Exhibit 10.1


 


EXECUTION
COPY


 


 


AGREEMENT
AND PLAN OF MERGER


 


by and
among


 


WEIGHT
WATCHERS INTERNATIONAL, INC.,


 


SCW MERGER
SUB, INC.


 


and


 


WEIGHTWATCHERS.COM,
INC.


 


Dated as of
June 13, 2005


 





















 


TABLE OF
CONTENTS


 


	
  ARTICLE I

  	
  THE MERGER

  	
   

  
	
  Section 1.1

  	
  The Merger

  	
   

  
	
  Section 1.2

  	
  Closings

  	
   

  
	
  Section 1.3

  	
  Effective
  Time

  	
   

  
	
  Section 1.4

  	
  Effects
  of the Merger

  	
   

  
	
  Section 1.5

  	
  Certificate of
  Incorporation

  	
   

  
	
  Section 1.6

  	
  Bylaws

  	
   

  
	
  Section 1.7

  	
  Directors

  	
   

  
	
  Section 1.8

  	
  Officers

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  EFFECT OF THE
  MERGER ON CAPITAL STOCK

  	
   

  
	
  Section 2.1

  	
  Conversion of Capital Stock

  	
   

  
	
  Section 2.2

  	
  Surrender of Certificates

  	
   

  
	
  Section 2.3

  	
  Escrow
  Fund; Payment of Deferred Merger Consideration

  	
   

  
	
  Section 2.4

  	
  Stock
  Options

  	
   

  
	
  Section 2.5

  	
  Dissenting
  Shares

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  REPRESENTATIONS
  AND WARRANTIES OF THE COMPANY

  	
   

  
	
  Section 3.1

  	
  Organization, Standing
  and Power

  	
   

  
	
  Section 3.2

  	
  Subsidiaries

  	
   

  
	
  Section 3.3

  	
  Capital
  Structure

  	
   

  
	
  Section 3.4

  	
  Authority; Noncontravention

  	
   

  
	
  Section 3.5

  	
  Governmental
  Approvals

  	
   

  
	
  Section 3.6

  	
  Financial
  Statements; No Undisclosed Liabilities

  	
   

  
	
  Section 3.7

  	
  Absence of Certain
  Changes or Events

  	
   

  
	
  Section 3.8

  	
  Litigation

  	
   

  
	
  Section 3.9

  	
  Contracts

  	
   

  
	
  Section 3.10

  	
  Compliance
  with Laws

  	
   

  
	
  Section 3.11

  	
  Environmental
  Matters

  	
   

  
	
  Section 3.12

  	
  Employees

  	
   

  
	
  Section 3.13

  	
  Employee
  Benefit Plans

  	
   

  
	
  Section 3.14

  	
  Taxes

  	
   

  
	
  Section 3.15

  	
  Leases

  	
   

  
	
  Section 3.16

  	
  Intellectual
  Property

  	
   

  
	
  Section 3.17

  	
  Privacy
  Policy

  	
   

  
	
  Section 3.18

  	
  Customer Accounts
  Receivable

  	
   

  
	
  Section 3.19

  	
  Brokers and Other Advisors

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  REPRESENTATIONS
  AND WARRANTIES OF PARENT

  	
   

  
	
  Section 4.1

  	
  Organization, Standing
  and Power

  	
   

  
	
  Section 4.2

  	
  Authority; Noncontravention

  	
   

  
	
  Section 4.3

  	
  Governmental Approvals

  	
   

  
	
  Section 4.4

  	
  Litigation

  	
   

  



 


i





















 


	
  Section 4.5

  	
  Interim Operations of
  Merger Sub

  	
   

  
	
  Section 4.6

  	
  Parent
  Company Common Stock, Warrant and Options

  	
   

  
	
  Section 4.7

  	
  Opinion of Financial
  Advisor

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  COVENANTS

  	
   

  
	
  Section 5.1

  	
  Conduct of Business
  of the Company

  	
   

  
	
  Section 5.2

  	
  Other Actions

  	
   

  
	
  Section 5.3

  	
  Access to
  Information; Confidentiality

  	
   

  
	
  Section 5.4

  	
  No Solicitation; No
  Public Offering

  	
   

  
	
  Section 5.5

  	
  Notices of Certain Events

  	
   

  
	
  Section 5.6

  	
  Directors’
  and Officers’ Indemnification and Insurance

  	
   

  
	
  Section 5.7

  	
  Commercially Reasonable
  Efforts

  	
   

  
	
  Section 5.8

  	
  Consents; Filings;
  Further Action

  	
   

  
	
  Section 5.9

  	
  Public Announcements

  	
   

  
	
  Section 5.10

  	
  Fees, Costs and Expenses

  	
   

  
	
  Section 5.11

  	
  Defense of Litigation

  	
   

  
	
  Section 5.12

  	
  Tax Matters

  	
   

  
	
  Section 5.13

  	
  Maintenance
  and Prosecution of Intellectual Property

  	
   

  
	
  Section 5.14

  	
  Sarbanes-Oxley; Accounting

  	
   

  
	
  Section 5.15

  	
  Exercise of Warrants

  	
   

  
	
  Section 5.16

  	
  Charter Amendment and
  Exchange

  	
   

  
	
  Section 5.17

  	
  Financing

  	
   

  
	
  Section 5.18

  	
  Parent Company Options

  	
   

  
	
  Section 5.19

  	
  Waiver Under Credit
  Agreement

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  CONDITIONS

  	
   

  
	
  Section 6.1

  	
  Conditions
  to Each Party’s Obligation to Effect the Merger

  	
   

  
	
  Section 6.2

  	
  Conditions to
  Obligations of Parent and Merger Sub

  	
   

  
	
  Section 6.3

  	
  Conditions to
  Obligations of the Company

  	
   

  
	
  Section 6.4

  	
  Frustration of
  Closing Conditions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  INDEMNIFICATION

  	
   

  
	
  Section 7.1

  	
  Survival of
  Representations and Warranties

  	
   

  
	
  Section 7.2

  	
  Indemnification
  by the Principal Company Stockholder and Other Holders

  	
   

  
	
  Section 7.3

  	
  Indemnification by Parent

  	
   

  
	
  Section 7.4

  	
  Procedure for
  Indemnification

  	
   

  
	
  Section 7.5

  	
  Limits on Indemnification

  	
   

  
	
  Section 7.6

  	
  Assignment of
  Claims; Contribution

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  TERMINATION,
  AMENDMENT AND WAIVER

  	
   

  
	
  Section 8.1

  	
  Termination by Mutual
  Consent

  	
   

  
	
  Section 8.2

  	
  Termination
  by Either Parent or the Company

  	
   

  
	
  Section 8.3

  	
  Termination by Parent

  	
   

  



 


ii





















 


	
  Section 8.4

  	
  Termination by the Company

  	
   

  
	
  Section 8.5

  	
  Effect of Termination

  	
   

  
	
  Section 8.6

  	
  Amendment

  	
   

  
	
  Section 8.7

  	
  Extension; Waiver

  	
   

  
	
  Section 8.8

  	
  Transfer Taxes

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE IX

  	
  MISCELLANEOUS

  	
   

  
	
  Section 9.1

  	
  Certain Definitions

  	
   

  
	
  Section 9.2

  	
  Interpretation

  	
   

  
	
  Section 9.3

  	
  Survival

  	
   

  
	
  Section 9.4

  	
  Governing Law

  	
   

  
	
  Section 9.5

  	
  Submission to Jurisdiction

  	
   

  
	
  Section 9.6

  	
  WAIVER OF JURY TRIAL

  	
   

  
	
  Section 9.7

  	
  Notices

  	
   

  
	
  Section 9.8

  	
  Entire Agreement

  	
   

  
	
  Section 9.9

  	
  No Third-Party
  Beneficiaries

  	
   

  
	
  Section 9.10

  	
  Rules of Construction

  	
   

  
	
  Section 9.11

  	
  Assignment

  	
   

  
	
  Section 9.12

  	
  Remedies

  	
   

  
	
  Section 9.13

  	
  Specific Performance

  	
   

  
	
  Section 9.14

  	
  Counterparts; Effectiveness

  	
   

  



 


Exhibits


 


Exhibit A  Principal Stockholders Agreement


Exhibit B  Redemption Agreement


Exhibit C  Letter of Transmittal


Exhibit D
 Escrow Agreement


 


iii





















 


INDEX OF
DEFINED TERMS


 


	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  2005 Business Plan

  	
   

  	
  Section 5.1(e)

  
	
  228 Notice

  	
   

  	
  Section 3.4(a)

  
	
  affiliated group

  	
   

  	
  Section 3.14(a)

  
	
  Agreement

  	
   

  	
  Preamble

  
	
  Annual Financial Statements

  	
   

  	
  Section 3.6(a)

  
	
  Appraisal Notice

  	
   

  	
  Section 3.4(a)

  
	
  Certificate of Merger

  	
   

  	
  Section 1.3

  
	
  Certificates

  	
   

  	
  Section 2.1(c)

  
	
  Charter Amendment

  	
   

  	
  Section 5.15

  
	
  Claimant

  	
   

  	
  Section 7.4(a)

  
	
  Code

  	
   

  	
  Section 2.2(e)

  
	
  Company

  	
   

  	
  Preamble

  
	
  Company Board Recommendation

  	
   

  	
  Section 3.4(a)

  
	
  Company Bylaws

  	
   

  	
  Section 3.1

  
	
  Company Charter

  	
   

  	
  Section 3.1

  
	
  Company Class B Common Stock

  	
   

  	
  Section 2.1(d)

  
	
  Company Common Stock

  	
   

  	
  Recitals

  
	
  Company Disclosure Letter

  	
   

  	
  ARTICLE III

  
	
  Company Intellectual Property

  	
   

  	
  Section 3.16(a)

  
	
  Company Option Plans

  	
   

  	
  Section 2.4(a)

  
	
  Company Plans

  	
   

  	
  Section 3.13(a)

  
	
  Company Stock Option

  	
   

  	
  Section 2.4(a)

  
	
  Confidentiality Agreement

  	
   

  	
  Section 5.3(b)

  
	
  Copyright Office

  	
   

  	
  Section 5.13(b)

  
	
  Credit Agreement

  	
   

  	
  Section 5.19

  
	
  Customer Information

  	
   

  	
  Section 3.17

  
	
  D&O Indemnified Parties

  	
   

  	
  Section 5.6(a)

  
	
  debt obligations

  	
   

  	
  Section 3.9(a)(iii)

  
	
  DGCL

  	
   

  	
  Recitals

  
	
  Dissenting Shares

  	
   

  	
  Section 2.5(a)

  
	
  Dissenting Stockholder

  	
   

  	
  Section 2.5(a)

  
	
  Effective Time

  	
   

  	
  Section 1.3

  
	
  Environmental Laws

  	
   

  	
  Section 3.11

  
	
  ERISA

  	
   

  	
  Section 3.13(a)

  
	
  Escrow Account

  	
   

  	
  Section 2.3(a)

  
	
  Escrow Agent

  	
   

  	
  Section 2.3(a)

  
	
  Escrow Agreement

  	
   

  	
  Section 2.3(a)

  
	
  Escrow Earnings

  	
   

  	
  Section 2.3(a)

  
	
  Escrow Fund

  	
   

  	
  Section 2.3(a)

  
	
  Exchange

  	
   

  	
  Section 5.16

  
	
  Excluded Shares

  	
   

  	
  Section 2.1(b)

  
	
  Financial Statements

  	
   

  	
  Section 3.6(a)

  
	
  Financing

  	
   

  	
  Section 5.17

  



 


iv





















 


	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  First Closing

  	
   

  	
  Section 1.2(a)

  
	
  First Closing Date

  	
   

  	
  Section 1.2(a)

  
	
  Foreign Plan

  	
   

  	
  Section 3.13(b)

  
	
  Governmental Consents

  	
   

  	
  Section 6.1(c)

  
	
  Governmental Entity

  	
   

  	
  Section 6.1(c)

  
	
  Holder Representative

  	
   

  	
  Section 2.3(c)

  
	
  HSR Act

  	
   

  	
  Section 3.5

  
	
  Indemnified Parties

  	
   

  	
  Section 7.2(a)

  
	
  Indemnifier

  	
   

  	
  Section 7.4(a)

  
	
  Interim Financial Statements

  	
   

  	
  Section 3.6(a)

  
	
  Invus

  	
   

  	
  Section 1.7

  
	
  IRS

  	
   

  	
  Section 3.14(m)

  
	
  Leased Property

  	
   

  	
  Section 3.15(a)

  
	
  Legal Action

  	
   

  	
  Section 3.8

  
	
  Letter of Transmittal

  	
   

  	
  Section 2.2(c)(i)

  
	
  Merger

  	
   

  	
  Recitals

  
	
  Merger Payments

  	
   

  	
  Section 2.2(c)(iv)

  
	
  Merger Sub

  	
   

  	
  Preamble

  
	
  Off-the-Shelf Software

  	
   

  	
  Section 3.16(c)

  
	
  Option Payment Procedures

  	
   

  	
  Section 2.4(a)

  
	
  Other Agreements

  	
   

  	
  Section 8.6(b)

  
	
  Other Holders

  	
   

  	
  Section 2.3(c)

  
	
  P/C Option Plan

  	
   

  	
  Section 4.6

  
	
  Parent

  	
   

  	
  Preamble

  
	
  Parent Company Options

  	
   

  	
  Section 4.6

  
	
