0001021408-01-507862.txt : 20011010
0001021408-01-507862.hdr.sgml : 20011010
ACCESSION NUMBER: 0001021408-01-507862
CONFORMED SUBMISSION TYPE: 8-K
PUBLIC DOCUMENT COUNT: 1
CONFORMED PERIOD OF REPORT: 20011001
ITEM INFORMATION: Other events
ITEM INFORMATION: Financial statements and exhibits
FILED AS OF DATE: 20011009
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: EDIETS COM INC
CENTRAL INDEX KEY: 0001094058
STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389]
IRS NUMBER: 650687110
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 8-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 000-30559
FILM NUMBER: 1754555
BUSINESS ADDRESS:
STREET 1: 3467 W HILLSBORO BLVD.
CITY: DEERFIELD BEACH
STATE: FL
ZIP: 33442
BUSINESS PHONE: 9543609022
MAIL ADDRESS:
STREET 1: 3467 W. HILLSBORO BLVD.
CITY: DEERFIELD BEACH
STATE: FL
ZIP: 33642
8-K
1
d8k.txt
AGREEMENT AND PLAN OF MERGER
Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 1, 2001
eDiets.com, Inc.
-----------------------------------------------
(Exact name of Registrant as specified in its charter)
0-30559
-----------------------------------------------
Commission File Number
Delaware 56-0952883
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3801 W. Hillsboro Boulevard
Deerfield Beach, Florida 33342
-----------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(954) 360-9022
------------------------------
(Registrant's Telephone number, including area code)
Item 5. Other Events.
On October 1, 2001, eDiets.com, Inc. ("eDiets"), DietSmart Acquisition
Corp., a wholly-owned subsidiary of eDiets ("Newco") and David R. Humble,
eDiets' Chairman, Chief Executive Officer and principal stockholder entered into
an Agreement and Plan of Merger (the "Merger Agreement") with DietSmart, Inc., a
Delaware Corporation ("DietSmart") and Tamara L. Totah, DietSmart's Chief
Executive Officer, Carlos M. Lopez-Ona, DietSmart's Chief Financial Officer and
Andrew G. Smith, the president of DietSmart. Under the terms of the Merger
Agreement, DietSmart will be merged with and into Newco and thereby become a
wholly-owned subsidiary of eDiets. The merger is subject to certain closing
conditions, including approval by the DietSmart stockholders. Upon the closing
of the Merger, the DietSmart stockholders will receive an aggregate of 2 million
shares of eDiets common stock and $2.5 million in cash, payable in installments.
Mr. Humble will remain as Chairman and Chief Executive Officer of the
combined company after the merger, and DietSmart Chief Executive Officer, Ms.
Totah, will assume the role of President of eDiets.
The foregoing description of the Merger Agreement and the transactions
contemplated thereby does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement attached hereto as Exhibit 2.1.
Item 7. Financial Statements and Exhibits.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated October 1, 2001, by and among
eDiets.com, Inc., DietSmart Acquisition Corp., David R. Humble,
DietSmart, Inc., Tamara L. Totah, Carlos M. Lopez-Ona, and Andrew G.
Smith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused and authorized this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: October 9, 2001
eDiets.com, Inc.
By: /s/ Robert T. Hamilton
--------------------------------
Robert T. Hamilton, Chief
Financial Officer
2
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 1, 2001
AMONG
EDIETS.COM, INC.
DIETSMART ACQUISITION CORP.
DAVID R. HUMBLE
DIETSMART, INC.
TAMARA L. TOTAH
CARLOS M. LOPEZ-ONA
ANDREW G. SMITH
TABLE OF CONTENTS
Page
1. The Merger.................................................................................. 1
1.1 The Merger......................................................................... 1
1.2 Effective Date..................................................................... 1
1.3 Effect of the Merger............................................................... 2
1.4 Certificate of Incorporation/By-Laws............................................... 2
1.5 Directors and Officers of the Surviving Corporation................................ 2
1.6 Conversion of Securities........................................................... 2
1.7 DietSmart Stock Options............................................................ 5
1.8 Procedures for Exchange............................................................ 5
2. Representations and Warranties as to DietSmart.............................................. 6
2.1 Organization, Standing and Power................................................... 6
2.2 Capitalization..................................................................... 6
2.3 Ownership of DietSmart Common Stock................................................ 7
2.4 Interests and Other Entities....................................................... 8
2.5 Authority.......................................................................... 8
2.6 Noncontravention................................................................... 8
2.7 Financial Statements............................................................... 8
2.8 Absence of Undisclosed Liabilities................................................. 9
2.9 Absence of Affiliated Transactions................................................. 9
2.10 Absence of Changes................................................................. 9
2.11 Litigation......................................................................... 9
2.12 No Violation of Law................................................................ 10
2.13 Title to Assets and Properties..................................................... 10
2.14 Intangibles/Inventions............................................................. 10
2.15 Systems and Software............................................................... 11
2.16 Tax Matters........................................................................ 12
2.17 Insurance.......................................................................... 12
2.18 Employee Arrangements.............................................................. 12
2.19 Certain Contracts.................................................................. 13
2.20 Information as to DietSmart........................................................ 13
3. Representations and Warranties as to eDiets and Newco....................................... 13
3.1 Corporate Organization, Standing and Power......................................... 13
3.2 Corporate Action................................................................... 14
3.3 Capitalization..................................................................... 14
3.4 No Restrictions.................................................................... 14
3.5 eDiets Financial Statements........................................................ 15
3.6 eDiets SEC Documents............................................................... 15
3.7 Absence of Changes................................................................. 15
3.8 Litigation......................................................................... 15
3.9 Tax Matters........................................................................ 16
i
3.10 Qualification as a Reorganization.................................................. 16
3.11 No Violation of Law................................................................ 17
3.12 Information as to eDiets and Newco................................................. 17
4. Confidentiality............................................................................. 17
5. Covenants of All Parties.................................................................... 18
5.1 Investigation...................................................................... 18
5.2 Consummation of Transaction........................................................ 19
5.3 Cooperation/Further Assurances..................................................... 19
5.4 Accuracy of Representations........................................................ 19
5.5 Notification of Certain Matters.................................................... 19
5.6 Broker............................................................................. 20
5.7 No Solicitation of Transactions.................................................... 20
6. Covenants of DietSmart and Principal Stockholders........................................... 20
6.1 Prohibited Conduct of DietSmart and Principal Stockholders......................... 20
6.2 DietSmart Stockholder Approval and Meeting......................................... 22
7. Covenants of eDiets and Humble.............................................................. 22
7.1 Prohibited Conduct of eDiets....................................................... 22
7.2 Election of DietSmart Representative............................................... 24
7.3 Mandatory Registration............................................................. 24
7.4 Piggyback Registration Rights...................................................... 25
7.5 Right of Co-Sale................................................................... 25
7.6 Payment of Deferred Compensation................................................... 25
7.7 Status Reorganization.............................................................. 25
7.8 Taxes.............................................................................. 26
7.9 Indemnity by eDiets and Newco...................................................... 26
8. Conditions of Merger........................................................................ 27
8.1 Conditions to Obligations of eDiets and Newco to Effect the Merger................. 27
8.2 Conditions to Obligations of DietSmart and the Principal Stockholders
to Effect the Merger............................................................... 28
9. Indemnification............................................................................. 29
9.1 Indemnification by Principal Stockholders.......................................... 29
9.2 Indemnification by eDiets and Newco................................................ 30
9.3 Third Party Claims................................................................. 30
9.4 Assistance......................................................................... 31
9.5 Limitations on Indemnification Rights.............................................. 31
9.6 "Knowledge" and "Material"......................................................... 33
9.7 Rights of DietSmart Stockholders Representatives................................... 33
10. Escrow Establishments: Reimbursement of Certain Fees ...................................... 33
10.1 Turner Litigation Escrow........................................................... 33
10.2 Indemnification Claims Escrow...................................................... 34
10.3 Recognition Group Claim Escrow Fund................................................ 34
ii
10.4 Reimbursement of Legal Fees........................................................ 34
10.5 Orrick, Herrington & Sutcliffe Claim............................................... 35
11. The Closing................................................................................. 35
11.1 Deliveries by eDiets and Newco at the Closing...................................... 35
11.2 Deliveries by DietSmart and/or the Principal Stockholders at the Closing........... 36
11.3 Other Deliveries................................................................... 36
12. Termination and Waiver...................................................................... 36
12.1 Termination........................................................................ 36
12.2 Waiver............................................................................. 37
13. Break-up Fees............................................................................... 37
13.1 Payment of Fees by eDiets ......................................................... 37
13.2 Payment of Fees by DietSmart ...................................................... 37
13.3 Liquidated Damages................................................................. 37
14. Repayment of Certain Advance................................................................ 38
15. Fees and Expenses........................................................................... 38
16. Survival of Representations and Warranties.................................................. 38
17. General Provisions.......................................................................... 38
17.1 Notices............................................................................ 38
17.2 Severability....................................................................... 39
17.3 Entire Agreement................................................................... 40
17.4 Amendment.......................................................................... 40
17.5 Schedules.......................................................................... 40
17.6 No Assignment...................................................................... 40
17.7 Governing Law, Venue............................................................... 40
17.8 Dispute Resolution................................................................. 40
17.9 Headings........................................................................... 42
17.10 Counterparts....................................................................... 42
17.11 Attorneys' Fees.................................................................... 42
17.12 Construction....................................................................... 43
17.13 Waiver of Breach................................................................... 43
iii
EXHIBITS
--------
Exhibit A - Certificate of Merger
---------
Exhibit B - Directors and Officers of Newco
---------
Exhibit C - Stock Option Agreement -Certain Optionholders
---------
Exhibit C1 - Stock Option Agreement - Optionees
----------
Exhibit D - Registration Rights Agreement
---------
Exhibit E - Opinion of Winston and Strawn
---------
Exhibit E1 - Opinion of Jennifer Lupo, Esq.
----------
Exhibit F - Opinion of Richards, Layton & Finger
---------
Exhibit G - Employment Agreements
---------
Exhibit H - Opinion of Nason, Yeager, Gerson, White & Lioce, P.A.
---------
Exhibit I - Escrow Agreement
---------
iv
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER dated as of October 1, 2001 (the "Agreement")
among EDIETS.COM, INC., a Delaware corporation ("eDiets"), DIETSMART ACQUISITION
CORP., a Delaware corporation and a wholly-owned subsidiary of eDiets ("Newco"
or "Surviving Corporation"), DAVID R. HUMBLE ("Humble"), DIETSMART, INC., a
Delaware corporation ("DietSmart"), TAMARA L. TOTAH ("Totah"), ANDREW G. SMITH
("Smith") and CARLOS M. LOPEZ-ONA ("Lopez-Ona") (Totah, Smith and Lopez-Ona are
collectively the "Principal Stockholders").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of eDiets, Newco and DietSmart
believe it is in the best interest of their respective companies and the
stockholders of their respective companies for Newco and DietSmart to combine
into a single company through the statutory merger of DietSmart with and into
Newco and Newco being the surviving corporation (the "Merger") and, in
furtherance thereof have approved the Merger; and
WHEREAS, eDiets, Newco, DietSmart and the Principal Stockholders desire to
make certain representations and warranties and other agreements and covenants
in connection with the Merger.
WHEREAS, Humble desires to join as a party to the Agreement solely and only
for the purpose of making the agreement and covenants provided in Sections 7.2
and 7.5 below.
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
1. The Merger.
----------
1.1 The Merger. At the Effective Date (as defined in Section 1.2
----------
below), and subject to and upon the terms of this Agreement and Delaware law,
DietSmart shall be merged with and into Newco, the separate corporate existence
of DietSmart shall cease, and Newco shall continue as the surviving corporation,
operating as a wholly-owned subsidiary of eDiets.
1.2 Effective Date. As promptly as practicable after the
--------------
satisfaction or waiver of the conditions set forth in Section 8, unless this
Agreement shall have been terminated and the transaction contemplated herein
shall have been abandoned pursuant to Section 12, Newco and DietSmart shall
cause the Merger to be consummated by executing and filing a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware in the form of Exhibit A. The Merger shall become effective upon the
---------
acceptance of the Certificate of Merger by the appropriate state authorities of
Delaware which date shall be the "Effective Date" for purposes of this
Agreement.
1.3 Effect of the Merger. At the Effective Date, the effects of the
--------------------
Merger shall be as provided in the applicable provisions of Delaware General
Corporation Law (the "DGCL"). Without limiting the generality of the foregoing,
and subject thereto, at the Effective Date, all the rights, privileges, powers,
franchises and all property (real, personal and mixed) of DietSmart
1
and all debts due DietSmart shall vest in Newco, and all debts, liabilities,
obligations and duties of DietSmart shall become the debts, liabilities,
obligations and duties of Newco.
1.4 Certificate of Incorporation/By-Laws.
------------------------------------
(a) The Certificate of Incorporation of Newco, as in effect
immediately prior to the Effective Date and as amended to the extent set forth
in Paragraph Third of Exhibit A shall be the Certificate of Incorporation of the
---------
Surviving Corporation, until thereafter amended as provided by law.
(b) The By-Laws of Newco, as in effect immediately prior to the
Effective Date shall be the By-Laws of the Surviving Corporation, until altered
or amended in accordance with law.
1.5 Directors and Officers of the Surviving Corporation. On the
---------------------------------------------------
Effective Date of the Merger, the Directors and Officers of the Surviving
Corporation named in Exhibit B shall continue to be the Directors and Officers
---------
of the Surviving Corporation.
1.6 Conversion of Securities. (a) On the Effective Date, by virtue
------------------------
of the Merger and without any action on the part of eDiets, Newco, DietSmart or
the Principal Stockholders, all of the outstanding shares of DietSmart Common
Stock (as defined in Section 2.2 below) and DietSmart's Preferred Stock (as
defined in Section 2.2 below), and the stock options of certain DietSmart
optionholders ("Certain Optionholders") (as defined in Section 2.2 below) shall
be converted into the right to receive:
(i) shares of eDiets' common stock, $.001 par value per
share ("eDiets Common Stock"), or with respect to stock options to be converted
into eDiets stock options, options to acquire such e Diets shares, in an
aggregate number equal to 2,000,000 shares (hereafter referred to as the "Share
Consideration"); and
(ii) an aggregate of $2,500,000, payable in cash as set
forth in Section 1.6 (c) below (the "Cash Consideration").
(b) The Share Consideration shall be distributed to the holders
of DietSmart Common Stock and Preferred Stock (the "DietSmart Stockholders") and
the Certain Optionholders, respectively, as set forth on Schedule 1.6 (a).
----------------
Schedule 1.6 (a) sets forth: (i) the number of shares of eDiets Common Stock to
----------------
be issued to each DietSmart Stockholder; (ii) the number of shares of eDiets
Common Stock or number of eDiets stock options to be issued to each of the
Certain Optionholders, with an exercise price equal to $0.01, which shall be
immediately vested, and not subject to forfeiture or expiration upon any event
or no event; and (iii) the conversion ratio for determining the foregoing
issuances and option reservations. All shares of DietSmart capital stock, when
so converted, shall no longer be outstanding and shall automatically be
cancelled.
(c) The Cash Consideration shall bear interest, accruing at a
quarterly compounded rate of six percent (6%) per annum so long as the Cash
Consideration or any part thereof remains unpaid. The allocation of the Cash
Consideration among the holders of
2
DietSmart Common Stock and Preferred Stock and the Certain Optionholders is set
forth on Schedule 1.6 (a).
