execution and delivery of this
Agreement does not, and its consummation of the transactions contemplated
hereby will not, violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination or acceleration under, or result in the creation of any
lien, security interest, charge or encumbrance upon any of its properties or
assets under any of the terms, conditions or provisions of (i) its
Certificate of Incorporation or By-Laws, (ii) subject to obtaining the
Required Statutory Approvals and the receipt of the Company Stockholders'
Approval and the HDG Stockholders' Approval, any statute, law, ordinance,
rule, regulation, judgment, decree, order, injunction, writ, permit or
license of any court or governmental authority applicable to it or any of its
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which it is now a party or
by which it or any of its properties or assets may be bound, excluding from
the foregoing clauses (ii) and (iii), such violations, conflicts, breaches,
defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
Material Adverse Effect on HDG or HDG Sub, as the case may be.
(c) Except for (i) the filing of the Registration Statement, the SB-2
Amendment and the J&L Registration Statement; (ii) the filing of the Proxy
Statement/Prospectus with the SEC pursuant to the Securities Act, and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iii) the
declaration of the effectiveness thereof by the SEC and filings with and
approvals of various state blue sky and comparable foreign securities
authorities, (iv) the making of the Merger Filing, (v) the filing of a
Current Report on Form 8-K with respect to HDG's entry into this Agreement,
and (vi) the receipt of an exemption from the Israel Securities Authority
("ISA") with respect to the offer and sale of securities to the Israeli
public, and compliance with any conditions thereof, or the receipt of an ISA
approval of a prospectus and its publication, including, without limitation,
compliance with any applicable ISA reporting requirements with respect to the
offer of securities to an Israeli public (the filings, declarations and
approvals referred to in clauses (i) through (vi) are collectively referred
to as the "Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for HDG's and
HDG Sub's execution and delivery of this Agreement or consummation of the
transactions contemplated hereby by HDG and HDG Sub.
A5.4 CONTRACTS LISTED; NO DEFAULT. All material contracts, agreements,
licenses, leases, easements, permits, rights of way, commitments, and
understandings, written or oral connected with HDG (the "HDG Contracts"),
except employment or other agreements terminable at will, are, with the
exception of this Agreement, described in HDG's SEC Reports (as defined in
Section 5.13) and listed as exhibits thereto. Copies of all material HDG
Contracts have been delivered to the Company. The HDG Contracts are valid,
binding and enforceable by HDG against
the other parties thereto in accordance with their terms. Neither HDG nor any
of the other parties thereto is in material default or breach of any
provision of the HDG Contracts. Nor has any event occurred which, with the
lapse of time or action by a third party, could result in a material default
under the terms thereof. No stockholder of HDG has received any payment in
violation of law from any contracting party in connection with or as an
inducement for causing HDG to enter into any HDG Contract. Other than this
Agreement, HDG Sub is not a party to any contract or agreement.
A5.5 LITIGATION. Except as set forth in Section 5.5 of the HDG
Disclosure Schedule there is no (i) claim, action, suit or proceeding pending
or, to the knowledge of HDG, threatened against HDG or HDG Sub before any
court or governmental or regulatory authority or body or arbitration
tribunal, or (ii) outstanding judgment, order, writ, injunction or decree, or
application, request or motion therefor, of any court, governmental agency or
arbitration tribunal in a proceeding to which HDG, HDG Sub or any of their
assets was or is a party.
A5.6 TAXES. (a) Since HDG's inception, HDG and all HDG Subsidiaries
have filed all Tax Returns that they were required to file, and all such Tax
Returns were correct and complete in all material respects. Since HDG's
inception, all Taxes owed by HDG and all HDG Subsidiaries (whether or not
shown on any Tax Return) have been paid, and neither HDG nor any HDG
Subsidiary currently is the beneficiary of any extension of time within which
to file any Tax Return. There is no dispute or claim concerning any Tax
liability of HDG or any HDG Subsidiary either (A) claimed or raised by any
governmental authority in writing, or (B) as to which any of the directors
and officers of HDG or any HDG Subsidiary has knowledge based upon personal
contact with any agent of such authority. Section 5.6 of the HDG Disclosure
Schedule sets forth a list of all Tax Returns of HDG and all HDG Subsidiaries
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. HDG and all HDG Subsidiaries have delivered to the
Company correct and complete copies of all Tax Returns, examination reports,
and statements of deficiencies assessed against or agreed to by any of HDG or
any HDG Subsidiary, since HDG's inception. Neither HDG nor any HDG
Subsidiary has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to Tax assessment or deficiency.
Neither HDG nor any HDG Subsidiary has filed a consent under Code Section
341(f) concerning collapsible corporations. Neither HDG nor any HDG
Subsidiary has made any material payments, nor is obligated to make any
material payments, nor is a party to any agreement that as a result of the
transactions contemplated herein or any prior transaction could obligate it
to make any payments that will not be deductible under Code Section 280G.
Neither HDG nor any HDG Subsidiary is a party to any Tax allocation or
sharing agreement. Neither HDG nor any HDG Subsidiary (A) has been a member
of an affiliated group filing a consolidated federal income Tax Return or (B)
has any liability for the Taxes of any person under Code regulation Section
1.1502-6 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise. The unpaid Taxes of HDG
and all HDG Subsidiaries (a) did not, as of the most recent fiscal month end
prior to Closing exceed by any material amount the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the most
recent balance sheet (rather than in any notes thereto) and (B) will not
exceed
by any material amount that reserved as adjusted for operations and
transactions through the Closing Date in accordance with the past custom and
practice of HDG and all HDG Subsidiaries in filing their income Tax Returns.
A5.7 EMPLOYEE PLANS. Except as disclosed in HDG's SEC Reports, HDG and
HDG Sub have no employee benefit plans whether as defined in Section 3(3) of
ERISA or otherwise.
A5.8 NO VIOLATION OF LAW. Except as set forth in Section 5.8 of HDG
Disclosure Schedule, neither HDG nor HDG Sub is in material violation of,
nor, to either entities' knowledge, has been given notice or been charged
with any violation of, any law, statute, order, rule, regulation, ordinance
or judgment (including, without limitation, any applicable environmental law,
ordinance or regulation) of any governmental or regulatory body or authority.
Neither HDG nor HDG Sub has received any written notice that any
investigation or review with respect to it by any governmental or regulatory
body or authority is pending or threatened. HDG has all material Permits
necessary to conduct its business as presently conducted. HDG (a) has duly
and timely filed all reports and other information required to be filed with
any governmental or regulatory authority in connection with its Permits, and
(b) is not in material violation of the terms of any of its Permits. Section
5.8 of HDG Disclosure Schedule contains a list of Permits.
A5.9 PROPERTIES. Except as set forth in Section 5.9 of the HDG
Disclosure Schedule, HDG has good and marketable title to all of the assets
and properties which it purports to own as reflected on the most recent
balance sheet comprising a portion of HDG Financial Statements (as defined in
Section 5.12) or thereafter acquired, except assets and properties sold or
otherwise disposed of since the date of such balance sheet in the ordinary
course of business and as set forth in Section 5.9 of the HDG Disclosure
Schedule. HDG has a valid leasehold interest in all material properties of
which it is the lessee, each such lease is valid, binding and enforceable
against HDG and the other parties thereto in accordance with its terms, and a
copy of each such lease has been delivered to the Company. Neither HDG nor
the other parties thereto are in default in the performance of any provision
thereunder. Neither the whole nor any portion of the assets of HDG is subject
to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without
payment of compensation therefor, nor has any such condemnation,
expropriation or taking been proposed. Except as set forth in Section 5.9 of
the HDG Disclosure Schedule, none of the material assets of HDG is subject to
any restriction which by virtue of this Merger prevent continuation of the
use currently made thereof or adversely affect the value thereof.
A5.10 REGISTRATION STATEMENTS, SB-2 AMENDMENT AND PROXY STATEMENT. The
Registration Statement, the J&L Registration Statement, the SB-2 Amendment
and the Proxy Statement/Prospectus will not, in the case of the Proxy
Statement/Prospectus or any
amendments thereof or supplements thereto, at the time of the filing or
mailing of the Proxy Statement/Prospectus and any amendments or supplements
thereto, and at the time of the meeting of the stockholders of HDG to be held
in connection with the transactions contemplated by this Agreement, or, in
the case of the Registration Statement, the J&L Registration Statement and
the SB-2 Amendment, as amended or supplemented, at the time it is filed or
becomes effective and at the time of such meeting, contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading;
provided, that neither HDG nor HDG Sub shall have liability under this
Section 5.10 for information supplied by the Company in writing for inclusion
in the Registration Statement, the J&L Registration Statement, the SB-2
Amendment or Proxy Statement/Prospectus.
A5.11 BUSINESS. HDG, since its formation, has engaged in no business
other than to develop, market and sell its IntelliFit System, and, except for
this Agreement, is not a party to any agreement for the acquisition, lease or
disposition of an operating business. HDG Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in
no other business activities and has conducted its operations only as
contemplated hereby.
A5.12 FINANCIAL STATEMENTS. (a) The financial statements of HDG
(collectively, the "HDG Financial Statements") included in HDG's SEC Reports
(as defined in Section 5.13) present fairly, in all material respects, the
financial position and results of operations of HDG as of the respective
dates, years and periods indicated, prepared in accordance with GAAP and in
accordance with Regulation S-X of the SEC (subject, in the case of unaudited
interim period financial statements, to normal and recurring year-end
adjustments which, individually or collectively, are not material). Without
limiting the generality of the foregoing (i) except as set forth in Section
5.12 of the HDG Disclosure Schedule, there is no basis for any assertion
against HDG as of the date of the most recent balance sheet comprising a
portion of the HDG Financial Statements of any debt, liability or obligation
of any nature required to be stated therein consistent with GAAP not fully
reflected or reserved against in the HDG Financial Statements or in the notes
thereto; and (ii) there are no assets of HDG, the value of which is
materially overstated in the HDG Financial Statements. Except as disclosed
therein or in Section 5.12 of the HDG Disclosure Schedule, HDG has no
contingent liabilities (including, without limitation, liabilities for
Taxes). HDG is not a party to any contract or agreement for the forward
purchase or sale of any foreign currency.
A5.13 HDG'S SEC REPORTS. The HDG Common Stock, HDG Warrants and Units
(including (i) the HDG Common Stock and HDG Warrants underlying such
securities, (ii) the HDG securities underlying the Unit Purchase Option and
the Finder's Unit Purchase Option, and (iii) the HDG Common Stock underlying
the HDG Options) are registered under Section 12 of the Exchange Act. Except
as set forth in Section 5.13 of the HDG Disclosure Schedule, since its
inception, HDG has filed all reports, registration statements and other
documents, together with any amendments
thereto, required to be filed under the Securities Act and the Exchange Act,
including, without limitation, reports on Form 10-KSB, Form 10-QSB and Form
8-K, and HDG will file all such reports, registration statements and other
documents required to be filed by it from the date of this Agreement to the
Closing Date (all such reports, registration statements and documents,
including, without limitation, its initial Form SB-2, filed or to be filed
with the SEC, including HDG's initial registration statement relating to the
HDG Common Stock, HDG Warrants and Units, but excluding the Registration
Statement and the Proxy Statement/Prospectus, are collectively referred to as
"HDG's SEC Reports"). Except as set forth in Section 5.13 of the HDG
Disclosure Schedule, HDG has satisfied all of its obligations to keep any of
HDG's SEC Reports effective for the benefit of any selling securityholders or
otherwise. As of their respective dates, HDG's SEC Reports complied or will
comply in all material respects with all rules and regulations promulgated by
the SEC and did not or will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. HDG has provided to
the Company a true and complete copy of all of HDG's SEC Reports filed on or
prior to the date hereof, and will promptly provide to the Company a true and
complete copy of any such reports filed after the date hereof and prior to
the Closing Date.
A5.14 NASDAQ. Each of the HDG Common Stock, Class A Warrants, Class B
Warrants and Units have been approved for listing on NASDAQ under the
respective symbols "IFIT," "IFITW," "IFITZ" and "IFITU," and HDG is in
compliance in all respects with all rules and regulations of the National
Association of Securities Dealers, Inc. and NASDAQ applicable to HDG and the
listing of such securities on NASDAQ.
A5.15 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 5.15 of HDG Disclosure Schedule, since December 31, 1998 there has
not been:
(a) any material adverse change in the financial condition, operations,
properties, assets, liabilities or business of HDG;
(b) any material damage, destruction or loss of any material properties
of HDG;
(c) any material change in the manner in which the business of HDG has
been conducted;
(d) any material change in the treatment and protection of trade secrets
or other confidential information of HDG; and
(e) any occurrence not included in paragraphs (a) through (d) of this
Section which has resulted, or which HDG has reason to believe could
reasonably be expected to result, in a Material Adverse Effect on HDG.
A5.16 BOOKS, RECORDS AND ACCOUNTS. HDG's books, records and accounts
fairly and accurately reflect in all respects transactions and dispositions
of assets by HDG, and the system of internal accounting controls of HDG is
sufficient to assure that: (a) transactions are executed in accordance with
management's authorization; (b) transactions are recorded as necessary to
permit preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (c) access to assets is permitted only in
accordance with management's authorization; and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
A5.17 BROKERS AND FINDERS. Except for a financial advisory fee in the
form of (i) 8% of the Cash Value payable to Jesup and Lamont Securities
Corp., and (ii) a warrant issued by HDG to Jesup and Lamont Securities Corp.
to purchase 10% of the total number of shares of HDG Common Stock outstanding
immediately prior to the Effective Time (excluding the Escrow Shares), for a
period commencing on the Closing Date and ending on the fifth anniversary of
the Closing Date at an exercise price equal to the Transaction Price, which
fee will be paid upon Closing by HDG (post-Effective Time) or, at such
entity's sole discretion, by the Surviving Corporation, as a transaction
expense, neither HDG nor HDG Sub has employed any investment banker, broker,
finder, consultant or intermediary, including, without limitation, Blair or
any of its affiliates, in connection with the transactions contemplated by
this Agreement which would be entitled to any investment banking, brokerage,
finder's or similar fee or commission in connection with this Agreement, the
transactions contemplated hereby, or that certain Letter Agreement, dated
December 2, 1996, by and between HDG and Blair.
A5.18 INSURANCE. Section 5.18 of the HDG Disclosure Schedule sets
forth the name of the insurer, the name of the policyholder, the name of each
covered insured, the policy number, the period of coverage with respect to
each insurance policy and the annual premium in respect of each such policy
(including fire, theft, casualty, general liability, workers compensation,
business interruption, environmental, product liability, automobile
insurance, directors and officers insurance, and bond and surety
arrangements) to which HDG or any HDG Subsidiary has been a party, a named
insured, or otherwise the beneficiary of coverage at any time since HDG's
inception. Except as noted on Section 5.18 of the HDG Disclosure Schedule
(i) each such insurance policy is enforceable and in full force and effect;
(ii) such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect prior to the Closing, subject to obtaining any consents required
pursuant to such policy that are set forth in Section 5.18 of the HDG
Disclosure Schedule; (iii) neither HDG nor any HDG Subsidiary is in
breach or default (including with respect to the payment of premiums or the
giving of notices) under such policy, and no event has occurred which, with
notice or the lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration, under such policy; and (iv)
neither HDG nor any HDG Subsidiary has received any notice from the insurer
disclaiming coverage or reserving rights with respect to a particular claim
or such policy in general. Neither HDG nor any HDG Subsidiary has incurred
any loss, damage, expense or liability covered by any such insurance policy
for which it has not properly asserted a claim under such policy. HDG and
the HDG Subsidiaries are covered by insurance in scope and amount customary
and reasonable for the businesses in which each is engaged. HDG has not
received notice from any insurer or agent of such insurer that improvements
or expenditures will have to be made in order to continue such insurance, and
no such improvements or expenditures are required (other than premium
payments). There is no material liability under any insurance policy in the
nature of a retroactive rate adjustment or loss sharing or similar
arrangement except as set forth in Section 5.18 of the HDG Disclosure
Schedule.
A5.19 LABOR MATTERS. HDG is not a party to any union contract or other
collective bargaining agreement, other than those set forth in Section 5.19
in the HDG Disclosure Schedule. HDG is in compliance in all material respects
with all applicable laws respecting employment and employment practices (past
and present), terms and conditions of employment and wages and hours, and HDG
is not engaged in any unfair labor practice. There is no labor strike,
slowdown or stoppage pending against or affecting HDG. No petition for
certification has been filed and is pending before the National Labor
Relations Board with respect to any employees of HDG who are not currently
organized.
A5.20 EMPLOYEES. Except for HDG's current directors, officers and
employees (as listed in Section 5.23 of the HDG Disclosure Schedule), neither
HDG nor HDG Sub is a party to any employment, management services,
consultation or other contract or agreement with any officer, director or
employee or, any entity affiliated with any officer, director or employee
other than those set forth in Section 5.20 of the HDG Disclosure Schedule.
A5.21 INTELLECTUAL PROPERTY; SOFTWARE. (a) Section 5.21(a) of the HDG
Disclosure Schedule sets forth a complete and correct list in all material
respects of all patents, trademarks, tradenames, service marks, service
names, brand names and copyright registrations, and applications therefor,
applicable to or used in the business of HDG, together with a complete list
of all licenses granted by or to HDG with respect to any of the above. All
such patents, trademarks, tradenames, service marks, service names, brand
names and copyrights are owned by HDG, free and clear of all liens, claims,
security interests and encumbrances of any nature whatsoever, or are used by
HDG pursuant to valid licenses. Except as set forth in Section 5.21(a) of the
HDG Disclosure Schedule, HDG is not currently in receipt of any notice of any
violation or infringement of, and HDG is not knowingly violating or
infringing in any material respect, the rights of others in any
patent, unpatented invention, trademark, tradename, service mark, copyright,
trade secret, know-how, design, process or other intangible asset.
(a) Except as set forth on Schedule 5.21(b) of the HDG Disclosure
Schedule, HDG has title to all computer software ("HDG Owned Software") owned
by HDG, other than "off-the-shelf" software not customized for its use, free
and clear of all liens, claims, security interests and encumbrances
whatsoever, including, without limitation, claims or rights of employees,
agents, consultants, customers, licensees or other parties involved in the
development, creation, documentation, marketing, maintenance, enhancement or
licensing of such computer software; provided, however, that such title shall
remain subject to applicable laws, including, without limitation, a foreign
jurisdiction's moral rights. Except as set forth in Section 5.21(b) or (c) of
the HDG Disclosure Schedule, the HDG Owned Software is not dependent on any
HDG Licensed Software (as defined in subsection (c) below) in order to
operate fully in the manner in which it is intended. The source code of any
HDG Owned Software has not been published or knowingly disclosed to any other
parties, except as set forth on Section 5.21(b) of the HDG Disclosure
Schedule, and except pursuant to contracts requiring such other parties to
keep the source code of any HDG Owned Software confidential; to HDG's
knowledge, no such other party has breached any such obligation of
confidentiality.
(b) Section 5.21(c) of the HDG Disclosure Schedule also sets forth a
list of the agreements which require the payment of license fees, rents,
royalties or other charges by HDG with respect to all software (other than
"off-the-shelf" software that has not been customized for its use) under
which HDG is a licensee, lessee or otherwise has obtained the right to use
software and HDG pays a royalty for the use of such software (the "HDG
Licensed Software"), and copies of all such agreements have been provided to
the Company. HDG, as applicable, has the right and license to use,
sublicense, modify and copy HDG Licensed Software, free and clear of any
limitations or encumbrances, except as may be set forth in Section 5.21(c) of
the HDG Disclosure Schedule or in the agreements referenced therein. HDG is
in compliance with all provisions of each license, lease or other similar
agreement pursuant to which it has rights to use the HDG Licensed Software.
Except as disclosed on Section 5.21(c) of the HDG Disclosure Schedule, none
of the HDG Licensed Software has been incorporated into or made a part of any
HDG Owned Software or any other HDG Licensed Software. HDG has not published
or disclosed any HDG Licensed Software to any other party. To HDG's
knowledge, no party to whom HDG has disclosed HDG Licensed Software has
breached such obligation of confidentiality.
(c) The HDG Owned Software and HDG Licensed Software, other than
"off-the-shelf" software, constitute all software currently used in the
business of HDG (collectively, the "HDG Software"). The transactions
contemplated herein will not cause a material breach or default under any
license, leases or similar agreements relating to the HDG Software or impair
the ability of HDG and the Surviving Corporation to use the HDG Software
subsequent to the Effective Time in the same manner as HDG Software is
currently used by HDG. Except as set forth in Section 5.21(a), HDG is not
knowingly infringing in any material respect any intellectual property rights
of any other
person or entity with respect to the HDG Software, and no other person or
entity is infringing any intellectual property rights of HDG with respect to
the HDG Software.
A5.22 BUSINESS LOCATIONS. HDG owns or leases no real property in any
state or country except as set forth in Section 5.22 of the HDG Disclosure
Schedule. HDG has no executive offices or places of business except as
otherwise set forth in Section 5.22 of the HDG Disclosure Schedule.
A5.23 COMPENSATION OF DIRECTORS, OFFICERS AND EMPLOYEES. There is set
forth in Section 5.23 of the HDG Disclosure Schedule a true and complete list
showing (a) the names of all directors and officers of HDG and HDG Sub, and
(b) the names of all employees of HDG and HDG Sub, together with a statement
of the full amount paid or required to be paid to each such person for
services in all capacities rendered in the year ending December 31, 1998 and
to be rendered for the 6 months ending June 30, 1999, separately including
the amounts paid or payable, or expected to be paid or payable, under bonus,
incentive or accrued vacation/sick time arrangements, if any.
A5.24 BANK ACCOUNTS. Section 5.24 of the HDG Disclosure Schedule sets
forth the names and locations of all banks, trust companies, savings and loan
associations and other financial institutions at which HDG or any HDG
Subsidiary maintains safe deposit boxes or accounts of any nature and the
names of all persons authorized to draw thereon, make withdrawals therefrom
or have access thereto.
A5.25 NO OMISSIONS OR UNTRUE STATEMENTS. No representation or warranty
made by HDG or HDG Sub to the Company in this Agreement, the HDG Disclosure
Schedule or in any certificate of a HDG or HDG Sub officer required to be
delivered to the Company pursuant to the terms of this Agreement contains or
will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained herein or
therein in light of the circumstances in which made not misleading as of the
date hereof and as of the Closing Date.
AI
CONDUCT OF BUSINESS PENDING THE MERGER
A6.1 CONDUCT OF HDG AND HDG SUB PRIOR TO EFFECTIVE TIME. HDG hereby
covenants and agrees, and agrees to cause each HDG Subsidiary to covenant and
agree, from and after the date of this Agreement and until the earlier of the
Termination Date or the Effective Time (or as otherwise contemplated by
Section 6.1(e) hereof), except as otherwise specifically consented to in
writing by the Company, and at their sole expense, that:
(a) It shall conduct its business in the ordinary and usual course of
business and consistent with past practice;
(b) It shall not incur any debt or liabilities of any kind other than
in the ordinary and usual course of business or in furtherance of the Merger;
(c) It shall not (i) split, combine or reclassify its outstanding
capital stock or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, (ii) spin-off any assets or
businesses, sell any assets or businesses or effect any extraordinary
corporate transaction, excluding the sale of its HDG Owned Software in an
arm's length transaction in which HDG retains all of the proceeds from such
sale, (iii) engage in any transaction for the purpose of effecting a
recapitalization, or (iv) engage in any transaction or series of related
transactions which has a similar effect to any of the foregoing;
(d) It shall not issue, sell, pledge or dispose of, or agree to issue,
sell, pledge or dispose of, any additional shares of, or any options,
warrants or rights of any kind to acquire any shares of its capital stock of
any class, or any debt or equity securities convertible into or exchangeable
for such capital stock or amend or modify the terms and conditions of any of
the foregoing, provided, however, that HDG may: (i) issue shares upon
exercise of outstanding HDG Options or HDG Warrants; and (ii) issue warrants
with respect to the Escrow Shares and Escrow Options as contemplated by
Section 8.2(m) hereof;
(e) It shall not (i) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock, other than as required by the
governing terms of such securities or as requested by the Company from time
to time, (ii) take any action (either before or after the Effective Time)
which would jeopardize the treatment of the Merger as a "reorganization"
within the meaning of Section 368(a) of the Code, (iii) take or fail to take
any action which action or failure to take action would cause it, the Company
or the Company's stockholders (except to the extent that such stockholders
receive cash in lieu of fractional shares) to recognize gain or loss for
federal income tax purposes as a result of the consummation of the Merger, or
(iv) make any acquisition of any assets or businesses;
(f) It shall use its best efforts to preserve intact its business
organization, assets and goodwill, keep available the services of its present
officers, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with it, and not engage in any action, directly or indirectly, with the
intent to impact adversely the transactions contemplated by this Agreement;
(g) It shall confer on a regular basis with one or more representatives
of the Company to report on the general status of its ongoing business, and
immediately alert such representatives to any events that occur which may
have an adverse effect on it or the Merger;
(h) It shall file with the SEC all forms, statements, reports and
documents (including all exhibits, amendments and supplements thereto)
required to be filed by it pursuant to the Exchange Act;
(i) HDG shall prepare and issue, any and all press releases, public
announcements, and any other news or information (collectively, "News")
regarding the Merger, as reasonably requested and approved by the Company;
provided, however, that such News may be lawfully disseminated to the public;
and provided, further, that HDG shall not issue any News without the prior
review and approval of the Company, except that such prior review and
approval shall not be required if, in the reasonable judgment of HDG based
upon the advice of counsel, such prior review and approval would prevent the
timely dissemination of such release or statement in violation of applicable
law, rule, regulation or policy of the NASDAQ;
(j) It shall not amend its Certificate of Incorporation or By-laws;
(k) It shall not (i) acquire, dispose of, transfer, lease, license,
mortgage, pledge or encumber any fixed or other assets; (ii) incur, assume or
prepay any indebtedness, liability or obligation or any other liabilities or
issue any debt securities; (iii) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise)
for the obligations of any other person or entity; (iv) make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(l) It shall pay debts and taxes when due subject to good faith
disputes thereof, and pay or perform other obligations when due;
(m) It shall not make any capital expenditures, capital additions or
capital improvements;
(n) HDG shall use its best efforts to maintain HDG's current NASDAQ
listings under the trading symbols "IFIT," "IFITU," "IFITW" and "IFITZ;" and
(o) With respect to subsections (b-e, j, k and m) it shall not enter
into any contract, agreement, commitment or arrangement with respect to any
of foregoing subsections.
