EXHIBIT 3
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
INFOSEEK CORPORATION,
INFOSEEK CORPORATION,
STARWAVE CORPORATION,
AND
DISNEY ENTERPRISES, INC.
DATED AS OF JUNE 18, 1998
TABLE OF CONTENTS
PAGE
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ARTICLE I FORMATION OF HOLDING COMPANY AND SUBSIDIARIES ............... 1
1.1 Organization of Holding Company................................ 1
1.2 Directors and Officers of the Holding Company.................. 2
1.3 Organization of Merger Subsidiaries............................ 2
1.4 Actions of Directors and Officers.............................. 2
1.5 Actions of Parent and Company.................................. 2
1.6 The Mergers.................................................... 2
1.7 The Closing.................................................... 3
1.8 Directors...................................................... 3
1.9 Officers....................................................... 3
1.10 Merger Sub Stock............................................... 3
1.11 Cancellation of Holding Company Capital Stock.................. 3
1.12 Conversion of Parent Stock..................................... 3
1.13 Treasury Stock................................................. 4
1.14 Conversion of Company Common Stock............................. 4
1.15 Exchange Agent................................................. 5
1.16 Holding Company to Provide Common Stock........................ 5
1.17 Exchange Procedures............................................ 5
1.18 Dividends, Fractional Shares, Etc. ............................ 5
1.19 Certain Definitions............................................ 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND DEI ...... 7
2.1 Organization of the Company.................................... 8
2.2 Subsidiaries................................................... 8
2.3 Company Capital Structure...................................... 8
2.4 Authority...................................................... 9
2.5 No Conflict.................................................... 9
2.6 Consents....................................................... 10
2.7 Company Financial Statements and Controls...................... 10
2.8 No Undisclosed Liabilities..................................... 10
2.9 No Changes..................................................... 10
2.10 Tax Matters.................................................... 11
2.11 Restrictions on Business Activities............................ 13
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment........................................ 13
2.13 Intellectual Property.......................................... 14
2.14 Agreements, Contracts and Commitments.......................... 16
2.15 Interested Party Transactions.................................. 16
2.16 Governmental Authorization..................................... 17
2.17 Litigation..................................................... 17
2.18 Minute Books................................................... 17
2.19 Environmental Matters.......................................... 17
2.20 Brokers' and Finders' Fees; Third Party Expenses............... 18
2.21 Employee Benefit Plans; Compensation; Labor Matters............ 18
2.22 Insurance...................................................... 19
2.23 Compliance with Laws........................................... 19
2.24 Warranties; Indemnities........................................ 19
2.25 Ownership of Parent Stock...................................... 20
2.26 Claims for Losses.............................................. 20
2.27 Capital Summary Statements..................................... 20
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PAGE
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT...................... A-20
3.1 Organization, Standing and Power................................. A-20
3.2 Parent Subsidiaries.............................................. A-20
3.3 Authority; No Conflict; Consents................................. A-20
3.4 Parent Capital Structure......................................... A-21
3.5 SEC Documents; Parent Financial Statements....................... A-21
3.6 No Undisclosed Liabilities....................................... A-22
3.7 No Material Adverse Effect....................................... A-22
3.8 Brokers' and Finders' Fees....................................... A-22
3.9 Litigation....................................................... A-22
3.10 Taxes............................................................ A-22
3.11 Employee Benefit Plans; Compensation............................. A-23
3.12 Compliance with Laws............................................. A-25
3.13 Agreements, Contract, Commitments................................ A-25
3.14 Intellectual Property............................................ A-25
3.15 Real Property.................................................... A-26
3.16 Interested Party Transactions.................................... A-26
3.17 Restrictions on Business Activities.............................. A-26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............................ A-27
4.1 Conduct of the Parties........................................... A-27
4.2 No Solicitation.................................................. A-29
4.3 No HSR Violation................................................. A-31
ARTICLE V ADDITIONAL AGREEMENTS........................................... A-31
5.1 Registration Statement; Preparation of Joint Proxy Statement..... A-31
5.2 Shareholder Meetings............................................. A-33
5.3 Cooperation; Access to Information............................... A-33
5.4 Confidentiality.................................................. A-33
5.5 Expenses......................................................... A-33
5.6 Public Disclosure................................................ A-34
5.7 Consents......................................................... A-34
5.8 FIRPTA Compliance................................................ A-34
5.9 Reasonable Efforts............................................... A-34
5.10 Notification of Certain Matters.................................. A-34
5.11 Voting Agreements................................................ A-34
5.12 Director Nominees................................................ A-34
5.13 Non-Competition.................................................. A-34
5.14 Regulatory Filings; Reasonable Efforts........................... A-35
5.15 Additional Documents and Further Assurances...................... A-35
5.16 Employees........................................................ A-35
5.17 Form S-8......................................................... A-35
5.18 Director Action with Respect to Option Plans..................... A-35
5.19 Directors' Insurance and Indemnification......................... A-35
5.20 Stock Listing.................................................... A-35
5.21 Certain Tax Matters.............................................. A-35
5.22 Non Solicitation of Company Employees............................ A-39
5.23 Net Worth Test................................................... A-39
5.24 Compliance with Laws............................................. A-39
5.25 Share and Warrant Ownership...................................... A-40
5.26 Parent Option Grants............................................. A-40
5.27 ABC News/Starwave Partners....................................... A-40
A-ii
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5.28 Funding of Ventures ............................................. A-40
5.29 Third Party Agreements........................................... A-40
5.30 Adoption of Option and Employee Stock Purchase Plans............. A-41
ARTICLE VI CONDITIONS TO THE MERGER ...................................... A-41
6.1 Conditions to Obligations of Each Party ......................... A-41
6.2 Conditions to Obligations of Company and DEI .................... A-41
6.3 Conditions to the Obligations of Parent and Holding Company ..... A-42
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION .. A-43
7.1 Survival of Representations and Warranties ...................... A-43
7.2 Indemnification ................................................. A-43
7.3 Claims Against DEI for Indemnification .......................... A-44
7.4 Resolution of Conflicts; Arbitration ............................ A-44
7.5 Third-Party Claims .............................................. A-45
7.6 Exclusive Remedy ................................................ A-45
7.7 Indemnification For Taxes ....................................... A-45
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER ........................... A-46
8.1 Termination ..................................................... A-46
8.2 Effect of Termination ........................................... A-48
8.3 Termination Fees ................................................ A-48
8.4 Amendment ....................................................... A-49
8.5 Extension; Waiver ............................................... A-49
ARTICLE IX GENERAL PROVISIONS ............................................ A-49
9.1 Notices ......................................................... A-49
9.2 Interpretation .................................................. A-50
9.3 Counterparts .................................................... A-51
9.4 Entire Agreement; Assignment .................................... A-51
9.5 Severability .................................................... A-51
9.6 Other Remedies .................................................. A-51
9.7 Governing Law ................................................... A-51
9.8 Rules of Construction ........................................... A-51
9.9 Attorneys Fees .................................................. A-51
A-iii
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 18, 1998 among Infoseek Corporation., a California
corporation ("Parent"), Infoseek Corporation, a newly organized Delaware
Corporation ("Holding Company"), Starwave Corporation, a Washington
corporation (the "Company"), and Disney Enterprises, Inc., a Delaware
corporation and the majority shareholder of the Company ("DEI").
RECITALS
A. The Boards of Directors of each of the constituent companies hereto
believe it is in the best interests of each company and their respective
shareholders to consummate the reorganization (the "Reorganization") provided
for herein, pursuant to which Holding Company, will acquire all of the capital
stock of each of Parent and the Company through the mergers of the Merger
Subsidiaries (as defined in Section 1.3) with and into each of the Parent and
the Company.
B. For federal income tax purposes, it is intended that (i) the Parent
Merger (as hereinafter defined) qualify as a reorganization under the
provisions of Section 368(a) of the United States Internal Revenue Code of
1986, as amended, (the "Code") and/or as an exchange under the provisions of
Section 351 of the Code and (ii) that the Company Merger (as hereinafter
defined) qualify as a reorganization under the provisions of Section 368(a) of
the Code and/or as an exchange under the provisions of Section 351 of the
Code.
C. Concurrently with the execution hereof, in order to induce Parent to
enter into this Agreement, certain shareholders of the Company and Parent are
each entering into a shareholders agreement providing for certain voting and
other restrictions with respect to shares of Parent Common Stock (as defined
in Section 1.12(a)) upon the terms and conditions specified therein.
D. Concurrently with the execution hereof, in order to induce the Company to
enter this Agreement, certain shareholders of Parent and DEI are each entering
into a shareholders agreement providing for certain voting and other
restrictions with respect to shares of Company Common Stock, upon the terms
and conditions specified therein; and Parent and DEI (or one of its
Affiliates) have entered into certain Transaction Agreements (as defined in
Section 2.4).
E. The Company and DEI, on the one hand, and Parent and Holding Company, on
the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
ARTICLE I
Formation of Holding Company and Subsidiaries
1.1 Organization of Holding Company. The Certificate of Incorporation and
Bylaws of the Holding Company shall be in such forms as shall be mutually
determined by Parent and DEI; provided that the Certificate of Incorporation
of Holding Company shall be amended to be substantially in the form of the
Articles of Incorporation of Parent and to preserve the existing rights
afforded to shareholders thereunder (subject to any changes required in
accordance with the provisions of Delaware General Corporate Law). The
Certificate of Incorporation of Holding Company will additionally be amended
to provide that the authorized capital stock of Holding Company shall consist
initially of shares of common stock, no par value (the "Holding Company Common
Stock") and shares of preferred stock, no par value (the "Holding Company
Preferred Stock").
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1.2 Directors and Officers of the Holding Company. Subject to Section 5.12,
the directors and officers of the Holding Company shall be designated by
Parent. Each officer and director shall remain in office until his or her
successor is elected.
1.3 Organization of Merger Subsidiaries. As promptly as practicable
following the execution of this Agreement, Parent shall cause the following
companies to be organized for the sole purpose of effectuating the Parent
Merger and the Company Merger contemplated herein:
(i) Indigo Acquisition Corp., a corporation organized under the laws of
the State of California ("Merger Sub A"). The Articles of Incorporation and
Bylaws of Merger Sub A shall be in such forms as shall be determined by the
Parent and reasonably acceptable to DEI as soon as practicable following
the execution of this Agreement. The authorized capital stock of Merger Sub
A shall initially consist of 1,000 shares of common stock, no par value,
which shall be issued to Holding Company at a price of $1.00 per share;
(ii) Starwave Acquisition Corp., a corporation organized under the laws
of the State of Washington ("Merger Sub B" and, together with Merger Sub A,
the "Merger Subsidiaries" which will conduct no business activity that is
unrelated to the Mergers). The Articles of Incorporation and Bylaws of
Merger Sub B shall be in such forms as shall be determined by the Parent
and reasonably acceptable to DEI as soon as practicable following the
execution of this Agreement. The authorized capital stock of Merger Sub B
shall initially consist of 100 shares of common stock, par value $.01 per
share, which shall be issued to Holding Company at a price of $1.00 per
share.
1.4 Actions of Directors and Officers. As promptly as practicable following
the execution of this Agreement, the Parent shall designate the directors and
officers of Merger Sub A and Merger Sub B. The Parent shall cause (i) Holding
Company to elect the directors of the Merger Subsidiaries, (ii) the directors
of Merger Sub A and Merger Sub B to elect their respective officers, (iii) the
directors of Holding Company to ratify and approve this Agreement and to
approve the forms of the Merger Agreements (as defined below), (iv) the Merger
Agreements to be executed on behalf of the parties thereto, and (v) the
directors and officers of the Merger Subsidiaries to take such steps as may be
necessary or appropriate to complete the organization of the Merger
Subsidiaries and to approve the Merger Agreements.
1.5 Actions of Parent and Company. As promptly as practicable following the
execution of this Agreement, as the holders of all of the outstanding shares
of capital stock of Holding Company, the Parent shall cause Holding Company to
ratify and approve this Agreement, and shall cause Holding Company, as the
sole shareholder of each of the Merger Subsidiaries, to adopt the Merger
Agreements. The Parent shall cause Holding Company and the Merger Subsidiaries
to perform their respective obligations under this Agreement and the Merger
Agreements.
1.6 The Mergers. Pursuant to Plans of Merger, in forms to be mutually agreed
upon by the Parent and the Company (sometimes hereinafter referred to
individually as the "Parent Merger Agreement" and the "Company Merger
Agreement", respectively, and collectively as the "Merger Agreements"), which
Parent Merger Agreement and Company Merger Agreement shall upon such mutual
agreement be attached hereto as Exhibit A-1 and Exhibit A-2, respectively,
upon the terms and subject to the conditions set forth in this Agreement and
in the Merger Agreements:
(a) Merger Sub A shall be merged with and into Parent (the "Parent
Merger") in accordance with the applicable provisions of the laws of the
State of California. Parent shall be the surviving corporation in the
Parent Merger and shall continue its corporate existence under the laws of
the State of California. As a result of the Parent Merger, Parent shall
become a wholly owned Subsidiary of Holding Company. The effects and
consequences of the Parent Merger shall be as set forth in the Parent
Merger Agreement.
(b) Merger Sub B will be merged with and into the Company (the "Company
Merger"), in accordance with the applicable provisions of the laws of the
State of Washington. The Company shall be the surviving corporation in the
Company Merger and shall continue its corporate existence under the laws of
the State of
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Washington. As a result of the Company Merger, the Company shall become a
wholly owned Subsidiary of Holding Company. The effects and consequences of
the Company Merger shall be as set forth in the Company Merger Agreement.
The term "Mergers" shall mean the Parent Merger and the Company Merger,
each of which shall occur on the same date and which are intended to
constitute a single transaction.
(c) The term "Effective Time" shall mean the time and date which is the
later of (i) the date and time of the filing of the Certificate of Merger
relating to the Parent Merger with the Secretary of State of the State of
California (or such other date and time as may be specified in such
certificate as may be permitted by California law) and (ii) the date and
time of the filing of a Certificate of Merger by the Secretary of State of
the State of Washington with respect to the Company Merger (or such other
date and time as may be specified in such certificate as may be permitted
by Washington law).
1.7 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the transactions contemplated by this Agreement and the Merger
Agreements (the "Closing") shall take place (a) at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, Professional Corporation, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., local time, on the first business day
following the day on which the last to be fulfilled or waived of the
conditions set forth in Article VI shall be fulfilled or waived in accordance
herewith or (b) at such other time, date or place as Parent and the Company
may agree. The date on which the Closing occurs is hereinafter referred to as
the "Closing Date."
1.8 Directors. The directors of Parent immediately prior to the Effective
Time shall be the directors of the surviving corporation of the Parent Merger
as of the Effective Time and until their successors are duly appointed or
elected in accordance with applicable law. The directors of Merger Sub A and
the directors of Merger Sub B immediately prior to the Effective Time shall be
the directors of the surviving corporation of the Parent Merger and the
Company Merger, respectively, as of the Effective Time and until their
successors are duly appointed or elected in accordance with applicable law.
1.9 Officers. The officers of Parent and the Company immediately prior to
the Effective Time shall be the officers of the surviving corporations of the
Parent Merger and the Company Merger, respectively, as of the Effective Time
and until their successors are duly appointed or elected in accordance with
applicable law.
1.10 Merger Sub Stock. At the Effective Time, each share of the common stock
of Merger Sub A outstanding immediately prior to the Effective Time shall be
converted into and shall become one (1) share of common stock of the surviving
corporation of the Parent Merger. At the Effective Time, each share of the
common stock of Merger Sub B outstanding immediately prior to the Effective
Time shall be converted into and shall become one share of common stock of the
surviving corporation of the Company Merger.
1.11 Cancellation of Holding Company Capital Stock. At the Effective Time,
each share of the capital stock of Holding Company issued and outstanding
immediately prior to the Effective Time shall be canceled and cease to exist,
and the amounts paid by Parent for such shares shall be returned by Holding
Company to Parent.
1.12 Conversion of Parent Stock.
(a) Subject to Section 1.12 (b), at the Effective Time, each share of common
stock, no par value, of Parent ("Parent Common Stock") issued and outstanding
at the Effective Time shall be converted into one share of Holding Company
Common Stock. Upon such conversion, all such shares of Parent Common Stock
shall be canceled and cease to exist, and each certificate theretofore
representing any such shares shall, without any action on the part of the
holder thereof, be deemed to represent an equivalent number of shares of
Holding Company Common Stock.
(b) Notwithstanding anything in this Section 1.12 to the contrary, shares of
Parent Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Parent Merger and who shall have properly exercised and
perfected their rights of appraisal for such shares in the manner provided by
California Corporation Law and who, as of the
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Effective Time, shall not have effectively withdrawn or lost such dissenters
rights (collectively, the "Parent Dissenting Shares") shall not be converted
into or represent the right to receive the consideration for Parent Common
Stock pursuant to this Section 1.12, but the holder shall only be entitled to
such rights as are granted by applicable law. If such holder shall have so
failed to perfect or shall have effectively withdrawn or lost such right, his
shares shall thereupon be deemed to have been converted into and to have
become exchangeable for, at the Effective Time, the right to receive the
consideration provided for Parent Common Stock.
(c) At the Effective Time, each outstanding option or right to purchase
shares of Parent Common Stock (a "Parent Option") shall be contributed and
assumed by Holding Company in such manner that it is converted into an option
to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Parent Option shall be exercisable
upon the same terms and conditions as then are applicable to such Parent
Option, except that (i) each such Parent Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Parent Common Stock that were issuable
upon exercise in full of such assumed Parent Option immediately prior to the
Effective Time by one, and (ii) the per share exercise price for the shares of
Holding Company Common Stock issuable upon exercise of such assumed Parent
Option shall be equal to the exercise price per share of Parent Common Stock
at which such Parent Option was exercisable immediately prior to the Effective
Time. It is the intention of the parties that, to the extent that any such
Parent Option constituted an "incentive stock option" (within the meaning of
Section 422 of the Code) immediately prior to the Effective Time, such option
continue to qualify as an incentive stock option to the maximum extent
permitted by Section 422 of the Code, and that the assumption of the Parent
Stock Options provided by this Section 1.12(c) satisfy the conditions of
Section 424(a) of the Code.
