AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LYCOS, INC.
WHAT ACQUISITION CORP.
WHOWHERE? INC.
AND
CERTAIN SHAREHOLDERS OF
WHOWHERE? INC.
DATED
AUGUST 7, 1998
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TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER.....................................................- 1 -
1.1 The Merger............................................- 1 -
1.2 Effective Time........................................- 2 -
1.3 Effect of the Merger..................................- 2 -
1.4 Articles of Incorporation; By-Laws....................- 2 -
1.5 Directors and Officers................................- 2 -
1.6 Additional Actions....................................- 3 -
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES............................- 3 -
2.1 Merger Consideration..................................- 3 -
2.2 Conversion of Shares..................................- 3 -
2.3 Exchange of Certificates..............................- 6 -
2.4 No Fractional Securities..............................- 7 -
2.5 Stock Transfer Books..................................- 7 -
2.6 No Further Ownership Rights in Company Stock..........- 7 -
2.7 Adjustment Event......................................- 7 -
2.8 Escrow................................................- 8 -
2.9 Tax Consequences......................................- 8 -
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
.............................................................- 8 -
3.1 Corporate Organization...............................- 8 -
3.2 Authorization........................................- 9 -
3.3 Consents and Approvals; No Violations................- 9 -
3.4 Capitalization......................................- 10 -
3.5 Financial Statements................................- 11 -
3.6 Absence of Undisclosed Liabilities..................- 11 -
3.7 Absence of Certain Changes or Events................- 11 -
3.8 Legal Proceedings, etc..............................- 12 -
3.9 Taxes...............................................- 12 -
3.10 Title to Properties and Related Matters.............- 14 -
(i)
3.11 Intellectual Property; Proprietary Rights; Employee
Restrictions........................................- 15 -
3.12 Contracts...........................................- 16 -
3.13 Employees; Employee Benefits........................- 18 -
3.14 Compliance with Applicable Law......................- 21 -
3.15 Ability to Conduct the Business.....................- 21 -
3.16 Major Customers.....................................- 22 -
3.17 Consultants, Sales Representatives and Other Agents.- 22 -
3.18 Accounts Receivable.................................- 22 -
3.19 Insurance...........................................- 23 -
3.20 Bank Accounts; Powers of Attorney...................- 23 -
3.21 Minute Books, etc...................................- 23 -
3.22 Related Person Indebtedness and Contracts...........- 23 -
3.23 Brokers; Payments...................................- 23 -
3.24 Company Action......................................- 24 -
3.25 Disclosure..........................................- 24 -
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDERS...............................- 24 -
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION...............................- 25 -
5.1 Corporate Organization.............................- 25 -
5.2 Authorization......................................- 26 -
5.3 Consents and Approvals; No Violations..............- 26 -
5.4 Capitalization.....................................- 27 -
5.5 SEC Reports and Financial Statements...............- 27 -
5.6 Absence of Certain Changes.........................- 28 -
5.7 Litigation.........................................- 28 -
5.8 Tax Treatment of Merger............................- 28 -
5.9 Disclosure.........................................- 28 -
ARTICLE VI
CONDUCT OF BUSINESS OF THE COMPANY AND
THE PARENT PRIOR TO THE EFFECTIVE TIME......................- 29 -
6.1 Conduct of Business of the Company.................- 29 -
6.2 Conduct of Business of the Parent..................- 30 -
6.3 Conduct of Business of Acquisition.................- 31 -
6.4 Other Negotiations.................................- 31 -
(ii)
ARTICLE VII
ADDITIONAL AGREEMENTS.......................................- 31 -
7.1 Access to Properties and Records...................- 31 -
7.2 Shareholder Approval...............................- 32 -
7.3 Reasonable Efforts; etc............................- 32 -
7.4 Material Events....................................- 33 -
7.5 Registration Statement on Form S-8.................- 33 -
7.6. Fees and Expenses..................................- 33 -
7.7 Employees..........................................- 33 -
7.8 Nasdaq National Market Listing.....................- 34 -
7.9 Tax Treatment......................................- 34 -
7.10 Indemnification....................................- 34 -
7.11 Shares of Parent Common Stock......................- 34 -
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE PARENT AND ACQUISITION..................................- 35 -
8.1 Representations and Warranties True................- 35 -
8.2 Performance........................................- 35 -
8.3 Absence of Litigation..............................- 35 -
8.4 Consents...........................................- 36 -
8.5 Additional Agreements..............................- 36 -
8.6 Opinion of Venture Law Group.......................- 36 -
8.7 Appraisal Rights...................................- 36 -
8.8 Termination of Agreements..........................- 36 -
8.9 Certificate of Merger..............................- 37 -
8.10 Completion of Due Diligence........................- 37 -
8.11 Conversion of Company Preferred Stock..............- 37 -
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS.....................- 37 -
9.1 Representations and Warranties True...............- 37 -
9.2 Performance.......................................- 37 -
9.3 Absence of Litigation.............................- 38 -
9.4 Consents..........................................- 38 -
9.5 Additional Agreements.............................- 38 -
9.6 Opinion of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇............- 38 -
9.7 Certificate of Merger.............................- 38 -
9.8 Tax Opinion.......................................- 38 -
(iii)
ARTICLE X
TERMINATION...............................................- 39 -
10.1 Termination......................................- 39 -
10.2 Effect of Termination............................- 39 -
ARTICLE XI
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES............................- 39 -
11.1 Indemnity Obligations of the Holders.............- 39 -
11.2 Appointment of Representative....................- 40 -
11.3 Notification of Claims...........................- 40 -
11.4 Duration.........................................- 41 -
11.5 Escrow...........................................- 41 -
11.6 No Contribution..................................- 42 -
11.7. Liability of Principal Shareholders..............- 42 -
ARTICLE XII
REGISTRATION RIGHTS.......................................- 42 -
12.1 Registration Rights..............................- 42 -
12.2 Indemnification..................................- 45 -
12.3 Current Public Information.......................- 46 -
12.4 Termination of Registration Rights...............- 46 -
12.5 Transferability of Registration Rights...........- 46 -
ARTICLE XIII
MISCELLANEOUS PROVISIONS..................................- 46 -
13.1 Amendment........................................- 46 -
13.2 Waiver of Compliance.............................- 47 -
13.3 Notices..........................................- 47 -
13.4 Assignment.......................................- 48 -
13.5 No Third Party Beneficiaries.....................- 48 -
13.6 Public Announcements.............................- 48 -
13.7 Brokers and Finders..............................- 48 -
13.8 Counterparts.....................................- 49 -
13.9 Headings.........................................- 49 -
13.10 Entire Agreement.................................- 49 -
13.11 Governing Law....................................- 49 -
13.12 Survival.........................................- 49 -
(iv)
EXHIBITS
Exhibit A Voting Agreement
Exhibit B-1 Certificate of Merger (Delaware
Exhibit B-2 Agreement of Merger (California)
Exhibit C Form of Letter of Transmittal
Exhibit D Escrow Agreement
Exhibit E Forms of Offer Letters
Exhibit F Form of Nondisclosure and Inventions Agreement
Exhibit G Opinion of Venture Law Group, A Professional
Corporation
Exhibit H Opinion of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
Exhibit I Form of Stock Option Assumption Agreement
Exhibit J Form of Warrant Assumption Agreement
Exhbit K Tax Opinion of Venture Law Group, A Professional
Corporation
(v)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated August 7, 1998 by and among Lycos,
Inc., a corporation organized under the laws of the State of Delaware (the
"Parent"), What Acquisition Corp., a corporation organized under the laws of the
State of Delaware and a wholly-owned subsidiary of the Parent ("Acquisition"),
WhoWhere? Inc., a corporation organized under the laws of the State of
California (the "Company"), and certain shareholders of the Company, each of
whom is listed on the signature page hereto (each a "Principal Shareholder "
and, collectively, the "Principal Shareholders").
WHEREAS, the respective Boards of Directors of the Parent, Acquisition
and the Company have approved the merger of Acquisition with and into the
Company (the "Merger"), pursuant to which the Company will be the surviving
corporation and the shareholders of the Company and all holders of options and
warrants to purchase capital stock of the Company (collectively, the "Holders")
will be entitled to receive the consideration provided for in this Agreement,
all upon the terms and subject to the conditions set forth herein;
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"); and
WHEREAS, as a condition and inducement to Parent's willingness to enter
into this Agreement, the Principal Shareholders and certain other shareholders
of the Company have, concurrently with the execution of this Agreement, executed
and delivered a Voting Agreement in the form attached hereto as Exhibit A,
pursuant to which the Principal Shareholders and such other shareholders have
agreed to vote their shares of the Company's capital stock in favor of the
Merger and to grant Parent irrevocable proxies to vote such shares.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to be
legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement, the
California General Corporation Law (the "CGCL") and the Delaware General
Corporation Law (the "DGCL"), Acquisition shall be merged with and into the
Company, the separate corporate existence of Acquisition shall cease, and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Article X and subject to the satisfaction or waiver of the conditions set forth
in Articles VIII and IX, the consummation of
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the Merger (the "Closing") will take place as promptly as practicable (and in
any event within two business days) after satisfaction or waiver of the
conditions set forth in Articles VIII and IX, at the offices of ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, A Professional Corporation, ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇▇▇, unless another date, time or place is agreed to in writing by the
Company and the Parent. The date of such Closing is referred to herein as the
"Closing Date".
1.2 Effective Time. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Articles VIII and IX, the parties
hereto shall cause the Merger to be consummated by filing agreements or
certificates of merger as contemplated by the CGCL and the DGCL in the forms of
Exhibit B-1 and Exhibit B-2 hereto (collectively, the "Certificate of Merger"),
together with any required related certificates, with the Secretary of State of
the State of California and the Secretary of State of the State of Delaware, in
such form as required by, and executed in accordance with the relevant
provisions of, the CGCL and the DGCL (the time of such filing being the
"Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the CGCL and the DGCL. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers and franchises of the Company and Acquisition shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Acquisition shall become the debts, liabilities and duties of the
Surviving Corporation.
1.4 Articles of Incorporation; By-Laws.
(a) Articles of Incorporation. Unless otherwise determined by
the Parent prior to the Effective Time, at the Effective Time, the Articles of
Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with the CGCL and such Articles of
Incorporation.
(b) By-Laws. Unless otherwise determined by the Parent prior
to the Effective Time, the By-Laws of the Company, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended in accordance with the CGCL, the Articles of
Incorporation of the Surviving Corporation and such By-Laws.
1.5 Directors and Officers. The directors of Acquisition immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Acquisition immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
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1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in or to any of the rights, properties
or assets of Acquisition or the Company acquired or to be acquired by reason of,
or as a result of, the Merger, or otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of Acquisition
or the Company, all such deeds, bills of sale, assignments and assurances and to
do, in the name and on behalf of Acquisition or the Company, all such other acts
and things necessary or desirable to vest, perfect or confirm any and all right,
title or interest in, to or under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES
2.1 Merger Consideration. Except as set forth in Section 2.2(f) hereof,
the consideration payable in the Merger to holders of shares of the Company's
Common Stock, par value $.001 per share ("Company Common Stock"), and shares of
each series of the Company's Preferred Stock, par value $.001 per share (the
"Company Preferred Stock" and, together with the Company Common Stock, the
"Company Stock"), shall consist solely of shares of the Common Stock, par value
$.01 per share, of the Parent ("Parent Common Stock"), such shares of Parent
Common Stock to be issuable at the Closing in accordance with the terms of this
Agreement.
2.2 Conversion of Shares.
(a) Conversion of Shares. Each share of Company Stock
(treating all shares of Company Preferred Stock as having been converted, as of
the Effective Time, into shares of Company Common Stock at the respective
conversion ratios therefor) issued and outstanding as of the Effective Time
(other than shares owned by holders who have properly exercised their rights of
appraisal within the meaning of Chapter 13 of the CGCL ("Dissenting Shares"))
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into that number of shares of Parent Common
Stock as shall be obtained by dividing (A) 2,419,006 (the "Merger
Consideration") minus any Expense Shares (as defined in Section 7.6) by (B) the
number of Fully Diluted Shares (as hereinafter defined), with the resulting
quotient (carried to four decimal places) being referred to herein as the
"Exchange Ratio." "Fully Diluted Shares" shall be equal to the total number of
outstanding shares of Company Common Stock calculated on a fully diluted, fully
converted basis as though all convertible debt and equity securities (including
the Company Preferred Stock and Company Preferred Stock issuable upon the
exercise of any outstanding warrants) and outstanding options (whether vested or
unvested) and outstanding warrants had been converted or exercised into Common
Stock,
- 3 -
provided that the term "Fully Diluted Shares" shall exclude forty percent (40%)
of the sum of (x) the number of shares of Company Common Stock issuable upon the
exercise of outstanding stock options which are unvested as of the Closing Date
after giving effect to the Merger and (y) the number of shares of Company Common
Stock outstanding on the Closing Date which are unvested and subject to the
right of repurchase as of the Closing Date after giving effect to the Merger.
Schedule 2.2(a) sets forth the number of outstanding unvested stock options and
unvested shares after giving effect to the Merger and the holders thereof. The
Exchange Ratio shall not change as a result of fluctuations in the market price
of Parent Common Stock between the date of this Agreement and the Effective
Time. The aggregate number of shares of Parent Common Stock issued pursuant to
this Section 2.2(a) shall be referred to in this Agreement as the "Merger
Shares."
(b) Treasury Shares. Each share of Company Common Stock
held in the Company's treasury as of the Effective Time, if any, shall, by
virtue of the Merger, be canceled without payment of any consideration therefor.
(c) Stock Options. At the Effective Time, the outstanding
options to purchase an aggregate of up to 3,545,662 shares of Company Common
Stock (each a "Stock Option") granted under the Company's 1995 Stock Plan (the
"Company Stock Plan"), whether vested or unvested, shall be deemed assumed by
the Parent and deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Stock Option prior to the Effective
Time (including terms and conditions relating to such Stock Option's term,
exercisability, vesting schedule and status as an "incentive stock option" under
Section 422 of the Code), the number (rounded down to the nearest whole number)
of shares of Parent Common Stock equal to the aggregate of that number of shares
of Parent Common Stock (based on the Exchange Ratio) as the holder of such Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such Option in full immediately prior to the Effective Time
(not taking into account whether or not such Option was in fact exercisable).
