(1)
|
Title
of each class of securities to which transaction applies:
Common
stock, par value $0.001 per share, of ImproveNet, Inc.
|
|
(2)
|
Aggregate
number of securities to which transaction applies:
55,780,710
shares of ImproveNet, Inc. common stock, which includes (i)
865,557 shares
of common stock issuable upon the exercise of issued and outstanding
warrants and vested stock options that have an exercise price less
than
$0.12 per
share, and (ii) 250,000 shares of common stock subject to bonus
stock
awards that vest upon a change of control of
ImproveNet.
|
|
(3)
|
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is
calculated and state how it was determined):
The
filing fee of $823.90
was calculated pursuant to Exchange Act Rule 0-11 and is equal
to $117.70
per million of the aggregate merger consideration of $6,767,345,
which represents (i) $6,720,000,
plus (ii) the aggregate exercise price of all issued and outstanding
warrants and vested stock options that have an exercise price less
than
$0.12 per
share.
|
|
(4)
|
Proposed
maximum aggregate value of transaction:
$6,767,345
|
|
(5)
|
Total
fee paid: $823.90
|
Very truly yours, | ||
|
|
|
Jeffrey I. Rassas | ||
Chief Executive Officer | ||
Scottsdale, Arizona | ||
[ ], 2005 |
1.
|
To
consider and vote upon a proposal to adopt the Agreement and Plan
of
Merger, dated as of June 22, 2005, by and among ServiceMagic, Inc.,
Sunbelt Acquisition Corp., ImproveNet, Inc., and the principal
stockholders of ImproveNet signatory thereto, providing for the
acquisition of ImproveNet by ServiceMagic. A copy of the merger
agreement
is attached as Appendix A to the proxy statement accompanying this
Notice.
Pursuant to the terms of the merger agreement, Sunbelt, a wholly-owned
subsidiary of ServiceMagic, will merge with and into ImproveNet,
with
ImproveNet continuing as the surviving corporation, and each issued
and
outstanding share of common stock of ImproveNet, other than those
shares
of ImproveNet common stock held by the stockholders, if any, who
properly
exercise their appraisal rights under Delaware law, will be converted
into
the right to receive, subject to certain adjustments, approximately
$0.12
in cash, without interest and less any required withholding
tax.
|
2.
|
To
transact such other business as may properly come before the special
meeting or any adjournments or postponements
thereof.
|
By Order of the Board of Directors | ||
|
|
|
Naser Ahmad | ||
Secretary |
SUMMARY
TERM SHEET
|
|
[ ]
|
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
|
|
[ ]
|
THE
PARTIES TO THE MERGER
|
|
[ ]
|
QUESTIONS
AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING
|
|
[ ]
|
THE
SPECIAL MEETING OF IMPROVENET STOCKHOLDERS
|
|
[ ]
|
Time,
Place and Purpose of the Special Meeting
|
|
[ ]
|
Who
Can Vote at the Special Meeting
|
|
[ ]
|
Quorum;
Vote Required
|
|
[ ]
|
Director
and Executive Officer Voting
|
|
[ ]
|
Principal
Stockholder Voting
|
|
[ ]
|
Voting
by Proxy
|
|
[ ]
|
Other
Matters
|
|
[ ]
|
THE
MERGER
|
|
[ ]
|
Background
of the Merger
|
|
[ ]
|
Recommendation
of ImproveNet’s Board of Directors
|
|
[ ]
|
Purpose
and Reasons for the Merger
|
|
[ ]
|
Opinion
of ImproveNet’s Investment Banker
|
|
[ ]
|
Interests
of ImproveNet’s Directors and Executive Officers in the
Merger
|
|
[ ]
|
Merger
Financing
|
|
[ ]
|
Effect
of the Merger on ImproveNet Common Stock
|
|
[ ]
|
CERTAIN
U.S. FEDERAL INCOME TAX CONSEQUENCES
|
|
[ ]
|
Exchange
of Common Stock for Cash - U.S. Holder
|
|
[ ]
|
Backup
Withholding
|
|
[ ]
|
Exchange
of Common Stock for Cash - Non-U.S. Holder
|
|
[ ]
|
Information
Reporting and Backup Withholding
|
|
[ ]
|
REGULATORY
APPROVALS
|
|
[ ]
|
THE
MERGER AGREEMENT
|
|
[ ]
|
The
Merger
|
|
[ ]
|
Effective
Time of the Merger
|
|
[ ]
|
Consideration
to be Received in the Merger
|
|
[ ]
|
Treatment
of Stock Options and Warrants
|
[ ]
|
|
Escrow
|
[ ]
|
|
Exchange
Procedures
|
|
[ ]
|
Representations
and Warranties
|
|
[ ]
|
Conduct
of Business Pending the Merger
|
|
[ ]
|
ImproveNet
Stockholders’ Meeting; Recommendation
|
|
[ ]
|
Takeover
Proposals
|
|
[ ]
|
Regulatory
Matters
|
|
[ ]
|
D&O
Liability Insurance
|
|
[ ]
|
Conditions
to Consummation of the Merger
|
|
[ ]
|
eTechLogix
Transaction
|
[ ]
|
|
Survival
of Representations and Warranties; Indemnification
|
[ ]
|
|
Termination
|
|
[ ]
|
Termination
Fee
|
|
[ ]
|
Fees
and Expenses
|
|
[ ]
|
MARKET
PRICE OF IMPROVENET COMMON STOCK
|
|
[ ]
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
|
[ ]
|
DISSENTERS’
RIGHTS OF APPRAISAL
|
|
[ ]
|
OTHER
MATTERS
|
|
[ ]
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
[ ]
|
APPENDIX A
-
|
Agreement
and Plan of Merger, dated as of June 22, 2005, among ServiceMagic,
Inc.,
Sunbelt Acquisition
Corp., ImproveNet, Inc., and the principal stockholders of ImproveNet,
Inc. signatory thereto
|
APPENDIX
B
-
|
Opinion of Janney Montgomery Scott LLC, dated June 17, 2005 |
APPENDIX
C
-
|
Section 262 of the Delaware General Corporation Law (Appraisal Rights) |
|
•
|
Stockholder
Vote. You
are being asked to vote to adopt a merger agreement pursuant to
which
ImproveNet will be acquired by and become a wholly-owned subsidiary
of
ServiceMagic.
|
•
|
Price
for Your Stock. In
the proposed merger, you will receive, subject to certain adjustments,
approximately $0.12 in
cash, without interest and less any applicable withholding tax,
for each
of your shares of ImproveNet common stock. The
merger consideration may be reduced by (i) excess D&O insurance policy
premiums, and (ii) transaction fees incurred by ImproveNet in connection
with the merger in excess of amounts specified in the merger agreement
(the merger consideration per share, as reduced by the foregoing
adjustments, will be referred to herein as the “per share merger
consideration”). The
merger consideration adjustments described above will be determined
immediately prior to the consummation of the merger. See
“The Merger Agreement - Consideration to be Received in the Merger.”
|
|
|
•
|
Treatment
of Options/Warrants. In
the proposed merger, each issued, outstanding, and vested option
to
purchase shares of ImproveNet common stock with a per share exercise
price
of less than the per share merger consideration will be canceled
and
converted into an amount of cash equal to the excess of the per
share
merger consideration over the exercise price of the option, without
interest, and net of applicable withholding taxes. Each issued
and
outstanding warrant to purchase shares of ImproveNet common stock
with a
per share exercise price of less than the per share merger consideration
will be canceled and converted into an amount of cash equal to
the excess
of the per share merger consideration over the exercise price of
the
warrant. Each issued and outstanding stock option and warrant with
a per
share exercise price equal to or in excess of the per share merger
consideration will be canceled without payment. See “The Merger Agreement
- Treatment of Stock Options and Warrants.”
|
§ |
the
fact that the merger consideration would be all cash, which would
provide
certainty of value to our stockholders;
|
§ |
the
fact that the purchase price of approximately $0.12
per share, subject to adjustment as provided in the merger agreement,
constituted a significant premium to the recent trading range of
ImproveNet’s common stock immediately prior to execution of the merger
agreement;
|
§ |
the
manner in which the consideration and negotiation of proposals was
conducted and the fact the terms of the merger agreement were determined
through extensive arm’s length negotiations between the board of directors
and its advisors, on the one hand, and ServiceMagic and its advisors,
on
the other;
|
§ |
the
ability of ImproveNet to terminate the merger agreement and accept
a
financially superior proposal under specified conditions, subject
to
payment to ServiceMagic of a termination fee of $300,000, and
reimbursement of ServiceMagic’s transaction fees and expenses, not to
exceed $200,000; and
|
§ |
the
likelihood that the merger would be completed, our board of directors having
concluded, particularly in light of the size and financial strength
of
ServiceMagic’s parent company, IAC/InterActiveCorp, that ServiceMagic had
the financial ability to complete the merger and the other transactions
contemplated by the merger agreement.
|
§ |
ImproveNet
would no longer exist as an independent company and our stockholders
would
no longer participate in its potential
growth;
|
§ |
at
various times, both historically and during the one year period prior
to
the announcement of the merger agreement with ServiceMagic, ImproveNet’s
common stock had traded in excess of $0.12 per share, although, in
light of
various industry developments, our board of directors felt it
was
unlikely that ImproveNet’s common stock would trade materially in excess
of $0.12 in the near term if ImproveNet remained
independent;
|
§ |
ImproveNet
would be required to pay a termination fee of $300,000, and reimburse
ServiceMagic’s transaction fees and expenses up to $200,000, if the merger
agreement is terminated under specified circumstances, an obligation that
might discourage competing acquisition
proposals;
|
§ |
even
if the merger is not completed, ImproveNet would be required to pay
its
own legal, accounting and investment banking fees, which it estimates
will
be approximately $150,000;
|
§ |
gains
from an all-cash transaction would generally be taxable to our
stockholders for U.S. federal income tax purposes. See “Certain U.S.
Federal Income Tax Consequences”;
|
§ |
there
is no assurance that all conditions to the parties’ obligations to
complete the merger will be satisfied;
and
|
§ |
failure
to complete the merger could adversely affect ImproveNet due to potential
disruptions in its operations and the obligation to pay the fees
and
expenses noted above.
|
|
•
|
Place,
Date and Time. The
special meeting will be held at the company’s principal executive offices,
10799 North 90th
Street, Scottsdale, Arizona 85260, at 10:00 a.m. local time, on
[ ],
2005.
|
|
•
|
What
Vote is Required for Adoption of the Merger Agreement. Adoption
of the merger agreement requires the approval of holders of a majority
of
the issued and outstanding shares of ImproveNet common stock entitled
to
vote thereon. The failure to vote, or an abstention from voting,
has the
same effect as a vote against adoption of the merger agreement.