1.13 Treasury Stock. At the Effective Time, each share of Parent Common
Stock which is held in the treasury of Parent immediately prior to the
Effective Time shall, by virtue of the Mergers, cease to be outstanding and
shall be canceled and retired without payment of any consideration therefor.
1.14 Conversion of Company Common Stock.
(a) At the Effective Time each issued and outstanding share of Company
Capital Stock, $0.01 par value, shall be converted, without any action on the
part of the holders hereof, into the right to receive, upon surrender of a
certificate representing such share of Company Capital Stock in the manner
provided in Section 1.17, that number of shares of Holding Company Common
Stock equal to the Exchange Ratio.
(b) Notwithstanding anything contained in this Section 1.14 to the contrary,
each share of Company Common Stock issued and held in the Company's treasury
immediately prior to the Effective Time shall, by virtue of the Company
Merger, cease to be outstanding and shall be canceled and retired without
payment of any consideration therefor.
(c) Notwithstanding anything in this Section 1.14 to the contrary, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by shareholders who have not voted such
shares in favor of the Company Merger and who shall have properly exercised
and perfected their rights of appraisal for such shares in the manner provided
by the Washington Business Corporation Act (the "WCL") and who, as of the
Effective Time, shall not have effectively withdrawn or lost such dissenters
rights ( collectively, the "Dissenting Shares") shall not be converted into or
represent the right to receive the consideration for Company Capital Stock
pursuant to Section 1.14, but the holder shall only be entitled to such rights
as are granted by applicable law. If such holder shall have so failed to
perfect or shall have effectively withdrawn or lost such right, his shares
shall thereupon be deemed to have been converted into and to have become
exchangeable for, at the Effective Time, the right to receive that number of
shares of Holding Company Common Stock equal to the Exchange Ratio. The
Company shall give Parent prompt notice of any Dissenting Shares (and shall
also give Parent prompt notice of any withdrawals of such demands for payment
in exercise of a shareholder's dissenters' rights) and Parent shall have the
right to direct all negotiations and proceedings with respect to any such
demands. Neither the Company nor the surviving corporation of the Company
Merger shall,
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except with the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for payment in
exercise of a shareholder's dissenters' rights.
(d) At the Effective Time, each outstanding option or right to purchase
shares of Company Common Stock (a "Company Option") shall be transferred to
and assumed by Holding Company in such manner that it is converted into an
option to purchase shares of Holding Company Common Stock, as provided below.
Following the Effective Time, each such Company Option shall be exercisable
upon the same terms and conditions as then are applicable to such Company
Option, except that (i) each such Company Option shall be exercisable for that
number of shares of Holding Company Common Stock equal to the product obtained
by multiplying the number of shares of Company Capital Stock that were
issuable upon exercise in full of such assumed Company Option immediately
prior to the Effective Time by the Exchange Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock and (ii) the per share exercise
price for the shares of Holding Company Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient obtained by
dividing the exercise price per share of Company Capital Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent. It is the intention of
the parties that, to the extent that any such Company Option constituted an
"incentive stock option" (within the meaning of Section 422 of the Code)
immediately prior to the Effective Time, such option continue to qualify as an
incentive stock option to the maximum extent permitted by Section 422 of the
Code, and that the assumption of the Company Stock Options provided by this
Section 1.14(d) satisfy the conditions of Section 424(a) of the Code.
1.15 Exchange Agent. Parent shall appoint a reputable institution,
reasonably acceptable to DEI, to serve as exchange agent (the "Exchange
Agent") in the Mergers.
1.16 Holding Company to Provide Common Stock. Promptly after the Effective
Time, Holding Company shall make available to the Exchange Agent for exchange
in accordance with this Article I the shares of Holding Company Common Stock
issuable pursuant to Article I in exchange for all of the outstanding shares
of Company Capital Stock.
1.17 Exchange Procedures. On the Closing Date or as soon thereafter as
practicable, the Shareholders may surrender the certificates representing
their Company Capital Stock (the "Company Stock Certificates") to the Exchange
Agent for cancellation together with a letter of transmittal in such form and
having such provisions as Parent may reasonably request. Upon surrender of a
Company Stock Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the Exchange Agent will promptly deliver to the holder
of such Company Stock Certificate (other than the holders of Dissenting
Shares) in exchange therefor, subject to Section 1.18, the number of shares of
Holding Company Common Stock issuable in exchange for such Company Stock
Certificate pursuant to this Article I, and the Company Stock Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Company Stock Certificate (other than certificates representing
Dissenting Shares) will be deemed from and after the Effective Time, for all
corporate purposes and subject to Section 1.18, to evidence only the right to
receive shares of Holding Company Common Stock issuable in accordance with
this Article I.
1.18 Dividends, Fractional Shares, Etc.
(a) Notwithstanding any other provisions of this Agreement, no dividends or
other distributions declared after the Effective Time on Holding Company
Common Stock shall be paid with respect to any shares of Company Capital Stock
represented by a Company Stock Certificate, until such Company Stock
Certificate is surrendered for exchange as provided herein. Subject to the
effect of applicable laws, following surrender of any such Company Stock
Certificate, there shall be paid to the holder of the Holding Company Stock
Certificates issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
shares of Holding Company Common Stock and not paid, less the amount of any
withholding taxes which may be required
5
thereon, and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Holding Company Common Stock, less the amount of any
withholding taxes which may be required thereon.
(b) From and after the Effective Time, there shall be no transfers on the
stock transfer books of Parent or the Company of the shares of Parent Common
Stock or Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates representing any
such shares are presented to the surviving corporations of the Parent Merger
or the Company Merger, they shall be canceled and exchanged for certificates
for the consideration, if any, deliverable in respect thereof pursuant to this
Agreement and the Merger Agreements in accordance with the procedures set
forth in this Article I. Subject to applicable law, Company Stock Certificates
surrendered for exchange by any person constituting an "affiliate" of the
Company for purposes of Rule 145(c) under the Securities Act of 1933, as
amended (the "Securities Act"), shall not be exchanged until Parent has
received a written agreement from such person agreeing to comply with the
provisions of Rule 145 under the Securities Act.
(c) No fractional shares of Holding Company Common Stock shall be issued
pursuant to the Company Merger. In lieu of the issuance of any fractional
share of Holding Company Common Stock pursuant to the Company Merger, cash
adjustments will be paid to holders in respect of any fractional share of
Holding Company Common Stock that would otherwise be issuable, and the amount
of such cash adjustment shall be equal to the product of such fractional
amount and the average closing price of Parent Common Stock for the ten (10)
trading days ending on the trading day prior to the Closing Date.
(d) None of the Parent, the Company, the Holding Company, the Exchange Agent
or any other person shall be liable to any former holder of shares of Parent
Common Stock or Company Capital Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(e) In the event that any Company Stock Certificate (other than certificates
representing Dissenting Shares) shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Company Stock Certificate to be lost, stolen or destroyed and, if required by
Holding Company, the posting by such person of a bond in such reasonable
amount as Holding Company may direct as indemnity against any claim that may
be made against it with respect to such Company Stock Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Company Stock Certificate the applicable merger consideration, cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of Holding
Company Common Stock deliverable in respect thereof pursuant to this Agreement
and the Company Merger Agreement.
1.19 Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Closing Balance Sheet" shall mean the estimated unaudited consolidated
balance sheet of the Company as of the Closing Date prepared in accordance
with GAAP (except that such unaudited consolidated balance sheet does not
contain the footnotes required by GAAP) and in good faith and based upon
the accounting procedures and methodologies utilized in preparing the Year-
End Financials and the Interim Financials.
"Company Capital Stock" shall mean shares of Company Common Stock and
shares of any other capital stock of the Company.
"Company Common Stock" shall mean shares of Class A Common Stock and the
Class B Common Stock of the Company.
"Company Options" shall mean all issued and outstanding options,
warrants, and other rights to acquire or receive Company Capital Stock
(whether or not vested).
6
"Estimated Net Worth" shall equal the Net Worth of the Company as set
forth on the Closing Balance Sheet.
"Exchange Ratio" shall equal the quotient obtained by dividing (i)
28,138,000 by (ii) the sum of: (x) the aggregate number of Total
Outstanding Company Shares and (y) the aggregate number of shares of
Company Capital Stock subject to Company Options outstanding as of the
Effective Time.
"GAAP" shall mean generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis for the
relevant entity.
"▇▇▇▇▇▇▇ ▇▇▇▇▇" shall mean ▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇
Incorporated.
"Net Worth" shall equal total consolidated assets of the Company minus
total consolidated liabilities of the Company, each as determined in
accordance with GAAP, as of the close of business on the Closing Date.
"Net Worth Target" shall mean $5 million.
"Parent Common Stock" shall mean shares of the common stock, no par
value, of Parent.
"Shareholder" shall mean each holder of any Company Capital Stock
immediately prior to the Effective Time.
"DEI Taxes" shall mean (i) all Taxes relating to any period (or portion
of any period) ending on or prior to the Closing Date of the Company or its
Subsidiaries including those attributable to their assets, operations or
employees for any period (or portion of any period) ending on or prior to
the Closing Date (not including any Tax incurred other than in the ordinary
course of business after the Effective Time on the Closing Date), including
without limitation any Taxes of the Company or any such Subsidiaries
arising as a result of the Company Merger or the Company's or any
Subsidiary of the Company during such period ceasing to be a member of a
consolidated, combined, or unitary group during such period, (ii) any
liability of the Company or any of its Subsidiaries that is attributable to
any consolidated, combined or unitary group of which the Company or any of
its Subsidiaries is a member prior to the Closing Date under Treas. Reg.
Section 1.1502-6 (or any comparable provision of foreign, state or local
law) or (iii) any liability of the Company or any of its Subsidiaries for
any period (or portion thereof) ending prior to the Effective Time under
any Tax sharing, Tax indemnity, Tax allocation or similar agreement or
arrangement entered into on or prior to the Effective Time, other than this
Agreement, or the Tax Sharing Agreement attached hereto as Exhibit E (the
Tax Sharing Agreement"); provided, however, that notwithstanding anything
in this Agreement to the contrary, DEI Taxes shall not include any Taxes
(i) for which Parent and Holding Company are required to indemnify DEI
pursuant to Section 7.7 hereof, or (ii) which Parent has agreed to share
pursuant to Section 5.21(a)(iii) hereof.
"Total Outstanding Company Shares" shall be the aggregate number of
shares of Company Capital Stock outstanding immediately prior to the
Effective Time.
ARTICLE II
Representations and Warranties of the Company and DEI
Each of the Company and DEI hereby, jointly and severally, represents and
warrants to Parent and Holding Company, subject to such exceptions as are
specifically disclosed in the disclosure schedule supplied by the Company and
DEI to Parent (the "Disclosure Schedule"), on the date hereof and as of the
Effective Time as though made at the Effective Time, as follows:
7
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under Washington Law. The
Company has the corporate power to own its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect. Each of
the Subsidiaries (as defined in Section 2.2 below) of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its properties and to carry on its business as now being conducted.
Each of the Subsidiaries is duly qualified to do business and in good standing
in each jurisdiction outside of the jurisdiction of its formation in which the
failure to be so qualified would have a Material Adverse Effect. For all
purposes of this Agreement, the term "Material Adverse Effect" means any
change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition, or results of operations
of the entity referred to, together with its subsidiaries, taken as a whole
("Material Adverse Effect"). The Company has delivered a true and correct copy
of its Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, each as amended to date, and has delivered a true and correct copy of
the charter or other organizational documents of each of its Subsidiaries,
each as amended to date, to Parent.
2.2 Subsidiaries. Except as set forth in Section 2.2 of the Disclosure
Schedule, the Company does not have, and has never had, any subsidiaries and
does not otherwise own, and has not otherwise owned, any shares in the capital
of or any interest in, or control of, directly or indirectly, any corporation,
partnership, association, joint venture or other business entity. The entities
set forth in Section 2.2 of the Disclosure Schedule are, except as otherwise
set forth in such section of the Disclosure Schedules hereinafter occasionally
referred to individually as a "Subsidiary" and, collectively, as the
"Subsidiaries." Section 2.2 of the Disclosure Schedule also sets forth or
references the form and percentage interest of the Company in the Subsidiaries
and, to the extent that a Subsidiary set forth thereon is not wholly owned by
the Company, lists the other person, persons, entity or entities who have an
interest in such Subsidiary and references the percentage of such interest.
2.3 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 250,000,000
shares of authorized Class A Common Stock of which 57,316,042 shares are
issued and outstanding as of the date hereof and 80,000,000 shares of
authorized Class B Common Stock, of which 39,869,348 shares are issued and
outstanding as of the date hereof. As of the Effective Time, the number of
outstanding shares of Company Capital Stock shall not exceed 97,185,390
shares, except for such number of shares issued pursuant to Company Options
after the date hereof and through to the Effective Time. As of the date
hereof, the Company Capital Stock is held by the persons and in the amounts
set forth in Section 2.3(a) of the Disclosure Schedule. All outstanding shares
of Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Amended and Restated Articles of Incorporation or Amended and Restated Bylaws
of the Company or any agreement to which the Company is a party or by which it
is bound and have been issued in compliance with federal and state securities
laws. There are no declared or accrued unpaid dividends with respect to any
shares of the Company's Capital Stock. The Company has no other capital stock
authorized, issued or outstanding.
(b) Except for the Company's Option Plans, the Company has never adopted or
maintained any stock option plan or other plan providing for equity
compensation of any person. The Company has reserved 86,000,000 shares of
Company Common Stock for issuance to employees and consultants pursuant to the
Option Plans of which options to purchase 18,639,114 shares of Company Capital
Stock have been issued as of the date hereof of which 10,003,812 shares remain
subject to options unexercised as of the date hereof. On June 13, 1998, the
Company's Board of Directors granted options to purchase 1,084,450 shares of
Class A Common Stock to the individuals indicated on Section 2.3(b) of the
Disclosure Schedule. Except as set forth on Section 2.3(b) of the Disclosure
Schedule, there is no outstanding Company Capital Stock which is subject to
vesting or Company Options. Section 2.3(b) of the Disclosure Schedule sets
forth the name of the holder of any Company Capital Stock subject to vesting,
the number of shares of Company Capital Stock subject to vesting and the
vesting schedule for such Company Capital Stock, including the extent vested
as of the most recent practicable date, and
8
sets forth the name of the holder of any Company Options, the number of shares
of Company Capital Stock subject to such Company Option and the vesting
schedule for such Company Option, including the extent vested to date. There
are no options, warrants, calls, rights, commitments or agreements of any
character, written or oral, to which the Company or any Subsidiary is a party
or by which it is bound obligating the Company or any Subsidiary to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
interests in any Subsidiary, as the case may be, or obligating the Company or
any Subsidiary to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement which are not set forth on Schedule 2.3(b). There are
no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company or any
Subsidiary. Except as contemplated by this Agreement, to the Company's and
DEI's Knowledge, there are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company or any
Subsidiary. For purposes of this Agreement, "Knowledge" shall mean actual
knowledge of the person (which in the case of a corporation shall mean only
the executive officers or directors of such corporation and which, in the case
of the Company, shall be deemed to be each of the following persons: ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
after reasonable investigation; provided, however, that Knowledge shall not
constitute a representation or warranty that such investigation has in fact
been made and, for such purposes, "reasonable investigation" shall mean
inquiry of or consultation with the directors and executive officers of the
respective party but no other independent investigation.
2.4 Authority. Each of the Company and DEI has all requisite power and
authority to enter into this Agreement and any Transaction Agreements (as
hereinafter defined) to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and any Transaction Agreements to which it is a party and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company and DEI, and no
further action is required on the part of the Company or DEI to authorize the
Agreement, any Transaction Agreements to which it is a party and the
transactions contemplated hereby and thereby, subject only to the approval of
this Agreement by the Shareholders. DEI has granted and delivered to Parent
irrevocable proxies, and such proxies are sufficient to permit Parent to
approve the Company Merger and all other matters required to be approved by
the Company's Shareholders in connection herewith; provided, however, that
such proxies shall not limit DEI's ability to vote for directors of the
Company. This Agreement and the Merger have been approved unanimously by the
Board of Directors of the Company. This Agreement and any Transaction
Agreements to which the Company or DEI is a party have been duly executed and
delivered by the Company or DEI, as the case may be, and, assuming the due
authorization, execution and delivery by the other parties hereto and thereto,
constitute the valid and binding obligation of the Company and DEI, as the
case may be, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The "Transaction Agreements"
shall mean all of the agreements executed and delivered in connection with the
transactions contemplated hereby by Parent, the Company, DEI and certain
affiliates of the Company and DEI (as defined in Rule 12b-2 promulgated under
the Securities Exchange Act of 1934, as amended) (the "Affiliates") and dated
as of the date hereof, including, without limitation, the ABCNews/Starwave
Management and Services Agreement, the ESPN/Starwave Management and Services
Agreement, the Representation Agreement by and among ESPN/Starwave Partners,
Starwave Corporation and Parent and the Representation Agreement by and among
ABC/Starwave Partners, Starwave Corporation and Parent (such Representation
Agreements, the "Representation Agreements").
2.5 No Conflict. Except as set forth in Section 2.5 of the Disclosure
Schedule, the execution and delivery of this Agreement and any Transaction
Agreements to which the Company or DEI is a party by either the Company or
DEI, as the case may be, do not, and the performance and consummation of the
transactions contemplated hereby and thereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse
of time, or both), or give rise to a right of termination, cancellation,
modification or
9
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict") (i) any provision of the Articles or Certificate of Incorporation
or Bylaws of the Company, or DEI, (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession,
franchise or license to which the Company, any Subsidiary, or DEI or any of
their material properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company,
any Subsidiary, or DEI or their respective material properties or assets.
2.6 Consents. Except as set forth in Section 2.6 of the Disclosure Schedule,
no consent, waiver, approval, order or authorization of, or registration,
declaration or filing with any Governmental Body is required by or with
respect to the Company any Subsidiary, or DEI in connection with the execution
and delivery of this Agreement and any Transaction Agreements to which the
Company, or DEI is a party or the consummation of the transactions
contemplated hereby and thereby, except for (i) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable securities laws thereby, (ii) the filing of
the Merger Agreement with the Secretary of State of the State of Washington,
(iii) any applicable filings required under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (iv) the approval of the
Merger by the Company's Shareholders and (v) any other such filings or
approvals as may be required under Washington State Law. For purposes of this
Agreement, "Governmental Body" shall mean any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi- governmental authority of any
nature (including any governmental division, department, agency, commission,
instrumentality, official, organization, unit, body or entity and any court or
other tribunal).