A6.2 CONDUCT OF THE COMPANY PRIOR TO EFFECTIVE TIME. The Company
hereby covenants and agrees, from and after the date of this Agreement and
until the earlier of the Termination Date or the Effective Time (or as
otherwise contemplated by Section 6.2(e) hereof), except as otherwise
specifically consented to in writing by HDG, and at the Company's sole
expense, that:
(a) It shall conduct its business in the ordinary and usual course of
business and consistent with past practice;
(b) Subject to the Company's right to engage in the transactions
described in Section 6.2(d)(iv) hereof, it shall not incur any debt or
liabilities of any kind other than in the ordinary and usual course of
business or in furtherance of the Merger;
(c) It shall not (i) split, combine or reclassify its outstanding
capital stock or declare, set aside or pay any dividend or distribution
payable in cash, stock, property or otherwise, (ii) spin-off any assets or
businesses, (iii) engage in any transaction for the purpose of effecting a
recapitalization, or (iv) engage in any transaction or series of related
transactions which has a similar effect to any of the foregoing;
(d) It shall not issue, sell, pledge or dispose of, or agree to issue,
sell pledge or dispose of, any additional shares of, or any options, warrants
or rights of any kind to acquire any shares of its capital stock of any class
or any debt or equity securities convertible into or exchangeable for such
capital stock or amend or modify the terms and conditions of any of the
foregoing, provided, however, that it may: (i) issue shares upon exercise of
outstanding options, warrants or stock purchase rights; (ii) grant options,
warrants and stock purchase rights, and issue shares upon
exercises thereof, to new and existing directors, officers, employee and
consultants in accordance with past practices in number of shares of Company
Common Stock underlying such securities and at exercise prices consistent
therewith or in accordance with the Company Stock Option Plans; (iii) issue
capital stock or equivalents thereof or derivative securities, including,
without limitation, convertible preferred stock of any class or series, in
exchange for gross proceeds of up to $2,100,000 (the "Company Placement"); or
(iv) issue capital stock or equivalents thereof, debt, or derivative
securities, in connection with the acquisition by asset purchase, stock
purchase or otherwise of any internet business or related technology,
provided, however, that any such transaction under this subsection (iv) be
closed prior to the filing by HDG of the Registration Statement (with the
exception of the transactions contemplated by the Term Sheet, dated May 16,
1999 as further set forth in Section 4.11 of the Company Disclosure Schedule);
(e) It shall not (i) take any action (either before or after the
Effective Time) which would jeopardize the treatment of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code, or (ii)
take or fail to take any action which action or failure to take action would
cause it or the Company's Stockholders (except to the extent that such
stockholders receive cash in lieu of fractional shares or Dissenting Stock)
to recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger;
(f) It shall use its best efforts to preserve intact its business
organization, assets and goodwill, keep available the services of its present
officers, and preserve the goodwill and business relationships with
suppliers, distributors, customers, and others having business relationships
with it, and not engage in any action, directly or indirectly, with the
intent to impact adversely the transactions contemplated by this Agreement;
(g) It shall confer on a regular basis with one or more representatives
of HDG to report on the general status of its ongoing business, and
immediately alert such representatives to any events that occur which may
have an adverse effect on the Company or the Merger; and
(h) With respect to subsection (b-e), it shall not enter into any
contract, agreement, commitment or arrangement with respect to any of the
foregoing subsections.
A6.3 NO SOLICITATION.
(a) The Company agrees that, prior to the earlier of the Termination
Date or the Effective Time, the Company will not, directly or indirectly,
(whether through any of its directors, officers, employees, agents or
representatives or otherwise) solicit, initiate, facilitate, encourage
(including by way of furnishing or disclosing information), entertain or
consider any inquiries, or proposals regarding: (1) any merger,
consolidation, stock exchange, tender offer or other business combination
involving the Company, (2) any disposition, sale or transfer of all or any
substantial portion of the assets of the Company or of the assets of any
division of the Company, or more than 25% of the total voting power of the
capital stock of the Company or (3) any equity or debt financing other than
the Merger (collectively, "Company Transactions"), or negotiate, explore or
otherwise knowingly communicate in any way with any third party (other than
HDG or its affiliates) with respect to any Company Transactions or enter into
any agreement, arrangement or understanding requiring it to abandon,
terminate or fail to consummate the Merger or any other transactions
expressly contemplated by this Agreement; provided, however, that the Company
shall have the right to conduct the Company Placement and initiate all
actions necessary thereto; provided, however, that nothing contained in this
Section 6.3(a) shall prevent the Company or its Board of Directors from,
prior to obtaining the Company Stockholders' Approval, furnishing information
to, or entering into discussions or negotiations with, any third party in
connection with an unsolicited bona fide written proposal for a Company
Transaction by such third party, if and to the extent that (i) such third
party has made a written proposal to the Company Board of Directors which
identifies a price or range of values to be paid, (ii) the Company Board of
Directors determines in good faith, after consultation with its financial
advisors that the proposed Company Transaction is reasonably capable of being
consummated on substantially the terms proposed and would result in a
transaction that would provide greater value to the Company's stockholders
than the Merger (a "Company Superior Proposal"), and (iii) the Company Board
of Directors is advised by independent counsel that failure to enter into
negotiations with respect to such Company Superior Proposal would be
reasonably likely to be inconsistent with the Company Board's fiduciary
duties under applicable law. The Company shall promptly notify HDG after
receipt by the Company or the Company's knowledge of the receipt by any of
its advisors of a proposed Company Transaction or any request for information
by a party that informs the Company or its advisors that is considering
proposing a Company Transaction. Such notice shall be made orally and in
writing and shall indicate the identity of the offeror and the terms and
conditions of its proposal. In the event that at any time prior to obtaining
the Company Stockholders' Approval the Company shall have received a Company
Superior Proposal, the Company Board may, upon written notice to HDG advising
HDG that the Company Board is prepared to accept or recommend such Company
Superior Proposal and subject to the other limitations set forth in this
paragraph, terminate this Agreement pursuant to Section 10.1(e).
(b) HDG agrees that, prior to the earlier of the Termination Date or
the Effective Time, HDG will not, directly or indirectly, (whether through
HDG Sub or any of their directors, officers, employees, agents or
representatives or otherwise) solicit, initiate, facilitate, encourage
(including
by way of furnishing or disclosing information), entertain or consider any
inquiries or proposals regarding: (a) any merger, consolidation, share
exchange, tender offer or other business combination involving HDG or HDG
Sub, (b) any disposition, sale or transfer of all or any substantial portion
of the assets of HDG or HDG Sub or of the assets of any division of HDG, or
any of the total voting power of the capital stock of HDG or HDG Sub or (c)
any equity or debt financing other than the Merger (collectively, "HDG
Transactions"), or negotiate, explore or otherwise knowingly communicate in
any way with any third party (other than the Company or its affiliates) with
respect to any HDG Transactions or enter into any agreement, arrangement or
understanding requiring it to abandon, terminate or fail to consummate the
Merger or any other transactions expressly contemplated by this Agreement;
provided, further, that nothing contained in this Section 6.3(b) shall
prevent HDG or its Board of Directors from, prior to obtaining the HDG
Stockholders' Approval, furnishing information to, or entering into
discussions or negotiations with, any third party in connection with an
unsolicited bona fide written proposal for an HDG Transaction by such third
party, if and to the extent that (i) such third party has made a written
proposal to the HDG Board of Directors which identifies a price or range of
values to be paid in connection with the proposed HDG Transaction, (ii) the
HDG Board of Directors determines in good faith, after consultation with its
financial advisors that the proposed HDG Transaction is reasonably capable of
being consummated on substantially the terms proposed and would result in a
transaction that would provide greater value to HDG's stockholders than the
Merger (a "HDG Superior Proposal"), and (iii) the HDG Board of Directors is
advised by independent counsel that failure to enter into negotiations with
respect to such HDG Superior Proposal would be reasonably likely to be
inconsistent with the HDG Board's fiduciary duties under applicable law. HDG
shall promptly notify the Company after receipt by HDG or HDG Sub or HDG's
knowledge of the receipt by any of its advisors of a proposed HDG Transaction
or any request for information by a party that informs HDG, HDG Sub or their
advisors that is considering proposing an HDG Transaction. Such notice shall
be made orally and in writing and shall indicate the identity of the offeror
and the terms and conditions of its proposal. In the event that at any time
prior to obtaining the HDG Stockholders' Approval HDG or HDG Sub shall have
received a HDG Superior Proposal, the HDG Board may, upon written notice to
the Company advising the Company that the HDG Board is prepared to accept or
recommend such HDG Superior Proposal and subject to the other limitations set
forth in this paragraph, terminate this Agreement pursuant to Section 10.1(c).
AI
ADDITIONAL AGREEMENTS
A7.1 ACCESS TO INFORMATION. From the execution of this Agreement and
continuing through the earlier of the Termination Date or the Effective Time,
each of HDG and the Company shall (and cause each of their subsidiaries to)
promptly furnish to the other and the other's accountants, counsel, financial
advisors and other representatives all books, contracts, commitments
and records (including, without limitation, Tax Returns) of it and, during
such period, shall (and cause each of their subsidiaries to) furnish promptly
(a) a copy of each report, schedule and other document: (i) filed or received
by it during such period pursuant to the requirements of federal, state or
foreign securities laws, (ii) filed by it during such period with the SEC in
connection with the transactions contemplated by this Agreement, or (iii)
which may have a material effect on its business, properties or personnel and
(b) such other information concerning its business, properties and personnel
as the other shall reasonably request; provided, however, that, no
investigation pursuant to this Section 7.1 shall negate any representation or
warranty made herein or the conditions to the obligations of the respective
parties to consummate the Merger. All non-public documents and information
furnished to HDG, HDG Sub or to the Company, as the case may be, in
connection with the transactions contemplated by this Agreement shall be
deemed to have been received, and shall be held by the recipient, in
confidence, except that HDG and the Company may disclose such information as
may be necessary in connection with seeking the Required Statutory Approvals,
the HDG Stockholders' Approval, the Company Stockholders' Approval, the
Company Placement and as otherwise provided in that certain bilateral
Non-Disclosure Agreement ("NDA"), dated March 23, 1999, by and between HDG
and the Company. The Company shall promptly advise HDG, and HDG shall
promptly advise the Company, in writing, of any change or the occurrence of
any event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, any Material Adverse Effect
on the Company, HDG or HDG Sub, as applicable.
A7.2 REGISTRATION STATEMENTS, SB-2 AMENDMENT AND PROXY STATEMENT/
PROSPECTUS. HDG shall prepare and file with the SEC as soon as is reasonably
practicable after the date hereof, a post-effective amendment to HDG's
initial Form SB-2 (the "SB-2 Amendment"), a registration statement (the "J&L
Registration Statement") to register all of the common shares underlying the
Company Warrants (which registration statement shall be "wrapped around" the
SB-2 Amendment pursuant to Rule 429 of the Securities Act), the Registration
Statement and Proxy Statement/Prospectus, and any amendments, supplements or
schedules thereto, shall use all reasonable efforts to have the Registration
Statement, the SB-2 Amendment and the J&L Registration Statement
simultaneously declared effective by the SEC as promptly as practicable, and
shall distribute the Proxy Statement/Prospectus as necessary. The Company
shall promptly furnish to HDG all information, and take such other actions,
as may reasonably be requested by HDG in connection with the preceding
sentence and shall cooperate with HDG to effect such preparations, filings
and actions. The Company shall also take any action required to be taken
under applicable state blue sky or foreign securities laws in connection with
the issuance of HDG Common Stock as contemplated in Article III hereof;
provided, however, that HDG shall promptly furnish to the Company all
information necessary for the Company to comply with such laws, and shall
take such other actions, including, without limitation, executing, delivering
and filing any and all documentation necessary to comply with such laws, and
shall cooperate with the Company to effect such preparations, filings and
actions.
A7.3 STOCKHOLDERS' APPROVAL. The Company shall use its best efforts to
obtain stockholder approval and adoption (the "Company Stockholders'
Approval") of this Agreement and
the transactions contemplated hereby as soon as practicable following the
date upon which the Registration Statement is declared effective by the SEC.
Subject to the fiduciary duties of the Board of Directors of the Company
under applicable law, the Company shall, through its Board of Directors,
recommend to the holders of Company Common Stock approval of this Agreement
and the transactions contemplated by this Agreement. HDG shall also use its
best efforts to obtain stockholder approval and adoption (the "HDG
Stockholders' Approval") of this Agreement and the transactions contemplated
hereby as soon as practicable following the date upon which the Registration
Statement is declared effective by the SEC. Subject to the fiduciary duties
of the Board of Directors of HDG under applicable law as advised by
independent counsel, HDG shall, through its Board of Directors, recommend to
the holders of HDG Common Stock approval of this Agreement and the
transactions contemplated by this Agreement.
A7.4 NASDAQ LISTING. HDG shall timely notify the Nasdaq Stock Market of the
Merger and the shares to be issued in connection therewith. HDG and the
Company shall each use its best efforts to cause such additional HDG shares
to be approved for listing on NASDAQ. HDG shall bear the expenses of
applying for and obtaining such authorization; provided, however, that the
Company shall bear its own expenses in cooperating with all reasonable
requests in connection with such application and authorization.
A7.5 AGREEMENT TO COOPERATE. Subject to the terms and conditions herein
provided, each of the parties hereto shall cooperate and use their respective
best efforts to take, or cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its reasonable efforts to obtain all
necessary or appropriate waivers, consents and approvals and SEC "no-action"
letters, to effect all necessary registrations, filings and submissions and
to lift any injunction or other legal bar to the Merger (and, in such case,
to proceed with the Merger as expeditiously as possible), subject, however,
to obtaining the Required Statutory Approvals, the Company Stockholders'
Approval and the HDG Stockholders' Approval; and provided, however, that
nothing in this Section 7.5 shall affect any responsibility or obligation
specifically allocated to any party in this Agreement.
A7.6 CORRECTIONS TO THE PROXY STATEMENT/PROSPECTUS AND REGISTRATION
STATEMENTS. Prior to the earlier of the Termination Date or the Effective
Time, HDG shall promptly correct any information provided by it to be used
specifically in the Registration Statement, the Proxy Statement/Prospectus,
the SB-2 Amendment and the J&L Registration Statement that shall have become
false or misleading in any material respect, and HDG shall take all steps
necessary to file with the SEC and have declared effective or cleared by the
SEC any amendment or supplement to the Registration Statement, the Proxy
Statement/Prospectus, the SB-2 Amendment and the J&L Registration Statement,
as applicable, so as to correct the same and to cause appropriate
dissemination thereof to the stockholders HDG, in each case to the extent
required by applicable law.
A7.7 DISCLOSURE SUPPLEMENTS. From time to time and prior to the earlier of
the Termination Date or the Effective Time, each of HDG, HDG Sub and the
Company shall promptly supplement or amend its Disclosure Schedule with
respect to any matter arising after the execution of this Agreement that, if
existing, occurring, or known at the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedule or that is
necessary to correct any information in such Disclosure Schedule that is or
has become inaccurate. Notwithstanding the foregoing, if any such supplement
or amendment discloses a Material Adverse Effect, the conditions to the other
party's obligations to consummate the Merger set forth in Article VIII hereof
shall be deemed not to have been satisfied.
A7.8 COMFORT LETTERS. HDG shall use all reasonable efforts to cause to be
delivered to the Company the letters of Richard A. Eisner & Company, LLP,
HDG's independent auditors, described in Section 8.2(c). The Company shall
use all reasonable efforts to cause to be delivered to HDG the letters of
Arthur Anderson LLP, the Company's independent auditors, described in 8.3(e).
Each letter shall be in form and substance reasonably satisfactory to such
recipient, and in scope and substance consistent with applicable professional
standards for letters delivered by independent public accountants in
connection with similar matters.
AI
CONDITIONS
A8.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions
(and with respect to Section 8.1(c), such condition cannot be waived by any
of the parties hereto):
(a) The Company shall have obtained the Company Stockholders' Approval;
(b) HDG shall have obtained the HDG Stockholders' Approval;
(c) The Registration Statement, the SB-2 Amendment and the J&L
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order suspending such
effectiveness shall have been issued and remain in effect;
(d) No preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable efforts to have any such injunction, order or decree lifted);
(e) No action shall have been taken, and no statute, rule or regulation
shall have been enacted, by any state, federal or foreign government or
governmental agency which would prevent the consummation of the Merger;
(f) Other than the Merger Filing, all governmental and third party
consents, orders and approvals legally required for the consummation of the
Merger and the transactions contemplated hereby (including, without
limitation, all Required Statutory Approvals with the exception of Section
5.3(c)(vi) hereof) shall have been obtained and be in effect at the Effective
Time without any limitations or conditions;
(g) As of the Closing Date, all "blue sky" and comparable foreign
jurisdiction securities filings (with the exception of Section 5.3(c)(vi)
hereof) as may be required in order for the offer, issuance and sale of all
of the shares of HDG Common Stock to be issued pursuant to Section 3.1 to be
in full compliance with all applicable state, and foreign securities laws and
regulations shall have been made and shall be in effect, and not subject to
any suspension, revocation, or stop order, as may be required in order for
the offer, issuance and sale of all such securities to be legally permitted
under all such laws and regulations;
(h) HDG and the Company shall have received an opinion of an
independent nationally-recognized investment banking firm addressed to HDG,
dated as of the Closing Date, that the Conversion Ratio and the transactions
contemplated by this Agreement are fair, from a financial point of view, to
HDG's stockholders;
(i) All of the Company's issued and outstanding preferred stock of any
class and series shall have been converted or shall convert into Company
Common Stock prior to or concurrent with the Merger; and
(j) No more than 7% of the Company's capital stock eligible to vote on
the Merger shall be Dissenting Stock.
A8.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY TO EFFECT THE MERGER.
Unless waived by the Company, the obligation of the Company to effect the
Merger shall also be subject to the fulfillment at or prior to the Closing
Date of the following additional conditions:
(a) Each of HDG and HDG Sub shall have performed in all material
respects its covenants and agreements contained in this Agreement required to
be performed on or prior to the Closing Date and the representations and
warranties of HDG and HDG Sub contained in this Agreement shall be true and
correct in all material respects on and as of (i) the date made and (ii) the
Closing Date (except in the case of representations and warranties expressly
made solely with reference to a particular date), and the Company shall have
received a certificate of the President of HDG and HDG Sub to that effect in
substantially the form of EXHIBIT XV hereto;
(b) The Company shall have received an opinion from Christensen,
Miller, Fink, Jacobs, Glaser, Weil and Shapiro, LLP ("Christensen, Miller"),
counsel to HDG and HDG Sub, dated the Closing Date, substantially in the form
set forth in EXHIBIT III hereto and subject to customary exceptions and
qualifications;
(c) The Company shall have received "comfort" letters from Richard A.
Eisner & Company, LLP, independent public accountants for HDG, dated the date
of the Proxy Statement/Prospectus, the effective dates of the Registration
Statement and the J&L Registration Statement and the Closing Date (or such
other date reasonably acceptable to the Company) with respect to certain
financial statements and other financial information included in the
Registration Statement and the J&L Registration Statement in customary form;
(d) The Company shall have received tax opinions, based on
representations of the Company and HDG and their affiliates (substantially in
the forms set forth in EXHIBIT IX hereto, or in such other form or as to such
other matters as shall be required by opining counsel in such counsel's sole
discretion), of Morrison & Foerster LLP, United States counsel to the
Company, and Herzog, Fox & Neeman, as Israeli tax advisor to the Company,
respectively, substantially in the forms set forth in EXHIBIT IV.A. and
EXHIBIT IV.C. hereto and subject to customary exceptions and qualifications;
(e) Since the date of this Agreement there shall not have been any
Material Adverse Effect with respect to HDG or HDG Sub;
(f) The Company shall have received from HDG and HDG Sub an executed
original of an officer's certificate substantially in the form of the
attached EXHIBIT V.A.;
(g) The Company shall have received from HDG and HDG Sub such
additional certificates, opinions and other documents as the Company may have
reasonably requested as to the satisfaction of any of the conditions set
forth in this Section 8.2;
(h) At the Effective Time, HDG shall have a Cash Value of at least
$2,500,000;
(i) Immediately prior to the Effective Time, the HDG Common Stock shall
be publicly traded on the NASDAQ under the trading symbol "IFIT," and HDG
(pre-Effective Time) shall be in full compliance with all NASDAQ continued
listing requirements then in effect;
(j) [Intentionally omitted];
(k) The average share price of the HDG Common Stock, as calculated by
the closing bid prices of the HDG Common Stock trading on NASDAQ under the
trading symbol "IFIT" for the 20 consecutive trading days ending 2 trading
days prior to the Effective Time shall be at, or above, the Transaction Price
per HDG Common Stock share;
(l) Each and every HDG and HDG Sub director, officer and employee shall
tender their resignation to HDG and HDG Sub, respectively, effective at the
Effective Time;
(m) The holders of a minimum of 75% of the aggregate of all Escrow
Shares and all Escrow Options shall sign letter agreements, in substantially
the form set forth in EXHIBIT VI hereto, to convert such number of Escrow
Shares and Escrow Options into 3 year warrants which may be exercised 6
months after issuance, with each Warrant having the right to purchase 1 share
of HDG Common Stock (i) at the Transaction Price in the case of each Escrow
Share, and (ii) at 125% of the Transaction Price in the case of each Escrow
Option;
(n) HDG shall have collected all of the certificates evidencing HDG
securities from all such persons entering into letter agreements with the
Company and HDG to lock-up their HDG securities, which person shall include,
Nautilus Group Japan, Ltd., the Seybold Family Trust and Gregory L. Zink, and
replaced same with identical securities bearing a legend substantially as
follows:
"The securities represented by this certificate may not be
offered, sold, made subject to a contract to sell or an option to
purchase, pledged, transferred, made subject to an open "put
equivalent position" within the meaning of Rule 16a-1(a) under the
Securities Exchange Act of 1934 or otherwise disposed of except in
accordance with the conditions specified in that certain letter
agreement executed by the holder of this certificate, a copy of
which may be inspected by the holder of this certificate at the
offices of HDG, or furnished by HDG to the holder of this
certificate upon written request and without charge."
and shall have delivered copies of all such legended securities to the
Company;
(o) The Company shall have received a letter from AST certifying that
it holds the Escrow Shares and Escrow Options pursuant to the terms and
conditions of the Escrow Agreement;
(p) HDG's stockholders (pre-Effective Time) shall have approved the
appointment of the following persons (or other persons as may be substituted
by the Company prior to the filing of the Proxy Statement/Prospectus) to the
Board of Directors of HDG effective as of the Effective Time:
Avi Moskowitz
Sonja Simon
Harry Fox
David Morris
Peter Jacobs;
(q) HDG's Board of Directors and stockholders (pre-Effective Time)
shall have approved the adoption of the Amended and Restated Certificate of
Incorporation of HDG, in substantially the form set forth in EXHIBIT XI
hereto, including, without limitation, the change of HDG's name to Virtual
Communities, Inc., effective as of the Effective Time;
(r) HDG's Board of Directors and stockholders (pre-Effective Time)
shall have approved the adoption of the Amended and Restated Bylaws of HDG,
in substantially the form set forth in EXHIBIT XII hereto, effective as of
the Effective Time;
(s) (i) HDG (on behalf of itself and its subsidiaries) (pre-Effective
Time) shall have paid in full, 2 days prior to the Effective Time, all of its
costs, fees and expenses, as contemplated by Section 10.5 hereof or
otherwise, whether or not, as of the Effective Time, such costs, fees and
expenses have been incurred, accrued or otherwise remain due and owing, and
such costs, fees and expenses shall have been deducted from HDG's Cash Value
(except for the Post-Effective Time Premium Amount); and (ii) the Company
shall have received from HDG, to the Company's reasonable satisfaction,
receipts or other appropriate documentation evidencing the satisfaction of
this condition 2 days prior to the Effective Time;
(t) HDG's Board of Directors and stockholders (pre-Effective Time)
shall have approved the selection of Arthur Andersen LLP as HDG's independent
auditors effective as of vthe Effective Time;
(u) HDG's Board of Directors and stockholders (pre-Effective Time)
shall have approved a stock plan, in a form reasonably acceptable to the
Company, effective as of the Effective Time;
(v) HDG's Board of Directors shall have taken all necessary action,
effective as of the Effective Time, to ensure HDG's compliance with Section
3.1(f) hereof;
(w) The Company shall have received a letter agreement executed by
Gregory L. Zink in substantially the form of EXHIBIT XIII hereto;
(x) HDG shall have held its annual meeting of stockholders for 1999;
(y) The Company shall have received from HDG, to the Company's
reasonable satisfaction, the necessary documentation to terminate, effective
as of the Effective Time, the access of those HDG officers named in Section
5.24 to the HDG Disclosure Schedule to those accounts named in Section 5.24
to the HDG Disclosure Schedule;
(z) All proceedings in connection with the Merger and the other
transactions contemplated by this Agreement and all agreements, instruments,
certificates, and other documents delivered to the Company by or on behalf of
HDG or HDG Sub pursuant to this Agreement shall be reasonably satisfactory to
the Company and its counsel; and
(aa) The Company shall have received from each HDG and HDG Sub director,
officer and employee, and each holder of 5% or more of HDG's capital stock
(as such persons are identified on EXHIBIT X.A.) a release letter, in
substantially the form of EXHIBIT X.
A8.3 CONDITIONS TO OBLIGATIONS OF HDG AND HDG SUB TO EFFECT THE MERGER.
Unless waived by HDG and HDG Sub, the obligations of HDG and HDG Sub to
effect the Merger shall also be subject to the fulfillment at or prior to the
Closing Date of the additional following conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of (i) the date made and (ii) the Closing Date (except in
the case of representations and warranties expressly made solely with
reference to a particular date) and HDG shall have received a certificate of
the President of the Company to that effect in substantially the form of
EXHIBIT XVI hereto;
(b) Since the date of this Agreement there shall not have been any
Material Adverse Effect with respect to the Company;
(c) All proceedings in connection with the Merger and the other
transactions contemplated by this Agreement and all agreements, instruments,
certificates, and other documents delivered to HDG by or on behalf of the
Company pursuant to this Agreement shall be reasonably satisfactory to HDG
and its counsel;
(d) HDG shall have received an opinion from Morrison & Foerster LLP,
counsel to the Company, dated the Closing Date, substantially in the form set
forth in EXHIBIT IV.B. hereto subject to customary exceptions and
qualifications;
(e) HDG shall have received an "agreed upon procedures" letter from
Arthur Anderson, LLP, independent public accountants for the Company, dated
the date of the Proxy Statement/Prospectus, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to HDG) with respect to certain financial statements and other
financial information included in the Registration Statement in customary
form;
(f) HDG shall have received from the Company an executed original of an
officer's certificate substantially in the form of the attached EXHIBIT V.B;
and
(g) The Company shall have furnished to HDG such additional
certificates, opinions and other documents as HDG may have reasonably
requested as to the satisfaction of any of the conditions set forth in this
Section 8.3.