As
such, your vote is important.
Holders
of [ ]%
of ImproveNet’s common stock are parties to a voting agreement requiring
them to vote in favor of the merger and against any competing proposal,
except in the event that the merger agreement is terminated in
accordance
with its terms. Holders of [ ]%
of ImproveNet’s common stock are parties to a voting agreement requiring
them to vote against any competing proposal for a period of 18
months following the execution of the merger agreement,
whether or not the merger agreement is terminated in accordance
with its
terms.
|
|
•
|
Who
Can Vote at the Meeting. At
the special meeting, you can vote all of the shares of ImproveNet
common
stock that you owned of record as of [ ],
2005, which is the record date for the special meeting. If you
own shares
that are registered in someone else’s name, for example, a broker, you
need to direct that person to vote those shares or obtain an authorization
from that person and vote the shares yourself at the meeting. As
of the
record date, there were [ ]
shares
of ImproveNet common stock issued and outstanding, which were held
by
approximately [ ]
stockholders
of record.
|
|
•
|
Procedure
for Voting. You
can vote your shares of ImproveNet common stock by:
|
|
•
|
|
completing,
signing, dating, and mailing the enclosed proxy card;
or
|
|
•
|
|
attending
the special meeting and voting in person.
|
|
•
|
Procedure
for Revoking your Proxy. You
may revoke your proxy at any time before the vote is taken at the
special
meeting. To revoke your proxy, you must either advise the Corporate
Secretary of ImproveNet in writing, deliver a proxy dated after
the date
of the proxy you wish to revoke, or attend the special meeting
and vote
your shares in person. Merely attending the special meeting will
not
constitute revocation of your proxy. If you have instructed a broker,
bank
or other nominee to vote your shares of ImproveNet common stock,
you must
follow the directions received from the broker, bank or other nominee
to
change your instructions.
|
|
•
|
adoption
of the merger agreement by the holders of at least a majority of
the
issued and outstanding shares of ImproveNet common stock;
|
|
•
|
approval
of governmental and other authorities required for the merger;
and
|
|
•
|
the
absence of any legal restraint blocking the merger.
|
|
•
|
the
absence of a material adverse effect (as defined in the merger
agreement)
affecting ImproveNet;
|
|
•
|
appraisal
rights not being perfected by holders of more than 15% of the issued
and
outstanding shares of ImproveNet common stock prior to the merger;
|
|
•
|
consummation
of the sale of assets and stock of eTechLogix, Inc., a wholly-owned
subsidiary of ImproveNet, to certain principal stockholders of
ImproveNet
on terms and conditions satisfactory to ServiceMagic;
|
|
•
|
each
of the representations and warranties of ImproveNet and/or its
principal
stockholders (Farsi Family Trust, Ahmad Family Trust, Hayjour Family
Limited Partnership, and Kinderhook Partners, LP) contained in
the merger
agreement being true and correct in all respects as of the effective
time
of the merger as though made on and as of the effective
time;
|
|
•
|
ImproveNet
and its principal stockholders complied with or satisfied
in all
material respects any covenant, condition or agreement to be complied
with
or satisfied by such parties under the merger agreement, or any
exhibit or
schedule thereto;
|
|
•
|
receipt
by ImproveNet of all governmental permits and consents that are
required
for the consummation of the transactions contemplated by the
merger
agreement and the third party consents identified in the merger
agreement;
and
|
|
•
|
the
consulting agreements and non-competition agreements (substantially
in the
forms attached as exhibits to the merger agreement) between ImproveNet
and
each of Jeffrey Rassas, Nasser Ahmad, and Homayoon Farsi being
in full force
and effect.
|
§ |
Since
1998, ImproveNet and ServiceMagic have competed in the online home
improvement services marketplace.
|
§ |
In
June 2003, ServiceMagic’s Co-Chief Executive Officer, Rodney Rice,
contacted ImproveNet’s Chief Executive Officer, Jeffrey Rassas, to request
a meeting. At that meeting, Mr. Rice and Mr. Rassas were joined by
ServiceMagic’s other Co-Chief Executive Officer, Michael Beaudoin, and
ImproveNet’s President, Homayoon Farsi, and the group discussed possible
business combinations between the two companies. After several hours
of
discussions, Mr. Rassas and Mr. Farsi concluded that the proposed
options
were not in the best interests of ImproveNet and its stockholders.
Over
the next several months, representatives of ImproveNet and ServiceMagic
engaged in a series of further discussions related to a possible business
combination between the two companies; however, ImproveNet’s management
determined that the additional options proposed by ServiceMagic were
not
in the best interests of ImproveNet and its
stockholders.
|
§ |
In
August 2003, Mr. Rassas delivered an email to the Executive Vice
President
of Business Development of a major national home center retailer
inquiring
about a potential strategic alliance with, or an investment in,
ImproveNet.
|
§ |
In
November 2003, in response to the email Mr. Rassas sent to the major
national home center retailer in August 2003, Mr. Rassas received
an email
from the retailer’s Director of Strategic Development. The Director
expressed interest in exploring a potential investment in, a strategic
alliance with, or an acquisition of, ImproveNet. Over the next several
weeks, representatives of ImproveNet and the retailer engaged in
a series
of discussions and conducted due diligence related to those proposals;
however, the retailer ultimately determined that it did not wish
to pursue
an investment in, or an acquisition of, ImproveNet. Continuing discussions
between the companies regarding a potential strategic alliance ultimately
resulted in collaboration on a pilot program to provide contractors and installers for home improvement projects
sold through the retailer's retail home centers, which is currently
under
development.
|
§ |
In
January 2004, Mr. Rassas was contacted by a venture capital firm
that owns
a controlling interest in a construction
and residential remodeling media company regarding the media company’s
interest in investing in, or acquiring, ImproveNet. Over the next
several
weeks, Mr. Rassas engaged in discussions with representatives from
the
venture capital firm and the media company’s divisional President and
Director of Business Development. Given ImproveNet’s need for additional
working capital, Mr. Rassas focused the discussions on a strategic
investment by the media company; however, the media company’s President
and Director of Business Development focused their interest on a
potential
acquisition of ImproveNet. After completing their due diligence of
ImproveNet, the media company’s President and Director of Business
Development told Mr. Rassas that they were interested in acquiring
ImproveNet, and discussed with Mr. Rassas a range of purchase prices.
Since the price range was substantially below ImproveNet’s market
capitalization value at that time, Mr. Rassas told the media company’s
President and Director of Business Development that he did not wish
to
pursue the potential acquisition.
|
§ |
In
June 2004, ImproveNet secured a $1,050,000 equity investment to be
used
for business expansion purposes.
|
§ |
In
July 2004, Mr. Rassas learned that ServiceMagic had been acquired
by
IAC/InterActiveCorp, and exchanged correspondence with Mr. Rice
acknowledging the transaction.
|
§ |
During
2004, competition in the online home improvement services marketplace
continued to intensify. In response, ImproveNet’s management and board of
directors implemented a number of initiatives designed to enhance
its
competitive position. The initiatives included (i) relocating ImproveNet’s
call center from Canada to its principal office in Scottsdale, Arizona,
(ii) introducing and implementing a new operational strategy, which
included contractor recruiting, expansion of its core online contractor
matching business, and increased service offerings, and (iii) developing
and launching an online advertising engine connecting home improvement
product advertisers to ImproveNet’s home owners and service providers.
|
§ |
By
February 2005, substantial investment in the initiatives described
in the
paragraph above, together with weaker than expected results in
ImproveNet’s efforts to recruit new contractor members, had begun to
negatively impact ImproveNet’s cash flow. In response, ImproveNet’s
management and board of directors commenced a series of discussions
regarding strategic alternatives designed to reduce expenses and
secure
working capital through additional investments and/or the sale of
SmartFusion, the primary asset of ImproveNet’s wholly-owned software
division, eTechLogix.
|
§ |
In
February 2005, ImproveNet’s board of directors approved the sale of
SmartFusion in order to secure additional working capital and enable
ImproveNet to focus on expansion of its core online contractor matching
business.
|
§ |
On
April 7, 2005, Mr. Rassas contacted Mr. Rice to discuss potential
strategic alliances between ImproveNet and ServiceMagic, including
a
service request lead exchange. During that discussion, Mr. Rice indicated
that ServiceMagic had an interest in potentially acquiring ImproveNet,
and
that he had been discussing that initiative with other members of
ServiceMagic’s management team. At Mr. Rice’s request, a conference call
was scheduled between Mr. Rice and Mr. Rassas to discuss possible
business
combinations between ImproveNet and
ServiceMagic.
|
§ |
On
April 11, 2005, Mr. Rassas and Mr. Rice participated in a conference
call
involving further discussions regarding possible business combinations
between ImproveNet and ServiceMagic, including the acquisition of
ImproveNet by ServiceMagic.
|
§ |
On
April 15, 2005, ImproveNet and ServiceMagic entered into a Non-Disclosure
Agreement, pursuant to which representatives of the two companies
continued to discuss potential business combinations involving the
acquisition of ImproveNet by ServiceMagic. Over the next several
weeks,
each company conducted its due diligence investigation of the other
company.
|
§ |
On
May 5, 2005, Mr. Rice delivered by email to Mr. Rassas a proposed
letter
of intent for ServiceMagic to acquire 100% of ImproveNet’s outstanding
stock for $7 million in a cash merger.
|
§ |
On
May 6, 2005, ImproveNet’s board of directors reviewed and discussed at
length ServiceMagic’s letter of intent and the proposed merger. In
analyzing the letter of intent, the board of directors considered,
among
other things: (i) the transaction structure; (ii) the fairness of
the
merger consideration; (iii) the exclusivity, confidentiality, and
conduct in the ordinary course of business commitments contained
in the
letter of intent, and the obligations related thereto; (iv) the strategic
alternatives available to ImproveNet; and (v) the potential adverse
effects to ImproveNet that could result from entering into the letter
of
intent. At the conclusion of the meeting, ImproveNet’s board of directors
passed a resolution approving the letter of intent as presented and
authorizing its execution and delivery, and authorizing Mr. Rassas
to
engage in negotiations with ServiceMagic to effect the transactions
contemplated by the letter of intent. The letter of intent was then
executed and delivered to ServiceMagic.
|
§ |
On
May 9, 2005, representatives of ImproveNet, one the one hand, and
ServiceMagic and IAC/InterActiveCorp, on the other hand, commenced
negotiations related to a definitive agreement and plan of merger,
pursuant to which a newly created and wholly-owned subsidiary of
ServiceMagic would be merged with and into ImproveNet, with ImproveNet
continuing as the surviving corporation. Over the next several weeks,
negotiations continued between ImproveNet’s management and legal advisors
and ServiceMagic and its advisors regarding the terms and conditions
of
the merger agreement and the ancillary transaction
documents.