2.7 Company Financial Statements and Controls.
(a) Section 2.7 of the Disclosure Schedule sets forth the Company's audited
consolidated balance sheet as of September 28, 1997 and the related audited
consolidated statements of income and cash flows for the nine-month periods
ended September 28, 1997 and the twelve-month period ended December 31, 1996
(the "Year-End Financials") and the Company's unaudited consolidated balance
sheets as of March 31, 1998, and the related unaudited consolidated statements
of income and cash flows for the six months ended March 31, 1998 (the "Interim
Financials"). Except as otherwise set forth in Section 2.7 of the Disclosure
Schedule, the Year-End Financials and the Interim Financials have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated and are consistent with each other. The Year-End Financials
and Interim Financials present fairly the consolidated financial condition and
consolidated operating results of the Company and any consolidated
Subsidiaries as of the dates and during the periods indicated therein, subject
in the case of the Interim Financials, to normal year-end adjustments, which
will not be material in amount. The Company's unaudited consolidated balance
sheet as of March 31, 1998 included in the Interim Financials shall be
hereinafter referred to as the "Current Balance Sheet."
(b) The Company and each of its Subsidiaries maintains a system of internal
accounting controls sufficient to provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability.
2.8 No Undisclosed Liabilities. Except (i) as reflected in the Current
Balance Sheet, or (ii) with respect to any matter arising in the ordinary
course of business consistent with past practices since March 31, 1998, the
Company and its Subsidiaries have no liability, indebtedness, obligation, or
claim of any type, whether accrued, absolute, contingent, matured, unmatured
or other, which individually or in the aggregate are required to be reflected
or reserved against on the consolidated balance sheet of the Company and its
consolidated Subsidiaries in accordance with GAAP or that, individually or in
the aggregate, would have a Material Adverse Effect on the Company.
2.9 No Changes. Except as set forth in Section 2.9 of the Disclosure
Schedule or as contemplated by this Agreement or the Transaction Agreements,
since March 31, 1998 to the date of this Agreement, there has not been,
occurred or arisen:
10
(a) amendments or changes to the Amended and Restated Articles of
Incorporation or Amended and Restated Bylaws of the Company, or to the
charter or other organizational documents of any Subsidiary;
(b) capital expenditure or commitment by the Company or any Subsidiary,
exceeding $100,000 individually or $500,000 in the aggregate;
(c) destruction of, damage to or loss of any material assets of the
Company or any Subsidiary (whether or not covered by insurance);
(d) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or any
Subsidiary;
(e) revaluation exceeding $100,000 individually or $500,000 in the
aggregate by the Company or any Subsidiary of any of its assets;
(f) declaration, setting aside or payment of a dividend or other
distribution with respect to the Company's capital stock or any direct or
indirect redemption, purchase or other acquisition by the Company of its
capital stock;
(g) material increase in the salary, bonuses or other payment or
compensation payable or to become payable by the Company or any Subsidiary
to any of its officers, directors, employees or consultants, other than
routine increases in the ordinary course of business consistent with past
practices;
(h) sale, lease, license or other disposition of any of the assets or
properties with a value of $100,000 or more of the Company or any
Subsidiary or any creation of any security interest in such assets or
properties, in each case, other than in the ordinary course of business
consistent with past practices;
(i) loan by the Company or any Subsidiary to any person or entity, or the
incurring by the Company or any Subsidiary of any indebtedness (other than
trade payables or other ordinary course liabilities consistent with past
practices), guaranteeing by the Company or any Subsidiary of any
indebtedness (other than in the ordinary course of business), issuance or
sale of any debt securities of the Company or any Subsidiary or
guaranteeing of any debt securities of others;
(j) waiver or release of any right or claim with a value of $100,000 or
more individually or $500,000 or more in the aggregate of the Company or
any Subsidiary, including any write-off or other compromise of any account
receivable of the Company or any Subsidiary;
(k) issuance or sale, or contract to issue or sell, by the Company or any
of its Subsidiaries of any shares of its capital stock or other equity
interests or securities exchangeable, convertible or exercisable therefor,
or any securities, warrants, options or rights to purchase any of the
foregoing, except for options to purchase capital stock of the Company
granted to employees of the Company, which such issuance has been described
in Section 2.3(b) of the Disclosure Schedule;
(l) any event or condition of any character that has had a Material
Adverse Effect on the Company; or
(m) negotiation or agreement by the Company, any of its Subsidiaries or
any officer or employees thereof to do any of the things described in the
preceding clauses (a) through (l) (other than negotiations with Parent and
its representatives regarding the transactions contemplated by this
Agreement and the Transaction Agreements).
2.10 Tax Matters.
(a) Tax Definitions.
(i) "Tax" or, collectively, "Taxes", means (i) any and all federal,
state, local and foreign taxes, assessments and other governmental charges,
duties, impositions and liabilities, including taxes based upon or measured
by gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, franchise, withholding, payroll, recapture,
employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts; (ii) any
liability for the payment of any amounts of the type described in clause
(i) as a result of being or ceasing to be a member of an affiliated,
consolidated, combined or unitary group for any period (including, without
limitation, any liability under
11
Treas. Reg. Section 1.1502-6 or any comparable provision of foreign, state
or local law); and (iii) any liability for the payment of any amounts of
the type described in clause (i) or (ii) as a result of any express or
implied obligation to indemnify any other person or as a result of any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a
predecessor entity.
(ii) "Cash Payment Agreements" means the Promotional Services Agreement,
the License Agreement and the Promissory Note.
(iii) "Final Determination" means a determination as defined in section
1313(a) of the Code or any other event which finally and conclusively
establishes the amount of any liability for Taxes.
(iv) "Management" means the Chairman of the Board of Directors, Chief
Executive Officer, President, Chief Operating Officer, Chief Financial
Officer, and any other officer of a corporation having a comparable level
of decision-making responsibility.
(v) "Other Property or Money" means other property or money within the
meaning of section 351(b) and/or section 356 of the Code.
(vi) "Post-Closing Tax Period" means any Tax period (or portion thereof)
ending after the Closing Date.
(vii) "Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the Closing Date.
(viii) "Taxing Authority" means any federal, state, local, foreign or
other body that imposes any Tax.
(b) Tax Returns and Audits. Except as set forth in Section 2.10(b) of the
Disclosure Schedule:
(i) As of the Effective Time, Company and Company Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to the Company) required federal, state, local and foreign
returns, estimates, information statements and reports required to be filed
(required federal, state, local and foreign returns, estimates, information
statements and reports relating to any person are collectively referred to
hereinafter as "Returns") relating to any and all Taxes concerning or
attributable to the Company and Company Subsidiaries or their operations
and such Returns shall be true and correct in all material respects and
have been completed in all material respects in accordance with applicable
law. Notwithstanding the foregoing, no representation is hereby made
regarding the size or availability of the net operating losses of the
Company or its Subsidiaries.
(ii) As of the Effective Time, the Company and Company Subsidiaries (A)
will have paid (or caused to be paid) all material (as to the Company)
Taxes the Company or any of its Subsidiaries is required to pay and will
have withheld (or caused to be withheld) with respect to employees of the
Company and Company Subsidiaries all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld, and (B) will have accrued on
the Current Balance Sheet all Taxes attributable to the operations of the
Company and Company Subsidiaries for the periods covered by the Current
Balance Sheet and will not have incurred any liability for Taxes for the
period from the date of the Current Balance Sheet to the Effective Time
other than in the ordinary course of business.
(iii) There has been no delinquency in the payment of any Tax with
respect to the Company, its Subsidiaries or their operations, nor is there
any Tax deficiency outstanding, assessed or proposed with respect to the
operations of the Company or its Subsidiaries, nor has DEI, the Company, or
its Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Company or its Subsidiaries.
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Company is presently in progress, nor has the Company been
notified in writing of any request for such an audit or other examination.
(v) The Company and its Subsidiaries have made available to Parent or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for the Company filed for all periods since its
inception.
12
(vi) There are (and there will be immediately following the Effective
Time) no liens, pledges, charges, claims, restrictions on transfer,
mortgages, security interests or other encumbrances of any sort
(collectively, "Liens") on the assets of the Company or its Subsidiaries
relating to or attributable to Taxes other than Liens for Taxes not yet due
and payable or delinquent.
(vii) None of the Company's or its Subsidiaries' assets are treated as
"tax-exempt use property", within the meaning of Section 168(h) of the
Code.
(viii) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(4) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(ix) Neither the Company nor any of its Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does the
Company owe any amount under any such agreement, other than this Agreement
and the Tax Sharing Agreement.
(x) The Company is not, and has not been at any time, a "United States
Real Property Holding Corporation" within the meaning of Section 897(c)(2)
of the Code.
(c) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Company is a party as of the date of this Agreement, including but
not limited to the provisions of this Agreement, covering any service provider
or former service provider to the Company or any Subsidiary, which as a result
of the Mergers, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
2.11 Restrictions on Business Activities. Except as set forth in Section
2.11 of the Disclosure Schedule, there is no material agreement (noncompete or
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company or its Subsidiaries
which has the effect of prohibiting any material current business practice of
the Company or its Subsidiaries, any material acquisition of property
(tangible or intangible) by the Company or its Subsidiaries or the conduct of
material business by the Company or its Subsidiaries. Without limiting the
foregoing, neither the Company nor its Subsidiaries has entered into any
material agreement under which the Company or its Subsidiaries is materially
restricted from selling, licensing or otherwise distributing any of its
material technology or products to or providing services to, customers or
potential customers or any class of customers, in any material geographic
area, during any material period of time or in any material segment of the
market. After the date hereof, with respect to each agreement listed on
Section 2.11 of the Disclosure Schedule, each of DEI and the Company agrees to
use commercially reasonable efforts (including using reasonable efforts to
cause its officers, divisions and affiliates) to modify or amend such
agreements as reasonably requested by Parent (provided such efforts shall not
include any material expenditures) and as reasonably necessary to eliminate
any conflict with the proposed business of Holding Company.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Neither the Company nor its Subsidiaries own(s) any real property, and
has never owned any real property. Section 2.12(a) of the Disclosure Schedule
sets forth a list of all real property currently leased by the Company or any
of its Subsidiaries. All such current leases are in full force and effect in
accordance with their respective terms, and neither the Company nor its
Subsidiaries is in material default under any of such leases.
(b) Except as set forth in Section 2.12(b) of the Disclosure Schedule, the
Company and its Subsidiaries have good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of their
material tangible properties and assets, real, personal and mixed, used or
held for use in their business, free and clear of any Liens, except (i) as
reflected in the Current Balance Sheet, (ii) for Taxes not yet due and payable
or delinquent, and (iii) where such imperfections of title and encumbrances,
if any, which are not material in character, amount or extent, and which do
not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
13
(c) The Company and its Subsidiaries have valid and enforceable rights, free
and clear of any Liens (except Liens for Taxes not yet due and payable or
delinquent), of all advertising, hosting and content customer files and other
advertising, hosting and content customer information relating to advertising,
hosting and content of the Company's and its Subsidiaries' current and former
customers as are material for the conduct of the Company's business as
currently conducted (the "Customer Information").
2.13 Intellectual Property.
(a) For the purposes of this Agreement, the following terms have the
following definitions:
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States
and foreign patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and continuations-in-part
thereof; (ii) all inventions (whether patentable or not), invention
disclosures, improvements, trade secrets, proprietary information, know
how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights
registrations and applications therefor and all other rights corresponding
thereto throughout the world; (iv) all trade names, logos, common law
trademarks and service marks; trademark and service ▇▇▇▇ registrations and
applications therefor and all goodwill associated therewith throughout the
world; (v) all databases and data collections and all rights therein
throughout the world; and (vi) all computer software including all source
code, object code, firmware, development tools, files, records and data,
all media on which any of the foregoing is recorded, all Web addresses,
sites and domain names, all rights of publicity and privacy, and (vii) any
similar, corresponding or equivalent rights to any of the foregoing and (x)
all documentation related to any of the foregoing.
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by or exclusively licensed to the Company.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to
register trademarks, intent-to-use applications, or other registrations or
applications related to trademarks; (iii) registered copyrights and
applications for copyright registration; (iv) any mask work registrations
and applications to register mask works; and (v) any other Company
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded
by, any state, government or other public legal authority.
(b) Section 2.13(b) of the Disclosure Schedule lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"Company Registered Intellectual Property") and lists any proceedings or
actions before any court, tribunal (including the United States Patent and
Trademark Office (the "PTO") or equivalent authority anywhere in the world)
related to any of the Company Registered Intellectual Property Rights.
(c) Except as set forth in Section 2.13(c) of the Disclosure Schedule, each
item of Company Intellectual Property, including all Company Registered
Intellectual Property listed in Section 2.13(b) of the Disclosure Schedule and
all Intellectual Property licensed to the Company or any of its Subsidiaries,
is free and clear of any Liens, except for Liens for Taxes not yet due and
payable or delinquent and Liens that do not materially interfere with the
Company's use of Intellectual Property. Except as set forth in Section 2.13(c)
of the Disclosure Schedule, the Company (i) is the exclusive owner or has
valid and enforceable rights to use of all trademarks and trade names used in
connection with the operation or conduct of the business of the Company or any
of its Subsidiaries as currently conducted, including the sale of any products
or technology or the provision of any services by the Company or any of its
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use, all copyrighted works that are Company or its Subsidiaries'
products or other works of authorship used in connection with the operation or
conduct of the business of the Company or any of its Subsidiaries as currently
conducted, including the sale of any products or technology or the provision
of any services by the Company or any of its Subsidiaries.
14
(d) Except as set forth in Section 2.13(d) of the Disclosure Schedule and
except for any transfer, grants or authorizations that do not have a Material
Adverse Effect, the Company has not transferred ownership of or granted any
license of or right to use or authorized the retention of any rights to use
any Intellectual Property that is or was Company Intellectual Property, to any
other person.
(e) Except as set forth in Section 2.13(e) of the Disclosure Schedule, the
Company Intellectual Property constitutes all of the material Intellectual
Property used in and necessary to the conduct of the Company's and its
Subsidiaries' businesses as currently conducted by the Company and its
Subsidiaries, including, without limitation, the design, development,
distribution, manufacture, use, import, license and sale of the products,
technology and services of by the Company and its Subsidiaries (including
products, technology or services currently under development). Except as set
forth in Section 2.13(e) of the Disclosure Schedule, no person who has
licensed Intellectual Property to the Company or any of its Subsidiaries has
material ownership rights or license rights to improvements made by the
Company or any of its Subsidiaries in such Intellectual Property which has
been licensed to the Company or any of its Subsidiaries.
(f) Other than "shrink-wrap" and similar widely available commercial end-
user licenses, the contracts, licenses and agreements listed in Section
2.13(f) of the Disclosure Schedule include all material contracts, licenses
and agreements to which the Company or any of its Subsidiaries is a party with
respect to any Intellectual Property.
(g) Except as set forth in Section 2.13(g) of the Disclosure Statement, the
operation of the business of the Company and its Subsidiaries as it currently
is conducted by the Company and its Subsidiaries (including but not limited to
the design, development, distribution, use, import, manufacture, license and
sale of the products, technology or services (including products, technology
or services currently under development) of the Company or any of its
Subsidiaries does not infringe or misappropriate the Intellectual Property of
any person, violate the rights of any person (including rights to privacy or
publicity), or constitute unfair competition or trade practices under the laws
of any jurisdiction, and neither the Company nor any of its Subsidiaries has
received notice from any person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of the Company or any of its Subsidiaries
infringes or misappropriates the Intellectual Property of any person or that
the Company or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does the Company or
DEI have Knowledge of any basis therefor).
(h) All necessary registration, maintenance and renewal fees in connection
with Company Registered Intellectual Property have been paid and all necessary
documents and certificates in connection with Company Registered Intellectual
Property have been filed with the relevant patent, copyright, trademark or
other authorities in the United States or foreign jurisdictions, as the case
may be, for the purposes of maintaining such Registered Intellectual Property
when commercially reasonable.
(i) Except as set forth in Schedule 2.13(i) of the Disclosure Schedule,
there are no material contracts, licenses or agreements between the Company
and any other person with respect to Company Intellectual Property under which
there is any material dispute to the Knowledge of the Company or DEI regarding
the scope of such agreement, or performance under such agreement including
with respect to any payments to be made or received by the Company thereunder.
(j) Except as set forth in Schedule 2.13(j) of the Disclosure Schedule, the
Company has no currently pending claim against any person for infringing or
misappropriating any Company Intellectual Property.
(k) Except as set forth in Section 2.13(k) of the Disclosure Schedule, no
Company Intellectual Property or product, technology or service of the Company
or any of its Subsidiaries which is material to the conduct of the business of
the Company or any of its Subsidiaries as currently conducted is subject to
any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
15
(l) No (i) product, technology, service or publication of the Company or any
of its Subsidiaries (ii) material published or distributed by the Company or
any of its Subsidiaries is obscene, defamatory, or constitutes false
advertising or otherwise violates any law or regulation.
2.14 Agreements, Contracts and Commitments.
(a) Except as set forth in Sections 2.11, 2.13(f), or 2.14(a) of the
Disclosure Schedule, as of the date hereof, neither the Company nor any of its
Subsidiaries is a party to or is bound by:
(i) any fidelity or surety bond or completion bond,
(ii) any lease of personal property having a value individually in excess
of $50,000 individually or $100,000 in the aggregate,
(iii) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000
individually or $500,000 in the aggregate,
(iv) any agreement, contract or commitment relating to the disposition or
acquisition of assets or any interest in any business enterprise, in each
case with a value of more than $100,000 individually or $500,000 in the
aggregate and occurring outside the ordinary course of the Company's or any
of its Subsidiaries' business,
(v) any mortgages, indentures, loans or credit agreements, security
agreements, guarantees, or other agreements or instruments relating to the
borrowing of money or extension of credit (other than between the Company
and DEI),
(vi) any purchase order or contract for the purchase of materials
involving in excess of $50,000 individually or $100,000 in the aggregate,
(vii) any material distribution, joint marketing or development
agreement, or
(viii) any other agreement, contract or commitment that involves $100,000
or more and is not cancelable without penalty within sixty (60) days.