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INDEMNIFICATION
A9.1 INDEMNIFICATION. (a) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any of the present or former officers or
directors of the Company or a Company Subsidiary (the "Managers") is, or is
threatened to be, made a party by reason of the fact that he is or was a
director, officer, employee or agent of the Company or a Company Subsidiary,
or is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, whether before or after the Effective Time, the parties
hereto agree to cooperate and use their best efforts to defend against and
respond thereto. It is understood and agreed that the Company shall indemnify
and hold harmless, and from and after the Effective Time each of the
Surviving Corporation and HDG shall indemnify and hold harmless, as and to
the full extent permitted by applicable law (including by advancing expenses
promptly as statements therefor are received), each such Manager against any
losses, claims, damages, liabilities, costs, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with any
such claim, action, suit, proceeding or investigation, and in the event of
any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) the Managers may retain counsel satisfactory to them, and the
Company, or the Surviving Corporation and HDG after the Effective Time, shall
pay all fees and expenses of such counsel for the Managers promptly, as
statements therefor are received, and (ii) the Company, or after the
Effective Time the Surviving Corporation and HDG, will use its best efforts
to assist in the vigorous defense of any such matter; provided that neither
the Company nor the Surviving Corporation or HDG shall be liable for any
settlement effected without its prior written consent (which consent shall
not be unreasonably withheld); and provided further that the Surviving
Corporation and HDG shall have no obligation hereunder to any Manager when
and if a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that
indemnification of such Manager in the manner contemplated hereby is
prohibited by applicable law. Any Manager wishing to claim indemnification
under this Section, upon learning of any such claim, action, suit, proceeding
or investigation, shall promptly notify the Company and, after the Effective
Time the Surviving Corporation and HDG, thereof (provided that the failure to
give such notice shall not affect any obligations hereunder, unless the
indemnifying party is actually and materially prejudiced thereby).
(a) The parties hereto agree that all rights to indemnification
existing in favor of the Managers as provided in the Company's Certificate of
Incorporation or Bylaws or similar documents of any Company Subsidiary as in
effect as of the date hereof, and in any agreement between the Company or any
Company Subsidiary and any Manager with respect to matters occurring prior to
the Effective Time, shall survive the Merger and shall continue in full force
and effect for a period of not less than six years.
(b) The parties hereto agree that all rights to indemnification
existing in favor of any of the present or former officers or directors of
HDG (the "HDG Managers") as provided in HDG's Certificate of Incorporation or
Bylaws or similar documents of any HDG Subsidiary as in effect as of the date
hereof, and any agreement between HDG or any HDG Subsidiary and any HDG
Manager set forth in SCHEDULE 9.1(c) with respect to matters occurring prior
to the Effective Time, shall survive the Merger and shall continue in full
force and effect for a period of not less than six years.
(c) For a period of six years after the Effective Time, HDG shall cause
to be maintained in effect policies of directors' and officers' liability
insurance covering acts and omissions occurring prior to the Effective Time
for the benefit of the Managers, and the HDG Managers who are currently
covered by such policies, on terms no less favorable than the terms of such
current insurance coverage. In the event that any such current insurance
coverage as to the HDG Managers shall terminate or expire prior to the
Effective Time, HDG may renew such current policies on terms no more
favorable to the HDG Managers than such current policies (except with the
prior written consent of the Company) and the amount paid or incurred by HDG
for such renewal shall be apportioned pro rata between HDG (pre-Effective
Time) and HDG (post-Effective Time) based on the number of days elapsed from
the date of such renewal to the Effective Time as a portion of the number of
days of the term of such renewal, and the resulting amount ("Post-Effective
Time
Premium Amount") apportioned to HDG (post-Effective Time) shall be deemed
added to the Cash Value as set forth in Section 3.1(b)(iv).
(d) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each indemnified party and his or her heirs
and representatives.
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TERMINATION, AMENDMENT AND WAIVER
A10.1 TERMINATION. This Agreement may be terminated at any time (such time
being the "Termination Date") prior to the Closing Date, whether before or
after approval by the stockholders of the Company and/or HDG:
(a) by mutual consent in writing of HDG and the Company;
(b) unilaterally upon written notice by HDG to the Company upon the
occurrence of any Material Adverse Effect with respect to the Company;
(c) unilaterally upon written notice by HDG to the Company in
accordance with, and subject to, Section 6.3(b) with respect to HDG's
acceptance or recommendation of a HDG Superior Proposal, provided, however,
that no termination pursuant to this Section 10.1(c) shall be effective
unless and until HDG shall have paid the termination fee pursuant to Section
10.5(b);
(d) unilaterally upon written notice by the Company to HDG upon
the occurrence of any Material Adverse Effect with respect to HDG or HDG Sub;
(e) unilaterally upon written notice by the Company to HDG in
accordance with, and subject to, Section 6.3(a) with respect to the Company's
acceptance or recommendation of a Company Superior Proposal, provided,
however, that no termination pursuant to this Section 10.1(e) shall be
effective unless and until the Company shall have paid the termination fee
pursuant to Section 10.5(c);
(f) unilaterally upon written notice by HDG to the Company in the event
of the Company's material breach when made of any material representation or
warranty of the Company contained in this Agreement, or the Company's willful
failure to comply with or satisfy any material covenant or condition of
Company contained in this Agreement, or if the Company fails to obtain the
Company Stockholders' Approval;
(g) unilaterally upon written notice by the Company to HDG in the event
of HDG's or HDG Sub's material breach when made of any material
representation or warranty contained in this Agreement, or HDG's or HDG Sub's
willful failure to comply with or satisfy any material covenant or condition
of HDG or HDG Sub contained in this Agreement, or if HDG fails to obtain the
HDG Stockholders' Approval or the Required Statutory Approvals; or
(h) unilaterally upon written notice by either HDG or the Company to the
other if the Merger is not consummated for any reason not specified or
referred to in the preceding provisions of this Section 10.1 by 5 p.m.
Eastern Standard Time ("EST") on October 31, 1999; provided, however, that
absent any notice by either HDG or the Company to the other, this Agreement
shall terminate without any action by any party hereto at 5 p.m. EST on
November 30, 1999.
A10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either HDG or the Company, or as otherwise provided in Section
10.1, this Agreement shall forthwith become void and there shall be no
further obligation on the part of any party hereto (except as set forth in
the penultimate sentence of Section 7.1 (with respect to confidential and
non-public information), and Section 10.5, which shall survive such
termination). Nothing in this Section 10.2 shall relieve any party from
liability for any breach of this Agreement.
A10.3 AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of the party against whom
enforcement is sought, and in compliance with applicable law; provided, however,
that pursuant to Section 251(d) of the DGCL and subject to the limitations set
forth therein, each of HDG, HDG Sub and the Company may amend this Agreement in
accordance with such Section.
A10.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations
or other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
A10.5 EXPENSES. (a) Except as otherwise provided herein, whether or not
the Merger is consummated, all costs, fees and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs, fees, and expenses; provided,
however, that the financial advisory fee payable to Jesup & Lamont Securities
Corp. set forth in Section 5.17 hereof, shall be paid upon Closing by either
HDG (post Effective-Time) or the Surviving Corporation as a transaction
expense; and provided, further, however, that all costs, fees and expenses
incurred in connection with the Registration Statement, the SB-2 Amendment,
the Proxy Statement/Prospectus, HDG's SEC Reports, the opinion of an
independent nationally-recognized investment banking firm as contemplated in
Section 8.1(h) hereof and the Merger Filing, shall be paid by HDG, including,
without limitation, all registration, filing, and qualification fees
(including those relating to NASDAQ, AST, HDG shareholder meetings and proxy
solicitations), printing expenses, fees and disbursements of counsel for HDG
(including, without limitation, fees and expenses contemplated by the opinion
in Section 8.2(b) hereof), HDG's accounting fees and disbursements
(including, without limitation, fees and expenses contemplated by the comfort
letters in Section 8.2(c) hereof), and expenses of any special audits of
HDG's financial statements incidental to or required by such registrations,
filings or qualifications, except that the Company shall pay the costs, fees
and expenses relating to: (i) the Company's legal counsel or accountants for
their services as contemplated by the second sentence of Section 7.2 hereof;
(ii) all legal fees and expenses relating to state "blue sky" and foreign
jurisdiction securities laws compliance and filings incurred by the Company
pursuant to Section 7.2 hereof; and (iii) the J&L Registration Statement to
the extent the preparation and filing of such statement with the SB-2
Amendment creates additional costs, fees and expenses.
(a) In the event that this Agreement is terminated by HDG pursuant to
Section 10.1(c), HDG shall pay to the Company, via wire transfer of same-day
funds, a termination fee equal to the sum of $300,000. HDG's payment of the
termination fee pursuant to this Section 10.5(b) shall be the sole and
exclusive remedy of the Company against HDG and any of its directors,
officers, employees, agents, advisors and other representatives with respect
to the occurrences giving rise to such payment, provided, however, that this
limitation shall not apply in the event of a material breach of this
Agreement by HDG or HDG Sub.
(b) In the event that this Agreement is terminated by the Company
pursuant to Section 10.1(e), the Company shall pay to HDG, via wire transfer
of same-day funds, a termination fee equal to the sum of $300,000. The
Company's payment of the termination fee pursuant to this Section 10.5(c)
shall be the sole and exclusive remedy of HDG and HDG Sub against the Company
and any of its directors, officers, employees, agents, advisors and other
representatives with respect to the occurrences giving rise to such payment,
provided, however, that this limitation shall not apply in the event of a
material breach of this Agreement by the Company.
(c) In the event that this Agreement is terminated by HDG pursuant to
Section 10.1(b) due to a Material Adverse Effect with respect to the Company
occurring under Section 4.3(b) hereof, the Company shall pay to HDG, via
wire transfer of same-day funds, a termination fee equal to the sum of
$300,000. The Company's payment of the termination fee pursuant to this
Section 10.5(d) shall be the sole and exclusive remedy of HDG and HDG Sub
against the Company and any of its directors, officers, employees, agents,
advisors and other representatives with respect to the occurrences giving
rise to such payment, provided, however, that this limitation shall not apply
in the event of a material breach of this Agreement by the Company.
(d) In the event that this Agreement is terminated by the Company
pursuant to Section 10.1(d) due to a Material Adverse Effect with respect to
HDG or HDG Sub occurring under Section 4.3(b) hereof, HDG shall pay to the
Company, via wire transfer of same-day funds, a termination fee equal to the
sum of $300,000. HDG's payment of the termination fee pursuant to this
Section 10.5(e) shall be the sole and exclusive remedy of the Company against
HDG and HDG Sub and any of its directors, officers, employees, agents,
advisors and other representatives with respect to the occurrences giving
rise to such payment, provided, however, that this limitation shall not apply
in the event of a material breach of this Agreement by HDG or HDG Sub.
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GENERAL PROVISIONS
A11.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations,
warranties, obligations, agreements and covenants of the parties hereto set
forth in this Agreement and in any Disclosure Schedule, Exhibit, certificate,
or letters delivered pursuant to this Agreement shall not survive beyond the
Closing.
A11.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally (effective upon
delivery), mailed by registered or certified mail (return receipt requested)
(effective three business days after mailing), sent by a reputable overnight
courier service for next business day delivery (effective the next business
day) or sent via facsimile (effective upon receipt of the telecopy in
complete, readable form) 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 HDG or HDG Sub to:
Heuristic Development Group, Inc.
1219 Morningside Drive
Manhattan Beach, CA 90266
Attention: Gregory L. Zink, President
FAX: (561) 364-0771
with a copy to:
Christensen, Miller, Fink, Jacobs, Glaser, Weil and Shapiro LLP
2121 Avenue of the Stars, 18th Floor
Los Angeles, CA 90067
Attention: Gary N. Jacobs, Esq.
FAX: (310) 556-2920
(b) If to the Company, to:
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
Attention: Avi Moskowitz, President
FAX: (212) 214-0551
with a copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
FAX: (212) 468-7900
A11.3 INTERPRETATION. The captions, headings and subsections contained in
this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
A11.4 MISCELLANEOUS. This Agreement (including the Exhibits and Disclosure
Schedules hereof), together with the documents and instruments referred to
herein (i) constitutes the entire agreement and supersedes all other prior
agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof (including, without
limitation, that certain letter of intent dated March 31, 1999 between HDG
and the Company; but excluding the NDA); and (ii) shall not be assigned by
operation of law or otherwise, and any attempt to do so shall be void.
A11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER DETERMINED, IN ACCORDANCE WITH AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (AS PERMITTED BY
SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW (OR ANY SIMILAR
SUCCESSOR PROVISION)) WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW RULE THAT
WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
INTERNAL LAWS OF THE STATE OF NEW YORK TO THE RIGHTS AND DUTIES OF THE
PARTIES.
A11.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement. In pleading or proving
this Agreement, it shall not be necessary to produce or account for more than
one fully executed original.
A11.7 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of the parties 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
or by reason of this Agreement, except pursuant to Article IX hereof. HDG
shall cause HDG Sub to perform its obligations hereunder.
A11.8 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provisions shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with
its terms.
A11.9 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each party hereto
(a) submits to the jurisdiction of any state or federal court sitting in the
Southern District of New York in any action or proceeding arising out of or
relating to this Agreement, (b) agrees that all claims in respect to the
action or proceeding may be heard and determined in any such court, and (c)
agrees not to bring any action or proceeding arising out of or relating to
this Agreement in any other court. The parties hereto waive any defense of
inconvenient forum to the maintenance of any action or proceeding so brought
and waive any bond, surety or other security that might be required of the
other party with respect thereto. Each party hereto may make service on the
other by sending or delivering a copy of the process to the party to be
served at the address and in the manner provided for the giving of notices in
Section 11.2 hereof. Nothing in this Section 11.8, however, shall affect the
right of any party hereto to serve legal process in any other manner
permitted by law. The parties hereto irrevocably waive the right to a jury
trial in connection with any legal proceeding relating to this Agreement or
the Disclosure Schedules, Exhibits, certificates or letters named herein or
the enforcement of any provision hereof or thereof.
A11.10 CONSTRUCTION. The language used in this Agreement shall be deemed to
be the language chosen by the parties hereto to express their mutual intent,
and no rule of strict construction shall be applied against any party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise.
A11.11 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[The remainder of this page is intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the date
first written above.
HEURISTIC DEVELOPMENT GROUP, INC.
By: /s/ GREGORY L. ZINK
------------------------------------
Name: Gregory L. Zink
Title: President
HDG ACQUISITION SUB, INC.
By: /s/ GREGORY L. ZINK
------------------------------------
Name: Gregory L. Zink
Title: President
VIRTUAL COMMUNITIES, INC.
By: /s/ AVI MOSKOWITZ
-------------------------------------
Name: Avi Moskowitz
Title: President
EXHIBIT I
CERTIFICATE OF MERGER
OF
HDG ACQUISITION SUB, INC.
INTO
VIRTUAL COMMUNITIES, INC.
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME STATE OF INCORPORATION
- ---- ----------------------
HDG Acquisition Sub, Inc. Delaware
Virtual Communities, Inc. Delaware
SECOND: That an Agreement and Plan of Merger among Heuristic
Development Group, Inc., HDG Acquisition Sub, Inc. and Virtual Communities,
Inc. has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the requirements of
section 251 of the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Virtual Communities, Inc., which shall hereinwith be changed to VCI, Inc.
FOURTH: That the amendments or changes in the Certificate of
Incorporation of Virtual Communities, Inc., the surviving corporation, that
are to be effected by the merger are as follows:
* * * * *
The Certificate of Incorporation of Virtual Communities, Inc. shall be
amended and restated in its entirety to read:
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
VIRTUAL COMMUNITIES, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the Delaware General Corporation Law
---------------------------------------
The Certificate of Incorporation of Virtual Communities, Inc. (the
"Corporation"), as (i) originally filed with the Secretary of the State of
Delaware on August 13, 1996, under the name of Virtual Jerusalem Ltd., (ii)
as amended on July 2, 1997, (iii) as amended by the filing of the certificate
of designation of Series A Convertible Preferred Stock on February 12, 1999,
(iv) as amended by the filing of the amended certificate of designation of
Series A Convertible Preferred Stock on February 18, 1999, (v) as amended by
filing the certificate of designation of Series B Convertible Preferred Stock
on __________, 1999, and (vi) as amended by the filing of the amended
certificate of designation of Series A Convertible Preferred Stock on
_______, 1999, is hereby amended, restated and duly adopted as set forth
below pursuant to the provisions of Section 245 of the Delaware General
Corporation Law, and pursuant to resolutions adopted by the Board of
Directors of the Corporation by unanimous written consent dated __________,
1999, in accordance with the provisions of Section 141(f) of the Delaware
General Corporation Law and the Certificate of Incorporation, as amended, and
the Bylaws of the Corporation, and pursuant to resolutions adopted by holders
of the necessary number of shares of the Corporation's capital stock, acting
by written consent dated ___________, 1999, in accordance with the provisions
of Section 228 of the Delaware General Corporation Law and the Certification
of Incorporation, as amended, and the By-laws, of the Corporation. Prompt
written notice of the taking of such corporate action without a meeting by
less than unanimous written consent was given to those stockholders of the
Corporation entitled to vote in respect thereof who did not consent thereto
in writing.
THE UNDERSIGNED does hereby certify as follows:
FIRST: The name of the Corporation (hereinafter referred to as the
"Corporation") is
VCI, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOURTH: The aggregate number of shares of all classes of stock which
the Corporation shall have the authority to issue is One Thousand (1,000)
shares, all of which shall be common stock, $.0001 par value.
FIFTH: The number of directors of the Corporation shall be such as from
time to time shall be fixed in the manner provided in the Bylaws. Election of
directors need not be by written ballot unless the Bylaws shall so provide.
SIXTH: In furtherance and not in limitation of the powers and
authorities herein or by statute expressly conferred upon them, the Board of
Directors, is expressly authorized and empowered to make, alter or repeal the
Bylaws of the Corporation.
SEVENTH: Meetings of stockholders and directors may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to the provisions of Delaware law) outside
of the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
EIGHTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director notwithstanding any provision of law imposing such liability;
provided, however, that this provision shall not eliminate or limit the
liability of a director, to the extent that such liability is imposed by
applicable law, (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 or successor provisions of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. This provision shall not eliminate the liability of a
director for any act or omission occurring prior to the date upon which this
provision becomes effective. No amendment to or repeal of this provision
shall apply to or have any effect on the liability or alleged liability of
any director for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by statute, and all
rights and powers conferred herein on stockholders, directors or officers are
granted subject to these reservations.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for the Corporation
under the provisions of Section 291 of the Delaware General Corporation Law
or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279
of the Delaware General Corporation Law order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders,
of the Corporation, as the case may be, and also on the Corporation.
ELEVENTH: The name and mailing address of the incorporator of the
Corporation is Julian Parks, National Corporate Research, Ltd., 225 West 34th
Street, New York, NY 10122.
* * * * *
FIFTH: That the executed Agreement and Plan of Merger is on file at an
office of the surviving corporation, the address of which is VCI, Inc. c/o
Virtual Communities, Inc., 151 West 25th Street, New York, NY 10001,
Attention: President.
SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
Dated:___________, 1999
VIRTUAL COMMUNITIES, INC.
By /s/ AVI MOSKOWITZ
----------------------------------
Avi Moskowitz
President
EXHIBIT II
AMENDED AND RESTATED
BYLAWS
OF
VCI, INC.
ARTICLE I
Offices
SECTION 1.1 REGISTERED OFFICE.
The registered office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle.
SECTION 1.2 OTHER OFFICES.
The corporation shall also have and maintain an office or principal
place of business at 151 West 25th Street, New York, New York 10001 and may
also have offices at such other places, both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the corporation may require.
ARTICLE II
Stockholders' Meetings
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated
from time to time by the Board of Directors, or, if not so designated, then
at the office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the corporation, commencing
with the year 2000, for the purpose of election of directors and for such
other business as may lawfully come before it, shall be held on such date and
at such time as may be designated from time to time by the Board of
Directors, or, if not so designated, then at 10:00 a.m. on May 15, in each
year if not a legal holiday or weekend, and, if a legal holiday or weekend,
at the same hour and place on the next succeeding business day not a holiday
or weekend.
SECTION 2.3 SPECIAL MEETINGS.
Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by the Chairman of the Board or the President or
the Board of Directors at any time.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, written notice of each meeting of stockholders, whether annual
or special, specifying the place, date and hour and purpose or purposes of
the meeting, shall be given not less than ten nor more than sixty days before
the date of the meeting to each stockholder entitled to vote thereat,
directed to his address as it appears upon the books of the corporation;
except that where the matter to be acted on is a merger or consolidation of
the Corporation or a sale, lease or exchange of all or substantially all of
its assets, such notice shall be given not less than twenty nor more than
sixty days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken,
would entitle shareholders fulfilling the requirements of section 262(d) of
the Delaware General Corporation Law to an appraisal of the fair value of
their shares, the notice of such meeting shall contain a statement of that
purpose and to that effect and shall be accompanied by a copy of that
statutory section.
(c) When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken unless the
adjournment is for more than thirty days, or unless after the adjournment a
new record date is fixed for the adjourned meeting, in which event a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of
stockholders may be waived in writing, either before or after such meeting,
and to the extent permitted by law, will be waived by any stockholder by his
attendance thereat, in person or by proxy. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the
pleasure of the person who executed it or of his legal representatives or
assigns, except in those cases where an irrevocable proxy permitted by
statute has been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by
law, the Certificate of Incorporation, or these Bylaws, the presence, in
person or by proxy duly authorized, of the holders of a majority of the
issued and outstanding shares of stock entitled to vote shall constitute a
quorum for the transaction of business. Shares, the voting of which at said
meeting have been enjoined, or which for any reason cannot be lawfully voted
at such meeting, shall not be counted to determine a quorum at said meeting.
In the absence of a quorum, any meeting of stockholders may be adjourned,
from time to time, by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such
meeting. At such adjourned meeting at which a quorum is present or
represented any business may be transacted which might have been transacted
at the original meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
(b) Except as otherwise provided by law, the Certificate of
Incorporation or these Bylaws, all action taken by the holders of a majority
of the voting power represented at any meeting at which a quorum is present
shall be valid and binding upon the corporation.
(c) Except where otherwise provided by law, the Certificate of
Incorporation or in any Certificate of Designation (as filed by, or caused to
be filed by, the corporation with the Secretary of State of the State of
Delaware pursuant to Section 151 of the Delaware General Corporation Law),
where a separate vote by a class, series or classes is required, a majority
of the outstanding shares of such class, series or classes, present in person
or represented by proxy duly authorized, shall constitute a quorum entitled
to take action with respect to that vote on that matter and the affirmative
vote of the majority of shares of such class, series vor classes present in
person or represented by proxy duly authorized at the meeting shall be the
act of such class.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names
shares entitled to vote stand on the stock records of the corporation on the
record date for determining the stockholders entitled to vote at said meeting
shall be entitled to vote at such meeting. Shares standing in the names of
two or more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have
the right to vote such shares and such shares shall be deemed to be
represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the
right to do so either in person or by an agent or agents authorized by a
written proxy executed by such person or his duly authorized agent, which
proxy shall be filed with the Secretary of the corporation at or before the
meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date
unless the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may authorize
another person or persons to act for him as proxy pursuant to subsection (b)
of this section, the following shall constitute a valid means by which a
stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another
person or persons to act for him as proxy. Execution may be accomplished by
the stockholder or his authorized officer, director, employee or agent
signing such writing or causing his or her signature to be affixed to such
writing by any reasonable means including, but not limited to, by facsimile
signature.
(2) A stockholder may authorize another person or persons to
act for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Such authorization can be established by the
signature of the stockholder on the proxy, either in writing or by a
signature stamp or facsimile signature, or by a number or symbol from which
the identity of the stockholder can be determined, or by any other procedure
deemed appropriate by the inspectors or other persons making the
determination as to due authorization. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to subsection
(c) of this section may be substituted or used in lieu of the original
writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written
report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspectors,
and (v) certify their determination of the number of shares represented at
the meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at a meeting shall be
announced at the meeting. No ballot, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery upon application by a
stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the inspectors shall be limited to an examination of the proxies, any
envelopes submitted with those proxies, any information provided in
accordance with Section 212(c)(2) of the Delaware General Corporation Law,
ballots and the regular books and records of the corporation, except that the
inspectors may consider other reliable information for the limited purpose of
reconciling proxies and ballots submitted by or on behalf of banks, brokers,
their nominees or similar persons which represent more votes than the holder
of a proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the
time they make their certification pursuant to subsection (b)(v) of this
section shall specify the precise information considered by them including
the person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was obtained and
the basis for the inspectors' belief that such information is accurate and
reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged
in alphabetical order, showing the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified in the notice of the meeting, or, if
not specified, at the place where said meeting is to be held, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board of Directors, otherwise properly brought before the meeting by or
at the direction of the Board of Directors or otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 45 days nor more than 75 days prior
to the date on which the corporation first mailed its proxy materials for the
previous year's annual meeting of shareholders (or the date on which the
corporation mails its proxy materials for the current year if during the
prior year the corporation did not hold an annual meeting or if the date of
the annual meeting was changed more than 30 days from the prior year). A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare at the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.9, and if he
should so determine he shall so declare at the meeting, and any such business
not properly brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to
request inclusion of a proposal in the corporation's proxy statement to the
extent that such right is provided by an applicable rule of the Securities
and Exchange Commission.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders, by or
at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.10. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 45 days nor more than 75 days prior to the date on
which the corporation first mailed its proxy materials for the previous
year's annual meeting of shareholders (or the date on which the corporation
mails its proxy materials for the current year if during the prior year the
corporation did not hold an annual meeting or if the date of the annual
meeting was changed more than 30 days from the prior year). Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director,
(i) the name, age, business address and residence address of the person, (ii)
the principal occupation or employment of the person, (iii) the class and
number of shares of the corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and
(b) as to the stockholder giving the notice, (i) the name and record address
of the stockholder, and (ii) the class and number of shares of the
corporation which are beneficially owned by the stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth herein. These
provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare at
the meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section to the corporation, written consents signed by a sufficient
number of holders to take action are delivered to the corporation in
accordance with this Section. Prompt notice of the taking of the corporate
action without a meeting by less than unanimous written consent shall be
given to those stockholders who have not consented in writing.
ARTICLE III
Directors
SECTION 3.1 NUMBER AND TERM OF OFFICE.
The number of directors of the corporation shall not be less than three
nor more than nine until changed by amendment of the Certificate of
Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the
vote or written consent of holders of a majority of the outstanding shares or
by the Board of Directors. The exact number of directors shall be fixed from
time to time, within the limits specified in the Certificate of Incorporation
or in this Section 3.1, by a bylaw or amendment thereof duly adopted by the
vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of the
holders of a majority of the outstanding shares entitled to vote, or by the
Board of Directors. Subject to the foregoing provisions for changing the
number of directors, the number of directors of the corporation has been
fixed at seven.
Except as provided in Section 3.3 of this Article III, the directors
shall be elected by a plurality vote of the shares represented in person or
by proxy, at the stockholders annual meeting in each year and entitled to
vote on the election of directors. Elected directors shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any cause, the Board
of Directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 3.2 POWERS.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of
Directors.