The exercise price for such Stock Options shall be the price per share equal to
(x) the aggregate exercise price for Company Common Stock otherwise purchasable
pursuant to such Stock Option divided by (y) the number of shares of Parent
Common Stock deemed purchasable pursuant to such Stock Option (the exercise
price per share, so determined, being rounded up to the nearest full cent). No
payment shall be made for fractional shares. The aggregate number of shares of
Parent Common Stock issuable upon the exercise of Options assumed by Parent
pursuant to this Section 2.2(c) shall be referred to in this Agreement as the
"Option Shares." Any adjustment to an incentive stock option made under this
Section 2.2(c) shall comply with Section 424(a) of the Code. The Parent's
assumption of each Stock Option pursuant to this Section 2.2(c) shall be subject
to the holder of such Stock Option executing and delivering to the Parent the
Stock Option Assumption Agreement in the form of Exhibit I hereto providing that
ten percent (10%) of the Option Shares subject to such Stock Option will be
deposited in escrow as security for the indemnification obligations of the
Holders under Article XI hereof.
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(d) Warrants. At the Effective Time, each outstanding warrant
to purchase Company Stock (each, a "Warrant" and collectively the "Warrants")
shall, by virtue of the Merger and without any further action on the part of the
Company or the holder of any of Warrants (unless further action may be required
by the terms of any of the Warrants), be assumed by Parent and each Warrant
assumed by Parent shall be exercisable upon the same terms and conditions as
under the applicable warrant agreements with respect to such Warrants, except
that (A) each such Warrant shall be exercisable for that whole number of shares
of Parent Common Stock (rounded down to the nearest whole share) into which the
number of shares of Company Stock subject to such Warrant would be converted
under Section 2.2(a) and (B) the exercise price per share of Parent Common Stock
shall be equal to (x) the aggregate exercise price for the Company Stock subject
to such Warrant in effect immediately prior to the Effective Time divided by (y)
the number of shares of Parent Common Stock deemed purchasable pursuant to such
Warrant (the exercise price per share, so determined, being rounded down to the
nearest full cent). From and after the Effective Time, all references to the
Company in the warrant agreement underlying the Warrants shall be deemed to
refer to Parent. Parent further agrees that if required under the terms of the
Warrants it will execute a supplemental agreement with the holders of the
Warrants to effectuate the foregoing. No payment shall be made for fractional
shares. The aggregate number of shares of Parent Common Stock issuable upon the
exercise of Warrants assumed by Parent pursuant to this Section 2.2(d) shall be
referred to in this Agreement as the "Warrant Shares." The Parent's assumption
of each Warrant pursuant to this Section 2.2(d) shall be subject to the holder
of such Warrant executing and delivering to the Parent the Warrant Assumption
Agreement in the form of Exhibit J hereto providing that ten percent (10%) of
the Warrant Shares subject to such Warrant will be deposited in escrow as
security for the indemnification obligations of the Holders under Article XI
hereof.
(e) Acquisition Shares. Each share of common stock, par value
$0.01 per share, of Acquisition issued and outstanding at the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation, as such shares of common stock are
constituted immediately following the Effective Time.
(f) Dissenting Shares. Any Dissenting Shares shall be
converted into the right to receive from the Surviving Corporation such
consideration as may be determined to be due with respect to each such
Dissenting Share pursuant to Chapter 13 of the CGCL; provided, however, Shares
that are Dissenting Shares at the Effective Time of the Merger and are held by a
holder who shall, after the Effective Time of the Merger, withdraw his demand
for appraisal or lose his right of appraisal as provided in the Chapter 13 of
the CGCL, shall be deemed to be converted, as of the Effective Time of the
Merger, into the right to receive the Merger Shares in accordance with the
procedures specified in Section 2.3. The Company shall give Parent (i) prompt
notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to Chapter 13 of the CGCL
received by the Company and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal under Chapter 13 of the CGCL.
The Company will not voluntarily make any payment
- 5 -
with respect to any demands for appraisal and will not, except with the prior
written consent of Parent, settle or offer to settle any such demands. It is
understood and agreed that the obligation to make any payment under Chapter 13
of the CGCL shall be exclusively that of the Surviving Corporation and that
Parent shall be under no obligation to perform and discharge any such obligation
or to reimburse or make any contribution to the capital of the Surviving
Corporation to enable it to perform and discharge any such obligation.
2.3 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an
outstanding certificate or certificates (the "Certificates") which represented
shares of Company Common Stock or Company Preferred Stock immediately prior to
the Effective Time shall have the right to surrender each Certificate to Parent,
and receive in exchange for all Certificates held by such holder a certificate
representing the number of whole shares of Parent Common Stock (other than the
Escrow Shares (as defined below)) into which the Company Common Stock or Company
Preferred Stock evidenced by the Certificates so surrendered shall have been
converted pursuant to Section 2.2(a) of this Agreement. The surrender of
Certificates shall be accompanied by duly completed and executed Letters of
Transmittal in the form of Exhibit C attached hereto. Until surrendered, each
outstanding Certificate which prior to the Effective Time represented shares of
Company Common Stock or Company Preferred Stock shall be deemed for all
corporate purposes to evidence ownership of the number of whole shares of Parent
Common Stock into which the shares of Company Common Stock or Company Preferred
Stock have been converted but shall, subject to applicable appraisal rights
under the CGCL and Section 2.2(f), have no other rights. Subject to appraisal
rights under the CGCL and Section 2.2(f), from and after the Effective Time, the
holders of shares of Company Common Stock or Company Preferred Stock shall cease
to have any rights in respect of such shares and their rights shall be solely in
respect of the Parent Common Stock into which such shares of Company Common
Stock or Company Preferred Stock have been converted.
(b) If any shares of Parent Common Stock are to be issued in
the name of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Certificate(s) so surrendered shall be
properly assigned, endorsed or accompanied by appropriate stock powers, and (ii)
the person requesting such transfer shall pay Parent, or its exchange agent, any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of Parent that such taxes have been paid or are not required to be
paid. Notwithstanding the foregoing, neither Parent or the Company shall be
liable to a holder of shares of Company Common Stock or Company Preferred Stock
for shares of Parent or the Company issuable to such holder pursuant to the
provisions of Section 2.2(a) of this Agreement that are delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or
- 6 -
destroyed, Parent shall issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock issuable in exchange therefor
pursuant to the provisions of Section 2.2(a) of this Agreement. The Board of
Directors of Parent may in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificate to provide to Parent an indemnity agreement, reasonable in form and
substance, against any claim that may be made against Parent with respect to the
Certificate alleged to have been lost, stolen or destroyed.
2.4 No Fractional Securities. No fractional shares of Parent Common
Stock shall be issuable by the Parent upon the conversion of shares of Company
Common Stock or the Company Preferred Stock in the Merger pursuant to Section
2.2(a) hereof. In lieu of any such fractional shares, each holder of Company
Common Stock or Company Preferred Stock who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock shall be entitled to
receive instead an amount in cash equal to such fraction multiplied by the
Closing Market Price (as defined below). For purposes of this Agreement, the
term "Closing Market Price" shall mean the average of the last quoted sale price
for shares of Parent Common Stock on The Nasdaq National Market for each of the
twenty trading days preceding the third trading day prior to the Effective Time.
2.5 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of Company Stock or Company Preferred Stock thereafter on the
records of the Company.
2.6 No Further Ownership Rights in Company Stock. The Merger Shares
delivered upon the surrender for exchange of shares of Company Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
2.7 Adjustment Event. If, between the date hereof and the Effective
Time, the issued and outstanding shares of Parent Common Stock shall have been
combined, split, reclassified or otherwise changed into a different number of
shares or a different class of shares, an appropriate adjustment to the Exchange
Ratio shall be made to fully reflect such change in such manner as is reasonably
acceptable to the Parent and the Company. Specifically, if the Parent's proposed
two-for-one stock split is effected prior to the Effective Time, the Exchange
Ratio shall be adjusted to give effect to such split. In addition, during the
period beginning on the date of this Agreement and ending on the earlier of the
termination of this Agreement and the Effective Time, Parent shall not, without
the prior written consent of the Company, declare or pay any dividend or
distribution on Parent Common Stock unless prior thereto either (i) Parent shall
have provided that holders of Company Stock, upon the Effective Time, shall
receive such dividend or distribution to the same extent they would have had
their shares of Company Stock been
- 7 -
converted into shares of Parent Common Stock immediately prior to the record
date of any such dividend or distribution, or (ii) Parent and the Company shall
have mutually agreed upon an adjustment of the Exchange Ratio to fully reflect
the effect of any such dividend or distribution.
2.8 Escrow. At the Effective Time, Parent will deposit in escrow
certificates representing ten percent (10%) of the Merger Shares (which shall
reduce on a pro rata basis the Merger Shares otherwise issuable to the Holders
of Company Stock under Section 2.2(a)) registered in the name of State Street
Bank and Trust Company, as Escrow Agent, and instruments or other documentation
representing Stock Options to purchase ten percent (10%) of the Option Shares
and Warrants to purchase ten percent (10%) of the Warrant Shares issuable to
each Holder under Section 2.2(c) or 2.2(d), as the case may be (collectively,
the "Escrow Shares"). The Escrow Shares shall be held as security for the
indemnification obligations under Article XI pursuant to the provisions of an
Escrow Agreement (the "Escrow Agreement ") in the form of Exhibit D attached
hereto.
2.9 Tax Consequences. For Federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of reorganization"
within the meaning of Section 368(a) of the Code.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
The Company and each of the Principal Shareholders represent and
warrant to the Parent and Acquisition as set forth below, subject to the
exceptions set forth in the disclosure schedules attached hereto (the
"Disclosure Schedules"), the section numbers and letters of which correspond to
the section and subsection numbers and letters of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, any
information disclosed in one section of the Disclosure Schedules shall, should
the existence of the information be relevant to any other section of the
Disclosure Schedules, be deemed to be disclosed in all sections of the
Disclosure Schedules, but only to the extent that the relevance of such
information to such other section is apparent. The disclosure of any information
shall not be deemed to constitute an acknowledgment that such information is
required to be disclosed in connection with the representations and warranties
made by the Company in this Agreement or that it is material, nor shall such
information be deemed to establish a standard of materiality
3.1 Corporate Organization. (a) The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. The Company has no Subsidiaries (as that term is
hereinafter defined). The Company has all requisite corporate power and
authority to own, operate and lease the properties and assets it now owns,
operates and leases and to carry on its business as presently conducted.
The Company is duly qualified to
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transact business as a foreign corporation and in good standing in the
jurisdictions set forth in Schedule 3.1, which are the only jurisdictions where
such qualification is required by reason of the nature of the properties and
assets currently owned, operated or leased by the Company or the business
currently conducted by it, except for such jurisdictions where the failure to be
so qualified would not have a Company Material Adverse Effect (as defined
below). The Company has previously delivered to the Parent complete and correct
copies of its Articles of Incorporation (certified by the secretary of state of
the jurisdiction in which it was formed as of a recent date) and its By-Laws
(certified by the Secretary of the Company as of a recent date). Except as set
forth in Schedule 3.1, neither the Articles of Incorporation nor the By-Laws of
the Company have been amended since the respective dates of certification
thereof, nor has any action been taken for the purpose of effecting any
amendment of such instruments. The term "Company Material Adverse Effect" means,
for purposes of this Agreement, any change, event or effect that is, or that
would be, materially adverse to the business, operations, assets, liabilities,
financial condition or results of operations of the Company; provided, however,
that a Company Material Adverse Effect shall not include any adverse effect that
is attributable to the Merger or the announcement of the Merger or that is due
to any downturn in the Internet industry or any national economic downturn.
3.2 Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors of the Company, and no other corporate action on the part of the
Company is necessary to approve and authorize the execution and delivery of this
Agreement or (subject to the approval of this Agreement and the transactions
contemplated hereby by the Holders which will be obtained in the manner set
forth in Section 7.2 hereof and the filing of the Certificate of Merger pursuant
to the CGCL and the DGCL) the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding agreement of the Company, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors, rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in law or in equity.
3.3 Consents and Approvals; No Violations. Subject to the filing of the
Certificate of Merger with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware and compliance with applicable
federal and state securities laws, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not: (i)
violate or conflict with any provision of the Articles of Incorporation or
By-Laws of the Company, (ii) breach, violate or constitute an event of default
(or an event which with the lapse of time or the giving of notice or both would
constitute an event of default) under, give rise to any right of termination,
cancellation, modification or acceleration under, or require any consent or the
giving of any notice under, any note, bond, indenture, mortgage, security
agreement, lease, license, franchise, permit, agreement or other instrument or
obligation to which
- 9 -
the Company is a party, or by which the Company or any of its properties or
assets may be bound, or result in the creation of any lien, claim or encumbrance
or other right of any third party of any kind whatsoever upon the properties or
assets of the Company pursuant to the terms of any such instrument or
obligation, other than any breach, violation, default, termination,
cancellation, modification or acceleration which would not have a Company
Material Adverse Effect, (iii) violate or conflict with any law, statute,
ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or
other instrument of any Federal, state, local or foreign court or governmental
or regulatory body, agency or authority applicable to the Company or by which
any of its properties or assets may be bound, except for such violations and
conflicts which would not have a Company Material Adverse Effect or result in a
fine or penalty in excess of $10,000 individually or in the aggregate, or (iv)
require, on the part of the Company, any filing or registration with, or permit,
license, exemption, consent, authorization or approval of, or the giving of any
notice to, any governmental or regulatory body, agency or authority other than
any filing, registration, permit, license, exemption, consent, authorization,
approval or notice which if not obtained or made would not have a Company
Material Adverse Effect or result in a fine or penalty in excess of $10,000
individually or in the aggregate. Without limiting the generality of clause (ii)
above, except for the finder's agreements described in Section 13.7 hereof,
neither the Company nor any of the Holders is a party to any agreement,
arrangement or understanding which contemplates the sale of the business of the
Company, in whole or in part, whether by means of a sale of shares, sale of
assets, merger, consolidation or otherwise.
3.4 Capitalization.
(a) The authorized capital stock of the Company consists of
40,000,000 shares of Company Common Stock, of which 5,650,047 shares are issued
and outstanding and 10,000,000 shares of Company Preferred Stock, of which
1,444,162 shares of Series A Convertible Preferred Stock, and 5,231,577 shares
of Series B Convertible Preferred Stock, are issued and outstanding. Schedule
3.4(a) sets forth a complete and correct list of the record ownership of the
issued and outstanding shares of Company Stock. All of the issued and
outstanding shares of Company Stock were duly authorized and validly issued and
are fully paid and nonassessable, and were not issued in violation of any
preemptive rights or Federal or state securities laws. Except as disclosed in
Schedule 3.4(a) hereto, the Company has never repurchased or redeemed any shares
of its capital stock, and there are no amounts owed or which may be owed to any
person by the Company as a result of any repurchase or redemption of shares of
its capital stock. Except as disclosed in Schedule 3.4(a) hereto, there are no
agreements, arrangements or understandings to which the Company is a party or by
which it is bound to redeem or repurchase any shares of its capital stock.