  Paying Agent

  	
   

  	
  Section 2.2(a)

  
	
  Payment Fund

  	
   

  	
  Section 2.2(b)

  
	
  Permits

  	
   

  	
  Section 3.10

  
	
  Post-Signing Returns

  	
   

  	
  Section 5.12(a)

  
	
  Potential Contributor

  	
   

  	
  Section 7.6(a)

  
	
  Principal Company Stockholder

  	
   

  	
  Recitals

  
	
  Principal Stockholders Agreement

  	
   

  	
  Recitals

  
	
  Principal Stockholders Consent

  	
   

  	
  Recitals

  
	
  Privacy Policy

  	
   

  	
  Section 3.17

  
	
  Pro Rata Portion

  	
   

  	
  Section 7.5(b)

  
	
  Proportionate Damages

  	
   

  	
  Section 7.2(a)

  
	
  Redemption

  	
   

  	
  Recitals

  
	
  Redemption Agreement

  	
   

  	
  Recitals

  
	
  Second Closing

  	
   

  	
  Section 1.2(b)

  
	
  Second Closing Date

  	
   

  	
  Section 1.2(b)

  
	
  Secretary

  	
   

  	
  Recitals

  
	
  Section 3.9 Contracts

  	
   

  	
  Section 3.9(a)

  
	
  SOXA

  	
   

  	
  Section 5.14

  
	
  SOXA Obligations

  	
   

  	
  Section 5.14

  
	
  Stockholder Indemnified Parties

  	
   

  	
  Section 7.3

  
	
  Stockholders

  	
   

  	
  Section 7.5(b)

  



 


v





















 


	
  Term

  	
   

  	
  Section

  
	
   

  	
   

  	
   

  
	
  Substitute Business Plan

  	
   

  	
  Section 5.1(e)

  
	
  Surviving Bylaws

  	
   

  	
  Section 1.6

  
	
  Surviving Charter

  	
   

  	
  Section 1.5

  
	
  Surviving Corporation

  	
   

  	
  Section 1.1

  
	
  Tax Sharing Agreements

  	
   

  	
  Section 3.14(j)

  
	
  Transfer Taxes

  	
   

  	
  Section 8.8

  
	
  Unregistered Holder

  	
   

  	
  Section 2.2(c)(iii)

  
	
  Unvested Stock Option

  	
   

  	
  Section 2.4(b)

  
	
  USPTO

  	
   

  	
  Section 5.13(b)

  
	
  Vested Stock Option

  	
   

  	
  Section 2.4(a)

  
	
  Waiver

  	
   

  	
  Section 5.19

  
	
  Warrants

  	
   

  	
  Section 5.15

  



 


vi





















 


AGREEMENT
AND PLAN OF MERGER


 


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


 


RECITALS


 


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


 


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


 


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


 


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


 





















 


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


 


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


 


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


 


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


 


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


 


ARTICLE I


 


THE MERGER


 


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


 


Section 1.2             Closings.


 


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


 


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


 


2





















 


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


 


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


 


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


 


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


 


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


 


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


 


3





















 


ARTICLE II


 


EFFECT OF THE MERGER ON CAPITAL STOCK


 


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


 


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


 


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


 


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


 


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


 


4





















 


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


 


Section 2.2             Surrender of
Certificates.


 


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


 


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


 


(c)           Payment Procedures.


 


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


 


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


 


5





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


6





















 


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


 


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


 


Section 2.3             Escrow Fund;
Payment of Deferred Merger Consideration.


 


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


 


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


 


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


 


7





















 


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


 


Section 2.4             Stock Options.


 


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


 


8





















 


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


 


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


 


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


 


Section 2.5             Dissenting Shares.


 


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


 


9





















 


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


 


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


 


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


 


ARTICLE III


 


REPRESENTATIONS AND WARRANTIES OF THE COMPANY


 


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


 


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


 


10





















 


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


 


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


 


Section 3.3             Capital Structure.


 


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


 


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


 


11





















 


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


 


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


 


12





















 


Section 3.4             Authority;
Noncontravention.


 


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


 


13





















 


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


 


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


 


Section 3.6             Financial
Statements; No Undisclosed Liabilities.


 


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


 


14





















 


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


 


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


 


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


 


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


 


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


 


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


 


15





















 


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


 


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


 


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


 


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


 


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


 


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


 


16





















 


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


 


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


 


Section 3.9             Contracts.


 


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


 


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


 


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


 


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


 


17





















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


18





















 


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


 


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


 


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


 


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


 


19





















 


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


 


Section 3.12           Employees.


 


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


 


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


 


Section 3.13           Employee
Benefit Plans.


 


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


 


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


 


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


 


20





















 


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


 


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


 


(c)           Each Company Employment Agreement has
been made available to Parent.


 


(d)           Except in relation to Parent Company
Options or as specifically provided in this Agreement, neither the execution
and delivery of this Agreement nor the consummation of the Merger or the other
transactions contemplated by this Agreement will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any director,
officer or employee of the Company or any of its subsidiaries other than
pursuant to the Company Option Plans with respect to Company Stock
Options.  Without limiting the generality
of the foregoing, no amount paid or payable by Parent or Merger Sub in
connection with the Merger or the other transactions contemplated by this
Agreement (either solely as a result thereof or as a result of such
transactions in conjunction with any other event), will result in an “excess
parachute payment” within the meaning of Section 280G of the Code being
made to any employee of the Company.


 


(e)           None of the Company Stock Options is an
“incentive stock option” as defined in Section 422 of the Code.


 


Section 3.14           Taxes.


 


(a)           Each of the Company and its Subsidiaries
and any consolidated, combined, unitary, affiliated or aggregate group of which
the Company and any of its Subsidiaries is a member (an “affiliated group”)
has timely filed (taking into account any extension of time within which to
file) all material Tax Returns required to be filed by it, all Taxes shown due
on such tax returns and all other material Taxes as are due have been paid, and
all such Tax Returns are true and complete in all material respects.


 


(b)           As of the date hereof, no material
deficiencies for any Taxes have been proposed, asserted or assessed against the
Company, any of its Subsidiaries or any affiliated group that are still pending
and to the Knowledge of the Company, no Liens for Taxes exist with respect to
any property or other assets of the Company or any of its Subsidiaries, except
for statutory Liens for Taxes not yet due or payable or the validity of


 


21





















 


which is
being contested in good faith by appropriate proceedings and as to which adequate
reserves have been established on the Company’s books and records in accordance
with GAAP.


 


(c)           The Federal Income Tax Returns of each of
the Company, its Subsidiaries and any affiliated group have been examined by
and settled with the IRS (or the applicable statute of limitations has expired)
for all years through December 31, 2000.


 


(d)           All material Taxes due with respect to
federal income tax returns have been fully paid or have been adequately
reserved on the most recent financial statements included in the Financial
Statements in accordance with GAAP.


 


(e)           The Company has made available to Parent
true and complete copies of (i) all Tax Returns of the Company, its
Subsidiaries and affiliated groups for the preceding three taxable years and
(ii) any audit report issued within the three years preceding the date
hereof (or otherwise with respect to any audit or proceeding in progress)
relating to Taxes of the Company, any of its Subsidiaries and any affiliated
group.


 


(f)            Neither the Company nor any of its
Subsidiaries has constituted either a “distributing corporation” or a
“controlled corporation” (in each case, within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355(e) of the Code
(A) in the two years preceding the date hereof or (B) in a
distribution that could otherwise constitute part of a “plan” or “series of
related transactions” (within the meaning of Section 355(e) of the
Code) in conjunction with the Merger.


 


(g)           There are no outstanding agreements
extending or waiving the statutory period of limitations applicable to any
claim for, or the period for the collection or assessment or reassessment of,
Taxes due from the Company or any of its Subsidiaries for any taxable period
and no request for any such waiver or extension is currently pending.


 


(h)           To the Knowledge of the Company, no claim
has been made by any Governmental Entity in a jurisdiction where the Company
and its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.


 


(i)            To the Knowledge of the Company, the
Company and the Company’s Subsidiaries have not taken any reporting position on
a Tax Return, which reporting position (i) if not sustained would be
reasonably likely, absent disclosure, to give rise to a penalty for substantial
understatement of federal income Tax under Section 6662 of the Code (or
any similar provision of state, local, or foreign Tax law), and (ii) has
not adequately been disclosed on such Tax Return in accordance with
Section 6662(d)(2)(B) of the Code (or any similar provision of state,
local, or foreign Tax law).


 


(j)            Neither the Company nor any of its
Subsidiaries is a party to any agreement relating to the sharing, allocation or
indemnification of Taxes, or any similar


 


22





















 


agreement,
contract or arrangement, (collectively, “Tax Sharing Agreements”) or has
any liability for Taxes of any Person (other than members of the affiliated
group, within the meaning of Section 1504(a) of the Code, filing
consolidated federal income tax returns of which the Company is the common
parent) under Treasury Regulation § 1.1502-6, Treasury Regulation
§ 1.1502-78 or similar provision of state, local or foreign law, as a
transferee or successor, by contract, or otherwise, except with respect to any
agreements that have been (or may be) entered into in connection with this
Agreement and the Redemption Agreement.


 


(k)           To the Knowledge of the Company, the
Company and its Subsidiaries have each withheld (or will withhold) from their
respective employees, independent contractors, creditors, stockholders and
third parties and timely paid to the appropriate Governmental Entity proper and
accurate amounts in all material respects for all periods ending on or before
the First Closing Date in compliance with all material Tax withholding and
remitting provisions of applicable laws and have each complied in all material
respects with all Tax information reporting provisions of all applicable laws.


 


(l)            None of the Company and its Subsidiaries
has agreed, or is required to make, any adjustment under
Section 481(a) of the Code, and no Governmental Entity has proposed
any such adjustment or change in accounting method.


 


(m)          Each material adjustment of Taxes of the
Company or any of its Subsidiaries made by the Internal Revenue Service (the “IRS”),
which adjustment is required to be reported to the appropriate state, local, or
foreign Governmental Entities, has been so reported.


 


(n)           Neither the Company nor any of its
Subsidiaries has executed or entered into a closing agreement pursuant to
Section 7121 of the Code or any similar provision of state, local or
foreign law, and neither the Company nor any of its Subsidiaries is subject to
any private letter ruling of the IRS or comparable ruling of any other
Governmental Entity.


 


(o)           INTENTIONALLY OMITTED.


 


(p)           Neither the Company nor any of its
Subsidiaries has any (i) ”excess loss accounts” or (ii) ”deferred
gains” with respect to any “deferred intercompany transactions,” within the
meaning of Treasury Regulation §§ 1.1502-19 and 1.1502-13, respectively.


 


(q)           Neither the Company nor any of its
Subsidiaries has entered into a transaction that is being accounted for under
the installment method of Section 453 of the Code or similar provision of
state, local or foreign law.


 


(r)            The Company and each of its Subsidiaries
have never been a person other than a United States person, each within the
meaning of the Code.


 


23





















 


Section 3.15           Leases.


 


(a)           Neither the Company nor any of its
Subsidiaries owns any real property.  As
of the date hereof, Section 3.15(a) of the Company Disclosure Letter
sets forth a true and complete list of all written leases for real property and
interests in real property leased by the Company or any of its Subsidiaries
other than leases to which Parent is a party (individually, a “Leased
Property”) and, to the Knowledge of the Company, identifies any material
reciprocal easement or operating agreement relating thereto; true and complete
copies of all such leases and agreements have been made available to Parent by
the Company.  Each of the Company and its
Subsidiaries has good and marketable title to, or valid leasehold interests in,
all its Leased Properties, free and clear of all Liens, except for
(i) such as are no longer used or useful in the conduct of its business or
as have been disposed of in the ordinary course of business consistent with
past practice, (ii) Liens to which Parent is a party or otherwise
permitted by a Lien to which Parent is a party and (iii) all Permitted
Encumbrances which individually or in the aggregate could not reasonably be
expected to have a Company Material Adverse Effect.


 


(b)           Each of the Company and its Subsidiaries
has complied in all material respects with the terms of all leases of the
Leased Properties to which it is a party and under which it is in occupancy,
and all such leases are in full force and effect.


 


(c)           This Section 3.15 does not relate to
any matters with respect to intellectual property, which are addressed in
Section 3.16.


 


Section 3.16           Intellectual
Property.


 


(a)           Except as provided in
Section 3.16(a) of the Company Disclosure Letter and other than in
relation to (i) any Intellectual Property owned or licensed to Parent or
any of its Subsidiaries which is licensed or sublicensed to the Company by
Parent or (ii) any Intellectual Property otherwise provided to or made
available to the Company by Parent or any of its Subsidiaries, the Company and
its Subsidiaries own, or otherwise have the right under IP Licenses to use, the
Company Intellectual Property free and clear of any Liens (other than any Liens
under the WWI Collateral Assignment Agreement or Liens arising from infringement
by the Company of which the Company has no Knowledge or from any invalidity or
unenforceability of any IP Licenses, where the Company has no Knowledge of such
invalidity or unenforceability), but subject to the terms, limitations,
restrictions, covenants and conditions of any IP Licenses, except to the extent
that any failure to so own or to have such right to use could not individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect.