SECTION 3.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until
his successor shall have been duly elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this section in the case of
the death, removal, incapacity or resignation of any director, or if the
stockholders fail at any meeting of stockholders at which directors are to be
elected (including any meeting referred to in Section 3.4 below) to elect the
number of directors then constituting the whole Board of Directors.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Board of Directors, the President or the Secretary, such
resignation to specify whether it will be effective at a particular time,
upon receipt by the Board of Directors, the President or the Secretary or at
the pleasure of the Board of Directors. If no such specification is made it
shall be deemed
effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until
his successor shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the
manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new
director or directors elected by a vote of stockholders holding a majority of
the outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where
such meeting is held or at the place announced by the Chairman at such
meeting. No notice of an annual meeting of the Board of Directors shall be
necessary and such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the
Board of Directors shall be held in the office of the corporation required to
be maintained pursuant to Section 1.2 of Article I hereof. Regular meetings
of the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolutions of the Board of
Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time
and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by a majority of the directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours
before the start of the meeting, or sent by first class mail at least 120
hours before the start of the meeting. Notice of any meeting may be waived
in writing at any time before or after the meeting and will be waived by any
director by attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time in accordance with
Section 3.1 of Article III of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a
majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation, or these Bylaws. At each meeting of
the Board of Directors, each director present thereat shall have one vote.
(c) Any member of the Board of Directors, or of any committee thereof,
may participate in a meeting by means of conference telephone or similar
communication equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any
committee thereof, however called or noticed, or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice, if
a quorum be present and if, either before or after the meeting, each of the
directors not present shall sign a written waiver of notice, or a consent to
holding such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or these
Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or of such committee, as the case may
be, consent thereto in writing, and such writing or writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed
or determined by resolution of the Board of Directors; provided, however,
that nothing herein shall be construed to preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
SECTION 3.9 COMMITTEES.
(a) Executive Committee: The Board of Directors may appoint an
Executive Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law, shall
have and may exercise when the Board of Directors is not in session all
powers of the Board in the management of the business and affairs of the
Corporation, except such committee shall not have the power or authority to
amend these Bylaws or to approve or recommend to the stockholders any action
which must be submitted to stockholders for approval under the General
Corporation Law.
(b) Other Committees: The Board of Directors may, by resolution passed
by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committee,
but in no event shall any such committee have the powers denied to the
Executive Committee in these Bylaws.
(c) Term: The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his
death or voluntary resignation, but the Board may at any time for any reason
remove any individual committee member and the Board may fill any committee
vacancy created by death, resignation, incapacity, removal or increase in the
number of members of the committee. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee, and, in
addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 3.9 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter; special meetings of
any such committee may be held at the principal office of the corporation
required to be maintained pursuant to Section 1.2 of Article I hereof; or at
any place which has been designated from time to time by resolution of such
committee or by written consent of all members thereof, and may be called by
any director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time after the meeting and will be waived by any director by
attendance thereat. A majority of the authorized number of members of any
such committee shall constitute a quorum for the transaction of business, and
the act of a majority of those present at any meeting at which a quorum is
present shall be the act of such committee.
ARTICLE IV
Officers
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the corporation shall be a President, a Secretary, and a
Treasurer. The Board of Directors or the president may also appoint a
Chairman of the Board, one or more Vice-Presidents, assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The order of the seniority of the
Vice-Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) General: All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may
be filled by the Board of Directors. Nothing in these Bylaws shall be
construed as creating any kind of contractual right to employment with the
corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman of
the Board of Directors (if there be such an officer appointed) shall be the
chief executive officer of the corporation and, when present, shall preside
at all meetings of the shareholders and the Board of Directors. The Chairman
of the Board of Directors shall perform such other duties and have such other
powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall be the chief executive
officer of the corporation in the absence of the Chairman of the Board and
shall preside at all meetings of the shareholders and at all meetings of the
Board of Directors, unless the Chairman of the Board of Directors has been
appointed and is present. The President shall perform such other duties and
have such other powers as the Board of Directors shall designate from time to
time.
(d) Duties of Vice-Presidents: The Vice-Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the
President is vacant. The Vice-President shall perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings of
the shareholders and of the Board of Directors and any committee thereof, and
shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice, in conformity with these
Bylaws, of all meetings of the shareholders, and of all meetings of the Board
of Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
(f) Duties of Treasurer: The Treasurer shall keep or cause to be kept
the books of account of the corporation in a thorough and proper manner, and
shall render statements of the financial affairs of the corporation in such
form and as often as required by the Board of Directors or the President.
The Treasurer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Treasurer shall
perform all other duties commonly incident to his office and shall perform
such other duties and have such other powers as the Board of Directors or the
President shall designate from time to time. The President may direct any
Assistant Treasurer to assume and perform the duties of the Treasurer in the
absence or disability of the Treasurer, and each Assistant Treasurer shall
perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or persons,
to execute any corporate instrument or document, or to sign the corporate
name without limitation, except where otherwise provided by law, and such
execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, formal contracts of the corporation, promissory
notes, deeds of trust, mortgages and other evidences of indebtedness of the
corporation, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the corporation,
shall be executed, signed or endorsed by the Chairman of the Board (if there
be such an officer appointed) or by the President; such documents may also be
executed by any Vice-President and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and
documents requiring the corporate signature, but not requiring the corporate
seal, may be executed as aforesaid or in such other manner as may be directed
by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds
to the credit of the corporation, or in special accounts of the corporation,
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by
the corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors or, in the
absence of such authorization, by the Chairman of the Board (if there be such
an officer appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the corporation shall be in such
form as is consistent with the Certificate of Incorporation and applicable
law. Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the Chairman of
the Board (if there be such an officer appointed), or by the President or any
Vice-President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, provided that, except as otherwise
provided in section 202 of the Delaware General Corporation Law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/or to give
the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed, and with such proof of the authenticity
of the endorsement and of authority to transfer and of payment of transfer
taxes as the corporation or its agents may require.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the date on which the meeting is
held. A determination of stockholders of record entitled notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. If no record date has been fixed by the Board of Directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of
Directors and prior action by the Board of Directors is required by law, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President
or such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted
thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining
to any such bond, debenture or other corporate security, authenticated by a
trustee as aforesaid, shall be signed by the Treasurer or an Assistant
Treasurer of the corporation, or such other person as may be authorized by
the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall
appear thereon or before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued
and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of
the corporation.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
Indemnification of Officers, Directors, Employees and Agents
SECTION 9.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness, or otherwise), in any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "Proceeding"), by reason of
the fact that he, or a person of whom he is the legal representative, is or
was a director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
or agent of another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit plans,
whether the basis of the Proceeding is alleged action in an official capacity
as a director, officer, employee, or agent or in any other capacity while
serving as a director, officer, employee, or agent (hereafter an "Agent"),
shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended or interpreted (but, in the case of any such
amendment or interpretation, only to the extent that such amendment or
interpretation permits the corporation to provide broader indemnification
rights than were permitted prior thereto) against all expenses, liability,
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid or to be paid in settlement, and any interest,
assessments, or other charges imposed thereon, and any federal, state, local,
or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered
by such person in connection with investigating, defending, being a witness
in, or participating in (including on appeal), or preparing for any of the
foregoing in, any Proceeding (hereinafter "Expenses"); PROVIDED, HOWEVER,
that except as to actions to enforce indemnification rights pursuant to
Section 9.3 of this Article, the corporation shall indemnify any Agent
seeking indemnification in connection with a Proceeding (or part thereof)
initiated by such person only if the Proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance
of the final disposition of such Proceeding, PROVIDED, HOWEVER, that if
required by the Delaware General Corporation Law, as amended, such Expenses
shall be advanced only upon delivery to the corporation of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article or otherwise. Expenses incurred by
other Agents of the corporation (or by the directors or officers not acting
in their capacity as such, including service with respect to employee benefit
plans) may be advanced upon such terms and conditions as the Board of
Directors deems appropriate. Any obligation to reimburse the corporation for
Expense advances shall be unsecured and no interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full
by the corporation within 90 days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the
expense (including attorneys' fees) of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct that make
it permissible under the Delaware General Corporation Law for the corporation
to indemnify the claimant for the amount claimed. The burden of proving such
a defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper under the
circumstances because he has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant had not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office. To the extent that any provision of the Certificate,
agreement, or vote of the stockholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the corporation would have
the power to indemnify the Agent against such Expense under applicable law or
the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim
effected without the corporation's written consent, which consent shall not
be unreasonably withheld; or (b) for any judicial award if the corporation
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of
the Agent, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the corporation effectively to bring suit to
enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS.
The corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable
hereunder.
ARTICLE X
Notices
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his
last known post office address as shown by the stock record of the
corporation or its transfer agent. Any notice required to be given to any
director may be given by the method hereinabove stated, or by telegram or
other means of electronic transmission, except that such notice other than
one which is delivered personally, shall be sent to such address or (in the
case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation,
or, in the absence of such filing, to the last known post office address of
such director. If no address of a stockholder or director be known, such
notice may be sent to the office of the corporation required to be maintained
pursuant to Section 1.2 of Article I hereof. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or
its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall be
conclusive evidence of the statements therein contained. All notices given
by mail, as above provided, shall be deemed to have been given as at the time
of mailing and all notices given by telegram or other means of electronic
transmission shall be deemed to have been given as at the sending time
recorded by the telegraph company or other electronic transmission equipment
operator transmitting the same. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others. The period or limitation of time within which any stockholder may
exercise any option or right, or enjoy any privilege or benefit, or be
required to act, or within which any director may exercise any power or
right, or enjoy any privilege, pursuant to any notice sent him in the manner
above provided, shall not be affected or extended in any manner by the
failure of such a stockholder or such director to receive such notice.
Whenever any notice is required to be given under the provisions of the
statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent
thereto. Whenever notice is required to be given, under any provision of law
or of the Certificate of Incorporation or Bylaws of the corporation, to any
person with whom communication is unlawful, the giving of such notice to such
person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice
to such person. Any action or meeting which shall be taken or held without
notice to any such person with whom communication is unlawful shall have the
same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of
a certificate under any provision of the Delaware General Corporation Law,
the certificate shall state, if such is the fact and if notice is required,
that notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
ARTICLE XI
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11
of Article II, or at any meeting of the stockholders, either annual or
special, by the affirmative vote of a majority of the stock entitled to vote
at such meeting, unless a larger vote is required by these Bylaws or the
Certificate of Incorporation. The Board of Directors shall also have the
authority to repeal, alter or amend these Bylaws or adopt new Bylaws
(including, without limitation, the amendment of any Bylaws setting forth the
number of directors who shall constitute the whole Board of Directors) by
unanimous written consent or at any annual, regular, or special meeting by
the affirmative vote of a majority of the whole number of directors, subject
to the power of the stockholders to change or repeal such Bylaws and provided
that the Board of Directors shall not make or alter any Bylaws fixing the
qualifications, classifications, or term of office of directors.
EXHIBIT III
Form of Opinion
from Christensen, Miller
12. Each of HDG and HDG Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
has the corporate power and authority to conduct its business as presently
conducted.
13. Each of HDG and HDG Sub has the corporate power and authority to
execute and deliver, and to perform and observe the provisions of, the
Documents to which it is a party.
14. The Documents to which HDG is a party have each been duly
authorized, executed and delivered by HDG. Such Documents constitute valid
and binding obligations of HDG enforceable against HDG in accordance with
their respective terms.
15. The Documents to which HDG Sub is a party have each been duly
authorized, executed and delivered by HDG Sub. Such Documents constitute
valid and binding obligations of HDG Sub enforceable against HDG Sub in
accordance with their respective terms.
16. No registration with, consent or approval of, notice to, or other
action by, any governmental entity is required on the part of HDG or HDG Sub
for the execution, delivery or performance by HDG or HDG Sub of the
Documents, or if required, such registration has been made, such consent or
approval has been obtained, such notice has been given or such other
appropriate action has been taken.
17. The execution, delivery and performance of the Documents by HDG are
not in violation of its Certificate of Incorporation and By-laws.
18. The execution, delivery and performance of the Documents by HDG Sub
are not in violation of its Certificate of Incorporation and By-laws.
19. Except as set forth in the HDG Disclosure Schedule, to our
knowledge, neither HDG nor HDG Sub (a) is subject to any unsatisfied
judgment, order, decree, stipulation or injunction and (b) is a party to or
threatened to be made a party to any complaint, action, suit, proceeding,
hearing or investigation of or in any court or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator.
20. Immediately prior to the Effective Time, the authorized, issued and
outstanding capital stock of HDG consists of the shares specified in Section
5.2, and such issued and outstanding shares have been duly authorized,
validly issued and are fully paid and nonassessable, and free of preemptive
rights (or similar rights created by statute, the Certificate of
Incorporation or By-laws of HDG, or, to our knowledge, any agreement to which
HDG is a party). Except as set forth in Section 5.2, to our knowledge, there
are no outstanding or authorized options, warrants, rights, contracts, calls,
puts, rights to subscribe, conversion rights or other agreements or
commitments to which HDG is a party or which are binding upon HDG, providing
for the issuance, disposition or acquisition of any of its capital stock.
All shares of capital stock of HDG that may be issued upon exercise of
options, warrants and conversion or other similar rights will be, when issued
in accordance with the instrument or agreement setting forth such rights,
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights (or similar rights created by statute, the Certificate of
Incorporation or By-laws of HDG, or, to our knowledge, any agreement to which
HDG is a party).
21. Immediately prior to the Effective Time, the authorized, issued and
outstanding capital stock of HDG Sub consists of the shares specified in
Section 5.2, and such issued and outstanding shares have been duly
authorized, validly issued and are fully paid and nonassessable, and free of
preemptive rights (or similar rights created by statute, the Certificate of
Incorporation or By-laws of HDG Sub, or, to our knowledge, any agreement to
which HDG Sub is a party). Except as set forth in Section 5.2, to our
knowledge, there are no outstanding or authorized options, warrants, rights,
contracts, calls, puts, rights to subscribe, conversion rights or other
agreements or commitments to which HDG Sub is a party or which are binding
upon HDG Sub, providing for the issuance, disposition or acquisition of any
of its capital stock. All shares of capital stock of HDG Sub that may be
issued upon exercise of options, warrants and conversion or other similar
rights will be, when issued in accordance with the instrument or agreement
setting forth such rights, duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights (or similar rights created by
statute, the Certificate of Incorporation or By-laws of HDG Sub, or, to our
knowledge, any agreement to which HDG Sub is a party).
22. The HDG Common Stock to be issued following the effectiveness of
the Merger (the "HDG Shares") have been duly authorized, and, upon delivery
to the holders of Company Common Stock or holders of rights to acquire
Company Common Stock in accordance with the Merger Agreement, will be validly
issued, fully paid and nonassessable; and the issuance of the HDG Shares is
not subject to preemptive rights (or similar rights created by statute, the
Certificate of Incorporation or By-laws of HDG, or, to our knowledge, any
agreement to which HDG is a party).
23. The HDG Shares conform in all material respects to the description
thereof contained under the heading "Description of Capital Stock" in the
Proxy Statement/Prospectus.
24. The Registration Statement, the J&L Registration Statement and the
SB-2 Amendment have become effective under the Securities Act, and we are not
aware that any stop
order suspending the effectiveness thereof has been issued or any proceedings
for that purpose have been instituted or are pending or threatened under the
Securities Act.
25. The Registration Statement (including the Proxy
Statement/Prospectus which is a part thereof), the J&L Registration Statement
and the SB-2 Amendment as of the effective date thereof, complied as to form
in all material respects with the requirements of the Securities Act (except
as to the financial statements, supporting schedules, footnotes and other
financial and statistical information included therein, as to which we
express no opinion).
26. There is no contract or other document known to us of a character
required to be described in the Proxy Statement/Prospectus or to be filed as
an exhibit to the Registration Statement, the J&L Registration Statement or
the SB-2 Amendment that is not described or filed as required (except as to
the sections entitled "[VCI disclosure]," as to which we express no opinion).
EXHIBIT IV
A. Form of Tax Opinion from Morrison & Foerster LLP
Virtual Communities, Inc.
151 West 25th St.
New York, New York 10001
Re: AGREEMENT AND PLAN OF MERGER DATED AS OF JUNE __, 1999, AMONG
VIRTUAL COMMUNITIES, INC., HDG ACQUISITION SUB, INC. AND
HEURISTIC DEVELOPMENT GROUP, INC.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the proposed
merger (the "Merger") of HDG Acquisition Sub, Inc. ("Merger Sub"), a Delaware
corporation and wholly owned subsidiary of Heuristic Development Group, Inc.
("HDG"), with and into Virtual Communities, Inc. ("VCI"), a Delaware
corporation, pursuant to the "Agreement and Plan of Merger" dated as of May
__, 1999 (the "Agreement and Plan of Merger") among VCI, Merger Sub and HDG.
The Merger is described in the Registration Statement on Form S-4 of HDG
dated as of ______, 1999, including the Proxy Statement/Prospectus, and the
appendices there to (the "Registration Statement"). Unless otherwise
indicated, capitalized terms not defined herein shall have the meanings
ascribed to them in the Agreement and Plan of Merger or in the letters
delivered to Morrison & Foerster LLP by VCI, HDG and the officers and
directors of HDG after the Merger (the "Representation Letters").
In our capacity as counsel to VCI with respect to the Merger, and for
purposes of rendering this opinion, we have examined and relied upon the
Agreement and Plan of Merger, the Representation Letters, the Registration
Statement, and such other documents as we considered relevant to our
analysis. We have assumed that all parties to the Agreement and Plan of
Merger and to any other documents examined by us have acted, and will act, in
accordance with the terms of such Agreement and Plan of Merger or documents
and that the Merger will be consummated at the Effective Time pursuant to the
terms and conditions set forth in the Agreement and Plan of Merger. Further,
we have assumed that all representations contained in the Agreement and Plan
of Merger, as well as those representations contained in the Representation
Letters are, and at the Effective Time will be, true and complete in all
material respects, and that any representation made "to the knowledge" or
similarly qualified is correct without such qualification. In our
examination of documents, we have assumed the authenticity of original
documents, the accuracy of copies, the genuineness of signatures, and the
legal capacity and authority of the signatories.
The conclusions expressed herein represent our judgment of the proper
treatment of certain aspects of the Merger under the income tax laws of the
United States based upon the Internal Revenue Code of 1986, as amended (the
"Code"), Treasury Regulations, rulings and other pronouncements of the
Internal Revenue Service (the "IRS") currently in effect, and judicial
decisions, all of which are subject to change, prospectively or
retroactively. No assurance can be given that such changes will not take
place, or that such changes would not affect the conclusions expressed
herein. Furthermore, our opinion
represents only our best judgment of how a court would conclude if presented
with the issues addressed herein and is not binding upon either the IRS or
any court. Thus, no assurance can be given that a position taken in reliance
on our opinion will not be challenged by the IRS or rejected by a court.
Our opinion relates solely to the tax consequences of the Merger under
the federal income tax laws of the United States, and we express no opinion
(and no opinion should be inferred) regarding the tax consequences of the
Merger under the laws of any other jurisdiction. This opinion addresses only
the specific issues set forth below, and does not address any other tax
consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger).
No opinion is expressed as to any transaction other than the Merger as
described in the Agreement and Plan of Merger or as to any transaction
whatsoever, including the Merger, if all the transactions described in the
Agreement and Plan of Merger are not consummated in accordance with the terms
of the Agreement and Plan of Merger and without waiver or breach of any
material provision thereof, or if all of the representations, warranties,
statements and assumptions upon which we rely are not true and accurate at
all relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion are
incorrect, our opinion might be adversely affected and may not be relied upon.
On the basis of, and subject to the foregoing, and in reliance upon the
representations described above, we are of the opinion that:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code; and
(2) Each of VCI, Merger Sub and HDG will be a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
This opinion is being provided solely for the benefit of VCI. No other
person shall be entitled to rely on this opinion.
Very truly yours,
B. Form of Corporate Opinion from Morrison & Foerster LLP
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
has the corporate power and authority to conduct its business as presently
conducted.
2. The Company has the corporate power and authority to
execute and deliver, and to perform and observe the provisions of, the
Documents.
3. The Documents have each been duly authorized, executed and
delivered by the Company. The Documents constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms.
4. No registration with, consent or approval of, notice to,
or other action by, any governmental entity is required on the part of the
Company for the execution, delivery or performance by the Company of the
Documents, or if required, such registration has been made,
such consent or approval has been obtained, such notice has been given or
such other appropriate action has been taken.
5. The execution, delivery and performance of the Documents
by the Company are not in violation of its Certificate of Incorporation and
By-laws.
6. Except as set forth in the Company Disclosure Schedule, to
our knowledge, the Company (a) is not subject to any unsatisfied judgment,
order, decree, stipulation or injunction and (b) is not a party to or
threatened to be made a party to any complaint, action, suit, proceeding,
hearing or investigation of or in any court or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator.
7. Immediately prior to the Effective Time, the authorized,
issued and outstanding capital stock of the Company consists of the shares
specified in Section 4.2 of the Company Disclosure Schedule, and such issued
and outstanding shares have been duly authorized, validly issued and are
fully paid and nonassessable, and free of preemptive rights (or similar rights
created by statute, the Certificate of Incorporation or By-laws of the
Company, or, to our knowledge, any agreement to which the Company is a
party). Except as set forth on the Company Disclosure Schedule, to our
knowledge, there are no outstanding or authorized options, warrants, rights,
contracts, calls, puts, rights to subscribe, conversion rights or other
agreements or commitments to which the Company is a party or which are
binding upon the Company providing for the issuance, disposition or
acquisition of any of its capital stock.
C. Form of Tax Opinion from Herzog, Fox & Neeman
_______, 1999
File No. 11304
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
USA
Dear Sirs,
Re: Liability For Israeli Taxes in respect of Merger
------------------------------------------------
1. INTRODUCTION
1.1. You have requested our legal opinion as to the Israeli tax
liability of your company, Virtual Communities, Inc. (the
"Company"), and its Israeli subsidiaries in connection with the
Merger Agreement (as defined below).
1.2. This opinion is based upon the facts set forth in section 2 below,
which you have provided to us. This opinion reflects our best
understanding of the relevant statutory and case law applicable to
these facts. We note that the issues of law addressed herein have
not been passed upon by any Israeli court and have not been the
subject of any professional releases of the Israeli tax
authorities. As such, the opinion set forth herein represents our
view of the law as of the date hereof, but cannot constitute a
prediction of how a court might rule were it to address these
issues.
1.3. The opinion addresses only the liability for Israeli taxes of the
Company and its subsidiaries. We have not addressed any issues
with regard to the tax liability of the shareholders, officers or
employees of the Company.
1.4. We are members of the Israel Bar and we express no opinion as to
any matter relating to the laws of any jurisdiction other than the
laws of Israel.
2. FACTS
2.1. The Company is organized under the laws of the State of Delaware.
The executive, marketing and advertising sales offices of the
Company are located in New York.
2.2. The Company has two Israeli subsidiaries: Virtual Communities
Israel ltd. ("VCIL") and V.C.I. Internet Properties Ltd. ("VCIIP").
The Company holds 99 to 100 outstanding shares of each of VCIL and
VCIIP.
2.3. The Company has entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Heuristic Development Group, Inc.
("HDG"), a Delaware corporation, and HDG Acquisition Sub, Inc.
("HDG Sub"), a Delaware corporation and a wholly-owned subsidiary
of HDG.
2.4. Pursuant to the Merger Agreement:
2.4.1. HDG Sub shall be merged with and into the Company.
2.4.2. The Company shall be the surviving corporation in the
Merger and shall retain its separate legal existence as
well as its assets, obligations and rights. Without
limiting the foregoing, the Company shall NOT be
disposing any of its assets, including the shares of
VCIL and VCIIP.
2.4.3. HDG Sub shall cease its separate corporate existence and
all its assets, obligations and rights will be assumed
by the Company by operation of law.
2.4.4. The outstanding shares of common stock of the Company
shall be converted into the right to receive shares of
common stock of HDG (except that fractional shares shall
receive cash compensation, and certain shareholders may
be entitled to dissenters' rights in respect of their
shares). The options and warrants of the Company shall
be assumed by HDG.
2.4.5. The Company shall become a wholly owned subsidiary of
HDG.
3. OPINION
Based on the facts as detailed above, and subject to the foregoing
qualifications, we are of opinion that neither the Company nor its two
Israeli subsidiaries shall incur liability for Israeli taxes in
connection with the consummation of the Merger Agreement.
Very Truly Yours,
EXHIBIT V
---------
A. Officer's Certificate from HDG and HDG Sub
HEURISTIC DEVELOPMENT GROUP, INC.
HDG ACQUISITION SUB, INC.
CERTIFICATE OF SECRETARY
The undersigned, being the duly appointed and acting Secretary of each
of Heuristic Development Group, Inc., a Delaware corporation (the "Company"),
and HDG Acquisition Sub, Inc., a Delaware corporation (the "Sub"), hereby
certifies as follows:
AI Attached hereto as Exhibit "A" is a true, correct and complete
copy of the currently effective Certificate of Incorporation of the Company,
as amended to date.
AI Attached hereto as Exhibit "B" is a true, correct and complete
copy of the currently effective Certificate of Incorporation of the Sub, as
amended to date.
AI Attached hereto as Exhibit "C" is a true, correct and complete copy
of the currently effective Bylaws of the Company, as amended to date.
AI Attached hereto as Exhibit "D" is a true, correct and complete
copy of the currently effective Bylaws of the Sub, as amended to date.
AI Attached hereto as Exhibit "E" is a true, correct and complete
copy of the resolutions adopted by the Board of Directors of the Company by
unanimous written consent dated _____________, 1999, authorizing, subject to
the approval of the stockholders of the Company, the merger (the "Merger") of
the Sub with and into Virtual Communities, Inc. ("VCI") pursuant to the terms
and conditions of the Agreement and Plan of Merger, dated __________, 1999
between the Company, the Sub and VCI (the "Agreement"), and the execution,
delivery and performance of the Agreement and the documents described
therein; said resolutions have not been amended, modified, annulled or
revoked and are in full force and effect on the date hereof and are all the
resolutions adopted by the Board of Directors of the Company in connection
with the Merger and the Agreement; and the instruments and documents to be
executed on or prior to the dates hereto referred in said resolutions were
executed pursuant thereto and in compliance therewith.
AI Attached hereto as Exhibit "F" is a true, correct and complete
copy of the resolutions adopted by the Board of Directors of the Sub by
unanimous written consent dated _____________, 1999, authorizing, subject to
the approval of the sole stockholder of the Sub, the Merger pursuant to the
terms and conditions of the Agreement, and the execution, delivery and
performance of the Agreement and the documents described therein; said
resolutions have not been amended, modified, annulled or revoked and are in
full force and effect on the date hereof and are all the resolutions adopted
by the Board of Directors of the Sub in connection with the Merger and the
Agreement; and the instruments and documents to be executed on or prior to
the dates hereto referred in said resolutions were executed pursuant thereto
and in compliance therewith.
AI Attached hereto as Exhibit "G" is a true, correct and complete
copy of the resolutions adopted by the sole stockholder of the Sub by
unanimous written consent dated ____________, 1999, authorizing the Merger
and approving the Agreement; and said resolutions have not been amended,
modified, annulled or revoked and are in full force and effect on the date
hereof and are all the resolutions adopted by the sole stockholder of the Sub
in connection with the Merger and the Agreement.
AI Attached hereto as Exhibit "H" is a good standing certificate of
the Company from the Secretary of State of the State of Delaware.