(b) The Company and each of its Subsidiaries is in compliance in all
material respects with and has not, in any material respect, breached,
violated or defaulted under, or received notice that it has breached, violated
or defaulted in such manner under, any of the terms or conditions of any
agreement, contract, covenant, instrument, lease, license or commitment
required to be listed on Section 2.11, 2.13, or 2.14(a) of the Disclosure
Schedule (collectively a "Contract"), nor does the Company or DEI have
Knowledge of any event that would constitute such a breach, violation or
default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and, to the Knowledge of the Company and DEI, is not
subject to any material default thereunder by any party obligated to the
Company or its Subsidiaries pursuant thereto. The Company and each of its
Subsidiaries has obtained, or will obtain prior to the Closing Date, all
necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Mergers or for such Contracts to
remain in effect without material modification after the Closing. Following
the Effective Time, each of the Company and its Subsidiaries will be permitted
to exercise all of their respective rights under each Contract then in effect
without the payment of any additional amounts or consideration other than
ongoing fees, royalties or payments which the Company or its Subsidiaries
would otherwise be required to pay had the transactions contemplated by this
Agreement not occurred.
2.15 Interested Party Transactions. To DEI's and the Company's Knowledge, no
officer or director of the Company has directly or indirectly, (i) an interest
in any entity which furnishes or sells, services, products or technology that
are the same as any products, services, or technologies that the Company or
any of its Subsidiaries furnishes or sells and that constitute a material part
of the Company's or its Subsidiaries' business, or (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or any of its
Subsidiaries any goods or services that are material in nature to the
Company's or its Subsidiaries' business or (iii) a beneficial interest in any
Contract; provided, that ownership of no more than five percent (5%) of the
outstanding voting stock of a corporation shall not be deemed an "interest in
any entity" for purposes of this Section 2.15.
16
2.16 Governmental Authorization. Section 2.16 of the Disclosure Schedule
accurately lists each material consent, license, permit, grant or other
authorization issued to the Company and each of its Subsidiaries by a
Governmental Body (i) pursuant to which the Company or any of its Subsidiaries
currently operates or holds any interest in any of their properties or (ii)
which is required for the operation of its business or the holding of any such
interest, in each case the absence of which would have a Material Adverse
Effect (herein collectively called "Company Authorizations"). The Company
Authorizations are in full force and effect and constitute all Company
Authorizations required to permit the Company and its Subsidiaries to operate
or conduct its business or hold any interest in its properties or assets, in
each case except to the extent that would not result in a Material Adverse
Effect on the Company.
2.17 Litigation. Except as set forth in Section 2.17 of the Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Company's or DEI's Knowledge, threatened, against the Company or any of
its Subsidiaries, their properties or any of their officers or directors, nor,
to the Knowledge of the Company or DEI, is there any reasonable basis
therefor. To the Company's and DEI's Knowledge, there is no investigation
pending or threatened against the Company or any of its Subsidiaries, their
properties or any of their officers or directors (nor, to the Knowledge of the
Company and DEI, is there any reasonable basis therefor) by or before any
Governmental Body.
2.18 Minute Books. The minutes of the Company made available to counsel for
Parent are the only minutes of the Company.
2.19 Environmental Matters.
(a) Hazardous Material. Each of the Company and its Subsidiaries has not:
(i) operated any underground storage tanks at any property that the Company
has at any time owned, operated, occupied or leased; or (ii) illegally
released any material amount of any substance that has been designated by any
Governmental Body or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant
to the Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended, or defined as a hazardous waste pursuant to the United
States Resource Conservation and Recovery Act of 1976, as amended, and the
regulations promulgated pursuant to said laws (a "Hazardous Material"), but
excluding office and janitorial supplies used in the ordinary course of
business. No Hazardous Materials are present as a result of the deliberate
actions of the Company or any of its Subsidiaries in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. The Company has not illegally
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials (excluding office and janitorial
supplies used in the ordinary course of business) in violation of any law in
effect on or before the Effective Time, nor has the Company or any of its
Subsidiaries illegally disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (excluding office and janitorial
supplies used in the ordinary course of business) (any or all of the foregoing
being collectively referred to as "Hazardous Materials Activities").
(c) Permits. Each of the Company and its Subsidiaries currently holds all
material environmental approvals, permits, licenses, clearances and consents
(the "Environmental Permits") necessary for the conduct of the Company's
Hazardous Material Activities, respectively, and other businesses of the
Company and its Subsidiaries as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation proceeding,
amendment procedure, writ, injunction or claim is pending, or to the Company's
or DEI's Knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company or its
Subsidiaries. Neither the Company nor DEI has Knowledge of any fact or
circumstance which would reasonably
17
be expected to involve the Company or any of its Subsidiaries in any
environmental litigation or impose upon the Company or any of its Subsidiaries
any environmental liability.
2.20 Brokers' and Finders' Fees; Third Party Expenses. The Company has not
incurred, nor will it incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the Agreement or any transaction contemplated hereby.
2.21 Employee Benefit Plans; Compensation; Labor Matters.
(a) For purposes of this Section 2.21, the following terms shall have the
meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder, provided that DEI and its
Affiliates, other than the Company and its subsidiaries, shall not be
deemed an Affiliate of the Company for these purposes.
(ii) "Employee Plan" shall refer to any plan, program, policy, contract,
or agreement or other arrangement providing for bonuses, severance or
retention payments or benefits, termination pay, deferred compensation,
pensions, profit sharing, performance awards, stock or stock- related
awards, or fringe benefits, or other employee benefits of any kind, written
or otherwise, funded or unfunded, including without limitation, any plan
which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability, contingent or otherwise;
and
(iii) "Employee" shall mean any current, former, or retired employee,
consultant, officer, or director of the Company or any of its Subsidiaries.
(iv) "Employee Agreement" shall refer to each employment, severance or
retention agreement or contract between the Company or any Affiliate and
any Employee;
(b) Schedule. Section 2.21(b) of the Disclosure Schedule contains an
accurate and complete list of each Employee Plan and each Employee Agreement.
The Company does not have any plan or commitment, whether legally binding or
not, to establish any new Employee Plan or Employee Agreement, to modify any
Employee Plan or Employee Agreement (except to the extent required by law or
to conform any such Employee Plan or Employee Agreement to the requirements of
any applicable law, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided access to Parent to correct and
complete copies of each Employee Plan and each Employee Agreement including
all amendments thereto.
(d) Employee Plan/Employee Agreement Compliance. Except as set forth in
Section 2.21(d) of the Disclosure Schedules, (i) the Company has performed in
all material respects all obligations required to be performed by it under
each Employee Plan and Employee Agreement and each Employee Plan has been
established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of the Company or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; and (iv) there are no inquiries or
proceedings pending or, to the Knowledge of the Company or its Affiliates,
threatened by the IRS or DOL with respect to any Employee Plan.
(e) Pension Plans. The Company or any of its Affiliates does not now, nor
have they ever, maintained, established, sponsored, participated in, or
contributed to, any Employee Plan which is subject to Part 3 of Subtitle B of
Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
18
(f) Multi-Employer Plans. At no time has the Company or any of its
Affiliates contributed to or been requested to contribute to any Employee Plan
that is a "multi-employer plan" as defined in Section 3(37) of ERISA.
(g) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and except as may otherwise be
provided under any agreement listed on Section 2.21(b) of the Disclosure
Schedule, the Company has not represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to Employees as
a group) that such Employee(s) would be provided with life insurance, medical
or other employee welfare benefits upon their retirement or termination of
employment, except to the extent required by statute.
(h) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(i) Employment Matters. Except as set forth in Section 2.22(i) of the
Disclosure Schedule, the Company (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company or any of
its Subsidiaries is pending, or to the Knowledge of the Company or DEI,
threatened. Neither the Company nor any of its Subsidiaries is involved in or,
to the Company's or DEI's Knowledge threatened with any labor dispute,
grievance, or litigation relating to labor, safety or discrimination matters
involving any Employee, including, without limitation, charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any material liability to the
Company, any of its Subsidiaries, Parent or Sub. Neither the Company nor any
of its Subsidiaries has engaged in any unfair labor practices which could,
individually or in the aggregate, directly or indirectly result in any
material liability to the Company, any of its Subsidiaries, Parent, Sub or any
Affiliate. Neither the Company nor any of its Subsidiaries is presently a
party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company or any of its Subsidiaries.
2.22 Insurance. As of the date hereof, the Company is insured against such
losses and risks and in such amounts as are customary in the business in which
it is engaged and the policies providing such insurance are in full force and
effect.
2.23 Compliance with Laws. The Company and each of its Subsidiaries has
complied in all material respects with, is not in material violation of, and
has not received any notices of material violation with respect to, any
material foreign, federal, state or local statute, law or regulation.
2.24 Warranties; Indemnities. Except for the warranties and indemnities
contained in (i) those contracts and agreements set forth in Section 2.13, and
2.14 of the Disclosure Schedule and (ii) the Company's "shrink wrap"
commercial end-user license agreements, neither the Company nor any Subsidiary
has given any warranties or indemnities relating to products or technology
sold or licensed or services rendered by the Company or any Subsidiary.
19
2.25 Ownership of Parent Stock. None of DEI, its affiliates, Company or any
of their Subsidiaries or Affiliates beneficially owns as of the date hereof
any shares of Parent Capital Stock (other than immaterial amounts through
employee benefit plans of DEI or the Company over which neither DEI nor the
Company exercises any voting power).
2.26 Claims for Losses. DEI has no outstanding claims for Losses (as defined
in the Stock Purchase Agreement as such term is defined in Section 7.2 of this
Agreement) nor does it have any other action, suit or proceeding of any nature
pending, or to DEI's Knowledge, threatened against Company, their properties
or any of their officers or directors.
2.27 Capital Summary Statements. Schedule 2.27 of the Company Disclosure
Schedule sets forth the unaudited Capital Summary Statement of each holder of
a Partnership Interest (as such term is defined in each of the ABC
News/Starwave and ESPN/Starwave Partnership Agreements dated as of March 28,
1997 (the "Partnership Agreements") as of May 31, 1998 (the "Capital Summary
Statement")). (The partnerships formed under such Partnership Agreements are
referred to herein as the "Partnerships".) The Capital Summary Statement
presents accurately the allocation of profits and loss among the capital
accounts of the Partnership Interest holders since inception and is correct in
all material respects. The Capital Summary Statement reflects an allocation of
losses of 60% to the Company and 40% to the other partner, in each case. Also
such allocations of profit and loss have been properly made in accordance with
the Partnership Agreements.
ARTICLE III
Representations and Warranties of Parent
Parent represents and warrants to the Company and DEI, subject to such
exceptions as are specifically disclosed in the Disclosure Schedule supplied
by Parent to DEI and the Company (the "Parent Disclosure Schedule"), as of the
date hereof as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State
of California. Holding Company is, and the Merger Subsidiaries will be as of
the Effective Time, corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation.
Each of Parent and its Subsidiaries has the corporate power to own its
properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a Material Adverse Effect on Parent.
Parent has delivered a true and correct copy of the Articles of Incorporation
and Bylaws of Parent, as amended to date, to counsel for the Company and DEI.
Each of the Subsidiaries as defined in Section 3.2 below of Parent is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation and has the corporate or other applicable power
to own its property and to carry on its business as now being conducted. Each
of the Subsidiaries is duly qualified to do business and is in good standing
each jurisdiction outside of the jurisdiction of its formation of which the
failure to be so qualified would have a Material Adverse Effect. Parent has
made available the true and correct copy of the charter and by laws or other
organizational document of each of its Subsidiaries, each as amended to date,
to the Company.
3.2 Parent Subsidiaries. Except as set forth in Section 3.2 of Parent
Disclosure Schedule, Parent does not have, and has never had, any
subsidiaries, in each case that would be required to be listed as a
"Subsidiary" in exhibits to the periodic reports of Parent under the Exchange
Act. The entities set forth in Section 3.2 of Parent Disclosure Schedule are
hereinafter occasionally referred to individually as a "Parent Subsidiary"
and, collectively as the "Parent Subsidiaries." Section 3.2 of Parent
Disclosure Schedule also sets forth the form and percentage interest of Parent
in the Parent Subsidiaries and, to the extent that a Parent Subsidiary set
forth thereon is not wholly owned by Parent, lists the other person or
persons, or entity or entities, who have an interest in such Parent Subsidiary
and the percentage of such interest.
3.3 Authority; No Conflict; Consents. Each of Parent and Parent Subsidiaries
has all requisite corporate power and authority to enter into this Agreement
and the Transaction Agreements to which it is a party and to
20
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Transaction Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of Parent and Parent
Subsidiaries, and no further action is required on the part of Parent or
Parent Subsidiaries to authorize the Agreement, any Transaction Agreements to
which it is a party and the transactions contemplated hereby and thereby,
subject only to the approval of this Agreement by Parent's shareholders. This
Agreement, the Transaction Agreements and the Merger have been approved by the
Board of Directors of Parent. This Agreement and the Transaction Agreements to
which Parent or Parent Subsidiaries is a party have been duly executed and
delivered by Parent or Parent Subsidiaries, as the case may be, and, assuming
the due authorization, execution and delivery by the other parties hereto and
thereto, constitute the valid and binding obligations of Parent and Parent
Subsidiaries, enforceable in accordance with their respective terms, except as
such enforceability may be limited by principles of public policy and subject
to the laws of general application relating to bankruptcy, insolvency and the
relief of debtors and to rules of law governing specific performance,
injunctive relief or other equitable remedies. The execution and delivery by
each of Parent and Parent Subsidiaries, as the case may be, of this Agreement
and the Transaction Agreements do not, and the performance and consummation of
the transactions contemplated hereby and thereby will not, result in any
Conflict with (i) any provision of the Articles or Certificate of
Incorporation, Bylaws or other organizational documents of Parent or Parent
Subsidiary, (ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which
Parent or any Parent Subsidiary, or any of their properties or assets, are
subject, or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to Parent or any Parent Subsidiary or their
respective properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Body is required by or with respect to Parent or any Parent Subsidiaries in
connection with the execution and delivery of this Agreement and any
Transaction Agreements to which Parent or Parent Subsidiaries are a party or
the consummation of the transactions contemplated hereby and thereby, except
for (i) the filing of the Articles of Merger for the Company Merger with the
Secretary of State of the State of Washington and the Agreement of Merger, for
the Parent Merger with the Secretary of State of the State of California, (ii)
such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws, (iii) any applicable filings required under the HSR Act, (iv)
the approval of the Merger by Parent's shareholders and (v) any other such
filings or approvals as may be required under Washington Law.
3.4 Parent Capital Structure. The authorized capital stock of Parent
consists of 50,000,000 shares of Common Stock, no par value, of which
31,414,015 shares were issued and outstanding as of June 12, 1998, and
5,000,000 shares of undesignated Preferred Stock, no par value, of which no
shares are issued or outstanding. All such shares of Parent have been duly
authorized, and all such issued and outstanding shares have been validly
issued, are fully paid and nonassessable and not subject to preemptive rights
created by statute, the Articles or Certificate of Incorporation or Bylaws of
Parent or any agreement to which Parent is a party or by which it is bound,
and have been issued in compliance with federal and state securities laws.
There are no declared or accrued unpaid dividends with respect to any shares
of Parent's capital stock. There are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or other similar rights
with respect to Parent or Parent Subsidiaries. Except as contemplated by this
Agreement, to Parent's Knowledge, there are no voting trusts, proxies or other
agreements or understandings with respect to the voting stock of Parent or
Parent Subsidiaries.
3.5 SEC Documents; Parent Financial Statements. Parent has furnished the
Company with a true and complete copy of all of its filings with the
Securities and Exchange Commission (the "SEC") since January 1, 1997 (the "SEC
Documents"). Each of the SEC Documents when filed, was true and correct and
did not omit to state any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading in each case, except as superseded
in any subsequent filings. The SEC Documents contain an audited consolidated
balance sheet of Parent as of December 31, 1997 and the related audited
consolidated statements of income and cash flow for the year then ended and
Parent's unaudited consolidated balance sheet as of March 31, 1998 filed as an
exhibit to Parent's Current Report
21
on Form 8-K, dated as of May 22, 1998 (the "Parent Balance Sheet"), and the
related unaudited consolidated statements of income and cash flow for the
three-month period then ended (collectively, the "Parent Financials"). The
Parent Financials have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and are consistent with each
other. The Parent Financials present fairly the consolidated financial
condition and consolidated operating results and cash flows of the Parent as
of the dates and during the periods indicated therein, subject, in the case of
unaudited statements, to normal year-end adjustments, which will not be
material in amount. The Parent and each of its Parent Subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP and to maintain asset
accountability.
3.6 No Undisclosed Liabilities. Except (i) as reflected in the Parent
Balance Sheet, (ii) as set forth on Section 3.6 to the Parent Disclosure
Schedules, or (iii) with respect to any matter arising in the ordinary course
of business consistent with past practices since March 31, 1998, Parent and
Parent Subsidiaries have no liability, indebtedness, obligation, expense,
claim, deficiency, guarantee or endorsement of any type, whether accrued,
absolute, contingent, matured, unmatured or other, which individually or in
the aggregate are required to be reflected or reserved against on the
consolidated balance sheet of Parent and Parent Subsidiaries in accordance
with GAAP, or that, individually or in the aggregate, would have a Material
Adverse Effect. In addition, since March 31, 1998, there has not been any
declaration, setting aside or payment of a dividend or other distribution with
respect to Parent's capital stock or any material change in accounting methods
practices by Parent or any Parent Subsidiary.
3.7 No Material Adverse Effect. Since the date of the Parent Balance Sheet,
there has not occurred any event or condition of any character that has had a
Material Adverse Effect on Parent.
3.8 Brokers' and Finders' Fees. Except for those fees payable to ▇▇▇▇▇▇▇
▇▇▇▇▇ & Co. as financial advisor to Parent, neither Parent nor Parent
Subsidiary has incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.9 Litigation. Except as set forth on Section 3.9 of the Parent Disclosure
Schedule, there is no action, suit or proceeding of any nature pending, or, to
the Parent's Knowledge, threatened, against the Parent or any of Parent
Subsidiaries, their properties or any of their officers or directors, nor, to
the Knowledge of the Parent, is there any reasonable basis therefor. To the
Parent's Knowledge, there is no investigation pending or threatened against
Parent or any of its Subsidiaries, their properties or any of their officers
or directors (nor, to the Knowledge of the Parent, is there any reasonable
basis therefor) by or before any Governmental Body. No Governmental Body has
at any time challenged or questioned the legal right of Parent or any of
Parent's Subsidiaries to conduct its operations as presently or previously
conducted.