----------------
Subject to the escrow provisions of Section 10, the Cash Consideration, and
interest thereon, shall be payable to the DietSmart Stockholders and Certain
Optionholders (allocated among them as provided in Schedule 1.6 (a) ) as
----------------
follows:
(i) $500,000 (the "Initial Cash Payment") shall be paid
upon the exchange of the DietSmart stock certificates and the Certain
Optionholders, option agreements in accordance with Section 1.8;
(ii) $500,000 shall be paid on the last day of the 6th
month ending after the Effective Date;
(iii) $500,000 shall be paid on the last day of the 9th
month ending after the Effective Date;
(iv) $500,000 shall be paid on the last day of the 12th
month ending after the Effective Date; and
(v) $500,000, plus all interest then accrued and unpaid,
shall be paid on the last day of the 15th month ending after the Effective Date.
(d) Prepayments; Acceleration for Default. eDiets shall be
required to make certain prepayments of the Cash Consideration, as follows:
(i) If on the last day of the month that includes the 12-
month anniversary of the Effective Date, eDiets has cash or cash equivalents of
at least $3,500,000 as demonstrated in the monthly financial statements prepared
for eDiets' management, the final installment of the Cash Consideration shall be
paid within ten (10) days of the availability of said monthly financial
statements. In addition, if as of the last day of any month ending after eDiets'
Annual Report on Form 10-KSB for the year ended December 31, 2001 shall have
been filed, eDiets has cash or cash equivalents of at least $5,000,000, as
demonstrated in the monthly financial statements prepared for eDiets'
management, eDiets shall pay to the DietSmart Stockholders 25% of the
outstanding balance owed to the DietSmart Stockholders, such amount to be
applied against the scheduled installments of the Cash Consideration in inverse
order of maturity.
(ii) If any circumstance, event or transaction occurs upon
which any person or group (as such term is used in Sections 13 (d) and 14 (d) of
the Securities and Exchange Act of 1934, as amended, and the regulations
thereunder (the "Exchange Act")), other than a person or group that is currently
a "beneficial owner" (as such term is used in Rules 13 d-3, 13 d-5, or 16 a-1 of
the Exchange Act) of an equity interest in eDiets, becomes the beneficial owner
of at least 51% of the outstanding capital stock of eDiets (a "Change of
Control"), all of the scheduled installments of the Cash Consideration, and any
accrued and unpaid interest, set forth in the preceding subsection which have
not been paid shall become due and payable within thirty (30) days after such an
occurrence.
3
(iii) In the event eDiets shall consummate an equity
financing resulting in eDiets receiving net cash proceeds in excess of
$1,000,000 from such financing , within thirty (30) days after the consummation
of the transaction, eDiets shall apply 20% of the proceeds from the transaction
towards prepayment of any of the amounts which remain outstanding, such amounts
to be applied against the scheduled installments of the Cash Consideration in
inverse order of maturity.
(iv) In the event that eDiets fails to pay any installment
of the Cash Consideration, or accrued and unpaid interest thereon, when due, and
such failure is not cured within ten (10) days after such installment payment
becomes due, then eDiets shall pay to DietSmart Stockholders a late payment fee
equal to twenty percent (20%) of the overdue installment, payable together with
the overdue installment payment.
(e) Establishment of Escrow Fund. In accordance with the escrow
----------------------------
establishment provisions of Section 10 below eDiets shall pay a specified
amount of each installment of the Cash Consideration to the Escrow Agent.
(f) From and after the Effective Date, the holders of
certificates evidencing ownership of shares of DietSmart Common Stock, Preferred
Stock or options to acquire DietSmart Common Stock shall cease to have any
rights with respect to the shares of DietSmart Common Stock, Preferred Stock or
options, other than the right to receive eDiets Common Stock, cash or eDiets
stock options pursuant to this Agreement.
(g) Notwithstanding any provision herein to the contrary, any
shares of DietSmart Common Stock or Preferred Stock held by a Dissenting
Stockholder (as hereinafter defined) shall not be converted as described herein,
but instead shall be converted into the right to receive the consideration as
may be determined to be due a Dissenting Stockholder pursuant to the DGCL;
provided, however, that if a Dissenting Stockholder shall fail to perfect his
demand, withdraw his demand or otherwise lose his right for appraisal under the
terms of the DGCL, then the shares held by such Dissenting Stockholder (the
"Dissenting Shares") shall be deemed to be converted as of the Effective Date in
accordance with the provisions hereof. DietSmart shall not voluntarily make any
payment with respect to, settle, or offer to settle or otherwise negotiate, any
such demands. All amounts paid to Dissenting Stockholders shall be paid without
interest thereon (to the extent permitted by applicable law) by the Surviving
Corporation. For purposes hereof, the term "Dissenting Stockholder" shall mean a
DietSmart stockholder who has demanded and perfected such holder's appraisal
rights in accordance with Section 262 of the DGCL.
(h) In the event any certificates representing shares of
DietSmart Common Stock or Preferred Stock or the Option Certificates of the
Certain Optionholders (the "Lost Certificates"), shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Lost Certificate(s) are lost, stolen or destroyed, eDiets will deliver to
such person the Share Consideration and Cash Consideration deliverable in
respect of the shares represented by such lost, stolen or destroyed Lost
Certificate(s) and they shall be deemed to be cancelled.
4
(i) No fractional shares of eDiets Common Stock shall be issued
in connection with the Merger.
1.7 DietSmart Stock Options. Each option to purchase DietSmart
-----------------------
Common Stock, with the exception of either all or a certain number of the
options held by the Certain Optionholders (as defined in Schedule 2.2), which is
-------------
outstanding and unexercised immediately prior to the Effective Date will be
converted into an equivalent stock option to purchase eDiets Common Stock in an
amount based upon the exchange ratio and at the exercise price specified in
Schedule 1.7. Schedule 1.7 sets forth the number of options to purchase eDiets
------------ ------------
Common Stock issuable to each of the DietSmart optionholders, and in certain
instances, including the Certain Optionholders, the exercise price of the option
and the vesting schedule. Within thirty (30) days following the Effective Date,
eDiets shall deliver to each Certain Optionholder and each other former holder
of an option to purchase DietSmart Common Stock an eDiets stock option
agreement in the form of Exhibits C and C1.
---------- --
1.8 Procedures for Exchange.
-----------------------
(i) After the Effective Date, each holder of an
outstanding certificate or certificates which, prior thereto represented shares
of Common Stock or Preferred Stock of DietSmart will surrender the certificate
or certificates to Robert Hamilton, Chief Financial Officer of eDiets who is
designated by eDiets, to act as the exchange agent ("Exchange Agent") for such
stockholders to effect the exchange of certificates on their behalf, and each
such holder will be entitled upon such surrender in exchange therefore (a) an
official bank check to the order of such holder in the amount of the Initial
Cash Payment, and (b) a certificate registered in the name of the holder
representing the shares of eDiets Common Stock for which the DietSmart Common
Stock and Preferred Stock thereto represented by the certificate or certificates
surrendered shall have been exchanged pursuant to this Agreement. Adoption of
this Agreement by the stockholders of DietSmart shall constitute ratification of
the Exchange Agent. Until so surrendered, each outstanding certificate which,
prior to the Effective Date, represented DietSmart securities shall be deemed
for all corporate purposes, subject to the further provisions of this Section,
to evidence the right to receive the Share Consideration and Cash Consideration
for which such DietSmart securities have been exchanged. Unless and until any
such certificate shall be so surrendered, dividends payable to holders of record
of shares of common stock of eDiets shall not be paid to the holder of such
certificate, but there shall be paid to the record holder of the certificate
with respect to the shares of common stock of eDiets issued in exchange therefor
(a) upon such surrender, the amount of dividends which shall become payable, but
without interest, and (b) after such surrender, the amount of any dividend with
a record date prior to surrender and the payment of which shall be subsequent to
surrender such amount to be paid on the payment date.
(ii) After the Effective Date, each DietSmart stock option
agreement of the Certain Optionholders which, prior thereto represented the
option to purchase shares of DietSmart Common Stock, shall be surrendered to the
Exchange Agent to effect the exchange of options on their behalf, and each of
the Certain Optionholders, with the exception of Smith, will be entitled upon
such surrender in exchange therefore (a) an official bank check to the order of
such holder in the amount of the Initial Cash Payment, and (b) an eDiets stock
option agreement, registered in the name of the Certain Optionholder,
representing the option to
5
purchase eDiets Common Stock, and the terms and conditions thereof, for which
the DietSmart option agreement surrendered shall have been exchanged pursuant to
this Agreement. With respect to Smith, he will surrender his DietSmart option
agreement in exchange for (a) an official bank check to his order in the amount
of the Initial Cash Payment, and (b) a share certificate registered in his name
representing the shares of eDiets Common Stock for which the DietSmart option
agreement he surrenders shall have been exchanged pursuant to this Agreement.
(iii) If any check is to be issued payable to the order of
a person or any stock certificate is to be issued in the name of a person, other
than in the name of the person to which the certificate surrendered in exchange
therefor is registered, it shall be a condition to issuance that the surrendered
certificate shall be properly endorsed and otherwise be in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other taxes required by reason of the issuance of such check or
stock certificate in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(iv) At the Effective Date, all DietSmart stock that shall
be then held in the treasury of DietSmart shall cease to exist, and all
certificates representing such shares shall be cancelled.
2. Representations and Warranties as to DietSmart. Each of DietSmart and
----------------------------------------------
the Principal Stockholders represents and warrants to eDiets and Newco as
follows (provided, however, that with respect to Section 2.3, each Principal
Stockholder makes the representations contained therein severally, as to himself
or herself only):
2.1. Organization, Standing and Power. DietSmart is a corporation
--------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, with full corporate power and corporate authority to (i) own,
lease and operate its properties (real, personal or mixed), (ii) carry on the
business it is currently engaged in and (iii) execute and deliver, and perform
its obligations under this Agreement and each other agreement and instrument to
be executed and delivered by it pursuant hereto. DietSmart is duly qualified to
do business and is in good standing as an authorized foreign corporation in each
jurisdiction in which the nature of its business or the character of its
properties require such qualification. The only jurisdiction in which DietSmart
is so qualified is the State of New York. True and complete copies of
DietSmart's Certificate of Incorporation, as amended, and of its By-Laws , as
amended, have heretofore been furnished to eDiets. DietSmart's corporate minute
book(s) contain complete and accurate records, in all material respects, of all
meetings and other corporate actions taken by DietSmart's Stockholders and Board
of Directors (including committees of its Board of Directors).
2.2. Capitalization. (a) As of the date of this Agreement, the
--------------
authorized capital stock of DietSmart consists of 25,000,000 shares, of which
18,000,000 shares are designated as Common Stock with a $.001 par value per
share ("DietSmart Common Stock"), and 7,000,000 shares are designated preferred
stock with a $.001 par value per share, of which 6,572,361 shares of Common
Stock, 1,645,000 shares of Series A Preferred Stock ("Series A Preferred") and
1,406,887 shares of Series B Preferred Stock ("Series B Preferred") are issued
and outstanding.
6
The Series A Preferred and Series B Preferred are collectively referred to as
the "Preferred Stock". In addition, options to purchase 3,345,334 shares of
DietSmart Common Stock are issued and outstanding. All of the DietSmart Common
Stock and Preferred Stock is duly authorized, validly issued, fully paid and
nonassessable. Schedule 2.2 sets forth a true and complete list of the current
------------
holders of all outstanding shares of DietSmart Common Stock and Preferred Stock,
the current holders of all outstanding DietSmart stock options, and the number
of shares and options held by each of them. Except as otherwise provided for in
this Agreement and except as set forth on Schedule 2.2, there are no other
------------
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of DietSmart or
obligating DietSmart to issue or sell any shares of capital stock of or other
equity interests in DietSmart. There are no preemptive rights with regard to the
capital stock of DietSmart, and no rights of first refusal, with respect to the
issuance of such capital stock except as set forth in Schedule 2.2 (and the
------------
Investor's Rights Agreements executed by DietSmart Series A and Series B
Preferred Shareholders). Except as set forth on Schedule 2.2 and except for the
------------
transactions contemplated by this Agreement, there are no outstanding
contractual obligations or other commitments or arrangements of DietSmart to (A)
repurchase, redeem or otherwise acquire any shares of DietSmart Common Stock or
Preferred Stock (or any interest therein) or (B) to make any investment (in the
form of a loan, acquisition of capital stock or other equity interests, capital
contribution or otherwise) in any other entity, or (C) except pursuant to
exercise or conversion of outstanding options and Preferred Stock, issue or
distribute to any person any DietSmart Common Stock or Preferred Stock, or (D)
issue or distribute to holders of any of the DietSmart Common Stock or Preferred
Stock any evidences of indebtedness or assets of DietSmart. All of the
outstanding securities of DietSmart have been issued and sold by DietSmart in
full compliance with applicable federal and state securities laws.
2.3 Principal Stockholders.
----------------------
(a) Each of the Principal Stockholders, with the exception of
Smith, has good and marketable title to the shares of DietSmart Common Stock
owned by him or her, free and clear of any and all liens, adverse claims,
security interests, pledges, mortgages, charges and encumbrances of any nature
whatsoever. Smith has good and marketable title to the options to acquire
DietSmart Common Stock owned by him, free and clear of any and all liens,
adverse claims, security interests, pledges, mortgages, charges and encumbrances
of any nature whatsoever with respect to the options and/or the DietSmart Common
Stock underlying his options.
(b) This Agreement constitutes the legal, valid and binding
obligation of each of the Principal Stockholders, enforceable against each in
accordance with its terms, except as the same may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of creditors'
rights generally.
(c) Neither the execution and delivery by the Principal
Stockholders of this Agreement, the consummation of any of the transactions
contemplated herein, nor the performance by each of them of any of their
respective obligations hereunder, will (nor with the giving of notice or the
lapse of time or both would) (a) conflict with or result in a breach of any
provision of the Certificate of Incorporation, By-Laws or other constituent
documents of DietSmart, as amended, or (b) give rise to a default, or any right
of termination, cancellation or
7
acceleration, or otherwise be in conflict with or result in a loss of
contractual benefits to any of them, under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which any Principal Stockholder is a party or by
which any Principal Stockholder or his or her respective assets may be bound, or
require any consent, approval or notice under the terms of any such document or
instrument, or (c) violate any order, writ, injunction, decree, law, statute,
rule or regulation of any court or governmental authority which is applicable to
any Principal Stockholder, or (d) result in the creation or imposition of any
lien, adverse claim, restriction, charge or encumbrance upon any of the assets
of any principal Stockholder or its capital stock, or (e) interfere with or
otherwise adversely affect the ability of DietSmart to carry on its business
after the Effective Date on substantially the same basis as is now conducted by
DietSmart.
(d) The Principal Stockholders are acquiring the eDiets Common
Stock solely for investment purposes, with no intention of distributing or
reselling any such stock or any interest therein. The Principal Stockholders are
aware that, except as set forth in Section 7.4 hereof, the eDiets Common Stock
they are receiving will not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and that neither the eDiets Common Stock nor any
interest therein may be sold, pledged, or otherwise transferred unless the
eDiets Common Stock is registered under the Securities Act or qualifies for an
exemption under the Securities Act.
2.4. Interests in Other Entities. DietSmart does not have any direct
---------------------------
or indirect subsidiaries or own, directly or indirectly, of record or
beneficially, shares of voting or other equity securities in any other
corporation.