AI Attached hereto as Exhibit "I" is a good standing certificate of
the Sub from the Secretary of State of the State of Delaware.
AI The persons named below have been duly elected and appointed, have
been duly qualified and as of the date hereof are officers of each of the
Company and the Sub holding the respective offices set forth opposite their
names, are duly authorized to act on behalf of the Company and the Sub in
connection with the transactions contemplated by the Merger and the
Agreement, and the signatures set out opposite their names are their genuine
signatures.
NAME POSITION SIGNATURE
- ---- -------- ---------
Gregory L. Zink President and Chief Executive _______________________
Officer
Theodore Lanes Chief Financial Officer _______________________
and Secretary
Capitalized terms not herein defined shall have the meanings assigned to them
in the Agreement.
IN WITNESS WHEREOF, I have hereunto set my name this _____________,
1999.
_______________________
Theodore Lanes,
Secretary
The undersigned, the duly appointed and acting President of the
Company and the Sub, does hereby certify that Theodore Lane has been duly
appointed, and is on this date, the Secretary of the Company and the Sub and
that the signature set forth above is his genuine signature.
IN WITNESS WHEREOF, I have hereunto set my name this ______________,
1999.
_______________________
Gregory L. Zink,
President
B. Officer's Certificate from the Company
VIRTUAL COMMUNITIES, INC.
CERTIFICATE OF SECRETARY
The undersigned, being the duly appointed and acting Secretary of
Virtual Communities, Inc., a Delaware corporation (the "Company"), hereby
certifies as follows:
1. Attached hereto as Exhibit "A" is a true, correct and complete
copy of the currently effective Certificate of Incorporation of the Company,
as amended to date.
2. Attached hereto as Exhibit "B" is a true, correct and complete
copy of the currently effective Bylaws of the Company, as amended to date.
3. Attached hereto as Exhibit "C" is a true, correct and complete
copy of the resolutions adopted by the Board of Directors of the Company by
unanimous written consent dated _____________, 1999, authorizing, subject to
the approval of the stockholders of the Company, the merger (the "Merger") of
HDG Acquisition Sub, Inc. ("HDG Sub") with and into the Company pursuant to
the terms and conditions of the Agreement and Plan of Merger, dated
__________, 1999 between the Company, HDG Sub and Heuristic Development
Group, Inc. ("HDG") (the "Agreement"), and the execution, delivery and
performance of the Agreement and the documents described therein; said
resolutions have not been amended, modified, annulled or revoked and are in
full force and effect on the date hereof and are all the resolutions adopted
by the Board of Directors of the Company in connection with the Merger and
the Agreement; and the instruments and documents to be executed on or prior
to the dates hereto referred in said resolutions were executed pursuant
thereto and in compliance therewith.
4. Attached hereto as Exhibit "D" is a true, correct and complete
copy of the resolutions adopted by the stockholders of the Company (holding
___% of the outstanding voting stock of the Company) by written consent dated
____________, 1999, authorizing the Merger and approving the Agreement; and
said resolutions have not been amended, modified, annulled or revoked and are
in full force and effect on the date hereof and are all the resolutions
adopted by the stockholders of the Company in connection with the Merger and
the Agreement.
5. Attached hereto as Exhibit "E" is a good standing certificate of
the Company from the Secretary of State of the State of Delaware.
6. The persons named below have been duly elected and appointed, have
been duly qualified and as of the date hereof are officers of the Company
holding the respective offices set forth opposite their names, are duly
authorized to act on behalf of the Company in connection with the
transactions contemplated by the Merger and the Agreement, and the signatures
set out opposite their names are their genuine signatures.
NAME POSITION SIGNATURE
- ---- -------- ---------
Avi Moskowitz President and Chairman ______________________
Michael S. Harwayne Vice President of Marketing ______________________
and Business Development
Mark McCourt Vice President of Advertising ______________________
Sales
Sonja Simon Secretary ______________________
Capitalized terms not herein defined shall have the meanings assigned
to them in the Agreement.
IN WITNESS WHEREOF, I have hereunto set my name this _____________,
1999.
_________________________
Sonja Simon,
Secretary
The undersigned, the duly appointed and acting President of the
Company, does hereby certify that Sonja Simon has been duly appointed, and is
on this date, the Secretary of the Company and that the signature set forth
above is her genuine signature.
IN WITNESS WHEREOF, I have hereunto set my name this ______________,
1999.
________________________
Avi Moskowitz,
President
EXHIBIT VI
[Closing Date]
Heuristic Development Group, Inc.
1219 Morningside Drive
Manhattan Beach, CA 90266
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
Gentlemen:
This letter agreement is being delivered to you concurrent with the
merger (the "Merger") of HDG Acquisition Sub, Inc., a Delaware corporation
("HDG Sub"), a wholly-owned subsidiary of Heuristic Development Group, Inc.,
a Delaware corporation ("HDG"), with and into Virtual Communities, Inc., a
Delaware corporation ("VCI"), pursuant to that certain Agreement and Plan of
Merger, dated June __, 1999, among HDG, HDG Sub and VCI (the "Merger
Agreement") (a copy of which has been provided to me).
* * * * *
The undersigned, for himself and itself, as the case may be, and his or its
respective agents, representatives, successors and assigns (collectively, the
"Undersigned") hereby acknowledges and agrees, effective upon the
consummation of the Merger (the "Closing"), as follows:
EXCHANGE OF ESCROW SHARES AND ESCROW OPTIONS FOR WARRANT
Reference is hereby made to that certain Escrow Agreement, dated November
1996, among American Stock Transfer & Trust Company (the "Escrow Agent"), HDG
and the HDG stockholders and optionholders party thereto (the "Escrow
Agreement"). Capitalized terms not defined herein shall have the meanings
given to such terms in the Escrow Agreement.
Subject to the terms and conditions of this agreement, at the Closing, the
Undersigned shall, or shall cause the Escrow Agent to, assign, transfer and
deliver to HDG (i) the Undersigned's Escrow Shares, and the Undersigned's
Escrow Options, if any, for cancellation, together with a stock power
executed in blank and any such other assignment or transfer documentation
that HDG may reasonably request, and (ii) any Escrow Property of the
Undersigned, in consideration for the issuance to the Undersigned by HDG of a
warrant, in substantially the form of ANNEX A hereto (the "Warrant"), to
purchase that number of shares of HDG Common Stock, $.01 par value ("HDG
Common Stock"), equal to the number of the Undersigned's Escrow Shares and
the number of shares of HDG Common Stock underlying the Undersigned's Escrow
Options, if applicable. The exercise price of the Warrant in the case of the
exchange of Escrow Shares shall be the Transaction Price (as defined in the
Merger Agreement). The exercise price of the Warrant in the case of the
exchange of Escrow Options shall be 125% of the Transaction Price. The
Warrant shall be registered in the name of the Undersigned or the
Undersigned's nominee.
Effective as of the Closing, the Undersigned hereby waives any and all of its
rights to the Escrow Shares, the Escrow Options, if applicable, and the
Escrow Property, and any and all of its rights under the Escrow Agreement.
FURTHER ASSURANCES
In addition to the actions hereunder and the documents and instruments
delivered in accordance herewith, the Undersigned and HDG shall each execute
and deliver such other documents and instruments and take such other action
as the other party or the Escrow Agent may reasonably request in order to
complete and perfect the transactions contemplated by this agreement. The
Undersigned hereby irrevocably instructs the Escrow Agent to take any such
acts as may be necessary or convenient to ensure the Undersigned's compliance
with this agreement.
The parties hereto agree to provide notice of this agreement to the Escrow
Agent and D.H. Blair Investment Banking Corp. in accordance with Section 11
of the Escrow Agreement.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE UNDERSIGNED
The Undersigned hereby represents and warrants to and covenants with HDG and
VCI as follows:
(a) The Undersigned understands that the Warrant has not been, and the
shares of HDG Common Stock issuable upon exercise thereof have not been,
registered under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance, in part, upon the exemption provided in Section 4(2) of
the Securities Act. The Undersigned further understands that such exemption
depends in part upon, and that the Warrant is being issued in reliance on the
representations and warranties set forth in this agreement.
(b) The Undersigned is acquiring the Warrant and, if exercised, the shares
of HDG Common Stock issuable thereunder, for the account of the Undersigned,
for investment purposes only and not with a view to, or for, subdivision,
resale, distribution, or fractionalization thereof, or for the account, in
whole or in part, of others. No other person has or will have a direct or
indirect beneficial interest in the Warrant or the shares of HDG Common Stock
issuable thereunder. The Undersigned recognizes the restrictions on the
transferability of the Warrant and the shares of HDG Common Stock issuable
thereunder and is able to bear the substantial economic risk of this
investment, including a complete loss thereof, for an indefinite period of
time. The Undersigned has no need for liquidity of this investment and has
no reason to anticipate any change in circumstances, financial or otherwise,
or other particular occasion or event which might cause or require the
Undersigned to attempt to sell or transfer the Warrant or the shares of HDG
Common Stock issuable thereunder.
(c) The Undersigned understands that the sale and issuance of the Warrant to
the Undersigned is intended to be exempt from registration under the
Securities Act by virtue of Section 4(2) of the Securities Act and applicable
state securities laws. The Undersigned will not sell, hypothecate or
otherwise transfer the Warrant or any part thereof other than in accordance
with the following provisions: (i) pursuant to a registration statement
under the Securities Act which has become effective, and a prospectus related
thereto which is current, with respect to the securities to be disposed of,
and if required, a registration statement under applicable state securities
laws; or (ii) pursuant to a specific exemption from registration under the
Securities Act and applicable state securities laws, but only upon the
Undersigned first having delivered to the Company a favorable written opinion
of counsel for the Undersigned, reasonably satisfactory in form and substance
to the Company, to the effect that the proposed sale or transfer is exempt
from registration under the Securities Act and any applicable state
securities laws.
(d) The Undersigned acknowledges that HDG has not undertaken to register the
Warrant pursuant to the Securities Act and, other than as set forth in the
Warrant, will have no obligation to effect on behalf of the Undersigned any
registration under the Securities Act or to assist the Undersigned in
complying with any exemption from registration under the Securities Act or
any state securities laws.
(e) The Undersigned further represents and warrants that in order to make an
informed decision in connection with the purchase of the Warrant: (i) the
Undersigned recognizes that an investment in the Warrant involves a very high
degree of risk; and the Undersigned has reviewed the merits and risks of an
investment in the Warrant with such tax and legal counsel and with an
investment advisor to the extent deemed advisable by the Undersigned; and
(ii) the Undersigned is a highly sophisticated investor who has such
knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of an investment in the Warrant.
(f) The Undersigned represents and warrants that the Undersigned is an
"accredited investor" as that term is defined in Rule 501 promulgated under
the Securities Act.
(g) The Undersigned is not offering to purchase the Warrant as a result of
or subsequent to any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, or presented at any seminar or meeting, or any
solicitation of a subscription by a person not previously known to the
Undersigned in connection with investments in securities generally.
(h) All information which the Undersigned has furnished and is furnishing to
HDG, including, without limitation, the representation as to the
Undersigned's status as an accredited investor and all other representations
contained in this agreement, are correct and complete as of the date of this
agreement, and if there should be any material change in such information
prior to the Closing, the Undersigned will immediately furnish such revised
or corrected information to HDG.
OWNERSHIP OF ESCROW SHARES AND ESCROW OPTIONS
The Undersigned owns the Escrow Shares and Escrow Options and Escrow
Property, if applicable, free and clear of all liens, pledges, charges,
security interests, claims, options or encumbrances of any kind whatsoever
and pursuant to this agreement will transfer the Escrow Shares and Escrow
Options and Escrow Property, if applicable, to HDG free of all liens,
pledges, charges, security interests, claims, options and encumbrances.
DUE AUTHORIZATION
The Undersigned has all requisite capacity, power and authority to execute,
deliver and perform its obligations under this agreement and the Undersigned
has taken any and all corporate or other action necessary to authorize the
execution, delivery and performance of this agreement by the Undersigned.
This agreement has been duly and validly executed and delivered by the
Undersigned and constitutes the valid, legal and binding obligation of the
Undersigned enforceable against the Undersigned in accordance with its terms.
EFFECT OF AGREEMENT
Neither the execution, delivery nor performance of this agreement, nor the
consummation by the Undersigned of the transactions contemplated hereby will,
with or without the giving of notice and/or the passage of time, conflict
with, result in any violation of, or constitute a default under, any terms of
the Undersigned's organizational documents, if applicable, or any law,
regulation, judgment, decree, order or any other restriction of any kind or
character by which the Undersigned is bound.
GOVERNMENTAL AND OTHER CONSENTS
No consent, approval, waiver, license or authorization of or designation,
declaration or filing with any governmental authority or other person or
entity is required in connection with the execution, delivery or performance
of this agreement by the Undersigned or the consummation of the transactions
contemplated hereby and thereby.
* * * * *
This agreement and all other agreements or instruments executed, issued
or delivered in accordance herewith shall be construed and enforced in
accordance with and governed by the laws of the State of New York. This
agreement shall be binding upon and enure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto.
This agreement embodies the entire agreement and understanding between the
Undersigned, HDG and VCI and supersedes all prior agreements and
understandings relating to the subject matter hereof. This agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument. No modification,
amendment, supplement to or waiver of this agreement shall be binding unless
made in writing and duly signed by the Undersigned, VCI and HDG.
If the Closing does not take place on or before December 31, 1999, this
agreement shall terminate and the parties shall have no obligations hereunder.
Sincerely,
_______________________
Print Name:
AGREED AND ACCEPTED:
Heuristic Development Group, Inc.
By: _________________________
President
Virtual Communities, Inc.
By: _________________________
President
ANNEX A - FORM OF WARRANT
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Void after 5:00 p.m. New York City Time, on [__________], 2002.
Warrant to Purchase [___________] Shares of Common Stock.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF
HEURISTIC DEVELOPMENT GROUP, INC.
This Is To Certify That, FOR VALUE RECEIVED, [_________________]
("Holder") having an address at [_______________________], is entitled to
purchase, subject to the provisions of this Warrant (the "Warrant"), dated
[________________], 1999, from Heuristic Development Group, Inc., a Delaware
corporation (the "Company"), [_____________________________ (________)] fully
paid, validly issued and non-assessable shares of Common Stock (the "Common
Stock"), par value $.01 per share, of the Company at an exercise price of
$[_______] per share at any time or from time to time during the period from
[________________], 2000 [six months from the date hereof] to [_____________,]
2002 [three years from the date hereof], but not later than 5:00 p.m. New
York City Time, on [_____________], 2002. This Warrant is issued pursuant to
the terms of that certain letter agreement, dated [_____________], 1999,
between the Company, Virtual Communities, Inc. and the Holder. The number of
shares of Common Stock to be received upon the exercise of this Warrant and
the price to be paid for each share of Common Stock may be adjusted from time
to time as hereinafter set forth. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter
sometimes referred to as the "Warrant Shares" and the exercise price of a
share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price."
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole or in
part at any time or from time to time on or after [___________], 2000 and
until [______________], 2002 (the "Exercise Period"); provided, however, that
if such day is a day on which banking institutions in the State of New York
are authorized by law to close, then on the next succeeding day which shall
not be such a day. This Warrant may be exercised by presentation and
surrender hereof to the Company at its principal office or to the Company's
warrant agent, if any has been so appointed, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price, in
cash or by certified or bank cashier's check, for the number of Warrant
Shares specified in such form. Notwithstanding the foregoing, in lieu of any
cash payment required hereunder, the Holder of this Warrant shall have the
right at any time during the Exercise Period to exercise the Warrant in full
or in part by surrender of this Warrant (with the election on the Purchase
Form duly completed) to the Company at its principal office or to the
Company's warrant agent, if any has been so appointed, in exchange for the
number of Warrant Shares equal to the product of (a) the number of Warrant
Shares as to which the Warrant is being exercised multiplied by (b) a
fraction, the numerator of which is the Current Market Price (as defined in
Section (j) below) of the Common Stock less the Exercise Price and the
denominator of which is the Current Market Price. As soon as practicable
after each such exercise of the Warrant, the Company shall issue or cause to
be issued and delivered to the Holder a certificate or certificates for the
Warrant Shares issuable upon such exercise, registered in the name of the
Holder. The Warrant shall be deemed to have been exercised immediately prior
to the close of business on the date of any such exercise, provided such
exercise is in accordance with the provisions set forth herein. If this
Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the
Warrant Shares purchasable thereunder. Upon receipt by the Company of this
Warrant at its office in proper form for exercise, the Holder shall be deemed
to be the holder of record of the shares of Common Stock issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such shares of Common Stock
shall not then be physically delivered to the Holder.
(b) RESERVATION OF SHARES. The Company shall at all times reserve for
issuance and/or delivery upon exercise of this Warrant such number of shares
of its Common Stock as shall be required for issuance and delivery upon
exercise of the Warrant.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. If more
than one Warrant shall be exercised at one time by the Holder, the number of
full shares which shall be issuable upon exercise thereof shall be computed
on the basis of the aggregate number of full shares issuable upon such
exercise. No adjustment shall be made in respect of cash dividends on
Warrant Shares delivered upon exercise of any Warrant. With respect to any
fraction of a share called for upon exercise hereof, the Company shall pay to
the Holder an amount in cash equal to such fraction multiplied by the average
closing bid and asked prices of the Common Stock on the last available date
for which quotations are available immediately preceding the date of exercise
of this Warrant, or if the bid and asked prices are not so reported, then by
the current market value, which shall be an amount, not less than the book
value thereof, as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined in such
reasonable manner as may be prescribed by the Board of Directors of the
Company.
(d) EXCHANGE OR LOSS OF WARRANT. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and surrender hereof
to the Company for other Warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of
Common Stock purchasable hereunder. This Warrant may be divided or combined
with other Warrants which carry the same rights upon presentation hereof at
the principal office of the Company with a written notice specifying the
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which
this Warrant may be divided or exchanged. Upon receipt by the Company or
its warrant agent, if any, of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Warrant, if mutilated, the Company will execute and
deliver a new Warrant of like tenor and date.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights
of a stockholder in the Company, either at law or equity, and the rights of
the Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein and in
any warrant agreement entered into by and between the Company and a warrant
agent with respect to the Warrants. In the event the Company enters into a
warrant agreement with a warrant agent, the terms of the Warrant shall be
embodied in the warrant agreement; and the acceptance of this Warrant by the
Holder shall be deemed consent by the Holder for the Company to enter into
any such warrant agreement, upon such terms and conditions mutually agreeable
between the Company and any such warrant agent, provided such warrant
agreement does not adversely affect any of the rights of the Holder, as set
forth in this Warrant.
(f) ANTI-DILUTION PROVISIONS. After each adjustment of the Exercise
Price pursuant to this Section (f), the number of shares of Common Stock
purchasable upon the exercise of the Warrant shall be the number of Warrant
Shares receivable upon exercise thereof prior to such adjustment multiplied
by a fraction the numerator of which shall be the original Exercise Price as
defined above and the denominator of which shall be such adjusted Exercise
Price. The Exercise Price shall be subject to adjustment as set forth below:
(i) In case the Company shall hereafter (A) pay a dividend or make
a distribution on its Common Stock in shares of its capital stock (whether
shares of Common Stock or of capital stock of any other class), (B) subdivide
its outstanding shares of Common Stock, (C) combine its outstanding shares of
Common Stock into a smaller number of shares, or (D) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Company, the Exercise Price in effect immediately prior to such action
shall be adjusted so that the Holder of any Warrant thereafter exercised
shall be entitled to receive the number of shares of capital stock of the
Company which the Holder would have owned immediately following such action
had such Warrant been exercised immediately prior thereto. An adjustment
made pursuant to this subsection shall become effective immediately after the
record date in the case of a dividend and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(ii) No adjustment in the Exercise Price shall be required to be
made unless such adjustment would require an increase or decrease of at least
$.01; provided, however, that any adjustments which by reason of this
subsection are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this
Section (f) shall be made to the nearest cent or to the nearest one-one
hundredth of a share, as the case may be, but in no event shall the Company
be obligated to issue fractional shares upon the exercise of any Warrant.
(iii) No adjustment of the Exercise Price shall be made except on
the conditions set forth in this Section (f). Without limitation to the
foregoing, there shall be no adjustment pursuant to this Section (f) should
the Company issue any capital stock for cash or other consideration on terms
approved by the Board of Directors.
(iv) In case of any reclassification or change of outstanding
shares of Common Stock issuable upon exercise of the Warrants (other than a
change in par value or from par value to no par value or from no par value to
par value or as a result of a subdivision or combination), or in case of any
consolidation or merger of the Company with or into another corporation
(other than a merger with a Subsidiary in which merger the Company is the
continuing corporation and which does not result in any reclassification or
change of the then outstanding shares of Common Stock or other capital stock
issuable upon exercise of the Warrants other than a change in par value or
from par value to no par value or from no par value to par value) or in the
case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, then, as a condition
of such reclassification, change, consolidation, merger, sale or conveyance,
the Company, or such successor or purchasing corporation, as the case may be,
shall make lawful and adequate provision whereby the Holder of the Warrant
shall have the right thereafter to receive on exercise of such Warrant the
kind and amount of shares of stock and other securities and property
receivable upon such reclassification, change, consolidation, merger, sale or
conveyance by a holder of the number of shares of Common Stock issuable upon
exercise of such Warrant immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such provisions shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided elsewhere in this Section (f). The
above provisions of this Section (f) shall similarly apply to successive
reclassifications and changes of shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(v) Before taking any action which would cause an adjustment
reducing the Exercise Price below the then par value of the shares of Common
Stock issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in
order that the Company may validly and legally issue fully paid and
non-assessable shares of such the Company at such adjusted Exercise Price.
(g) INVESTMENT REPRESENTATION. By accepting this Warrant, the Holder
acknowledges that it is being taken for his own account as principal, for
investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof, in whole or in part, and no other
person has a direct or indirect beneficial interest in such Warrant, and such
Warrant may only be transferred, subject to compliance with the legend set
forth on the first page, which legend shall appear on any such transferred
Warrant. Unless the shares issuable upon the exercise of this Warrant are
registered under the Securities Act of 1933, as amended (the "Act"), the
Holder, upon exercise of this Warrant will be required to provide the Company
with an investment letter and the certificates representing such shares will
contain a legend to the effect that the Holder may not transfer, sell,
pledge or hypothecate such shares unless the registration provisions of the
Act have been complied with and unless the Company has received an opinion of
counsel that such registration is not required.
(h) REGISTRATION RIGHTS. The Company hereby grants the Holder the
right to "piggy back" the Warrant Shares upon the exercise of this Warrant on
each registration statement for the sale of Common Stock filed by the Company
after the date hereof (except for the Company's Registration Statements on
Form S-4 and S-8 or their equivalents), at the Company's cost and expense
(except those incurred by the Holder for legal fees and commissions). Such
"piggy back" rights are subject to standard underwriters' approval and
holdback, whereby: (i) the Holder's rights to sell in the registered offering
would be limited pro rata with the other stockholders, and (ii) if the
underwriter requests, the Holder will lock up for the same period as the
other stockholders.
(i) NOTICES. All notices and other communications which are required
or may be given under this Warrant shall be in writing and shall be deemed to
have been duly given when delivered in person or transmitted by telex or
three (3) days after being mailed, postage prepaid, in the case of the
Company to Heuristic Development Group, Inc., c/o Virtual Communities, Inc.,
151 West 25th Street, New York, New York 10001, Attention: President, with a
copy to: Morrison & Foerster LLP, 1290 Avenue of the Americas, 40th Floor,
New York, New York 10104, Attention: Joseph W. Bartlett, Esq., and in the
case of the Holder to the address set forth herein, or to such other address
as such party shall have specified by notice to the Company. If notice is
given by registered or certified first class mail, postage prepaid, return
receipt requested, the return receipt shall be conclusive evidence of the
notice having been mailed on the date set forth.
(j) DEFINITION. The "CURRENT MARKET PRICE" per share of Common Stock
on any date shall be deemed to be the average of the daily closing prices for
the thirty (30) consecutive trading days immediately preceding the date in
question. The closing price for each day shall be the last reported sales
price regular way or, in case no such reported sale takes place on such day,
the closing bid price regular way, in either case on the principal national
securities exchange (including, for purposes hereof, the NASDAQ Stock Market,
Inc. ("NASDAQ")) on which the shares of Common Stock are listed or admitted
to trading, or, if the shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the highest reported bid price
for the Common Stock as furnished by the National Association of Securities
Dealers, Inc. (the "NASD") or a similar organization if the NASD is no longer
reporting such information (including for purposes hereof NASDAQ). If on any
such date the shares of Common Stock are not listed or admitted to trading on
any national securities exchange and are not quoted by the NASD or any
similar organization, the Current Market Price shall be the fair value of a
share on such date, as determined in good faith by the Board of Directors of
the Company, whose determination shall be conclusive.
(k) MISCELLANEOUS. This Warrant contains the entire agreement, and
supersedes all prior agreements and understandings, oral or written, between
the parties hereto with respect to the subject matter hereof. This Warrant
may not be changed orally, but only by an agreement in writing signed by the
party against whom any waiver, change, amendment, modification or discharge
is sought, provided however, that
this Warrant may be amended or modified without the consent of the Holder if
such amendment or modification does not adversely affect the rights of the
Holder hereunder. This Agreement will not be assigned by the Company and
shall be interpreted under the laws of the State of New york.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
date set forth above.
HEURISTIC DEVELOPMENT GROUP, INC.
By:________________________________
President
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires
to transfer the attached Warrant)
FOR VALUE RECEIVED _________________________________ hereby sells,
assigns, and transfers unto ________________________ a warrant (the
"WARRANT") to purchase __________ shares of Common Stock, par value $.01 per
share, of Heuristic Development Group, Inc. (the "COMPANY"), together with
all right, title, and interest therein, and does hereby irrevocably
constitute and appoint ______________________________________________ as
attorney to transfer such Warrant on the books of the Company, with full
power of substitution.
Dated_________________________
Signature________________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of the Warrant in every particular, without alteration
or enlargement or any change whatsoever.
PURCHASE FORM
Dated _________________
The undersigned hereby irrevocably elects to exercise the within Warrant to
the extent of purchasing ___________ shares of Common Stock and hereby (i)
tenders payment herewith in the amount of $_____________ or (ii) surrenders
the Warrant in the amount of _______________, in payment of the actual
exercise price thereof, and requests that certificates for such securities be
issued in the name of, and delivered to, the undersigned, and, if such number
of Warrant Shares shall not be all the Warrant Shares covered by the within
Warrant, that a new Warrant for the balance of the Warrant Shares be
registered in the name of, and delivered to, the undersigned at the address
stated below.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:_________________________________________________________________________
(Please typewrite or print in block letters)
Address:______________________________________________________________________
Signature:____________________________________________________________________
EXHIBIT VII
May __, 1999
Heuristic Development Group, Inc.