 


(b)           Section 3.16(b) of the Company
Disclosure Letter sets forth a true and complete list of all applications for
Patents or applications for registration of any Trademark or Copyright filed by
the Company or any of its Subsidiaries, as well as all Patents owned by Company
or any of its Subsidiaries and all Copyright or Trademark registrations issued
to Company or any of its Subsidiaries, specifying as to each item, as
applicable: (i) the nature of the item, including the title if any;
(ii) the owner of the item; (iii) the jurisdictions in which the item
is issued or registered or in which an application


 


24





















 


for
issuance or registration has been filed; and (iv) the issuance,
registration or application numbers and dates.


 


(c)           Except for (i) IP Licenses to which
Parent or its Subsidiaries are a Party, and (ii) intercompany IP Licenses
between the Company and any of its Subsidiaries or between any of the Company’s
Subsidiaries, Section 3.16(c) of the Company Disclosure Letter sets
forth a true and complete list of all Material IP Licenses for Company
Intellectual Property under which the Company or any of its Subsidiaries is a
party, other than IP Licenses for off-the-shelf computer software programs that
are commercially available under non-discriminatory pricing terms on a retail
basis (“Off-the-Shelf Software”). 
The Company and its Subsidiaries are not in breach of any Material IP
Licenses for Company Intellectual Property. 
To the Knowledge of the Company, all of the Material IP Licenses are valid,
enforceable and in full force and effect. 
Except as set forth in Section 3.16(c) of the Company
Disclosure Letter, the transactions contemplated by this Agreement will not
result in the termination of, or otherwise require the consent, approval or other
authorization of any party (other than a Party to this Agreement or any
Subsidiary thereof) to, any Material IP License for Company Intellectual
Property.


 


(d)           All of the Company’s Copyrights and Trade
Secrets included in the Company Intellectual Property owned by the Company or
any of its Subsidiaries are valid, enforceable and in full force and effect,
except to the extent that any failure of such rights to be valid, enforceable
or in full force and effect could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.  To the Knowledge of the Company, the
Company’s rights in Patents owned by the Company or any of its Subsidiaries are
valid, enforceable and in full force and effect, except to the extent that any
failure of such rights to be valid, enforceable or in full force and effect
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.  The
Company or its Subsidiaries have taken all reasonable steps to maintain and
protect the Company Intellectual Property owned by them, except to the extent
that any failure of take such steps could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect.


 


(e)           Except as set forth in
Section 3.16(e) of the Company Disclosure Schedule or other than
in relation to any Patents held jointly by the Company and Parent, the Company
and its Subsidiaries have not abandoned and do not intend to abandon any Patent
applications they have filed.


 


(f)            The Company and its Subsidiaries have
taken all reasonable precautions to protect the secrecy, confidentiality and
value of their Trade Secrets, except to the extent that any failure to take
such precautions could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect.  None of the Trade Secrets, the value of which
is contingent upon maintenance of confidentiality, have been disclosed to any
employee, representative, independent contractor or agent of the Company or any
of its Subsidiaries or any other Person not obligated to maintain such Trade
Secret in confidence pursuant to either a confidentiality agreement or a policy
of


 


25





















 


the
Company or any of its Subsidiaries, except as required by the applicable patent
office pursuant to the filing of a patent application by the Company or to the
extent that any disclosure could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.


 


(g)           Each present or past employee of Company
who, while employed by Company, developed any Company Intellectual Property has
executed a valid and enforceable agreement with the Company or one of its
subsidiaries that (i) conveys any and all right, title and interest in and
to all Intellectual Property developed by such employee in connection with such
employee’s employment by the Company or the applicable Subsidiary, and
(ii) obligates such employee to keep any confidential information of the
Company and its Subsidiaries confidential both during and after the term of
employment or contract, except to the extent that any failure of any employee
to execute such an agreement could not, individually or in the aggregate, reasonably
be expected to have a Company Material Adverse Effect.


 


(h)           During the two (2) year period prior
to the date of this Agreement, no former employer or client of any employee of
the Company or any of its Subsidiaries, and no current or former client of any
consultant of the Company or any of its Subsidiaries, has notified the Company
or any of its Subsidiaries in writing, or to the Knowledge of the Company,
notified the Company or any of its Subsidiaries by means other than in writing,
that such employee or consultant is utilizing or infringing upon Intellectual
Property of such former employer or client in connection with work performed by
such employee or consultant for Company or any of its Subsidiaries.


 


(i)            Other than in relation to any
Intellectual Property of the Parent or any of its Subsidiaries, to the
Knowledge of the Company, the conduct of the business of the Company and its
Subsidiaries, including without limitation the marketing, distribution, sale or
other exploitation of the products and services of the Company and its
Subsidiaries, does not infringe upon or otherwise violate any Intellectual
Property of others.


 


(j)            To the Knowledge of the Company, no
Person is materially infringing upon or otherwise materially violating Company
Intellectual Property owned by the Company or any of its Subsidiaries.


 


(k)           There are no Legal Actions pending or, to
the Knowledge of the Company, threatened in writing against the Company or any
of its Subsidiaries, (i) contesting the right of the Company to use, make,
have made, sell, offer to sell, import, license or otherwise exploit any of the
Company Intellectual Property (other than Intellectual Property of Parent or
its Subsidiaries), products or services currently or previously made, sold,
offered for sale, licensed, imported, made available to any Person, or used or
otherwise exploited, by the Company or (ii) opposing or attempting to
cancel any rights of the Company in or to any Company Intellectual Property
(other than Intellectual Property of Parent or its Subsidiaries).


 


26





















 


(l)            All Software owned by the Company or any
of its Subsidiaries and material to its business is identified in
Section 3.16(l) of the Company Disclosure Letter.  Except as identified in Section 3.16(l)
of the Company Disclosure Letter, to the Knowledge of the Company, no Software
owned or used by the Company includes (i) any errors that, individually or
in the aggregate, could reasonably be expected to have a Company Material Adverse
Effect, or (ii) any virus, Trojan horse, worm or other malicious code
designed to permit unauthorized access to, or to disable, erase or otherwise
harm, any computer, systems or Software that could reasonably be expected to
have a Company Material Adverse Effect. 
The Company regularly backs-up its material Software and has maintained
such Software at a secure off-site location, except where the failure to
back-up or maintain such Software could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.


 


Section 3.17           Privacy
Policy.  The Company operates its web sites pursuant
to the privacy policies which has been previously agreed with Parent (a “Privacy
Policy”) and no other privacy policies regarding the collection and use of
information from website visitors or other parties (“Customer Information”).  Neither the Company nor any of its
Subsidiaries (i) has collected any Customer Information in violation of
the Privacy Policy or, to the Knowledge of the Company, in an unlawful manner,
(ii) uses any of the Customer Information it receives through its web site
or otherwise in a manner that violates the Privacy Policy or, to the Knowledge
of the Company, in an unlawful manner, and the Company and its Subsidiaries
have adequate security measures in place to protect the Customer Information
they receive through their web sites and store in their computer systems from
illegal use by third parties.


 


Section 3.18           Customer
Accounts Receivable.  All customer accounts receivable of the
Company or any of its Subsidiaries have arisen from bona fide transactions in
the ordinary course of business consistent with past practice.


 


Section 3.19           Brokers
and Other Advisors.  No broker, investment banker, financial
advisor or other person, other than J.P. Morgan Securities Inc., the fees and
expenses of which will be paid by the Principal Company Stockholder, the Other
Holders and the Unvested Stock Option holders, is entitled to any broker’s,
finder’s, financial advisor’s or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.


 


ARTICLE IV


 


REPRESENTATIONS AND WARRANTIES OF PARENT


 


Parent represents and warrants to the Company that:


 


Section 4.1             Organization,
Standing and Power.  Each of Parent and Merger Sub (i) is a
corporation duly organized, validly existing and in good standing under the
Laws of the jurisdiction in which it is incorporated, and (ii) has all
requisite power and authority to carry on its business as now being conducted.


 


27





















 


Section 4.2             Authority;
Noncontravention.


 


(a)           Each of Parent and Merger Sub has all
requisite corporate power and authority to execute and deliver this Agreement
and, in the case of Parent, the Principal Stockholders Agreement and to
consummate the Merger and the other transactions contemplated hereby and
thereby.  The execution and delivery of
this Agreement by Parent and Merger Sub and the Principal Stockholders
Agreement by Parent and the consummation of the Merger and the other
transactions contemplated hereby and thereby and the compliance by Parent and
Merger Sub, as the case may be, with the provisions of this Agreement and the
Principal Stockholders Agreement have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub (and immediately
following the signing hereof will have been adopted by Parent as the sole
stockholder of Merger Sub) and no other corporate proceedings on the part of
Parent or Merger Sub are necessary to authorize or approve this Agreement or
the Principal Stockholders Agreement or to consummate the Merger or the other
transactions contemplated hereby or thereby, subject, in the case of the consummation
of the Merger, only to receipt of the Principal Stockholders Consent.  This Agreement and the Principal Stockholders
Agreement have been duly executed and delivered by Parent and Merger Sub, as
applicable, and, assuming the due authorization, execution and delivery by each
of the other parties hereto and thereto, constitute legal, valid and binding
obligations of Parent and Merger Sub, as applicable, enforceable against Parent
and Merger Sub, as applicable, in accordance with each of their respective
terms (subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other Laws affecting creditors’ rights generally
from time to time in effect).


 


(b)           The execution and delivery of this
Agreement and the Principal Stockholders Agreement do not, and the consummation
of the Merger and the other transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof do not and will not, conflict
with, or result in any violation or breach of, or constitute a default (with or
without notice or lapse of time or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation, or to the loss of
a benefit under, or result in the creation of any Lien in or upon any of the
properties or other assets of Parent or Merger Sub under, (i) the
certificate of incorporation or bylaws of each of Parent and Merger Sub,
(ii) any Contract to which Parent or Merger Sub is a party or is bound or
any of their respective properties or other assets is bound by or subject to or
otherwise under which Parent or Merger Sub has any rights or benefits, or
(iii) subject to the governmental filings and other matters referred to in
Section 4.3, any Law applicable to Parent or Merger Sub or their
respective properties or other assets, other than, in the case of clauses
(ii) and (iii), any such conflicts, violations, breaches, defaults,
rights, results, losses or Liens that individually or in the aggregate are not
reasonably likely to impair in any material respect the ability of each of
Parent and Merger Sub to perform its obligations under this Agreement or
prevent or materially impede, interfere with, hinder or delay the consummation
of the Merger or any other transactions contemplated by this Agreement.


 


28





















 


Section 4.3             Governmental
Approvals.  No consent, approval, order or authorization
of, action by or in respect of, or registration, declaration or filing with,
any domestic or foreign (whether supernational, national, federal, state,
provincial, local or otherwise) government or any court, administrative,
regulatory or other governmental agency, commission or authority or any
nongovernmental self-regulatory agency, commission or authority is required by
or with respect to Parent and Merger Sub in connection with the execution and
delivery of this Agreement or the Principal Stockholders Agreement by Parent
and Merger Sub, as applicable, or the consummation by Parent and Merger Sub of
the Merger or the other transactions contemplated hereby or thereby, except for
(a) the filing of a premerger notification and report form by the Company
under the HSR Act, if required, (b) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware, (c) the
filing with the SEC of such reports under the Exchange Act as may be required
in connection with this Agreement, the Principal Stockholders Agreement, the
Merger and the other transactions contemplated hereby and thereby, and
(d) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made
individually or in the aggregate is not reasonably likely to impair in any
material respect the ability of each of Parent and Merger Sub to perform its
obligations under this Agreement or prevent or materially impede, interfere
with, hinder or delay the consummation of the Merger or any other transactions
contemplated by this Agreement.


 


Section 4.4             Litigation. 
There is no claim, suit, action, investigation or other proceeding
pending or, to the Knowledge of Parent, threatened against Parent or any of its
Subsidiaries that individually or in the aggregate are reasonably likely to
impair in any material respect the ability of each of Parent and Merger Sub to
perform its obligations under this Agreement or prevent or materially impede,
interfere with, hinder or delay the consummation of the Merger or any other
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against, or, to the Knowledge of Parent, investigation, proceeding,
notice of violation, order of forfeiture or complaint by any Governmental
Entity involving Parent or any of its Subsidiaries that individually or in the
aggregate are reasonably likely to impair in any material respect the ability
of each of Parent and Merger Sub to perform its obligations under this
Agreement or prevent or materially impede, interfere with, hinder or delay the
consummation of the Merger or any other transactions contemplated by this
Agreement.


 


Section 4.5             Interim Operations
of Merger Sub.  Parent owns beneficially and of record all of
the outstanding capital stock of Merger Sub. 
Merger Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement and has not engaged in any business activities
or conducted any operations other than in connection with the transactions
contemplated by this Agreement.


 


Section 4.6             Parent Company
Common Stock, Warrant and Options.  As of the date hereof, Parent owns
(i) subject to the following sentence, 3,388,622 shares of Company Common
Stock, and (ii) Warrants to purchase 6,394,997 shares of Company Common
Stock.  Parent has granted options to its
employees to purchase 102,917 shares


 


29





















 


of its Company Common Stock referred to in
clause (i) hereof pursuant to the Weight Watchers.com Stock Incentive Plan
(the “P/C Option Plan”) of Weight Watchers International, Inc. and
Subsidiaries (the “Parent Company Options”).


 


Section 4.7             Opinion of
Financial Advisor.  Parent has received the opinion of an
investment bank to the effect that, as of the date of such opinion, the
consideration to be paid pursuant to the Merger and the Redemption is fair to
Parent from a financial point of view.