Except as set forth in Schedule 3.4(a), there are no outstanding options,
warrants or other rights to purchase, or any securities convertible into or
exchangeable for, shares of the capital stock of the Company, and there are no
agreements, arrangements or understandings to which the Company is a party or by
which it is bound pursuant to which the Company is or may be required to issue
additional shares of its capital stock.
- 10 -
(b) Schedule 3.4(b) sets forth a complete and correct list of
all indebtedness for borrowed money of the Company outstanding as of the date
hereof, including, the name of the lender, the principal amount of such
indebtedness, together with all accrued and unpaid interest thereon, and any
prepayment penalties or premiums payable if such indebtedness is repaid prior to
its stated maturity date.
(c) The Company does not own, directly or indirectly, any
equity securities, or options, warrants or other rights to acquire equity
securities, or securities convertible into or exchangeable for equity
securities, of any other corporation, or any partnership interest in any general
or limited partnership or unincorporated joint venture (a "Subsidiary").
3.5 Financial Statements. Attached hereto as Schedule 3.5 are the
balance sheets of the Company as of June 28, 1998, December 31, 1997, and
December 31, 1996 and the statements of income and statements of cash flows of
the Company for the fiscal years or periods then ended, including the notes
thereto (hereinafter collectively referred to as the "Financial Statements").
The Financial Statements (i) have been prepared from the books and records of
the Company, (ii) have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be expressly indicated
therein or on the face of the schedules or notes to such Financial Statements)
during the periods covered thereby and (iii) present fairly in all material
respects the financial condition, results of operations and cash flows of the
Company as at the dates, and for the periods, stated therein, except that the
Financial Statements are subject to normal year-end adjustments which will not
be individually or in the aggregate material in amount or effect and do not
include footnotes. At July 31, 1998, the Company's total assets (as computed in
accordance with generally accepted accounting principles) did not equal or
exceed $10 million.
3.6 Absence of Undisclosed Liabilities. Except (i) as set forth or
reserved against in the balance sheet of the Company dated as of June 28, 1998,
included in the Financial Statements (the "Balance Sheet"), (ii) for obligations
incurred since June 28, 1998 in the ordinary course of business, which are not
individually or in the aggregate, material in amount, and (iii) as set forth in
Schedule 3.6, the Company does not have any liabilities or obligations of the
nature that would be reasonably required, in accordance with generally accepted
accounting principles applied on a consistent basis, to be reflected on the face
of a balance sheet or, in the case of the financial statements for the years
ended December 31, 1996 and December 31, 1997, the notes thereto.
3.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.7, since June 28, 1998, the Company has carried on its business in
the ordinary course and consistent with past practice. Except as set forth on
Schedule 3.7 hereto, since June 28, 1998, the Company has not: (i) incurred any
material obligation or liability (whether absolute, accrued, contingent or
otherwise) except in the ordinary course of business and consistent with past
practice; (ii) experienced any Company Material Adverse Effect; (iii)
accelerated receivables or delayed payables or made any change in any accounting
principle or practice or in its methods of
- 11 -
applying any such principle or practice; (iv) suffered any material damage,
destruction or loss, whether or not covered by insurance, affecting its
properties, assets or business; (v) mortgaged, pledged or subjected to any lien,
charge or other encumbrance, or granted to third parties any rights in, any of
its assets, tangible or intangible; (vi) sold or transferred any of its assets,
except in the ordinary course of business and consistent with past practice, or
canceled or compromised any debts or waived any claims or rights of a material
nature; (vii) issued any additional shares of capital stock or any rights,
options or warrants to purchase, or securities convertible into or exchangeable
for, shares of its capital stock other than shares of Company Common Stock
issued upon exercise of employee stock options; (viii) declared or paid any
dividends on or made any distributions (however characterized) in respect of
shares of its capital stock; (ix) repurchased or redeemed any shares of its
capital stock; (x) granted any general or specific increase in the compensation
payable or to become payable to any of their Employees (as that term is
hereinafter defined) or any bonus or service award or other like benefit, or
instituted, increased, augmented or improved any Benefit Plan (as that term is
hereinafter defined); or (xi) entered into any agreement to do any of the
foregoing.
3.8 Legal Proceedings, etc. Except as set forth in Schedule 3.8 hereto,
there are no suits, actions, claims, proceedings (including, without limitation,
arbitral or administrative proceedings) or investigations pending or, to the
best knowledge of the Company or any Principal Shareholder, threatened against
the Company or its properties, assets or business or, to the best knowledge of
the Company or any Principal Shareholder, pending or threatened against any of
the officers, directors, employees, agents or consultants of the Company in
connection with the business of the Company. There are no such suits, actions,
claims, proceedings or investigations pending, or, to the best knowledge of the
Company or any Principal Shareholder, threatened challenging the validity or
propriety of the transactions contemplated by this Agreement. There is no
judgment, order, injunction, decree or award (whether issued by a court, an
arbitrator or an administrative agency) to which the Company is a party, or
involving the Company's properties, assets or business, which is unsatisfied or
which requires continuing compliance therewith by the Company.
3.9 Taxes.
(a) Except as set forth in Schedule 3.9, the Company has duly
and timely filed, or will duly and in a timely manner file, all material Tax
returns and other filings in respect of Taxes (as that term is hereinafter
defined) required to be filed by it or which are required to be filed by it on
or prior to the Effective Time, and has in a timely manner paid (or will in a
timely manner pay) all material Taxes which are (or will be) due for all periods
ending on or before the Effective Time, whether or not shown on such returns.
All such Tax returns have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all laws, rules and
regulations. The provisions for Taxes payable reflected in the Financial
Statements are adequate under generally accepted accounting principles.
- 12 -
(b) Except as set forth in Schedule 3.9 hereto, there are no
actions or proceedings currently pending or, to the best knowledge of the
Company or any Principal Shareholder, threatened against the Company by any
governmental authority for the assessment or collection of Taxes, no claim for
the assessment or collection of Taxes has been asserted against the Company, and
there are no matters under discussion with any governmental authority regarding
claims for the assessment or collection of Taxes. Any Taxes that have been
claimed or imposed as a result of any examinations of any tax return of the
Company by any governmental authority are being contested in good faith and have
been disclosed in writing to the Parent. Except as set forth in Schedule 3.9,
there are no agreements or applications by the Company for an extension of time
for the assessment or payment of any Taxes nor any outstanding waiver of the
statute of limitations in respect of Taxes. There are no Tax liens on any of the
assets of the Company, except for liens for Taxes not yet due or payable or that
are being contested in good faith in appropriate proceedings.
(c) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean and include any and all United States, state, local, foreign
or other income, sales, use, withholding, employment, payroll, social security,
property taxes and all other taxes of any kind, deficiencies, fees or other
governmental charges in the nature of taxes, including, without limitation, any
installment payment for taxes and contributions or other amounts determined with
respect to compensation paid to directors, officers, employees or independent
contractors from time to time imposed by or required to be paid to any
governmental authority (including penalties and additions to tax thereon,
penalties for failure to file a return or report, and interest on any of the
foregoing).
(d) The Company has not, with regard to any assets or property
held, acquired or to be acquired by the Company, filed a consent to the
application of Section 341(f) of the Code.
(e) The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(2)(i) of the Code.
(f) There is no agreement, plan or arrangement covering any
employee or independent contractor or former employee or independent contractor
of the Company that, considered individually or considered collectively with any
other such agreement, plan or arrangement, will, or could reasonably be expected
to, give rise directly or indirectly to the payment of any amount that would not
be deductible pursuant to Section 280G of the Code or that would be subject to
an excise tax under Section 4999 of the Code.
(g) The Company is not and has never been a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation agreement
or similar agreement or arrangement and does not have any liability for Taxes of
any person (other than the Company) under Treasury Regulation 1.1502-6 (or any
similar provision of state, local or foreign law).
- 13 -
(h) The Company has withheld amounts from its employees and
other persons required to be withheld under the tax, social security,
unemployment and other withholding provisions of all federal, state, local and
foreign laws.
3.10 Title to Properties and Related Matters. (a) Except as set forth
on Schedule 3.10(a), the Company has good and valid title to all personal
property, tangible or intangible, which the Company purports to own, including
the properties reflected on the Balance Sheet or acquired after the date thereof
(other than properties and assets sold or otherwise disposed of in the ordinary
course of business and consistent with past practice since June 28, 1998), free
and clear of any claims, liens, pledges, security interests or encumbrances of
any kind whatsoever (other than (i) purchase money security interests and common
law vendor's liens, in each case for goods purchased on open account in the
ordinary course of business and having a fair market value of less than $10,000
in each individual case), (ii) liens for Taxes not yet due and payable, and
(iii) such imperfections of title and encumbrances, if any, that are not
material in character, amount or extent and that do not materially detract from
the value, or materially interfere with the use of, the property subject thereto
or affected thereby.
(b) The Company does not own any real property or any interest
in real property, except for the leasehold created under the leases referred to
in Schedule 3.10(d).
(c) Schedule 3.10(c) sets forth a complete and correct list of
all equipment, machinery, instruments, vehicles, furniture, fixtures and other
items of personal property currently owned, leased or used by the Company with a
book value as of June 28, 1998, in each case of $10,000 or more. All such
personal property is in satisfactory operating condition (ordinary and
reasonable wear and tear excepted), is physically located in or about one of the
Company's places of business and is owned by the Company or is leased by the
Company under one of the leases set forth in Schedule 3.10(d). None of such
personal property is subject to any agreement or commitment for its use by any
person other than the Company. The maintenance and operation of such personal
property is appropriate for personal property of such nature and is and has been
in material conformance with all applicable laws and regulations, except as
would not have a Company Material Adverse Effect or result in a fine or penalty
in excess of $10,000 individually or in the aggregate. There are no assets
leased by the Company or used in the business of the Company that are owned,
directly or indirectly, by any Related Person (as that term is hereinafter
defined).
(d) Schedule 3.10(d) sets forth a complete and correct list of
all real property and personal property leases to which the Company is a party.
The Company has previously delivered to the Parent complete and correct copies
of each lease (and any amendments or supplements thereto) listed in Schedule
3.10(d). With respect to such leases, (i) each such lease is valid and binding
and in full force and effect; (ii) neither the Company nor (to the best
knowledge of the Company or any Principal Shareholder) any other party is in
default under any such lease, and no event has occurred which constitutes, or
with the lapse of time or the giving of notice or both would constitute, a
default by the Company or (to the best knowledge of the
- 14 -
Company or any Principal Shareholder) a default by any other party under such
lease, other than any default which would not have a Company Material Adverse
Effect; (iii) to the best knowledge of the Company or any Principal Shareholder,
there are no disputes or disagreements between the Company and any other party
with respect to any such lease; and (iv) the lessor under each such lease has
consented or been given notice (or prior to the Closing shall have consented or
been given notice), where such consent or the giving of such notice is
necessary, sufficient that such lease shall remain in full force and effect
following the consummation of the transactions contemplated by this Agreement
without requiring modification in the rights or obligations of the lessee under
any such lease.
3.11 Intellectual Property; Proprietary Rights; Employee Restrictions.
(a) The Company has disclosed in Schedule 3.11 all registered copyrights,
copyright registrations and copyright applications, trademark registrations and
applications for registration, patents and patent applications, trademarks,
service marks, trade names, or Internet domain names (collectively,
"Intellectual Property Rights") used by the Company in the Company's business as
presently conducted, including all other registered Intellectual Property Rights
used in connection with or contained in all versions of the Company's World Wide
Web sites (including ▇▇▇.▇▇▇▇▇▇▇▇.▇▇▇ and ▇▇▇.▇▇▇▇▇▇▇▇▇.▇▇▇) and all licenses,
assignments and releases of Intellectual Property Rights of others without which
the Company could not offer the services it currently offers. All Intellectual
Property Rights used by the Company in the Company's business held by any
employee, officer or consultant are owned by the Company by operation of law or
have been validly assigned to the Company. The Company believes that the
Intellectual Property Rights are sufficient to carry on the business of the
Company as presently conducted. The Company has exclusive ownership of or
license to use all Intellectual Property Rights identified in Schedule 3.11 or
has obtained any licenses, releases or assignments reasonably necessary to use
all third parties' Intellectual Property Rights in works embodied in its
services. The present business activities or products of the Company do not
infringe any Intellectual Property Rights of others, except as would not have a
Company Material Adverse Effect or result in a liability, fine or penalty in
excess of $10,000 individually or in the aggregate. The Company has not received
any notice or other claim from any person asserting that any of the Company's
present activities infringe or may infringe any Intellectual Property Rights of
such person.
The Company has the right to use all trade secrets, customer
lists, hardware designs, programming processes, software and other information
required for its services or its business as presently conducted or
contemplated. The Company has taken all reasonable measures to protect and
preserve the security and confidentiality of its trade secrets and other
confidential information. All employees and consultants of the Company involved
in the design, review, evaluation or development of products or Intellectual
Property Rights have executed nondisclosure and assignment of inventions
agreements to protect the confidentiality of the Company's trade secrets and
other confidential information and to vest in the Company exclusive ownership of
such Intellectual Property Rights. To the knowledge of the Company and the
Principal Shareholders, all trade secrets and other confidential information of
the Company are not part of the public domain or knowledge, nor, to the
knowledge of the Company and the
- 15 -
Principal Shareholders, have they been misappropriated by any person having an
obligation to maintain such trade secrets or other confidential information in
confidence for the Company. To the knowledge of the Company and the Principal
Shareholders, no employee or consultant of the Company has used any trade
secrets or other confidential information of any other person in the course of
their work for the Company.
The Company is the exclusive owner of all right, title and
interest in its Intellectual Property Rights as purported to be owned by the
Company, and to the Company's and the Principal Shareholders' knowledge, such
Intellectual Property Rights are valid and in full force and effect. No
university, government agency (whether federal or state) or other organization
sponsored research and development conducted by the Company or has any claim of
right to or ownership of or other encumbrance upon the Intellectual Property
Rights of the Company. The Company is not aware of any infringement by others of
its copyrights or other Intellectual Proprietary Rights in any of its technology
or services, or any violation of the confidentiality of any of its proprietary
information. To the Company's and the Principal Shareholders' knowledge, the
Company is not making unlawful use of any confidential information or trade
secrets of any past or present employees of the Company.
Neither the Company nor, to the knowledge of the Company and
the Principal Shareholders, any of the Company's employees, have any agreements
or arrangements with former employers of such employees relating to confidential
information or trade secrets of such employers or are bound by any consulting
agreement relating to confidential information or trade secrets of another
entity that are being violated by such persons. The activities of the Company's
employees on behalf of the Company do not violate any agreements or arrangements
known to the Company which any such employees have with former employers or any
other entity to whom such employees may have rendered consulting services. For
the purposes of this Section 3.11, and except where the context otherwise
requires, Intellectual Property Rights also includes any and all intellectual
property rights, licenses, databases, computer programs and other computer
software user interfaces, know-how, trade secrets, customer lists, proprietary
technology, processes and formulae, source code, object code, algorithms,
architecture, structure, display screens, layouts, development tools,
instructions, templates, marketing materials created by the Company, inventions,
trade dress, logos and designs.