3.10 Taxes.
(a) Tax Returns and Audits.
(i) As of the Effective Time, Parent and Parent Subsidiaries will have
prepared and timely filed (or caused to be prepared and timely filed) all
material (as to Parent) required federal, state, local and foreign Returns,
relating to any and all Taxes concerning or attributable to the Parent and
Parent Subsidiaries or their operations and such Returns shall be true and
correct in all material respects and have been completed in all material
respects in accordance with applicable law. Notwithstanding the foregoing,
no representation is hereby made regarding the size or availability of the
net operating losses of Parent or the Parent Subsidiaries;
(ii) As of the Effective Time, Parent and Parent Subsidiaries (A) will
have paid (or caused to be paid) all material (as to Parent) Taxes that
Parent or any of Parent's Subsidiaries is required to pay and will have
withheld (or caused to be withheld) with respect to employees of the Parent
and Parent Subsidiaries all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, and (B) will have
22
accrued on the Parent Financials, all Taxes attributable to the operations
of the Parent and Parent Subsidiaries for the periods covered by the Parent
Financials and will not have incurred any liability for Taxes for the
period from the date of the Parent Balance Sheet to the Effective Time
other than in the ordinary course of business;
(iii) There has been no delinquency in the payment of any Tax with
respect to Parent, any Parent Subsidiaries, or their operations, nor is
there any Tax deficiency outstanding, assessed or proposed with respect to
the operations of Parent or the Parent Subsidiaries, nor has Parent or the
Parent Subsidiaries executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax relating
to the Parent or Parent Subsidiaries;
(iv) No audit or other examination of any Return relating to Taxes with
respect to the Parent is presently in progress, nor has Parent been
notified in writing of any request for such an audit or other examination;
(v) There are (and there will be immediately following the Effective
Time) no Liens on the assets of the Parent or Parent Subsidiaries relating
to or attributable to Taxes other than Liens for Taxes not yet due and
payable or delinquent;
(vi) Neither Parent nor any of the Parent Subsidiaries is a party to any
Tax sharing, Tax indemnification or Tax allocation agreement nor does
Parent or any of the Parent Subsidiaries owe any amount under any such
agreement, other than this Agreement and the Tax Sharing Agreement;
(vii) Parent has not filed any consent agreement under Section 341(f) of
the Code or agreed to have Section 341(f)(4) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by Parent or a Parent Subsidiary.
(viii) Parent and its Subsidiaries have made available to Company or its
legal counsel, copies of all foreign, federal and state income and all
state sales and use Returns for Parent filed for all periods since its
inception.
(b) Compensation Taxes. There is no contract, agreement, plan or arrangement
to which Parent is a party as of the date of this Agreement, including but not
limited to the provisions of this Agreement, covering any service provider or
former service provider to the Parent or any Parent Subsidiary, which as a
result of the Mergers, could give rise to the payment of any amount that would
not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
3.11 Employee Benefit Plans; Compensation.
(a) For purposes of this Section 3.11, the following terms shall have the
meanings set forth below:
(i) As used in this Section 3.11, "Affiliate" shall mean any other person
or entity under common control with Parent within the meaning of Section
414(b), (c), (m) or (o) of the Code and the regulations thereunder.
(ii) As used in this Section 3.11, "Employee Plan" shall refer to any
plan, program, policy, contract, agreement or other arrangement providing
for bonuses, severance or retention payments or benefits, termination pay,
deferred compensation, pensions, profit sharing, performance awards, stock
or stock-related awards or fringe benefits of any kind, written or
otherwise, funded or unfunded, including without limitation, any plan which
is or has been maintained, contributed to, or required to be contributed
to, by the Parent or any Affiliate for the benefit of any "Employee" (as
defined below), and pursuant to which the Parent or any Affiliate has or
may have any material liability, contingent or otherwise; and
(iii) As used in this Section 3.11, "Employee" shall mean any current,
former, or retired employee, consultant, officer, or director of Parent or
any Parent Subsidiary.
(iv) As used in this Section 3.11, "Employee Agreement" shall refer to
each employment, severance, retention, agreement or contract between the
Parent or any Affiliate and any Employee;
23
(b) Employee Plan Compliance. (i) Parent has performed in all material
respects all obligations required to be performed by it under each Employee
Plan and Employee Agreement and each Employee Plan and Employee Agreement has
been established and maintained in material conformity with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including ERISA and the Code; (ii) each Employee Plan intended to qualify
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has either received a favorable determination
letter with respect to each such Plan from the IRS or has remaining a period
of time under applicable Treasury regulations or IRS pronouncements in which
to apply for such a determination letter and make any amendments necessary to
obtain a favorable determination; (iii) there are no actions, suits or claims
pending, or, to the Knowledge of Parent or its Affiliates threatened or
anticipated (other than routine claims for benefits) against any Employee Plan
or against the assets of any Employee Plan; (iv) each Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, any of its
Subsidiaries, Parent, Parent Subsidiary or any Affiliate (other than ordinary
administration expenses typically incurred in a termination event); and (v)
there are no inquiries or proceedings pending or, to the Knowledge of the
Parent or its Affiliates, threatened by the IRS or DOL with respect to any
Employee Plan.
(c) Pension Plans. Parent or any of its Affiliates does not now, nor have
they ever, maintained, established, sponsored, participated in, or contributed
to, any Employee Plan which is subject to Part 3 of Subtitle B of Title I of
ERISA, Title IV of ERISA or Section 412 of the Code.
(d) Multi-Employer Plans. At no time has Parent or any of its Affiliates
contributed to or been requested to contribute to any Employer Plan that is a
"multi-employer plan" as defined in Section 3(37) of ERISA.
(e) No Post-Employment Obligations. No Employee Plan provides, or has any
liability to provide, life insurance, medical or other employee benefits to
any Employee upon his or her retirement or termination of employment for any
reason, except as may be required by statute, and has not represented,
promised or contracted (whether in oral or written form) to any Employee
(either individually or to Employees as a group) that such Employee(s) would
be provided with life insurance, medical or other employee welfare benefits
upon their retirement or termination of employment, except to the extent
required by statute.
(f) Effect of Transaction. The execution of this Agreement and the
consummation of the transactions contemplated hereby will not (either alone or
upon the occurrence of any additional or subsequent events) constitute an
event under any Employee Plan, Employee Agreement, trust or loan that will or
may result in any payment (whether of severance pay or otherwise),
acceleration, forgiveness of indebtedness, stock option or restricted stock
vesting acceleration, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(g) Employment Matters. Parent (i) is in compliance in all material respects
with all material applicable laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Employees; (ii) has withheld all
amounts required by law or by agreement to be withheld from the wages,
salaries and other payments to Employees; (iii) is not liable for any arrears
of wages or any taxes or any penalty for failure to comply with any of the
foregoing; (iv) is not liable for any payment to any trust or other fund or to
any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees.
(h) Labor. No work stoppage or labor strike against Parent or Parent
Subsidiaries is pending, or to the Knowledge of the Parent, threatened. Parent
Subsidiaries is not involved in, or to its Knowledge threatened with any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any material
liability to the Parent or Parent Subsidiaries. Parent has not engaged in any
unfair labor practices which could, individually or in the aggregate, directly
or indirectly result in any material liability to the Parent, Parent
Subsidiaries or any Affiliate. None of Parent or any Parent Subsidiaries is
presently a party to, or bound by, any collective bargaining
24
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by Parent.
3.12 Compliance with Laws. Parent and Parent Subsidiaries have complied in
all material respects with, are not in violation of, and have not received any
notices of violation with respect to, any material foreign, federal, state or
local statute, law or regulation.
3.13 Agreements, Contract, Commitments. Parent and each Parent Subsidiary is
in compliance in all material respects with and has not, in any material
respects, breached, violated or defaulted under or received notice that it has
breached, violated or defaulted in such manner under, any of the terms or
conditions of any agreement, contract, covenant, instrument, lease, license or
commitment that is included in any Securities Act or Exchange Act filing as a
"Material Contract" (collectively "Parent Contracts"), nor does Parent have
Knowledge of any event that would cause such a breach, violation or default
with the lapse of time, giving of notice or both. Each Parent Contract is in
full force and effect and, to the Knowledge of Parent, is not subject to any
material default thereunder by any party obligated to Parent or Parent
Subsidiaries pursuant thereto. Parent and each Parent Subsidiary has obtained,
or will obtain prior to Closing Date, all necessary consents, waivers and
approvals of parties to any Parent Contract as are required thereunder in
connection with the Mergers or for such Contracts to remain in effect without
material modification after the Effective Time.
3.14 Intellectual Property.
(a) For purposes of this Agreement, the following terms have the following
definitions:
"Parent Intellectual Property" shall mean any Intellectual Property owned
by or exclusively licensed to Parent (including, without limitation, Patent
Number 5,751,956 ("Method and Apparatus for Redirection of Server External
Hyper-Link References") (the "Click-On Patent").
(b) Section 3.14(b) of the Parent Disclosure Schedule lists any proceedings
or actions before any court, tribunal (including the PTO or equivalent
authority anywhere in the world) related to any of the Registered Intellectual
Property of Parent.
(c) Except as set forth in Section 3.14(c) of the Parent Disclosure
Schedule, each item of Parent Intellectual Property, and all Intellectual
Property licensed to Parent or any of its Subsidiaries, is free and clear of
any Liens, except for Liens for Taxes not yet due and payable or delinquent
and Liens that do not materially interfere with the Parent's use of
Intellectual Property. Except as set forth in Section 3.14(c) of the Parent
Disclosure Schedule, Parent (i) is the exclusive owner or has valid and
enforceable rights to use all trademarks and trade names used in connection
with the operation or conduct of the business of Parent or any of the Parent
Subsidiaries as currently conducted, including the sale of any products or
technology or the provisions of any services by Parent or any of the Parent
Subsidiaries and (ii) is the exclusive owner of or has valid and enforceable
rights to use all copyrighted works that are Parent or the Parent Subsidiaries
products or any works of authorship used in connection with the operation or
conduct of the business of the Parent or any of the Parent Subsidiaries as
currently conducted, including the sale of any products or technology or the
provision of any services by the Parent or any of the Parent Subsidiaries.
(d) Except as set forth in Section 3.14(d) of the Parent Disclosure Schedule
and except for any transfers, grants or authorizations that do not have
Material Adverse Effect, Parent has not transferred ownership of or granted
any license of or the right to use or authorized the retention of any rights
to use any Intellectual Property that is or was Parent Intellectual Property,
to any other person.
(e) Parent has valid and enforceable rights in all of the material
Intellectual Property used in and necessary to the conduct of Parent's and its
Subsidiaries' businesses as currently conducted by Parent and its
Subsidiaries. No person who has licensed Intellectual Property to Parent or
any of its Subsidiaries has material ownership rights or license rights to
improvements made by Parent or any of its Subsidiaries in such Intellectual
Property which has been licensed to Parent or any of its Subsidiaries.
25
(f) Except as set forth in Section 3.14(f) of the Parent Disclosure
Schedule, the operation of the business of Parent and Parent Subsidiaries as
it currently is conducted does not infringe or misappropriate the Intellectual
Property of any person, violate the rights of any person (including rights to
privacy or publicity), or constitute unfair competition or trade practices
under the law of any jurisdiction, and neither Parent nor any of Parent
Subsidiaries has received notice from any person claiming that such operation
or any act, product, technology or service (including products, technology
services currently under development) of Parent or any of Parent Subsidiaries
infringes or misappropriate the Intellectual Property of any person or that
the Parent or any of its Subsidiaries has engaged in unfair competition or
trade practices under the laws of any jurisdiction (nor does Parent have
Knowledge of any basis therefor).
(g) To Parent's Knowledge, there is no prior art that would compromise the
validity of the Click-On Patent under any subsection of 35 U.S.C. Section 102.
Parent has no Knowledge of any public knowledge or use anywhere, by anyone, of
the subject matter disclosed in the Click-On Patent before the invention date.
Parent has no Knowledge of the subject matter disclosed in the Click-On Patent
having been patented or described anywhere in a printed publication by anyone
before the invention date. Parent has no Knowledge of the subject matter
disclosed in the Click-On Patent having been in public use or on sale
anywhere, by anyone, before February 22, 1995.
(h) All necessary registration, maintenance and renewal fees in connection
with Registered Intellectual Property of Parent have been paid and all
necessary documents and certificates in connection with Parent Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions,
as the case may be, for the purposes of maintaining such Registered
Intellectual Property when commercially reasonable.
(i) There are no material contracts, licenses or agreements between Parent
and any other person with respect to Parent Intellectual Property under which
there is any material dispute to the Knowledge of Parent regarding the scope
of such agreement, or performance under such agreement including with respect
to any payments to be made or received by Parent thereunder.
(j) Parent has no currently pending claim against any person for infringing
or misappropriating any Parent Intellectual Property.
(k) No Parent Intellectual Property or product, technology or service of
Parent or any of its Subsidiaries which is material to the conduct of the
business of Parent or any of its Subsidiaries as currently conducted is
subject to any proceeding or outstanding decree, order, judgment, agreement or
stipulation that restricts in any material manner the use, transfer or
licensing thereof by Parent or may affect the validity, use or enforceability
of such Parent Intellectual Property.
3.15 Real Property. Neither Parent nor any Parent Subsidiary owns any real
property nor has it ever owned any real property.
3.16 Interested Party Transactions. To Parent's Knowledge, no executive
officer or director of Parent is a party to any transactions required to be
disclosed under Item 404 of Regulation S-K of the Securities Act that have not
been disclosed in the SEC Documents.
3.17 Restrictions on Business Activities. Except as set forth in the Parent
Disclosure Schedule, there is no material agreement (noncompete or otherwise),
commitment, judgment, injunction, order or decree to which Parent is a party
or otherwise binding upon Parent or its Subsidiaries which has the effect of
materially prohibiting any material current business practice of Parent or its
Subsidiaries, any material acquisition of property (tangible or intangible) by
Parent or its Subsidiaries or the conduct of material business by Parent or
its Subsidiaries. Without limiting the foregoing, neither Parent nor its
Subsidiaries has entered into any material agreement under which Parent or its
Subsidiaries is materially restricted from selling, licensing or otherwise
distributing any of its material technology or products to or providing
services to, customers or potential
26
customers or any class of customers, in any material geographic area, during
any material period of time or in any material segment of the market.
ARTICLE IV
Conduct Prior to the Effective Time
4.1 Conduct of the Parties.
(a) Conduct of Business of the Company and its Subsidiaries. Except as
otherwise contemplated by this Agreement, the Transaction Agreements and the
other agreements by and between Parent and DEI or their Affiliates of even
date herewith and the several transactions contemplated hereby and thereby,
during the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Effective Time, each of
the Company and DEI agrees (except to the extent that Parent shall otherwise
have previously consented in writing), to carry on the Company's and its
Subsidiaries' respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted, to pay the debts and
Taxes of the Company and its Subsidiaries when due (unless such debts and
Taxes are the subject of a dispute that the Company is actively seeking to
resolve), to pay or perform other obligations when due (unless such
obligations are the subject of a dispute that the Company is actively seeking
to resolve), and, to the extent consistent with such businesses, use their
reasonable efforts consistent with past practice and policies to preserve
intact the Company's and its Subsidiaries' present business organizations,
keep available the services of the Company's and its Subsidiaries' present
officers and key employees and preserve the Company's and its Subsidiaries'
relationships with customers, suppliers, distributors, licensors, licensees,
and others having business dealings with it, all with the goal of preserving
the Company's and its Subsidiaries' goodwill and ongoing businesses at the
Effective Time; provided, however, that neither the Company nor DEI shall be
deemed in breach of this Section 4.1 because of attrition, if any, among the
Company employees which may occur as a result of the transactions contemplated
hereby, so long as each of the Company and DEI use all reasonable efforts to
retain such employees at the Company. Except as expressly contemplated by this
Agreement or as set forth in Section 4.1 of the Disclosure Schedule, neither
the Company nor any Subsidiary shall, without the prior written consent of
Parent pursuant to a request made in accordance with the notice provisions set
forth in Section 9.1 of this Agreement (which written consent will be granted
or denied within seventy two (72) hours of receipt of such notice by Parent,
provided that any failure to reply within such time period will be deemed as
non-consent, and which consent will not be unreasonably withheld).
(i) Other than in the ordinary course of business, consistent with past
practices, sell or enter into any material license agreement with respect
to the Company Intellectual Property with any person or entity or buy or
enter into any material license agreement with respect to the Intellectual
Property of any person or entity;
(ii) Other than in the ordinary course of business, consistent with past
practices, sell or transfer to any person or entity any material rights to
the Company Intellectual Property;
(iii) Other than in the ordinary course of business, consistent with past
practices, enter into or materially amend any Contract pursuant to which
any other party is granted marketing or distribution rights of any type or
scope with respect to any material products or technology of the Company or
any Subsidiary, it being understood that the granting of exclusive rights
to any third party shall not be considered practices in the ordinary course
of business.
(iv) Materially amend or otherwise materially modify (or agree to do so),
except in the ordinary course of business, or intentionally violate the
terms of, any of the Contracts set forth or described in the Disclosure
Schedule;
(v) Settle any litigation for an amount in excess of $100,000 in any
single case;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock or any other equity interests, as applicable, or split,
27
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities or any other equity interests of the
Company, as applicable, in respect of, in lieu of or in substitution for
shares of capital stock of the Company or any other equity interests, as
applicable, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares of the capital stock of the Company or any
Subsidiary or other equity interests as applicable, of any Subsidiary (or
options, warrants or other rights exercisable therefor);
(vii) Other than the Company's issuance of approximately 1,100,000
options to employees of the Company in accordance with the resolutions of
the Company's Board adopted on June 13, 1998 and any other grants of
options to purchase Company Common Stock (with an exercise price equal to
fair market value of the Company Stock at the date of option grant) granted
to employees in the ordinary course of business consistent with past
practices, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of its capital stock or any other equity interests, as
applicable, or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue or purchase any such shares or any other
equity interests of the Company or any of its Subsidiaries, as applicable,
or other convertible securities of the Company or any of its Subsidiaries.