 


ARTICLE V


 


COVENANTS


 


Section 5.1             Conduct of
Business of the Company.  Except as contemplated by this Agreement or
required by applicable Laws, the Company shall, and shall cause each of its
Subsidiaries to, (x) conduct its operations only in the ordinary course of
business consistent with past practice and with no less diligence and effort
than would be applied in the absence of this Agreement and (y) use its
reasonable best efforts to maintain and preserve intact its business
organization, to retain the services of its current officers and key employees,
and to preserve the good will of its customers, suppliers and other Persons
with whom it has business relationships. 
Without limiting the generality of the foregoing, and except as
otherwise contemplated by this Agreement, the Redemption Agreement and any
other transactions contemplated hereby or thereby or set forth in
Section 5.1 of the Company Disclosure Letter, or required by applicable Laws,
prior to Second Closing, except as indicated below, the Company shall not, and
shall not permit any of its Subsidiaries to take any of the following actions,
without the prior written consent of Parent (acting solely through the Special
Committee):


 


(a)           Organization Documents. 
Amend any of the Company Organizational Documents;


 


(b)           Dividends.  Make, declare
or pay any dividend or distribution on any shares of its capital stock;


 


(c)           Capital Stock. 
(i) Adjust, split, combine or reclassify its capital stock, (ii) redeem,
purchase or otherwise acquire, directly or indirectly, any shares of its
capital stock or any securities convertible or exchangeable into or exercisable
for any shares of its capital stock, (iii) grant any Person any right or
option to acquire any shares of its capital stock, (iv) issue, deliver or
sell any additional shares of its capital stock or any securities convertible
or exchangeable into or exercisable for any shares of its capital stock or such
securities or (v) enter into any Contract, understanding or arrangement
with respect to the sale, voting, registration or repurchase of its capital
stock;


 


(d)           Compensation and Benefits. 
(i) Increase the compensation or benefits payable or to become
payable to any of its directors, officers or employees, (ii) pay any
compensation or benefits not required by any existing plan or arrangement
(including the granting of stock options, stock appreciation rights, shares of
restricted


 


30





















 


stock or
performance units) to its directors, officers or employees, (iii) grant
any severance or termination pay to any of its directors, officers or employees
(except pursuant to existing agreements, plans or policies), (iv) enter
into any employment or severance agreement with any of its directors, officers
or employees or (v) establish, adopt, enter into, amend or take any action
to accelerate rights under any Company Employment Agreements, except in each
case (A) to the extent required by applicable Laws, (B) for payment
of, and increases in, salary, wages, bonuses and benefits of officers or
employees consistent with past practice, or (C) in conjunction with new
hires, promotions or other changes in job status consistent with past practice;


 


(e)           Acquisitions. 
Acquire, by merger, consolidation, acquisition of equity interests or
assets, or otherwise, any business or any corporation, partnership, limited
liability company, joint venture or other business organization or division
thereof other than those listed in Schedule 5.1(e), and those
included in, or to be consummated to effect plans included in, the 2005 Annual
Operating Plan of the Company, dated February 18, 2005 (the “2005
Business Plan”) or, after the First Closing, in any substitute plan or
modified or subsequent plan, approved by the Board of Directors of the
Surviving Corporation (the “Substitute Business Plan”);


 


(f)            Dispositions. 
Sell, lease, license, transfer, pledge, encumber, grant or dispose of
any assets, including the capital stock of Subsidiaries of the Company, other
than in the ordinary course of business consistent with past practice and,
after the First Closing, those included in the Substitute Business Plan;


 


(g)           Contracts. 
(i) Enter into any Contract of the type described in
Section 3.9(a)(v), (vi) or (viii), or (ii) other than in the
ordinary course of business, terminate, cancel or request any material change
in any Section 3.9 Contract;


 


(h)           Indebtedness; Guarantees; Loans. 
(i) incur, assume or prepay any indebtedness under existing lines
of credit, other than after the First Closing, in the ordinary course of
business consistent with past practice, (ii) assume, guarantee, endorse or
otherwise become liable or responsible for the obligations of any other Person,
or (iii) make any loans, advances or capital contributions to, or
investments in, any other Person;


 


(i)            Capital Expenditures. 
Make any capital expenditure, other than capital expenditures provided
for in the 2005 Business Plan or within the thresholds listed for certain
categories of capital expenditures specified in Schedule 5.1(i) or,
after the First Closing Date, in the Substitute Business Plan.  The foregoing shall not prohibit any
additional items required be reported in the Financial Statements under GAAP as
“capital expenditures”;


 


(j)            Accounting.  Change its
accounting policies or procedures, other than as required by GAAP prior to the
First Closing;


 


(k)           Legal Actions. 
Waive, release, assign, settle or compromise any material Legal Actions
where the amount claimed is over $200,000;


 


31





















 


(l)            Intellectual Property. 
Other than in relation to any Patents held jointly by the Company and
Parent or the Intellectual Property of Parent or its Subsidiaries, and except
for the disclosure of Trade Secrets as required by the applicable patent office
pursuant to the filing of a patent application, take any action or omit to take
any action that causes any material Company Intellectual Property to become
invalidated, abandoned or dedicated to the public domain prior to the First
Closing;


 


(m)          Related Party Agreements. 
Amend any of the existing agreements between Parent and the Company, or
enter into any new agreements with Parent or enter into any agreements with any
Affiliate of Parent or Invus (other than any agreement that can be cancelled
upon 30 days’ notice or that, alone or in conjunction with related agreements,
involves less than $100,000 in payments by the Company in any 12 month period);
or


 


(n)           Related Actions. 
Authorize, propose, commit or agree to do any of the foregoing.


 


Section 5.2             Other Actions. 
Parent and the Company shall not, and shall not permit any of their
respective Subsidiaries to, take any action that could reasonably be expected
to result in any of the conditions to the Merger set forth in ARTICLE VI
of this Agreement not being satisfied or satisfaction of those conditions being
delayed.


 


Section 5.3             Access to
Information; Confidentiality.


 


(a)           The Company shall, and shall cause its
Subsidiaries, to:  (i) provide to Parent
and its Representatives access at reasonable times upon prior written notice to
the officers, employees, agents, properties, books and records of the Company
and its Subsidiaries; (ii) furnish promptly such information concerning
the Company and its Subsidiaries as Parent or its Representatives may
reasonably request; and (iii) on at least a quarterly basis, information
as to the Company’s business, operations and financial results.  No investigation conducted under this
Section 5.3(a) prior to the Effective Time, however, will affect or
be deemed to modify any representation or warranty made in this Agreement.


 


(b)           Parent and the Company shall comply with,
and shall cause their respective Representatives to comply with, all of their
respective obligations under the Confidentiality Agreement, dated
April 13, 2005 (the “Confidentiality Agreement”), between Parent
and the Company with respect to the information disclosed under this
Section 5.3.


 


(c)           Nothing contained in this Agreement shall
give Parent, directly or indirectly, rights to control or direct the Company’s
or its Subsidiaries’ operations prior to the Effective Time (other than those
rights Parent has as a stockholder of the Company) or pursuant to other
agreements in effect as of the date hereof. 
Prior to the Effective Time, the Company shall, consistent with the
terms and conditions of this Agreement, exercise complete control and
supervision over the operations of the Company and its Subsidiaries.


 


32





















 


Section 5.4             No Solicitation;
No Public Offering.


 


(a)           From the date of this Agreement until the
Second Closing, the Company shall not, and shall cause each of its Subsidiaries
and Representatives not to, directly or indirectly:


 


(i)            solicit, initiate, facilitate or
encourage any inquiries, offers or proposals relating to a Takeover Proposal or
a Public Offering;


 


(ii)           engage in discussions or negotiations
with, or furnish or disclose any non-public information relating to the Company
or any of its Subsidiaries to, any Person that has made or indicated an
intention to make a Takeover Proposal or with respect to a Public Offering;


 


(iii)          approve, endorse or recommend any
Takeover Proposal or a Public Offering;


 


(iv)          enter into any agreement in principle,
arrangement, understanding or Contract relating to a Takeover Proposal or a
Public Offering; or


 


(v)           propose to do any of the foregoing or
take any other action inconsistent with the obligations of the Company under
this Section 5.4.


 


(b)           The Company shall, and shall cause each
of its Subsidiaries and Representatives to, immediately cease any existing
solicitations, discussions or negotiations with any Person that has made or
indicated an intention to make a Takeover Proposal or with respect to a Public Offering.


 


(c)           The Company shall notify Parent promptly
upon receipt of (i) any Takeover Proposal or indication that any Person is
considering making a Takeover Proposal or (ii) any request for non-public
information relating to the Company or any of its Subsidiaries.


 


Section 5.5             Notices of Certain
Events.


 


(a)           The Company shall notify Parent promptly
of (i) any communication from any Person alleging that the consent of such
Person (or another Person) is or may be required in connection with the
transactions contemplated by this Agreement, (ii) any communication from
any Governmental Entity in connection with the transactions contemplated by
this Agreement, (iii) any Legal Actions threatened or commenced against or
otherwise affecting the Company or any of its Subsidiaries or (iv) any
event, change, occurrence, circumstance or development between the date of this
Agreement and the Effective Time that (A) makes any of the representations
or warranties of the Company contained in this Agreement untrue or inaccurate
or (B) causes or is reasonably likely to cause any breach of its
obligations under this Agreement.


 


33





















 


(b)           Parent shall notify the Company promptly
of (i) any communication from any Person alleging that the consent of such
Person (or other Person) is or may be required in connection with the
transactions contemplated by this Agreement, (ii) any communication from
any Governmental Entity in connection with the transactions contemplated by
this Agreement or (iii) any event, change, occurrence, circumstance or
development between the date of this Agreement and the Effective Time that
(A) makes any of the representations or warranties of Parent contained in
this Agreement untrue or inaccurate or (B) causes or is reasonably likely
to cause any breach of the obligations of Parent or Merger Sub under this
Agreement.


 


Section 5.6             Directors’ and
Officers’ Indemnification and Insurance.


 


(a)           All rights to indemnification now
existing in favor of any director or officer of the Company or any of its
Subsidiaries (the “D&O Indemnified Parties”) as provided in
(i) the Company Organizational Documents, which provisions shall not be
amended, repealed or otherwise modified for a period of not less than six years
from the Effective Time in any manner that would adversely affect the rights
thereunder of the D&O Indemnified Parties, and (ii) any agreements
between a D&O Indemnified Party and the Company or one of its Subsidiaries
or otherwise in effect on the date of this Agreement, shall survive the Merger
and become an obligation of the Surviving Corporation and shall continue in
full force and effect for a period of not less than six years after the
Effective Time; provided, however, that all rights to
indemnification asserted or made within such period shall continue until the
disposition of such indemnified liabilities. 
Parent shall obtain as of the Effective Time “tail” insurance policies
with a claims period of at least six years from the Effective Time with respect
to the directors’ and officers’ liability insurance in amount and scope at
least as favorable as the coverage applicable to the Company’s directors as in
effect on the date of this Agreement.


 


(b)           Parent shall indemnify and hold harmless
all D&O Indemnified Parties to the fullest extent permitted by applicable
Laws with respect to any claim, liability, loss, damage, judgment, fine,
penalty, amount paid in settlement or compromise, cost or expense (including
reasonable fees and expenses of legal counsel), against any D&O Indemnified
Party in his or her capacity as an officer or director of the Company or its
Subsidiaries, whenever asserted or claimed, based in whole or in part on, or
arising in whole or in part out of, any facts or circumstances occurring at or
prior to the Effective Time whether commenced, asserted or claimed before or
after the Effective Time, including liability arising under the Securities Act,
the Exchange Act or any other Law and including any liability arising out of or
pertaining to the transactions contemplated by this Agreement, in each case to
the same extent as provided in the Company Organizational Documents or any
other applicable contract or agreement in effect on the date of this
Agreement.  In the event of any claim,
liability, loss, damage, judgment, fine, penalty, amount paid in settlement or
compromise, cost or expense described in the preceding sentence, Parent shall
pay the reasonable fees and expenses of counsel selected by the D&O
Indemnified Parties promptly after statements are received in advance of
settlement, judgment or other resolution thereof to such D&O Indemnified
Party upon


 


34





















 


request
reimbursement of documented expenses reasonably incurred, provided the
applicable D&O Indemnified Parties provide an undertaking to repay all
advanced expenses if it is finally judicially determined that such D&O
Indemnified Parties are not entitled to indemnification.


 


Section 5.7             Commercially
Reasonable Efforts.  Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with applicable Laws, each of the
parties to this Agreement shall use its reasonable commercial efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to ensure that the conditions set forth in
ARTICLE VI are satisfied and to consummate the transactions contemplated
by this Agreement as promptly as practicable.


 


Section 5.8             Consents; Filings;
Further Action.  Upon the terms and subject to the conditions
of this Agreement and in accordance with applicable Laws, each of Parent and
the Company shall use its reasonable commercial efforts to obtain any consents,
approvals or other authorizations, and make any filings and notifications
required in connection with the transactions contemplated by this Agreement,
including, but not limited to, the 228 Notice and Appraisal Notice immediately
following execution of the Principal Stockholders Agreement.


 


Section 5.9             Public Announcements. 
Except as may be required by law, prior to the Second Closing, neither
Parent nor the Company shall issue any press release or otherwise make any
public statements about this Agreement or any of the transactions contemplated
by this Agreement without the consent of the other, which consent shall not be
unreasonably withheld or delayed, provided, however, that no
consent shall be required for Parent to make such public disclosure as its
legal counsel deems necessary, provided that Parent in such circumstances
shall, to the extent practicable and as soon as practicable, be obliged to
first provide a copy of any anticipated announcement to the Company and have
due regard to any comments made thereon by the Company in good faith.