1219 Morningside Drive
Manhattan Beach, CA 90266
Gentlemen:
This letter is being delivered to you in connection with the proposed
merger (the "Merger") of a to-be-formed wholly-owned subsidiary of Heuristic
Development Group, Inc., a Delaware corporation ("HDG"), with and into
Virtual Communities, Inc., a Delaware corporation ("VCI"), as substantially
described in that certain letter of intent dated March 31, 1999, between VCI
and HDG, and pursuant to the subsequent negotiations of VCI and HDG following
the execution and delivery of such letter of intent (including the subsequent
determination to structure the Merger as a "reverse triangular merger").
In order to induce you to execute and deliver the definitive Merger
documentation and to consummate the Merger, and in acknowledgement of your
reliance on this letter in proceeding to take such acts, the undersigned
hereby agrees and covenants that at any annual or special meeting of the
stockholders of VCI involving the Merger, and at any other time at which
stockholders of VCI will have the right to or will vote for or render consent
in writing regarding the Merger, then and in each such event, the undersigned
shall vote all shares of capital stock of VCI presently owned or hereafter
acquired by the undersigned (whether owned of record or over which the
undersigned exercises voting control) in favor of the Merger.
The undersigned agrees to execute and deliver such other documents or
instruments which are necessary or desirable to evidence and affect the
matters referred to in this letter agreement. This letter agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of New York. No modification, amendment, supplement to or waiver of
this letter agreement shall be binding unless made in writing and duly signed
by each of the undersigned and HDG. This letter agreement shall be binding
upon and shall inure to the benefit of the undersigned, HDG and their
respective successors and assigns.
If for any reason the Merger is not consummated by December 31, 1999,
this letter agreement will be terminated.
Sincerely,
___________________________________
Print Name:
EXHIBIT VIII
May __, 1999
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
Gentlemen:
This letter is being delivered to you in connection with the proposed
merger (the "Merger") of a to-be-formed wholly-owned subsidiary of Heuristic
Development Group, Inc., a Delaware corporation ("HDG"), with and into
Virtual Communities, Inc., a Delaware corporation ("VCI"), as substantially
described in that certain letter of intent dated March 31, 1999, between VCI
and HDG, and pursuant to the subsequent negotiations of VCI and HDG following
the execution and delivery of such letter of intent (including the subsequent
determination to structure the Merger as a "reverse triangular merger").
In order to induce you to execute and deliver the definitive Merger
documentation and to consummate the Merger, and in acknowledgement of your
reliance on this letter in proceeding to take such acts, the undersigned
hereby agrees and covenants that at any annual or special meeting of the
stockholders of HDG involving the Merger, and at any other time at which
stockholders of HDG will have the right to or will vote for or render consent
in writing regarding the Merger, then and in each such event, the undersigned
shall vote all shares of capital stock of HDG presently owned or hereafter
acquired by the undersigned (whether owned of record or over which the
undersigned exercises voting control) in favor of the Merger.
The undersigned agrees to execute and deliver such other documents or
instruments which are necessary or desirable to evidence and affect the
matters referred to in this letter agreement. This letter agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of New York. No modification, amendment, supplement to or waiver of
this letter agreement shall be binding unless made in writing and duly signed
by each of the undersigned and VCI. This letter agreement shall be binding
upon and shall inure to the benefit of the undersigned, VCI and their
respective successors and assigns.
If for any reason the Merger is not consummated by December 31, 1999,
this letter agreement will be terminated.
Sincerely,
___________________________________
Print Name:
EXHIBIT IX
VIRTUAL COMMUNITIES, INC.
REPRESENTATION LETTER
June __, 1999
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Ladies and Gentlemen:
In connection with the opinions to be delivered pursuant to Section
8.2(d) of the Agreement and Plan of Merger (the "Agreement")(1) dated as of
June , 1999, among Heuristic Development Group, Inc., a Delaware
corporation ("Parent"), HDG Acquisition Sub, Inc., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and Virtual Communities,
Inc., a Delaware corporation ("Company"), the undersigned officer of Company
hereby certifies and represents as to Company, after due inquiry and
investigation, as follows:
AI The facts relating to the merger (the "Merger") of Merger Sub with
and into Company pursuant to the Agreement and as described in the Parent
Proxy Statement dated ____, 1999 (the "Proxy Statement"), are, insofar as
such facts pertain to Company, true, correct and complete in all material
respects at the date hereof and will be true, correct and complete in all
material respects at the Effective Time (2).
- --------------
(1) References contained in this Certificate to the "Agreement" include, unless
the context otherwise requires, each document attached as an exhibit or
annex thereto.
(2) Capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Agreement.
AI The consideration to be received in the Merger by holders of the
outstanding capital stock of the Company ("Company Capital Stock") was
determined by arm's length negotiations between the managements of Parent and
Company.
AI In connection with the Merger, no holder of Company Capital Stock
will receive in exchange for such stock, directly or indirectly, any
consideration other than Parent Common Stock, cash in lieu of a fractional
share thereof, and cash paid to dissenters. No more than 7% in value of the
shares of the Company will dissent to the Merger.
AI The Company has not been involved in a spin-off, split-off or
split-up transaction within the preceding five (5) years.
AI After the Merger, Company will hold at least ninety percent (90%) of
the fair market value of the net assets and at least seventy percent (70%) of
the fair market value of the gross assets held by Company immediately prior
to the Merger and, to the knowledge of management of the Company, at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held by
Merger Sub immediately prior to the Merger. For purposes of this
representation, assets of Merger Sub or Company held immediately prior to the
Merger include amounts paid or incurred by Merger Sub or Company in
connection with the Merger, including amounts used to pay reorganization
expenses, amounts paid to dissenters and all payments, redemptions and
distributions (except for regular, normal dividends) made by the Company
contemporaneously with, in contemplation of or as part of the Merger. The
foregoing representation as to the Company will be true even if the amount of
$452,625 paid by Company in redemptions and loan repayments were treated as
an asset of the Company held immediately prior to the Merger.
AI Neither Company nor any person related to Company (within the
meaning of Treasury Regulation Section 1.368-1(e)(3) determined without
regard to Treasury Regulation Section 1.368-1(e)(3)(i)(A)) has redeemed or
purchased, or will redeem or purchase, any Company Capital Stock in
connection with the Merger. Company has not made, and will not make, an
extraordinary distribution (within the meaning of Temporary Treasury
Regulation Section 1.368-1T(e)(1)(ii)(A)) with respect to Company Capital
Stock in connection with the Merger.
AI To the knowledge of management of Company, in connection with the
Merger, there is no plan or intention by any of the holders of Company
Capital Stock to sell to Parent or any person related to Parent (within the
meaning of Treasury Regulation Section 1.368-1(e)(3)) any Parent Common Stock
received in the Merger.
AI In the Merger, to the knowledge of management of the Company, Merger
Sub will have no liabilities (other than immaterial liabilities related to
its incorporation) assumed by Company and will not transfer to Company any
assets subject to liabilities.
AI No assets of Company have been sold, transferred or otherwise
disposed of which would prevent Parent from continuing the historic business
of Company or from using a significant portion of Company's historic assets
in a business following the Merger.
AI Company and Company shareholders will each pay their respective
expenses, if any, incurred in connection with or as part of the Merger or
related transactions. Company has not paid and will not pay, directly or
indirectly, any expenses (including transfer taxes) incurred by any holder of
Company Capital Stock in connection with or as part of the Merger or any
related transactions. Company has not agreed to assume, nor will it directly
or indirectly assume, any expense or other liability, whether fixed or
contingent, of any holder of Company Capital Stock.
AI There is no intercorporate indebtedness existing between Parent and
Company or between Merger Sub and Company that was issued, acquired or will
be settled at a discount.
AI As of the date hereof, the only capital stock of the Company issued
and outstanding is Company Common Stock, Series A Preferred Stock and Series
B Preferred Stock. The Series A Preferred Stock and Series B Preferred Stock
will be converted to Company Common Stock immediately prior to the Effective
Time. At the Effective Time, Company will not have outstanding any warrants,
options, convertible securities, or any other type of right pursuant to which
any person could acquire stock in Company that, if exercised or converted,
would affect Parent's acquisition or retention of ownership of at least 80
percent of the total combined voting power of all classes of Company stock
and at least 80 percent of the total number of shares of each class of
Company non-voting stock.
AI In the Merger, shares of Company Capital Stock representing control
of Company, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Parent. For purposes of this representation, any
shares of Company Capital Stock exchanged for cash or other property
originating with Parent will be treated as outstanding Company Capital Stock
at the Effective Time.
AI In the Merger, no liabilities of Company or shareholders of Company
will be assumed by Parent, and none of the Company Capital Stock acquired by
Parent will be subject to liabilities.
AI Company is not an "investment company" within the meaning of Section
368(a)(2)(F) of the Code.
AI At no time during the 5-year period ending at the Effective Time did
the fair market value of the Company's United States real property interests
within the meaning of Section 897 of the Code equal or exceed 50% of the fair
market value of its United States real property interests, its interests in
real property located outside the United States, plus any other of its assets
which are used or held for use in a trade or business, as these terms are
defined in Section 897 of the Code. For purposes of this representation, a
United States real property interest includes a leasehold interest in real
property located in the United States.
AI No person owns, directly or indirectly, 50 percent or more in value
of the stock of the Company within the meaning of Section 1298 of the Code.
AI Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
AI At the Effective Time, the total fair market value of the assets of
Company will exceed the total liabilities of the Company assumed plus the
amount of any liabilities to which the assets of Company are subject.
AI The payment of cash in lieu of fractional shares of Parent Common
Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that
will be paid in the Merger to holders of Company Capital Stock instead of
issuing fractional shares of Parent Common Stock will not exceed one percent
(1%) of the total consideration that will be issued in the Merger to holders
of Company Capital Stock. The fractional share interests of each holder of
Company Capital Stock will be aggregated and, to the knowledge of the
management of Company, no holder of Company Capital Stock will receive cash
in an amount equal to or greater than the value of one full share of Parent
Common Stock.
AI None of the employee compensation (or director compensation)
received by any shareholder-employees (or director-employees) of Company is
or will be separate consideration for, or allocable to, any of their shares
of Company Capital Stock to be surrendered in the Merger. None of the shares
of Parent Common Stock to be received by any shareholder-employee (or
director employee) of the Company in the Merger will be separate
consideration for, or allocable to, any employment, consulting or similar
arrangement. Any compensation paid or to be paid to any shareholder of the
Company who will be an employee or provide advisory services for Parent,
Merger Sub, Company or any affiliate thereof after the Merger will be
determined by bargaining at arm's length.
AI The Merger is being effected for bona fide business reasons and will
be carried out strictly in accordance with the Agreement, as described in the
Proxy Statement, and none of the material terms and conditions thereof have
been or will be waived or modified.
AI The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of Parent, Merger Sub and
Company with respect to the Merger.
AI Company will not take any position on any Federal, state or local
income or franchise tax return, or take any tax reporting position, that is
inconsistent with the treatment of the Merger as a reorganization within the
meaning of Section 368(a) of the Code, unless otherwise required by a
"determination" (as defined by Section 1313(a)(1) of the Code) or by
applicable state or local income or franchise tax law.
AI The shareholder's agreement dated as of August 31, 1998 was
terminated prior to the signing of the Agreement.
Morrison & Foerster LLP may rely, without further inquiry, on this
Certificate in rendering its opinion as to certain United States federal
income tax consequences of the Merger and we will promptly and timely inform
them if, after signing this Certificate, we have reason to believe that any
of the above certifications ceases to be true, correct and complete in any
respect.
Very truly yours,
VIRTUAL COMMUNITIES, INC.
By ____________________________
Name __________________________
Title _________________________
HEURISTIC DEVELOPMENT GROUP, INC.
REPRESENTATION LETTER
June __, 1999
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to Section
8.2(d) of the Agreement and Plan of Merger (the "Agreement")(1) dated as of
June , 1999, among Heuristic Development Group, Inc., a Delaware
corporation ("Parent"), HDG Acquisition Sub, Inc., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and Virtual Communities,
Inc., a Delaware corporation ("Company"), the undersigned officer of Parent
hereby certifies and represents as to Parent and Merger Sub, after due
inquiry and investigation, as follows, provided that none of such
certifications and representations shall apply to actions taken by HDG after
the officers and directors of Parent have been replaced by officers and
directors of the Company:
AI The facts relating to the merger (the "Merger") of Merger Sub with
and into Company pursuant to the Agreement and as described in the Parent
Proxy Statement dated ____, 1999 (the "Proxy Statement"), are, insofar as
such facts pertain to Parent and Merger Sub, true, correct and complete in
all respects at the date hereof and will be true, correct and complete in all
respects at the Effective Time.(2)
AI The consideration to be received in the Merger by holders of the
outstanding capital stock of the Company ("Company Capital Stock") was
determined by arm's length negotiations between the managements of Parent and
Company.
- --------------
(1) References contained in this Certificate to the "Agreement" include,
unless the context otherwise requires, each document attached as an
exhibit or annex thereto.
(2) Capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Agreement.
AI In connection with the Merger, no holder of Company Capital Stock
will receive in exchange for such stock, directly or indirectly, any
consideration other than Parent Common Stock, cash in lieu of a fractional
share thereof, and cash paid to dissenters. No more than 7% in value of the
shares of the Company will dissent to the Merger.
AI After the Merger, the Company will hold at least ninety percent
(90%) of the fair market value of the net assets and at least seventy percent
(70%) of the fair market value of the gross assets held by Merger Sub
immediately prior to the Merger, and the management of the Parent and Merger
Sub has no knowledge, or reason to believe, that after the Merger, the
Company will not hold at least ninety percent (90%) of the fair market value
of the net assets and at least seventy percent (70%) of the fair market value
of the gross assets held by Company immediately prior to the Merger. For
purposes of this representation, assets of Merger Sub or Company held
immediately prior to the Merger include amounts paid or incurred by Merger
Sub or Company in connection with the Merger, including amounts used to pay
reorganization expenses, amounts paid to dissenters and all payments,
redemptions and distributions (except for regular, normal dividends) made by
the Company contemporaneously with, in contemplation of or as part of the
Merger. The management of the Parent and Merger Sub has no knowledge, or
reason to believe, that the foregoing representation as to the Company will
be untrue even if the amount of $452,625 paid by Company in redemptions and
loan repayments were treated as an asset of the Company held immediately
prior to the Merger.
AI Prior to the Merger, Parent will be in control of Merger Sub within
the meaning of Section 368(c) of the Internal Revenue Code of 1986, as
amended (the "Code"). Merger Sub has been formed solely in order to
consummate the Merger, and at no time has or will Merger Sub conduct any
business activities or other operations of any kind other than the issuance
of its stock to Parent prior to the Effective Time.
AI Following the Merger, Parent has no plan or intention to cause
Company to issue any additional shares of stock which would result in Parent
losing control of Company within the meaning of Section 368(c) of the Code.
AI Except for cash paid in lieu of fractional shares of Parent Common
Stock pursuant to the Merger, neither Parent nor any persons related to
Parent (within the meaning of Treasury Regulation Section 1.368-1(e)(3)) has
any plan or intention to purchase, redeem or otherwise acquire any of the
Parent Common Stock issued pursuant to the Merger.
AI Parent does not have any stock repurchase programs in effect and has
no plan or intention to adopt any such programs in connection with the Merger.
AI Parent has no plan or intention to: (a) liquidate Company; (b) merge
Company with or into another corporation; (c) sell, exchange, transfer or
otherwise dispose of any stock of Company except for transfers described in
Section 368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-1(d);
or (d) cause Company to sell, exchange, transfer or otherwise dispose of any
of its assets or of any assets acquired from Merger Sub in the Merger, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
AI In the Merger, Merger Sub will have no liabilities (other than
immaterial liabilities related to its incorporation) assumed by Company and
will not transfer to Company any assets subject to liabilities.
AI Following the Merger, Parent will cause Company to continue its
historic business or will use a significant portion of its historic assets in
a business.
AI Parent and Merger Sub will each pay its or their respective
expenses, if any, incurred in connection with or as part of the Merger and
related transactions. Neither Parent nor Merger Sub has paid or will pay,
directly or indirectly, any expenses (including transfer taxes) incurred by
any holder of Company Capital Stock in connection with or as part of the
Merger or any related transactions. Neither Parent nor Merger Sub has agreed
to assume, nor will it directly or indirectly assume, any expense or other
liability, whether fixed or contingent, of any holder of Company Capital
Stock.
AI There is no intercorporate indebtedness existing between Parent and
Company or between Merger Sub and Company that was issued, acquired or will
be settled at a discount.
AI In the Merger, shares of Company Capital Stock representing control
of Company, as defined in Section 368(c) of the Code, will be exchanged
solely for voting stock of Parent. For purposes of this representation, any
shares of Company Capital Stock exchanged for cash or other property
originating with Parent will be treated as outstanding Company Capital Stock
at the Effective Time.
AI In connection with the Merger, no liabilities of Company or
shareholders of Company will be assumed by Parent, and none of the Company
Capital Stock acquired by Parent will be subject to liabilities.
AI The payment of cash in lieu of fractional shares of Parent Common
Stock in the Merger is solely for the purpose of avoiding the expense and
inconvenience to Parent of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that
will be paid in the Merger to holders of Company Capital Stock instead of
issuing fractional shares of Parent Stock will not exceed one percent (1%) of
the total consideration that will be issued in the Merger to holders of
Company Capital Stock. The fractional share interests of each holder of
Company Capital Stock will be aggregated and, to the knowledge of the
management of Parent, no holder of Company Capital Stock will receive cash in
an amount equal to or greater than the value of one full share of Parent
Common Stock.
AI None of the employee compensation (or director compensation)
received by any shareholder-employees (or director employees) of Company is
or will be separate consideration for, or allocable to, any of their shares
of Company Capital Stock to be surrendered in the Merger. None of the shares
of Parent Common Stock to be received by any shareholder-employee (or
director employee) of the Company in the Merger will be separate
consideration for, or allocable to, any employment, consulting or similar
arrangement. Any compensation paid or to be paid to any shareholder of the
Company who will be an employee or provide advisory services for Parent,
Merger Sub, Company or any affiliate thereof after the Merger will be
determined by bargaining at arm's length.
AI Neither Parent nor any subsidiary of Parent has acquired or prior to
the Merger will acquire, or has owned in the past five years, beneficially or
of record, any class of stock of Company or any securities of Company or any
instrument giving the holder the right to acquire any such stock or
securities.
AI Neither Parent nor Merger Sub is an "investment company" within the
meaning of Section 368(a)(2)(F) of the Code.
AI The Merger is being effected for bona fide business reasons and will
be carried out strictly in accordance with the Agreement, as described in the
Proxy Statement, and none of the material terms and conditions thereof have
been or will be waived or modified.
AI The Merger Agreement and the documents described in the Merger
Agreement represent the entire understanding of Parent, Merger Sub and
Company with respect to the Merger.
AI Neither Parent nor Merger Sub will take any position on any Federal,
state or local income or franchise tax return, or take any tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required by a "determination" (as defined by Section 1313(a)(1) of
the Code) or by applicable state or local income or franchise tax law.
Morrison & Foerster LLP may rely, without further inquiry, on this
Certificate in rendering its opinion as to certain United States federal
income tax consequences of the Merger and we will promptly and timely inform
them if, after signing this Certificate, we have reason to believe that any
of the above certifications ceases to be true, correct and complete in any
respect.
Very truly yours,
HEURISTIC DEVELOPMENT, INC.
By ____________________________
Name __________________________
Title _________________________
FUTURE OFFICERS AND DIRECTORS OF
HEURISTIC DEVELOPMENT GROUP, INC.
REPRESENTATION LETTER
June __, 1999
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105
Ladies and Gentlemen:
In connection with the opinion to be delivered pursuant to Section
8.2(d) of the Agreement and Plan of Merger (the "Agreement") (3) dated as of
June __, 1999, among Heuristic Development Group, Inc., a Delaware
corporation ("Parent"), HDG Acquisition Sub, Inc., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Merger Sub"), and Virtual Communities,
Inc., a Delaware corporation ("Company"), the undersigned, who will be the
officers and directors of Parent subsequent to the Merger, hereby certify and
represent as to Parent and Merger Sub, after due inquiry and investigation,
as follows, provided that none of such certifications and representations
shall apply to actions taken by HDG prior to the time that the officers and
directors of Parent have been replaced by officers and directors of the
Company (4),:
AI After the Merger, to the knowledge of the undersigned, Company will
hold at least ninety percent (90%) of the fair market value of the net assets
and at least seventy percent (70%) of the fair market value of the gross
assets held by Merger Sub immediately prior to the Merger, and, to the
knowledge of the undersigned, at least ninety percent (90%) of the fair
market value of the net assets and at least seventy percent (70%) of the fair
market value of the gross assets held by Company immediately prior to the
Merger. For purposes of this representation, assets of Merger Sub or Company
held immediately prior to the Merger include amounts paid or incurred by
Merger Sub or Company in connection with the Merger, including amounts used
to pay reorganization expenses, amounts paid to dissenters and all payments,
redemptions and distributions (except for regular, normal dividends) made by
the Company contemporaneously with, in contemplation of or as part of the
Merger. The foregoing representation as to the Company will be true even if
the amount of $452,625 paid by Company in redemptions and loan repayments
were treated as an asset of the Company held immediately prior to the Merger.
- --------------
(3) References contained in this Certificate to the "Agreement" include,
unless the context otherwise requires, each document attached as an
exhibit or annex thereto.
(4) Capitalized terms used herein and not otherwise defined have the meaning
ascribed to them in the Agreement.
AI Following the Merger, Parent has no plan or intention to
cause Company to issue any additional shares of stock which would result in
Parent losing control of Company within the meaning of Section 368(c) of the
Internal Revenue Code (the "Code").
AI Except for cash paid in lieu of fractional shares of Parent Common
Stock pursuant to the Merger, neither Parent nor any persons related to
Parent (within the meaning of Treasury Regulation Section 1.368-1(e)(3)) have
any plan or intention to purchase, redeem or otherwise acquire any of the
Parent Common Stock issued pursuant to the Merger.
AI Parent has no plan or intention to adopt any stock repurchase
program in connection with the Merger.
AI Parent has no plan or intention to: (a) liquidate Company; (b) merge
Company with or into another corporation; (c) sell, exchange, transfer or
otherwise dispose of any stock of Company except for transfers described in
Section 368(a)(2)(C) of the Code or Treasury Regulation Section 1.368-1(d);
or (d) cause Company to sell, exchange, transfer or otherwise dispose of any
of its assets or of any assets acquired from Merger Sub in the Merger, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
AI Following the Merger, Parent will cause Company to continue its
historic business or will use a significant portion of its historic assets in
a business.
AI Neither Parent nor Merger Sub has paid or will pay, directly or
indirectly, any expenses (including transfer taxes) incurred by any holder of
Company Capital Stock in connection with or as part of the Merger or any
related transactions. Neither Parent nor Merger Sub has agreed to assume,
nor will it directly or indirectly assume, any expense or other liability,
whether fixed or contingent, of any holder of Company Capital Stock.
AI Neither Parent nor Merger Sub will take any position on any Federal,
state or local income or franchise tax return, or take any tax reporting
position, that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Section 368(a) of the Code, unless
otherwise required by a "determination" (as defined by Section 1313(a)(1) of
the Code) or by applicable state or local income or franchise tax law.
Morrison & Foerster LLP may rely, without further inquiry, on this
Certificate in rendering its opinion as to certain United States federal
income tax consequences of the Merger and we will promptly and timely inform
them if, after signing this Certificate, we have reason to believe that any
of the above certifications ceases to be true, correct and complete in any
respect.
Very truly yours,
EXHIBIT X
[Closing Date]
Heuristic Development Group, Inc.
1219 Morningside Drive
Manhattan Beach, CA 90266
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
Gentlemen:
This letter is being delivered to you in connection with the proposed
merger (the "Merger") of a wholly-owned subsidiary ("HDG Sub") of Heuristic
Development Group, Inc., a Delaware corporation ("HDG"), with and into
Virtual Communities, Inc., a Delaware corporation ("VCI"), as substantially
described in that certain letter of intent dated March 31, 1999, between VCI
and HDG (the "LOI"), and pursuant to the subsequent negotiations of VCI and
HDG following the execution and delivery of such letter of intent (including
the subsequent determination to structure the Merger as a "reverse triangular
merger").
The undersigned, for himself and itself, as the case may be, and his or
its respective agents, representatives, successors and assigns (collectively,
the "Undersigned") hereby acknowledges and agrees, effective upon the
consummation of the Merger, as follows:
(a) There are no claims, rights, damages, costs (including costs of
suit and attorneys' fees and expenses), demands, causes of action,
liabilities and suits, of whatever nature, character, type or description,
including, but not limited to, any claims for salary, wages, bonuses, fees or
other compensation (collectively, "Claims"), existing or potential, known or
suspected, that have been, could have been or in the future might be asserted
by the Undersigned against any and all of HDG, HDG Sub, VCI or any of their
shareholders, officers, directors, employees, agents, representatives,
successors and assigns (collectively, the "HDG Parties"), arising out of
facts or circumstances occurring at any time on or prior to the consummation
of the Merger (the "Closing"); PROVIDED, HOWEVER, that this letter shall not
be construed to waive, release or discharge any right, claim or interest that
the Undersigned may have by reason of the Undersigned's ownership of any
option, warrant or share of capital stock of HDG except for the Undersigned's
rights to initiate, assert or join as a party to any claim, demand, cause of
action or suit of any kind arising out of facts or circumstances occurring at
any time on or prior to the Closing which shall be waived, released and
discharged in full.
(b) For good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Undersigned does hereby fully,
unconditionally, irrevocably and without reserve release and discharge each
HDG Party from any Claim, whether existing or potential, known or unknown,
suspected or unsuspected, that have been, could have been or in the future
might be asserted by the Undersigned, arising out of or in any way relating
to any facts or circumstances referred to in paragraph (a) above and as
limited therein; PROVIDED, HOWEVER, that paragraphs (a) and (b) shall not be
applicable to any indemnification right the Undersigned may have under the
definitive Agreement and Plan of Merger between VCI, HDG and HDG Sub to be
executed and delivered with respect to the Merger.
(c) The Undersigned makes this statement for your benefit and
protection with the understanding that you (and any assignee or successor
thereof) intend to rely upon the statements contained herein in
proceeding to consummate the Merger and the transactions contemplated in the
LOI, as such LOI may be amended in writing or otherwise.
The Undersigned agrees to execute and deliver such other documents or
instruments which are necessary or desirable to evidence and affect the
matters referred to in this letter agreement. This letter agreement shall be
governed by and construed and enforced in accordance with the laws of the
State of New York. No modification, amendment, supplement to or waiver of
this letter agreement shall be binding unless made in writing and duly signed
by the Undersigned, VCI and HDG. This letter agreement shall be binding upon
and shall inure to the benefit of the Undersigned, HDG, HDG Sub, VCI and
their respective successors and assigns.
Sincerely,
___________________________________
Print Name:
EXHIBIT XI
AMENDED
AND
RESTATED
CERTIFICATE OF INCORPORATION
OF
HEURISTIC DEVELOPMENT GROUP, INC.