2.5. Authority. DietSmart has the corporate power to enter into and
---------
to perform its obligations under this Agreement. The execution, delivery and
performance by DietSmart of this Agreement, and the consummation by DietSmart of
the transactions contemplated hereby, have been duly authorized by all necessary
corporate action, on the part of DietSmart, subject only to the approval of this
Agreement and the Merger by the affirmative vote of the holders of a majority of
the outstanding shares of DietSmart. This Agreement constitutes the legal,
valid and binding obligation of DietSmart enforceable in accordance with its
terms, accept as the same may be limited by bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally.
2.6. Noncontravention. Except as provided for in Schedule 2.6,
---------------- ------------
neither the execution and delivery by DietSmart or the Principal Stockholders of
this Agreement nor the consummation of any of the transactions contemplated
hereby, nor the performance by each or all of them of any of their respective
obligations hereunder, will (nor with the giving of notice or the lapse of time
or both would) (a) conflict with or result in a breach of any provision of the
Certificate of Incorporation, By-Laws or other constituent documents of
DietSmart, each as amended , or (b) give rise to a default, or any right of
termination, cancellation or acceleration, or otherwise be in conflict with or
result in a loss of contractual benefits to DietSmart, under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which DietSmart is a party or by
which it or any of its assets may be bound, or, except as set forth on Schedule
--------
2.6 require any consent, approval or notice under the terms of any such document
---
or instrument, or (c) violate any order, writ, injunction,
8
decree, law, statute, rule or regulation of any court or governmental authority
which is applicable to DietSmart, or (d) result in the creation or imposition of
any lien, adverse claim, restriction, charge or encumbrance upon any of the
assets of DietSmart or its capital stock, or (e) interfere with or otherwise
adversely affect the ability of DietSmart to carry on its business after the
Effective Date on substantially the same basis as is now conducted by DietSmart.
2.7. Financial Statements. Attached as Schedule 2.7 are: (a)
-------------------- ------------
DietSmart's audited balance sheet at June 30, 2000 and related statements of
income, stockholders' equity and cash flows for the period from June 15, 1999 to
June 30, 2000, which have been audited by BDO Seidman, LLP, and (b) DietSmart's
audited balance sheet at June 30, 2001 and related statements of income,
stockholders equity and cash flows for the year then ended, audited by Ernst &
Young LLP (collectively the "Financials"). The Financials were prepared in
accordance with generally accepted accounting principles ("GAAP") and Regulation
S-X issued under the Securities Act, consistently applied, and present fairly in
all material respects the financial position of DietSmart as at the dates
thereof and the results of operations for the periods indicated. The balance
sheet of DietSmart dated as at June 30, 2001 included in the Financials is
herein referred to as the "DietSmart Balance Sheet".
2.8. Absence of Undisclosed Liabilities. DietSmart has no liabilities
----------------------------------
or obligations of any nature whatsoever, whether accrued, matured, unmatured,
absolute, contingent, direct or indirect or otherwise, except (a) in the case of
liabilities and obligations of the type customarily reflected on a corporate
balance sheet (including the notes thereto) prepared in accordance with GAAP,
those liabilities set forth on the DietSmart Balance Sheet and in the notes
thereto, and (b) liabilities incurred in the ordinary course of business since
June 30, 2001.
2.9 Absence of Affiliated Transactions. DietSmart is not a party to
----------------------------------
any agreement, arrangement or transaction with, and will not have any
indebtedness or other liability owing to or owed to it by, any of its
affiliates, stockholders, officers or directors or any affiliate or family
member of any of them, other than as set forth in Schedule 2.9.
------------
2.10. Absence of Changes. Since June 30, 2001, there have not been
------------------
(a) any material adverse change (other than as is normal in the ordinary course
of business) in the condition (financial or otherwise), assets, liabilities,
business, prospects, results of operations or cash flows of DietSmart other than
as a result of changes in general economic conditions or changes affecting the
diet and fitness business, both online and offline, as a whole (including,
without limitation, any such material adverse change resulting from damage,
destruction or other casualty loss, whether or not covered by insurance), (b)
any waivers by DietSmart of any right, or cancellation of any debt or claim,
having a value of $5,000 or more, (c) any declarations, set asides or payments
of any dividend or other distributions or payments in respect of the DietSmart
Common Stock or Preferred Stock, or (d) any changes in the accounting principles
or methods which are utilized by DietSmart.
2.11. Litigation. Except for the Turner Litigation and the
----------
Recognition Group Claim (each, as defined in Section 9.1) or as otherwise
disclosed in Schedule 2.11, there are no claims, suits or actions, or
-------------
administrative, arbitration or other proceedings or governmental investigations,
pending or, to the knowledge of DietSmart or the Principal Stockholders,
threatened against or relating to DietSmart, the transactions contemplated
hereby or any of
9
DietSmart's assets. There are no judgments, orders, stipulations, injunctions,
decrees or awards in effect which relate to DietSmart, this Agreement, the
transactions contemplated by this Agreement, the business of DietSmart or any of
DietSmart's assets (a) the effect of which is to limit, restrict, regulate,
enjoin or prohibit any existing business practice of DietSmart in any area, or
the acquisition by DietSmart of any properties, assets or businesses, or (b)
which otherwise has a material adverse effect on DietSmart's business or assets
(in each case taken as a whole).
2.12. No Violation of Law. DietSmart is not engaging in any activity
-------------------
or omitting to take any action as a result of which it is in violation in any
material respect of any law, rule, regulation, zoning or other ordinance,
statute, order, injunction or decree, or any other requirement of any court,
governmental or administrative body or agency, applicable to DietSmart, its or
any of its material assets, including, but not limited to, those relating to:
occupational safety and health matters, issues of environmental and ecological
protection (e.g., the use, storage, handling, transport or disposal of
pollutants, contaminants or hazardous or toxic materials or wastes, and the
exposure of persons thereto); business practices and operations, labor
practices, employee benefits, and zoning and other land use laws and
regulations.
2.13. Title to Assets and Properties. DietSmart has good and
------------------------------
marketable title to all of its assets, as reflected on the DietSmart Balance
Sheet, free and clear of all liens. All properties, structures and equipment
which are utilized in the DietSmart business are owned or leased by DietSmart,
are free and clear of all liens (in the case of owned assets) and are in good
operating condition and repair (ordinary wear and tear excepted), and are
adequate and suitable for the purposes for which they are used. Schedule 2.13
-------------
sets forth all (a) real property which is owned, leased (whether as lessor or
lessee) or subject to contract or commitment of purchase or sale or lease
(whether as lessor or lessee) by DietSmart, or which is subject to a title
retention or conditional sales agreement or other security device, and (b)
tangible personal property which is owned, leased (whether as lessor or lessee)
or subject to contract or commitment of purchase or sale or lease (whether as
lessor or lessee) by DietSmart.
2.14. Intangibles/Inventions. Schedule 2.14 identifies (by a summary
---------------------- -------------
description) the following:
(a) all United States and foreign patents, trademark and trade
name registrations, trademarks and trade names, servicemarks and servicemark
registrations, assumed names and copyright registrations (collectively, the
"DietSmart Marks"), owned or used by DietSmart, and all applications therefor,
(b) all domain names, fictitious and d/b/a names, proprietary
"800" and "877" prefix phone numbers, internet URLS and other similar identifier
and proprietary rights owned or used by DietSmart (collectively the "DietSmart
Internet Intangibles"), and
(c) all licenses and other agreements to which DietSmart is a
party or otherwise bound which relate to any of the DietSmart Internet
Intangibles or the DietSmart inventions or DietSmart's use thereof in connection
with the business of DietSmart (collectively, the "DietSmart Licenses", and
together with the DietSmart Marks and the DietSmart Internet Intangibles, the
"DietSmart Intangibles").
10
Schedule 2.14 identifies the ownership of the DietSmart Intangibles and, if not
-------------
owned by DietSmart, DietSmart's authority for use of the same, which Schedule is
complete and correct and encompasses: that no violations in any material respect
of the terms of any of the aforesaid licenses and/or agreements have occurred.
Except as disclosed on Schedule 2.14, (a) DietSmart owns or is authorized to use
-------------
in connection with its business all of the DietSmart Intangibles, (b) with the
exception of the Turner litigation, no proceedings have been instituted, are
pending or to the knowledge of DietSmart and the Principal Stockholders are
threatened which challenge DietSmart's rights with respect to the DietSmart
Intangibles or its use thereof in connection with DietSmart's business and/or
DietSmart's assets, and DietSmart is not aware of any valid basis for any such
proceedings, (c) with the exception of the Turner litigation, based on the
actual knowledge of DietSmart and the Principal Stockholders, neither
DietSmart's ownership of the DietSmart Intangibles nor its use thereof in
connection with DietSmart's business and/or its assets violates any laws,
statutes, ordinances or regulations, or has at any time infringed upon or
violated any intellectual property rights of others, or is being infringed by
others; (d) none of the DietSmart Intangibles, or DietSmart's use thereof in
connection with the business of DietSmart and/or DietSmart's assets is subject
to any outstanding order, decree, judgment, stipulation or any lien, security
interest or other encumbrance; and (e) DietSmart has not granted any license to
third parties with regard to the DietSmart Intangibles, other than in the
ordinary course of DietSmart's business.
2.15. Systems and Software. Schedule 2.15 identifies all of the
-------------------- -------------
computer hardware, software and information systems owned or used in the
operation of DietSmart's business (collectively, "DietSmart Systems").
DietSmart owns or has the right to use pursuant to lease, license, sublicense,
agreement, or permission all DietSmart Systems. Each DietSmart System owned or
used by DietSmart immediately prior to the Effective Date will be owned or
available for use by DietSmart on identical terms and conditions immediately
subsequent to the Effective Date. With respect to each DietSmart System owned by
a third party and used by DietSmart pursuant to lease, license, sublicense,
agreement or permission: (a) the lease, license, sublicense, agreement or
permission covering the DietSmart System is, to the best of DietSmart's
knowledge, legal, valid, binding, enforceable, and in full force and effect; (b)
the lease, license, sublicense, agreement or permission will, to the best of
DietSmart's knowledge, continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms following the Effective Date; (c)
DietSmart is not and to the best of DietSmart's knowledge no other party, to any
such lease, license, sublicense, agreement or permission, is in breach or
default, and, to the best of DietSmart's knowledge, no event has occurred which
with notice or lapse of time would constitute a breach or default, and permit
termination, modification or acceleration thereunder; (d) DietSmart has not
received any written notification that any other party to any such lease,
license, sublicense, agreement or permission has repudiated any provision
thereof; (e) DietSmart has not granted any sublicense, sublease or similar right
with respect to any such lease, license, sublicense, agreement or permission;
and (f) DietSmart's use and continued use of such DietSmart Systems do not and
will not interfere with, infringe upon, misappropriate, or otherwise come into
conflict with, any intellectual property rights of third parties as a result of
the continued operation of the DietSmart business.
11
2.16. Tax Matters.
-----------
(a) DietSmart has filed with the appropriate governmental
agencies all tax returns and reports required to be filed by it, and has paid in
full or contested in good faith or made adequate provision for the payment of,
all material Taxes (as defined herein) shown to be due or claimed to be due on
such tax returns and reports. The provisions for Taxes which are set forth on
the DietSmart Balance Sheet are adequate for all accrued and unpaid taxes of
DietSmart as of June 30, 2001, whether (i) incurred in respect of or measured by
income of DietSmart for any periods prior to the close of business on that date,
or (ii) arising out of transactions entered into, or any state of facts
existing, on or prior to such date. DietSmart or its professional employer
organization has duly withheld all payroll taxes, FICA and other federal, state
and local taxes and other items requiring to be withheld by it from employer
wages, and has duly deposited the same in trust for or paid over the same to the
proper taxing authorities. DietSmart has not executed or filed with any taxing
authority any agreement extending the periods for the assessment or collection
of any Taxes, and is not a party to any pending or threatened action or
proceeding by any governmental authority for the assessment or collection of
Taxes. Within the past three years, the United States federal income tax returns
of DietSmart have not been examined by the Internal Revenue Service (the "IRS"),
nor has any states' taxing authority examined any merchandize, personal
property, sales or use tax returns of DietSmart.
(b) DietSmart (i) has not agreed to or been required to make
any adjustment pursuant to Section 481(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), (ii) has not received written notification from the IRS
or any other taxing authority proposing any such adjustment or change in
accounting method, and (iii) has no application pending with any governmental
authority requesting permission for any change in accounting method.
(c) As used herein, the term "Taxes" means all federal,
state, county, local and other taxes and governmental assessments, including but
not limited to income taxes, estimated taxes, withholding taxes, excise taxes,
ad valorem taxes, payroll related taxes (including but not limited to premiums
for worker's compensation insurance and statutory disability insurance),
employment taxes, franchise taxes and import duties, together with any related
liabilities, penalties, fines, additions to tax or interest.
2.17. Insurance. Schedule 2.17 is a complete and correct list and
--------- -------------
summary description of all contracts and policies of insurance relating to any
of DietSmart's assets, the DietSmart business or the Principal Stockholders in
which DietSmart is an insured party, beneficiary or loss payable payee. Such
policies are in full force and effect, all premiums due and payable with respect
thereto have been paid, and no notice of cancellation or termination has been
received by DietSmart with respect to any such policy.
2.18. Employee Arrangements. Schedule 2.18 is a complete and correct
--------------------- -------------
list and summary description of all (a) union, collective bargaining,
employment, management, termination and consulting agreements to which DietSmart
is a party or otherwise bound, and (b) compensation plans and arrangements;
bonus and incentive plans and arrangements; deferred compensation plans and
arrangements; pension and retirement plans and arrangements; profit-sharing and
thrift plans and arrangements; stock purchase and stock option plans and
12
arrangements; hospitalization and other life, health or disability insurance or
reimbursement programs; holiday, sick leave, severance, vacation, tuition
reimbursement, personal loan and product purchase discount policies and
arrangements; and other plans or arrangements providing for benefits for
employees of DietSmart. Said Schedule also lists the names and compensation of
all employees of DietSmart whose earnings during the last fiscal year were
$25,000 or more (including bonuses and other incentive compensation), and all
employees who are expected to receive at least said amount in respect of the
current fiscal year.
2.19. Certain Contracts. Schedule 2.19 is a complete and correct list
----------------- -------------
of all material contracts, commitments, obligations and understandings which are
not set forth in any other Schedule delivered hereunder and to which DietSmart
is a party or otherwise bound, except for (a) purchase orders from vendors or
customers and (b) contracts, commitments, obligations and understandings which
(i) were made in the ordinary course of business and (ii) either (a) are
terminable by DietSmart (and will be terminable by DietSmart) without liability,
expense or other obligation on thirty (30) days' notice or less, or (b) may be
anticipated to involve aggregate payments to or by DietSmart of $20,000 (or the
equivalent) or less calculated over the full term thereof, and (c) are not
otherwise material to the DietSmart business. Except for those agreements with
Internet portals identified on Schedule 2.19 (without specification of the name
-------------
of the particular Internet portal) as "Confidential Portal Agreements", complete
and correct copies of all contracts, commitments, obligations and undertakings
set forth on any of the Schedules delivered pursuant to this Agreement have been
furnished by DietSmart to eDiets. The Confidential Portal Agreements shall be
delivered to eDiets upon the Closing. Except as expressly stated on any of such
Schedules, (1) each of the agreements listed on Schedule 2.19, including without
-------------
limitation each Confidential Portal Agreement identified and delivered to eDiets
at the Closing, is in full force and effect, neither DietSmart nor, to the best
of DietSmart's knowledge, any other person or entity which is a party thereto or
otherwise bound thereby is in material default thereunder, and to the best of
DietSmart's knowledge no event, occurrence, condition or act exists which does
(or which with the giving of notice or the lapse of time or both would) give
rise to a material default or right of cancellation, acceleration or loss of
contractual benefits thereunder; (2) there has been no threatened cancellation
of any of the agreements listed on Schedule 2.19, and there are no outstanding
-------------
disputes under any such agreement, with the exception of the Recognition Group;
and (3) each Confidential Portal Agreement is terminable by DietSmart on no more
than sixty (60) days' notice.