 


Section 5.10           Fees,
Costs and Expenses.  Other than as provided for in this Agreement,
whether or not the Merger is consummated, all expenses (including those payable
to Representatives) incurred by Parent, the Company or the Principal
Stockholder in connection with the transactions contemplated by this Agreement
shall be paid by the party incurring those expenses.


 


Section 5.11           Defense
of Litigation.  The Company shall not settle or offer to
settle any Legal Action against the Company, any of its Subsidiaries or any of
their respective directors or officers by any stockholder of the Company
arising out of or relating to this Agreement or the transactions contemplated
by this Agreement without the prior written consent of Parent.  The Company shall not cooperate with any
Person that may seek to restrain, enjoin, prohibit or otherwise oppose the
transactions contemplated by this Agreement, and the Company shall cooperate
with Parent and Merger Sub in resisting any such effort to restrain, enjoin,
prohibit or otherwise oppose such transactions.


 


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Section 5.12           Tax
Matters.  During the period from the date of this
Agreement to the Effective Time, the Company and its Subsidiaries shall:


 


(a)           prepare and timely file all Tax Returns
required to be filed by them on or before the First Closing Date (“Post-Signing
Returns”) in a manner consistent with past practice, except as otherwise
required by applicable Laws;


 


(b)           consult with Parent with respect to all
material Post-Signing Returns and deliver drafts of such Post-Signing Returns
to Parent no later than ten Business Days prior to the date on which such
Post-Signing Returns are required to be filed;


 


(c)           fully and timely pay all Taxes due and
payable in respect of such Post-Signing Returns that are so filed;


 


(d)           properly reserve (and reflect such
reserve in their books and records and financial statements), for all Taxes
payable by them for which no Post-Signing Return is due prior to the Effective
Time in a manner consistent with past practice;


 


(e)           promptly notify Parent of any material
Legal Action or audit pending or threatened against the Company or any of its
Subsidiaries in respect of any material Tax matter, and not settle or
compromise any such Legal Action or audit, or consent to any extension or
waiver of the limitations period applicable to any Tax claim or assessment,
without Parent’s prior written consent which consent may not be unreasonably
withheld;


 


(f)            not make or revoke any material Tax
election or adopt or change a material Tax accounting method or period without
Parent’s prior written consent which consent may not be unreasonably withheld;
and


 


(g)           terminate all contracts relating to the
sharing, allocation or indemnification of Taxes to which the Company or any of
its Subsidiaries is a party such that there are no further Liabilities
thereunder.


 


Section 5.13           Maintenance
and Prosecution of Intellectual Property.


 


(a)           The Company shall continue to take all
reasonable steps to protect and maintain the Company Intellectual Property
consistent with the Company’s past practices. 
The Company shall continue to back up all material Software and
databases and shall maintain such Software and databases at a secure off-site
location in accordance with past practices.


 


(b)           Other than in relation to any Patents
held jointly by the Company and Parent or the Intellectual Property of Parent
or its Subsidiaries, the Company shall promptly notify Parent (i) if it
knows that any material Company Intellectual Property will become abandoned or
dedicated to the public domain except for the disclosure of


 


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Trade
Secrets as required by the applicable patent office pursuant to the filing of a
patent application, or (ii) if it has received notice of any material
adverse determination or development (including the institution of, or any such
determination or development in, any proceeding in the U.S. Patent and
Trademark Office (the “USPTO”) or the U.S. Copyright Office (the “Copyright
Office”) or equivalent office in any foreign jurisdiction, any court or
tribunal in the United States or any political sub-division thereof, or any
court or tribunal in any foreign jurisdiction), other than non-final
determinations of the USPTO or the Copyright Office or any equivalent office or
any court or tribunal, regarding its ownership of any Company Intellectual
Property or its right to register the same or to keep, maintain and/or use the
same.


 


Section 5.14           Sarbanes-Oxley;
Accounting.  The Company shall, and shall cause each of
its Subsidiaries to, cooperate reasonably and in good faith with Parent, and
its advisors and representatives, to provide access to such information related
to the internal controls, the disclosure controls and procedures and the
financial results of its operations (including all relevant balance sheet
information) of the Company and its Subsidiaries with a view to permitting
Parent subsequent to the Effective Time, to comply with its obligations to
(i) file certifications in accordance with Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 (“SOXA”), (ii) report on internal
control over financial reporting under Section 404 of SOXA for the fiscal
year ending December 31, 2005 (clauses (i) and
(ii) collectively, the “SOXA Obligations”), and (iii) prepare
the financial statements of Parent and its Subsidiaries in accordance with
GAAP.


 


Section 5.15           Exercise
of Warrants.  Each of the Company and Parent shall take all
requisite actions so that, immediately prior to the First Closing and prior to
the Exchange, each warrant to acquire shares of Company Common Stock held by
Parent pursuant to the Warrant Agreements (collectively, the “Warrants”),
outstanding immediately prior to the First Closing, shall be exercised for
shares of Company Common Stock in accordance with the terms of the respective
Warrant Agreements related thereto and such shares shall be issued.


 


Section 5.16           Charter
Amendment and Exchange.  The Company Charter shall be amended prior to
the First Closing to create a second class of common stock, to be called
“Class B Common Stock, par value $0.01 per share,” which shall have the
same rights and privileges as, and shall rank pari
passu with, the Company Common Stock (the “Charter Amendment”)
and an appropriate Certificate of Amendment shall be filed with the Secretary
of State of the State of Delaware following receipt by the Company of the
Principal Stockholders Consent with respect to the Charter Amendment.  Following the effectiveness of the Charter
Amendment, Parent and the Principal Company Stockholder shall each exchange its
shares of Company Common Stock for Class B Common Stock on a one-for-one
basis (the “Exchange”).  For this
purpose, the Certificates held by Parent and the Principal Company Stockholder
immediately prior to the Exchange shall be deemed to represent Class B
Common Stock after the Exchange and the stock record books of the Company will
indicate the issuance of such Class B Common Stock and the cancellation of
such Company Common Stock.


 


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Section 5.17           Financing. 
Parent shall use its reasonable commercial efforts to obtain the funds
necessary (taking into account Parent’s available cash) to pay the Merger
Consideration, the consideration payable to the holders of Parent Company
Options under Section 5.18, the exercise price of the Warrants, and to
provide to Merger Sub the aggregate exercise price of the Vested Stock Options,
the Unvested Stock Options and the Option Merger Price for the Vested Stock
Options, together with its expenses relating to the foregoing and the Merger
(the “Financing”).


 


Section 5.18           Parent
Company Options.  Parent (acting through its Board of Directors
or an appropriate committee thereof) shall take all requisite action so that,
as of the Effective Time, all Parent Company Options, whether or not vested,
and whether or not exercisable, shall be purchased by Parent for a price equal
to $25.21 minus the exercise price of such Parent Company Option, it being
understood that Parent shall thereafter retain the shares of Company Common
Stock that were subject to the Parent Company Options, but such shares of
Company Common Stock shall no longer be subject to any option.


 


Section 5.19           Waiver
Under Credit Agreement.  (a) Parent shall take all actions necessary
to amend or otherwise obtain a waiver (the “Waiver”) under the Fifth
Amended and Restated Credit Agreement, as amended, among Parent, Various
Financial Institutions, Credit Suisse First Boston and the Bank of Nova Scotia,
dated as of January 21, 2004 (the “Credit Agreement”), so that
neither the Company nor the Surviving Corporation shall be required to become a
Subsidiary Guarantor (as defined in the Credit Agreement), or otherwise incur
or become subject to any Liability or guaranty requirement, under the Credit
Agreement.


 


(b)  Parent’s actions under this
Section 5.19 shall be directed and approved by a member of the Board of
Directors of Parent, who shall be a director selected by the representatives of
the Principal Company Stockholder on such Board.  The Principal Company Stockholder agrees to
reimburse Parent for any bank waiver or amendment fees and any legal,
accounting or other out-of-pocket expenses (whether for Parent or the lenders
under the Credit Agreement), incurred by Parent in connection with carrying out
this Section 5.19, up to a maximum reimbursement of $500,000 in the
aggregate.


 


ARTICLE VI


 


CONDITIONS


 


Section 6.1             Conditions to Each
Party’s Obligation to Effect the Merger.  The respective obligation of
each party to this Agreement to effect the Merger is subject to the
satisfaction or waiver on or prior to the First Closing Date of each of the
following conditions:


 


(a)           Stockholder Approval. 
The Principal Stockholders Agreement shall be in full force and effect,
and there shall be no revocation thereof, and this Agreement and the Charter
Amendment shall have been duly adopted and the Merger and the Merger Agreement
shall have been approved, and the Charter Amendment shall have


 


38





















 


been
duly approved by the Principal Stockholders Consent.  The Appraisal Notice and the 228 Notice shall
have been mailed to all Company stockholders.


 


(b)           Antitrust.  Any consents,
approvals or other authorizations, and any filings or notifications, required
under any Foreign Competition Laws, the absence of which would prohibit
consummation of the Merger or limit Parent from exercising full ownership
rights with respect to the Company shall have been obtained or made.


 


(c)           Consents.  All consents,
approvals and other authorizations of any foreign, national, federal, state,
provincial or local governmental, regulatory or administrative authority,
agency, commission, court, tribunal, arbitral body or self regulated entity,
whether domestic or foreign (each, a “Governmental Entity”) required to
consummate the Merger and the other transactions contemplated by this Agreement
(other than the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware) (the “Governmental Consents”), other than
those Governmental Consents that the failure to obtain could not, individually
or in the aggregate, reasonably be expected to have a Parent Material Adverse
Effect or a Company Material Adverse Effect, shall have been obtained, free of
any condition.


 


(d)           No Injunctions or Restraints. 
No Governmental Entity shall have enacted, issued, promulgated, enforced
or entered any Laws or Orders (whether temporary, preliminary or permanent)
that prohibits or materially restrains the consummation of the transactions
contemplated hereby.


 


(e)           Charter Amendment and Company
Class B Common Stock Exchange.  The Company
shall have filed the Charter Amendment with the Secretary of State of the State
of Delaware on or prior to the First Closing Date and the Exchange shall have
taken place.


 


(f)            Redemption Agreement. 
The Redemption Agreement shall be in full force and effect.


 


(g)           Waiver.  The Waiver,
as contemplated by Section 5.19, shall have been obtained by Parent in
form and substance satisfactory to Parent and such Waiver shall be in full
force and effect.


 


Section 6.2             Conditions
to Obligations of Parent and Merger Sub.  The obligations of each of
Parent and Merger Sub to effect the Merger are also subject to the satisfaction
or waiver by Parent (with respect to waiver, solely by action of the Special
Committee) on or prior to the First Closing Date of the following conditions:


 


(a)           Representations and Warranties. 
(i) The representations and warranties of the Company set forth in
this Agreement that are qualified as to materiality or Company Material Adverse
Effect shall be true and correct without regard to such materiality
qualification, and (ii) the representations and warranties of the Company
set forth in this Agreement that are not so qualified shall be true and
correct, as though made on and as of the First Closing Date, except for
representations or warranties made as of a


 


39





















 


specified
date, the accuracy of which shall be determined as of that specified date,
unless the failure of such representations or warranties referred to in clauses
(i) and (ii) to be true and correct (as of the appropriate dates)
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.


 


(b)           Performance of Obligations. 
The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the First Closing Date.


 


(c)           Company Material Adverse Effect. 
Since the date of this Agreement, there shall have been no Company
Material Adverse Effect.


 


(d)           Officer’s Certificate. 
Parent shall have received a certificate, signed by the chief executive
officer or chief financial officer of the Company, certifying as to the matters
set forth in Section 6.2(a), Section 6.2(b) and
Section 6.2(c).


 


(e)           Consents Under Agreements. 
The Company shall have obtained the consent, approval or other
authorization of each Person that is not a Governmental Entity whose consent,
approval or authorization is required to consummate the Merger and the other
transactions contemplated by this Agreement, except those for which the failure
to obtain could not, individually or in the aggregate, reasonably be expected
to have a Company Material Adverse Effect.


 


(f)            Director Resignations. 
Parent shall have received written resignation letters, to the extent
requested in accordance with implementing Section 1.7, from each of the
members of the board of directors of the Company effective as of the Effective
Time.


 


(g)           Financing.  Parent shall
have obtained the Financing.


 


(h)           Warrants.  Parent shall
have exercised the Warrants as contemplated by Section 5.15 and Parent
shall have received the Company Common Stock issued pursuant to such Warrants.


 


(i)            Principal Stockholders Agreement. 
The Principal Company Stockholders Agreement shall be in full force and
effect.


 


Section 6.3             Conditions to
Obligations of the Company.  The obligation of the Company to effect the
Merger is also subject to the satisfaction or waiver by the Company on or prior
to the First Closing Date of the following conditions:


 


(a)           Representations and Warranties. 
(i) The representations and warranties of each of Parent and Merger
Sub set forth in this Agreement that are qualified as to materiality or Parent
Material Adverse Effect shall be true and correct without regard to such
materiality qualification, and (ii) the representations and warranties of
Parent and Merger Sub set forth in this Agreement that are not so qualified
shall be true and correct, as though made on and as of the First Closing Date,
except for


 


40





















 


representations
or warranties made as of a specified date, the accuracy of which shall be
determined as of that specified date, unless the failure of such
representations or warranties referred to in clauses (i) and (ii) to
be true and correct (as of the appropriate dates) could not, individually or in
the aggregate reasonably be expected to have a Parent Material Adverse Effect.