|
§ |
On
May 26, 2005, ImproveNet’s board of directors held a meeting during which
Mr. Rassas provided an update regarding the status of negotiations
with
ServiceMagic. Mr. Rassas and the board members continued discussions
regarding ImproveNet’s rationale for proceeding with the merger and
whether the proposed merger consideration would be fair to ImproveNet’s
stockholders. In particular, the board of directors considered, among
other things, (i) the economic terms of the proposed merger; (ii)
options
available for securing working capital through additional investments
and
continuing to operate the business; (iii) the board’s fiduciary duties in
connection with the merger; and (iv) the advisability of directors’ and
officers’ liability coverage for ImproveNet’s officers and directors
following the closing of the merger, and the terms thereof. The board
of
directors concluded that ImproveNet’s management should continue with
efforts to negotiate a definitive merger
agreement.
|
§ |
On
June 6, 2005, ImproveNet completed the sale of SmartFusion and its
customer base to an unrelated third party. As consideration, eTechLogix
received a cash payment of $350,000, and will be entitled to receive
up to
an additional $100,000 in royalties from (i) sales of SmartFusion
software
and (ii) recurring software licenses sold to new and existing customers
through October 2007. In connection with the transactions contemplated
by
the merger agreement, eTechLogix will assign its rights to these
royalties
to ImproveNet.
|
§ |
On
June 13, 2005, ImproveNet’s board of directors held a meeting to discuss
(i) ServiceMagic’s proposal to reduce the merger consideration from $7
million to $6.72 million (due to ServiceMagic’s perceived inability to use
ImproveNet’s net operating losses after consummation of the merger), and
(ii) ImproveNet’s current cash position.
|
§ |
On
June 13, 2005, ImproveNet engaged Janney Montgomery Scott LLC as
its
exclusive investment banker. Janney was retained by ImproveNet to
opine as
to the fairness, from a financial point of view, to the holders of
ImproveNet’s common stock (other than the four principal stockholders that
would execute
|
the
merger agreement - Farsi Family Trust, Ahmad Family Trust, Hayjour
Family
Limited Partnership, and Kinderhook Partners, LP) of the consideration
offered by ServiceMagic in exchange for 100% of ImproveNet’s common
stock.
|
§ |
On
June 16, 2005, ImproveNet’s board of directors held a meeting to review
and discuss the proposed terms and conditions of the merger, including
specific issues raised by ServiceMagic’s draft of the merger agreement,
such as (i) the proposed transition plans to facilitate integration
after
closing; (ii) the adjustment of the proposed merger consideration
related
to ImproveNet’s net operating loss calculation; (iii) the use of escrowed
merger consideration funds to pay ImproveNet’s unaccrued litigation
expenses, and the minimum claim permitted under the escrow agreement;
(iv)
the required Securities and Exchange Commission disclosures related
to the
merger; (v) the term and scope of directors’ and officers’ liability
coverage available to ImproveNet’s officers and directors following the
closing of the merger; (vi) the conditions required to be satisfied
to
accept a superior proposal; (vii) the ability of ServiceMagic to
terminate
the merger agreement in the event of a material adverse effect; and
(viii)
the circumstances under which ImproveNet would or would not be required
to
pay a termination fee.
|
§ |
On
June 17, 2005, ImproveNet’s board of directors held a meeting during which
Janney rendered to the board an oral opinion, which opinion was confirmed
by delivery of a written opinion dated June 17, 2005, to the effect
that,
as of that date and based on and subject to the matters stated in
the
opinion, the proposed merger consideration was fair, from a financial
point of view, to the holders of ImproveNet’s common stock (other than
four of ImproveNet’s principal stockholders - Farsi Family Trust, Ahmad
Family Trust, Hayjour Family Limited Partnership, and Kinderhook
Partners,
LP).
|
§ |
On
June 20, 2005, ImproveNet’s board of directors held a meeting to discuss
various terms subject to negotiation, including, among others,
ServiceMagic’s proposal to implement a transition plan to facilitate
integration of the two companies’ operations after
closing.
|
§ |
On
June 21, 2005, ImproveNet’s board of directors held a meeting during which
Mr. Rassas provided an update regarding the terms and conditions
and the outstanding issues related to the proposed merger, including
(i)
escrow, representation and warranty, and indemnification provisions
in the
merger agreement related to Kinderhook Partners, LP, and (ii) the
voting
agreements for certain principal stockholders of ImproveNet contemplated
by the merger agreement. After a discussion of those issues, the
board
unanimously approved the merger agreement, including the merger and
the
other transactions contemplated by the merger agreement, determined
that
the terms of the merger and the other transactions contemplated by
the
merger agreement were advisable, fair to, and in the best interests
of,
ImproveNet and its stockholders, and recommended that ImproveNet’s
stockholders vote “FOR” adoption of the merger
agreement.
|
§ |
After
the close of business on June 22, 2005, the merger agreement and
the
ancillary transaction documents were executed and
delivered.
|
§ |
Early
in the day on June 23, 2005, the execution of the transaction documents
was publicly announced.
|
§ |
authorizing,
approving and adopting the merger and the merger agreement, and the
transactions contemplated by the merger
agreement;
|
§ |
determining
that the consideration to be paid to our stockholders in the merger
is
fair to, and in the best interests of, ImproveNet and its stockholders;
and
|
§ |
recommending
that our stockholders vote in favor of approving and adopting the
merger
agreement and the merger, and the transactions contemplated by the
merger
agreement.
|
§ |
the
fact that the merger consideration would be all cash, which would
provide
certainty of value to our stockholders;
|
§ |
the
fact that the purchase price of approximately $0.12
per share constituted a 20% premium to the recent trading range of
ImproveNet’s common stock immediately prior to execution of the merger
agreement;
|
§ |
the
manner in which the consideration and negotiation of proposals was
conducted and the fact that the terms of the merger agreement were
determined through extensive arm’s length negotiations between management,
the board of directors and its advisors, on the one hand, and ServiceMagic
and its advisors, on the other;
|
§ |
the
ability of ImproveNet to terminate the merger agreement and accept
a
financially superior proposal under specified conditions, subject
to
payment to ServiceMagic of a termination
fee of $300,000, and reimbursement of ServiceMagic’s transaction fees and
expenses, not to exceed $200,000;
and
|
§ |
the
likelihood that the merger would be completed, our board of directors having
concluded, particularly in light of the size and financial strength
of
ServiceMagic’s parent company, IAC/InterActiveCorp, that ServiceMagic had
the financial ability to complete the merger and the other transactions
contemplated by the merger agreement.
|
§ |
our
board of directors’ knowledge of our business, assets, financial
condition, results of operations and prospects, our competitive position,
the nature of our business and the industry in which we compete and
the
market for our common stock, which supported its view that the cash
consideration to be received by our stockholders pursuant to the
merger
was fair and in the best interests of our stockholders. In arriving
at
this determination, the members of our board of directors also considered
the risk associated with continuing to operate as an independent
public
company, given the uncertain industry climate, competition within
our
industry, our limited sources of liquidity, and the limited trading
volume
in our common stock; and
|
§ |
the
current and prospective environment in which we operate, and in particular
our competitive position, including technological developments and
increasing competition to acquire home improvement project leads
and to
recruit service providers to participate in our membership network.
Given
these developments and other macroeconomic forces in the industry,
our
board of directors believed that the proposed merger with ServiceMagic
was
in the best interests of our
stockholders.
|
§ |
our
management and board of directors retained and received advice from
ImproveNet’s legal counsel and investment banker in negotiating and
evaluating the terms of the merger agreement; and
|
§ |
the
terms of the merger agreement resulted from arm’s-length bargaining
between our management and board of directors and its representatives,
on
the one hand, and ServiceMagic and its representatives, on the other
hand.
|
§ |
ImproveNet
would no longer exist as an independent company and our stockholders
would
no longer participate in its potential
growth;
|
§ |
at
various times, both historically and during the one year period prior
to
the announcement of the merger agreement with ServiceMagic, ImproveNet’s
common stock had traded in excess of the per share merger consideration, although, in light of the various industry developments noted above,
our
board of directors considered the risk that ImproveNet’s common stock
would not trade materially in excess of the per share merger consideration
in the near term if ImproveNet remained independent, particularly
if it
could not secure additional financing;
|
§ |
ImproveNet
would be required to pay a termination fee of $300,000, and reimburse
ServiceMagic’s transaction fees and expenses up to $200,000, if the merger
agreement is terminated under specified circumstances, an obligation
that might discourage competing acquisition
proposals;
|
§ |
even
if the merger is not completed, ImproveNet would be required to pay
its
own legal, accounting and investment banking fees, which it estimates
will
be approximately $150,000;
|
§ |
gains
from an all-cash transaction would generally be taxable to our
stockholders for U.S. federal income tax purposes. See “Certain U.S.
Federal Income Tax Consequences;”
|
§ |
there
is no assurance that all conditions to the parties’ obligations to
complete the merger will be satisfied;
and
|
§ |
failure
to complete the merger could adversely affect ImproveNet due to potential
disruptions in its operations and the obligation to pay the fees
and
expenses noted above.
|
(i) |
Reviewed
the draft definitive merger agreement;
|
(ii) |
Reviewed
ImproveNet’s Form 10-K for the fiscal years ended December 31, 2004, 2003,
and 2002 and certain other filings with the Securities and Exchange
Commission made by ImproveNet, including proxy statements, Form 10-Qs
and
Form 8-Ks;
|
(iii) |
Reviewed
certain other publicly available information concerning ImproveNet
and the
trading market for ImproveNet’s common
stock;
|
(iv) |
Reviewed
certain non-public information relating to ImproveNet, including
financial
forecasts and projections for ImproveNet furnished to Janney by or
on
behalf of ImproveNet;
|
(v) |
Reviewed
certain publicly available information concerning certain other companies
engaged in businesses which Janney believed to be comparable to ImproveNet
and the trading markets for certain of such companies’
securities;
|
(vi) |
Reviewed
the financial terms of certain mergers and acquisitions which Janney
believed to be relevant;
|
(vii) |
Conducted
discussions with certain members of senior management of ImproveNet
concerning the business and operations, assets, present condition
and
future prospects of ImproveNet; and
|
(viii) |
Performed
such other analyses, examinations and procedures, reviewed such other
agreements and documents, and considered such other factors, as Janney
deemed in its sole judgment, to be necessary, appropriate or relevant
to
render an opinion.