Adopted in accordance with the
provisions of Sections 242 and 245
of the Delaware General Corporation Law
The Certificate of Incorporation of Heuristic Development Group, Inc.
(the "Corporation"), as (i) originally filed with the Secretary of the State
of Delaware on July 20, 1994 under the name of EIS International Group, Ltd.,
(ii) as amended on August 8, 1994, (iii) as amended by the filing of the
Certificate of Designation of Series A Preferred Stock on August 23, 1994,
(iv) as amended on March 3, 1995, and (v) as amended on October 23, 1996, is
hereby amended, restated and duly adopted as set forth below pursuant to the
provisions of Section 245 of the Delaware General Corporation Law, and
pursuant to resolutions adopted by the Board of Directors of the Corporation
by unanimous written consent dated __________, 1999, in accordance with the
provisions of Section 141(f) of the Delaware General Corporation Law and the
Certificate of Incorporation, as amended, and the Bylaws of the Corporation,
and pursuant to resolutions adopted by holders of the necessary number of
shares of the Corporation's capital stock, acting at a special meeting held
on ____________, 1999, in accordance with the provisions of Sections 211-231
of the Delaware General Corporation Law and the Certification of
Incorporation, as amended, and the Bylaws, of the Corporation.
THE UNDERSIGNED does hereby certify as follows:
FIRST: The name of the Corporation (hereinafter referred to as the
"Corporation") is
VIRTUAL COMMUNITIES, INC.
SECOND: The registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the Delaware General
Corporation Law.
FOURTH: The aggregate number of shares of all classes of stock which the
Corporation shall have the authority to issue is Fifty Million (50,000,000)
shares, of which Forty-five Million (45,000,000) shares, par value $0.01
each, shall be common stock (the "Common Stock") and Five Million (5,000,000)
shares, par value $0.01 each, shall be preferred stock (the "Preferred
Stock").
The relative powers, designations, preferences, special rights,
restrictions and other matters relating to the Common Stock are as set forth
below in this Article Fourth.
Any of the shares of Preferred Stock may be issued from time to time in
one or more series. Subject to the limitations and restrictions in this
Article Fourth set forth, the Board of Directors or a Committee of the Board
of Directors, to the extent permitted by law and the Bylaws of the
Corporation or a resolution of the Board of Directors, by resolution or
resolutions and by executing, acknowledging and filing a certificate of
designations pursuant to the Delaware General Corporation Law, is expressly
authorized to create, provide for and issue any such series, and to fix the
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof,
including, without limitation, the authority to fix or alter, in any one or
more respects from time to time the dividend rights, dividend rates,
conversion rights, exchange rights, voting powers (full, limited or
non-voting powers), rights and terms of redemption (including sinking and
purchase fund provisions), the redemption price or prices, the dissolution
preferences and the rights in respect to any distribution of assets of any
wholly unissued series of Preferred Stock and the number of shares
constituting any such series, and the designation thereof, or any of them,
and to increase or decrease the number of shares of any series so created,
subsequent to the issue of that series but not below the number of shares of
such series then outstanding. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
There shall be no limitation or restriction on any variation between any
of the different series of Preferred Stock as to the designations,
preferences and relative, participating, optional or other special rights,
and the qualifications, limitations or restrictions thereof; and the several
series of Preferred Stock may, except as hereinafter in this Article Fourth
otherwise expressly provided, vary in any and all respects as fixed and
determined by the resolution or resolutions of the Board of Directors or by a
Committee of the Board of Directors, providing for the issuance of the
various series; PROVIDED, HOWEVER, that all shares of any one series of
Preferred Stock shall have the same designation, preferences and relative,
participating, optional or other special rights and qualifications,
limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by resolution
or resolutions of the Board of Directors with respect to one or more series
of Preferred Stock, the entire voting power and all voting rights shall be
vested exclusively in the Common Stock, and each stockholder of the
Corporation who at the time possesses voting power for any purpose shall be
entitled to one vote for each share of such stock standing in his name on the
books of the Corporation.
FIFTH: Except as set forth in Article FOURTH, the number of directors
of the Corporation shall be such as from time to time shall be fixed in the
manner provided in the Bylaws. Election of directors need not be by written
ballot unless the Bylaws shall so provide.
SIXTH: In furtherance and not in limitation of the powers and
authorities herein or by statute expressly conferred upon them, the Board of
Directors, is expressly authorized and empowered to make, alter or repeal the
Bylaws of the Corporation.
SEVENTH: Meetings of stockholders and directors may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to the provisions of Delaware law) outside
of the State of Delaware at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the Corporation.
EIGHTH: No director shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director notwithstanding any provision of law imposing such liability;
provided, however, that this provision shall not eliminate or limit the
liability of a director, to the extent that such liability is imposed by
applicable law, (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 or successor provisions of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. This provision shall not eliminate the liability of a
director for any act or omission occurring prior to the date upon which this
provision becomes effective. No amendment to or repeal of this provision
shall apply to or have any effect on the liability or alleged liability of
any director for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed by statute, and all
rights and powers conferred herein on stockholders, directors or officers are
granted subject to these reservations.
TENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a
summary way of the Corporation or of any creditor or stockholder thereof, or
on the application of any receiver or receivers appointed for the Corporation
under the provisions of Section 291 of the Delaware General Corporation Law
or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279
of the Delaware General Corporation Law order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of
the Corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, agree to any
compromise or arrangement and to any reorganization of the Corporation as a
consequence of such compromise or arrangement, the said compromise or
arrangement and the said reorganization shall, if sanctioned by the court to
which the said application has been made, be binding on all the creditors or
class of creditors, and/or on all the stockholders or class of stockholders,
of the Corporation, as the case may be, and also on the Corporation.
ELEVENTH: The name and mailing address of the incorporator of the
Corporation is Dawn Szafranski, Corporation Service Company, 1013 Centre
Road, Wilmington, DE 19805.
IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated
Certificate of Incorporation to be signed by Gregory L. Zink, President, and
attested to by Theodore Lanes, Secretary, this ___ day of ____________, 1999.
HEURISTIC DEVELOPMENT GROUP, INC.
By: /s/ GREGORY L. ZINK
-------------------------------
Gregory L. Zink,
President
ATTEST:
/s/ THEODORE LANES
-------------------------------
Theodore Lanes,
Secretary
EXHIBIT XII
AMENDED AND RESTATED
BYLAWS
OF
VIRTUAL COMMUNITIES, INC.
ARTICLE I
Offices
SECTION 1.1 REGISTERED OFFICE.
The registered office of the corporation in the State of Delaware shall
be in the City of Wilmington, County of New Castle.
SECTION 1.2 OTHER OFFICES.
The corporation shall also have and maintain an office or principal
place of business at 151 West 25th Street, New York, New York 10001 and may
also have offices at such other places, both within and without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the corporation may require.
ARTICLE II
Stockholders' Meetings
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the stockholders of the corporation shall be held at such
place, either within or without the State of Delaware, as may be designated
from time to time by the Board of Directors, or, if not so designated, then
at the office of the corporation required to be maintained pursuant to
Section 1.2 of Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the corporation, commencing
with the year 2000, for the purpose of election of directors and for such
other business as may lawfully come before it, shall be held on such date and
at such time as may be designated from time to time by the Board of
Directors, or, if not so designated, then at 10:00 a.m. on May 15, in each
year if not a legal holiday or weekend, and, if a legal holiday or weekend,
at the same hour and place on the next succeeding business day not a holiday
or weekend.
SECTION 2.3 SPECIAL MEETINGS.
Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by the Chairman of the Board or the President or
the Board of Directors at any time.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of Incorporation,
written notice of each meeting of stockholders, whether annual or special,
specifying the place, date and hour and purpose or purposes of the meeting,
shall be given not less than ten nor more than sixty days before the date of
the meeting to each stockholder entitled to vote thereat, directed to his
address as it appears upon the books of the Corporation; except that where
the matter to be acted on is a merger or consolidation of the corporation or
a sale, lease or exchange of all or substantially all of its assets, such
notice shall be given not less than twenty nor more than sixty days prior to
such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would
entitle shareholders fulfilling the requirements of section 262(d) of the
Delaware General Corporation Law to an appraisal of the fair value of their
shares, the notice of such meeting shall contain a statement of that purpose
and to that effect and shall be accompanied by a copy of that statutory
section.
(c) When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken unless the adjournment is for
more than thirty days, or unless after the adjournment a new record date is
fixed for the adjourned meeting, in which event a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders may
be waived in writing, either before or after such meeting, and to the extent
permitted by law, will be waived by any stockholder by his attendance
thereat, in person or by proxy. Any stockholder so waiving notice of such
meeting shall be bound by the proceedings of any such meeting in all respects
as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it or of his legal representatives or assigns,
except in those cases where an irrevocable proxy permitted by statute has
been given.
SECTION 2.5 QUORUM AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by law,
the Certificate of Incorporation, or these Bylaws, the presence, in person or
by proxy duly authorized, of the holders of a majority of the issued and
outstanding shares of stock entitled to vote shall constitute a quorum for
the transaction of business. Shares, the voting of which at said meeting have
been enjoined, or which for any reason cannot be lawfully voted at such
meeting, shall not be counted to determine a quorum at said meeting. In the
absence of a quorum, any meeting of stockholders may be adjourned, from time
to time, by vote of the holders of a majority of the shares represented
thereat, but no other business shall be transacted at such meeting. At such
adjourned meeting at which a quorum is present or represented any business
may be transacted which might have been transacted at the original meeting.
The stockholders present at a duly called or convened meeting, at which a
quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
(b) Except as otherwise provided by law, the Certificate of Incorporation or
these Bylaws, all action taken by the holders of a majority of the voting
power represented at any meeting at which a quorum is present shall be valid
and binding upon the corporation.
(c) Except where otherwise provided by law, the Certificate of Incorporation
or in any Certificate of Designation (as filed by, or caused to be filed by,
the corporation with the Secretary of State of the State of Delaware pursuant
to Section 151 of the Delaware General Corporation Law), where a separate
vote by a class, series or classes is required, a majority of the outstanding
shares of such class, series or classes, present in person or represented by
proxy duly authorized, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority
of shares of such class, series or classes present in person or represented
by proxy duly authorized at the meeting shall be the act of such class.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names shares
entitled to vote stand on the stock records of the corporation on the record
date for determining the stockholders entitled to vote at said meeting shall
be entitled to vote at such meeting. Shares standing in the names of two or
more persons shall be voted or represented in accordance with the
determination of the majority of such persons, or, if only one of such
persons is present in person or represented by proxy, such person shall have
the right to vote such shares and such shares shall be deemed to be
represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right
to do so either in person or by an agent or agents authorized by a written
proxy executed by such person or his duly authorized agent, which proxy shall
be filed with the Secretary of the corporation at or before the meeting at
which it is to be used. Said proxy so appointed need not be a stockholder.
No proxy shall be voted on after three years from its date unless the proxy
provides for a longer period.
(c) Without limiting the manner in which a stockholder may authorize another
person or persons to act for him as proxy pursuant to subsection (b) of this
section, the following shall constitute a valid means by which a stockholder
may grant such authority:
(1) A stockholder may execute a writing authorizing another person
or persons to act for him as proxy. Execution may be accomplished by the
stockholder or his authorized officer, director, employee or agent signing
such writing or causing his or her signature to be affixed to such writing by
any reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act
for him as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. Such authorization can be established by the
signature of the stockholder on the proxy, either in writing or by a
signature stamp or facsimile signature, or by a number or symbol from which
the identity of the stockholder can be determined, or by any other procedure
deemed appropriate by the inspectors or other persons making the
determination as to due authorization. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of
the writing or transmission created pursuant to subsection (c) of this
section may be substituted or used in lieu of the original writing or
transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting and make a written
report thereof. The corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act
at the meeting. Each inspector, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (I) ascertain the number of shares outstanding and
the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots,
(iv) determine and retain for a reasonable period a record of the disposition
of any challenges made to any determination by the inspectors, and (v)
certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may
appoint or retain other persons or entities to assist the inspectors in the
performance of the duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced
at the meeting. No ballot, proxies or votes, nor any revocations thereof or
changes thereto, shall be accepted by the inspectors after the closing of the
polls unless the Court of Chancery upon application by a stockholder shall
determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their
nominees or similar persons which represent more votes than the holder of a
proxy is authorized by the record owner to cast or more votes than the
stockholder holds of record. If the inspectors consider other reliable
information for the limited purpose permitted herein, the inspectors at the
time they make their certification pursuant to subsection (b)(v) of this
section shall specify the precise information considered by them including
the person or persons from whom they obtained the information, when the
information was obtained, the means by which the information was obtained and
the basis for the inspectors' belief that such information is accurate and
reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged
in alphabetical order, showing the address of and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city where the meeting is to be
held and which place shall be specified in the notice of the meeting, or, if
not specified, at the place where said meeting is to be held, and the list
shall be produced and kept at the time and place of meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the Direction of
the Board of Directors, otherwise properly brought before the meeting by or
at the direction of the Board of Directors or otherwise properly brought
before the meeting by a stockholder. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by
a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal executive
offices of the corporation, not less than 45 days nor more than 75 days prior
to the date on which the corporation first mailed its proxy materials for the
previous year's annual meeting of shareholders (or the date on which the
corporation mails its proxy materials for the current year if during the
prior year the corporation did not hold an annual meeting or if the date of
the annual meeting was changed more than 30 days from the prior year). A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (I) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of the stockholder proposing such business, (iii) the
class and number of shares of the corporation which are beneficially owned by
the stockholder, and (iv) any material interest of the stockholder in such
business.
Notwithstanding anything in the By-laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 2.9, provided, however, that nothing in
this Section 2.9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare at the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 2.9, and if he
should so determine he shall so declare at the meeting, and any such business
not properly brought before the meeting shall not be transacted.
Nothing in this Section 2.9 shall affect the right of a stockholder to
request inclusion of a proposal in the corporation's proxy statement to the
extent that such right is provided by an applicable rule of the Securities
and Exchange Commission.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders, by or
at the direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors or by any stockholder of the
corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.10. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation, not less than 45 days nor more than 75 days prior to the date on
which the corporation first mailed its proxy materials for the previous
year's annual meeting of shareholders (or the date on which the corporation
mails its proxy materials for the current year if during the prior year the
corporation did not hold an annual meeting or if the date of the annual
meeting was changed more than 30 days from the prior year). Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director,
(I) the name, age, business address and residence address of the person, (ii)
the principal occupation or employment of the person, (iii) the class and
number of shares of the corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is
required to be disclosed in solicitations for proxies for election of
directors pursuant to Rule 14a under the Securities Exchange Act of 1934; and
(b) as to the stockholder giving the notice, (I) the name and record address
of the stockholder, and (ii) the class and number of shares of the
corporation which are beneficially owned by the stockholder. The corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the corporation to determine the eligibility of
such proposed nominee to serve as a director of the corporation. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth herein. These
provisions shall not apply to nomination of any persons entitled to be
separately elected by holders of preferred stock.
The Chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare at
the meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, any
action required by statute to be taken at any annual or special meeting of
stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, are signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. To be effective, a
written consent must be delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of the book in which proceedings
of meetings of stockholders are recorded. Delivery made to a corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be
effective to take the corporate action referred to therein unless, within
sixty days of the earliest dated consent delivered in the manner required by
this Section to the corporation, written consents signed by a sufficient
number of holders to take action are delivered to the corporation in
accordance with this Section. Prompt notice of the taking of the corporate
action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
ARTICLE III
Directors
SECTION 3.1 NUMBER AND TERM OF OFFICE.
The number of directors of the corporation shall not be less than three
nor more than nine until changed by amendment of the Certificate of
Incorporation or by a Bylaw amending this Section 3.1 duly adopted by the
vote or written consent of holders of a majority of the outstanding shares or
by the Board of Directors. The exact number of directors shall be fixed from
time to time, within the limits specified in the Certificate of Incorporation
or in this Section 3.1, by a bylaw or amendment thereof duly adopted by the
vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of the
holders of a majority of the outstanding shares entitled to vote, or by the
Board of Directors. Subject to the foregoing provisions for changing the
number of directors, the number of directors of the corporation has been
fixed at seven.
Except as provided in Section 3.3 of this Article III, the directors
shall be elected by a plurality vote of the shares represented in person or
by proxy, at the stockholders annual meeting in each year and entitled to
vote on the election of directors. Elected directors shall hold office until
the next annual meeting and until their successors shall be duly elected and
qualified. Directors need not be stockholders. If, for any cause, the Board
of Directors shall not have been elected at an annual meeting, they may be
elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 3.2 POWERS.
The powers of the corporation shall be exercised, its business conducted
and its property controlled by or under the direction of the Board of
Directors.
SECTION 3.3 VACANCIES.
Vacancies and newly created directorships resulting from any increase in
the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, and each director so elected shall hold office for the unexpired
portion of the term of the director whose place shall be vacant, and until
his successor shall have been duly elected and qualified. A vacancy in the
Board of Directors shall be deemed to exist under this section in the case of
the death, removal, incapacity or resignation of any director, or if the
stockholders fail at any meeting of stockholders at which directors are to be
elected (including any meeting referred to in Section 3.4 below) to elect the
number of directors then constituting the whole Board of Directors.
SECTION 3.4 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written
resignation to the Board of Directors, the President or the Secretary, such
resignation to specify whether it will be effective at a particular time,
upon receipt by the Board of Directors, the President or the Secretary or at
the pleasure of the Board of Directors. If no such specification is made it
shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at
a future date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall
become effective, and each director so chosen shall hold office for the
unexpired portion of the term of the director whose place shall be vacated
and until his successor shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in
the manner hereinabove provided, the Board of Directors, or any individual
director, may be removed from office, with or without cause, and a new
director or directors elected by a vote of stockholders holding a majority of
the outstanding shares entitled to vote at an election of directors.
SECTION 3.5 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held
immediately after the annual stockholders' meeting and at the place where
such meeting is held or at the place announced by the Chairman at such
meeting. No notice of an annual meeting of the Board of Directors shall be
necessary and such meeting shall be held for the purpose of electing officers
and transacting such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of
the Board of Directors shall be held in the office of the corporation
required to be maintained pursuant to Section 1.2 of Article I hereof.
Regular meetings of the Board of Directors may also be held at any place
within or without the State of Delaware which has been designated by
resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board or, if there is no Chairman of the Board, by the
President, or by a majority of the directors.
(d) Written notice of the time and place of all regular and special
meetings of the Board of Directors shall be delivered personally to each
director or sent by telegram or facsimile transmission at least 48 hours
before the start of the meeting, or sent by first class mail at least 120
hours before the start of the meeting. Notice of any meeting may be waived
in writing at any time before or after the meeting and will be waived by any
director by attendance thereat.
SECTION 3.6 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time in accordance with
Section 3.1 of Article III of these Bylaws, but not less than one; provided,
however, at any meeting whether a quorum be present or otherwise, a majority
of the directors present may adjourn from time to time until the time fixed
for the next regular meeting of the Board of Directors, without notice other
than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by a vote of a
majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation, or these Bylaws. At each meeting of
the Board of Directors, each director present thereat shall have one vote.
(c) Any member of the Board of Directors, or of any committee
thereof, may participate in a meeting by means of conference telephone or
similar communication equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such
means shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or
any committee thereof, however called or noticed, or wherever held, shall be
as valid as though had at a meeting duly held after regular call and notice,
if a quorum be present and if, either before or after the meeting, each of
the directors not present shall sign a written waiver of notice, or a consent
to holding such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 3.7 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting, if all members of the Board or of such committee, as the case may
be, consent thereto in writing, and such writing or writings are filed with
the minutes of proceedings of the Board or committee.
SECTION 3.8 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation,
if any, for their services, and such reimbursement for expenses, as may be
fixed or determined by resolution of the Board of Directors; provided,
however, that nothing herein shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.9 COMMITTEES.
(a) Executive Committee: The Board of Directors may appoint an
Executive Committee of not less than one member, each of whom shall be a
director. The Executive Committee, to the extent permitted by law, shall
have and may exercise when the Board of Directors is not in session all
powers of the Board in the management of the business and affairs of the
Corporation, except such committee shall not have the power or authority to
amend these Bylaws or to approve or recommend to the stockholders any action
which must be submitted to stockholders for approval under the General
Corporation Law.
(b) Other Committees: The Board of Directors may, by resolution
passed by a majority of the whole Board, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committee, but
in no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) Term: The members of all committees of the Board of Directors
shall serve a term coexistent with that of the Board of Directors which shall
have appointed such committee. The Board, subject to the provisions of
subsections (a) or (b) of this Section 3.9, may at any time increase or
decrease the number of members of a committee or terminate the existence of a
committee; provided, that no committee shall consist of less than one member.
The membership of a committee member shall terminate on the date of his
death or voluntary resignation, but the Board may at any time for any reason
remove any individual committee member and the Board may fill any committee
vacancy created by death, resignation, incapacity, removal or increase in the
number of members of the committee. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee, and, in
addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
(d) Meetings: Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 3.9 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter; special
meetings of any such committee may be held at the principal office of the
corporation required to be maintained pursuant to Section 1.2 of Article I
hereof; or at any place which has been designated from time to time by
resolution of such committee or by written consent of all members thereof,
and may be called by any director who is a member of such committee, upon
written notice to the members of such committee of the time and place of such
special meeting given in the manner provided for the giving of written notice
to members of the Board of Directors of the time and place of special
meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time after the meeting and will be
waived by any director by attendance thereat. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
Officers
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the corporation shall be a President, a Secretary, and a
Treasurer. The Board of Directors or the President may also appoint a
Chairman of the Board, one or more Vice-Presidents, assistant secretaries,
assistant treasurers, and such other officers and agents with such powers and
duties as it or he shall deem necessary. The order of the seniority of the
Vice-Presidents shall be in the order of their nomination, unless otherwise
determined by the Board of Directors. The Board of Directors may assign such
additional titles to one or more of the officers as they shall deem
appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) General: All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by
the Board of Directors may be removed at any time by the Board of Directors.
If the office of any officer becomes vacant for any reason, the vacancy may
be filled by the Board of Directors. Nothing in these Bylaws shall be
construed as creating any kind of contractual right to employment with the
corporation.
(b) Duties of the Chairman of the Board of Directors: The Chairman
of the Board of Directors (if there be such an officer appointed) shall be
the chief executive officer of the corporation and, when present, shall
preside at all meetings of the shareholders and the Board of Directors. The
Chairman of the Board of Directors shall perform such other duties and have
such other powers as the Board of Directors shall designate from time to time.
(c) Duties of President: The President shall be the chief
executive officer of the corporation in the absence of the Chairman of the
Board and shall preside at all meetings of the shareholders and at all
meetings of the Board of Directors, unless the Chairman of the Board of
Directors has been appointed and is present. The President shall perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time.
(d) Duties of Vice-Presidents: The Vice-Presidents, in the order
of their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of the
President is vacant. The Vice-President shall perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
(e) Duties of Secretary: The Secretary shall attend all meetings
of the shareholders and of the Board of Directors and any committee thereof,
and shall record all acts and proceedings thereof in the minute book of the
corporation. The Secretary shall give notice, in conformity with these
Bylaws, of all meetings of the shareholders, and of all meetings of the Board
of Directors and any Committee thereof requiring notice. The Secretary shall
perform such other duties and have such other
powers as the Board of Directors shall designate from time to time. The
President may direct any Assistant Secretary to assume and perform the duties
of the Secretary in the absence or disability of the Secretary, and each
Assistant Secretary shall perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time
to time.
(f) Duties of Treasurer: The Treasurer shall keep or cause to be
kept the books of account of the corporation in a thorough and proper manner,
and shall render statements of the financial affairs of the corporation in
such form and as often as required by the Board of Directors or the
President. The Treasurer, subject to the order of the Board of Directors,
shall have the custody of all funds and securities of the corporation. The
Treasurer shall perform all other duties commonly incident to his office and
shall perform such other duties and have such other powers as the board of
directors or the president shall designate from time to time. The President
may direct any Assistant Treasurer to assume and perform the duties of the
Treasurer in the absence or disability of the Treasurer, and each Assistant
Treasurer shall perform such other duties and have such other powers as the
Board of Directors or the President shall designate from time to time.
ARTICLE V
Execution of Corporate Instruments, and
Voting of Securities Owned by the Corporation
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the
method and designate the signatory officer or officers, or other person or
persons, to execute any corporate instrument or document, or to sign the
corporate name without limitation, except where otherwise provided by law,
and such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of
Directors or otherwise required by law, formal contracts of the corporation,
promissory notes, deeds of trust, mortgages and other evidences of
indebtedness of the corporation, and other corporate instruments or documents
requiring the corporate seal, and certificates of shares of stock owned by
the corporation, shall be executed, signed or endorsed by the Chairman of the
Board (if there be such an officer appointed) or by the President; such
documents may also be executed by any Vice-President and by the Secretary or
Treasurer or any Assistant Secretary or Assistant Treasurer. All other
instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on
funds to the credit of the corporation, or in special accounts of the
corporation, shall be signed by such person or persons as the Board of
Directors shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by
the corporation for itself, or for other parties in any capacity, shall be
voted, and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors or, in the
absence of such authorization, by the Chairman of the Board (if there be such
an officer appointed), or by the President, or by any Vice-President.
ARTICLE VI
Shares of Stock
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the corporation shall be in such
form as is consistent with the Certificate of Incorporation and applicable
law. Every holder of stock in the corporation shall be entitled to have a
certificate signed by, or in the name of the corporation by, the Chairman of
the Board (if there be such an officer appointed), or by the President or any
Vice-President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent, or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued with the same effect as if he were
such officer, transfer agent, or registrar at the date of issue. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights shall be set forth in full or summarized on
the face or back of the certificate which the corporation shall issue to
represent such class or series of stock, provided that, except as otherwise
provided in section 202 of the Delaware General Corporation Law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to
be issued in place of any certificate or certificates theretofore issued by
the corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or his legal representative, to
indemnify the corporation in such manner as it shall require and/or to give
the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the corporation shall be made
only upon its books by the holders thereof, in person or by attorney duly
authorized, upon the surrender of a certificate or certificates for a like
number of shares, properly endorsed, and with such proof of the authenticity
of the endorsement and of authority to transfer and of payment of transfer
taxes as the corporation or its agents may require.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the date on which the meeting is
held. A determination of stockholders of record entitled notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board
of Directors. if no record date has been fixed by the board of directors,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting, when no prior action by the Board of
Directors is required by the Delaware General Corporation Law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in Delaware, its principal place of business, or an officer
or agent of the corporation having custody of
the book in which proceedings of meetings of stockholders are recorded.