 


(b)           Performance of Obligations. 
Each of Parent and Merger Sub shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the First Closing Date.


 


(c)           Officer’s Certificate. 
The Company shall have received a certificate, signed by a senior
executive officer of Parent, certifying as to the matters set forth in
Section 6.3(a) and Section 6.3(b).


 


Section 6.4             Frustration of
Closing Conditions.  None of the parties to this Agreement may
rely on the failure of any condition set forth in this ARTICLE VI to be
satisfied if such failure was caused by such party’s failure to use
commercially reasonable efforts to consummate the Merger and the other
transactions contemplated by this Agreement.


 


ARTICLE VII


 


INDEMNIFICATION


 


Section 7.1             Survival of
Representations and Warranties.  All representations and warranties of the
Company contained in Article III or of Parent contained in Article IV
of this Agreement, and in any certificate, document or instrument delivered in
connection therewith, shall survive the First Closing; provided, however,
that: the representations and warranties of the Company set forth in
Article III of the Merger Agreement shall terminate on the Expiration
Date, except for:  (i) the
representations and warranties of the Company contained in Sections 3.1
(Organization, Standing and Power), 3.3 (Capital Structure), 3.4 (Authority;
Non-contravention) and 3.14 (Taxes), which shall terminate upon the expiration
of the applicable statute of limitations and (ii) the representations and
warranties of Parent and Merger Sub contained in Sections 4.1
(Organization, Standing and Power), 4.4 (Authority; Non-contravention) and 4.6
(Parent Company Common Stock, Warrant and Options), which shall terminate upon
the expiration of the applicable statute of limitations.  Any investigations by or on behalf of any
Indemnified Party shall not constitute a waiver as to enforcement of any
representation or warranty.  Any claim
made by any Indemnified Party prior to the applicable survival date shall
survive until such time as such claim is finally resolved.


 


Section 7.2             Indemnification by
the Principal Company Stockholder and Other Holders.


 


(a)           In addition to the indemnification for
certain Taxes set forth in the Redemption Agreement, which shall solely govern
on such Taxes, subsequent to the First


 


41





















 


Closing,
subject to the limitations set forth in Section 7.5 and notwithstanding
the First Closing:


 


(A)          the Principal Company Stockholder, on a joint
and several basis; and


 


(B)           each of the Other Holders, on a several basis
only, in relation to each such Other Holder’s Pro Rata Portion of the
Proportionate Damages (as such terms are defined below),


 


shall
indemnify and hold Parent and Merger Sub (or the Company, if appropriate) (the
“Indemnified Parties”) harmless against and with respect to, and shall
reimburse the Indemnified Parties for the following (collectively, “Proportionate
Damages”): an amount equal to (x) the Applicable Percentage multiplied
by (y) the amount of any and all liabilities or damages resulting to Parent
or Merger Sub (or the Company if appropriate) from (i) any breach of any
representation or warranty of the Company (subject to Section 7.1) or
(ii) any nonfulfillment prior to the Effective Time of any covenant or
agreement by the Company made in this Agreement, including, without limitation,
any certificate, document or instrument prepared by the Company and delivered
to any of the Indemnified Parties under this Agreement.  Notwithstanding the foregoing, no Indemnified
Party shall be entitled to recovery from the Principal Company Stockholder or
any Other Holder of any Proportionate Damages which result from actual fraud,
intentional misrepresentation or criminal activity on the part of such
Indemnified Party.


 


(b)           The Indemnified Parties’ right to
indemnification under Section 7.2(a) shall be exercised on behalf of
Parent or Merger Sub solely through action of the Special Committee, if still
in effect, or by the approval of the then independent directors on the Board of
Directors of Parent.


 


(c)           Notwithstanding any provision contained
in this Agreement to the contrary, the Indemnified Parties shall not be
entitled to indemnification hereunder with respect to any breach of any
representation, warranty or covenant in this Agreement in circumstances where,
and to the extent that, (i) prior to the date hereof, Parent had actual
knowledge of a potential or actual breach of such representation, warranty or
covenant where such actual knowledge was acquired or derived from written
information provided to Parent by the Company or a Subsidiary in written form
or in the possession of Parent in written form, in both cases, in the ordinary
course of business or (ii)  the events, circumstances and consequences of
such breach arise from acts or omissions which were taken by, or on behalf of,
the Company in conjunction with, after consultation with or at the direction of
Parent.


 


Section 7.3             Indemnification by
Parent.  Parent shall save, defend, indemnify and hold
harmless the Principal Company Stockholder and each of the Other Holders
(collectively, the “Stockholder Indemnified Parties”) from and against
any and all liabilities or damages resulting to such Stockholder Indemnified
Party from (i) any breach of any representation or warranty of Parent or
Merger Sub (subject to Section 7.1) or (ii) any nonfulfillment of any
covenant or agreement by Parent or Merger Sub made in


 


42





















 


this Agreement, including, without
limitation, any certificate, document or instrument prepared by Parent or
Merger Sub and delivered to any of the Stockholder Indemnified Parties under
this Agreement.  Notwithstanding the
foregoing, no Stockholder Indemnified Party shall be entitled to recovery from
Parent of any liabilities or damages which result from actual fraud,
intentional misrepresentation or criminal activity on the part of such
Stockholder Indemnified Party.


 


Section 7.4             Procedure for Indemnification.  The
procedure for indemnification shall be as follows:


 


(a)           The Person claiming indemnification (the
“Claimant”) shall give written notice to the Person from whom
indemnification is sought (the “Indemnifier”) of any claim, whether
between the parties or brought by a third party, promptly after receiving
notice or becoming aware thereof, and such notice shall specify in reasonable
detail (i) the factual basis for such claim and (ii) the amount of
the claim; provided, however, that any delay by the Claimant in
giving such notice shall not relieve the Indemnifier of its obligations under
this Agreement except and only to the extent that the Indemnifier is prejudiced
by such delay.


 


(b)           If such notice from the Claimant pertains
to a breach of a representation, warranty, covenant or agreement contained in
this Agreement, or other similar demand for direct indemnification pursuant to
this Agreement, then the Indemnifier shall have thirty (30) days following
receipt of the Claimant’s notice to make such investigation of the claim as the
Indemnifier deems necessary or desirable. 
For the purposes of such investigation, the Claimant agrees to make
available to the Indemnifier and its authorized representatives the information
relied upon by the Claimant to substantiate the claim.  If the Claimant and the Indemnifier agree at
or prior to the expiration of said thirty (30) day period (or any mutually
agreed upon extension thereof) on the validity and amount of such claim, the
Indemnifier shall immediately pay to the Claimant the full amount of the
claim.  Otherwise, the Claimant and
Indemnifier shall have such rights as may be available to them under this
Agreement and applicable Laws.


 


(c)           If such notice from the Claimant pertains
to a claim or demand by a third party, then as soon as reasonably practicable
thereafter the Indemnifier shall (i) make such investigation of the claim
or demand as the Indemnifier deems necessary or desirable and (ii) notify
the Claimant of whether or not the Indemnifier desires to defend the Claimant
against such claim or demand.  During
such period prior to notification by the Indemnifier, the Claimant shall make
such filings, including motions for continuance (and answers if a motion for
continuance has not been granted), as may be necessary to preserve the parties’
positions and rights with respect to such claim or demand; provided, however,
that any failure by the Claimant to do so shall not relieve the Indemnifier of
its obligations under this Agreement except and only to the extent that the
Indemnifier is prejudiced by such delay.


 


(d)           The Indemnifier may elect to defend the
Claimant against such third party claim or demand, and then the Indemnifier
shall have the sole power to direct and control such defense and settlement.  The Claimant (i) shall cooperate with
the


 


43





















 


Indemnifier
and its counsel with respect to any such claim or demand by providing the
Indemnifier with reasonable access to the Claimant’s relevant employees and
business records and (ii) shall use its commercially reasonable efforts to
assist, and to cause the Claimant’s employees and counsel to assist, in the
defense of such claim or demand.  Upon
confirmation by the Indemnifier of its desire to assume the defense to such
claim or demand on the terms set forth above, the Indemnifier shall not be
liable to the Claimant for any reasonable legal fees and expenses subsequently
incurred by the Claimant, subject to reimbursement for actual out-of-pocket
expenses incurred by the Claimant as the result of a request for cooperation or
assistance by the Indemnifier; provided, however, that if, in the
reasonable opinion of counsel to the Claimant, there exists a conflict of
interest between the Indemnifier and the Claimant, the Indemnifier shall be
liable for the reasonable legal fees and expenses of separate counsel to the
Claimant.  If the Claimant desires to
participate in, but not control, any such defense, it may do so at its sole
cost and expense; provided, that in any action seeking an injunction or
decree, the effect of which would be to limit in any respect the future
activity of the Claimant, the Claimant shall be entitled to participate in the
defense of such action at the Indemnifier’s expense.  The Claimant shall not settle, compromise,
discharge or otherwise admit to any liability for any claim or demand without
the prior written consent of the Indemnifier (which consent shall not be
unreasonably withheld or delayed).  The
Indemnifier shall not settle, compromise, discharge or otherwise admit to any
liability for any claim or demand for equitable relief on a basis that would
adversely affect the future activity or conduct of the Claimant without the
prior written consent of the Claimant (given or withheld in its sole
discretion).


 


(e)           If the Indemnifier elects not to defend
the Claimant against such third party claim or demand (or fails to promptly and
reasonably prosecute such defense), the Claimant shall have the right to defend
the claim or demand through appropriate proceedings and shall have the sole
power to direct and control such defense at the Indemnifier’s sole cost and
expense if and to the extent that such claim is subject to indemnity
hereunder.  The Indemnifier shall have
the right, at its sole cost and expense, to participate in the defense or
settlement of any third party claim for which it may be liable.


 


Section 7.5             Limits on
Indemnification.


 


(a)           No claim may be asserted against any
Person for Proportionate Damages, unless written notice of such claim is given
pursuant to Section 9.7 to the Principal Company Stockholder or the
relevant Other Holder, describing in reasonable detail the facts and
circumstances with respect to the subject matter of such claim, on or prior to
the date on which the representation, warranty or covenant on which such claim
is based ceases to survive as set forth in Section 2.1, in which case such
representation, warranty or covenant shall survive as to such claim until such
claim has been finally resolved.


 


(b)           Notwithstanding any provision contained
in this Agreement to the contrary: 
(i) neither the Principal Company Stockholder nor any of the Other
Holders


 


44





















 


(collectively,
the “Stockholders”) shall be liable to any Indemnified Party for any
claim for indemnification unless and until the aggregate amount of
indemnifiable Proportionate Damages equals or exceeds $3,000,000, in which case
the Stockholders shall be liable only for the Proportionate Damages in excess
of such amount; (ii) the maximum aggregate amount of indemnifiable
Proportionate Damages which may be recovered by the Indemnified Parties shall
be an amount equal to 20% of the result of (x) the Applicable Percentage
multiplied by (y) the result of $25.21 multiplied by the Fully Diluted Shares;
(iii) no Proportionate Damages may be claimed by any Indemnified Party or
shall be reimbursable by or shall be included in calculating the aggregate
Proportionate Damages set forth in clause (i) above other than Proportionate
Damages in excess of $10,000 resulting from any single claim or aggregated
claims arising out of the same facts, events or circumstances; (iv) no
party hereto shall have any liability under any provision of this Agreement for
any punitive, incidental, consequential, special or indirect damages, including
business interruption, loss of future revenue, profits or income, or loss of
business reputation or opportunity relating to the breach or alleged breach of
this Agreement; (v) the liability of each Other Holder with respect to any
Proportionate Damages hereunder shall be limited to such Other Holder’s Pro
Rata Portion of such Proportionate Damages. 
The “Pro Rata Portion” of Proportionate Damages attributable to
each Other Holder shall be determined by a fraction, the numerator of which is
the aggregate number of shares of Company Common Stock and Option Shares
subject to Vested Company Options held by such Other Holder immediately prior
to the Effective Time, and the denominator of which is the sum of (x) the
number of shares of Company Common Stock and Option Shares subject to Vested
Stock Options held by all Other Holders plus (y) the number of shares of
Class B Common Stock held by the Principal Company Stockholder, in each
case immediately prior to the Effective Time.


 


(c)           For all purposes of this
Article VII, “Proportionate Damages” shall be net of (i) any
insurance or other recoveries payable to the Indemnified Party or its
Subsidiaries in connection with the facts giving rise to the right of
indemnification and (ii) any Tax benefit available to such Indemnified
Party or its Affiliates arising in connection with the accrual, incurrence or
payment of any such Proportionate Damages (including, without limitation, the
net present value (using the Indemnified Party’s average cost of borrowing for
the year in which such Proportionate Damages are first accrued, incurred or
paid) of any Tax benefit arising in subsequent taxable years).


 


(d)           The Indemnified Parties and the Principal
Company Stockholder shall cooperate with each other with respect to resolving
any claim or liability with respect to which one party is obligated to
indemnify the other party hereunder, including by making commercially
reasonably efforts to resolve any such claim or liability.  In the event that any of Indemnified Parties
and the Principal Company Stockholder shall fail to make such commercially
reasonably efforts to resolve any claim or liability, then notwithstanding
anything else to the contrary contained herein, the other party shall not be
required to indemnify any person for any loss, liability, claim, damage or
expense that could reasonably be expected to have been avoided if the
Indemnified Parties and the Principal Company Stockholder, as the case may be,
had made such efforts.