|
EV
/ LTM Revenue
|
EV
/ 2005E Revenue
|
|
Average
|
2.1x
|
1.2x
|
Median
|
1.4x
|
1.0x
|
High
|
4.3x
|
1.5x
|
Low
|
0.5x
|
1.0x
|
Implied
Enterprise Value based on median valuation
|
$4,466,229
(1)
|
$3,825,574
(2)
|
Transaction
(Target / Acquiror)
|
Announcement
Date
|
Healthology
Inc. / iVillage Inc.
|
January
10, 2005
|
Ebookers
plc / Cendant Corp.
|
December
02, 2004
|
PriceRunner.com
/ ValueClick Inc.
|
August
03, 2004
|
Stoneage
Corporation / Autobytel Inc.
|
April
15, 2004
|
RealEstate.com
/ LendingTree, Inc.
|
December
23, 2003
|
Med
Hotels Ltd. / Lastminute.com plc
|
December
02, 2003
|
Bidville
Inc. / American Recreational Enterprises, Inc.
|
December
10, 2003
|
Anyway
/
IAC
|
October
27, 2003
|
Epinions,
Inc. / Shopping.com Ltd.
|
March
12, 2003
|
EV
/ LTM Revenue
|
|
Average
|
2.9x
|
Median
|
2.0x
|
High
|
6.3x
|
Low
|
0.5x
|
Implied
Enterprise Value (1) based on median valuation
|
$6,280,208
|
|
%
Premium to Announcement
|
||||
|
1
Day
|
|
1
Week
|
|
1
Month
|
|
Prior
|
|
Prior
|
|
Prior
|
Average
|
34.3%
|
|
40.9%
|
|
40.8%
|
Median
|
29.1%
|
|
30.5%
|
|
38.6%
|
High
|
185.0%
|
|
256.3%
|
|
200.0%
|
Low
|
(18.4%)
|
|
(41.6%)
|
|
(32.7%)
|
Proposed
transaction premium (1)
|
34.4%
|
34.4%
|
34.4%
|
|
%
Premium to Announcement
|
||||
|
1
Day
|
|
1
Week
|
|
1
Month
|
|
Prior
|
|
Prior
|
|
Prior
|
Average
|
27.7%
|
|
40.1%
|
|
52.7%
|
Median
|
19.8%
|
|
34.4%
|
|
45.3%
|
High
|
75.6%
|
|
100.9%
|
|
117.0%
|
Low
|
3.6%
|
|
9.6%
|
|
17.1%
|
Proposed
transaction premium (1)
|
34.4%
|
34.4%
|
34.4%
|
§ |
a
citizen or resident of the United States,
|
§ |
a
corporation (or other entity treated or otherwise treated as a corporation
for U.S. federal income tax purposes) created or organized under
the laws
of the Untied States or any of its political subdivisions,
|
§ |
an
estate, the income of which is subject to U.S. federal income tax,
regardless of its source, or
|
§ |
a
trust if it (i) is subject to the supervision of a court within
the
U.S. and one or more U.S. persons control all substantial decisions
of the
trust, or (ii) has a valid election in effect under applicable
U.S. Treasury regulations to be related as a U.S. person.
A
non-U.S. holder is a holder (other than a partnership) that is not
a U.S.
holder.
|
§ |
the
gain is effectively connected with a trade or business of the non-U.S.
holder in the United States (and, if required by an applicable income
tax
treaty, is attributable to a U.S. permanent establishment or fixed
base of
the non-U.S. holder); or
|
§ |
the
non-U.S. holder is an individual who is present in the United States
for
183 days or more in the taxable year of that disposition, and who has met certain
other conditions.
|
§ |
the
broker does not have actual knowledge or reason to know that the
holder is
a U.S. person and the holder has furnished to the broker:
|
§ |
an
appropriate W-8 series form or an acceptable substitute form upon
which
the holder;
|
§ |
certifies,
under penalties of perjury, that the holder is a non- U.S. person,
or
|
§ |
other
documentation upon which it may rely to treat the payment as made
to a
non-U.S. person in accordance with U.S. Treasury regulations;
or
|
§ |
the
holder otherwise establishes an
exemption.
|
§ |
a
U.S. person;
|
§ |
a
controlled foreign corporation for U.S. tax
purposes;
|
§ |
a
foreign person 50% or more of whose gross income is effectively connected
with the conduct of a U.S. trade or business for a specified three-year
period; or
|
§ |
a
foreign partnership, if at any time during its tax year: (i) one
or more
of its partners are U.S. persons, who in the aggregate hold more
than 50%
of the income or capital interest in the partnership, or (ii) such
foreign
partnership is engaged in the conduct of a U.S. trade or
business.
|
|
•
|
corporate
organization, existence, good standing, qualification, and corporate
power
and authority to own and lease and operate ImproveNet’s
properties;
|
|
•
|
subsidiaries;
|
|
•
|
corporate
power and authorization to enter into and carry out the obligations
of the
merger agreement and the enforceability of the merger
agreement;
|
|
•
|
capitalization;
|
|
•
|
title
to properties and assets;
|
|
•
|
the
absence of certain activities, changes or events since December 31, 2004;
|
|
•
|
material
contracts;
|
|
•
|
the
ability to enter into the merger agreement and consummate the merger
without violation of, or conflict with, its organizational documents,
contracts, or any laws;
|
|
•
|
documents
filed with the SEC and the accuracy of information contained in
those
documents;
|
|
•
|
the
accuracy of ImproveNet’s financial statements;
|
|
•
|
the
absence of undisclosed liabilities;
|
•
|
tax
matters;
|
|
•
|
environmental
matters;
|
|
•
|
matters
relating to ImproveNet’s employee benefit plans;
|
|
•
|
compliance
with laws;
|
|
•
|
permits;
|
|
•
|
governmental,
regulatory and other approvals required to complete the
merger;
|
|
•
|
litigation
matters;
|
•
|
labor
matters;
|
|
•
|
intellectual
property;
|
|
•
|
transactions
with affiliates;
|
|
•
|
insurance;
|
|
•
|
accounts
receivable;
|
|
•
|
compliance
with anti-bribery regulations;
|
|
•
|
brokers;
|
|
•
|
books
and records;
|
|
•
|
bank
accounts;
|
|
•
|
power
and authorization of ImproveNet’s principal stockholders to enter into and
carry out the obligations of the merger agreement and the enforceability
of the merger agreement;
|
|
•
|
title
of shares held by ImproveNet’s principal stockholders;
|
|
•
|
proceedings
regarding ImproveNet’s principal stockholders;
|
|
•
|
the
proxy statement filed by ImproveNet with respect to the
merger;
|
|
•
|
the
absence of discussions regarding a takeover proposal;
|
|
|
•
|
the
opinions of Janney Montgomery Scott LLC;
|
|
•
|
that
no state anti-takeover statute is applicable to the
merger;
|
|
•
|
unaccrued
litigation and consumer complaints;
|
|
•
|
the
absence of liabilities regarding eTechLogix; and
|
|
•
|
ownership
of eTechLogix software.
|
•
|
power
and authorization of Kinderhook to enter into and carry out the
obligations of the merger agreement and the enforceability of the
merger
agreement;
|
|
•
|
title
of shares held by Kinderhook; and
|
|
•
|
proceedings
regarding Kinderhook.
|
|
•
|
corporate
organization, existence, good standing, qualification, and corporate
power
and authority to own and lease and operate ServiceMagic’s and Sunbelt’s
properties;
|
|
•
|
corporate
power and authorization to enter into and carry out the obligations
of the
merger agreement and the enforceability of the merger
agreement;
|
|
•
|
the
ability to enter into the merger agreement and consummate the
merger
without violation of, or conflict with, its organizational documents,
contracts, or any laws; and
|
|
•
|
governmental,
regulatory and other approvals required to complete the
merger.
|
§ |
incur
any indebtedness for borrowed or purchase money or letters of credit,
or
assume, guarantee, endorse (other than endorsements for deposit or
collection in the ordinary course of business consistent with past
practice), or otherwise become responsible for obligations of any
other
person except in the ordinary course of business consistent with
past
practice;
|
§ |
issue
or redeem any securities other
than pursuant to the exercise of ImproveNet options or warrants
outstanding as of the date of the merger agreement;
|
§ |
make
or incur any obligation to make any distribution to its
stockholders;
|
§ |
make
any change to its charter documents;
|
§ |
mortgage,
pledge or otherwise encumber any of its assets or sell, transfer
or
otherwise dispose of any of its assets except in the ordinary course
of
business consistent with past practice;
|
§ |
make
any investment of a capital nature either by purchase of stock or
securities, contributions to capital, property transfer or otherwise,
or
by the purchase of any property or assets of any other person, except
in
the ordinary course of business consistent with past
practice;
|
§ |
adopt
a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization
(other than the merger) or otherwise permit its corporate existence
to be
suspended, lapsed or revoked;
|
§ |
sell,
lease, license, transfer or otherwise dispose of assets of ImproveNet
in
excess of $25,000 in any single transaction or series of
transactions;
|
§ |
terminate
any material contract or make any change in any material contract
which
will result in an aggregate value, cost or amount in excess of $25,000;
|
§ |
make
any change in any method of accounting or accounting practice except
as
required by U.S. GAAP or applicable law;
|
§ |
enter
into, modify or amend any employment agreement or arrangement with,
or
grant any bonuses, salary increase, or retention pay to, any officer,
director, consultant or key employee, other than (i) in connection
with
promotions or other changes in positions or responsibilities of employees
that do not involve an increase in compensation, severance or benefits;
or
(ii) as may be required by applicable law or any benefit
plan as in
effect on the date hereof;
|
§ |
modify,
amend or terminate any benefit plan or increase the benefits provided
under any benefit plan except as required by applicable
law;
|
§ |
enter
into, renew on materially different terms or agree to enter into,
or renew
on materially different terms, any employee welfare, pension, retirement,
profit-sharing or similar plan, program, agreement, policy or arrangement
except as required by applicable law;
|
§ |
enter
into any new or renew any other material contract with respect to
its
business which has an aggregate value, cost or amount in excess of
$50,000;
|
§ |
file
any amended returns with respect to taxes, make
or change any election in respect of material taxes, enter into any
closing agreement, settle any claim or assessment in respect of material
taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of material
taxes;
|
§ |
make
any prepayments with respect to, or advance any funds under, any
agreement
or arrangement to which ImproveNet is a party other than in the ordinary
course of business consistent with past
practice;
|
§ |
make
any individual cash payment in excess of $10,000, other than payments
made
in the ordinary course of business consistent with past practice
(including, without limitation, payments for taxes due and payments
to
ImproveNet’s suppliers); or
|
§ |
make
any payments, or incur an obligation to make any payments, in respect
of,
or to pursue, settle or resolve, any unaccrued litigation matters
or
consumer complaints in excess of an aggregate of
$45,000.
|
|
•
|
all
necessary or desirable approvals under antitrust regulatory filings
in any
jurisdiction have been obtained, and none of ServiceMagic, ImproveNet
or
any of their respective subsidiaries have made a commitment to
any
governmental authority not to close the transactions contemplated
by the
merger agreement before a date
certain;
|
|
•
|
no
proceeding by any governmental authority has been instituted which
questions the validity or legality of the transactions contemplated
by the
merger agreement and which could reasonably be expected to have
a material
adverse affect on the assets of ImproveNet or its business if the
transactions contemplated by the merger agreement are consummated.