(viii) Cause or permit any amendments to its Articles or Certificate of
Incorporation or Bylaws, or any amendments to its other organizational
documents;
(ix) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or except in the ordinary course
otherwise acquire or agree to acquire any assets, in each case involving an
investment in excess of $100,000, individually or $500,000 in the
aggregate;
(x) Without limiting any other provisions of clause 4.1(a)(i) above,
sell, lease, license or otherwise dispose of any of its properties or
assets, except in the ordinary course of business and consistent with past
practices, and except in the case of properties or assets of less than
$100,000 individually or $500,000 in the aggregate;
(xi) Except for advances and short-term loans provided by DEI or its
Affiliates to fund operating losses incurred in the ordinary course of
business consistent with past practice (whether evidenced by a written
instrument (which the Company may execute at any time) or only reflected on
the financial statements (including without limitation the Closing Balance
Sheet, if then outstanding) and books and records of the Company) incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of others
except for obligations not exceeding $100,000 individually or $500,000 in
the aggregate;
(xii) Grant any loans to others or purchase debt securities of others or
materially amend the terms of any outstanding loan agreement to others;
(xiii) Grant any severance, retention, or termination pay (i) to any
director or officer or (ii) to any other Employee except in each case
payments made pursuant to standard written agreements outstanding on the
date hereof and disclosed in the Disclosure Schedule or payments not
exceeding $250,000 in the aggregate after the date hereof;
(xiv) Adopt any Employee Plan, or enter into any Employee Agreement, pay
or agree to pay any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates of its Employees other
than routine increases and promotions in the ordinary course of business,
consistent with past practices;
(xv) Revalue any of its assets with a value in excess of $100,000
individually or $500,000 in the aggregate, including without limitation
writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business;
28
(xvi) Except with respect to Taxes, pay, discharge or satisfy, in an
amount in excess of $100,000 (in any one case) or $500,000 (in the
aggregate), any claim, liability or obligation (absolute, accrued, asserted
or unasserted, contingent or otherwise), other than the payment, discharge
or satisfaction in the ordinary course of business of liabilities;
(xvii) Except with respect to Tax Returns to be filed for the taxable
year ending September 30, 1997, (i) make or change any material election in
respect of Taxes relating to the operations of the Company and its
Subsidiaries, or, (ii) adopt or change any accounting method in respect of
Taxes except as required by law;
(xviii) Other than in the ordinary course of business consistent with
past practice, enter into any strategic alliance;
(xix) Accelerate the vesting schedule of any of the outstanding Company
Options or Company Capital Stock;
(xx) Hire any material number of employees or terminate any of the
Company's key employees, or encourage employees to resign;
Take, or agree to take, any of the actions described in Sections 4.1(a)
through (w) above, or any other action that would prevent the Company from
performing or cause the Company not to perform its covenants hereunder.
(b) Conduct of Business of the Parent. Except as otherwise contemplated by
this Agreement, the Transaction Agreements and the other agreements by and
between Parent and DEI or its affiliates of even date herewith and the several
transactions contemplated hereby and thereby, Parent shall conduct its
business in accordance with the terms and conditions as described in the
Governance Agreement entered into of even date herewith. Except as otherwise
contemplated by this Agreement, the Transaction Agreements and the other
agreements by and between Parent and DEI and/or their Affiliates of even date
herewith and the several transactions contemplated hereby and thereby, during
the period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Effective Time, Parent agrees (except
to the extent that the Company shall otherwise have previously consented in
writing), to carry on Parent's and its Subsidiaries' respective businesses in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay the debts and Taxes of Parent and its
Subsidiaries when due (unless such debts and Taxes are the subject of a
dispute that Parent is actively seeking to resolve), to pay or perform other
obligations when due (unless such obligations are the subject of a dispute
that Parent is actively seeking to resolve), and, to the extent consistent
with such businesses, use their reasonable efforts consistent with past
practice and policies to preserve intact Parent's and its Subsidiaries'
present business organizations, keep available the services of Parent's and
its Subsidiaries' present officers and key employees and preserve Parent's and
its Subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it, all with
the goal of preserving Parent's and its Subsidiaries' goodwill and ongoing
businesses at the Effective Time.
4.2 No Solicitation.
(a) From and after the date hereof, the Company and DEI shall not, and shall
not authorize or permit any of their respective parent corporations,
subsidiaries or officers, directors, employees, accountants, counsel,
investment bankers, financial advisors and other representatives
(collectively, their "Representatives") to, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing non-public information)
or take any other action to facilitate knowingly any inquiries or the making
of any proposal which constitutes or may reasonably be expected to lead to an
Acquisition Proposal (as defined herein) in respect of the Company or any of
its Subsidiaries, from any person or entity, or engage in any discussion or
negotiations relating thereto or enter into any agreement with any person
providing for or contemplating any such Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, (1) the Company and
DEI may comply with applicable securities laws and regulations and (2) after a
Section 4.2 Notice (as defined below), if any, has been delivered to the
Company by Parent, and prior to the time the Company's stockholders shall have
voted to approve this Agreement, the Company may:
29
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
the Company or its Representatives after the date hereof) seeks to initiate
such discussions or negotiations, and may furnish such third party
information concerning the Company and its business, properties and assets
if and only to the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of the Company's securities that is financially superior to the
Company Merger and the transactions contemplated in connection with the
Company Merger and not subject to any financing condition, as
determined in good faith in each case by the Company's board of
directors after consultation with its financial advisors (a "Company
Superior Proposal"), and (b) the Company's board of directors shall
conclude in good faith, after considering applicable provisions of
state law, after consultation with outside counsel that such action is
consistent with its fiduciary duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, the Company (y)
provides prompt notice to Parent to the effect that it is furnishing
information to or entering into discussions or negotiations with such
person or entity and (z) receives from such person or entity an
executed confidentiality agreement in reasonably customary form on
terms not materially more favorable to such person or entity than the
terms contained in the Confidentiality Agreement between Parent and
TWDC; and/or
(ii) recommend to its shareholders that they accept a Company Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(a)(i)(1)and 4.2(a)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Company Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(i) or
8.1(j), as applicable.
(b) From and after the date hereof, Parent shall not, and shall not
authorize or permit any of its subsidiaries or officers, directors, employees,
accountants, counsel, investment bankers, financial advisors and other
representatives (collectively, its "Representatives") to, directly or
indirectly, solicit, initiate or encourage (including by way of furnishing
non-public information) or take any other action to facilitate knowingly any
inquiries or the making of any proposal which constitutes or may reasonably be
expected to lead to an Acquisition Proposal (as defined herein) in respect of
Parent or any of its Subsidiaries from any person or entity, or engage in any
discussion or negotiations relating thereto or enter into any agreement with
any person providing for or contemplating any Acquisition Proposal; provided,
however, that notwithstanding any other provision hereof, Parent may (1)
comply with applicable securities laws and regulations, including without
limitation the Exchange Act (and Rule 14e-2 promulgated under the Exchange Act
with regard to a tender or exchange offer), and (2) prior to the time its
stockholders shall have voted to approve this Agreement, Parent may:
(i) engage in discussions or negotiations with a third party who (without
any solicitation, initiation, or encouragement, directly or indirectly, by
Parent or its Representatives after the date hereof) seeks to initiate such
discussions or negotiations, and may furnish such third party information
concerning the party and its business, properties and assets if and only to
the extent that:
(1) (a) the third party has first made an Acquisition Proposal to
acquire at least 65% of the consolidated assets or outstanding voting
power of Parent's securities that is financially superior to the
Mergers and the transactions contemplated in connection with the
Mergers and not subject to any financing condition, as determined in
good faith in each case by Parent's board of directors after
consultation with its financial advisors (a "Parent Superior
Proposal"), and (b) Parent's board of directors shall conclude in good
faith, after considering applicable provisions of state law, after
consultation with outside counsel that such action is necessary for the
board of directors to act in a manner consistent with its fiduciary
duties under applicable law, and
(2) prior to furnishing such information to or entering into
discussions or negotiations with such person or entity, Parent (y)
provides a Section 4.2 Notice (as defined below) and (z) receives from
such person or entity an executed confidentiality agreement in
reasonably customary form on terms
30
not materially more favorable to such person or entity than the terms
contained in the Confidentiality Agreement between Parent and TWDC;
and/or
(ii) recommend to its stockholders that they accept a Parent Superior
Proposal from a third party, provided that the conditions set forth in
clauses 4.2(b)(i)(1) and 4.2(b)(i)(2) above have been satisfied and, prior
to entering into a definitive agreement providing for a Parent Superior
Proposal, this Agreement is terminated pursuant to Section 8.1(g) or
8.1(h), as applicable.
(c) Each party shall immediately cease and terminate any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any party or parties conducted heretofore by the party or its
Representatives with respect to any Acquisition Proposal. Each party hereto
shall notify the other party orally (if possible) and in writing of any
Acquisition Proposal with respect to it or any other transaction, the
consummation of which would reasonably be expected to prevent or materially
interfere with or materially delay the Merger (including the material terms
and conditions of any such Acquisition Proposal and the identity of the person
making it), promptly, but in any event within 72 hours, after actual knowledge
thereof by any such party's directors, executive officers, counsel or
individuals representing it as its investment bankers or financial advisors.
In the event that Parent delivers confidential information to a third party
and/or enters into discussions or negotiations with a third party pursuant to
Section 4.2(b)(1), Parent shall, 24 hours prior to such delivery or
discussions or negotiations deliver a notice to the Company regarding such
fact (a "Section 4.2 Notice"; a Section 4.2 Notice will also be deemed to have
been given upon occurrence of any of the events specified in clauses (x), (y)
or (z) of Section 8.1(g)).
As used in this Section 4.2, "Acquisition Proposal" shall mean:
(i) a bona fide proposal or offer (other than by another party hereto)
for a tender or exchange offer for the securities of the Company or Parent,
as the case may be, or
(ii) a bona fide proposal or offer (other than by another party hereto)
for a merger, consolidation or other business combination involving an
acquisition of the Company or Parent, as the case may be, or any material
subsidiary of the Company or Parent, as the case may be, or
(iii) any proposal to acquire in any manner a substantial equity interest
in or a substantial portion of the assets of the Company or Parent, as the
case may be, or any material subsidiary of the Company or Parent, as the
case may be.
4.3 No HSR Violation. During the period from the date of this Agreement and
until the earlier of the termination of this Agreement pursuant to its terms
or the Effective Time, no party hereto shall be required to take any action
that would cause a violation of the HSR Act.
ARTICLE V
Additional Agreements
5.1 Registration Statement; Preparation of Joint Proxy Statement
(a) As soon as practicable after the execution of this Agreement, Parent and
the Company shall jointly prepare and cause to be filed with the SEC
preliminary proxy materials constituting the Joint Proxy Statement of Parent
and the Company for the solicitation of approval of the respective
shareholders of Parent and the Company of this Agreement, the Mergers (in the
case of Parent) and the Company Merger (in the case of the Company) and the
transactions contemplated hereby. Parent shall also prepare and cause to be
filed with the SEC the Form S-4 Registration Statement, in which the Joint
Proxy Statement will be included as a prospectus, with respect to those shares
of Holding Company Common Stock issuable in the Mergers. Each of Holding
Company, Parent, Company and DEI shall use all reasonable efforts to cause the
Form S-4 Registration Statement and the Joint Proxy Statement to comply with
applicable law and the rules and regulations promulgated by the SEC, to
respond promptly to any comments of the SEC or its staff and to have the Form
S-4
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Registration Statement declared effective under the Securities Act as promptly
as practicable after it is filed with the SEC and Parent shall use all
reasonable efforts to cause the Joint Proxy Statement to be mailed to Parent's
shareholders and the Company's shareholders, as promptly as practicable after
the Form S-4 Registration Statement is declared effective under the Securities
Act; provided, however, that if any of the Representation Agreements is duly
terminated prior to the Effective Time by Parent, Parent shall have the
unilateral right, exercisible in its sole discretion, to elect not to submit
the this Agreement and the transactions contemplated hereby to a vote of
Parent's shareholders without being deemed in breach of any obligation under
this Agreement and without payment of any fees or penalties hereunder
(provided that Parent shall otherwise remain subject to the terms and
conditions of this Agreement, including without limitation Section 8.3
hereof), and the Company may terminate this Agreement. Each of the parties
hereto shall promptly furnish to the other party all information concerning
itself, its shareholders and its affiliates that may be required or reasonably
requested in connection with any action contemplated by this Section 5.1. If
any event relating to Holding Company, Parent, DEI or the Company occurs, or
if Holding Company, Parent, DEI or the Company becomes aware of any
information, that should be disclosed in an amendment or supplement to the
Form S-4 Registration Statement or the Joint Proxy Statement, then Holding
Company, Parent, DEI or the Company, as applicable, shall inform the other
thereof and shall cooperate with each other in filing such amendment or
supplement with the SEC and, if appropriate, in mailing such amendment or
supplement to the stockholders of Parent and the Company. The Joint Proxy
Statement shall include the recommendations of the Boards of Directors of
Parent and the Company in favor of the Agreement and the Mergers, as
applicable, and the transactions contemplated hereby; provided that the
respective recommendations of the Boards of Directors may not be included or
may be withdrawn if the Parent Board of Directors or the Company Board of
Directors has recommended a Superior Proposal or Company Superior Proposal, as
the case may be, in accordance with the terms of Section 4.2 (it being
understood that nothing herein shall limit the Company's and Parent's
obligations to hold and convene their respective shareholder meetings promptly
and as provided in this Agreement).
(b) Prior to the Effective Time, Parent shall use reasonable efforts to
obtain all regulatory approvals needed to ensure that the Holding Company
Common Stock to be issued in the Mergers: (i) will be registered or qualified
under the securities law of every jurisdiction of the United States in which
any registered holder of the Company Common Stock or Parent Common Stock who
is receiving shares of registered Holding Company Common Stock has an address
of record or be exempt from such registration; and (ii) will be approved for
quotation at the Effective Time on the Nasdaq National Market; provided,
however, that neither Parent nor Holding Company shall, pursuant to the
foregoing, be required (A) to qualify to do business as a foreign corporation
in any jurisdiction in which it is now qualified, or (B) to file a general
consent to service of process in any jurisdiction with respect to matters
unrelated to the issuance of Holding Company Common Stock pursuant hereto.
(c) Parent, DEI and the Company (in respect of the information respectively
supplied by it) agree that: (i) none of the information to be supplied by it
or its Affiliates for inclusion in the Form S-4 Registration Statement will,
at the time the Form S-4 Registration Statement becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they
are made, not misleading; (ii) none of the information to be supplied by it or
its Affiliates for inclusion in the Joint Proxy Statement will, at the time
the Joint Proxy Statement is mailed to the stockholders of Parent and the
Company, or as of the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; and (iii) as to
matters respecting it and its Joint Proxy Statement and the Form S-4 will
comply as to form in all material respects with the provisions of the
Securities Act and the Exchange Act, as applicable, and the rules and
regulations promulgated by the SEC thereunder, except that no covenant
representation or warranty is made by Parent with respect to statements made
or incorporated by reference therein based on information supplied by the
Company or DEI for inclusion or incorporation by reference in the Joint Proxy
Statement and no covenant, representation or warranty is made by the Company
or DEI with respect to statements made or incorporated by reference therein
based on information supplied by Parent for inclusion or incorporation by
reference in the Joint Proxy Statement.
32
5.2 Shareholder Meetings.
(a) The Company shall promptly after the date hereof take all action
necessary in accordance with applicable law and its Articles of Incorporation
and Bylaws to hold and convene a meeting of the Company's shareholders (the
"Company Shareholders' Meeting") on the date of a Parent Shareholders' Meeting
or prior thereto if it so chooses. Except as required by the SEC or applicable
court order, the Company shall not postpone or adjourn (other than for the
absence of a quorum) the Company Shareholders' Meeting without the consent of
Parent. It is understood and intended by the parties hereto that the Voting
Agreement and the irrevocable proxies delivered to Parent by DEI are
sufficient for Parent to approve the transactions contemplated hereby by the
Company's stockholders, and neither DEI nor the Company shall in any way
challenge the validity, enforceability or effectiveness of the Voting
Agreement or proxies. Subject to Section 5.1(a), the Company and DEI shall
take all other action necessary or advisable to secure the vote or consent of
shareholders required by applicable law to effect the Mergers and the
transactions contemplated hereby (the "Required Company Shareholder Vote").
(b) Parent shall promptly after the date hereof take all action necessary in
accordance with applicable law and its Articles of Incorporation and Bylaws to
hold and convene a meeting of Parent's shareholders (the "Parent Shareholders'
Meeting"). Except as required by the SEC or applicable court order, Parent
shall not postpone or adjourn (other than for the absence of a quorum) the
Parent Shareholders' Meeting without the consent of the Company. Parent shall
not in any way challenge the validity, enforceability or effectiveness of the
voting agreements entered into by shareholders of Parent in connection with
the Mergers. Subject to Section 5.1(a), Parent shall take all other action
necessary or advisable to secure the vote or consent of shareholders required
by applicable law to effect the Mergers and the transactions contemplated
hereby (the "Required Parent Shareholder Vote").
5.3 Cooperation; Access to Information. Upon reasonable prior notice, the
Company and Parent shall afford the other party and its respective
accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to all of
its properties, books, contracts, commitments and records, all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the first party may reasonably
request and all its key employees. Upon reasonable prior notice Company and
Parent agree to provide each other and its respective accountants, counsel and
other representatives copies of internal financial statements (including by
returns and supporting documentation) promptly upon request. No information or
knowledge obtained in any investigation pursuant to this Section 5.3 shall
affect or be deemed to modify any representation or warranty contained herein
or the conditions to the obligations of the parties to consummate the Merger.
5.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 5.4, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby shall be governed by the terms of the
Confidential Disclosure Agreement effective as of on or about February 17,
1998, and that the Company, its officers, directors, employees, agents and
representatives agree to be bound by the terms thereof by virtue of DEI's
execution thereof.
5.5 Expenses.
(a) Except as set forth in Section 5.5(b) and Section 8.3, whether or not
the Merger is consummated, all fees and expenses incurred in connection with
the Merger including, without limitation, all legal, accounting, financial
advisory, consulting and all other fees and expenses of third parties ("Third
Party Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses, provided, however that Parent and DEI
shall share equally in all fees and expenses, other than Third Party Expenses,
incurred in relation to filing of the Form S-4 Registration Statement and
printing the Joint Proxy Statement (including any preliminary materials
related thereto). Without limiting the foregoing, but subject to Section
8.3(c), Parent agrees to pay the fees and expenses of ▇▇▇▇▇▇▇ ▇▇▇▇▇ in
connection with the transactions contemplated hereby.