 


45





















 


(e)           Notwithstanding any provision contained
in this Agreement to the contrary, the Principal Company Stockholder shall not
be required to make any payment as indemnification hereunder unless and until
it has received, pursuant to the Redemption Agreement, an amount at least equal
to the amount of any such payment.


 


Section 7.6             Assignment of
Claims; Contribution.


 


(a)           Notwithstanding and in addition to any
and all rights to contribution under applicable Law, if any Indemnified Party
receives any payment from the Principal Company Stockholder in respect of any
Proportionate Damages pursuant to Article VII and the Indemnified Party
could have recovered all or a part of such Proportionate Damages from a third party
(a “Potential Contributor”) based on the underlying claim asserted
against the Principal Company Stockholder, the Indemnified Party shall assign,
on a non-recourse basis and without any representation or warranty, such of its
rights to proceed against the Potential Contributor as are necessary to permit
the Principal Company Stockholder to recover from the Potential Contributor the
amount of such payment.  Any payment
received from such third party in respect of such claim shall be distributed to
the Principal Company Stockholder in an amount equal to the aggregate payments
made by the Principal Company Stockholder to the Indemnified Party in respect
of such claim, plus costs and expenses incurred in investigating, defending or
otherwise incurred in connection with addressing such claim.


 


(b)           In the event that the Principal Company
Stockholder makes a payment, other than a payment from the Escrow Fund, to any
of the Indemnified Parties in satisfaction of a liability that any Other Holder
would otherwise have owed to such Indemnified Party, the Principal Company
Stockholder shall have a corresponding right of contribution from any and all
such Other Holders and shall be entitled to satisfy such obligations from the
Escrow Fund, and if no monies remain in the Escrow Fund, the Principal Company
Stockholder may then commence enforcement proceedings against any and all such
Other Holders.


 


ARTICLE VIII


 


TERMINATION, AMENDMENT AND WAIVER


 


Section 8.1             Termination by
Mutual Consent.  This Agreement may be terminated at any time
prior to the Effective Time by mutual written consent of Parent (solely by
action of the Special Committee) and the Company.


 


Section 8.2             Termination by
Either Parent or the Company.  This Agreement may be terminated by either
Parent (solely by action of the Special Committee) or the Company at any time
prior to the Effective Time (including after the receipt of the Principal
Stockholders Consent):


 


(a)           if the Merger has not been consummated by
September 30, 2005, except that the right to terminate this Agreement
under this clause (a) shall not be available to any party to this
Agreement whose failure to fulfill any of its obligations has


 


46





















 


been a
principal cause of, or resulted in, the failure to consummate the Merger by
such date;


 


(b)           if any Law prohibits consummation of the
Merger; or


 


(c)           if any Order restrains, enjoins or
otherwise prohibits consummation of the Merger, and such Order has become final
and nonappealable.


 


Section 8.3             Termination by
Parent.  This Agreement may be terminated by Parent
(solely by action of the Special Committee) at any time prior to the Effective
Time if the Company breaches any of its representations, warranties, covenants
or agreements contained in this Agreement, which breach (i) would give
rise to the failure of a condition set forth in Section 6.2(a),
Section 6.2(b) or Section 6.2(c) and (ii) has not been
cured by the Company within twenty (20) Business Days after the Company’s
receipt of written notice of such breach from Parent.


 


Section 8.4             Termination by the
Company.


 


(a)           This Agreement may be terminated by the
Company at any time prior to the Effective Time if Parent breaches any of its
representations, warranties, covenants or agreements contained in this
Agreement, which breach (i) would give rise to the failure of a condition
set forth in Section 6.3(a) or Section 6.3(b) and
(ii) has not been cured by Parent within twenty (20) Business Days
after Parent’s receipt of written notice of such breach from the Company.


 


Section 8.5             Effect of
Termination.  If this Agreement is terminated pursuant to
this ARTICLE VIII, it shall become void and of no further force and
effect, with no liability on the part of any party to this Agreement (or any
stockholder, director, officer, employee, agent or representative of such
party), except that if such
termination results from the willful (a) failure of any party to perform
its obligations or (b) breach by any party of its representations or
warranties contained in this Agreement, then such party shall be fully liable
for any Liabilities incurred or suffered by the other parties as a result of
such failure or breach.  The provisions
of Section 5.10, Section 8.5 and ARTICLE IX shall survive any
termination of this Agreement.


 


Section 8.6             Amendment.


 


(a)           This Agreement may be amended by the
parties to this Agreement (in the case of Parent, solely by action of the
Special Committee) at any time prior to the Second Closing, so long as
(a) no amendment that requires stockholder approval under applicable Laws
shall be made without such required approval and (b) such amendment has
been duly approved by the board of directors of each of Parent (acting solely
through the Special Committee), Merger Sub (if prior to the Effective Time) and
the Company.  This Agreement may not be
amended except by an instrument in writing signed by each of the parties (in
the case of Parent, solely by action of the Special Committee) to this
Agreement.


 


47





















 


(b)           The Principal Stockholders Agreement and
the Redemption Agreement, (collectively, the “Other Agreements”), may
not be amended without the consent of the Special Committee; provided that
notwithstanding the foregoing or clause (a) hereof the Escrow Agreement
and the Letter of Transmittal may be amended by the Company at any time,
without Parent’s consent, and, prior to execution and delivery thereof by the
other party thereto, without such other party’s consent.


 


Section 8.7             Extension; Waiver.  At
any time prior to the Second Closing, Parent (solely by action of the Special
Committee) and Merger Sub (if prior to the Effective Time), on the one hand,
and the Company, on the other hand, may (a) extend the time for the
performance of any of the obligations of the other party under this Agreement
or any of the Other Agreements, (b) waive any inaccuracies in the
representations and warranties of the other party contained in this Agreement
or in any document delivered under this Agreement or, (c) subject to applicable
Laws, waive compliance with any of the covenants or conditions contained in
this Agreement or in any of the Other Agreements.  Any agreement on the part of a party to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed by such party.  The failure of any
part to assert any of its rights under this Agreement or the Other Agreements
or otherwise shall not constitute a waiver of such rights.


 


Section 8.8             Transfer Taxes. 
Parent shall be liable for and shall hold the Principal Company
Stockholder harmless against any real property transfer or gains, sales, use,
transfer, value added, stock transfer, and stamp taxes, any recording,
registration, and other fees and any similar Taxes (“Transfer Taxes”)
which become payable in connection with the transactions contemplated by this
Agreement.  Parent, after the review and
consent of the Principal Company Stockholder, shall file such returns, forms
and documents as shall permit any such tax to be assessed and paid over prior
to the First Closing Date.  The parties
will cooperate with each other in timely completing and filing all returns,
forms and documents as may be required in connection with the payment of any
Transfer Taxes.


 


ARTICLE IX


 


MISCELLANEOUS


 


Section 9.1             Certain
Definitions.  For purposes of this Agreement:


 


(a)           “Affiliate” means, with respect to
any Person, any other Person that directly or indirectly controls, is
controlled by or is under common control with, such first Person.  For the purposes of this definition,
“control” (including, with correlative meanings, the terms “controlling,”
“controlled by” and “under common control with”), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
the ownership of voting securities, by contract or otherwise.


 


(b)           “Applicable Percentage” means, at
any given time, 62.03% minus the following expressed as a percentage: 100% multiplied
by (x) the sum of the number


 


48





















 


of
Dissenting Shares and formerly Dissenting Shares plus the Option Shares subject
to Unvested Stock Options divided by (y) the number of Fully Diluted
Shares.


 


(c)           “Business Day” means any day,
other than Saturday, Sunday or a U.S. federal holiday, and shall consist of the
time period from 12:01 a.m. through 12:00 midnight Eastern time.


 


(d)           “Company Employment Agreements”
means any Contracts with employees, directors, officers or consultants whose
base salary (or equivalent) is greater than $150,000 per annum.


 


(e)           “Company Intellectual Property”
means Intellectual Property currently used by the Company and its Subsidiaries
in their respective businesses as presently conducted.


 


(f)            “Company Material Adverse Effect”
means any event, change, occurrence, circumstance or development which,
individually or together with any one or more other events, changes,
occurrences, circumstances or developments has had or could reasonably be
expected to have a material adverse effect on the business, assets, properties,
liabilities, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole, or on the ability of the
Company to perform its obligations under this Agreement or consummate the
transactions contemplated by this Agreement.


 


(g)           “Company Organizational Documents”
means, with respect to the Company, the Company Charter and the Company Bylaws
and, with respect to any of the Company’s Subsidiaries, the certificate of
incorporation and bylaws (or the equivalent organizational documents) of the
Company’s Subsidiaries, in each case, as in effect on the date of this
Agreement.


 


(h)           “Contracts” means any written or
oral contracts, agreements, licenses, notes, bonds, mortgages, indentures,
commitments, leases or other instruments.


 


(i)            “Deferred Merger Consideration”
means the aggregate of the Deferred Per Share Merger Consideration multiplied
by sum of (i) the number of shares of Company Common Stock and
(ii) the number of Option Shares subject to Vested Stock Options, in each
case immediately prior to the Effective Time.


 


(j)            “Deferred Per Share Merger
Consideration” means $5.60 allocated to indemnification, fees and expenses
as set forth in the Escrow Agreement and Letter of Transmittal.


 


(k)           “Exchange Act” means the
Securities Exchange Act of 1934.


 


(l)            “Expiration Date” means the date
which is 18 months after the Effective Time.


 


49





















 


(m)          “Fully Diluted Shares” means the
aggregate number of shares of Company Common Stock, Company Class B Common
Stock and Option Shares outstanding or, in the case of the Option Shares,
subject to the Vested Stock Options and Unvested Stock Options outstanding,
immediately prior to the Effective Time.


 


(n)           “GAAP” means generally accepted
accounting principles, as used in the United States of America.


 


(o)           “Hazardous Substances” means:  (i) any substance that is listed,
classified or regulated as “hazardous” under any Environmental Laws; or
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
material or radon.


 


(p)           “Initial Merger Consideration”
means the aggregate of the Initial Per Share Merger Consideration multiplied by
sum of (i) the number of shares of Company Common Stock and (ii) the
number of shares of Option Shares subject to Vested Stock Options, in each case
immediately prior to the Effective Time.


 


(q)           “Initial Option Merger Price”
shall be equal to the Option Merger Price minus the Deferred Per Share Merger
Consideration.


 


(r)            “Initial Per Share Merger
Consideration” means $25.21 minus the Deferred Per Share Merger
Consideration, or $19.61.


 


(s)           “Intellectual Property” shall mean
all of the following, as they exist anywhere in the world:  (i) patents, patent applications and
inventions, designs and improvements described and claimed therein (including
any divisions, continuations, continuations-in-part, reissues, reexaminations,
or interferences thereof, whether or not patents are issued on any such
applications and whether or not any such applications are modified, withdrawn,
or resubmitted) (“Patents”); (ii) trademarks, service marks, trade
dress, trade names, brand names, designs, logos, or corporate names, whether
registered or unregistered, and all registrations and applications for
registration thereof (“Trademarks”); (iii) copyrights and mask work
rights, including all renewals and extensions thereof, copyright registrations
and applications for registration thereof, and non-registered copyrights (“Copyrights”);
(iv) trade secrets, including any know-how, inventions, processes,
procedures, databases, confidential business information, concepts, ideas,
designs, research or development information, techniques, technical
information, specifications, operating and maintenance manuals, engineering
drawings, methods, technical data, discoveries, modifications, extensions,
improvements, and other proprietary information (whether or not patentable or
subject to copyright or mask work protection) that constitute trade secrets
under applicable law (“Trade Secrets” ) (v) Software; and
(vi) Internet domain name registrations.


 


(t)            “IP Licenses” means any licenses
or sublicenses of Intellectual Property, or covenants not to sue for
infringement of Intellectual Property.


 


50





















 


(u)           “Knowledge” means, when used with
respect to Parent, the actual knowledge of the directors and executive officers
of Parent and when used with respect to the Company, the actual knowledge of
David Kirchhoff, Daniel Rootenberg, Jeffrey Fiarman and Michael Basone.


 


(v)           “Laws” means any domestic or
foreign laws, statutes, ordinances, rules, regulations, codes or executive
orders enacted, issued, adopted, promulgated or applied by any Governmental
Entity.


 


(w)          “Liabilities” means liabilities or
obligations of any kind, whether accrued, contingent, absolute, inchoate or
otherwise.


 


(x)            “Liens” means any liens, pledges,
security interests, claims, options, rights of first offer or refusal, charges
or other encumbrances.


 


(y)           “Market Value” shall mean the
average of the closing prices of Parent’s Common Stock, no par value, on the
New York Stock Exchange for the five (5) trading days ending on the second
trading day immediately prior to the date on which the Effective Time occurs.


 


(z)            “Material Contract” means any
Contract pursuant to which, in 2004, the Company had a total annual expenditure
of over $100,000 or received consideration thereunder of over $100,000.


 


(aa)         “Material IP License” means any IP
License pursuant to which, in 2004, the Company had a total annual expenditure
of over $100,000 or received consideration thereunder of over $100,000 or the
termination, cancellation, non-renewal or non-extension of which would result
in a Company Material Adverse Effect.