2.20 Information as to DietSmart. None of the representations made by
---------------------------
DietSmart or the Principal Stockholders in this Agreement or in any of the
documents to be executed and delivered by DietSmart or the Principal
Stockholders pursuant to this Agreement is or as of the date when made false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements therein contained not misleading.
3. Representations and Warranties as to eDiets and Newco. eDiets and
-----------------------------------------------------
Newco, jointly and severally, represent and warrant to DietSmart and the
Principal Stockholders as follows:
3.1 Corporate Organization, Standing and Power. Each of eDiets and
------------------------------------------
Newco is a corporation duly organized, validly existing and in good standing
under the laws of the State
13
of Delaware, with full corporate power and authority to (i) own, lease and
operate its properties, (ii) carry on the business it is currently engaged in,
and (iii) execute, deliver and perform its obligations under this Agreement and
each other agreement and instrument to be executed and delivered by it pursuant
hereto. eDiets is duly qualified to do business and is in good standing in each
jurisdiction in which the nature of its business or the character of its
properties require such qualification. The jurisdiction in which eDiets is so
qualified is the State of Florida. Newco is duly qualified to do business and is
in good standing in each jurisdiction in which the nature of its business or the
character of its properties require such qualification. The jurisdiction in
which Newco is so qualified is the State of New York.
3.2 Corporate Action. The execution, delivery and performance of
----------------
this Agreement by eDiets and Newco and the consummation by each of them of the
transactions contemplated herein have been approved by all necessary corporate
action on the part of eDiets and Newco. This Agreement constitutes the legal,
valid and binding obligation of each of eDiets and Newco enforceable against
each of them in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally.
3.3 Capitalization. The total authorized capital stock of eDiets
--------------
consists of 51,000,000 shares, of which 1,000,000 shares are classified as
preferred stock, par value $.01 each, and 50,000,000 shares are classified as
common stock, par value of $.001 each. There are 13,586,566 shares of common
stock and no shares of preferred stock of eDiets issued and outstanding. eDiets
has options and warrants outstanding for the purchase of up to an additional
6,194,761 shares of common stock. The authorized capital stock of Newco
consists of 1,000 shares of common stock, par value $.01 per share, of which 100
shares are issued and outstanding and held by eDiets. All of the outstanding
shares of common stock of eDiets and Newco have been duly authorized and validly
issued, and are fully paid and nonassessable. The shares of Common Stock of
eDiets issuable to holders of DietSmart Common Stock and Preferred Stock,
including the stock underlying the eDiets options payable to the Certain
Optionholders, pursuant to this Agreement will be, when issued in accordance
with the terms hereof, duly authorized, validly issued and outstanding, fully
paid and non assessable. All of the outstanding securities of eDiets and Newco
have been issued and sold in full compliance with applicable federal and state
securities laws. The issuance of the Share Consideration, when issued at the
Initial Closing, will be exempt from registration under the Securities Act,
pursuant to Section 4(2) thereof as not involving any public offering.
3.4 No Restrictions. The execution, delivery and performance of this
---------------
Agreement by eDiets and Newco and consummation by each of them of the
transactions contemplated herein do not require the consent, waiver, approval,
license or authorization of any person or public authority which has not been
obtained, do not violate, with or without the giving of notice or the passage of
time or both, in any material respect any provision of law applicable to
DietSmart or Newco and do not conflict with or result in a breach or termination
of any provisions of or constitute a default in any material respect under, or
result in the creation of any lien, charge or encumbrance upon any of the
property or assets of eDiets and Newco pursuant to their certificates of
incorporation or by-laws or any material mortgage deed or trust, indenture or
other agreement or instrument, or any order, judgment, decree, statute,
regulation or any other
14
restriction of any kind or character, to which eDiets or Newco is a party or
subject or by which either of them or their assets may be bound.
3.5 eDiets Financial Statements. eDiets has furnished DietSmart with
---------------------------
complete and correct copies of (a) its Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2000, (the "eDiets Form 10-KSB"), as filed with
the Securities and Exchange Commission (the "Commission") and (b) its Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001, as filed with the
Commission (the "eDiets Form 10-Q"). The financial statements included in the
eDiets Form 10-KSB and eDiets Form 10-Q were prepared in accordance with GAAP
and Regulation S-X, consistently applied, and present fairly in all material
respects the financial position of eDiets as at the dates thereof and the
results of operations for the periods indicated (except that the unaudited
financial statements do not have complete notes thereto and are subject to
normal year-end audit adjustments). The balance sheet of eDiets dated as of
June 30, 2001, included in the eDiets Form 10-Q is herein referred to as the
"eDiets Balance Sheet").
3.6 eDiets SEC Documents. As of their respective filing dates, and
--------------------
except to the extent that subsequent statements, reports and filings supplement
earlier statements, reports and filings, each statement, report, filing,
registration statement, definitive information statement and other document
required to be filed with the Commission by eDiets since May 12, 2000
(collectively, the "eDiets SEC Documents") has been timely filed, and complied
and does comply in all material respects with the applicable requirements of the
Securities Act and the Securities Exchange Act (the "Exchange Act") and none of
the eDiets SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent supplemented by a subsequently
filed eDiets SEC Document.
3.7 Absence of Changes. Since June 30, 2001, there have not been any
------------------
material adverse change other than as a result of changes in general economic
conditions or changes affecting the diet and fitness business, both online and
offline, as a whole (other than as is normal in the ordinary course of business)
in the condition (financial or otherwise), assets, liabilities, business,
prospects, results of operation or cash flow of eDiets (including, without
limitation, any such adverse change resulting from damage, destruction or other
casualty loss, whether or not covered by insurance).
3.8 Litigation. Except as set forth in Schedule 3.8, there are no
---------- ------------
claims, suits or actions, or administrative, arbitration or other proceedings or
governmental investigations pending or to the actual knowledge of eDiets
threatened, against or relating to eDiets or Newco, the transactions
contemplated hereby or any of their assets. There are no judgments, orders,
stipulations, injunctions, decrees or awards in effect which relate to eDiets,
Newco, this Agreement, the transactions contemplated by this Agreement, eDiets'
business or any of any eDiets' or Newco's assets, the effective of which is (a)
to limit, restrict, regulate, enjoin or prohibit any business practice of eDiets
or Newco in any area, or the acquisition by eDiets or Newco of any properties,
assets or business, or (b) otherwise have the material adverse effect on eDiets'
or Newco's business or its assets.
15
3.9 Tax Matters.
-----------
(a) eDiets has filed with the appropriate governmental agencies
all tax returns and reports required to be filed by it, and has paid in full or
contested in good faith or made adequate provision for the payment of, all
material Taxes shown to be due or claimed to be due on such tax returns and
reports. The provisions for Taxes which are set forth on eDiets' Balance Sheet
are adequate for all accrued and unpaid taxes of eDiets as of June 30, 2001,
whether (i) incurred in respect of or measured by income of eDiets for any
periods prior to the close of business on that date, or (ii) arising out of
transactions entered into, or any state of facts existing, on or prior to such
date. eDiets or its professional employer organization has duly withheld all
payroll taxes, FICA and other federal, state and local taxes and other items
requiring to be withheld by it from employer wages, and has duly deposited the
same in trust for or paid the same over to the proper taxing authorities. eDiets
has not executed or filed with any taxing authority any agreement extending the
periods for the assessment or collection of any Taxes, and is not a party to any
pending or threatened action or proceeding by any governmental authority for the
assessment or collection of Taxes. Within the past three years, the United
States federal income tax returns of eDiets have not been examined by the
Internal Revenue Service (the "IRS"), nor has any state's taxing authority
examined any merchandise, personal property, sales or use tax returns of eDiets.
(b) eDiets (i) has not agreed to or been required to make any
adjustment pursuant to Section 481(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), (ii) has not received written notification from the IRS or
any other taxing authority proposing any such adjustment or change in accounting
method, and (iii) has no application pending with any governmental authority
requesting permission for any change in accounting method.
3.10 Qualification as a Reorganization.
---------------------------------
(a) Neither eDiets nor Newco has any plan or intention,
together or individually, to (i) discontinue the historic business of DietSmart
and (ii) cease to use a significant portion of DietSmart's historic business
assets in a trade or business conducted by eDiets or Newco.
(b) eDiets has no plan or intention to acquire (and to the best
of its knowledge, no person who is a Related Person (within the meaning of
Treasury Regulation Section 1.368-1(e)(3)) to eDiets has a plan or intention to
acquire) any of the Share Consideration issued in the Merger.
(c) Neither eDiets nor Newco has any plan or intention to sell,
transfer, or otherwise dispose of any of DietSmart's assets acquired in the
transactions contemplated by this Agreement. eDiets has no plan or intention to
dispose of any shares of Newco.
(d) Newco was formed solely for the purpose of participating in
the transactions contemplated by this Agreement.
16
(e) eDiets is not an investment company within the meaning of
Code Section 368(a)(2)(F)(iii).
3.11 No Violation of Law. eDiets is not engaging in any activity or
-------------------
omitting to take any action as a result of which it is in violation in any
material respect of any law, rule, regulation, zoning or other ordinance,
statute, order, injunction or decree, or any other requirement of any court or
governmental or administrative body or agency, applicable to eDiets, or any of
its material assets, including, but not limited to, those relating to:
occupational safety and health matters, issues of environmental and ecological
protection (e.g., the use, storage, handling, transport or disposal of
pollutants, contaminants or hazardous or toxic materials or wastes, and the
exposure of persons thereto); business practices and operations, labor
practices, employee benefits, and zoning and other land use laws and
regulations.
3.12 Information as to eDiets and Newco. None of the representations
----------------------------------
or warranties made by eDiets or Newco in this Agreement or in any of the
documents to be executed and delivered by eDiets or Newco pursuant to this
Agreement is or as of the date when made will be false or misleading with
respect to any material fact, or omits to state any material fact necessary in
order to make the statements therein contained not misleading.
4. Confidentiality.
---------------
(a) Any information furnished to or obtained by eDiets and
Newco, on the one hand and DietSmart and the Principal Stockholders, on the
other hand (the "Receiving Party") or its representatives concerning the other
party to this Agreement (the "Disclosing Party") or its business shall be
treated as confidential. Each party acknowledges that: (1) it will not use such
information in a manner adverse to the Disclosing Party; (2) it shall be
prohibited from disclosing (i) the existence of this Agreement; (ii) any of the
terms of this Agreement, or (iii) the terms and conditions of the Merger,
provided, however, that neither party is prohibited from disclosing any
information to its board of directors, shareholders, officers, employees,
agents, counsel, accountants and advisors who are or will be directly involved
in the consideration of the Merger and are advised of the confidential nature
thereof and agree to keep such information confidential; (3) a Receiving Party
shall not be considered to have breached its obligations under this Section 4
for disclosing Confidential Information as required to satisfy any legal demand
of a government, judicial or administrative body or as otherwise required by
law; provided, however, that to the extent that it may legally do so, such party
uses reasonable efforts to advise the Disclosing Party in advance of such
disclosures.
(b) Each party will use at least the same degree of care to
prevent disclosing to third parties the Confidential Information of the other as
it employs to avoid unauthorized disclosure, publication or dissemination of its
own information, but in no event shall it use less than a reasonable standard of
care. Neither party will (i) make any use or copies of the Confidential
Information of the other except as necessary to perform its obligations under
this Agreement, (ii) acquire any right in or assert any lien against the
Confidential Information of the other, or (iii) refuse for any reason (including
a default or material breach of this Agreement by the other party) to promptly
return the other party's Confidential Information (including all copies thereof)
to it if requested in writing to do so. Upon the expiration or termination of
this Agreement and the concomitant completion of a party's obligations under
this Agreement, each
17
party shall (except as otherwise provided in this Agreement), return or destroy,
as the other may direct, all documentation in any medium that contains, refers
to, or relates to the other party's Confidential Information. In addition, the
parties shall take reasonable steps to ensure that their employees comply with
these confidentiality provisions. The steps taken by a party to ensure such
compliance will be deemed reasonable if they are no less onerous than the steps
taken by the other party.
(c) The obligations of this Section 4 will not apply to any
information that Receiving Party can demonstrate: (i) at the time of disclosure
to the Receiving Party was in the public domain; (ii) after disclosure to the
Receiving Party, it is published or otherwise becomes part of the public domain
through no action or fault of it; (iii) was rightfully in the possession of the
Receiving Party at the time of disclosure to it; (iv) is received from a third
party who had a lawful right to disclose such information to the Receiving Party
(v) was independently developed by the Receiving Party without reference to
Confidential Information of the Disclosing Party. In the event of any
disclosure or loss of, or inability to account for, any Confidential Information
of the Disclosing Party, the Receiving Party will notify the furnishing party
promptly upon the occurrence of any such event.
(d) Nothing contained in this Agreement shall be construed as
granting to or conferring on a party, expressly or impliedly, any rights or
licenses to the Confidential Information of the other party until such time as
the Merger has been consummated.
(e) Upon execution of this Agreement, and until the Closing
date, no press release shall issue, provided, however, that, a Party required to
make a public statement by law or regulation, is permitted to do so, provided,
further, that, such party shall give the other party notice in advance of such
public disclosure, its purpose and the substance and form such notice shall
take.
(f) In the event the Agreement is terminated, the obligations
under this Section 4 will cease two (2) years following the date of termination.
5. Covenants of All Parties.
------------------------
5.1. Investigation.
-------------
(a) Between the date hereof and the Closing Date, eDiets and/or
Newco, on the one hand, and DietSmart and the Principal Stockholders, on the
other hand, may, directly and through their representatives, make such
investigation of the other corporate party's businesses and assets as each deems
necessary or advisable (the entity and/or its representatives making such
investigation being the "Investigating Party"), but such investigation shall not
affect any of the representations and warranties contained herein or in any
instrument or document delivered pursuant hereto. In furtherance of the
foregoing, the Investigating Party shall have reasonable access, during normal
business hours after the date hereof, to all properties, books, contracts,
commitments and records of each other, and shall furnish to the other and their
representatives such financial and operating data and other information as may
from time to time be reasonably requested relating to the transactions
contemplated by this Agreement. Each of eDiets and Newco, on the one hand, and
DietSmart and the Principal Stockholders, on the other,
18
and the respective management, employees, accountants and attorneys of the other
corporate parties shall cooperate fully with the Investigating Party in
connection with such investigation.
5.2 Consummation of Transaction. Each of the parties shall use its,
---------------------------
his or her best efforts to cause all conditions precedent to its, his or her
obligations to consummate the transactions contemplated hereby to be satisfied,
including, but not limited to, using all reasonable efforts to obtain all
required (if so required by this Agreement) consents, waivers, amendments,
modifications, approvals, authorizations, novations and licenses; provided,
however, that nothing contained herein shall be deemed to modify any of the
absolute obligations imposed upon any of the parties hereto under this Agreement
or any agreement executed and delivered pursuant hereto.
5.3 Cooperation/Further Assurances.
------------------------------
(a) Each of the parties shall cooperate with the other parties
in preparing and filing any notices, applications, reports and other instruments
and documents which are required by, or which are desirable in the reasonable
opinion of any of the parties , or their respective legal counsel, in respect
of, any statute, rule, regulation or order of any governmental or administrative
body in connection with the transactions contemplated by this Agreement.