There
will not be any governmental regulation or order that enjoins or
makes the
transactions by the merger agreement illegal or otherwise
prohibited;
|
|
•
|
any
governmental or regulatory notices or approvals required under
any law or
regulations to carry out the transactions contemplated by the merger
agreement have been obtained and the parties have complied with
all law
and regulations applicable to thereto; and
|
|
•
|
approval
of ImproveNet stockholders has been obtained.
|
|
•
|
each
of (i) the representations and warranties of ServiceMagic and Sunbelt
contained in the merger agreement that are qualified by a material
adverse
effect (as such term is defined in the merger agreement) are true
and
correct in all respects as of the effective time of the merger
as though
made on and as of the effective time (except that those representations
and warranties which address matters only as of a particular date
need
only be true and correct as of such date), and (ii) the representations
and warranties of ServiceMagic and Sunbelt contained in the merger
agreement that are not so qualified (including, without limitation,
those
which are qualified by the phrase “material”) are true and correct as of
the effective time of the merger as though made on and as of the
effective
time (except that those representations and warranties which address
matters only as of a particular date need only be true and correct
as of
such date), except to the extent that the failure of any such
representation or warranty to be true and correct has not had,
and could
not reasonably be expected to have, a material adverse effect on
ServiceMagic;
|
|
•
|
each
of ServiceMagic and Sunbelt have tendered for delivery the documents
and
other items to be delivered by such parties pursuant to the terms
of the
merger agreement; and
|
|
•
|
ServiceMagic
and Sunbelt have complied with or satisfied in all material respects
any
covenant, condition or agreement to be complied with or satisfied
by such
parties under the merger agreement, or any exhibit or schedule
thereto.
|
|
•
|
Each
of (i) the representations and warranties of ImproveNet and/or
its
principal stockholders (Farsi Family Trust, Ahmad Family Trust,
Hayjour
Family Limited Partnership, and Kinderhook Partners, LP) contained
in the
merger agreement that are qualified by a material adverse effect
(as such
term is defined in the merger agreement) are true and correct in
all
respects as of the effective time of the merger as though made
on and as
of the effective time (except that those representations and warranties
which address matters only as of a particular date need only be
true and
correct as of such date), and (ii) the representations and warranties
of
ImproveNet and/or its principal stockholders contained in the merger
agreement that are not so qualified (including, without limitation,
those
which are qualified by the phrase “material”) are true and correct as of
the effective time of the merger as though made on and as of the
effective
time (except that those representations and warranties which address
matters only as of a particular date need only be true and correct
as of
such date), except to the extent that the failure of any such
representation or warranty to be true and correct has not had,
and could
not reasonably be expected to have, a material adverse effect on
ImproveNet and its subsidiaries;
|
|
•
|
ImproveNet
and/or its principal stockholders shall have tendered for delivery
the
documents and other items to be delivered by such parties pursuant
to the
terms of the merger agreement;
|
|
•
|
ImproveNet
has received all governmental permits and consents that are required
for
the consummation of the transactions contemplated by the merger
agreement
and the third party consents identified in the merger
agreement;
|
|
•
|
approval
of ImproveNet stockholders has been obtained;
|
|
•
|
the
consulting agreements and non-competition agreements (substantially
in the
forms attached as exhibits to the merger agreement) between ImproveNet
and
each of Jeffrey Rassas, Nasser Ahmad, and Homayoon Farsi have
remained in
full force and effect;
|
|
•
|
since
the date of the merger agreement there has not been any state
of facts,
event, change, effect, development, condition or occurrence that,
individually or in the aggregate, has had, or would reasonably
be expected
to have, a material adverse effect on ImproveNet;
|
|
•
|
holders
of not more than 15% of the outstanding shares of ImproveNet
common stock
have perfected their appraisal rights;
|
|
•
|
no
person that is not a governmental authority has instituted a
proceeding
which questions the validity or legality of the transactions
contemplated
by the merger agreement or which seeks to enjoin or make the
transactions
contemplated thereby illegal or otherwise prohibited;
|
|
•
|
the
eTechLogix transaction has been consummated upon terms and conditions
satisfactory to ServiceMagic in its sole discretion. See “The Merger
Agreement - eTechLogix Transaction;” and
|
|
•
|
ImproveNet
and its principal stockholders have complied with or satisfied
in all
material respects any covenant, condition or agreement to be
complied with
or satisfied by such parties under the merger agreement, or any
exhibit or
schedule thereto.
|
|
(i)
|
any
misrepresentation or breach of any warranty on the part of ImproveNet
or
any principal stockholder contained in the merger agreement or
in any
agreement, certificate or other instrument delivered by ImproveNet
or any
principal stockholder pursuant to the merger agreement;
|
|
(ii)
|
any
breach or non-performance by ImproveNet or any principal stockholder
of
any of their respective covenants or agreements contained in the
merger
agreement or in any agreement, certificate or other instrument
delivered
by ImproveNet or such principal stockholder pursuant to the merger
agreement;
|
|
(iii)
|
any
fees and expenses of ImproveNet incident to the merger agreement
and the
transactions contemplated thereby (including legal and accounting
fees,
investment banking fees, fees and points to any lender, fees and
expenses
related to the procurement of a fairness opinion, consulting fees
and
related disbursements in connection with any of the foregoing)
and, to the
extent agreed or required to be paid by ImproveNet, the stockholders
of
ImproveNet, in excess of $150,000;
|
(iv)
|
notwithstanding
the disclosure of any such matter on the disclosure schedules to
the
merger agreement, any unaccrued litigation matters and consumer
complaints
(it
being understood that any payments
|
made by ImproveNet or eTechLogix on or after April 1, 2005 in respect of unaccrued litigation matters and consumer complaints will be deemed to be “Damages” suffered by ServiceMagic for purposes of the indemnification provided pursuant to the merger agreement); | ||
(v)
|
notwithstanding
the disclosure of any such matter on the disclosure schedules
to the
merger agreement, the noncompliance of any ImproveNet employee
benefit
plan with applicable laws and any corrective actions necessary
to bring
such employee benefit plan into full compliance with applicable
laws
(it
being understood that any payments made by ImproveNet on or after
April 1,
2005 in respect of any such employee
benefit plans will
be deemed to be “Damages” suffered by ServiceMagic for purposes of the
indemnification provided pursuant to this clause (v));
or
|
|
(vi)
|
certain
matters related to the filing of tax returns by ImproveNet and
the payment
of taxes (the matters described in clauses (i), (ii), (iii),
(iv), (v),
and (vi) are collectively referred to herein as the “Covered
Matters”).
|
(i)
|
actual
fraud, knowing misrepresentation or active concealment;
|
|
(ii)
|
a
breach of any of the representations and warranties in the merger
agreement related to (a) corporate power and authorization to enter
into
and carry out the obligations of the merger agreement and the
enforceability of the merger agreement, (b) capitalization, (c)
title to
properties and assets, (d) the absence of undisclosed liabilities,
(e) tax
matters, (f) power and authorization of ImproveNet’s principal
stockholders to enter into and carry out the obligations of the
merger
agreement and the enforceability of the merger agreement, (g) title
of
shares held by ImproveNet’s principal stockholders, (h) the absence of
liabilities regarding eTechLogix, or (i) unaccrued litigation and
consumer
complaints;
|
|
(iii)
|
the
Covered Matters described in clauses (iii), (iv), (v) and (vi)
above;
or
|
|
(iv)
|
payment
of any deductible under the directors’ and officers’ liability insurance
policy purchased by ServiceMagic pursuant to the terms of the merger
agreement.
|
|
|
(i)
|
by
the mutual written consent of ImproveNet, ServiceMagic and Sunbelt;
|
|
(ii)
|
by
ServiceMagic and Sunbelt or ImproveNet if (a) any court
of competent
jurisdiction in the United States or other United States governmental
authority has issued a final order, decree or ruling or taken any
other
final action restraining, enjoining or otherwise prohibiting the
merger
and such order, decree, ruling or other action is or has become
nonappealable, (b) subject to the following, the merger has not
been
consummated by October 31, 2005; provided, that no party may terminate
the
merger agreement pursuant to clause (b) if such party’s willful failure to
fulfill any of its obligations under the merger agreement has been
the
reason that the effective time has not occurred on or before said
date, or
(c) upon a vote at a duly held meeting to obtain ImproveNet’s stockholder
approval, such approval is not
obtained;
|
|
(iii)
|
by
ServiceMagic and Sunbelt if there has been (a)(1) a material breach
of any
representation or warranty of ImproveNet or its principal stockholders
that is not qualified as to materiality or a material adverse effect,
or
if any such representation or warranty is untrue in any material
respect;
or (2) a breach of any representation or warranty of ImproveNet
or its
principal stockholders that is qualified as to materiality or a
material
adverse effect, or if any such representation or warranty of ImproveNet
or
its principal stockholders is untrue, or (b) a material breach
by
ImproveNet or its principal stockholders of any of their respective
covenants or agreements, and, in the case of either (a) or (b) above, such breach or event is not cured
(to the
extent it is curable) within 20 business days after notice by ServiceMagic
or Sunbelt thereof;
|
|
(iv)
|
by
ServiceMagic, (a) if ImproveNet’s board of directors withdraws, modifies
or changes its recommendation of the merger agreement or the merger
in a
manner adverse to ServiceMagic or has resolved to do so, or (b)
if a
tender offer or exchange offer for 25% or more of the outstanding
shares
of ImproveNet common stock is announced or commenced and either
(1)
ImproveNet’s board of directors recommends acceptance of such tender offer
or exchange offer by its stockholders or (B) within 10 business
days
of such commencement, ImproveNet’s board of directors has failed to
recommend against acceptance of such tender offer or exchange offer
by its
stockholders; or
|
|
(v)
|
by
ImproveNet’s board of directors;
|
(a)
to
accept a Superior Proposal, but only if (1) ImproveNet promptly
notifies ServiceMagic in writing of its intention to do so (which
notice
shall contain all material terms and conditions of such Superior
Proposal)
and causes its legal counsel and its financial advisor to afford
ServiceMagic the opportunity to match the terms of the Superior
Proposal
and to negotiate with ServiceMagic to make other adjustments in
the terms
and conditions of the merger agreement that would permit ImproveNet’s
board of directors to recommend the merger agreement, as revised,
(2) ImproveNet has not received from ServiceMagic, within
three
business days of ServiceMagic’s receipt of the notice referred to in
clause (1) above, an offer that ImproveNet’s board of directors
determines, in good faith, after consultation with and taking into
account
the advice of its outside legal counsel and outside financial advisors
of
nationally recognized reputation, matches or exceeds such Superior
Proposal or is otherwise sufficient to permit the board of directors
to
continue to recommend the merger agreement, as amended by such
offer from
ServiceMagic, and the merger, rather than the Superior Proposal,
which
right to match any Superior Proposal will apply equally with respect
to
any subsequent increase or other revision of the terms of any Superior
Proposal, and (3) ImproveNet pays to ServiceMagic the applicable
termination fee described below under the heading “—Termination Fee;”
or
|
(b)
if
there shall have been (1) a material breach of any representation
or
warranty of ServiceMagic or Sunbelt that is not qualified as to
materiality or a material adverse effect, or if any such representation
or
warranty is untrue in any material respect, (2) a breach of any
representation or warranty of ServiceMagic or Sunbelt that is qualified
as
to materiality or a material adverse effect, or if any such representation
or warranty is untrue, or (3) a material breach by ServiceMagic
or Sunbelt
of any of their respective covenants or agreements, and such breach
or
event is not cured (to the extent it is curable) within 20 business
days
after notice by ImproveNet or its principal stockholders.