 


(bb)         “Merger Consideration” means the
sum of (i) the Initial Merger Consideration and (ii) the Deferred
Merger Consideration.


 


(cc)         “Option Merger Price” shall be
equal to $25.21 per Option Share subject to a Vested Stock Option minus the
exercise price of such Option Share pursuant to the applicable Vested Stock
Option.


 


(dd)         “Optionholders” mean holders of
the Vested Stock Options, Unvested Stock Options and/or Parent Stock Options.


 


(ee)         “Option Shares” means the shares
of Company Common Stock subject to the Vested Stock Options and the Unvested
Stock Options.


 


(ff)           “Orders” means any orders,
judgments, injunctions, awards, decrees or writs handed down, adopted or
imposed by any Governmental Entity.


 


(gg)         “Parent Material Adverse Effect”
means any event, change, occurrence, circumstance or development which,
individually or together with any one or more other events, changes,
occurrences, circumstances or developments has had or


 


51





















 


could
reasonably be expected to have a material adverse effect on the business,
assets, properties, liabilities, condition (financial or otherwise) or results
of operations of Parent and its Subsidiaries, taken as a whole, or on the
ability of Parent to perform its obligations under this Agreement, consummate
the transactions contemplated by this Agreement or to obtain the financing
necessary for Parent to consummate the transactions contemplated hereby.


 


(hh)         “Permitted Encumbrance” means any
defects in title, exceptions, restrictions, easements, covenants, reservations,
encroachments, utility agreements, rights of way and other encumbrances.


 


(ii)           “Person” means any individual,
corporation, limited or general partnership, limited liability company, limited
liability partnership, trust, association, joint venture, Governmental Entity
and other entity and group (which term shall include a “group” as such term is
defined in Section 13(d)(3) of the Exchange Act).


 


(jj)           “Public Offering” means the filing
of a registration statement with the SEC with respect to a public offering by
the Company or any stockholder of the Company of all or any portion of Company
Common Stock.


 


(kk)         “Representatives” means, when used
with respect to Parent or the Company, the directors, officers, employees,
consultants, accountants, legal counsel, investment bankers, agents and other
representatives of Parent or the Company, as applicable, and its Subsidiaries.


 


(ll)           “Restricted Stock Unit” means a
unit issued under the 2004 Stock Incentive Plan of Parent, which shall have the
vesting schedule of the Unvested Stock Option for which such Restricted
Stock Unit is being used as payment, and as if such Restricted Stock Unit had
been held for the same period of time as such Unvested Stock Option had been
held.


 


(mm)       “SEC” means the Securities and
Exchange Commission.


 


(nn)         “Special Committee” means the
special committee of independent directors of Parent appointed by Parent
effective as of March 21, 2005, authorizing the Special Committee to,
among other things, consider the transactions contemplated by this Agreement,
as such committee may be reconstituted with the approval of the current members
then on the committee.


 


(oo)         “Software” means computer software
programs, including all source code, object code, specifications, databases,
designs and documentation related to such programs other than Off-the-Shelf
Software.


 


(pp)         “Subsidiary” means, when used with
respect to Parent or the Company, any other Person that Parent or the Company,
as applicable, directly or indirectly owns or has the power to vote or control
50% or more of any class or series of capital stock of such Person.


 


52





















 


(qq)         “Takeover Proposal” means any
proposal or offer relating to (i) a merger, consolidation, share exchange
or business combination involving the Company or any of its Subsidiaries,
(ii) a sale, lease, exchange, mortgage, transfer or other disposition, in
a single transaction or series of related transactions, of 10% or more of the
assets of the Company and its Subsidiaries, taken as a whole, (iii) a
purchase or sale of shares of capital stock or other securities, in a single
transaction or series of related transactions, representing 10% or more of the
voting power of the capital stock of Company or any of its Subsidiaries,
including by way of a tender offer or exchange offer, (iv) a
reorganization, recapitalization, liquidation or dissolution of the Company or
any of its Subsidiaries or (v) any other transaction having a similar
effect to those described in clauses (i) – (iv), in each case other than
the transactions contemplated by this Agreement.


 


(rr)           “Taxes” means (i) any and all
federal, state, provincial, local, foreign and other taxes, levies, fees,
imposts, duties, and similar governmental charges (including any interest,
fines, assessments, penalties or additions to tax imposed in connection
therewith or with respect thereto) including (x) taxes imposed on, or
measured by, income, franchise, profits or gross receipts, and (y) ad
valorem, value added, capital gains, sales, goods and services, use, real or
personal property, capital stock, license, branch, payroll, estimated withholding,
employment, social security (or similar), unemployment, compensation, utility,
severance, production, excise, stamp, occupation, premium, windfall profits,
transfer and gains taxes, and customs duties, and (ii) any transferee
liability in respect of any items described in the foregoing clause (i).


 


(ss)         “Tax Returns” means any and all
reports, returns, declarations, claims for refund, elections, disclosures,
estimates, information reports or returns or statements required to be supplied
to a taxing authority in connection with Taxes, including any schedule or
attachment thereto or amendment thereof.


 


(tt)           “Unvested Option Merger Price”
means, per share subject to the Unvested Stock Option, the number of Restricted
Stock Units of Parent equal in Market Value (assuming each such Unit is the
equivalent of one share of Common Stock, no par value, of the Parent) to the
sum of (i) $25.21 minus (ii) the exercise price per share of such
Unvested Stock Option minus (iii) $.22 per share for fees and expenses as
set forth in the Escrow Agreement and the Letter of Transmittal.


 


(uu)         “Warrant Agreements” means,
collectively, the Warrant Agreement, dated as of November 24, 1999,
between the Company and Parent; the Warrant Agreement, dated as of
October 1, 2001, between the Company and Parent; the Warrant Agreement,
dated as of May 3, 2001, between the Company and Parent; and the Warrant
Agreement, dated as of September 10, 2001, between the Company and Parent.


 


(vv)         “WWI Collateral Assignment Agreement”
means the second amended and restated collateral assignment and security
agreement entered into by the Company in favor of Parent dated as of
September 10, 2001.


 


53





















 


Section 9.2             Interpretation.  The
table of contents and headings in this Agreement are for reference only and
shall not affect the meaning or interpretation of this Agreement.  Definitions shall apply equally to both the
singular and plural forms of the terms defined. 
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms.  All references in this Agreement to Articles,
Sections and Exhibits shall refer to Articles and Sections of, and Exhibits to,
this Agreement unless the context shall require otherwise.  The words “include,” “includes” and
“including” shall not be limiting and shall be deemed to be followed by the
phrase “without limitation.”  Unless the
context shall require otherwise, any agreements, documents, instruments or Laws
defined or referred to in this Agreement shall be deemed to mean or refer to
such agreements, documents, instruments or Laws as from time to time amended,
modified or supplemented, including (a) in the case of agreements,
documents or instruments, by waiver or consent and (b) in the case of
Laws, by succession of comparable successor statutes.  All references in this Agreement to any
particular Law shall be deemed to refer also to any rules and regulations
promulgated under that Law.  References
to a person also refer to its predecessors and permitted successors and
assigns.


 


Section 9.3             Survival.  The
representations and warranties contained in this Agreement or in any instrument
delivered under this Agreement shall survive the Effective Time as provided in
the Indemnification Agreement.  This
Section 9.3 shall not limit any covenant or agreement of the parties to
this Agreement which, by its terms, contemplates performance after the
Effective Time.


 


Section 9.4             Governing Law.  This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of Virginia (the jurisdiction of incorporation of Parent), without
regard to the laws that might otherwise govern under applicable principles of
conflicts of law, except to the extent that the laws of the State of Delaware
mandatorily apply.


 


Section 9.5             Submission to
Jurisdiction.  The parties to this Agreement
(a) irrevocably submit to the personal jurisdiction of the United States
District Court for the Eastern District of Virginia or, if federal court
jurisdiction is not available, to the state courts in Virginia and
(b) waive any claim of improper venue or any claim that such court is an
inconvenient forum.  The parties to this
Agreement agree that mailing of process or other papers in connection with any
such action or proceeding in the manner provided in Section 9.7 or in such
other manner as may be permitted by applicable Laws, shall be valid and
sufficient service thereof.


 


Section 9.6             WAIVER OF JURY
TRIAL.  EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS


 


54





















 


CONTEMPLATED BY THIS AGREEMENT.  EACH PARTY TO THIS AGREEMENT CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO
ENFORCE THE FOREGOING WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH
PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES
THIS WAIVER VOLUNTARILY, AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN
THIS Section 9.6.


 


Section 9.7             Notices.  Any
notice, request, instruction or other communication under this Agreement shall
be in writing and delivered by hand or overnight courier service or by
facsimile:


 


If to Parent or Merger Sub, to:


 


Weight Watchers International, Inc.

175 Crossway Park West 

Woodbury, New York 11797-2055

Facsimile:  (516) 390-1795

Attention:  Robert Hollweg, Vice
President,


General Counsel and Secretary


 


with a copy to:


 


Paul, Weiss, Rifkind, Wharton & Garrison
LLP

1285 Avenue of the Americas

New York, New York 10019-6064

Facsimile:  (212) 757-3990

Attention:  Judith R. Thoyer, Esq.


 


If to the Company, to:


 


WeightWatchers.com, Inc.

888 Seventh Avenue, 8th Floor

New York, New York 10106

Facsimile:  212-315-0709

Attention:  Jeffrey Fiarman, Esq.


 


55





















 


with a copy to:


 


Gibson, Dunn & Crutcher LLP

200 Park Avenue

47th Floor

New York, New York 10166-0193

Facsimile:  (212) 351-5316

Attention:  Steven Shoemate, Esq.


 


or
to such other Persons, addresses or facsimile numbers as may be designated in
writing by the Person entitled to receive such communication as provided
above.  Each such communication shall be
effective (a) if delivered by hand, when such delivery is made at the
address specified in this Section 9.7, (b) if delivered by overnight
courier service, the next business day after such communication is sent to the
address specified in this Section 9.7, or (c) if delivered by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section 9.7 and appropriate confirmation is received.


 


Section 9.8             Entire Agreement.  This
Agreement (including the Exhibits to this Agreement), the Principal
Stockholders Agreement, the Redemption Agreement, the Company Disclosure
Letter, and the Confidentiality Agreement constitute the entire agreement and
supersede all other prior agreements, understandings, representations and warranties,
both written and oral, among the parties to this Agreement with respect to the
subject matter of this Agreement.  No
representation, warranty, inducement, promise, understanding or condition not
set forth in this Agreement has been made or relied upon by any of the parties
to this Agreement.


 


Section 9.9             No Third-Party
Beneficiaries.  Except as provided in Section 5.6 and
ARTICLE II, this Agreement is not intended to confer any rights or
remedies upon any Person other than the parties to this Agreement.


 


Section 9.10           Rules of
Construction.  The parties to this Agreement have been
represented by counsel during the negotiation and execution of this Agreement
and waive the application of any Laws or rule of construction providing
that ambiguities in any agreement or other document shall be construed against
the party drafting such agreement or other document.


 


Section 9.11           Assignment.  This
Agreement shall not be assignable by operation of law or otherwise, except that
Parent may designate, by written notice to the Company, a Subsidiary that is
wholly-owned by Parent to be merged with and into the Company in lieu of Merger
Sub, in which event all references in this Agreement to Merger Sub shall be
deemed references to such Subsidiary, and in that case, all representations and
warranties made in this Agreement with respect to Merger Sub as of the date of
this Agreement shall be deemed representations and warranties made with respect
to such Subsidiary as of the date of such designation.


 


Section 9.12           Remedies. 
Except as otherwise provided in this Agreement, any and all remedies
expressly conferred upon a party to this Agreement shall be cumulative with,
and not exclusive of, any other remedy contained in this


 


56





















 


Agreement, at law or in equity.  The exercise by a party to this Agreement of
any one remedy shall not preclude the exercise by it of any other remedy.


 


Section 9.13           Specific
Performance.  The parties to this Agreement agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached.  It is accordingly
agreed that the parties to this Agreement shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in the United States District Court
for the Eastern District of Virginia or, if federal court jurisdiction is not
available, to the state courts in Virginia, this being in addition to any other
remedy to which they are entitled at law or in equity.


 


Section 9.14           Counterparts;
Effectiveness.  This Agreement may be executed in any number
of counterparts, all of which shall be one and the same agreement.  This Agreement shall become effective when
each party to this Agreement shall have received counterparts signed by all of
the other parties.


 


[Signature page follows]


 


57





















 


IN WITNESS WHEREOF, this Agreement has been duly
executed and delivered by the duly authorized officers of the parties to this
Agreement as of the date first written above.


 


 


	
   

  	
  WEIGHT WATCHERS INTERNATIONAL, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Linda Huett

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Linda Huett

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCW MERGER SUB, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert W. Hollweg

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Robert W. Hollweg

  
	
   

  	
   

  	
  Title:

  	
  President and Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  WEIGHTWATCHERS.COM, INC.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ David P. Kirchhoff

  	
   

  
	
   

  	
   

  	
  Name:

  	
  David P. Kirchhoff

  
	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer and President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  ARTAL LUXEMBOURG S.A.

  
	
   

  	
  (Solely for purposes of Article VII and related

  sections and definitions referred to therein)

  
	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Francoise de Wael

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Francoise de Wael

  
	
   

  	
   

  	
  Title:

  	
  Managing Director

  
					



 


[Signature page to Merger Agreement]