(b) The Company has all franchises, permits, licenses and
other rights and privileges reasonably necessary to permit it to own its
property and to conduct its business as it is presently conducted other than any
franchises, permits, licenses and other rights and privileges which if not held
by the Company would not have a Company Material Adverse Effect or result in a
fine or penalty in excess of $10,000 individually or in the aggregate.
3.12 Contracts. (a) Except as set forth in Schedule 3.12(a)
(or in Schedule 3.10(d) or Schedule 3.13(a)), the Company is not a party to, or
subject to:
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(i) any contract, arrangement or understanding,
or series of related contracts, arrangements or understandings, which involves
annual expenditures or receipts by the Company of more than $50,000;
(ii) any note, indenture, credit facility,
mortgage, security agreement or other contract, arrangement or
understanding relating to or evidencing indebtedness for money borrowed or
a security interest or mortgage in the assets of the Company;
(iii) any guaranty issued by the Company;
(iv) any contract, arrangement or understanding
relating to the acquisition, issuance or transfer of any securities;
(v) any contract, arrangement or understanding
relating to the acquisition, transfer, distribution, use, development, sharing
or license of any technology or Intellectual Property Rights other than
licenses granted in the ordinary course of business with a term of less than
one year;
(vi) any contract, arrangement or understanding
granting to any person the right to use any property or property right of
the Company other than licenses granted in the ordinary course of business
with a term of less than one year;
(vii) any contract, arrangement or understanding
restricting the Company's right to (A) engage in any business activity or
compete with any business, or (B) develop or distribute any technology;
(viii) any contract, arrangement or understanding
relating to the employment of, or the performance of services of, any
employee, consultant or independent contractor and pursuant to which the
Company is required to pay more than $25,000 per year;
(ix) any contract, arrangement or understanding
with a Related Person (as that term is hereinafter defined); or
(x) any outstanding offer, commitment or
obligation to enter into any contract or arrangement of the nature described
in subsections (i) through (vi) of this subsection 3.12(a).
(b) The Company has previously made available for inspection
and copying to the Parent complete and correct copies (or, in the case of oral
contracts, a complete and correct description) of each contract (and any
amendments or supplements thereto) listed on Schedule 3.12(a). Except as set
forth in Schedule 3.12(b), (i) each contract listed in Schedule 3.12(a) is in
full force and effect; (ii) neither the Company nor (to the best knowledge of
the Company or any Principal Shareholder) any other party is in default under
any such contract, and no event has
- 17 -
occurred which constitutes, or with the lapse of time or the giving of notice or
both would constitute, a default by the Company or (to the best knowledge of the
Company or any Principal Shareholder) a default by any other party under such
contract, other than any default which would not have a Company Material Adverse
Effect; (iii) to the best knowledge of the Company or any Principal Shareholder,
there are no disputes or disagreements between the Company and any other party
with respect to any such contract; and (iv) each other party to each such
contract has consented or been given notice (or prior to the Closing shall have
consented or been given notice), where such consent or the giving of such notice
is necessary, sufficient that such contract shall remain in full force and
effect following the consummation of the transactions contemplated by this
Agreement without modification in the rights or obligations of the Company
thereunder.
(c) Except as set forth in Schedule 3.12(c), all indebtedness
of the Company for monies borrowed by the Company is prepayable at any time at
the option of the Company, without premium or penalty.
(d) Except as set forth and described in Schedule 3.12(d), the
Company has not issued any warranty or any agreement or commitment to indemnify
any person other than in the ordinary course of business.
3.13 Employees; Employee Benefits.
(a) Schedule 3.13(a) sets forth the names of all current
employees of the Company (the "Employees") and such Employee's job title, the
location of employment of such Employee, such Employee's current salary, the
amount of any bonuses or other compensation paid since December 31, 1997 to such
Employee, the date of employment of such Employee and the accrued vacation time
of such Employee. The Company has accrued on its books and records all
obligations for salaries, benefits and other compensation with respect to its
Employees and former employees ("Former Employees"), to the extent required by
generally accepted accounting principles, including, but not limited to,
vacation pay, severance, bonuses, incentive and deferred compensation, and all
commissions and other fees payable to salespeople, sales representatives and
other agents. Schedule 3.13(a) hereto sets forth a true and correct statement of
the liability, if any, of the Company for accrued but unused sick pay. Except as
set forth on Schedule 3.13(a) or as contemplated by Section 7.6 of this
Agreement, there are no outstanding loans from the Company to any officer,
director, employee, agent or consultant of the Company, or to any other Related
Person. Schedule 3.13(a) hereto sets forth a complete and correct description of
all severance policies of the Company. Complete and correct copies of all
written agreements with Employees and all employment policies, and all
amendments and supplements thereto, have previously been delivered or made
available to the Parent, and a list of all such agreements and policies is set
forth an Schedule 3.13(a). None of the Employees has, to the best knowledge of
the Company or any Principal Shareholder, indicated a desire to terminate his or
her employment, or any intention to terminate his or her employment upon a sale
of, or business combination relating to, the Company or in connection with the
transactions contemplated by
- 18 -
this Agreement. Except as set forth on Schedule 3.13(a), since June 28, 1998,
the Company has not (i) except in the ordinary course of business and consistent
with past practice, increased the salary or other compensation payable or to
become payable to or for the benefit of any of the Employees, (ii) increased the
term or tenure of employment for any Employee, except in the ordinary course of
business consistent with past practice, (iii) increased the amounts payable to
any of the Employees upon the termination of any such person's employment or
(iv) adopted, increased, augmented or improved benefits granted to or for the
benefit of any of the Employees under any Benefit Plan.
(b) Except as disclosed on Schedule 3.13(b), the Company has
complied in all material respects with the Fair Labor Standards Act, as amended,
the Immigration Reform and Control Act of 1986, and all applicable laws, rules
and regulations governing payment of minimum wages and overtime rates and the
withholding and payment of taxes from compensation, except as would not have a
Company Material Adverse Effect or result in a fine or penalty in excess of
$10,000 individually or in the aggregate, and there have been no claims made or,
to the best knowledge of the Company or any Principal Shareholder, threatened
thereunder against the Company arising out of, relating to or alleging any
violation of any of the foregoing or arising out of, relating to or alleging any
violation of Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act, as amended, or any other laws prohibiting
discriminatory practices with respect to employment and discharge, or otherwise
relating to the conduct of employers with respect to employees or potential
employees. Except as disclosed in Schedule 3.13(b), there are no material
controversies, strikes, work stoppages, picketing or disputes pending or, to the
knowledge of the Company or any Principal Shareholder, threatened between the
Company and any of the Employees or Former Employees; no labor union or other
collective bargaining unit represents or has ever represented any of the
Employees, including any "leased employees" (within the meaning of Section
414(n) of the Code); no organizational effort by any labor union or other
collective bargaining unit currently is under way or, to the best knowledge of
the Company or the Principal Shareholders, threatened with respect to any
Employees; and the consent of no labor union or other collective bargaining unit
is required to consummate the transactions contemplated by this Agreement.
(c) Schedule 3.13(c) sets forth a list of each material
defined benefit and defined contribution plan, stock ownership plan, employment
or consulting agreement, executive compensation plan, bonus plan, incentive
compensation plan or arrangement, deferred compensation agreement or
arrangement, agreement with respect to temporary employees or "leased employees"
(within the meaning of Section 414(n) of the Code), vacation pay, sickness,
disability or death benefit plan (whether provided through insurance, on a
funded or unfunded basis or otherwise), employee stock option, stock
appreciation rights or stock purchase plan, severance pay plan, arrangement or
practice, employee relations policy, practice or arrangement, and each other
employee benefit plan, program or arrangement, including, without limitation,
each "employee benefit plan" within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which has been
maintained by the Company for the benefit of or relating to any of the Employees
or to any Former Employees or
- 19 -
their dependents, survivors or beneficiaries, whether or not legally binding,
whether written or oral or whether express or implied, all of which are
hereinafter referred to as the "Benefit Plans."
(d) Except as set forth on Schedule 3.13(d) and except for
such failures as may be corrected without resulting in a Company Material
Adverse Effect or a fine or penalty in excess of $10,000 individually or in the
aggregate, the provisions of each Benefit Plan which is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is intended to
meet the requirements of Section 401(a) of the Code meet such requirements; the
trust, if any, forming part of such plan is exempt from U.S. federal income tax
under Section 501(a) of the Code; a favorable determination letter has been
issued by the Internal Revenue Service (the "IRS") with respect to each plan and
trust and each amendment thereto; and nothing has occurred since the date of
such determination letter that would adversely affect the qualification of such
plan; no Benefit Plan is a "voluntary employees beneficiary association" (within
the meaning of section 501(c)(9) of the Code) and there have been no other
"welfare benefit funds" (within the meaning of Section 419 of the Code) relating
to Employees or Former Employees; no event or condition exists with respect to
any Benefit Plan that could subject the Company to any material Tax under
Section 4980B of the Code. With respect to each Benefit Plan, the Company has
heretofore delivered or made available to the Parent complete and correct copies
of the following documents, where applicable and to the extent available: (i)
the most recent annual report (Form 5500 series), together with schedules, as
required, filed with the IRS, and any financial statements and opinion required
by Section 103(a)(3) of ERISA, (ii) the most recent determination letter issued
by the IRS, (iii) the most recent summary plan description and all
modifications, as well as all other descriptions distributed to Employees or set
forth in any manuals or other documents, (iv) the text of the Benefit Plan and
of any trust, insurance or annuity contracts maintained in connection therewith
and (v) the most recent actuarial report, if any, relating to the Benefit Plan.
(e) Neither the Company nor any corporation or other trade or
business under common control with the Company (as determined pursuant to
Section 414(b) or (c) of the Code) (a "Common Control Entity") has maintained or
contributed to or in any way directly or indirectly has any liability (whether
contingent or otherwise) with respect to any "multiemployer plan," within the
meaning of Section 3(37) of ERISA; no Benefit Plan or similar benefit plan of
any Common Control Entity has been subject to Title IV of ERISA; neither the
Company nor any Common Control Entity is a party to or has any liability under
any agreement imposing secondary liability on it as a seller of the assets of a
business in accordance with Section 4204 of ERISA or under any other provision
of Title IV of ERISA or other agreement; no contingent or other liability with
respect to which the Company has or could have any liability exists under Title
IV of ERISA to the Pension Benefit Guaranty Corporation ("PBGC") or to any
Benefit Plan; and no assets of the Company are subject to a lien under Sections
4064 or 4068 of ERISA. Except as indicated on Schedule 3.13(e), the Company has
no obligation to provide medical or other benefits to Employees or Former
Employees or their survivors, dependents and beneficiaries, except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1986 or
applicable state medical benefits continuation law. Except as disclosed in
- 20 -
Schedule 3.13(e), the Company will not incur any liability under any severance
agreement, deferred compensation agreement, employment or similar agreement as a
result of the consummation of the transactions contemplated by this Agreement.
(f) Except as set forth on Schedule 3.13(f), none of the
Benefit Plans has been subject to a "reportable event," within the meaning of
Section 4043 of ERISA (whether or not waived); there have been no "prohibited
transactions," within the meaning of Section 4975 of the Code or Part 4 of
Subtitle B of Title I of ERISA that would have a Company Material Adverse Effect
or result in a fine or penalty in excess of $10,000 individually or in the
aggregate; none of the Benefit Plans are subject to Section 412 of the Code;
each Benefit Plan has, in all material respects, been administered to date in
compliance in all material respects with the applicable provisions of ERISA, the
Code and applicable law and with the terms and provisions of all documents,
contracts or agreements pursuant to which such Benefit Plan is maintained; all
reports and information required to be filed with the Department of Labor, the
IRS, the PBGC or plan participants or beneficiaries with respect to any Benefit
Plan have been timely filed; there is no dispute, arbitration, claim, suit, or
grievance, pending or, to the best knowledge of the Company or any Principal
Shareholder, threatened, involving a Benefit Plan (other than routine claims for
benefits), and, to the best knowledge of the Company or any Shareholder, there
is no basis for such a claim; none of the Benefit Plans nor any fiduciary
thereof has been the subject of a order or investigation or examination by a
governmental agency and there are no matters pending before the IRS, the
Department of Labor, the PBGC or any other domestic or, to the best knowledge of
the Company or any Principal Shareholder, foreign governmental agency with
respect to a Benefit Plan; there have been no claims, or notice of claims, filed
under any fiduciary liability insurance policy covering any Benefit Plan; and
there has been and will be no "excess parachute payment" (as that term is
defined in Section 28OG(b)(1) of the Code) to any of the Employees as a result
of the consummation of the transactions contemplated hereby.
3.14 Compliance with Applicable Law. Except as set forth in Schedules
3.13 and 3.14, the Company is not in violation in any material respect of any
applicable safety, health, environmental or other law, statute, ordinance, code,
rule, regulation, judgment, order, injunction, writ or decree of any Federal,
state, local or foreign court or governmental or regulatory body, agency or
authority having, asserting or claiming jurisdiction over it or over any part of
its business, operations, properties or assets, except for any violation which
would not have a Company Material Adverse Effect or result in a fine or penalty
in excess of $10,000 individually or in the aggregate. The Company has not
received any notice alleging any such violation, nor to the best knowledge of
the Company or any Principal Shareholder, is there any inquiry, investigation or
proceedings relating thereto.
3.15 Ability to Conduct the Business. There is no agreement,
arrangement or understanding, nor any judgment, order, writ, injunction or
decree of any court or governmental or regulatory body, agency or authority
applicable to the Company or to which the Company is a party or by which it (or
any of its properties or assets) is bound, that will prevent the use by the
Surviving Corporation, after the Effective Time, of the properties and assets
owned by, the
- 21 -
business conducted by or the services rendered by the Company on the date
hereof, in each case on substantially the same basis as the same are used,
owned, conducted or rendered on the date hereof, except where the prevention of
such use will not have a Company Material Adverse Effect. The Company has in
force, and is in compliance with, in all material respects, all material
governmental permits, licenses, exemptions, consents, authorizations and
approvals used in or required for the conduct of its business as presently
conducted, all of which shall continue in full force and effect, without
requirement of any filing or the giving of any notice and without modification
thereof, following the consummation of the transactions contemplated hereby. The
Company has not received any notice of, and to the best knowledge of the Company
or any Principal Shareholder, there are no inquiries, proceedings or
investigations relating to or which could result in the revocation or
modification of any such permit, license, exemption, consent, authorization or
approval.