33
(b) In the event that the Merger is consummated, DEI agrees to pay at the
Closing those Third Party Expenses of the Company and DEI and their Affiliates
that have been incurred on or prior to the Closing Date.
5.6 Public Disclosure. Parent, DEI and the Company shall consult with each
other before issuing any press release or otherwise making any public
statements with respect to this Agreement or the Merger or the transactions
contemplated hereby or thereby and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law, The Nasdaq Stock Market, or any listing agreement with a
national securities exchange.
5.7 Consents. The Company, DEI and Parent shall use their best efforts to
obtain the consents, waivers, assignments and approvals under any of their
respective material contracts as may be required in connection with the
Mergers so as to preserve all rights of, and benefits to, the Company and
Parent thereunder.
5.8 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.9 Reasonable Efforts. Subject to the terms and conditions provided in this
Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents
and approvals and to effect all necessary registrations and filings and to
remove any injunctions or other impediments or delays, legal or otherwise, in
order to consummate and make effective the transactions contemplated by this
Agreement for the purpose of securing to the parties hereto the benefits
contemplated by this Agreement; provided that none of DEI, the Company nor
Parent shall be required to agree to any divestiture by any of them or any of
their respective subsidiaries or affiliates of shares of capital stock or of
any business, assets or property of any of them or any of their subsidiaries
or affiliates, or the imposition of any material limitation on the ability of
any of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
5.10 Notification of Certain Matters. Each of the Company, DEI and Parent
shall give prompt notice to the other party of (i) the occurrence or non-
occurrence of any event, the occurrence or non-occurrence of which is likely
to cause any representation or warranty of any party contained in this
Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of either Parent, the Company or DEI, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.10 shall not limit or otherwise affect any
remedies available to the party receiving such notice. No disclosure by the
Company or DEI, on the one hand, or Parent, on the other, pursuant to this
Section 5.10, however, shall be deemed to amend or supplement the Disclosure
Schedule or prevent or cure any misrepresentations, breach of warranty or
breach of covenant.
5.11 Voting Agreements. DEI has delivered to Parent, concurrently with the
execution of this Agreement, an executed Voting Agreement substantially in the
form attached hereto as Exhibit D (the "Voting Agreement") together with an
irrevocable proxy. In addition, certain Parent shareholders have delivered to
DEI, concurrently with the execution of this Agreement, an executed voting
agreement.
5.12 Director Nominees. The Company and DEI shall have the right to select
as its nominees three persons to serve as members of the Board of Directors of
Holding Company (such persons, or any replacement persons, the "Nominees") and
Parent shall cause the Nominees to be appointed to the Board of Directors of
Holding Company (to the extent they so consent) as of the Effective Time.
5.13 Non-Competition. Parent, Holding Company and DEI agree to be bound by
the non-competition provisions set forth in Annex I hereto and incorporated
herein.
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5.14 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable, Parent and DEI each shall file with the United States Federal
Trade Commission (the "FTC") and the Antitrust Division of the United States
Department of Justice ("DOJ") Notification and Report Forms relating to the
transactions contemplated herein as required by HSR, as well as comparable
pre-merger notification forms required by the merger notification or control
laws and regulations of any applicable jurisdiction, as agreed to by the
parties. Parent, DEI and Company each shall promptly (a) supply the other with
any information which may be required in order to effectuate such filings and
(b) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.15 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of this Agreement and
the transactions contemplated hereby.
5.16 Employees. Upon and after the Effective Time, subject to the applicable
eligibility and other requirements of such plans, each of the employees of the
Surviving Corporation shall be eligible for the benefit plans and arrangements
available to employees of Holding Company.
5.17 Form S-8. Holding Company agrees to file, no later than thirty (30)
days after the Closing, a registration statement on Form S-8 covering the
shares of Holding Company Common Stock issuable pursuant to outstanding
options granted under the applicable stock option plans of Parent and the
Company. The Company shall cooperate with and assist Holding Company in the
preparation of such registration statement.
5.18 Director Action with Respect to Option Plans. Prior to the Effective
Time, the Board of Directors of the Company shall take such actions as shall
ensure that Company Options outstanding under the Option Plans do not have
their vesting accelerated as a result of the consummation of the Mergers and
the transactions contemplated hereby and thereby.
5.19 Directors' Insurance and Indemnification. The Holding Company will
indemnify each director of Parent and the Company as of the Effective Time
(individually an "Indemnified Party" and collectively the "Indemnified
Parties"), to the fullest extent permitted under applicable law. The rights
under this Section 5.19 are in addition to rights that an Indemnified Party
may have under the Articles of Incorporation, Bylaws, other similar
organizational documents of Parent, the Company, or any of its Subsidiaries or
applicable law. The rights under this Section 5.19 are contingent upon the
occurrence of, and will survive consummation of, the transactions contemplated
hereby and are expressly intended to benefit each Indemnified Party. DEI
hereby agrees to indemnify and hold Holding Company and each of its
Subsidiaries harmless, and reimburse Holding Company upon demand for any and
all amounts paid to or on behalf of an Indemnified Party who was, at the date
hereof, or following the date hereof at any time prior to the Effective Time,
a director of the Company, other than ▇▇▇▇▇▇▇ ▇▇▇▇▇.
5.20 Stock Listing. Parent will use reasonable efforts to list prior to the
Effective Time on the Nasdaq National Market, subject to official notice of
issuance, the shares of Holding Company Common Stock to be issued hereunder.
5.21 Certain Tax Matters.
(a) Return Filing; Information Sharing.
(i) DEI shall prepare and file, or cause to be prepared and filed, with
the appropriate governmental authority all Returns relating to Taxes
required to be filed (with extensions) by or with respect to the Company
and its Subsidiaries on or prior to the Closing Date. DEI shall prepare (or
cause to be prepared) and the Parent shall timely file (or cause to be
timely filed), all Returns relating to Taxes of the Company or any of its
Subsidiaries with respect to periods (or portions thereof) ending on or
prior to the Closing Date that are required to be filed after the Closing
Date.
35
(ii) DEI and Parent agree that they will, and will cause their affiliates
to, make available all such information, employees and records of or
relating to the Company and its Subsidiaries as either party may request
with respect to matters relating to Taxes (including, without limitation,
the right to make copies of such information and records) and will
cooperate with respect to all matters relating to Taxes (including, without
limitation the filing of Returns, the filing of an amended Return, audits,
and proceedings). Unless requested by DEI, neither Holding Company, Parent
nor their subsidiaries nor the Company nor any Subsidiary thereof shall
file (or permit to be filed) any amended Return with respect to the Company
or any Subsidiary thereof for any period (or portion thereof) ending on or
prior to the Closing Date without obtaining the prior written consent of
DEI and neither Holding Company, Parent nor their subsidiaries nor the
Company nor any Subsidiary thereof shall, with respect to Taxes relating to
(i) a period (or portion thereof) ending on or prior to the Effective Time
or (ii) any matter that is the subject of this Agreement or any of the
Transaction Agreements, unless, however, there has been a Final
Determination to the contrary relating to such position or matter, take (or
permit to be taken by any affiliate) any position, initiate (or permit to
be initiated) any claim or otherwise take (or fail to take) any action that
could reasonably be expected to adversely affect DEI or its affiliates with
respect to such Taxes. Following the Effective Time, nothing in this
Agreement shall be construed to prevent Holding Company, Parent, any Parent
Subsidiary, the Company or its Subsidiaries from deducting to the maximum
extent permitted by law amounts required to be paid in cash under the
Promotional Services Agreement, the License Agreement and the
Representation Agreement.
(iii) Notwithstanding any other provision of this Agreement, all
transfer, registration, stamp, documentary, sales, use and similar Taxes
(including, but not limited to, all applicable real estate transfer or
gains Taxes and stock transfer Taxes), any penalties, interest and
additions to such Taxes incurred in connection with this Agreement and the
Merger contemplated hereby shall be the responsibility of and be shared
equally by Parent and DEI. DEI and Parent shall cooperate in the timely
making of all filings, Returns, reports and forms as may be required in
connection therewith.
(iv) If any of Holding Company, Parent, the Company or any subsidiary or
affiliate of the foregoing thereof receives any written notice from any Tax
authority proposing any audit or adjustment to any Tax relating to the
Company or any Subsidiary thereof for which DEI or any affiliate thereof
may be liable under this Agreement, Parent, the Company or such subsidiary
shall give prompt written notice thereof to DEI, which notices shall
describe in detail each proposed adjustment. In the event DEI receives
notice of Taxes for which Parent may be liable, DEI shall provide similar
notice to Parent or Holding Company.
(v) Parent, the Company and DEI shall furnish and Parent and Holding
Company shall each use their reasonable efforts to cause officers,
directors and employees of Parent or Holding Company holding or
representing 5% or more of the outstanding stock of Parent to furnish
special counsel to DEI and counsel to Parent with one or more certificates
dated as of the Closing Date signed on behalf of it by one or more of its
officers having authority to sign such certificates and containing such
true and correct statements as may reasonably be requested to enable
special counsel to DEI and counsel to Parent to render the opinions
described in Sections 6.2(a) and 6.3(a), provided, however, that in
connection with such certificates neither Parent nor Holding Company shall
be required to ascertain the intent (but must disclose actual knowledge) of
any Parent shareholder who is not an officer, director or employee of
Holding Company or Parent.
(vi) Holding Company, Parent, the Company and DEI agree to report (and
cause to be reported by their affiliates) any item attributable to a
transaction that occurs on the Closing Date but after the Closing (other
than any transaction in the ordinary course of business) in accordance with
the "next day rule" contained in Treas. Reg. Section 1.1502-76(b).
(vii) Parent and Holding Company grant to DEI and its duly appointed
representatives the sole right to negotiate, resolve, settle or contest any
audit of or claim for Tax with respect to which DEI may have to indemnify
Parent or any affiliate under this Agreement and Parent and Holding Company
agree to cooperate and cause their affiliates to cooperate and take all
actions requested by DEI with respect to the foregoing. If DEI does not
assume the defense of any such claim for Taxes after receiving written
notice of the same
36
from Parent or Holding Company, Holding Company may defend the same in such
manner as it may deem appropriate.
(viii) Holding Company, Parent and DEI agree to furnish or cause to be
furnished to each other, upon request, as promptly as practicable, such
information and assistance relating to Holding Company, Parent and their
Affiliates (including without limitation any partnership in which either
owns directly or indirectly any interest), and the Company as is reasonably
necessary for the filing of all Tax Returns, and the making of any election
related to Taxes, the preparation for any audit by any Taxing Authority,
and the prosecution or defense of any claim, suit or proceeding relating to
any Tax Return. Holding Company, Parent and DEI will cooperate with each
other in the conduct of any audit or other proceeding related to Taxes and
all other Tax matters relating to the Holding Company, Parent and the
Company, and each will execute and deliver such powers of attorney and
other documents as are necessary to carry out the intent of this Section
5.21 (viii).
(b) Tax Covenants. Unless there has been a Final Determination to the
contrary (or DEI and Holding Company otherwise agree in writing), DEI, the
Company, Holding Company, and Parent covenant and agree, for all Tax purposes
including all Tax Returns and any Tax controversies, to (and to cause any
affiliate or successor to their assets or businesses to) take each of the
positions set forth below (and not to take any position inconsistent
therewith):
(i) The Company Merger (i) will qualify as a reorganization described in
section 368(a) of the Code and/or (ii) when taken together with the Parent
Merger, will qualify as a transfer of the stock of the Company to Holding
Company governed by section 351 of the Code.
(ii) The Parent Merger (i) will qualify as a reorganization under Section
368(a) of the Code and/or (ii) when taken together with the Company Merger,
will qualify as a transfer of the stock of Parent to Holding Company
governed by section 351 of the Code.
(iii) Except for cash received in lieu of fractional shares, none of the
consideration received by DEI or any non-dissenting shareholder of the
Company in the Company Merger will be treated as Other Property or Money.
(iv) Except for cash received in lieu of fractional shares, none of the
consideration received by Parent's non-dissenting stockholders in the
Parent Merger will be treated as Other Property or Money.
(v) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Holding Company, TWDC (or any other
affiliate thereof, including without limitation DEI, the Company and Merger
Sub B), or any non-dissenting shareholder of the Company with respect to
the exchange of Company Common Stock for Holding Company Common Stock in
the Company Merger.
(vi) Except for cash received in lieu of fractional shares, no income,
gain or loss will be recognized by Parent, its non-dissenting shareholders,
or Merger Sub A with respect to the exchange of Parent Common Stock for
Holding Company Common Stock in the Parent Merger.
(vii) None of the consideration in either the Company Merger or the
Parent Merger will be paid or issued for services.
(viii) Unless Holding Company and DEI agree to the contrary, except with
respect to interest payments pursuant to the Promissory Note, no income,
deduction, gain or loss will be recognized with respect to the issuance,
exercise or satisfaction of the Holding Company Common Stock, Holding
Company Warrants or the Promissory Note (e.g., the parties agree that the
Promissory Note will not be issued with any original issue discount as
defined in section 1273 of the Code.)
(c) Additional "Tax Covenants". Parent and, upon the consummation of the
Mergers contemplated hereby, Holding Company covenants, jointly and severally,
to DEI (and with respect to 5.21(c)(viii), DEI also covenants to Parent):
(i) No stock or securities (including, without limitation, options or
warrants (other than warrants issued to TWDC pursuant to the Common Stock
and Warrant Purchase Agreement and options issued to
37
Employees pursuant to Section 5.21 hereof)) will be issued to any person or
entity other than TWDC, DEI and the shareholders of Parent and the Company
in connection with the Transaction.
(ii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) Holding Company to issue any stock
other than Holding Company Common Stock in (or in connection with) the
Transaction.
(iii) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit in connection with the Transaction)
Holding Company to redeem or otherwise acquire in connection with the
Transaction any of the Holding Company Common Stock to be issued in the
Transaction (other than stock repurchased from terminated employees in the
ordinary course of business.)
(iv) Management of each of Parent and Holding Company has no plan or
intention to cause (and will not permit in connection with the Transaction)
Parent or the Company to be liquidated for U.S. Federal income tax purposes
or merged with any other entity.
(v) Management of each of Parent and Holding Company has no plan or
intention to terminate the existence of Holding Company or to merge Holding
Company with any other corporation (and will not permit the occurrence of
any such event in connection with the Transaction).
(vi) Management of each of Parent and Holding Company has no plan or
intention for (and will not permit) in (or in connection with) the
Transaction, Holding Company to dispose of all or any portion of the stock
of either Parent or the Company (including, without limitation, via
merger).
(vii) Following the Transaction, the Management of each of Parent and
Holding Company will cause (i) Parent to continue its historic business or
use a significant portion of its historic business assets in a business of
Parent and (ii) the Company to continue its historic business or use a
significant portion of its historic business assets in a business of the
Company.
(viii) None of DEI, Holding Company, Parent or any of their subsidiaries
has taken (or will take) any action including, without limitation, any
action inconsistent with any representation, warranty, or covenant made
pursuant to Sections 6.2(a) and 6.3(a) hereof or has any knowledge of any
fact or circumstance that is reasonably likely to prevent (i) the Parent
Merger from qualifying as (x) a reorganization described in section 368(a)
of the Code and/or (y) when taken together with the Company Merger, a
transfer of property to Holding Company by the shareholders of Parent
governed by section 351 of the Code and/or (ii) the Company Merger from
qualifying as (x) and reorganization described in section 368(a) of the
Code and/or (y) when taken together with the Parent Merger, as a transfer
of property to Holding Company by DEI governed by section 351 of the Code.
(d) Reporting. DEI, the Company, Parent and Holding Company agree to report
to the other any communication from or with the Internal Revenue Service or
any other Taxing Authority which relates in any way to the characterization of
the Transaction. Notwithstanding any such communication, Holding Company and
Parent covenant and agree to (and to cause any affiliate or successor to their
assets or businesses to) continue to take each of the positions specified in
Section 5.21(b) for all Tax purposes (unless there has been a Final
Determination contrary to such position). Without limiting the generality of
the foregoing, (i) each of DEI and Holding Company will file with its Federal
income tax return for the taxable year in which the Transfer is made (which
tax return shall be timely filed) the information required by Treas. Reg.
Section 1.351-3 and 1.368-3 and to provide each other upon request with a
statement to the effect that such party has complied with this requirement
after filing, and (ii) DEI shall have the opportunity to review and approve
any Tax return to be filed by Holding Company, the Company and/or Parent with
respect to the Transaction, such approval not to be unreasonably withheld.
DEI, the Company, Holding Company and Parent also will maintain such permanent
records as are required by Treas. Reg. (S)(S) 1.351-3(c) and 1.368-3.
(e) Protective Claims. Notwithstanding anything in this Section 5.21(e) to
the contrary, Holding Company will (and will cause any affiliate to) file
protective claims for refund if so requested in writing by DEI (and only if so
requested by DEI) based on any position contrary to the positions described in
Section 5.21(b), (i), (ii), (iii), (v) and (vii) (the "DEI Positions"). In
addition, Holding Company will (and will cause any affiliate to) use
38
its best efforts to obtain any refund if so requested in writing by DEI (and
only if so requested by DEI) which may be available based on any position
contrary to the DEI Positions, and, upon receipt of any such refund, will
promptly remit any such amount (less any Taxes attributable to such refund)
and also taking into account any deduction attributable to any payment under
this Section 5.21(e) to DEI. DEI will have the right to control any
administrative or judicial proceeding relating to any such claim for refund,
and DEI will reimburse Holding Company for all reasonable cost relating to any
such claim.