Delivery made to a corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be
at the close of business on the day on which the Board of Directors adopts
the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose
of any other lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more than
sixty days prior to such action. If no record date is fixed, the record date
for determining stockholders for any such purpose shall be at the close of
business on the day on which the Board of Directors adopts the resolution
relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends,
and to vote as such owner, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VII
Other Securities of the Corporation
All bonds, debentures and other corporate securities of the corporation,
other than stock certificates, may be signed by the Chairman of the Board (if
there be such an officer appointed), or the President or any Vice-President
or such other person as may be authorized by the Board of Directors and the
corporate seal impressed thereon or a facsimile of such seal imprinted
thereon and attested by the signature of the Secretary or an Assistant
Secretary, or the Treasurer or an Assistant Treasurer; provided, however,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature of a trustee under an indenture
pursuant to which such bond, debenture or other corporate security shall be
issued, the signature of the persons signing and attesting the corporate seal
on such bond, debenture or other corporate security may be the imprinted
facsimile of the signatures of such persons. Interest coupons appertaining
to any such bond, debenture or other corporate security, authenticated by a
trustee as aforesaid, shall be signed by the Treasurer or an Assistant
Treasurer of the corporation, or such other person as may be authorized by
the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall
appear thereon or before the bond, debenture or other corporate security so
signed or attested shall have been delivered, such bond, debenture or other
corporate security nevertheless may be adopted by the corporation and issued
and delivered as though the person who signed the same or whose facsimile
signature shall have been used thereon had not ceased to be such officer of
the corporation.
ARTICLE VIII
Corporate Seal
The corporate seal shall consist of a die bearing the name of the
corporation and the state and date of its incorporation. Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
ARTICLE IX
Indemnification of Officers, Directors, Employees and Agents
SECTION 9.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party to
or is involved (as a party, witness, or otherwise), in any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (hereinafter a "Proceeding"), by reason of
the fact that he, or a person of whom he is the legal representative, is or
was a director, officer, employee, or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, employee,
or agent of another corporation or of a partnership, joint venture, trust, or
other enterprise, including service with respect to employee benefit plans,
whether the basis of the Proceeding is alleged action in an official capacity
as a director, officer, employee, or agent or in any other capacity while
serving as a director, officer, employee, or agent (hereafter an "Agent"),
shall be indemnified and held harmless by the corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended or interpreted (but, in the case of any such
amendment or interpretation, only to the extent that such amendment or
interpretation permits the corporation to provide broader indemnification
rights than were permitted prior thereto) against all expenses, liability,
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties, and amounts paid or to be paid in settlement, and any interest,
assessments, or other charges imposed thereon, and any federal, state, local,
or foreign taxes imposed on any Agent as a result of the actual or deemed
receipt of any payments under this Article) reasonably incurred or suffered
by such person in connection with investigating, defending, being a witness
in, or participating in (including on appeal), or preparing for any of the
foregoing in, any Proceeding (hereinafter "Expenses"); PROVIDED, HOWEVER,
that except as to actions to enforce indemnification rights pursuant to
Section 9.3 of this Article, the corporation shall indemnify any Agent
seeking indemnification in connection with a Proceeding (or part thereof)
initiated by such person only if the Proceeding (or part thereof) was
authorized by the Board of Directors of the corporation. The right to
indemnification conferred in this Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
Expenses incurred by an officer or director (acting in his capacity as
such) in defending a Proceeding shall be paid by the corporation in advance
of the final disposition of such Proceeding, PROVIDED, HOWEVER, that if
required by the Delaware General Corporation Law, as amended, such Expenses
shall be advanced only upon delivery to the corporation of an undertaking by
or on behalf of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized in this Article or otherwise. Expenses incurred by
other Agents of the corporation (or by the directors or officers not acting
in their capacity as such, including service with respect to employee benefit
plans) may be advanced upon such terms and conditions as the Board of
Directors deems appropriate. Any obligation to reimburse the corporation for
Expense advances shall be unsecured and no interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under Section 9.1 or 9.2 of this Article is not paid in full
by the corporation within 90 days after a written claim has been received by
the corporation, the claimant may at any time thereafter bring suit against
the corporation to recover the unpaid amount of the claim and, if successful
in whole or in part, the claimant shall be entitled to be paid also the
expense (including attorneys' fees) of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending a Proceeding in advance of its final
disposition where the required undertaking has been tendered to the
corporation) that the claimant has not met the standards of conduct that make
it permissible under the Delaware General Corporation Law for the corporation
to indemnify the claimant for the amount claimed. The burden of proving such
a defense shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper under the
circumstances because he has met the applicable standard of conduct set forth
in the Delaware General Corporation Law, nor an actual determination by the
corporation (including its Board of Directors, independent legal counsel, or
its stockholders) that the claimant had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article shall not be
exclusive of any other rights that such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, agreement,
vote of stockholders or disinterested directors, or otherwise, both as to
action in an official capacity and as to action in another capacity while
holding such office. To the extent that any provision of the Certificate,
agreement, or vote of the stockholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement, or vote shall take
precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The corporation may purchase and maintain insurance to protect itself
and any Agent against any Expense, whether or not the corporation would have
the power to indemnify the Agent against such Expense under applicable law or
the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article shall continue as to a person who
has ceased to be an Agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any Agent under this
Article (a) for any amounts paid in settlement of any action or claim
effected without the corporation's written consent, which consent shall not
be unreasonably withheld; or (b) for any judicial award if the corporation
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any Agent existing at the time of
such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION.
In the event of payment under this Article, the corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of
the Agent, who shall execute all papers required and shall do everything that
may be necessary to secure such rights, including the execution of such
documents necessary to enable the corporation effectively to bring suit to
enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS.
The corporation shall not be liable under this Article to make any
payment in connection with any claim made against the Agent to the extent the
Agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable
hereunder.
ARTICLE X
Notices
Whenever, under any provisions of these Bylaws, notice is required to be
given to any stockholder, the same shall be given in writing, timely and duly
deposited in the United States Mail, postage prepaid, and addressed to his
last known post office address as shown by the stock record of the
corporation or its transfer agent. Any notice required to be given to any
director may be given by the method hereinabove stated, or by telegram or
other means of electronic transmission, except that such notice other than
one which is delivered personally, shall be sent to such address or (in the
case of facsimile telecommunication) facsimile telephone number as such
director shall have filed in writing with the Secretary of the corporation,
or, in the absence of such filing, to the last known post office address of
such director. If no address of a stockholder or director be known, such
notice may be sent to the office
of the corporation required to be maintained pursuant to Section 1.2 of
Article I hereof. An affidavit of mailing, executed by a duly authorized and
competent employee of the corporation or its transfer agent appointed with
respect to the class of stock affected, specifying the name and address or
the names and addresses of the stockholder or stockholders, director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall be conclusive evidence of the statements
therein contained. All notices given by mail, as above provided, shall be
deemed to have been given as at the time of mailing and all notices given by
telegram or other means of electronic transmission shall be deemed to have
been given as at the sending time recorded by the telegraph company or other
electronic transmission equipment operator transmitting the same. It shall
not be necessary that the same method of giving notice be employed in respect
of all directors, but one permissible method may be employed in respect of
any one or more, and any other permissible method or methods may be employed
in respect of any other or others. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice
sent him in the manner above provided, shall not be affected or extended in
any manner by the failure of such a stockholder or such director to receive
such notice. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation, or of
these Bylaws, a waiver thereof in writing signed by the person or persons
entitled to said notice, whether before or after the time stated therein,
shall be deemed equivalent thereto. Whenever notice is required to be given,
under any provision of law or of the Certificate of Incorporation or Bylaws
of the corporation, to any person with whom communication is unlawful, the
giving of such notice to such person shall not be required and there shall be
no duty to apply to any governmental authority or agency for a license or
permit to give such notice to such person. Any action or meeting which shall
be taken or held without notice to any such person with whom communication is
unlawful shall have the same force and effect as if such notice had been duly
given. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate shall state, if such is the fact and
if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
ARTICLE XI
Amendments
These Bylaws may be repealed, altered or amended or new Bylaws adopted
by written consent of stockholders in the manner authorized by Section 2.11
of Article II, or at any meeting of the stockholders, either annual or
special, by the affirmative vote of a majority of the stock entitled to vote
at such meeting, unless a larger vote is required by these Bylaws or the
Certificate of Incorporation. The Board of Directors shall also have the
authority to repeal, alter or amend these Bylaws or adopt new Bylaws
(including, without limitation, the amendment of any Bylaws setting forth the
number of directors who shall constitute the whole Board of Directors) by
unanimous written consent or at any annual, regular, or special meeting by
the affirmative vote of a majority of the whole number of directors, subject
to the power of the stockholders to change or repeal such Bylaws and provided
that the Board of Directors shall not make or alter any Bylaws fixing the
qualifications, classifications, or term of office of directors.
EXHIBIT XIII
[Closing Date]
Heuristic Development Group, Inc.
1219 Morningside Drive
Manhattan Beach, CA 90266
Virtual Communities, Inc.
151 West 25th Street
New York, NY 10001
Gentlemen:
This letter is being delivered to you concurrent with the merger (the
"Merger") of HDG Acquisition Sub, Inc., a Delaware corporation ("HDG Sub"), a
wholly-owned subsidiary of Heuristic Development Group, Inc., a Delaware
corporation ("HDG"), with and into Virtual Communities, Inc., a Delaware
corporation ("VCI"), pursuant to that certain Agreement and Plan of Merger,
dated May __, 1999, among HDG, HDG Sub and VCI (the "Merger Agreement").
The undersigned, for himself and his agents, representatives, successors
and assigns (collectively, the "Undersigned"), hereby acknowledges and
agrees, effective upon the consummation of the Merger (the "Closing"), as
follows:
SECURITIES EXCHANGE AGREEMENT
Reference is hereby made to that certain letter agreement, of even date
herewith, between the parties hereto (the "Securities Exchange Agreement").
Capitalized terms not defined herein, including the term "Warrant," shall
have the meanings given to such terms in the Securities Exchange Agreement.
LIMITED RECOURSE GUARANTY
The Undersigned hereby irrevocably and unconditionally guarantees the
representation and warranty of HDG made at Closing that the condition of
Closing set forth in Section 8.2(s) of the Merger Agreement (but only insofar
as it relates to HDG's costs, fees and expenses as contemplated by Section
10.5 of the Merger Agreement) was satisfied in full prior to Closing (the
"Representation"). HDG's sole recourse with respect to this guaranty shall be
limited as provided by the Adjustment remedy set forth in this section.
Attached hereto is a schedule (the "Schedule") of HDG's and HDG Sub's costs,
fees and expenses prepared for purposes of evidencing HDG's satisfaction of
the condition set forth in Section 8.2(s) of the Merger Agreement, which the
undersigned hereby confirms to be accurate and correct.
If (a) the Representation is inaccurate, (b) HDG is required to pay any fee,
loss, damage, claim, liability, cost or expense not set forth on the Schedule
(a "Loss"), (c) the aggregate amount of all Losses exceeds $5,000, and (d)
HDG has notified the Undersigned of the Loss in writing as set forth herein
below before or on the date that is 4 months from the date of Closing, then,
with respect to each such Loss (to the extent the aggregate of such Losses
exceeds $5,000), HDG shall be entitled to amend, by its sole action,
the Warrant to reduce the amount of shares of HDG Common Stock that may be
acquired upon the exercise of the Warrant by the Adjustment.
For purposes of this agreement, the following terms shall have the following
meanings:
"Adjustment" shall equal the Loss (to the extent the aggregate of
such Losses exceeds $5,000) divided by the Spread.
"Spread" shall equal the difference between the exercise price of the
Warrant and the average closing bid price of the HDG Common Stock
trading on the Nasdaq SmallCap Market for the 5 consecutive trading
days prior to the date that HDG provides notice of the Loss to the
Undersigned, or if not so trading, the difference between the
exercise price of the Warrant and the fair market value of one (1)
share of HDG Common Stock (as determined by the HDG Board of Directors
in good faith) on the date that HDG provides notice of the Loss to the
Undersigned. In the event that the Spread is less than $.01, the
Spread shall equal $.01.
NOTICE OF LOSS
Upon the occurrence of each of the events set forth in clauses (a), (b) and
(c) above with respect to any Loss, HDG shall give the Undersigned written
notice stating that HDG has paid or properly accrued such Loss in an
aggregate stated amount (a "Claim"), and specifying in reasonable detail each
individual item of fee, loss, damage, claim, liability, cost or expense
included in the Claim so stated and the date each such item was paid or
properly accrued. For a period of 14 days from the date of any such notice,
HDG shall not make the Adjustment to the Warrant unless HDG shall have
received from the Undersigned written authorization to do so. After the
expiration of such 14-day period, HDG may make the Adjustment, provided that
no such Adjustment may be made to which the Undersigned has objected in a
written statement delivered to HDG before the expiration of the 14-day period.
SETTLEMENT OF DISPUTED CLAIMS; ARBITRATION
If the Undersigned objects in writing to any Adjustment based on any Claim,
HDG and the Undersigned will attempt in good faith to agree on the rights of
the respective parties regarding each disputed Claim. If HDG and the
Undersigned do so agree, a memorandum setting forth the agreement will be
prepared, executed and delivered by both parties, and HDG will thereafter be
entitled to make an Adjustment to the Warrant in accordance with the terms of
such memorandum. If no such agreement can be reached after good faith
negotiation, either HDG or the Undersigned may demand arbitration of the
matter as provided herein below.
ARBITRATION OF CLAIMS
Only disputes with respect to the implementation of this letter agreement
shall be subject to final and binding arbitration (an "Arbitration")
conducted before a single neutral arbitrator, who shall be a certified public
accountant nominated according to the Commercial Arbitration Rules of the
American Arbitration Association sitting in the City of New York, New York.
The judgment rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Any such Arbitration shall commence within 14 days of
the date of filing a notice of intention to arbitrate with the arbitrator
after serving the notice on the other party, and the arbitrator shall render
his or her decision within 30 days of the date of filing such notice of
intention to arbitrate with the arbitrator. In any such Arbitration, the
arbitrator shall determine all questions or arbitrability, including, without
limitation, the scope of this agreement to arbitrate a Claim, whether an
agreement to arbitrate exists and if so whether it covers the disputed Claim
in question.
Any such Arbitration shall be administered by the arbitrator in accordance
with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
award shall be in writing. The arbitrator may not make any ruling, finding
or award that does not conform to the terms and conditions of this letter
agreement. Each party shall pay its share of the fees and costs of the
Arbitration and of the arbitrator, provided that the arbitrator shall
reallocate same in favor of the prevailing party as set forth herein below.
ATTORNEYS' FEES AND COSTS
The prevailing party in any Arbitration, or in any other legal action or
proceeding brought for the enforcement of this letter agreement, or because
of any alleged dispute, breach or default based on or arising under this
letter agreement, shall be entitled to recover reasonable attorneys' fees and
other costs incurred in such Arbitration, action or proceeding, including the
Arbitrator's fees and costs, in addition to any other relief to which it may
be entitled.
PLEDGE
As security for the Undersigned's guaranty under this agreement, the
Undersigned hereby pledges, assigns, transfers and grants to HDG a lien on
and security in and to all of the right, title and interest of the
Undersigned in the Warrant, and hereby delivers the Warrant to HDG for
purposes of perfecting HDG's security interest in the Warrant.
The Undersigned hereby agrees that he shall not and shall not be entitled to
exercise the Warrant for the period commencing on the date of the Closing and
ending on the date 6 months from the date of the Closing.
Upon termination of this agreement by mutual consent of the parties or as
provided herein, HDG shall return the Warrant to the Undersigned, with any
amendments permitted in accordance with this agreement.
FURTHER ASSURANCES
The Undersigned agrees that at any time and from time to time, the
Undersigned will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable,
or that HDG may reasonably request, in order to perfect and protect any
security interest granted or purported to be granted hereby or to enable HDG
to exercise and enforce its rights and remedies hereunder with respect to the
Warrant.
OWNERSHIP OF WARRANT
Except as provided herein, the Undersigned owns the Warrant free and clear of
all liens, pledges, charges, security interests, claims, options or
encumbrances of any kind whatsoever and pursuant to this agreement transfers
the Warrant to HDG free of all liens, pledges, charges, security interests,
claims, options and encumbrances.
DUE AUTHORIZATION
The Undersigned has all requisite capacity to execute, deliver and perform
its obligations under this agreement. This agreement constitutes the valid,
legal and binding obligation of the Undersigned enforceable against the
Undersigned in accordance with its terms.
EFFECT OF AGREEMENT
Neither the execution, delivery nor performance of this agreement nor the
consummation by the Undersigned of the transactions contemplated hereby will,
with or without the giving of notice and/or the passage of time, conflict
with, result in any violation of, or constitute a default under any law,
regulation, judgment, decree, order or any other restriction of any kind or
character by which the Undersigned is bound.
GOVERNMENTAL AND OTHER CONSENTS
No consent, approval, waiver, license or authorization of or designation,
declaration or filing with any governmental authority or other person or
entity is required in connection with the execution, delivery or performance
of this agreement by the Undersigned or the consummation of the transactions
contemplated hereby and thereby.
MISCELLANEOUS
This agreement and all other agreements or instruments executed, issued or
delivered in accordance herewith shall be construed and enforced in
accordance with and governed by the laws of the State of New York. This
agreement shall be binding upon and enure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto;
PROVIDED, that the Undersigned may not assign any of its rights or
obligations under this agreement without the prior written consent of HDG and
VCI. This agreement, the Securities Exchange Agreement and the Merger
Agreement embody the entire agreement and understanding between the
Undersigned, HDG and VCI and supersedes all prior agreements and
understandings relating to the subject matter hereof. This agreement may be
executed in any number of counterparts, each of which shall be an original,
but all of which together shall constitute one instrument. No modification,
amendment, supplement to or waiver of this agreement shall be binding unless
made in writing and duly signed by the Undersigned, VCI and HDG. The
provisions of this agreement are severable, and if any clause or provision
shall be held invalid or unenforceable in whole or in part in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this agreement in any jurisdiction.
This agreement shall terminate by its terms on the date after the 6 month
anniversary of the date of Closing; PROVIDED, HOWEVER, that HDG shall have a
reasonable amount of time thereafter to make any amendments to the Warrant
authorized by this agreement, or by any arbitration award as contemplated
herein, prior to delivering the Warrant to the Undersigned as required herein.
Sincerely,
_______________________
Gregory L. Zink
AGREED AND
ACCEPTED:
Heuristic Development Group, Inc.
By: _________________________
President
Virtual Communities, Inc.
By: _________________________
President
EXHIBIT XIV
[HDG LETTERHEAD]
May 28, 1999
D.H. Blair & Co., Inc.
New York, New York
Re: All Unit Purchase Option agreements, dated February 14, 1997 (the
"Agreements"), issued by Heuristic Development Group, Inc (the
"Company").
Gentlemen:
This letter agreement is being delivered to you, on the Company's behalf
and on behalf of Virtual Communities, Inc. ("VCI"), in connection with the
proposed merger (the "Merger") of a wholly owned subsidiary of the Company
with and into VCI, a Delaware corporation, as substantially described in that
certain letter of intent dated March 31, 1999 (the "LOI"), between VCI and
the Company, and pursuant to the subsequent negotiations of VCI and the
Company.
As an inducement to the Company and VCI to enter into definitive merger
documentation and to consummate the Merger (the "Closing"), this letter
agreement confirms that, effective as of the date above first written and as
of the Closing that: (i) D.H. Blair & Co., Inc. ("Blair"), on behalf of
itself and, to the extent permitted by the terms of the individual Unit
Purchase Options (as such capitalized term is defined in Section 11(a) of the
Underwriting Agreement dated February 11, 1997 by and among D.H. Blair
Investment Banking Corp. and the Company), on behalf of all other holders
("Holders") of Unit Purchase Options, irrevocably waives any and all of its
and the Holders' piggyback registrations rights, as contemplated by Section
6(a) of the Agreements, from the date above first written through and
including the earlier of August 31, 1999 or the date of the Closing; and (ii)
Blair irrevocably waives its demand registration rights, as contemplated by
Section 6(b) of the Agreements, from the date above first written through and
including the date which is the earlier of December 31, 1999 or 90 days after
the Closing.
Blair hereby represents and warrants that it is authorized to enter
into, execute and deliver this letter agreement, and that it is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. No modification, amendment, supplement to or waiver of
this letter agreement shall be binding unless made in writing and duly signed
by each of Blair, the Company and VCI. This letter agreement shall be binding
upon and shall inure to the benefit of Blair, the Company and VCI and their
respective permitted successors and assigns.
Blair agrees to execute and deliver to the Company and VCI such other
documents or instruments which are necessary or desirable to evidence and
effect the matters referred to in this letter agreement. This letter
agreement shall be governed by and construed and enforced in accordance with
the internal laws of the State of New York.
If for any reason the Closing does not occur by December 31, 1999, or
the Merger is earlier terminated, this letter agreement will be terminated.
On behalf of the undersigned, please acknowledge your agreement to the
foregoing by signing and returning this letter.
Very truly yours,
HEURISTIC DEVELOPMENT GROUP, INC.
By:__________________________________
Gregory L. Zink
Chief Executive Officer
AGREED AND ACCEPTED BY:
D.H. BLAIR & CO., INC.
By: ____________________________
Name:_______________________
Title:_______________________
Date: ___________________________
[HDG LETTERHEAD]
May 28, 1999
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Re: Underwriting Agreement dated February 11, 1997 (the "Agreement") by and
among D.H. Blair Investment Banking Corp. ("D.H. Blair") and Heuristic
Development Group, Inc. (the "Company").
Gentlemen:
This letter agreement is being delivered to you, on the Company's behalf
and on behalf of Virtual Communities, Inc. ("VCI"), in connection with the
proposed merger (the "Merger") of a wholly owned subsidiary of the Company
with and into VCI, a Delaware corporation, as substantially described in that
certain letter of intent dated March 31, 1999 (the "LOI"), between VCI and
the Company, and pursuant to the subsequent negotiations of VCI and the
Company.
As an inducement to the Company and VCI to enter into definitive merger
documentation and to consummate the Merger (the "Closing"), this letter
agreement confirms that, effective as of the date above first written and as
of the Closing that: (i) D.H. Blair, on behalf of itself and, to the extent
permitted by the terms of the individual Unit Purchase Options (as such
capitalized term is defined in Section 11(a) of the Agreement), on behalf of
all other holders ("Holders") of Unit Purchase Options, irrevocably waives
any and all of its and the Holders' piggyback registrations rights, as
contemplated by Section 6(a) of its, and the Holders, Unit Purchase Option
agreements, dated February 14, 1997 (the "UPO Agreements"), from the date
above first written through and including the earlier of August 31, 1999 or
the date of the Closing; (ii) each of D.H. Blair and J. Morton Davis
irrevocably waives its or his demand registration rights, as contemplated by
Section 6(b) of the UPO Agreements, from the date above first written through
and including the date which is the earlier of December 31, 1999 or 90 days
after the Closing; (iii) D.H. Blair irrevocably waives all of its rights to
any finder's fee with respect to the Merger or any transaction arising prior
to the Closing whether pursuant to the terms of the letter agreement, dated
December 2, 1996 between D.H. Blair and the Company or otherwise; (iv) D.H.
Blair and J. Morton Davis agree not to initiate, assert or join as a party to
any claim, demand, cause of action or suit of any kind arising from or under
any of the following sections of the Agreement, or Section 3(s) thereof, and
(v) the Agreement is amended to delete each of the following sections;
PROVIDED, HOWEVER, that Sections 3(m) and 7 are amended as provided below
and, as amended, are not waived hereby:
1. Section 3(d)(ii);
2. Section 3(m), is amended to add the phrase "or a listing on the Nasdaq
National Market, the American Stock Exchange or the New York Stock
Exchange" between the phrases "such listing" and "for at least";
3. Section 3(n);
4. Section 3(p)(iii);
5. Section 3(q);
6. Section 3(w);
7. Section 3(x); and
8. Section 7, is amended to add the phrase ", prior to the Closing (as
defined in the letter agreement, dated May 28, 1999, between the Company,
D.H. Blair and J. Morton Davis)," (the "Phrase") between the phrases
"controls the Company" and "within the meaning" in the fourth to last
sentence therein; and further amended to add the Phrase between the
phrases "and controlling persons" and "to the full extent" in the third
to last sentence therein.
D.H. Blair and J. Morton Davis hereby represent and warrant that each is
authorized to enter into, execute and deliver this letter agreement, and that
D.H. Blair is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. No modification,
amendment, supplement to or waiver of this letter agreement shall be binding
unless made in writing and duly signed by each of D.H. Blair, J. Morton
Davis, the Company and VCI. This letter agreement shall be binding upon and
shall inure to the benefit of D.H. Blair, J. Morton Davis, the Company and
VCI and their respective permitted successors and assigns.
Each of D.H. Blair and J. Morton Davis agree to execute and deliver to
the Company and VCI such other documents or instruments which are necessary
or desirable to evidence and effect the matters referred to in this letter
agreement. This letter agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York.
If for any reason the Closing does not occur by December 31, 1999, or
the Merger is earlier terminated, this letter agreement will be terminated.
By, or on behalf of the undersigned, please acknowledge your agreement to the
foregoing by signing and returning this letter.
Very truly yours,
HEURISTIC DEVELOPMENT GROUP, INC.
By:__________________________________
Gregory L. Zink
Chief Executive Officer
AGREED AND ACCEPTED BY:
D.H. BLAIR INVESTMENT BANKING CORP.
By: _______________________________
Name: _________________________
Title:_________________________
Date:______________________________
J. MORTON DAVIS
Date:______________________________
EXHIBIT XV
HEURISTIC DEVELOPMENT GROUP, INC.
HDG ACQUISITION SUB, INC.
CERTIFICATE
OF
REPRESENTATIONS AND PERFORMANCE
This Certificate is provided pursuant to Section 8.2(a) of the Agreement
and Plan of Merger (the "Agreement") among Virtual Communities, Inc.,
Heuristic Development Group, Inc. ("HDG") and HDG Acquisition Sub, Inc. ("HDG
Sub"), dated ___________, 1999.
The undersigned, President of each of HDG and HDG Sub, hereby certifies
as follows:
AI That each of the representations and warranties of HDG and HDG Sub
contained in the Agreement are true and correct in all material
respects on and as of the date hereof with the same effect as though
made on and as of said date (except in the case of representations
and warranties expressly made solely with reference to a particular
date).
AI Each of HDG and HDG Sub has duly performed in all material respects its
agreements contained in the Agreement required to be performed on or
prior to the date hereof.
Dated: _____________, 1999 By ______________________________
Gregory L. Zink, President
EXHIBIT XVI
VIRTUAL COMMUNITIES, INC.
CERTIFICATE
OF
REPRESENTATIONS AND PERFORMANCE
This Certificate is provided pursuant to Section 8.3(a) of the Agreement
and Plan of Merger (the "Agreement") among Virtual Communities, Inc. ("VCI"),
Heuristic Development Group, Inc. and HDG Acquisition Sub, Inc., dated
___________, 1999.
The undersigned, President of VCI, hereby certifies as follows:
AI That each of the representations and warranties of VCI contained in
the Agreement are true and correct in all material respects on and
as of the date hereof with the same effect as though made on and as
of said date (except in the case of representations and warranties
expressly made solely with reference to a particular date).
AI VCI has duly performed in all material respects its agreements
contained in the Agreement required to be performed on or prior to
the date hereof.
Dated: _____________, 1999
By _______________________________
Avi Moskowitz, President