3.16 Major Customers. Schedule 3.16 sets forth a complete and correct
list of the ten largest customers of the Company, in terms of revenue recognized
in respect of such customers during the six months ended June 28, 1998, showing
the amount of revenue recognized for each such customer during such period.
Except as set forth and described in Schedule 3.16, to the best knowledge of the
Company or any Principal Shareholder, the Company has not received any notice or
other communication (written or oral) from any of the customers listed in
Schedule 3.16 hereto terminating or reducing in any material respect, or setting
forth an intention to terminate or reduce in the future, or otherwise reflecting
a material adverse change in, the business relationship between such customer
and the Company.
3.17 Consultants, Sales Representatives and Other Agents. Schedule 3.17
hereto sets forth a complete and correct list of the names and addresses of each
consultant, sales representative or other agent (other than any such person
performing solely clerical functions) currently engaged by the Company who is
not an employee of the Company and who has received compensation in excess of
$25,000 in the six months ended June 28, 1998, the commission rates or other
compensation applicable with respect to each such person and the amount of
commissions or other compensation earned by each such person for the six months
ended June 28, 1998. Complete and correct copies of all current agreements
between the Company and any such person have previously been delivered or made
available by the Company to the Parent.
3.18 Accounts Receivable. All accounts receivable of the Company (i)
arose from bona fide transactions in the ordinary course of business and
consistent with past practice, (ii) except as set forth on Schedule 3.18, are
owned by the Company free and clear of any claim, security interest, lien or
other encumbrance and (iii) are accurately and fairly reflected on the Balance
Sheet, or, with respect to accounts receivable of the Company created on or
after June 28, 1998, are accurately and fairly reflected in the books and
records of the Company. The reserves for bad debts reflected on the Balance
Sheet and in the balance sheet included in the Financial Statements were
calculated in accordance with generally accepted accounting principles
consistent with past practice.
- 22 -
3.19 Insurance. Schedule 3.19 hereto is a true and complete list of all
insurance policies carried by the Company with respect to its business, together
with, in respect of each such policy, the name of the insurer, the number of the
policy, the annual policy premium payable therefor, the limits of coverage, the
deductible amount (if any), the expiration date thereof and each pending claim
thereunder. Complete and correct copies of each certificate of insurance have
previously been delivered or made available by the Company to the Parent. All
such policies are in full force and effect. All premiums due thereon have been
paid in a timely manner.
3.20 Bank Accounts; Powers of Attorney. Schedule 3.21 sets forth
a complete and correct list showing:
(i) all bank accounts of the Company, together
with, with respect to each such account, the account number, the names of all
signatories thereof, the authorized powers of each such signatory and the
approximate balance thereof on the date of this Agreement; and
(ii) the names of all persons holding powers of
attorney from the Company and a summary statement of the terms thereof.
3.21 Minute Books, etc. The minute books, stock certificate book and
stock ledger of the Company are complete and correct in all material respects.
The minute books of the Company contain accurate and complete records of all
meetings or written consents to action of the Board of Directors and
shareholders of the Company and accurately reflect all corporate actions of the
Company which are required by law to be passed upon by the Board of Directors or
shareholders of the Company.
3.22 Related Person Indebtedness and Contracts. Schedule 3.22 sets
forth a complete and correct summary of all contracts, commitments, arrangements
and understandings not described elsewhere in this Agreement between the Company
and any of the following (collectively, "Related Persons"): (i) the Holders;
(ii) the spouses and children of any of the Holders (collectively, "near
relatives"); (iii) any trust for the benefit of any of the Holders or any of
their respective near relatives; or (iv) any corporation, partnership, joint
venture or other entity or enterprise owned or controlled by any of the Holders
or by any of their respective near relatives.
3.23 Brokers; Payments. Except for Broadview International LLC
("Broadview"), no broker, investment banker, financial advisor or other person
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or any Principal
Shareholder. The Company has suspended or terminated, and has the legal right to
terminate or suspend, all negotiations and discussions of Acquisition
Transactions (as defined in Section 6.4) with parties other than Parent. No
valid claim exists against the Company or the
- 23 -
Surviving Corporation or, based on any action by the Company, against the Parent
for payment of any "topping," "break-up" or "bust-up" fee or any similar
compensation or payment arrangement as a result of the transactions contemplated
hereby.
3.24 Company Action. The Board of Directors of the Company, by
unanimous written consent or at a meeting duly called and held, has (i)
determined that the Merger is fair and in the best interests of the Company and
its shareholders, (ii) approved the Merger and this Agreement in accordance with
the provisions of the CGCL, and (iii) directed that this Agreement and the
Merger be submitted to the Company shareholders for their approval and resolved
to recommend that the Company's shareholders vote favor of the approval of this
Agreement and the Merger.
3.25 Disclosure. No representation or warranty by the Company or the
Principal Shareholders contained in this Agreement and no statement contained in
any of the Disclosure Schedules, certificate or other document or instrument
delivered or to be delivered pursuant to this Agreement by the Company or its
representatives contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary to make the
statements contained therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDERS
Each of the Principal Shareholders represents and warrants, severally,
to the Parent and Acquisition as follows: (i) such Shareholder is the sole and
exclusive record and beneficial owner of the shares of the Company's capital
stock, Stock Options and/or Warrants set forth opposite such Shareholder's name
in Schedule 3.4 hereto, free and clear of any claims, liens, pledges, options,
rights of first refusal or other encumbrances or restrictions of any nature
whatsoever (other than restrictions on transfer imposed under applicable
securities laws), and, except as set forth on Schedule 3.4 hereto, there are no
agreements, arrangements or understandings to which such Shareholder is a party
(other than this Agreement) involving the purchase, sale or other acquisition or
disposition of the shares owned by such Shareholder; (ii) such Shareholder shall
(A) concurrently with such Shareholder's execution and delivery of this
Agreement, execute and deliver to Parent the Voting Agreement in the form of
Exhibit A hereto pursuant to which Shareholder agrees to vote all shares of
capital stock owned by such Shareholder in favor of the Merger and the adoption
of this Agreement by the Company, (B) at the Effective Time, deliver to the
Parent certificates representing all shares of Company Stock owned by such
Shareholder, each such certificate to be duly endorsed for transfer and free and
clear of any claims, liens, pledges, options, rights of first refusal or other
encumbrances or restrictions of any nature whatsoever (other than restrictions
imposed under applicable securities laws); (iii) such Shareholder has all
necessary legal capacity, right, power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, and this
Agreement constitutes a valid and binding obligation of such Shareholder
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by applicable
- 24 -
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors, rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in law
or in equity; and (iv) the execution and delivery of this Agreement by such
Shareholder and the consummation of the transactions contemplated hereby will
not (A) violate or conflict with any provision of any partnership agreement or
other constitutional documents of any such Shareholder that is constituted as a
general or limited partnership, (B) breach, violate or constitute an event of
default (or an event which with the lapse of time or the giving of notice or
both would constitute an event of default) under, give rise to any right of
termination, cancellation, modification or acceleration under or require any
consent or the giving of any notice under, any note, bond, indenture, mortgage,
security agreement, lease, license, franchise, permit, agreement or other
instrument or obligation to which such Shareholder is a party, or by which such
Shareholder or the shares of Company Stock held by such Shareholder may be
bound, or result in the creation of any material lien, claim or encumbrance or
other right of any third party of any kind whatsoever upon the properties or
assets of such Shareholder pursuant to the terms of any such instrument or
obligation, which breach, violation or event of default would have a material
adverse effect on such Shareholder's ability to perform such Shareholder's
obligations hereunder, or (C) violate or conflict with any law, statute,
ordinance, code, rule, regulation, judgment, order, writ, injunction, decree or
other instrument of any court or governmental or regulatory body, agency or
authority applicable to such Shareholder or by which such the shares of Company
Stock held by such Shareholder may be bound.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION
The Parent and Acquisition jointly and severally represent and warrant
to the Company and the Principal Shareholders that:
5.1 Corporate Organization. Each of the Parent and Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Parent and Acquisition has all requisite
corporate power and authority to own, operate and lease the properties and
assets it now owns, operates and leases and to carry on its business as now
being conducted. The Parent and Acquisition are each duly qualified to transact
business as a foreign corporation and are each in good standing in the
jurisdictions set forth opposite their respective names in Schedule 5.1, which
are the only jurisdictions where such qualification is required by reason of the
nature of the properties and assets currently owned, operated or leased by the
Parent or Acquisition or the business currently conducted by them, except for
such jurisdictions where the failure to be so qualified would not have a Lycos
Material Adverse Effect (as defined below). The Parent has previously delivered
to the Company complete and correct copies of (i) its Certificate of
Incorporation (certified by the Secretary of State of Delaware as of a recent
date) and its By-Laws (certified by the Secretary of the Parent as of a recent
date) and
- 25 -
(ii) the Certificate of Incorporation of Acquisition and all amendments thereto
to the date hereof (certified by the Secretary of State of the State of Delaware
as of a recent date) and the By-Laws of Acquisition (certified by the secretary
of Acquisition as of a recent date). Neither the Certificate of Incorporation
nor the By-Laws of the Parent or Acquisition has been amended since the
respective dates of certification thereof, nor has any action been taken for the
purpose of effecting any amendment of such instruments. The term "Lycos Material
Adverse Effect" means for purposes of this Agreement, any change, event or
effect that is, or would be, materially adverse to the business, operation,
assets, liabilities, financial condition or results of operations of the Parent
and Acquisition, taken as a whole.
5.2 Authorization. Each of the Parent and Acquisition has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Boards of Directors of the Parent and Acquisition and
by the Parent as the sole shareholder of Acquisition, and no other corporate
proceedings on the part of the Parent or Acquisition are necessary to approve
and authorize the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Parent and Acquisition and constitutes the valid and
binding agreement of the Parent and Acquisition, enforceable in accordance with
its terms, except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or in law).
5.3 Consents and Approvals; No Violations. Subject to the filing of
Certificate of Merger with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware and compliance with applicable
federal and state securities laws, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not: (i)
violate or conflict with any provisions of the Certificate of Incorporation or
By-Laws of the Parent or Acquisition; (ii) breach, violate or constitute an
event of default (or an event which with the lapse of time or the giving of
notice or both would constitute an event of default) under, give rise to any
right of termination, cancellation, modification or acceleration under, or
require any consent or the giving of any notice under, any note, bond,
indenture, mortgage, security agreement, lease, license, franchise, permit,
agreement or other instrument or obligation to which the Parent or Acquisition
is a party, or by which any of them or any of their respective properties or
assets may be bound, or result in the creation of any lien, claim or encumbrance
of any kind whatsoever upon the properties or assets of the Parent or
Acquisition pursuant to the terms of any such instrument or obligation, other
than any breach, violation, default, termination, cancellation, modification or
acceleration which would not have a Lycos Material Adverse Effect; (iii) violate
or conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction or decree or other instrument of any Federal, state,
local or foreign court or governmental or regulatory body, agency or authority
applicable to the Parent or Acquisition or by which any of their respective
properties or assets may be bound, except for such violations or
- 26 -
conflicts which would not have a Lycos Material Adverse Effect; or (iv) require,
on the part of the Parent or Acquisition, any filing or registration with, or
permit, license, exemption, consent, authorization or approval of, or the giving
of any notice to, any governmental or regulatory body, agency or authority other
than any filing, registration, permit, license, exemption, consent,
authorization, approval or notice which if not obtained or made would not have a
Lycos Material Adverse Effect.
5.4 Capitalization. (a) The authorized capital stock of the Parent
consists of 40,000,000 shares of Parent Common Stock, of which 18,530,772 shares
are issued and outstanding as of June 30, 1998 and 5,000,000 shares of Preferred
Stock, none of which are issued or outstanding. All of the issued and
outstanding shares of Parent Common Stock are (and all shares of Parent Common
Stock to be issued in connection with the Merger, when issued in accordance with
this Agreement, shall be) duly authorized, validly issued, fully paid and
nonassessable, and none of such shares has been issued in violation of any
applicable preemptive rights. There are no agreements or commitments to which
the Parent is a party or by which it is bound for the redemption or repurchase
of any shares of its capital stock. Except for options issued under the Parent's
stock option and employee stock purchase plans (collectively, the "Stock Option
Plans"), there are no outstanding options, warrants or other rights to purchase,
or securities convertible into or exchangeable for, shares of the capital stock
of the Parent, and (except as contemplated by this Agreement and except with
respect to options issued under the Stock Option Plans) there are no agreements
or commitments to which the Parent is a party or by which it is bound pursuant
to which the Parent is or may become obligated to issue additional shares of its
capital stock.
(b) The authorized capital stock of Acquisition consists of
1,000 shares of common stock, par value $0.01 per share, of which 100 shares are
issued and outstanding, all of which shares are owned beneficially and of record
by the Parent. There are no outstanding options, warrants or other rights to
purchase, or securities convertible into or exchangeable for, shares of the
capital stock of Acquisition, and there are no agreements or commitments to
which Acquisition is a party or by which it is bound pursuant to which
Acquisition is or may become obligated to issue additional shares of its capital
stock.
5.5 SEC Reports and Financial Statements. The Parent has heretofore
delivered or made available to the Company complete and correct copies of all
reports and other filings filed by the Parent with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") since August 1, 1997 (such reports and other
filings collectively referred to herein as the "Exchange Act Filings"). The
Exchange Act Filings constitute all of the documents required to be filed by the
Parent under the Exchange Act with the SEC since such date. As of their
respective dates, the Exchange Act Filings did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements of the Parent included in the Exchange Act
Filings comply in all material respects with the published
- 27 -
rules and regulations of the SEC with respect thereto, and such audited
consolidated financial statements (i) were prepared from the books and records
of the Parent and its consolidated subsidiaries, (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes or schedules thereto)
and (iii) present fairly the financial position of the Parent and its
consolidated subsidiaries as at the dates thereof and the results of their
operations and cash flows (or changes in financial position, for the fiscal year
ended July 31, 1997 and earlier years) for the periods then ended. The unaudited
financial statements included in the Exchange Act Filings comply in all material
respects with the published rules and regulations of the SEC with respect
thereto; and such unaudited financial statements (i) were prepared from the
books and records of the Parent and its consolidated subsidiaries, (ii) were
prepared in accordance with generally accepted accounting principles, except as
otherwise permitted under the Exchange Act and the rules and regulations
thereunder, on a consistent basis (except as may be indicated therein or in the
notes or schedules thereto) and (iii) present fairly the financial position of
the Parent and its consolidated subsidiaries as at the dates thereof and the
results of their operations and cash flows (or changes in financial condition)
for the periods then ended, subject to normal year-end adjustments and any other
adjustments described therein or in the notes or schedules thereto.