|
|
(i)
|
by
ServiceMagic or Sunbelt pursuant to clause (iii)(b) under the heading
“—
Termination” above as a result of ImproveNet’s breach of its
non-solicitation obligations described under the heading “— Takeover
Proposals;”
|
|
(ii)
|
by
ServiceMagic pursuant to clause (iv) under
the heading “— Termination” above;
|
|
(iii)
|
by
ImproveNet’s board of directors pursuant to clause (v)(a) under the
heading “— Termination” above;
|
|
(iv)
|
(a)
by ServiceMagic and Sunbelt or ImproveNet pursuant to clause (ii)(b)
(but
only if such termination is the result of ImproveNet’s or any of its
principal stockholder’s failure to fulfill its and their obligations under
the merger agreement), or (ii)(c) under the heading “— Termination” above,
(b) a Takeover Proposal is outstanding at the time of the event
giving
rise to such termination, and (c) within 12 months of such termination
ImproveNet enters into an agreement to consummate, or consummates,
the
transactions contemplated by a Takeover Proposal; or
|
|
(v)
|
(a)
by ServiceMagic and Sunbelt pursuant to clause (iii) under the
heading “—
Termination” above (under circumstances not described in clauses (i), (ii)
or (iii) above), (b) a Takeover Proposal is outstanding at the
time of the
event giving rise to such termination, and (c) within 12 months
of such
termination ImproveNet enters into an agreement to consummate,
or
consummates, the transactions contemplated by a Takeover
Proposal.
|
|
|
High
|
|
Low
|
||
Year
ended December 31, 2003:
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.27
|
|
$
|
0.07
|
Second
Quarter
|
|
$
|
0.12
|
|
$
|
0.07
|
Third
Quarter
|
|
$
|
0.40
|
|
$
|
0.09
|
Fourth
Quarter
|
|
$
|
0.45
|
|
$
|
0.11
|
Year
ended December 31, 2004:
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.23
|
|
$
|
0.09
|
Second
Quarter
|
|
$
|
0.40
|
|
$
|
0.09
|
Third
Quarter
|
|
$
|
0.35
|
|
$
|
0.15
|
Fourth
Quarter
|
|
$
|
0.24
|
|
$
|
0.12
|
Year
ended December 31, 2005:
|
|
|
|
|
|
|
First
Quarter
|
|
$
|
0.16
|
$
|
0.10
|
|
Second
Quarter
|
|
$
|
0.13
|
|
$
|
0.07
|
Third
Quarter (through [ ],
2005)
|
|
$
|
[ ]
|
|
$
|
[ ]
|
Name
|
|
No. of Shares
Beneficially Owned(1)
|
|
|
Percentage of
Shares
(2)
|
|
Kinderhook
Partners, LP
|
|
[16,150,000]
|
(3)
|
|
[26.4]
|
%
|
Jeffrey
I. Rassas
|
|
[9,002,580]
|
(4)
|
|
[16.5]
|
%
|
Naser
Ahmad
|
|
[8,875,580]
|
(5)
|
|
[16.2]
|
%
|
Homayoon
J. Farsi
|
|
[8,252,580]
|
(6)
|
|
[15.1]
|
%
|
Joel
A. Stead
|
|
[3,207,000]
|
(7)
|
|
[5.8]
|
%
|
Alok
Mohan
|
|
[998,450]
|
(8)
|
|
[1.8]
|
%
|
Jeffrey
Perry
|
|
[953,889]
|
(9)
|
|
[1.7]
|
%
|
Jay
Stead
|
|
[584,700]
|
(10)
|
|
[1.1]
|
%
|
All
executive officers and directors as a group (6 persons)
|
|
[28,417,779]
|
|
[50.4]
|
%
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the U.S.
Securities and Exchange Commission. In general, a person who has
voting
power or investment power with respect to securities is treated
as a
beneficial owner of those securities. Common stock subject to options
and
warrants currently exercisable or exercisable within 60 days of
[ ],
2005 count as outstanding for computing the percentage beneficially
owned
by the person holding these options or
warrants.
|
(2)
|
Percentages
are based on [54,665,153]
shares
of common stock outstanding as of [ ],
2005
|
(3)
|
Includes
[6,460,000]
shares of common stock subject to warrants exercisable on or before
[ ],
2005, [ ] of which
have exercise prices less than the per share merger consideration. The General Partner of Kinderhook Partners, LP is Kinderhook
GP,
LLC. Stephen J. Clearman is the managing member of Kinderhook GP,
LLC.
Kinderhook GP, LLC and Stephen J. Clearman each disclaim beneficial
ownership of the shares except to the extent of their pecuniary
interest
therein.
|
(4)
|
Includes
(i) [8,952,580]
shares of common stock owned by the Hayjour Family Limited Partnership,
of
which Mr. Rassas is a general partner, and (ii) [50,000]
shares owned by a minor child that shares Mr. Rassas’
household.
|
(5)
|
Consists
of [8,875,580]
shares of common stock owned by the Ahmad Family
Trust.
|
(6)
|
Consists
of [8,252,580]
shares of common stock owned by the Farsi Family
Trust.
|
(7)
|
Includes
(i) [1,407,000]
shares of common stock owned by the Joel
A. Stead Trust, and
(ii) [400,000]
warrants
owned by the Joel A. Stead Trust, [ ] of which
have exercise prices less than the per share merger consideration.
|
(8)
|
Includes
(i) [642,950]
shares
of common stock subject to options exercisable on or before [ ],
2005, [ ] of which
have exercise prices less than the per share merger consideration, and (ii) [150,000]
shares
of common stock subject to a bonus stock award that will vest upon
a
change of control of ImproveNet.
|
(9)
|
Consists
of [953,889]
shares of common stock subject to options exercisable on or before
[ ],
2005, [ ] of which
have exercise prices less than the per share merger consideration.
|
(10)
|
Includes
[347,700]
shares of common stock subject to options exercisable on or before
[ ],
2005, [ ] of which
have exercise prices less than the per share merger consideration, and (ii) [100,000]
shares
of common stock subject to a bonus stock award that will vest upon
a
change of control of ImproveNet.
|
|
•
|
You
must continue to be the recordholder of the shares of ImproveNet
common
stock through the effective time of the merger.
|
|
•
|
You
must deliver to ImproveNet a written demand for appraisal of your
shares
of ImproveNet common stock before the vote with respect to the
merger is
taken. This written demand for appraisal must be in addition to
and
separate from any proxy or vote abstaining from or voting against
adoption
of the merger agreement. Voting against or failing to vote for
adoption of
the merger agreement by itself does not constitute a demand for
appraisal
within the meaning of Section 262.
|
|
•
|
You
must not vote in favor of adoption of the merger agreement. A vote
in
favor of the adoption of the merger agreement, by proxy or in person,
will
constitute a waiver of your appraisal rights in respect of the
shares of
ImproveNet common stock so voted and will nullify any previously
filed
written demands for appraisal.
|
1.
|
Proposal
to approve the Agreement and Plan of Merger, dated as of June 22,
2005, by
and among ServiceMagic, Inc., Sunbelt Acquisition Corp., ImproveNet,
Inc.,
and the principal stockholders of ImproveNet signatory thereto.
|
FOR ¨
|
|
AGAINST ¨
|
|
ABSTAIN ¨
|
2.
|
Proposal
to consider adjournment or postponement of Special Meeting of Stockholders
if and when made.
|
FOR ¨
|
|
AGAINST ¨
|
|
ABSTAIN ¨
|
Date
_______________________
,
2005
|
|
|
|
|
Signature
|
|
|
|
|
|
Signature
(if held jointly)
|
|
|
IMPORTANT:
Please sign exactly as your name appears on this card. When shares
are
held by joint tenants, both should sign. Persons signing as
executor,
|
administrator, trustee, custodian or in any other official or representative capacity should sign their full title. |
¨
|
Please
check here if you plan to attend the meeting in person. Even if
you plan
to attend, please
mark, date and sign this proxy card and promptly return in the
envelope
provided.
|
APPENDIX A
EXECUTION
COPY
|
ARTICLE
I. DEFINITIONS
|
A-1
|
|
1.1.
|
Defined
Terms
|
A-1
|
1.2.
|
Terms
Defined Elsewhere
|
A-7
|
ARTICLE
II. THE
MERGER
|
A-9
|
|
2.1.
|
The
Merger
|
A-9
|
2.2.
|
Effective
Time
|
A-9
|
2.3.
|
Closing
of the Merger
|
A-10
|
2.4.
|
Effects
of the Merger
|
A-10
|
2.5.
|
Certificate
of Incorporation and Bylaws
|
A-10
|
2.6.
|
Directors
|
A-10
|
2.7.
|
Officers
|
A-10
|
2.8.
|
Conversion
of Shares; Treatment of Company Options and Warrants
|
A-10
|
2.9.