(b) Each of the parties hereby further agrees to execute,
acknowledge, deliver, file and/or record, or cause such other parties to the
extent permitted by law to execute, acknowledge, deliver, file and/or record
such other documents as may be required by this Agreement and as eDiets and/or
Newco, on the one hand, and/or DietSmart and/or the Principal Stockholders, on
the other, or their respective legal counsel may reasonably require in order to
document and carry out the transactions contemplated by this Agreement.
5.4 Accuracy of Representations. Each party agrees that prior to the
---------------------------
Effective Date it, he or she will not enter into any transaction and will not
take any action, and will use its, his or her best efforts to prevent the
occurrence of any event (but excluding events which occur in the ordinary course
of business and events over which such party has no control), which would result
in any of its, his or her representations, warranties or covenants contained in
this Agreement or in any agreement, document or instrument executed and
delivered by it, him or her in connection with this transaction not to be true
and correct, or not to be performed as contemplated, at and as of the time
immediately after the occurrence of such transaction or event.
5.5 Notification of Certain Matters. DietSmart and the Principal
-------------------------------
Stockholders shall give prompt notice to eDiets and Newco, and eDiets or Newco
shall give prompt notice to DietSmart and the Principal Stockholders, as the
case may be, of (a) the occurrence, or non-occurrence, or any event the
occurrence, or non-occurrence, of which would be likely to cause any
representation contained in this Agreement to be untrue or inaccurate in any
material respect at or prior to the Effective Date and (b) any material failure
of DietSmart and/or the Principal Stockholders, on the one hand, and of eDiets
and/or Newco, on the other, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by him or it hereunder; provided,
however, that the delivery of any notice pursuant to this Section 5.5 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
19
5.6 No Broker. Each of eDiets, Newco, DietSmart, and the Principal
---------
Stockholders represents and warrants to the other parties that no broker or
finder was engaged or used by him, her or it in connection with any of the
transactions contemplated by this Agreement, and each of the parties shall
indemnify and hold the others harmless from and against any and all claims or
liabilities asserted by or on behalf of any alleged broker or finder for
broker's fees, finder's fees, commissions or like payments as a result of
arrangements made by such party.
5.7. No Solicitation of Transactions. Until the Closing neither
-------------------------------
eDiets, Humble, DietSmart, the Principal Stockholders or Newco, will not
directly or indirectly, permit any of its respective shareholders, directors,
officers, agents, employees, investment bankers, financial advisors, attorneys,
accountants or representatives to, enter into any agreement or arrangement with
any person or entity relating to any alliance or other transaction that is
inconsistent with the Merger, including but not limited to, a merger,
acquisition, sale, business combination, joint venture, material disposition of
operating assets, sale of all or substantially all securities held by the
parties, and capital fundraising or solicit, initiate or engage in any
discussions with respect to any such agreement or arrangement. Notwithstanding
the foregoing, together eDiets, Humble, DietSmart, the Principal Stockholders
and Newco, are permitted to enter into discussions with Jenny Craig,
Unilever/Slim Fast, or any other entity or person, for a potential strategic
relationship.
6. Covenants of DietSmart and Principal Stockholders.
-------------------------------------------------
6.1. Prohibited Conduct of DietSmart and Principal Stockholders. Each
----------------------------------------------------------
of DietSmart and the Principal Stockholders, jointly and severally, covenants
and agrees that, during the period from the date hereof to the Effective Date,
except pursuant to the terms hereof or unless eDiets shall otherwise agree in
writing, the DietSmart business shall be conducted only, and DietSmart shall not
take any action except, in the ordinary course of business and in a manner
consistent with past practice and in compliance with applicable laws; and
DietSmart shall use commercially reasonable efforts consistent with past
practice and policies to preserve intact DietSmart's assets, the DietSmart
business and the business organization of DietSmart, to keep available the
services of the present officers, employees and consultants of DietSmart, and to
preserve the present relationships of DietSmart with customers, suppliers and
other persons with whom DietSmart has business relations. By way of
illustration, and not limitation, DietSmart shall not, between the date of this
Agreement and the Effective Date, unless specifically contemplated by this
Agreement, directly or indirectly, do or propose or commit to do, any of the
following without the prior written consent of eDiets:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of the DietSmart Common Stock or
Preferred Stock, or (ii) split, combine or reclassify any of the DietSmart
Common Stock or Preferred Stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
DietSmart Common Stock or Preferred Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise),
pledge or otherwise encumber, any
20
shares of DietSmart Common Stock or Preferred Stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities convertible securities or any other
securities or equity equivalents, except that DietSmart may issue DietSmart
Common Stock pursuant to the exercise of outstanding stock options and the
conversion of outstanding Preferred Stock;
(c) (i) increase the compensation payable or to become payable
to any officer, director, employees or consultant of DietSmart, except pursuant
to the terms of contracts, policies or benefit arrangements in effect on the
date hereof, or (ii) grant any severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer, other
employee or consultant of DietSmart or any of its subsidiaries, except pursuant
to the terms of contracts, policies and benefit arrangements in effect on the
date hereof, or (iii) establish, adopt, enter into or amend any collective
bargaining (other than in accordance with past practice), bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers, employees or consultants of DietSmart;
(d) amend the Certificate of Incorporation, except as provided
for on Schedule 6.1(d), By-Laws or other comparable charter or organizational
---------------
documents of DietSmart or alter through merger, liquidation, reorganization,
restructuring, or in any other fashion, the corporate structure or ownership of
DietSmart;
(e) acquire, or agree to acquire, (i) by merging or
consolidating with, or by purchasing a substantial portion of the stock or
assets of, or by any other manner, any business or corporation, partnership,
joint venture, association or other business organization or division thereof,
or (ii) any assets that are material, individually or in the aggregate, to
DietSmart, except purchases consistent with past practice;
(f) sell, lease, license, mortgage or otherwise encumber or
subject to any lien, security interest, pledge or encumbrance or otherwise
dispose of any of DietSmart's assets, except sales in the ordinary course of
business consistent with past practice;
(g) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of DietSmart, guarantee
any debt securities of another person, or enter into any arrangement having the
economic effect of any of the foregoing, except for short-term borrowings
incurred in the ordinary course of business consistent with past practice;
(h) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of DietSmart
to purchase, sell, lease or otherwise dispose of assets or require payment by
DietSmart in excess of $25,000, exclusive of Internet Portal Agreements;
(i) make any capital expenditures in excess of $25,000;
21
(j) adopt a plan of complete or partial liquidation of
DietSmart or resolutions providing for or authorizing such a liquidation or the
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization of DietSmart;
(k) recognize any labor union (unless legally required to do
so) or enter into or amend any collective bargaining agreement;
(1) change any accounting principles used by DietSmart, unless
required by the Financial Accounting Standards Board;
(m) make any tax election of, or settle, compromise any income
tax liability of, or file any federal. income tax return prior to the last day
(including extensions) prescribed by law, in the case of any of the foregoing,
material to the business, financial condition or results of the operations of
DietSmart and its subsidiaries, if any, taken as a whole;
(n) settle or compromise any litigation in which DietSmart is a
defendant (whether or not commenced prior to the date of this Agreement) or
settle, pay or compromise any claims not required to be paid, which payments are
individually in an amount in excess of $5,000 and in the aggregate in an amount
in excess of $25,000; and
(o) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.2 DietSmart Stockholder Approval and Meeting. DietSmart will use
------------------------------------------
its best efforts to hold a meeting of its stockholders on or about October 19,
2001 for the purpose of authorizing the Merger and adopting this Agreement in
accordance with the DGCL and its by-laws governing such meetings. Totah and
Lopez-Ona agree to vote her and his shares in favor of the Merger. In
connection with the meeting, DietSmart and the Principal Stockholders shall
cause a Notice of Meeting and Proxy Statement (the "Proxy Statement") to be
prepared and mailed to each of the DietSmart Stockholders. The Proxy Statement
shall contain information prepared by eDiets in accordance with Rule 502 of
Regulation D of the Securities Act (the "Reg. D Information"). DietSmart and
the Principal Stockholders agree that they will furnish to eDiets all
information concerning DietSmart which eDiets may request for inclusion in the
Proxy Statement. DietSmart and the Principal Stockholders represent and warrant
that the information they furnish will not contain any untrue statement of a
material fact or fail to state any material fact necessary for the statements
made to not be misleading. The parties will use their best efforts to cause
the Proxy Statement to be completed as soon as practicable and within ten (10)
days after the execution of this Agreement, but in any event no later than
fifteen (15) days after the execution of this Agreement.
7. Covenants of eDiets and Humble.
------------------------------
7.1 Prohibited Conduct of eDiets. eDiets covenants and agrees that,
----------------------------
during the period from the date hereof to the Effective Date, except pursuant to
the terms hereof or unless DietSmart shall otherwise agree in writing, the
eDiets business shall be conducted only, and eDiets shall not take any action
except, in the ordinary course of business and in a manner consistent with past
practice and in compliance with applicable laws; and eDiets shall use
commercially reasonable efforts consistent with past practice and policies to
preserve intact
22
eDiets' assets, the eDiets business and the business organization of eDiets. By
way of illustration, and not limitation, eDiets shall not, between the date of
this Agreement and the Effective Date, unless specifically contemplated by this
Agreement, directly or indirectly, do or propose or commit to do, any of the
following without the prior written consent of DietSmart:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of the eDiets Common Stock or Preferred Stock,
or (ii) split, combine or reclassify any of the eDiets Common Stock or Preferred
Stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of the eDiets Common Stock or Preferred
Stock, or otherwise;
(b) authorize for issuance, issue, deliver, sell or agree to commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber, any shares of eDiets Common Stock or Preferred Stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, voting securities convertible
securities or any other securities or equity equivalents, except that eDiets may
issue eDiets Common Stock pursuant to the exercise of outstanding stock options
and may grant stock options under the eDiets Stock Option Plan in the ordinary
course of business;
(c) amend the Certificate of Incorporation, By-Laws or other
comparable charter or organizational documents of eDiets or alter through
merger, liquidation, reorganization, restructuring, or in any other fashion, the
corporate structure or ownership of eDiets;
(d) acquire, or agree to acquire, (i) by merging or consolidating
with, or by purchasing a substantial portion of the stock or assets of, or by
any other manner, any business or corporation, partnership, joint venture,
association or other business organization or division thereof, or (ii) any
assets that are material, individually or in the aggregate, to eDiets, except
purchases consistent with past practice;
(e) sell, lease, license, mortgage or otherwise encumber or subject to
any lien, security interest, pledge or encumbrance or otherwise dispose of any
of eDiets assets, except sales in the ordinary course of business consistent
with past practice;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of eDiets, other than in the
ordinary course of business consistent with past practice, guarantee any debt
securities of another person, or enter into any arrangement having the economic
effect of any of the foregoing, except for short-term borrowings incurred in the
ordinary course of business consistent with past practice;
(g) except in the ordinary course of business, enter into any
agreement, contract, commitment, involving a commitment on the part of eDiets to
purchase, sell, lease or otherwise dispose of assets or require payment by
eDiets in excess of $100,000, exclusive of Internet Portal Agreements;
23
(h) adopt a plan of complete or partial liquidation of eDiets or
resolutions providing for or authorizing such a liquidation or the dissolution,
merger, consolidation, restructuring, recapitalization or reorganization of
eDiets;
(i) recognize any labor union (unless legally required to do so) or
enter into or amend any collective bargaining agreement.;
(j) change any accounting principles used by eDiets, unless required
by the Financial Accounting Standards Board;
(k) fail to make all commercially reasonable efforts consistent with
past practice and policies to preserve its assets, business and business
organization, to keep available the services of its key executive officers and
employees and to preserve its relationships with its customers, suppliers and
other persons with whom it has business relations. and
(l) authorize any of, or commit or agree to take any of, the
foregoing actions.
7.2 Election of DietSmart Representative. On the Effective Date, eDiets
------------------------------------
and Humble shall cause (and Humble agrees to vote, or shall cause to be voted,
all shares of eDiets capital stock owned or controlled by him entitled to vote
for the election of Directors) the election of Totah to its Board of Directors
and the re-election of Totah to the Board of Directors unless her employment
with eDiets terminates for any reason. If Totah's employment is terminated for
any reason, she agrees to promptly resign from the Board of Directors. Upon her
resignation, eDiets will cause (and Humble agrees to vote, or shall cause to be
voted all shares of eDiets capital stock owned or controlled by him entitled to
vote for the election of Directors) the election of Lopez-Ona to the Board of
Directors and the re-election of Lopez-Ona to the Board of Directors unless his
employment with eDiets terminates for any reason. If Lopez-Ona's employment is
terminated for any reason, he agrees to promptly resign from the Board of
Directors. If both Lopez-Ona and Totah leave the employ of eDiets for any reason
other than termination pursuant to Sections 5 (a) or 5 (b) of their Employment
Agreement with eDiets (in which case he and/or she may not serve on the Board),
and either is then serving on the Board, then he or she shall serve until the
expiration of the second anniversary of the Effective Date and if either resigns
the other shall serve out the remainder of the term. In the event that either or
both of Totah and Lopez-Ona are unable to serve on the Board for any reason,
then eDiets and Humble shall cause (and Humble agrees to vote, or shall cause to
be voted, all shares of eDiets capital stock owned or controlled by him entitled
to vote for the election of Directors) the election of a Board member to
represent the interest of the DietSmart Stockholders (the "DietSmart Board
Member") selected by eDiets from a list of three persons chosen by Lopez-Ona and
Totah. The DietSmart Board Member will serve the remainder of the term held
immediately prior to either or both of Totah and Lopez-Ona's resignation from
the Board and any re-election term, if applicable, until the expiration of the
second anniversary of the Effective Date.
7.3 Mandatory Registration. eDiets will include all of the shares
----------------------
included in the Share Consideration issued to the holders of DietSmart, except
for the shares issued to the
24
Principal Stockholders, in a registration statement (the "Mandatory Registration
Statement") which the Company will prepare and file with the Commission under
the Securities Act on or before April 30, 2002 covering the resale of the shares
by the DietSmart holders and use its best efforts to have the Mandatory
Registration Statement declared effective by the Commission so as to permit the
public trading of the securities by the DietSmart Stockholders. At Closing, each
DietSmart Stockholder will receive a Registration Rights Agreement in the form
of Exhibit D.
---------
7.4 Piggyback Registration Rights. Each of the DietSmart
-----------------------------
Stockholders shall have piggyback registration rights exercisable at any time
after the first anniversary of the Effective Date pursuant to the terms of a
Registration Rights Agreement in the form of Exhibit D to be executed at
---------
Closing.
7.5 Right of Co-Sale. Humble covenants and agrees that in the event
----------------
he proposes to sell, assign or transfer all or a portion of his shares of eDiets
Common Stock in connection with a Change of Control (as defined in Section 1.6
above), then he shall deliver to each of the former DietSmart Stockholders,
Principal Stockholders and Certain Optionholders a notice in writing (the
"Humble Notice") offering the right to participate in such sale and to sell a
corresponding percentage of such stockholder's or Certain Optionholder's
respective eDiets Common Stock to the proposed purchaser for the same per share
purchase price received by Humble. Included in the Humble Notice shall be a
description of the contemplated transaction, the percentage of each
stockholder's, Principal Stockholder's and Certain Optionholder's eDiets Common
Stock or eDiets Options available for sale and the per share purchase price.