5.6 Absence of Certain Changes. Since April 30, 1998, the business of
the Parent has been conducted in the ordinary course and consistent with past
practice. Except as set forth in Schedule 5.6 or in the Exchange Act Filings
filed before the date hereof, since April 30, 1998, there has been no Lycos
Material Adverse Effect.
5.7 Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Parent or any of its
Subsidiaries has received any notice of assertion, that would have a Lycos
Material Adverse Effect, nor, to the best knowledge of the Parent, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
Parent or any of its Subsidiaries that would have a Lycos Material Adverse
Effect or that in any manner challenges or seeks to prevent, enjoin, alter or
delay any of the transactions contemplated by this Agreement.
5.8 Tax Treatment of Merger. Neither the Parent nor any of its
Subsidiaries has taken any action or knows of any fact, agreement, plan or other
circumstance that is reasonably likely to prevent the Merger from qualifying as
a reorganization under Section 368(a) of the Code.
5.9 Disclosure. No representation or warranty by the Parent or
Acquisition contained in this Agreement and no statement contained in any
Schedule, certificate or other document or instrument delivered or to be
delivered pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained therein not misleading.
- 28 -
ARTICLE VI
CONDUCT OF BUSINESS OF THE COMPANY AND
THE PARENT PRIOR TO THE EFFECTIVE TIME
6.1 Conduct of Business of the Company. During the period commencing on
the date hereof and continuing until the Effective Time, the Company and each of
the Principal Shareholders agree that the Company, except as otherwise expressly
contemplated by this Agreement or agreed to in writing by the Parent:
(a) will carry on its business only in the ordinary
course and consistent with past practice;
(b) will not declare or pay any dividend on or make any
other distribution (however characterized) in respect of shares of its capital
stock;
(c) will not, directly or indirectly, redeem or
repurchase, or agree to redeem or
repurchase, any shares of its capital stock;
(d) will not amend its Articles of incorporation or
By-Laws;
(e) will not issue, or agree to issue, any shares of its
capital stock (except pursuant to the exercise of currently outstanding warrants
or options), or any options, warrants or other rights to acquire shares of its
capital stock, or any securities convertible into or exchangeable for shares of
its capital stock;
(f) will not combine, split or otherwise reclassify any
shares of its capital stock;
(g) will not form a Subsidiary;
(h) will use its commercially reasonable efforts to preserve
intact its present business organization, keep available the services of its
officers and key employees and preserve its relationships with clients and
others having business dealings with it to the end that its goodwill and ongoing
business shall not be materially impaired at the Effective Time;
(i) will not (i) make any capital expenditures individually in
excess of $15,000 or in the aggregate in excess of $40,000, (ii) enter into any
license, distribution, OEM, reseller, joint venture or other similar agreement,
(iii) enter into or terminate any lease of, or purchase or sell, any real
property, (iv) enter into any leases of personal property involving individually
in excess of $15,000 annually or in the aggregate in excess of $40,000 annually,
(v) incur or guarantee any additional indebtedness for borrowed money, (vi)
create or permit to become effective any security interest, mortgage, lien,
charge or other encumbrance on its
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properties or assets, (vii) accelerate receivables or delay payables, or
(viii) enter into any agreement to do any of the foregoing;
(j) will not adopt or amend any Benefit Plan for the benefit
of Employees, or increase the salary or other compensation (including, without
limitation, bonuses or severance compensation) payable or to become payable to
its Employees (except pursuant to existing contractual obligations which have
been disclosed to the Parent) or accelerate, amend or change the period of
exercisability or the vesting schedule of options granted under any stock option
plan or agreements except as specifically required by the terms of such plans or
agreements, or enter into any agreement to do any of the foregoing;
(k) will promptly advise the Parent of the commencement of, or
threat of (to the extent that such threat comes to the knowledge of the Company
or any of the Principal Shareholders), any claim, action, suit, proceeding or
investigation against, relating to or involving the Company or any of its
directors, officers, employees, agents or consultants in connection with their
businesses or the transactions contemplated hereby that could reasonably be
expected to have a Company Material Adverse Effect;
(l) will use its commercially reasonable efforts to
maintain in full force and effect all insurance policies maintained by the
Company on the date hereof; and
(m) will not enter into any agreement to dissolve, merge,
consolidate or, except in the ordinary course, sell any material assets of the
Company or acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets in excess of $25,000 in the aggregate.
6.2 Conduct of Business of the Parent. During the period commencing on
the date hereof and continuing until the Effective Time, the Parent agrees that,
except as expressly contemplated by this Agreement or agreed to in writing by
the Company, the Parent:
(a) subject to the fiduciary duties of the Parent's Board of
Directors, as advised in writing by counsel, will carry on its business only in
the ordinary course consistent with past practice;
(b) will promptly advise the Company of the commencement of,
or threat of (to the extent that such threat comes to the knowledge of the
Parent or any Parent Subsidiary), any claim, action, suit, proceeding or
investigation against, relating to or involving the Parent or any Parent
Subsidiary or any of their directors, officers, employees, agents or consultants
in connection with their businesses or the transactions contemplated hereby;
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(c) will not take any action or cause its Subsidiaries to take
any action which could cause the Merger to fail to qualify as a reorganization
under the provisions of Section 368(a) of the Code; and
(d) will not enter into any agreement to dissolve, merge,
consolidate or, except in the ordinary course, sell any material assets of the
Parent or any of the Parent Subsidiaries, provided that this Section 6.2(d)
shall not restrict the Parent from effecting acquisitions in which Parent
obtains a controlling interest in the stock or assets of other entities or
businesses.
6.3 Conduct of Business of Acquisition. During the period commencing on
the date hereof and continuing until the Effective Time, Acquisition shall not
engage in any activities of any nature except as provided in or contemplated by
this Agreement.
6.4 Other Negotiations. Neither the Company nor any Principal
Shareholder will (nor will they permit any of their respective officers,
directors, employees, agents, partners and affiliates on their behalf to) take
any action to solicit, initiate, seek, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in any
negotiations with, any corporation, partnership, person or other entity or group
(other than Parent) regarding any acquisition of the Company, any merger or
consolidation with or involving the Company, or any acquisition of any material
portion of the stock or assets of the Company, or any equity or debt financing
of the Company or any material license of Intellectual Property Rights (any of
the foregoing being referred to in this Agreement as an "Acquisition
Transaction") or enter into an agreement concerning any Acquisition Transaction
with any party other than Parent. If between the date of this Agreement and the
termination of this Agreement pursuant to Article X, the Company receives from a
third party any offer to negotiate or consummate an Acquisition Transaction, the
Company shall (i) notify Parent immediately (orally and in writing) of such
offer, including the identity of such party and the terms of any proposal
therein, and (ii) notify such third party of the Company's obligations under
this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Properties and Records. Between the date of this
Agreement and the Effective Time, the Company will provide the Parent and its
accountants, counsel and other authorized advisors, with reasonable access,
during business hours, to its premises and properties and its books and records
(including, without limitation, contracts, leases, insurance policies,
litigation files, minute books, accounts, working papers and tax returns filed
and in preparation) and will cause its officers to furnish to Parent and its
authorized advisors such additional financial, tax and operating data and other
information pertaining to
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its business as Parent shall from time to time reasonably request. All of such
data and information shall be kept confidential by Parent until the consummation
of the Merger.
7.2 Shareholder Approval. (a) Prior to the Effective Time and at the
earliest practicable date following the date hereof, but in no event later than
three business days after the date hereof, the Company will solicit written
consents from its shareholders seeking approval of this Agreement, the Merger
and related matters. In soliciting such written consent, the Board of Directors
of the Company will recommend to the shareholders of the Company that they
approve this Agreement and the Merger and the Company and the Board of Directors
shall use their best efforts to obtain the approval of the shareholders of the
Company entitled to vote on or consent to this Agreement and the Merger in
accordance with the CGCL and the Company's Articles of Incorporation. In
soliciting the written consent of shareholders, the Company will deliver to each
shareholder as soon as reasonably practicable an information statement (the
"Information Statement") substantially the form delivered to Parent on the date
hereof. The Information Statement prepared by the Company in the form approved
by Parent shall be in such form and contain such information that is intended to
permit compliance by the Parent with the requirements of Regulation D under the
Securities Act in connection with the issuance of shares of Parent Common Stock
in the Merger.
(b) Within three business days after the execution of this
Agreement, the Company will distribute the Information Statement to the
shareholders of the Company. As promptly as practicable after the date of this
Agreement, the Company and the Parent will prepare and file any filings required
under the Exchange Act, the Securities Act or any other Federal, foreign or
state securities or blue sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "Filings"). The Information Statement and
the Filings will comply in all material respects with all applicable
requirements of law. Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Information Statement or any Filing, the
Company or Parent, as the case may be, will promptly inform the other of such
occurrence and cooperate in making any appropriate amendment or supplement,
and/or mailing to shareholders of the Company, such amendment or supplement. The
Information Statement will include the recommendation of the Board of Directors
of the Company in favor of adoption and approval of this Agreement and approval
of the Merger.
(c) The Principal Shareholders each severally agree to vote
their shares of the capital stock of the Company for the approval and adoption
of this Agreement and the Merger. The Principal Shareholders each severally
agree that they (i) shall not dispose of or in any way encumber said shares
prior to the consummation of the transactions contemplated hereby, (ii) shall
take no action inconsistent with the approval and consummation of said
transactions and (iii) at the Closing shall surrender the stock certificates
representing all shares of Company Stock owned by them, duly endorsed for
transfer.
7.3 Reasonable Efforts; etc. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use his/its reasonable
efforts to take, or cause to be taken, all
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actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including obtaining any
consents, authorizations, exemptions and approvals from, and making all filings
with, any governmental or regulatory authority, agency or body which are
necessary in connection with the transactions contemplated by this Agreement.
7.4 Material Events. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of the occurrence of any event
which will or may result in the failure to satisfy any of the conditions
specified in Article VIII or Article IX hereof.
7.5 Registration Statement on Form S-8. As promptly as practicable
following the Effective Time, but in no event later than the fifth business day
following the Effective Time, the Parent shall cause to be filed with the SEC,
if necessary, one or more Registration Statements on Form S-8 covering the
shares of Parent Common Stock issuable pursuant to the arrangements described in
Section 2.2(c) hereof.
7.6. Fees and Expenses. The parties hereto shall bear and pay all of
their own fees, costs and expenses relating to the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of their
respective counsel, accountants, brokers and financial advisors, except that the
Holders shall be responsible for all the fees, costs and expenses incurred by
the Company in connection with this Agreement and the transactions contemplated
hereby and such fees, costs and expenses shall be deemed to be expenses of the
Holders and paid by the Holders, provided that, upon the consummation of the
Merger, (i) the Company shall be permitted to pay up to $600,000 of such fees,
costs and expenses, and (ii) the Parent shall pay up to $1,754,469 of the fees
of Broadview, which amount shall be paid $877,235 in cash and in 15,157 shares
of Parent Common Stock (collectively, the "Expense Cap"). If the amount of such
fees, costs and expenses exceed the Expense Cap, then the number of shares of
Parent Common Stock constituting the Merger Shares shall be reduced by an amount
equal to the excess of the fees, costs and expenses over the Fee Cap divided by
the Closing Market Price (the "Expense Shares"). All invoices relating to the
fees, costs and expenses which may be paid by the Company or the Parent shall be
delivered to the Parent at least three business days prior to the Closing so as
to enable Parent to calculate the Expense Shares and the Exchange Ratio, unless
the Company certifies in writing to the Parent prior to the Closing that the
fees, costs and expenses to be paid by the Company and the Parent do not exceed
the Expense Cap.
7.7 Employees. Parent shall offer employment with the Parent or the
Company to all employees of the Company at the Effective Time, subject to each
employee signing the applicable agreement referred to in Section 8.5 (i) or
(ii). Employees of the Company at the Effective Time will be provided with
benefit plans by the Surviving Corporation or Parent which in the aggregate are
no less favorable to such employees than those provided from time to time by
Parent and its Subsidiaries to similarly situated employees. If any employee of
the Company becomes a participant in any employee stock purchase plan, employee
benefit plan, program, policy or arrangement of Parent, such employee shall be
given credit for all service prior to the
- 33 -
Effective Time with the Company to the extent permissible under such plan,
program, policy or arrangement.
7.8 Nasdaq National Market Listing. Parent shall cause the shares of
Parent Common Stock issuable in the Merger to be authorized for listing on The
Nasdaq National Market on or prior to the date that the registration statement
to be filed pursuant to Section 12.1(a) is declared effective by the SEC.
7.9 Tax Treatment. Each of the Parent, Acquisition, any Subsidiary of
the Parent, the Company and the Principal Shareholders shall use their
reasonable commercial efforts to cause the Merger to qualify as a reorganization
under Section 368(a) of the Code. Parent and its Subsidiaries will not take, or
cause the Company to take, any action after the Effective Time which will cause
the Merger to fail to qualify as a reorganization under the provisions of
Section 368(a) of the Code.
7.10 Indemnification. The Parent shall assume the obligations of the
Company under its existing indemnification agreements with officers and
directors and shall not, for a period of six years after the Effective Time,
take any action to alter or impair any exculpatory or indemnification provisions
now existing in such indemnification agreements or the Articles of Incorporation
or By-laws of the Company for the benefit of any individual who served as a
director or officer of the Company at any time prior to the Effective Time,
except for any changes which may be required to conform with changes in
applicable law and any changes which do not affect the application of such
provisions to acts or omissions of such individuals prior to the Effective Time,
and except that the Parent shall not be required to indemnify, defend or hold
harmless any director or officer of the Company prior to the Effective Time with
respect to claims, losses or liabilities arising from or relating to the
Company's execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
7.11 Shares of Parent Common Stock. Subject to the deposit into escrow
of shares of Parent Common Stock contemplated under Section 2.8, on or prior to
the date that the registration statement to be filed pursuant to Section 12.1(a)
is declared effective by the SEC, the Parent shall deliver to each Holder of
Company Common Stock who has delivered share certificates pursuant to Section
8.7 the shares of Parent Common Stock issuable to such Holders pursuant to
Section 2.2(a) hereof.
- 34 -
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE PARENT AND ACQUISITION
The obligation of the Parent and Acquisition to consummate the
transactions contemplated hereby shall be subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which may
be waived in writing by the Parent and Acquisition in their sole discretion):
8.1 Representations and Warranties True. The representations and
warranties of the Company and of each of the Principal Shareholders which are
contained in this Agreement shall be true and correct in all material respects
at and as of the Closing Date as though such representations and warranties were
made on and as of the Closing Date, and at the Closing the Company shall have
delivered to the Parent and Acquisition a certificate (signed on behalf of the
Company by the President and the Chief Financial Officer of the Company) to that
effect with respect to all such representations and warranties made by the
Company, and each Principal Shareholder shall have executed and delivered to the
Parent and Acquisition a certificate to that effect with respect to all such
representations and warranties made, jointly and severally or severally, by such
Shareholder.