|
Escrow
Amount
|
A-11
|
2.10.
|
Distribution
of the Closing Amount
|
A-14
|
2.11.
|
Dissenting
Shares
|
A-15
|
2.12.
|
Withholding
Rights
|
A-15
|
2.13.
|
Principal
Stockholder Representative
|
A-15
|
2.14.
|
Transaction
Fees
|
A-16
|
ARTICLE
III. CLOSING
DELIVERIES
|
A-16
|
|
3.1.
|
Deliveries
by the Company and the Principal Stockholders at the
Closing
|
A-16
|
3.2.
|
Deliveries
by Parent and Merger Sub at the Closing
|
A-17
|
ARTICLE
IV. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY AND THE PRINCIPAL STOCKHOLDERS
|
A-18
|
|
4.1.
|
Organization
of the Company
|
A-18
|
4.2.
|
Subsidiaries
|
A-18
|
4.3.
|
Authorization
|
A-19
|
4.4.
|
Capitalization
|
A-19
|
4.5.
|
Title
to Properties and Assets
|
A-20
|
4.6.
|
Absence
of Certain Activities
|
A-20
|
4.7.
|
Certain
Actions
|
A-21
|
4.8.
|
Material
Contracts
|
A-22
|
4.9.
|
Compliance
with Other Instruments
|
A-23
|
4.10.
|
SEC
Reports and Financial Statements
|
A-24
|
4.11.
|
Liabilities
|
A-24
|
4.12.
|
Taxes
|
A-25
|
4.13.
|
Environmental
Matters
|
A-28
|
4.14.
|
Employee
Benefits
|
A-29
|
4.15.
|
Compliance
with Law
|
A-31
|
4.16.
|
Permits
|
A-31
|
4.17.
|
Consents
and Approvals
|
A-31
|
4.18.
|
Litigation
|
A-31
|
4.19.
|
Labor
Matters
|
A-32
|
4.20.
|
Intellectual
Property; Software
|
A-33
|
4.21.
|
Transactions
with Certain Persons
|
A-40
|
4.22.
|
Insurance
|
A-40
|
4.23.
|
Accounts
Receivable
|
A-40
|
4.24.
|
Certain
Business Practices
|
A-40
|
4.25.
|
No
Brokers
|
A-41
|
4.26.
|
Books
and Records
|
A-41
|
4.27.
|
Bank
Accounts
|
A-41
|
4.28.
|
Authorization
by Principal Stockholders
|
A-41
|
4.29.
|
Title
to Shares
|
A-41
|
4.30.
|
Proceedings
Regarding Principal Stockholders
|
A-41
|
4.31.
|
Company
Information
|
A-42
|
4.32.
|
No
Existing Discussions
|
A-42
|
4.33.
|
Fairness
Opinion
|
A-42
|
4.34.
|
State
Takeover Laws
|
A-42
|
4.35.
|
eTechLogix
|
A-42
|
4.36.
|
Certain
Payments
|
A-42
|
4.37.
|
EtechLogix
Software
|
A-43
|
ARTICLE
V. REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
|
A-43
|
|
5.1.
|
Organization
of Parent and Merger Sub
|
A-43
|
5.2.
|
Authorization
|
A-43
|
5.3.
|
Compliance
with Other Instruments
|
A-43
|
5.4.
|
Consents
and Approvals
|
A-44
|
ARTICLE
VI. COVENANTS
OF
ALL PARTIES
|
A-44
|
|
6.1.
|
Conduct
of Business
|
A-44
|
6.2.
|
Investigation
by Parent
|
A-46
|
6.3.
|
Regulatory
Matters
|
A-47
|
6.4.
|
Notification
of Certain Matters
|
A-47
|
6.5.
|
Public
Announcements
|
A-48
|
6.6.
|
No
Solicitation
|
A-49
|
6.7.
|
Merger
Consideration Adjustment
|
A-50
|
6.8.
|
Confidentiality
|
A-51
|
6.9.
|
Preparation
of the Proxy Statement; Stockholder Approval
|
A-51
|
6.10.
|
Company
SEC Documents
|
A-52
|
6.11.
|
Matters
Pertaining to Company Options and Warrants
|
A-52
|
6.12.
|
Indemnification
of Officers and Directors
|
A-52
|
6.13.
|
Transition
of the Company's Business Pending Closing
|
A-53
|
6.14.
|
Certain
eTechLogix Obligations
|
A-53
|
ARTICLE
VII. CONDITIONS
TO
OBLIGATIONS
|
A-54
|
|
7.1.
|
Conditions
to Each Party's Obligations to Effect the Merger
|
A-54
|
7.2.
|
Conditions
to the Company's Obligations to Effect the Merger
|
A-54
|
7.3.
|
Conditions
to the Obligations of Parent and Merger Sub to Effect the
Merger
|
A-55
|
ARTICLE
VIII. TERMINATION
|
A-56
|
|
8.1.
|
Termination
|
A-56
|
8.2.
|
Effect
of Termination
|
A-58
|
ARTICLE
IX. INDEMNIFICATION
|
A-59
|
|
9.1.
|
Survival
of Representations
|
A-59
|
9.2.
|
Indemnification
|
A-59
|
9.3.
|
Notice
of Claims
|
A-60
|
9.4.
|
Third
Person Claims
|
A-60
|
9.5.
|
Limitation
on Indemnity; Payments Out of Escrow Account
|
A-61
|
9.6.
|
Remedies
|
A-62
|
ARTICLE
X. MISCELLANEOUS
|
A-62
|
|
10.1.
|
Binding
Effect; Assignment
|
A-62
|
10.2.
|
Notices
|
A-63
|
10.3.
|
Choice
of Law
|
A-64
|
10.4.
|
Entire
Agreement; Amendments and Waivers
|
A-64
|
10.5.
|
Counterparts
|
A-64
|
10.6.
|
Severability
|
A-64
|
10.7.
|
Headings
|
A-65
|
10.8.
|
Schedules
|
A-65
|
10.9.
|
No
Third Party Beneficiaries
|
A-65
|
10.10.
|
Specific
Performance
|
A-65
|
10.11.
|
No
Strict Construction
|
A-65
|
10.12.
|
Expenses
|
A-65
|
10.13.
|
Submission
to Jurisdiction; Waivers; Consent to Service of Process
|
A-65
|
10.14.
|
Waiver
of Jury Trial
|
A-66
|
Exhibit
A
|
Form
of Escrow Agreement
|
|
Exhibit
B
|
Form
of Non-Competition Agreement
|
|
Exhibit
C
|
Certificate
of Incorporation of Surviving Corporation
|
|
Exhibit
D
|
Bylaws
of Surviving Corporation
|
|
Exhibit
E
|
Form
of Letter of Transmittal
|
|
Exhibit
F
|
Form
of Opinion of Counsel to the Company
|
|
Exhibit
G
|
Form
of Opinion of Counsel to the Principal Stockholders
|
|
Exhibit
H
|
Form
of Consulting Agreement
|
|
Exhibit
I
|
Form
of Opinion of the General Counsel of the Company
|
|
Exhibit
J
|
Litigation
Accruals
|
Schedule
1.1(a)
|
Excluded
EtechLogix Assets
|
|
Schedule
1.1(b)
|
Transferred
Company Assets
|
|
Schedule
3.1(g)
|
Amendments
to Material Contracts
|
|
Schedule
4.2
|
Subsidiaries
|
|
Schedule
4.4(b)
|
Agreements
re: Capitalization
|
|
Schedule
4.4(d)
|
Company
Options
|
|
Schedule
4.4(e)
|
Capitalization
of Subsidiaries
|
|
Schedule
4.5(a)
|
Assets
and Property
|
|
Schedule
4.5(c)
|
Real
Property
|
|
Schedule
4.6
|
Absence
of Certain Activities
|
|
Schedule
4.7
|
Certain
Actions
|
|
Schedule
4.7(e)
|
Changes
in GAAP
|
|
Schedule
4.8
|
Contracts
|
|
Schedule
4.12(d)
|
Tax
Claims; Extensions
|
|
Schedule
4.12(e)
|
Tax
Years
|
|
Schedule
4.12(f)
|
Unpaid
Assessments
|
|
Schedule
4.12(j)
|
Tax
Group
|
|
Schedule
4.12(m)
|
Foreign
Tax Jurisdictions
|
|
Schedule
4.14(a)
|
Benefit
Plans
|
|
Schedule
4.14(f)
|
Employment
Agreements; Consultant Agreements; Severance Agreements;
and Other
Arrangements
|
|
Schedule
4.16
|
Permits
|
|
Schedule
4.17
|
Consents
and Approvals
|
|
Schedule
4.18
|
Litigation
|
|
Schedule
4.19(d)
|
Labor
Matters
|
|
Schedule
4.20(b)
|
Marks
|
|
Schedule
4.20(c)
|
Patents
|
|
Schedule
4.20(d)
|
Copyrights
|
|
Schedule
4.20(e)
|
Actions
to Protect Intellectual Property
|
Schedule
4.20(f)
|
Ownership
of Intellectual Property
|
|
Schedule
4.20(h)
|
Status
and Maintenance of Company Registered Intellectual
Property
|
|
Schedule
4.20(i)
|
License
Agreements
|
|
Schedule
4.20(i)(1)
|
Future
License Payments
|
|
Schedule
4.20(i)(2)
|
Licensor
Rights under Inbound License Agreements
|
|
Schedule
4.20(i)(3)
|
Outbound
License Agreements
|
|
Schedule
4.20(l)
|
Software
|
|
Schedule
4.21(a)
|
Transactions
with Certain Company Persons
|
|
Schedule
4.21(b)
|
Transactions
with Principal Stockholders
|
|
Schedule
4.22
|
Insurance
|
|
Schedule
4.23
|
Accounts
Receivable
|
|
Schedule
4.25
|
Brokers
|
|
Schedule
4.27
|
Bank
Accounts
|
|
Schedule
4.36
|
Certain
Payments
|
|
Schedule
6.12
|
D&O
Policy
|
|
Schedule
7.3(c)
|
Required
Consents
|
Term
|
Section
|
20-20
Purchase Agreement
|
4.37
|
Agreement
|
Preamble
|
Benefit
Plan(s)
|
Section
4.14(a)
|
CERCLA
|
Section
4.13
|
Claim
Notice
|
Section 9.3(a)
|
Closing
|
Section 2.3
|
Closing
Date
|
Section
2.3
|
Company
|
Preamble
|
Company
Dissenting Shares
|
Section
2.11
|
Company
Marks
|
Section
4.20(b)
|
Company
Patents
|
Section
4.20(c)
|
Company
Registered Copyrights
|
Section
4.20(d)
|
Company
Registered IP
|
Section
4.20(g)
|
Company
SEC Reports
|
Section
4.10(a)
|
Company
Software
|
Section
4.20(l)
|
Company
Stockholder Meeting
|
Section
6.9(d)
|
Copyrights
|
Section
4.20(a)
|
Covered
Matter
|
Section
9.2(a)
|
Covered
Party
|
Section
9.2(a)
|
D&O
Insurance
|
Section
6.12(a)
|
Damages
|
Section
9.2(a)
|
Principal
Stockholder Representative
|
Section
2.13(a)
|
DGCL
|
Section
2.1
|
Dispute
Notice
|
Section
9.3(b)
|
Effective
Time
|
Section
2.2
|
Employee
Loans
|
Section
4.8(a)
|
ERISA
|
Section
4.14(a)
|
ERISA
Affiliate
|
Section
4.14(a)
|
Escrow
Account
|
Section
2.9(a)
|
Escrow
Earnings
|
Section
2.9(a)
|
Excess
D&O Policy Amount
|
Section
6.12(a)
|
Exchange
Act
|
Section
4.10(a)
|
Final
Aggregate Outstanding Claims
|
Section
2.9(d)
|
Final
Retained Escrow Amount
|
Section
2.9(d)
|
Financial
Statement
|
Section
4.10(b)
|
Hazardous
Materials
|
Section
4.13
|
Inbound
License Agreements
|
Section
4.20(i)
|
Initial
Aggregate Outstanding Claims
|
Section
2.9(b)
|
Initial
Retained Escrow Amount
|
Section
2.9(b)
|
Intellectual
Property
|
Section
4.20(a)
|
IRS
|
Section
4.14(d)
|
Kinderhook
|
Section
2.9(a)
|
Marks
|
Section
4.20(a)
|
Material
Contracts
|
Section
4.8(a)
|
Merger
|
Section
2.1
|
Merger
Certificate
|
Section
2.2
|
Merger
Sub
|
Preamble
|
Most
Recent Balance Sheet
|
Section
4.10(c)
|
Outside
Date
|
Section
8.1(b)
|
Parent
|
Preamble
|
Patents
|
Section
4.20(a)
|
Personal
Element
|
Section
4.20(p)(v)
|
Principal
Stockholder Representative
|
Section
2.13
|
Privacy
Policies
|
Section
4.20(p)(i)
|
Proceeding
|
Section
4.18
|
Pro
Rata Portion
|
Section
9.5(d)
|
Proxy
Statement
|
Section
4.17
|
Real
Property
|
Section
4.5(c)
|
SEC
|
Section
4.10(a)
|
Securities
Act
|
Section
4.10(a)
|
Software
|
Section
4.20(l)
|
Subsequent
Aggregate Outstanding Claims
|
Section
2.9(c)
|
Subsequent
Retained Escrow Amount
|
Section
2.9(c)
|
Surviving
Corporation
|
Section
2.1
|
Tax(es)
|
Section
4.12(a)(i)
|
Tax
Return
|
Section
4.12(a)(ii)
|
Taxable
|
Section
4.12(a)(i)
|
Termination
Fee
|
Section
8.2(b)
|
Threshold
Amount
|
Section
9.5(a)
|
Trade
Secrets
|
Section
4.20(a)
|
Transaction
Fee Schedule
|
Section
2.14
|