Within fifteen (15) days after receipt of the Humble Notice each DietSmart
Stockholder, Principal Stockholder and Certain Optionholder shall respond to
Humble, in writing, advising him of their intent to exercise his or her right of
co-sale, or not, and, if so, the number of his or her shares to be included in
the sale. The sales or transfers by the former DietSmart Stockholders, Principal
Stockholders and Certain Optionholders shall be for the same consideration and
otherwise on the same terms and conditions as the sale by Humble, except that,
(i) the former DietSmart Stockholders, Principal Shareholders and Certain
Optionholders shall not be obligated to make representations or warranties or
give indemnities to the purchaser other than those with respect to good and
marketable title to their shares of eDiets Common Stock or eDiets Options; and
(ii) the former DietSmart Stockholders, Principal Stockholders and Certain
Optionholders shall not be entitled to share in any consideration received by
Humble in connection with reasonable employment, consulting or non-compete
arrangements he may obtain in the transaction.
7.6 Payment of Deferred Compensation. eDiets shall pay to Totah,
--------------------------------
Lopez-Ona and Smith the aggregate sum of $175,000, subject to federal
withholding, social security and Medicare taxes as required by law, which
represents the net amount of certain deferred compensation owed them by
DietSmart. Of the $175,000, $85,000 shall be paid on the Closing and $90,000
shall be paid on the three (3) month anniversary of the Closing. eDiets will
make the aforementioned payments to each of Totah, Lopez-Ona and Smith, as
follows (i) at Closing, the principal sum of $28,333.33; and (ii) at the three
(3) month anniversary of the Closing, $30,000. At the time of Closing, each
employment agreement and deferred compensation agreement and, if applicable,
stock option agreement between the Principal Stockholders and DietSmart shall
be terminate and no further sums will be due to them by DietSmart.
7.7 Status as Reorganization.
------------------------
25
(a) Neither eDiets nor Newco will: (i) discontinue the historic
business of DietSmart and (ii) fail to use a significant portion of DietSmart's
assets in the business conducted by Newco or eDiets following Closing if such
discontinuation or failure could jeopardize the status of the Merger as a
reorganization within the meaning of Code Section 368 (a). eDiets will not
purchase, redeem or otherwise acquire, and will cause all Related Persons to
refrain from purchasing, redeeming or otherwise acquiring, any of the Share
Consideration following the Closing if such transaction could jeopardize the
status of the Merger as a reorganization within the meaning of Code Section 368
(a). In addition, (i) neither eDiets nor Newco will sell, transfer or otherwise
dispose of any of DietSmart's assets acquired in the transactions contemplated
by this Agreement and (ii) eDiets will not sell, transfer or otherwise dispose
of any shares of Newco if the sale, transfer or disposition could jeopardize the
status of the Merger as a reorganization within the meaning of Code Section 368
(a).
(b) Neither eDiets nor Newco will adopt any position (or cause
DietSmart or the Principal Stockholders to adopt any position) which is
inconsistent with the treatment of the Merger as a tax-free reorganization in
which the shareholders do not recognize any gain or income with respect to the
receipt of the Shares Consideration in exchange for stock of DietSmart, other
than to the extent of the Cash Consideration. Without limiting the foregoing,
the Merger will be reflected on all tax returns of DietSmart, Newco and eDiets
as a tax-free reorganization.
7.8 Taxes.
-----
(a) After the Closing, the Principal Stockholders shall assist
eDiets in the preparation of the final tax returns for DietSmart which will be
done within fifteen (15) days prior to the date such tax returns are due, or any
extended due date authorized by the Internal Revenue Service (the "Extended Due
Date"), then within fifteen (15) days prior to the Extended Due Date, and all
tax returns with respect to DietSmart or in respect of its business, assets or
operations for any taxable period ending on or before the Closing Date, and
eDiets shall timely file such tax returns with respect to DietSmart.
(b) Any tax refund (including a refund of excess estimated tax),
including any interest with respect thereto, relating to any taxable period
prior to the Closing Date shall be the property of eDiets.
(c) Any taxes imposed on DietSmart that arise as a result of the
transactions contemplated by this Agreement, including, without limitation,
income, sales and use taxes, shall be borne by eDiets.
7.9 Indemnity by eDiets and Newco. Each of eDiets and Newco agree to
-----------------------------
defend, indemnity and hold harmless each of the Principal Stockholders from any
and all claims, expenses, liabilities, judgments, settlements, including
reasonable attorney's fees, costs and expenses in connection with any and all
personal guarantees made by each or any of the Principal Stockholders in regard
of certain leases with Dell Computer Corporation and MCS Canon Corporation.
26
8. Conditions of Merger.
--------------------
8.1. Conditions to Obligations of eDiets and Newco to Effect the
-----------------------------------------------------------
Merger. The respective obligations of eDiets and Newco to effect the Merger
------
shall be subject to the fulfillment at or prior to the Effective Date of the
following conditions any or all of which may be waived by such party at its sole
discretion:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of each of DietSmart and the Principal
Stockholders contained in this Agreement shall have been true when made, and, in
addition, shall be true in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date.
(b) Performance of Agreements. Each of DietSmart and the
-------------------------
Principal Stockholders, as the case may be, shall have performed, observed and
complied in all material respects with all of their obligations, covenants and
agreements, and shall have satisfied or fulfilled in all material respects
conditions contained in any document and required to be performed, observed or
complied with, or to be satisfied or fulfilled, by DietSmart or the Principal
Stockholders at or prior to the Effective Date.
(c) Opinion of Counsel for DietSmart. eDiets and Newco shall
--------------------------------
have received an opinion of Winston & Strawn and Jennifer Lupo, Esq., counsel
for DietSmart, dated the Closing Date, in substantially the form of Exhibit E
---------
and Exhibit E1.
--------------
(d) Opinion of Special Counsel to DietSmart. eDiets and Newco
---------------------------------------
shall have received an opinion of Richards, Layton & Finger, special counsel for
DietSmart, dated the Closing Date, in substantially the form of Exhibit F.
(e) Litigation. No order of any court or administrative agency
----------
shall be in effect which restrains or prohibits the transactions contemplated
hereby, and no claim, suit, action, inquiry, investigation or proceeding in
which it will be, or it is, sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with this Agreement or any of
the transactions contemplated hereby, shall have been instituted or threatened
by any person or entity, and which, in the reasonable judgment of eDiets (based
on the likelihood of success and material consequences of such claim, suit,
action, inquiry or proceeding), makes it inadvisable to proceed with the
consummation of such transactions.
(f) Consents and Approvals. All consents, waivers, approvals,
----------------------
licenses and authorizations by third parties and governmental and administrative
authorities (and all amendments or modifications to existing agreements with
third parties) (the "Consents") required as a precondition to the performance by
DietSmart and the Principal Stockholders of their respective obligations
hereunder and under any agreement delivered pursuant hereto, or which in eDiets'
reasonable judgment are necessary to continue unimpaired, subsequent to the
Effective Date; any rights in and to DietSmart's assets and/or the DietSmart
business which could be impaired by the Merger, shall have been duly obtained
and shall be in full force and effect.
27
(g) Date of Consummation. The Merger shall have been consummated
--------------------
on or prior to October 23, 2001, or such later date as the parties shall agree
by a written instrument signed by all of them.
(h) No Material Adverse Change. Except as otherwise provided by
--------------------------
this Agreement, there shall not have occurred after the date hereof, a material
adverse change in the financial or business condition of DietSmart, taken as a
whole, other than as a result of changes in general economic conditions or
changes affecting the diet and fitness business, both online and offline, as a
whole.
(i) Employment Agreements. Totah, Lopez-Ona and Smith shall have
---------------------
entered into employment agreements with eDiets in substantially the form of
Exhibit G.
---------
(j) No Appraisal Rights. The holders of no more than 5% of the
-------------------
outstanding DietSmart voting capital stock shall have delivered to DietSmart a
written notice pursuant to Section 262 of the Delaware Corporation Law
exercising appraisal rights.
(k) Closing Certificate. Each of DietSmart and the Principal
-------------------
Stockholders shall have furnished eDiets and Newco with a certificate, dated the
Closing Date, to the effect that all the representations and warranties of
DietSmart and the Principal Stockholders are true and complete and all covenants
to be performed by DietSmart or the Principal Stockholders at or as of the
Closing have been performed and all conditions to be satisfied at or as of the
Closing have been waived or satisfied.
(l) Accreditation Verification. eDiets has confirmed that no
--------------------------
more than a maximum of thirty five (35) non-"accredited" stockholders (as
defined in Rule 501 of Regulation D under the Securities Act) of DietSmart will
be receiving shares of eDiets Common Stock in the Merger.
8.2. Conditions to Obligations of DietSmart and the Principal
--------------------------------------------------------
Stockholders to Effect the Merger. The obligations of DietSmart and the
---------------------------------
Principal Stockholders to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Date of the following conditions, any or all of
which may be waived by such party, in its sole discretion:
(a) Accuracy of Representations and Warranties. The
------------------------------------------
representations and warranties of eDiets and Newco contained in this Agreement
shall have been true when made, and, in addition, shall be true in all material
respects, on and as of the Closing Date with the same force and effect as though
made on and as of the Closing Date.
(b) Opinion of Counsel for eDiets and Newco. DietSmart shall
---------------------------------------
have received an opinion of Nason, Yeager, Gerson, White & Lioce, P.A., counsel
for eDiets and Newco, dated the Closing Date, in substantially the form of
Exhibit H.
---------
(c) Litigation. No order of any court or administrative agency
----------
shall be in effect which restrains or prohibits the transactions contemplated
hereby, and no claim, suit, action, inquiry, investigation or proceeding in
which it will be, or it is, sought to restrain, prohibit or change the terms of
or obtain damages or other relief in connection with this Agreement or any of
the transactions contemplated hereby, shall have been instituted or threatened
by any
28
person or entity, and which, in the reasonable judgment of DietSmart (based on
the likelihood of success and material consequences of such claim, suit, action,
inquiry or proceeding), makes it inadvisable to proceed with the consummation of
such transactions.
(d) No Material Adverse Change. Except as otherwise provided by
--------------------------
this Agreement, there shall not have occurred after the date hereof, a material
adverse change in the financial or business condition of eDiets or Newco, taken
as a whole other than as a result of changes in general economic conditions or
changes affecting the diet and fitness business, both online and offline, as a
whole.
(e) Performance of Agreements. Each of eDiets and Newco shall
-------------------------
have performed, observed and complied, in all material respects, with all
obligations, covenants and agreements, and shall have satisfied or fulfilled in
all material respects all conditions contained in any document and required to
be performed, observed or complied with, or satisfied or fulfilled, by either or
both of them at or prior to the Closing Date.
(f) Consents and Approvals. All consents, waivers, approvals,
----------------------
licenses and authorizations by third parties and governmental and administrative
authorities (and all amendments and modifications to existing agreements with
third parties) required as a precondition to the performance by eDiets and Newco
of their respective obligations hereunder and under any agreement delivered
pursuant hereto, shall have been duly obtained and shall be in full force and
effect.
(g) Date of Consummation. The Merger shall have been consummated
--------------------
on or prior to October 23, 2001, or such later date as the parties shall agree
by a written instrument signed by all of them.
(h) Employment Agreements. eDiets shall have entered into
---------------------
employment agreements with Totah, Lopez-Ona and Smith in substantially the form
attached hereto as Exhibit G.
---------
(i) Closing Certificate. Each of eDiets and Newco shall have
-------------------
furnished DietSmart with certificates, each executed by their respective
presidents, dated the Closing Date, to the effect that all the representations
and warranties of eDiets or Newco, as the case may be, are true and complete in
all material respects and all covenants to be performed by each of eDiets or
Newco, as the case may be, at or as of the Closing have been performed in all
material respects and conditions to be satisfied at or as of the Closing have
been waived or satisfied in all material respects.
9. Indemnification.
---------------
9.1. Indemnification by DietSmart Stockholders. (a) Subject to
-----------------------------------------
Sections 9.5, 10.1, 10.2 and 10.3, the DietSmart Stockholders shall indemnify
and defend and hold harmless eDiets and Newco from and against any and all
losses, obligations, deficiencies, liabilities, claims, damages, costs and
expenses (including, without limitation, the amount of any settlement entered
into pursuant hereto, and all reasonable legal and other expenses incurred in
connection with the investigation, prosecution or defense of any matter
indemnified pursuant hereto) which either of them may sustain, suffer or incur
and which arise out of, are caused by, relate to, or
29
result or occur from or in connection with: (i) the case pending in the Supreme
Court of the State of New York styled as DietSmart, Inc. v. Turner Consulting
------------------------------------
Group (the "Turner Litigation"); (ii) the claim of Recognition Group LLC for a
-----
broker's fee in connection with the Merger (the "Recognition Group Claim"); or
(iii) any misrepresentation of a material fact contained in any representation
of DietSmart contained in, or the breach by DietSmart of any warranty or
covenant made by it in this Agreement.
(b) Subject to Sections 9.5, 10.1 and 10.2, each of the
Principal Stockholders shall indemnify, defend and hold harmless eDiets and
Newco from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto) which either
of them may sustain, suffer or incur and which arise out of, are caused by,
relate to, or result or occur from or in connection with: (i) any
misrepresentation of a material fact contained in any representation of such
Principal Stockholder in Section 2.3 of this Agreement; (ii) any breach by such
Principal Stockholder of any warranty or covenant made by such Principal
Stockholder in this Agreement; or (iii) the Turner Litigation.
9.2. Indemnification by eDiets and Newco. Each of eDiets and Newco,
-----------------------------------
jointly and severally, shall indemnify, defend and hold harmless each of
DietSmart (before the Effective Date) and the DietSmart Stockholders (after the
Effective Date) from and against any and all losses, obligations, deficiencies,
liabilities, claims, damages, costs and expenses (including, without limitation,
the amount of any settlement entered into pursuant hereto, and all reasonable
legal and other expenses incurred in connection with the investigation,
prosecution or defense of any matter indemnified pursuant hereto), which it or
he or she may sustain, suffer or incur and which arise out of, are caused by,
relate to, or result or occur from or in connection with any misrepresentation
of a material fact contained in or the breach by eDiets or Newco of any warranty
or covenant made by either of them in this Agreement.
9.3. Third Party Claims. If a claim by a third party, including,
------------------
without limitation, the Turner Litigation and the Recognition Group Claim, is
made against any party or parties hereto and the party or parties against whom
said claim is made intends to seek indemnification with respect thereto under
Sections 9.1 or 9.2, the party or parties seeking such indemnification shall
promptly notify the indemnifying party or parties, in writing, of such claim;
provided, however, that the failure to give such notice shall not affect the
rights of the indemnified party or parties hereunder except to the extent that
such failure materially and adversely affects the indemnifying party or parties
due to the inability to timely defend such action. The indemnifying party or
parties shall have ten (10) business days after said notice is given to elect,
by written notice given to the indemnified party or parties, to undertake,
conduct and control, through counsel of their own choosing (subject to the
consent of the indemnified party or parties, such consent not to be unreasonably
withheld) and at their sole risk and expense, the good faith settlement or
defense of such claim, and the indemnified party or parties shall cooperate with
the indemnifying parties in connection therewith; provided: (a) all settlements
require the prior reasonable consultation with the indemnified party and the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld, and (b) the indemnified party or parties shall be
entitled to participate in such settlement or defense through
30
counsel chosen by the indemnified party or parties, provided that the fees and
expenses of such counsel shall be borne by the indemnified party or parties.
Notwithstanding the forgoing, in connection with the Turner Litigation and the
Recognition Group Claim the fees and expenses of counsel incurred in defending
or settling such claims shall be paid by eDiets (subject to reimbursement to the
extent indemnification is available for such fees and expenses under section
9.1(a) or (b) above) or, at eDiets' option, paid out of the escrows maintained
under sections 10.1 and 10.3,. as and when incurred by the indemnifying parties.