8.2 Performance. The Company and each of the Principal Shareholders
shall have performed and complied in all material respects with all of the
obligations under this Agreement which are required to be performed or complied
with by them on or prior to the Closing Date, and at the Closing the Company
shall have delivered to the Parent and Acquisition a certificate (duly executed
on behalf of the Company by the President and the Chief Financial Officer of the
Company) to that effect with respect to all such obligations required to have
been performed or complied with by the Company on or before the Closing Date,
and each of the Principal Shareholders shall have executed and delivered to the
Parent and Acquisition a certificate to that effect with respect to all such
obligations required to have been performed or complied with by such Principal
Shareholders on or before the Closing Date.
8.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority), and no
investigation by any governmental or regulatory body, agency or authority shall
have been commenced with respect to the transactions contemplated hereby or with
respect to the Company which would have a material adverse effect on the
transactions contemplated hereby or on the business of the Company.
- 35 -
8.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by the Company or any Principal Shareholder in
connection with the Merger and the other transactions contemplated by this
Agreement (including those identified on Schedule 3.3) shall have been obtained
and shall be in full force and effect.
8.5 Additional Agreements. Parent shall have the following
agreements:
(i) the offer letters in the forms of Exhibit E hereto, duly
executed by each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇;
(ii) the Nondisclosure and Development Agreement in the form
of Exhibit F hereto, duly executed by each employee of the Company who is
required to execute an offer letter under Section 8.5(i);
(iii) the Escrow Agreement annexed as Exhibit D hereto, duly
executed by ▇▇▇▇▇▇▇ Sun, as Representative of the Holders under such Escrow
Agreement (and countersigned by holders of at least 90% of the outstanding
Company Stock, holders of at least 90% of outstanding Stock Options and holders
of at least 90% of outstanding Warrants where required on the addendum thereto),
together with counterparts signed by the escrow agent named therein and blank
stock powers executed by each of the holders with respect to such holder's
portion of the Escrow Shares;
(iv) Resignations of all directors of the Company,
effective as of the Effective Time; and
(v) Letters of Transmittal duly executed by holders of
at least 90% of the outstanding shares of Common Stock.
8.6 Opinion of Venture Law Group. The Company shall have delivered to
the Parent an opinion of Venture Law Group, A Professional Corporation, counsel
to the Company, in substantially the form attached as Exhibit G hereto.
8.7 Appraisal Rights. The holders of at least 90% of the issued and
outstanding shares of Company Stock shall have voted in favor of the approval of
the Merger and the transactions contemplated hereby and holders of no more than
10% of the issued and outstanding shares of Company Stock shall have demanded
appraisal rights in respect of the Merger.
8.8 Termination of Agreements. The following agreements between the
Company and certain of its shareholders shall have been terminated, effective no
later than the Effective Time: (i) the Amended and Restated Co-Sale Agreement
dated as of November 14, 1997 among the Company and the other parties named
therein, (ii) the Voting Agreement dated as of November 14, 1997 among the
Company and the other parties named therein, (iii) the Amended and Restated
Investors' Rights Agreement dated as of November 14, 1997 among the Company
- 36 -
and the other parties named therein, and (iv) each Preferred Stock Purchase
Agreement relating to the purchase of shares of Company Preferred Stock.
8.9 Certificate of Merger. The Company shall have executed and
delivered to the Parent counterparts of the Certificate of Merger to be filed
with the Secretary of State of the State of California and the Secretary of
State of the State of Delaware in connection with the Merger.
8.10 Completion of Due Diligence. The Parent shall have completed its
due diligence review of the Company and shall not have discovered any material
event, liability, condition or other fact (other than conditions or changes in
the Company's business or operations relating to the economy generally, the
Parent's industry or Parent specifically unless any such changes or conditions
affect the Company in an individual, specific manner) which, in the Parent's
judgment, makes it inadvisable to proceed with the Merger.
8.11 Conversion of Company Preferred Stock. All outstanding shares of
Company Preferred Stock shall have been converted into Company Common Stock at
the respective conversion prices thereof as set forth in the Company's Articles
of Incorporation.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
The obligation of the Company and the Principal Shareholders to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or prior to the Closing Date, of each of the following
conditions (any of which may be waived in writing by the Company and the
Shareholders in their sole discretion):
9.1 Representations and Warranties True. The representations and
warranties of each of the Parent and Acquisition contained in this Agreement
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made on and as of the Closing
Date, and at the Closing each of the Parent and Acquisition shall have delivered
to the Company and the Shareholders a certificate (signed on its behalf by its
President and its Chief Financial Officer) to that effect with respect to all
such representations and warranties made by such entity.
9.2 Performance. Each of the Parent and Acquisition shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by them
on or prior to the Closing Date, and at the Closing each of the Parent and
Acquisition shall have delivered to the Company and the Shareholders a
certificate, signed on its behalf by its President and its Chief Financial
Officer, to that effect with respect to all such obligations required to have
been performed or complied with by such entity on or before the Closing Date.
- 37 -
9.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority) and no
investigation by any governmental or regulatory body, agency or authority shall
have been commenced with respect to the transactions contemplated hereby or with
respect to the Parent or the Parent Subsidiaries which would have a material
adverse effect on the transactions contemplated hereby or on the business of the
Parent and the Parent Subsidiaries taken as a whole.
9.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by Parent or Acquisition in connection with the Merger
and the other transactions contemplated by this Agreement (including those
identified on Schedule 5.3) shall have been obtained and shall be in full force
and effect.
9.5 Additional Agreements. The Parent shall have executed and
delivered (and shall have agreed to cause the Surviving Corporation to execute
and deliver immediately following the Effective Time, as applicable)
counterparts of the following agreements;
(i) the offer letters referred to in Section 8.5(i)
hereof;
(ii) the Nondisclosure and Development Agreements
referred to in Section 8.5(ii) hereof;
(iii) the Escrow Agreement referred to in Section 8.5(iii)
hereof, together with counterparts signed by the escrow agent named therein.
9.6 Opinion of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇. The Parent shall have
delivered to the Company an opinion of ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ in
substantially the form annexed as Exhibit H hereto.
9.7 Certificate of Merger. The Parent and Acquisition shall have
executed and delivered to the Company counterparts of the Certificate of Merger
to be filed with the Secretary of State of the State of California and the
Secretary of the State of the State of Delaware in connection with the Merger.
9.8 Tax Opinion. Venture Law Group, A Professional Corporation,
shall have delivered its tax opinion, dated the Closing Date, in substantially
the form of Exhibit K hereto.
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ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time:
(a) by the mutual written consent of the Company and the
Parent;
(b) by either the Company or the Parent
(i) if any court or governmental or regulatory
agency, authority or body shall have enacted, promulgated or issued any
statute, rule, regulation, ruling, writ or injunction, or taken any other
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and all appeals and means of appeal therefrom have been
exhausted; or
(ii) if the Effective Time shall not have occurred
on or before August 28, 1998; provided, however, that the right to terminate
this Agreement pursuant to this Section 10.1(b)(ii) shall not be available
to any party whose (or whose affiliate(s)') breach of any representation or
warranty or failure to perform or comply with any obligation under this
Agreement or the Voting Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date;
(c) by the Company, if any of the conditions specified
in Article IX have not been met or waived prior to such time as such condition
can no longer be satisfied; or
(d) by the Parent, if any of the conditions specified in
Article VIII shall not have been met or waived prior to such time as such
condition can no longer be satisfied.
10.2 Effect of Termination. In the event of termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or (in the case of the
Company, the Parent and Acquisition) their respective officers or directors,
except for Sections 7.6, 13.6 and 13.7 and the last sentence of Section 7.1,
which shall remain in full force and effect, and except that nothing herein
shall relieve any party from liability for a breach of this Agreement prior to
the termination hereof.
ARTICLE XI
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
11.1 Indemnity Obligations of the Holders. Each of the Holders
hereby agrees to indemnify and hold the Parent harmless from, and to reimburse
the Parent for, any Indemnity
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Claims (as that term is hereinafter defined) arising under the terms and
conditions of this Agreement on a pro rata basis based on each Holder's share of
the Merger Shares, Option Shares and Warrant Shares. For purposes of this
Agreement, the term "Indemnity Claim" shall mean any and all losses, damages,
deficiencies, liabilities, obligations, actions, claims, suits, proceedings,
demands, assessments, judgments, recoveries, fees, costs and expenses
(including, without limitation, all out-of-pocket expenses, reasonable
investigation expenses and reasonable fees and disbursements of accountants and
counsel) of any nature whatsoever, net of insurance proceeds actually realized
or to be realized by Parent (collectively, "Losses") arising out of, based upon
or resulting from (i) any breach of any representation and warranty of the
Company or the Holders which is contained in this Agreement or the Letter of
Transmittal; or (ii) any breach or nonfulfillment of, or any failure to perform,
any of the covenants, agreements or undertakings of the Company (which
covenants, agreements or undertakings were to be performed or complied with on
or prior to the consummation of the Merger) or the Holders which are contained
in or made pursuant to the terms and conditions of this Agreement or the Letter
of Transmittal.
11.2 Appointment of Representative. Each of the Holders hereby appoints
▇▇▇▇▇▇▇ Sun as such Holder's exclusive agent to act on such Holder's behalf with
respect to any and all Indemnity Claims arising under this Agreement. In such
representative capacity, ▇▇▇▇▇▇▇ Sun or any person who shall succeed in such
representative capacity pursuant to the terms of the Escrow Agreement referred
to in Sections 8.5 and 9.5 hereof, is sometimes referred to in this Agreement as
the "Representative." The Representative shall take, and the Holders agree that
the Representative shall take, any and all actions which he believes are
necessary or appropriate under this Agreement for and on behalf of the Holders,
as fully as if the Holders were acting on their own behalf, including, without
limitation, defending all Indemnity Claims, consenting to, compromising or
settling all Indemnity Claims, conducting negotiations with the Parent and its
representatives regarding such claims, dealing with the Parent and the Escrow
Agent under the Escrow Agreement referred to in Sections 8.5 and 9.5 hereof with
respect to all matters arising under such Escrow Agreement, taking any and all
other actions specified in or contemplated by this Agreement and engaging
counsel, accountants or other representatives in connection with the foregoing
matters. The Parent and such Escrow Agent shall have the right to rely upon all
actions taken or omitted to be taken by the Representative pursuant to this
Agreement and the Escrow Agreement, all of which actions or omissions shall be
legally binding upon each of the Holders.
11.3 Notification of Claims. Subject to the provisions of Section 11.4
below, in the event of the occurrence of an event which the Parent asserts
constitutes an Indemnity Claim, Parent shall provide the Representative (on
behalf of the indemnifying parties) with prompt written notice of such event and
shall otherwise promptly make available to the Representative all relevant
information which is material to the claim and which is in the possession of the
indemnified party. If such event involves the claim of any third party (a
"Third-Party Claim"), the Representative as the indemnifying party shall have
the right to elect to join in the defense, settlement, adjustment or compromise
of any such Third-Party Claim, and, if he so elects, to
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control such defense, settlement, adjustment or compromise, and to employ
counsel to assist such indemnifying party in connection with the handling of
such claim, at the sole expense of the indemnifying party, to be paid from
amounts held in escrow by the Escrow Agent in accordance with the terms of the
Escrow Agreement. Unless the Representative elects to assume such defense,
settlement, adjustment or compromise, Parent shall have the right to settle any
such Third-Party Claim; provided, however, that Parent may not effect the
settlement, adjustment or compromise of any such Third-Party Claim without the
consent of the Representative, which consent shall not be unreasonably withheld.
In the event that the Representative has consented to any such settlement,
adjustment or compromise, the Representative shall have no power or authority to
object to the amount of any claim by Parent against the escrow for indemnity
with respect to such settlement, adjustment or compromise, provided such amount
is not in excess of the amount actually paid by Parent with respect to such
Third Party Claim. The Representative shall have the right to settle, adjust, or
compromise any Third-Party Claim, the defense of which is controlled by the
Representative, using amounts held in escrow; provided, however, that, unless
the settlement, adjustment or compromise involves no more than the payment of an
amount that is less than the amount of funds then remaining in the escrow and
provides for the unconditional release of Parent, the Company and their
respective affiliates, the Representative may not effect the settlement,
adjustment, compromise or satisfaction of any such Third-Party Claim without the
consent of the Parent, which consent shall not be unreasonably withheld.
Parent's failure to give timely notice or to promptly furnish the Representative
with any relevant data and documents in connection with any Third-Party Claim
shall not constitute a defense (in part or in whole) to any claim for
indemnification by such party, except and only to the extent that such failure
shall result in any prejudice to the indemnifying party. In connection with any
Third-Party Claim, the indemnified party, or the indemnifying party if it has
assumed the defense of such claim pursuant to the preceding sentence, shall
diligently pursue the defense of such Third-Party Claim.
11.4 Duration. Except as otherwise provided in this Agreement, all
representations, warranties, covenants and agreements of the parties contained
in or made pursuant to this Agreement, and the rights of the parties to seek
indemnification with respect thereto, shall survive the Closing for a period of
one (1) year from the Closing Date, provided that with respect to claims for
indemnification as to which notice shall have been duly given prior to such
expiration date, the number of Escrow Shares (as defined below) reasonably
necessary to satisfy such claims shall remain in escrow until such claims have
been finally resolved. To be duly given, any such notice shall set forth in
reasonable detail the nature of such claim, the provisions under this Agreement
or the Letter of Transmittal pursuant to which such claim is being asserted and,
to the extent feasible, a reasonable estimate of the anticipated amount of such
claim.