Unaccrued
Litigation and Consumer Complaints
|
Section
4.36
|
User
Data
|
Section
4.20(p)(v)
|
Unique
Identifying Number
|
Section
4.20(p)(v)
|
Voting
Agreement
|
Recitals
|
SERVICEMAGIC, INC. | ||
|
|
|
By: | /s/ Michael J. Beaudoin | |
Name: Michael J. Beaudoin |
||
Title: Co-CEO |
IMPROVENET, INC. | ||
|
|
|
By: | /s/ Jeffrey Rassas | |
Name: Jeffrey Rassas |
||
Title:
CEO
|
SUNBELT
ACQUISITION CORP.
|
||
|
|
|
By: | /s/ Rodney Rice | |
Name: Rodney Rice |
||
Title: Co-President |
PRINCIPAL STOCKHOLDERS: | ||
FARSI FAMILY TRUST | ||
|
|
|
By: | /s/ H.J. Farsi | |
Name: H.J. Farsi |
||
Title: Trustee |
AHMAD FAMILY TRUST | ||
|
|
|
By: | /s/ Naser Ahmad | |
Name: Naser Ahmad |
||
Title: Trustee |
HAYJOUR FAMILY LIMITED PARTNERSHIP | ||
|
|
|
By: | /s/ Jeffrey Rassas | |
Name: Jeffrey Rassas |
||
Title: General Partner |
KINDERHOOK PARTNERS, LP | ||
|
|
|
By: | /s/ Tushar Shah | |
Name: Tushar Shah |
||
Title: Partner |
|
|
|
/s/ Jeffrey I. Rassas | ||
Jeffrey I. Rassas |
||
|
|
|
/s/ Homayoon Farsi | ||
Homayoon Farsi |
||
|
|
|
/s/ Naser Ahmad | ||
Naser Ahmad |
||
APPENDIX B
June 17, 2005
Board of Directors
ImproveNet, Inc.
10799 N. 90th Street, Suite 200
Scottsdale, AZ 85260
Dear Members of the Board:
Janney Montgomery Scott LLC (Janney) has been requested to provide its opinion as to the fairness, from a financial point of view, to the shareholders of ImproveNet, Inc. (IMPV or the Company) other than four of the Companys principal shareholders (Farsi Family Trust, Ahmad Family Trust, Hayjour Family Limited Partnership, and Kinderhook Partners, LP) (together the Principal Shareholders), of the consideration to be paid by IAC/InterActiveCorp (IAC) for 100% of the Companys common stock, as set forth in the draft Agreement and Plan of Merger (the Agreement) dated June 16, 2005 by and among IAC, Sunbelt Acquisition Corp. (Sunbelt) and the Company. Under the terms of the Agreement, IAC has offered to purchase all of the issued and outstanding common stock of the Company for $6,720,000 in cash less any transaction fees of the Company and the Principal Shareholders in excess of $150,000 plus the aggregate exercise price of all vested in-the-money Company options and in-the-money warrants outstanding immediately prior to the merger becoming effective (the Transaction). After execution of the Agreement, Sunbelt would be merged with and into the Company, with the Company continuing as the surviving corporation. The terms and conditions of the Transaction are more fully set forth in the Agreement.
In arriving at our opinion, we undertook the following activities:
(i) |
Reviewed the Draft Definitive Agreement; |
(ii) |
Reviewed the Companys Form 10-K for the fiscal years ended December 31, 2004, 2003, and 2002 and certain other filings with the Securities and Exchange Commission made by IMPV, including proxy statements, Form 10-Qs and Form 8-Ks; |
(iii) |
Reviewed certain other publicly available information concerning IMPV and the trading market for IMPVs Common Stock; |
(iv) |
Reviewed certain non-public information relating to IMPV, including financial forecasts and projections for IMPV furnished to us by or on behalf of the Company; |
(v) |
Reviewed certain publicly available information concerning certain other companies engaged in businesses which we believe to be comparable to the Company and the trading markets for certain of such companies securities; |
(vi) |
Reviewed the financial terms of certain mergers and acquisitions which we believe to be relevant; |
(vii) |
Conducted discussions with certain members of senior management of the Company concerning the business and operations, assets, present condition and future prospects of the Company; and |
(viii) |
Performed such other analyses, examinations and procedures, reviewed such other agreements and documents, and considered such other factors, as we have deemed in our sole judgment, to be necessary, appropriate or relevant to render an opinion. |
In giving our opinion, we have relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or that was furnished to us by the Company or was otherwise reviewed by us, and we have not assumed any responsibility or liability therefore. In particular, we have relied upon the assessment of the management of the Company regarding its business and prospects, and assumed that the budgets and financial projections provided to us were prepared by the Companys management on the basis of reasonable assumptions and reflect the best
currently available estimates and good faith judgments of its future financial performance. We have not conducted any valuation or appraisal of any assets or liabilities, nor have any such valuations or appraisals been provided to us. We have also assumed that the Agreement and certain related documents reviewed by us in draft form will not vary materially from the drafts reviewed by us.
Our opinion is necessarily based upon market, economic and other conditions as they exist on, and can be evaluated as of, the date of this letter. We express no opinion as to the underlying valuation, future performance or long-term viability of the Company. Our opinion solely addresses the fairness from a financial point of view of the consideration to be paid to the holders of common stock of the Company other than the Principal Shareholders. Our opinion does not address the relative merits of the Transaction as compared to other transactions or business strategies that might be available to the Company, nor does it address the Company's underlying business decision to proceed with the Transaction. It should be understood that, although subsequent developments may affect this opinion, we do not have any obligation to update or revise the opinion.
We have not acted as financial advisor to the Company in connection with the Transaction and while we will receive a fee for our services, no portion of the fee is contingent upon the consummation of the Transaction. In addition, the Company has agreed to indemnify us for certain liabilities arising out of the rendering of this opinion. Janney is a nationally recognized investment banking firm and, as part of its investment banking activities, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of securities, private placements and valuations for corporate and other purposes.
It is understood that this letter is for the information of the Board of Directors of the Company in evaluating the Transaction and does not constitute a recommendation to any stockholder of the Company as to how such stockholders should vote their shares. This opinion may not be used for any other purpose, and may not be quoted or referred to, in whole or in part, without our prior written consent, except that this opinion may be included in its entirety in any filing with the Securities and Exchange Commission in connection with the Transaction.
Based on the foregoing, we are of the opinion, as of the date hereof, that the consideration to be paid to the stockholders of the Company pursuant to the Agreement is fair to the stockholders of the Company other than the Principal Shareholders from a financial point of view.
Very truly yours,
/s/ JANNEY MONTGOMERY SCOTT LLC
APPENDIX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to § 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder's shares of stock under the circumstances described in subsections (b) and (c) of this section. As used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interest in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to § 251 (other than a merger effected pursuant to § 251(g) of this title), § 252, § 254, § 257, § 258, § 263 or § 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation, were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of § 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to §§ 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under § 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stock as a result of an amendment to its certificate of
C-1
incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d) |
Appraisal rights shall be perfected as follows: |
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 10 days after the effective date of such merger or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consented to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to § 228 or § 253 of this title, then either a constituent corporation before the effective date of the merger or consolidation or the surviving or resulting corporation within 10 days thereafter shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are available for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offered upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof,
C-2
upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy thereof shall be made upon the surviving or resulting corporation, which shall within 20 days after such service file in the office of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorney's fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to
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stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
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