So long as the indemnifying party or parties are contesting any such claim in
good faith, the indemnified party or parties shall not pay or settle any such
claim; provided, however, that notwithstanding the foregoing, the indemnified
party or parties shall have the right to pay or settle any such claim at any
time, provided that in such event they shall waive any right of indemnification
therefor by the indemnifying party or parties. If the indemnifying party or
parties do not make a timely election to undertake the good faith defense or
settlement of the claim as aforesaid, or if the indemnifying parties fail to
proceed with the good faith defense or settlement of the matter after making
such election, then, in either such event, the indemnified party or parties
shall have the right to contest, settle or compromise (provided that all
settlements or compromises require the prior reasonable consultation with the
indemnifying party and the prior written consent of the indemnifying party,
which consent shall not be unreasonably withheld) the claim at their exclusive
discretion, at the risk and expense of the indemnifying parties.
9.4. Assistance. Regardless of which party is controlling the defense
----------
of any claim, each party shall act in good faith and shall provide reasonable
documents and cooperation to the party handling the defense.
9.5 Limitations on Indemnification Rights.
-------------------------------------
(a) Escrows. Any amounts payable by the DietSmart Stockholders
-------
pursuant to Section 9.1 (a)(i) shall be satisfied solely out of the escrow
established pursuant to Section 10.1, (or if the escrow is insufficient, by
deduction from the Cash Consideration payments) or pursuant to Section 9.1
(a)(ii) shall be satisfied solely out of the escrow established pursuant to
Section 10.3 (or if the escrow has not been established by deduction from the
Cash Consideration payments), or pursuant to Section 9.1 (a)(iii) shall be
satisfied solely out of the escrow established pursuant to Section 10.2, by
reduction of the Cash Consideration, such liability being allocated on a pro-
rata basis among all of the DietSmart Stockholders. Notwithstanding any other
provision to the contrary in this Agreement, the aggregate liability of the
DietSmart Stockholders in connection with all claims against them for
indemnification hereunder pursuant to Section 9.1(a) shall not exceed the
amounts set forth in the preceding sentence. Any amounts payable by the
Principal Stockholders pursuant to Section 9.1(b)(i) or (ii) shall first be
satisfied out of the escrow of monies representing the pro rata share of the
Cash Consideration to be received by the Principal Stockholder whose action has
created the claim for indemnification, with such escrow established pursuant to
Section 10.2 and the particular Principal Stockholder shall be personally liable
only for any excess amounts of the claim over the funds placed in escrow. Any
amounts payable by the Principal Stockholders pursuant to Section 9.1(b)(iii)
shall be first satisfied out of the escrow established pursuant to Section 10.1
31
and the Principal Stockholders shall have personal liability, severally on a
pro-rata basis, only for any excess amount over the amount of the escrow fund.
(b) Deductibles. The DietSmart Stockholders shall be liable for
-----------
indemnity with respect to any claim arising under Section 9.1 (a)(iii) only to
the extent that (A) the amount of such claim exceeds $5,000, and (B) the
aggregate amount of all claims arising under such Section exceeds $25,000.
(c) Insurance; Tax Benefits. Any indemnity payments made to
-----------------------
eDiets, on the one hand, or by the DietSmart Stockholders, on the other hand, in
connection with damages indemnifiable pursuant to this Section 9:
(i) shall be reduced by an amount equal to any insurance
proceeds, warranty or third-party indemnity payments realized by and paid to the
indemnified party, less any related costs and expenses, including the aggregate
cost of pursuing any related insurance, warranty or third-party indemnity
claims, and
(ii) shall be reduced by an amount equal to the income tax
benefits, if any, attributable to such damages but only to the extent that such
tax benefits are actually realized by the indemnified party or any consolidated,
combined or unitary group of which the indemnified party is a member.
The indemnified party shall use its reasonable efforts to make insurance,
warranty or third party indemnity claims relating to any claim for which it is
seeking indemnification pursuant to Section 9.5 (c); provided that the
indemnified party shall not be obligated to make such claim if the indemnified
party in its reasonable judgment believes that the cost of pursuing such claim
together with any correspondent increase in insurance premiums or other charge
backs to the indemnified party would exceed the value of the claim for which the
indemnified party is seeking indemnification pursuant to this Section 9.
(d) Limitations on Damages. Any indemnifiable claim with respect
----------------------
to any breach or nonperformance by any party of a representation, warranty,
covenant or agreement shall be limited to the amount of actual damages sustained
by the indemnified party by reason of such breach or nonperformance.
Notwithstanding anything to the contrary elsewhere in this Agreement, no party
or its affiliates shall in any event be liable to any other party or its
affiliates for any consequential damages, including, but not limited to, loss of
future revenue or income, cost of capital, or loss of business reputation or
opportunity. Each party further agrees that it shall not seek punitive damages
as to any matter relating to this Agreement or the transactions contemplated by
it.
(e) Exclusivity. The sole and exclusive remedy of the parties
-----------
hereto for any claim resulting in a breach by any of the parties hereto of their
respective representations, warranties, covenants or agreements made hereby or
the failure by any party to perform their respective obligations under this
Agreement shall be a claim under this Section 9. The parties hereby waive any
provision of law to the extent that it would limit or restrict the agreement
contained in this Section 9.5 (e). The foregoing, however, shall not restrict or
limit the remedies any party may have to recover for or redress fraud.
32
9.6 "Knowledge" and "Material". For all purposes of this Agreement,
--------------------------
(i) any reference to "DietSmart's knowledge" or the
"knowledge of DietSmart" shall refer to the knowledge, following reasonable
inquiry as to the matter in question, of any of the Principal Stockholders;
(ii) any reference to "eDiets' knowledge" or the
"knowledge of eDiets" shall refer to the knowledge, following reasonable inquiry
as to the matter in question, of any of David R. Humble or Robert T. Hamilton.
(iii) any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the financial
condition, properties, assets (including intangible assets), liabilities,
business, operations or results of operations of such entity or group of
entities.
9.7 Rights of DietSmart Stockholders Representatives. Each of the
------------------------------------------------
DietSmart Stockholders hereby authorizes the Principal Stockholders, and each of
them, to act as such DietSmart Stockholder's representatives and attorneys-in-
fact (the Principal Stockholders acting in such capacity being referred to
herein as the "DietSmart Stockholders Representatives"), to take any and all
action under this Agreement and the escrow agreements entered into pursuant to
Sections 10.1, 10.2 and 10.3 in the name, place and stead of such DietSmart
Stockholder, as fully and to the same extent as such DietSmart Stockholder could
have done acting for itself and in its own name. Such permitted actions shall
include, without limitation, giving any notices, entering into any amendments or
modifications, and granting any and all waivers and/or consents, under or with
respect to this Agreement and such escrow agreements, all on such terms and
conditions as the DietSmart Stockholders Representatives may determine in their
sole and absolute discretion.
10. Escrow Establishments: Reimbursement of Certain Fees.
--------------------- -----------------------------
10.1 Turner Litigation Escrow. The sum of $100,000 out of each of the
------------------------
Cash Consideration payment, including the Initial Cash Payment (the "Turner
Escrow Fund") shall be remitted to Citibank N.A., 411 Fifth Avenue, NY, NY 10016
in New York, New York which shall act as the Escrow Agent pursuant to an Escrow
Agreement substantially in the form of Exhibit I. Each escrow installment shall
---------
be paid to the Escrow Agent in accordance with the payment schedule set forth in
Section 1.6 (c) (i)-(v) at the time a Cash Consideration payment is due. In
addition, at the Closing, eDiets shall retain 10,000 shares of its common stock
that are to be delivered to each of the Principal Stockholders (for an aggregate
of 30,000 shares) (the "Escrow Shares"). The Turner Escrow Fund and the Escrow
Shares shall be held in escrow until a final disposition of the Turner
Litigation is reached, to satisfy the cost of any adverse judgment or
settlement, including the related legal fees, costs and other expenses of
prosecuting and defending same. The Escrow Shares shall be cancelled in the
event that eDiets is required to issue shares of its common stock or options to
purchase its common stock in accordance with a final disposition of the Turner
Litigation in favor of Turner. In that event, the Escrow Shares will be valued
at the closing price for eDiets stock trading on the over-the-counter Bulletin
Board or any other stock exchange on the date of the final disposition of the
Turner Litigation. In the
33
event that shares of eDiets Common Stock are not trading on the over-the-counter
Bulletin Board or any other stock exchange, the value of the Escrow Shares will
be determined the value of the Escrow Shares will be determined through the
negotiation of a mutually agreed to value or an appraisal of the securities made
by an independent appraiser of Totah, Lopez-Ona and Smith's choosing and at
their expense. However, the appraiser shall be a firm knowledgeable and
experienced in valuations that is reasonably acceptable to eDiets. In the event
that the Parties cannot agree upon the appointment of an appraiser, then the
dispute is to be submitted to arbitration in accordance with the provisions of
Section 17.8 below, and the arbitrator will select the appraiser. In the event
that DietSmart prevails in the litigation, any net settlement proceeds and
damage awards, less the cost, expenses and all legal fees, will be paid and
distributed to the DietSmart Stockholders solely. In no event, shall eDiets or
Newco receive any of the net settlement or damage award in favor of DietSmart in
the Turner Litigation.In the event that DietSmart prevails in the litigation,
any net settlement proceeds and damage awards, less the cost, expenses and all
legal fees, will be paid and distributed to the DietSmart Stockholders solely.
In no event, shall eDiets or Newco receive any of the net settlement or damage
award in favor of DietSmart in the Turner Litigation..
10.2 Indemnification Claims Escrow. In the event that eDiets has a
-----------------------------
claim for indemnification under Section 9.1 (a)(iii), 9.1(b)(i) or 9.1(b)(ii),
it shall provide notice to the DietSmart Stockholders Representatives or the
Principal Stockholder(s), as the case may be, specifying in reasonable detail
the basis for its claim and its estimate of the amount thereof. Out of the
remaining installments of the Cash Consideration, eDiets shall pay to the Escrow
Agent at the time the particular installment is due, all amounts that are due or
become due on the cash installments up to the full amount of the claim, as
reasonably determined by eDiets, and such sums shall be held by the Escrow Agent
pursuant to the terms of the Escrow Agreement.
10.3 Recognition Group Claim Escrow. eDiets shall be reimbursed for
------------------------------
any payment made in connection with the settlement of the Recognition Group
Claim by deducting the amount of the payment from the next installment of the
Cash Consideration due. In the event, however, that the Recognition Group Claim
is not settled before the last $500,000 installment of the Cash Consideration is
due, then eDiets shall have the right to place $125,000 of the amount of the
last installment in escrow by payment to the Escrow Agent (the "Recognition
Group Claim Escrow Fund"). The Recognition Group Claim Escrow Fund shall be held
to satisfy the cost of any eventual adverse judgment or settlement, including
the related legal fees, costs and other expenses of defending the Claim and
shall continue to be held until final settlement of the Claim.
10.4 Reimbursement of Legal Fees. Over and above the Turner
---------------------------
Litigation Escrow Fund and the Recognition Group Claim Escrow Fund (if any),
eDiets shall be reimbursed for all legal fees incurred by eDiets or Newco to
outside counsel in connection with the Turner Litigation and Recognition Group
Claim by deducting the amount of such fees from the next installment of the Cash
Consideration that becomes due. In the event that the Turner Litigation and/or
Recognition Group Claim is handled by DietSmart's current general counsel,
Jennifer Lupo, as a salaried employee of eDiets, then she may spend up to 20% of
her time (providing time records to eDiets on a monthly basis) prosecuting (and
in the case of the Turner Litigation, defending and prosecuting) these matters
and the Orrick Claim (defined below). If she spends more than 20% on these three
matters, then the total portion of her time expended on
34
a monthly basis on these matters will be treated as legal expenses, and eDiets
may seek reimbursement for the pro rata amount of her salary payments
representing her time spent on these matters by deduction from the next due
installment of the Cash Consideration.
10.5 Orrick, Herrington & Sutcliffe Claim. The DietSmart Stockholders
------------------------------------
have a claim against their former counsel Orrick, Herrington & Sutcliffe (the
"Orrick Claim"), which they may want to prosecute. In the event they elect to
prosecute the Orrick Claim, the DietSmart Stockholders shall retain control of
the claim's prosecution, provided however that, should eDiets be called upon to
advance any payment related to prosecuting the Orrick Claim, including but not
limited to the engagement of outside counsel, the fees and costs advanced shall
be deducted from the next Cash Consideration payment and any further Cash
Consideration payment. Any recovery from the prosecution of the Orrick Claim,
after reimbursement to eDiets of any legal fees, costs and expenses which have
been advanced by eDiets, shall belong to and be paid solely to the DietSmart
Stockholders.
11. The Closing. Unless this Agreement shall have been terminated
-----------
and the transactions herein contemplated shall have been abandoned pursuant to
Section 12, the closing of the Merger (the "Closing") will take place at the
offices of Winston & Strawn, 200 Park Avenue, New York, New York as promptly as
practicable (and in any event within five (5) business days) after satisfaction
or waiver of the conditions set forth in Section 8 but in no event later than
October 23, 2001 (the "Closing Date"); or such later date as shall have been
fixed by a written instrument signed by the parties.
11.1. Deliveries by eDiets and Newco at the Closing. At the Closing,
---------------------------------------------
eDiets and Newco shall deliver the following:
(a) stock certificate(s), representing the Share Consideration
registered in the names of Totah, Lopez-Ona and Smith;
(b) copies of (i) resolutions adopted by the eDiets Board of
Directors authorizing eDiets to execute and deliver the Agreement and other
documents to which it is a party, to perform its obligations thereunder and to
effect the Merger upon the terms and subject to the conditions set forth
therein, and (ii) resolutions adopted by the Board of Directors of Newco, and
the written consent of the sole shareholder, authorizing Newco to execute and
deliver the Agreement by Newco and the other documents to which it is a party,
to perform its obligations thereunder and to effect the Merger upon the terms
and subject to the conditions set forth therein, duly certified by the
Secretaries or Assistant Secretaries of eDiets' and Newco, respectively;
(c) certificates of the Secretary or Assistant Secretary of each
of eDiets and Newco certifying as to the incumbency and specimen signatures of
the officers of eDiets and Newco executing the Agreement and other documents on
behalf of such corporation; and
(d) confirmation, in form of satisfactory to the parties hereto,
from the Secretary of State of the State of Delaware that the Certificate of
Merger of DietSmart with and
35
into Newco has been filed with such Secretary of State; together with a copy of
the executed form of such agreement.
11.2 Deliveries by DietSmart and/or the Principal Stockholders at the
----------------------------------------------------------------
Closing. At the Closing, DietSmart and/or the Principal Stockholders, as
-------
applicable, shall deliver to eDiets and/or Newco, as the case may be, the
following:
(a) stock certificate(s) representing the DietSmart Common Stock
owned by Totah and Lopez-Ona, duly executed by the proper officers of DietSmart;
(b) a copy of the resolutions of the Board of Directors of
DietSmart, and the resolutions adopted by the DietSmart Stockholders,
authorizing DietSmart to execute and deliver the Merger Agreement and other
documents to be delivered by DietSmart to perform its obligations thereunder and
to effect the Merger upon the terms and conditions thereunder, duly certified by
the Secretary or assistant Secretary of DietSmart; and
(c) certificates of the Secretary or Assistant Secretary of
DietSmart certifying as to the incumbency and specimen signatures of the
officers of DietSmart executing the Merger Agreement and the other documents to
be delivered by DietSmart on behalf of such corporation.