11.5 Escrow. At the Effective Time, ten percent (10%) of the Merger
Shares and instruments or other documentation representing Stock Options to
purchase ten percent (10%) of the Option Shares and Warrants to purchase ten
percent (10%) of the Warrant Shares (collectively, the "Escrow Shares") shall be
delivered to State Street Bank and Trust Company, as escrow agent (the "Escrow
Agent ") to be held for a period ending on the first anniversary of
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the Closing Date. Parent may make a claim for any Losses indemnified hereunder
until the first anniversary of the Closing Date. The Escrow Shares shall be held
and disbursed by the Escrow Agent in accordance with an Escrow Agreement in the
form attached hereto as Exhibit D. Except with respect to claims based on fraud
committed by the Company or any Holder which are not limited, if the Closing
occurs, Parent agrees that Parent's sole and exclusive remedy and recourse
against each of the Holders under this Agreement for Losses attributable to any
inaccuracy or breach of any representation or warranty of the Company or the
Holders which is contained in this Agreement or the Letter of Transmittal or any
Schedule or certificate delivered pursuant hereto or thereto or any breach or
nonfulfillment of, or any failure to perform, any of the covenants or
undertakings of the Company (which covenants, agreements or undertakings were to
be performed or complied with on or prior to the consummation of the Merger) or
the Holders which are contained in or made pursuant to this Agreement or the
Letter of Transmittal shall be against such Holder's pro rata share of the
Merger Shares, Option Shares and Warrant Shares held in escrow pursuant to the
Escrow Agreement. In lieu of depositing shares in escrow, within thirty days
after the Closing, any Holder of the Company Stock may post a bond reasonably
acceptable to Parent equal in value to the value (determined by reference to the
Closing Market Price) of such Holder's pro rata portion of the Escrow Shares, in
which event, upon posting such bond, the Holder's allocable portion of the
Escrow Shares shall be delivered to it. Notwithstanding anything herein to the
contrary, the Holders shall have no liability for indemnification pursuant to
this Article XI until the aggregate Losses to the Parent and the Company exceed
$75,000, at which point each Holder shall be liable only for his or its pro rata
share of the amount of such Losses in excess of $75,000.
11.6 No Contribution. Each Holder hereby waives, and acknowledges and
agrees that such Holder shall not have and shall not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of indemnity or
other right or remedy against the Parent or the Company in connection with any
indemnification obligation or any other liability which such Holder may become
subject under or in connection with this Agreement or the Escrow Agreement.
11.7. Liability of Principal Shareholders. By virtue of signing this
Agreement, no Principal Shareholder is assuming liability for the
indemnification obligations contained in this Article XI which is greater than
the liability of any other Holder who has not signed this Agreement. No
Principal Shareholder shall be liable for any fraud committed by any other
Holder or the Company.
ARTICLE XII
REGISTRATION RIGHTS
12.1 Registration Rights. (a) Parent shall file with the SEC a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public resale offering of the shares of Parent Common Stock issuable to or on
behalf of Holders under Section 2.2(a) (other than the shares of
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Parent Common Stock which are subject to restrictions on transfer under the
Employment Agreements referred to in Section 8.5(i)) and the shares of Parent
Common Stock issuable upon exercise of the Warrants on the Closing Date
(provided that Parent shall not be required to register shares on behalf of any
Holder who has not timely performed its or his obligations hereunder, or under
the Letter of Transmittal, in which case Parent shall be permitted to delay the
registration of the shares held by such Holder until five business days after
the Holder has complied with such obligations) and shall use commercially
reasonable efforts to cause such registration statement to become and remain
effective for the period ending on the first to occur of (x) the date the resale
of all shares registered thereunder is complete or (y) the first anniversary of
the Closing Date. If for any reason Parent is not eligible to file such
registration statement on Form S-3 (or any successor form to Form S-3), Parent
shall effect such registration using such form as Parent is then eligible to
use.
(b) In the case of any registration pursuant to this Section
12.1, Parent shall keep each person whose securities are to be registered
thereunder (a "Selling Shareholder") advised of the initiation and completion of
such registration. At its expense, except as provided in Section 12.1(b)(iv)
below, Parent will promptly:
(i) Prepare and file with the SEC the
registration statement described in Section 12.1(a) above and thereafter use
commercially reasonable efforts to cause such registration statement to
become effective;
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectuses used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(iii) Furnish to the Selling Shareholders such
numbers of copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of the securities covered by such registration statement;
(iv) Use commercially reasonable efforts
to register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Selling Shareholders, provided that Parent
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in
any such states or jurisdictions;
(v) Notify each Selling Shareholder covered by
such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to
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state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(vi) Cause all such shares of Parent Common Stock
to be listed on each securities exchange or market system on which similar
securities issued by the Parent are then listed; and
(vii) Provide a transfer agent and registrar for
all such shares of Parent Common Stock not later than the effective dates of
such registration statements.
(c) Each Selling Shareholder and the Company shall provide
Parent with all necessary and reasonable assistance in the preparation and
filing of the registration statement required to be prepared and filed by Parent
and all other obligations of Parent under this Section 12.1. Parent's
obligations under this Section 12.1 with respect to any Selling Stockholder are
conditioned in all respects on the provision of all necessary and reasonable
assistance to Parent by each Selling Stockholder.
(d) Parent shall pay the expenses incurred by it in complying
with its obligations under this Article XII, including, without limitation, all
registration and filing fees, exchange listing fees, fees and expenses of
counsel for Parent, and fees and expenses of accountants for Parent.
(e) Parent shall have the right, upon the advice of the Board
of Directors of Parent (the "Board"), upon giving written notice to each Selling
Stockholder of the exercise of such right, to require such Selling Shareholder
not to sell any shares pursuant to the registration statement filed pursuant to
Section 12.1(a) for a reasonable period (as determined in good faith by the
Board) from the date on which such notice is given (a "black-out period"), if
(i)(A) Parent is engaged in discussions or negotiations with respect to, or has
proposed or taken a substantial step to commence, or there otherwise is pending,
any merger, acquisition, other form of business combination, divesture, tender
offer, financing or other transaction, or there is an event or state of facts
relating to Parent, in each case which is material to Parent (as reasonably
determined by the Board) ( any such negotiation, step, event or state of facts
being herein called "Material Activity"), (B) in the reasonable judgment of the
Board, after consultation with and acting upon the written advice of outside
counsel, disclosure of such Material Activity would be necessary or advisable
under applicable securities laws and (C) such disclosure would, in the
reasonable judgment of the Board, be adverse to the interests of Parent, or (ii)
the Board, in its reasonable judgment, after consultation with and acting upon
the written advice of outside counsel, deems it necessary to file a
post-effective amendment to such registration statement or to prepare a
supplement to, or otherwise amend, the form of prospectus contained therein.
During any such black-out period, each Selling Shareholder agrees not to sell
any Registrable Shares under such registration statement for such period of time
as the Board, acting on the written advice of outside counsel, may in good ▇▇▇▇▇
▇▇▇▇ advisable; provided, however, that no single black-out period will be
longer than thirty (30) calendar days and, in the aggregate, all black-out
periods in
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any twelve (12) month period shall not include more than ninety (90) calendar
days; provided, further, however, that no black-out period may be imposed by
Parent during the first thirty calendar days after the effectiveness of the
registration statement filed pursuant to Section 12.1(a). The period of
effectiveness of any registration statement in effect at the time of a blackout
period and the termination period under Section 12.4(a) shall be extended for a
period equal to the black-out period.
12.2 Indemnification. (a) Parent agrees to indemnify and hold harmless,
to the extent permitted by law, each holder of Parent Common Stock with rights
under this Section 12, against all damages caused by any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to Parent by such holder expressly for use therein or by
such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after Parent has furnished
such holder with a sufficient number of copies of the same.
(b) In connection with any registration statement in which a
holder of Parent Common Stock with rights under this Section 12 is
participating, each such holder will furnish to Parent in writing such
information as Parent reasonably requests for use in connection with any such
registration statement or prospectus and, to the extent permitted by law, will
indemnify and hold harmless Parent, its directors and officers and each Person
who controls Parent (within the meaning of the Securities Act) against all
damages resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such holder specifically for use in such registration statement;
provided that the obligation to indemnify will be several, not joint and
several, among such holders and the liability of each such holder will be in
proportion to and limited to the net amount received by such holder from the
sale of Parent Common Stock with rights under this Section 12, pursuant to such
registration statement.
(c) Any Person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any consent to the
entry of any judgment or any settlement made by the indemnified party without
its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will
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not be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities and the
Merger.
12.3 Current Public Information. Until the earlier of the second
anniversary of the Closing Date or the date all shares of Parent Common Stock
subject to this Section 12 have been sold, Parent will timely file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations adopted by the SEC
thereunder, and will take such further action as any holder or holders of Parent
Common Stock with rights under Section 12.1 may reasonably request, all to the
extent required to enable such holders to sell their shares pursuant to Rule 144
under the Securities Act and pursuant to Form S- 3 or similar registration form
hereunder adopted by the SEC. Upon written request, Parent will deliver to such
holders a written statement as to whether it has complied with such
requirements.
12.4 Termination of Registration Rights. Notwithstanding the foregoing
provisions of this Article XII, Parent's obligations pursuant to Section 12.1
shall terminate upon (a) the first anniversary of the Closing Date, or (b) if
earlier, with respect to a given Holder, at the time such Holder may sell all of
his or her shares of Parent Common Stock in compliance with Rule 144 in a single
90 day period under the Securities Act.
12.5 Transferability of Registration Rights. The rights under this
Section 12 are not transferable except (a) a transfer by will or intestacy, (b)
estate planning transfers consisting of gifts to the spouse or issue of the
transferee and transfers to trusts for the benefit of the spouse or issue of the
transferee, (c) a transfer to the constituent partners of a Selling Stockholder
that is a partnership as part of a distribution of the shares of Parent Common
Stock held by such partnership so long as all such transferees appoint a single
representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Article XII, and each transferee
represents to Parent that it is an "accredited" investor as defined in Rule 501
promulgated under the Securities Act, or (d) with the written consent of Parent.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment. This Agreement may be amended by written
agreement between the Company and the Parent prior to the Effective Time.
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13.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written notice
from the party or parties entitled to the benefits thereof. No failure by any
party hereto to exercise, and no delay in exercising, any right hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or future exercise of that right by that
party.
13.3 Notices. All notices and other communications hereunder shall be
deemed given if given in writing and delivered personally, by registered or
certified mail, return receipt requested, postage prepaid, or by overnight
courier to the party to receive the same at its respective address set forth
below (or at such other address as may from time to time be designated by such
party to the others in accordance with this Section 13.3):
(a) if to the Company or the Principal Shareholders, to:
WhoWhere? Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
with copies to:
Venture Law Group
A Professional Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
(b) if to the Parent or Acquisition, to:
Lycos, Inc.
▇▇▇-▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
with copies to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇., Esq.
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(c) If to the Representative:
▇▇▇▇▇▇▇ Sun
Venrock Associates
Suite A230
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
All such notices and communications hereunder shall be deemed given
when received, as evidenced by the signed acknowledgment of receipt of the
person to whom such notice or communication shall have been personally
delivered, the acknowledgment of receipt returned to the sender by the
applicable postal authorities or the confirmation of delivery rendered by the
applicable overnight courier service.
13.4 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors (or, in the case of the Principal Shareholders, their
respective heirs, administrators, executors and personal representatives) and
permitted assigns. Neither this Agreement nor any rights, duties or obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other parties hereto, except that vested rights to receive
payment or to initiate legal action with respect to causes of action that have
accrued hereunder shall be assignable by devise, descent or operation of law.
13.5 No Third Party Beneficiaries. Neither this Agreement or any
provision hereof nor any Schedule, certificate or other instrument delivered
pursuant hereto, nor any agreement to be entered into pursuant hereto or any
provision hereof, is intended to create any right, claim or remedy in favor of
any person or entity, other than the parties hereto and their respective
successors (or, in the case of the Principal Shareholders, their respective
heirs, administrators, executors and personal representatives) and permitted
assigns.
13.6 Public Announcements. No later than the second full business day
after execution and delivery of this Agreement, the Parent and the Company shall
issue a press release in such form as they shall mutually agree. Thereafter, and
prior to the consummation of the Merger or the termination of this Agreement,
none of the parties hereto shall, except as mutually agreed by the Parent and
the Company, or except as may be required by law or applicable regulatory
authority (including, without limitation, the rules applicable to Nasdaq
National Market companies), issue any reports, releases, announcements or other
statements to the public relating to the transactions contemplated hereby.
13.7 Brokers and Finders. The Company and the Principal Shareholders
represent and warrant that, except for Broadview, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission based on arrangements made by or on behalf of the Company. The
Company has previously delivered to the Parent a complete and correct copy
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of the agreement dated October 15, 1997, between the Company and Broadview, and
such agreement is the only agreement between such parties. The Parent and
Acquisition represent and warrant that, except for Credit Suisse First Boston,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission based on arrangements made by or on behalf of the
Parent. Except as otherwise contemplated herein, the Holders shall pay the fees
and expenses of any broker, finder or investment banker engaged by the Company
or any Holders.
13.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.9 Headings. The article and section headings contained in this
Agreement are solely for convenience of reference, are not part of the agreement
of the parties and shall not be used in construing this Agreement or in any way
affect the meaning or interpretation of this Agreement.
13.10 Entire Agreement. This Agreement, and the Schedules, certificates
and other instruments and documents delivered pursuant hereto, together with the
other agreements referred to herein and to be entered into pursuant hereto,
embody the entire agreement of the parties hereto in respect of, and there are
no other agreements or understandings, written or oral, among the parties
relating to, the subject matter hereof, other than the Confidentiality
Agreements. This Agreement supersedes all prior agreements and understandings,
written or oral, between the parties with respect to such subject matter, other
than the Confidentiality Agreements.
13.11 Governing Law. The parties hereby agree that this Agreement, and
the respective rights, duties and obligations of the parties hereunder, shall be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to principles of conflicts of law thereunder. Each of the
parties hereby (i) irrevocably consents and agrees that any legal or equitable
action or proceeding arising under or in connection with this Agreement which is
commenced by such party shall be brought exclusively by such party in the
Federal or state courts sitting in the city and state where the principal
executive offices of the other party are located and any court to which an
appeal may be taken in any such litigation, and (ii) by execution and delivery
of this Agreement, irrevocably submits to and accepts, with respect to any such
action or proceeding, for itself and in respect of its properties and assets,
generally and unconditionally, the jurisdiction of the aforesaid courts, and
irrevocably waives any and all rights such party may now or hereafter have to
object to such jurisdiction.
13.12 Survival. The representations and warranties contained in
Articles III, IV and V shall survive the Closing for a period of one (1) year.
- 49 -
* * *
- 50 -
IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the
Principal Shareholders named below have caused this Agreement to be duly
executed and delivered as of the date first above written.
LYCOS, INC.
By:____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Chief Operating Officer
WHAT ACQUISITION CORP.
By:____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
WHOWHERE? INC.
By:____________________________________
Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: President and Chief
Executive Officer
PRINCIPAL SHAREHOLDERS:
VANTAGE POINT VENTURE PARTNERS 1996
By: Vantage Point Associates, LLC
Its: General Partner
By: _______________________________
▇▇▇▇ ▇▇▇▇▇▇▇, Managing Member
- 51 -
VENROCK ASSOCIATES
By: ________________________________
Its: ________________________________
VENROCK ASSOCIATES II, L.P.
By: ________________________________
Its: ________________________________
▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
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