11.3. Other Deliveries. In addition, the parties shall execute and
----------------
deliver such other documents as may be required by this Agreement and as either
of them or their respective counsel may reasonably require in order to document
and carry out the transactions contemplated by this Agreement.
12. Termination and Waiver.
----------------------
12.1. Termination. This Agreement may be terminated at any time prior
-----------
to the Effective Date:
(a) By mutual consent of the Boards of Directors of eDiets,
Newco and DietSmart; or
(b) By eDiets and Newco, on the one hand, or DietSmart and the
DietSmart Stockholders Representatives, on the other hand, if any of the
conditions precedent with respect to the other party, as set forth in Sections
8.1 and 8.2, respectively, have not been satisfied or waived on or before the
Effective Date.
(c) By eDiets and Newco, on the one hand, or DietSmart and the
DietSmart Stockholders Representatives, on the other hand, if (i) the merger
shall not have been consummated by October 23, 2001, or such later date as the
parties shall have fixed by written instrument signed by the parties hereto;
provided, however, that the right to terminate this Agreement under this
subsection (c) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Date to occur on or before such date or (ii) a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission shall have issued an order, decree or ruling or taken any other
action (which order, decree, ruling or other action the parties
36
hereto shall use their reasonable efforts to vacate), in each case permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement.
(d) By eDiets and Newco, on the one hand, or by DietSmart and
the DietSmart Stockholders Representatives, on the other hand, if, in the
reasonable judgment of eDiets and Newco or DietSmart and the DietSmart
Stockholders Representatives, as the case may be, (and provided such parties are
not then in material breach of their respective obligations hereunder), it shall
have been determined that the transaction contemplated by this Agreement has
become inadvisable or impracticable by reason of the institution or threat by
state, local or federal governmental authorities or by any other person of
material litigation or proceedings against eDiets or DietSmart.
(e) By eDiets and Newco, on the one hand, or DietSmart and the
DietSmart Stockholders Representatives, on the other hand, if, in the reasonable
judgment of eDiets and Newco or DietSmart or the DietSmart Stockholders
Representatives, as the case may be (and provided such parties are not then in
material breach of their respective obligations hereunder), it shall be
determined that the business or assets or financial condition of the other
unrelated corporate party hereto has been materially and adversely affected
since June 30, 2001, whether by reason of changes, developments or operations in
the normal course of business or otherwise.
12.2. Waiver. At any time prior to the Effective Date, any party
------
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
13. Break-up Fees.
-------------
13.1 Payment of Fees by eDiets. In the event this Agreement is
-------------------------
terminated by DietSmart pursuant to Section 12.1 (b) because of the failure of
any of the conditions set forth in Section 8.2 (a)(b)(d)(e)(f)(h) and (i), or
pursuant to Section 12.1 (c) (i) eDiets shall pay to DietSmart $250,000 in
immediately available funds pursuant to written instructions from DietSmart. In
addition, eDiets will pay up to $50,000 of documented legal expenses reasonably
incurred by DietSmart in connection with the Merger.
13.2 Payment of Fees by DietSmart. In the event this Agreement is
----------------------------
terminated by eDiets pursuant to Section 12.1 (b) because of the failure of any
of the conditions set forth in Sections 8.1(a)(b)(c)(d)(f)(h)(i) and (k), or
pursuant to Section 12.1 (c) (i) DietSmart shall pay to eDiets $50,000 in
immediately available funds pursuant to written instructions from eDiets.
13.3 Liquidated Damages. In the event that payment is required to
------------------
be made pursuant to Sections 13.1 or 13.2, the payment of any such amount is the
sole remedy to which DietSmart or eDiets, as the case may be, shall be entitled
to, and the party making the payment shall have no liability or obligations of
any nature whatsoever to the other party arising out of this Agreement. Payment
of the amounts required pursuant to Sections 13.1 and 13.2 is an
37
integral part of the transactions contemplated by this Agreement and are an
inducement to each of the parties to enter into this Agreement and, to the
extent payable constitute liquidated damages and not a penalty.
14. Repayment of Certain Advance. As reflected in a promissory note dated
----------------------------
July 11, 2001 made by DietSmart to eDiets, eDiets advanced the sum of $50,000 to
DietSmart. The parties hereby agree that the Promissory Note shall be amended
so that the "Due Date" shall be the date this Agreement terminates for any
reason.
15. Fees and Expenses. eDiets and Newco for themselves, and DietSmart for
-----------------
itself and for the Principal Stockholders, shall bear its and his or her own
expenses in connection with this Agreement and the transactions contemplated
hereby, except that:
(a) in the event this Agreement terminates for any reason,
DietSmart will reimburse eDiets for the Ernst & Young LLP audit fees incurred in
accordance with the Letter Agreement between eDiets and DietSmart dated July 26,
2001, the terms of which shall survive the execution of this Agreement; and
(b) in the event the legal fees and cost of the counsel for
DietSmart in the transaction exceed $100,000, exclusive of counsel fees for the
preparation of the Proxy Statement which accrue from September 25, 2001 until
the Closing, then the excess over $100,000 shall be deducted from the Initial
Cash Payment at Closing.
(c) In the event this Agreement terminates for any reason,
DietSmart shall pay eDiets $7,500 within 10 days after the date of termination
as reimbursement of a portion of the fees of Instream Partners LLC incurred by
eDiets in connection with the Merger.
16. Survival of Representations and Warranties. Each of the parties
------------------------------------------
hereto hereby agrees that the representations and warranties made by or on
behalf of it, him or her in this Agreement or in any document or instrument
delivered pursuant hereto shall survive the Closing for a period of fifteen (15)
months.
17. General Provisions.
------------------
17.1. Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been made as of
the date delivered in the case of personal delivery or facsimile transmittal
(confirmed by transmission report), if by overnight courier; the next business
day, in the case of U.S. Mail, registered or certified (postage prepaid, return
receipt requested) three business days thereafter , to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice, except that notices of changes of address shall be effective
upon receipt):
If to DietSmart,
or the DietSmart Stockholders Representatives: DietSmart, Inc.
1032 Avenue of the Americas,
3d Floor
New York, New York 10018
Attn: Tamara L. Totah
38
with a copy to: Jennifer Lupo, Esq., General Counsel
1032 Avenue of the Americas, 3/rd/ floor
New York, New York 10018
and
John Kaufmann, Esq.
Winston & Strawn
200 Park Avenue
New York, New York 10166
If to the Principal Stockholders: Tamara L. Totah
24 Fifth Avenue
New York, New York 10013
Carlos M. Lopez-Ona
254 E. 68/th/ Street, Apt. 3F
New York, New York
Andrew G. Smith
95 Christopher Street
New York, New York 10013
If to eDiets or Newco eDiets.com, Inc. eDiets.com, Inc.
3801 W. Hillsboro Boulevard
Deerfield Beach, FL 33442
Attn: Mr. David Humble
If to David Humble c/o eDiets.com, Inc.
3801 W. Hillsboro Boulevard
Deerfield Beach, FL 33442
with a copy to: Nason, Yeager, Gerson, White &
Lioce, P.A.
1645 Palm Beach Lakes, Blvd.
West Palm Beach, FL 33401
Attn: Mark A. Pachman, Esq.
17.2. Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of -the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
39
17.3. Entire Agreement. This Agreement constitutes the entire
----------------
agreement, and supersede all prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
17.4. Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed by each of the parties hereto.
17.5. Schedules. All references in this Agreement to Schedules shall
---------
mean the schedules identified in this Agreement, which are incorporated into
this Agreement and shall be deemed a part of the representations and warranties
to which they relate. To the extent a disclosure has been made by eDiets, Newco,
DietSmart or the Principal Stockholders on any Schedule, it shall be in writing,
shall indicate the section pursuant to which it is being delivered, and shall be
initialed by the delivering party. For purposes of this Agreement, information
which is necessary to make a given Schedule complete and accurate, but is
omitted therefrom, shall nevertheless be deemed to be contained therein if it is
contained on any other Schedule; but only if such information appears on such
other Schedule in such form and detail that it is responsive to the requirements
of such given Schedule.
17.6. No Assignment. This Agreement shall not be assigned except for
-------------
by operation of law or mutual consent of the parties hereto, and any assignment
shall be null and void.
17.7. Governing Law, Venue. This Agreement shall be governed by, and
--------------------
construed in accordance with, the law of the State of Delaware without regard to
its choice of law principles. The party or parties seeking to enforce the
provisions of this Agreement will choose the venue of such action, and the non-
enforcing party agrees to submit to and waives any objections to jurisdiction or
venue in that proceeding.
17.8 Dispute Resolution.
------------------
(a) Any dispute, controversy or claim arising out of or
relating to this Agreement or any related agreement, or the transaction
contemplated by this Agreement or the validity, interpretation, breach or
termination thereof (a "Dispute"), including claims seeking redress or asserting
rights under Delaware law, shall be resolved in accordance with the procedures
set forth herein. Until completion of such procedures, no party may take any
action not contemplated herein to force a resolution of the Dispute by any
judicial, arbitral or similar process, except to the limited extent necessary to
(i) avoid expiration of a claim that might eventually be permitted hereby or
(ii) obtain interim relief, including injunctive relief, to preserve the status
quo or prevent irreparable harm.
(b) All communications between the parties or their
representatives in connection with the attempted resolution of any Dispute shall
be deemed to have been delivered in furtherance of a Dispute settlement and
shall be exempt from discovery and production, and shall not be admissible in
evidence (whether as an admission or otherwise), in any arbitral or other
proceeding for the resolution of the Dispute.
40
(c) In connection with any Dispute, the parties expressly waive
and forego any right to punitive, exemplary, statutorily-enhanced or similar
damages in excess of compensatory damages.
(d) As a condition precedent to the institution of arbitration,
written notice, served in accordance with Section 17.1, shall be served by the
party ("Disputing Party") seeking to enforce the terms of this Agreement or the
transaction contemplated herein. The notice shall be in the form of a written
statement of the dispute, the resolution sought and the basis upon which such
resolution is predicated. Within thirty (30) days after the notice is complete
and if the dispute has not been resolved by the parties or any representative
appointed by a party, any party has the right to submit the dispute to binding
arbitration.
(e) Either party may submit the Dispute for resolution by
arbitration pursuant to the Rules of the American Arbitration Association
("AAA") for commercial disputes as in effect at the time of the arbitration,
except as modified herein. The parties consent to a single, consolidated
arbitration for all Disputes for which arbitration is permitted.
(f) The arbitral tribunal shall be composed of one arbitrator
selected by agreement of the parties or, in the absence of such agreement within
60 days after either party first proposes an arbitrator, by the AAA.
Each party shall be permitted to present its case, witnesses and
evidence, if any, in the presence of the other party. The parties shall have the
right to conduct discovery in accordance with the discovery rules of the state
in which the arbitration is conducted. A written transcript of the proceedings
shall be made and furnished to the parties. The arbitrator shall determine the
Dispute in accordance with the choice of law provisions of Section 17.7 ,
without giving effect to any conflict of law rules or other rules that might
render such law inapplicable or unavailable, and shall apply this Agreement
according to its terms, provided that the provisions relating to arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. (S)(S)1 et seq. The
Arbitrator shall enter an award which includes detailed findings of fact and
conclusions of law.
(g) The parties agree to be bound by any award or order
resulting from any arbitration conducted hereunder and further agree that:
(i) any monetary award shall include pre-award interest, to
the extent appropriate, and shall be made and payable in U.S. dollars through a
bank selected by the recipient of such award, free of any withholding tax or
other deduction, together with interest thereon at the prime rate in effect at
such bank on the date of the award, from the date the award is granted to the
date it is paid in full;
(ii) in the context of an attempt by either party to enforce
an arbitral award or order, any defenses relating to the parties' capacity or
the validity of this Agreement or any related agreement under any law are hereby
waived; and
41
(iii) judgment on any award or order resulting from an
arbitration conducted under this Section may be entered and enforced in any
court having jurisdiction thereof or having jurisdiction over any of the parties
or any of their assets.
(iv) The parties shall have the right to appeal the
Arbitrator's final decision and award to any court having jurisdiction over the
matter, and such appeal rights shall include reversal for an application of law
which is erroneous or a finding of fact which is clearly erroneous.
(h) Except as expressly permitted by this Agreement, no party
will commence or voluntarily participate in any court action or proceeding
concerning a Dispute, except (i) for enforcement as contemplated by paragraph
(f) (iii) above, (ii) to restrict or vacate an arbitral decision based on the
grounds specified under applicable law and not waived in paragraph (f)(ii)
above, or (iii) for interim relief as provided in paragraph (h) below. For
purposes of the foregoing or enforcement of any undisputed obligation, the
parties hereto submit to the non-exclusive jurisdiction of the courts of Florida
and New York.
(i) In addition to the authority otherwise conferred on the
arbitral tribunal, the tribunal shall have the authority to make such orders for
interim relief, including injunctive relief, as it may deem just and equitable.
Notwithstanding paragraph (g) above, each party acknowledges that in the event
of any actual or threatened breach of the provisions of Sections 4, 5.7,6, 7, 9
or 10, the remedy at law would not be adequate, and therefore injunctive or
other interim relief may be sought immediately to restrain such breach. If the
tribunal shall not have been appointed, either party may seek interim relief
from a court having jurisdiction if the award to which the applicant may be
entitled may be rendered ineffectual without such interim relief. Upon
appointment of the tribunal following any grant of interim relief by a court,
the tribunal may affirm or disaffirm such relief, and the parties will seek
modification or rescission of the court action as necessary to accord with the
tribunal's decision.
(j) The prevailing party in any arbitration conducted under
this Section shall be entitled to recover (as part of the arbitral award or
order) its reasonable attorneys' fees and other costs of arbitration or
litigation.
17.9. Headings. Headings in this Agreement are included herein for
--------
convenience of reference only and shall not constitute part of this Agreement
for any other purpose.
17.10 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
17.11 Attorneys' Fees. If any legal action or other proceeding is
---------------
brought for the enforcement of this Agreement or the transaction contemplated
herein, or because of any alleged dispute, breach, default or misrepresentation
in connection with any provision of his Agreement, the successful or prevailing
party or parties shall be entitled to recover reasonable attorneys' fees, court
costs and reasonable expenses incurred in that action or proceeding, in addition
to any other relief to which such party or parties may be entitled.
42
17.12 Construction. This Agreement will not be construed more
------------
strongly against either party regardless of which party is responsible for its
preparation.
17.13 Waiver of Breach. The waiver by either party of a breach of
----------------
any provision of this Agreement by the other party must be in writing and shall
not operate or be construed as a waiver of any subsequent breach by such other
party.
[Remainder of Page Intentionally Left Blank]
43
IN WITNESS WHEREOF, each of eDiets, Newco and DietSmart, by their respective
officers thereunto duly authorized, and the Principal Stockholders,
individually, have caused this Agreement to be executed as of the date first
written above.
EDIETS.COM, INC.
By: /s/ David R. Humble
---------------------------------------------
DIETSMART ACQUISITION CORP.
By: /s/ David R. Humble
---------------------------------------------
DIETSMART, INC.
By: /s/ Tamara Totah
---------------------------------------------
Principal Stockholders:
/s/ Tamara Totah
------------------------------------------------
Tamara L. Totah
/s/ Carlos Lopez-Ona
------------------------------------------------
Carlos M. Lopez-Ona
/s/ Andrew Smith
------------------------------------------------
Andrew G. Smith
/s/ David R. Humble
------------------------------------------------
David R. Humble, as to Sections 7.2 and 7.5 only
44