(f) Tax Adjustment Payments. If a Final Determination is made contrary to
any of the DEI Positions, then (in addition to any other remedies which may be
available to DEI but without duplication thereof) Holding Company will pay to
DEI an amount equal to the excess of (a) the liability for the aggregate
amount of Taxes to which Parent, Holding Company, and their subsidiaries would
have been subject in each relevant jurisdiction had the DEI Positions been
sustained (and had Holding Company not been required to make any such payments
pursuant to this Section 5.21(f), over (b) the actual liability for such Taxes
for such periods assuming that the other positions set forth in Section
5.21(b) are sustained. Such payment (i) will not be treated as, or deemed to
be a payment of, Tax and (ii) will be due (subject to a 30-day grace period)
when, as and to the extent Parent or Holding Company derives an actual Tax
savings (including, without limitation, in the form of any refund or reduction
in Tax liability that would not have otherwise been available) as the result
of such excess; provided, however, that appropriate adjustments will be made
in the event that Tax savings are ultimately disallowed in a Final
Determination. If any payment required under this Section 5.21(f) is not made
on or before the above due date, then such payment will be made together with
interest at the rate per annum determined from time to time under section
6621(a)(2) of the Code compounded daily for the period from such due date to
the date on which the payment is actually made. Any dispute concerning the
calculation of payments due under this Section 5.21(f) will be resolved by a
nationally recognized accounting firm that is jointly selected and mutually
engaged by DEI and the non-DEI designated members of the Board of Directors of
Holding Company (the fees and expenses of which shall be shared equally by DEI
and Holding Company).
(g) Allocation of Income and Deductions. For purposes of this Agreement,
income, deductions, and other items will be allocated between the final Pre-
Closing Tax Period and Post-Closing Tax Period based on an actual closing of
the books of the business as of the close of business on the Closing Date. Any
amounts attributable to transactions not in the ordinary course of business
prior to the Closing will be allocated to the final Pre-Closing Tax Period and
amounts attributable to transactions not in the ordinary course of business
following the Closing will be allocated to the initial Post-Closing Tax
Period.
5.22 Non Solicitation of Company Employees. DEI agrees beginning on the date
hereof and continuing until the Effective Date, not to, without Parent's
consent, solicit the hiring of any person who is an employee of the company,
or induce any such person to discontinue his or her employment with the
Company.
5.23 Net Worth Test. At least two (2) business days prior to the Closing
Date, DEI and the Company shall deliver to Parent the Closing Balance Sheet.
DEI and the Company agree that if Estimated Net Worth is less than the Net
Worth Target, then DEI shall deliver to Holding Company at the Closing by
cashier's check or wire transfer in immediately available funds the amount by
which Estimated Net Worth is less than the Net Worth Target (the "Net Worth
Payment"). DEI and the Parent agree that (i) if Net Worth is less than the
lesser of (A) the Net Worth Target and (B) Estimated Net Worth, Holding
Company shall be entitled to recover the amount of such deficit from DEI as a
Loss in accordance with the procedures set forth in Article VII and (ii) if
the Net Worth exceeds the Estimated Net Worth, the Holding Company shall
reimburse DEI the amount of such excess, provided that the amount of such
reimbursement plus the Estimated Net Worth shall not exceed the Net Worth
Target. Following the Closing, Holding Company shall deliver to DEI a
statement indicating the Net Worth and, upon request, a calculation thereof in
reasonable detail.
5.24 Compliance with Laws. For a period of six months following the
Effective Time, Holding Company agrees with DEI that it will not knowingly
fail to comply with applicable employment laws.
39
5.25 Share and Warrant Ownership. Parent and Holding Company hereby
represent, warrant and agree, jointly and severally, that, if the transactions
contemplated by this Agreement and the Common Stock Warrant and Purchase
Agreement between Parent and DEI of even date herewith (the "Purchase
Agreement") were consummated as of the date of this Agreement, then (i) the
shares of Holding Company Common Stock that would be acquired by DEI pursuant
to this Agreement, coupled with the shares of Holding Company Stock that would
be acquired by The ▇▇▇▇ Disney Company ("TWDC") pursuant to the Purchase
Agreement, would represent, as of the date of this Agreement, in the
aggregate, at least 42.75% of all outstanding shares of Holding Company Stock
and at least 38.45% of all outstanding shares of Holding Company Common Stock
on a fully diluted basis (i.e., assuming the conversion, exchange or exercise
of all securities that are convertible, exchangeable or exercisable for shares
of Holding Company Common Stock, excluding the Warrant acquired by TWDC
pursuant to the Purchase Agreement) as of the date of this Agreement, and (ii)
the Warrant would represent, as of the date hereof, the right to acquire a
number of shares of Holding Company Common Stock that, when coupled with the
shares referred to in clause (i) hereof, would represent as of the date of
this Agreement at least 50.10% of all outstanding shares of Holding Company
Common Stock on a fully diluted basis (i.e., assuming the conversion, exchange
or exercise of all securities that are convertible, exchangeable or
exercisable for shares of Holding Company Common Stock, including, without
limitation, the Warrant) as of the date of this Agreement assuming for
purposes of the percentage calculations set forth in the foregoing clauses (i)
and (ii) that there are only (x) 88,550,088 shares of Company Common Stock
outstanding as of the date of this Agreement and held by DEI, and (y)
107,189,202 shares of Company Common Stock outstanding on a fully diluted
basis (assuming the conversion, exchange or exercise of all Company Options)
and further assuming the truth and accuracy of the representations and
warranties set forth in Section 2.3 hereof. Any breach of the foregoing
representation, warranty and agreement shall be remedied by the issuance,
without additional consideration (the consideration therefor being deemed part
of the original consideration payable by TWDC under the Purchase Agreement, by
Holding Company of additional shares of Holding Company Common Stock or
additional Warrants, to the extent necessary to increase TWDC's and DEI's
aggregate percentage ownership of Holding Company to the amounts and as of
such date specified in clauses (i) and (ii), respectively. This
representation, warranty and agreement shall survive and continue until the
eighteen (18) month anniversary of the Effective Time.
5.26 Parent Option Grants. Prior to the Effective Time, without the written
consent of DEI, Parent shall not issue any options, warrants or other rights
to acquire Parent Common Stock, other than employee stock options and rights
to acquire shares in accordance with employee stock purchase plans in the
ordinary course of business, consistent with past practice.
5.27 ABC News/Starwave Partners. Following the date hereof, subject to the
mutual, reasonable approval of Parent and DEI and provided that Parent and DEI
mutually agree that ABC News/Starwave Partners will continue to lease space
from DEI's affiliate, ABC, Inc., then ABC News/Starwave Partners will enter
into an arms-length lease with ABC, Inc. for such amount of space as the
parties hereto deem reasonable. The parties hereto acknowledge that, until
such lease is entered into (or until the parties determine that ABC
News/Starwave Partners shall locate alternative space), ABC News/Starwave
Partners shall continue to lease the space it currently occupies at ABC, Inc.
at reasonable rates consistent with past practice.
5.28 Funding of Ventures. From the date hereof through the Effective Time or
the termination of this Agreement, the Company agrees that it shall promptly
fund, and DEI agrees that it shall cause its Affiliates, ABC, Inc. and ESPN,
to promptly fund the capital accounts of ABC News/Starwave Partners and
ESPN/Starwave Partners, respectively, in accordance with past practice and the
Partnership Agreements pertaining to such partnerships (it being understood
that in past practice, both partners have contributed their appropriate share
of the capital requirements in accordance with the Partnership Agreements).
5.29 Third Party Agreements. DEI will cause the AOL/ABC News Short Form
Agreement, dated as of March 5, 1997, as amended on June 4, 1998, to terminate
and be of no further force and effect no later than November 30, 1998 with no
liability to Parent or Holding Company. Parent agrees that, although DEI will
be
40
required to indemnify Parent for any breach of this covenant, no such breach
shall be the basis for not closing the transactions contemplated hereby.
5.30 Adoption of Option and Employee Stock Purchase Plans. At the Effective
Time, Holding Company shall assume all stock option and employee stock
purchase plans of Parent.
ARTICLE VI
Conditions to the Merger
6.1 Conditions to Obligations of Each Party. The respective obligations of
each party to this Agreement to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of the following conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Mergers shall be in effect, nor shall
any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Mergers, which makes the consummation of the Mergers
illegal. All waiting periods under the HSR Act relating to the transactions
hereby will have expired or terminated early.
(b) Shareholder Approval. This Agreement shall have been approved and
adopted, and the Mergers shall have duly approved, by the requisite vote
under applicable law, by the shareholders of Parent and the Company.
(c) Listing. The shares of Holding Company Common Stock to be issued in
the Merger to the Shareholders shall have been approved for listing
(subject to notice of issuance) on the Nasdaq National Market.
(d) Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act, and no stop order shall have been issued by the SEC
with respect to the Form S-4 Registration Statement and no similar
proceeding in respect of the Joint Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
(e) Transaction Agreements. The Transaction Agreements executed on the
date hereof shall be in full force and effect as of the Effective Time.
6.2 Conditions to Obligations of Company and DEI. The obligations of the
Company and DEI to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be
waived, in writing, exclusively by the Company and DEI:
(a) Tax Opinion. DEI shall have received the opinion of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
LLP, special counsel to DEI, substantially in the same form as the Tax
opinion described in Section 6.3(a), and based upon reasonably requested
representation letters of DEI, the Holding Company, and Parent and their
officers, directors, and employees dated the Closing Date, which opinion
shall be reasonably satisfactory to DEI, to the effect that the Company
Merger will be treated as a reorganization described in section 368(a) of
the Code and/or, when taken together with the Parent Merger, will be
treated as a transfer of property to Holding Company by DEI governed by
section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time, except for
such inaccuracies as individually or in the aggregate would not have a
Material Adverse Effect on Parent, and each of Parent and Holding Company
shall have performed and complied in all material respects with all
covenants and obligations of this Agreement required to be performed and
complied with by then as of the Effective Time.
41
(c) No Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on Parent (except for any Material Adverse Effect
that shall have been cured without such cure resulting or reasonably being
expected to result in a Material Adverse Effect on Parent). (For purposes
of this Article VI, it shall be deemed a "Material Adverse Effect" on
Parent if there shall be in effect a preliminary injunction or permanent
injunction issued by a court of competent jurisdiction against Parent
preventing Parent from generally using or materially limiting the ability
of Parent to generally use Intellectual Property that is both material to
and necessary for the conduct of Parent's business as currently conducted
(taken as a whole), and the prior pendency of a temporary restraining order
in respect of such Intellectual Property which is no longer in effect shall
be deemed not to be a "Material Adverse Effect" on Parent for purposes of
this Article VI.)
(d) Certificate of Parent and Holding Company. The Company and DEI shall
have been provided with a certificate executed on behalf of Parent and
Holding Company by its President and Chief Executive Officer to the effect
that, as of the Effective Time, the conditions set forth in Sections 6.3(a)
and 6.2(b) and (c) have been met.
6.3 Conditions to the Obligations of Parent and Holding Company. The
obligations of Parent and Holding Company to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Tax Opinion. Parent shall have received the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, special counsel to Parent, substantially in the same
form as the Tax opinion described in Section 6.2(a), and based upon
reasonably requested representation letters of DEI, the Holding Company,
and Parent and their officers, directors, and employees dated the Closing
Date, which opinion shall be reasonably satisfactory to Parent, to the
effect that the Parent Merger will be treated as a reorganization described
in section 368(a) of the Code and/or, when taken together with the Company
Merger, as a transfer of property to Holding Company by holders of Parent
Common Stock governed by section 351 of the Code.
(b) Representations, Warranties and Covenants. The representations and
warranties of the Company and DEI in this Agreement shall be true and
correct in all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of the Effective
Time, except for such inaccuracies as individually or in the aggregate
would not have an Material Adverse Effect on the Company, and each of the
Company and DEI shall have performed and complied in all material respects
with all covenants and obligations of this Agreement required to be
performed and complied with by them as of the Effective Time.
(c) No Material Adverse Effect. No Material Adverse Effect with respect
to the Company shall have occurred since the date of this Agreement and no
events or circumstances have occurred since the date hereof that would have
a Material Adverse Effect on the Company (except for any Material Adverse
Effect that shall have been cured without such cure resulting or reasonably
being expected to result in a Material Adverse Effect on the Company). (For
purposes of this Article VI, it shall be deemed a "Material Adverse Effect"
on the Company if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
the Company preventing the Company from generally using or materially
limiting the ability of the Company to generally use Intellectual Property
that is both material to and necessary for the conduct of the Company's
business as currently conducted (taken as a whole), and the prior pendency
of a temporary restraining order in respect of such Intellectual Property
which is no longer in effect shall be deemed not to be a "Material Adverse
Effect" on the Company for purposes of this Article VI.)
(d) Third Party Consents. Any and all consents, waivers, assignments and
approvals listed in Section 2.5 of the Disclosure Schedule (other than
those whose failure to obtain, individually or in the aggregate, would not
have a Material Adverse Effect on the Company or the Holding Company) shall
have been obtained.
42
(e) Certificate of the Company and DEI. Parent shall have been provided
with a certificate executed on behalf of DEI by its Chief Financial Officer
and executed on behalf of the Company by its President and Chief Executive
Officer to the effect that, as of the Effective Time the conditions set
forth in Sections 6.2(a) and 6.3(b) and (c) have been met.
(f) Net Worth Payment. Parent shall have received from DEI and the
Company on or prior to the Closing Date the Closing Balance Sheet,
certified as to correctness by DEI and the Company; and DEI shall have
delivered to Holding Company the Net Worth Payment pursuant to Section
5.23.
ARTICLE VII
Survival of Representations and Warranties; Indemnification
7.1 Survival of Representations and Warranties. The representations and
warranties made by the Company and DEI in this Agreement or in any instrument
delivered pursuant to this Agreement shall terminate on the eighteen (18)
month anniversary of the Closing Date; provided, however, that the
representations, warranties, covenants, promises and agreements made by any
party to this Agreement relating or pertaining to any Tax or Returns related
to Taxes, whether made pursuant to this Agreement or any instrument required
under this Agreement other than those representations and warranties made
pursuant to Section 3.10 hereof (which shall terminate upon the Effective
Time) shall survive until sixty (60) days following the expiration of the
applicable statute of limitations (taking into account all extensions). The
representations and warranties made by Parent and Holding Company contained
herein or in any instrument delivered pursuant to this Agreement (other than
with respect to certificates relating to the Tax opinions described in
Sections 6.2(a) and 6.3(a) hereof, which shall survive until 60 days following
the expiration of the applicable statute of limitations taking into account
all extensions) shall terminate and be of no further force or effect at the
Effective Time, and following the Effective Time, notwithstanding the
following sentence, no party shall have any recourse whatsoever against Parent
or Holding Company in respect of any such representation and warranty (other
than with respect to certificates relating to the tax Opinions described in
Sections 6.2(a) and 6.3(a) hereof). The covenants, promises and agreements of
Parent shall survive the Effective Time, whether made pursuant to this
Agreement or any instrument required under this Agreement. No party hereto
makes any representation or warranty other than those representations and
warranties set forth in this Agreement.
7.2 Indemnification.
(a) From and after the Effective Time, DEI agrees to indemnify and hold
Parent, Holding Company, and their respective officers, directors, employees,
agents and affiliates harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys'
fees and expenses of investigation and defense (hereinafter individually a
"Loss" and collectively "Losses") incurred by Holding Company, Parent, its
officers, directors, employees, agents or affiliates (including the Surviving
Corporation) directly or indirectly as a result of (i) any inaccuracy or
breach of a representation or warranty of the Company or DEI contained in this
Agreement, (ii) any failure by the Company (on or prior to the Effective Time)
or DEI (at any time) to perform or comply with any covenant contained in this
Agreement, including, without limitation, Section 5.23 hereof, or (iii) DEI
Taxes to the extent not accrued on the Closing Balance Sheet; provided,
however, that DEI shall be liable under Section 7.2 (a)(i) only to the extent
that Losses incurred exceed $3 million (the "Threshold") in which case DEI
will be liable for the amount of all such Losses in excess of the Threshold up
to an aggregate of $350 million (the "Cap"); provided, however, with respect
to the matters set forth in Sections 7.2(a)(ii) and (a)(iii) the Threshold
shall not be applicable. In addition, to the extent that Losses are incurred
that result solely from the inaccuracies or breaches of representations and
warranties of the Company or DEI arising solely from facts and circumstances
occurring following the date hereof (but only to the extent that such Losses
do not result from a breach by DEI or the Company of any representation or
warranty made as of the date hereof, or a breach of any obligations under this
Agreement, and only to the extent not relating to facts and circumstances
occurring on or prior to the date hereof), the right to indemnification under
this Section 7.2 for such Losses ("Post-Signing Losses") shall be subject to a
separate and additional threshold of $1 million, which
43
will be used first prior to using the $3 million Threshold, and DEI's
obligation to indemnify in respect of such Post-Signing Losses shall commence
only to the extent that such Post-Signing Losses exceed the sum of $1 million
plus the portion of the $3 million Threshold unused by other Losses, and then,
only for the amount of such Losses in excess of the sum of $1 million plus the
unused portion of the $3 million Threshold; provided, however that DEI's
obligation to indemnify with respect to such Losses shall be aggregated with
all other Losses resulting from the matters set forth in Section 7.2(a)(i)
and, together with such Losses, shall be subject to the Cap. Furthermore,
without regard to any threshold, DEI shall pay to Holding Company in
immediately available funds, upon demand by Holding Company the amounts, if
any, by which Net Worth is less than the lesser of (1) Estimated Net Worth and
(2) the Net Worth Target. DEI shall not have any right of contribution from
the Company with respect to any Loss claimed. Nothing herein shall limit the
liability of the Company or DEI for any willful breach of any representation,
warranty or covenant if the Merger does not occur.
(b) Notwithstanding the foregoing, DEI hereby waives any right to seek
indemnification from the Company for any Losses as such term is defined in
that certain Stock Purchase Agreement dated as of March 28, 1997 by and
between the Company, ▇▇▇▇ ▇. ▇▇▇▇▇ and DEI (the "Stock Purchase Agreement")
pursuant to Section 5.1 of the Stock Purchase Agreement, and hereby forever
releases the Company from any and all past and present claims, actions, suits,
and proceedings of any nature pending or threatened against the Company,
whether or not in connection with the Stock Purchase Agreement, other than
intercompany accounts in the amounts reflected in the books and records of the
Company.
7.3 Claims Against DEI for Indemnification. Upon receipt by DEI of a
certificate signed by any officer of Holding Company or Parent (an "Officer's
Certificate"): (A) stating that Parent or Holding Company has paid or properly
accrued Losses for which indemnification may be sought under Section 7.2 and
(B) specifying in reasonable detail the individual items of Losses included in
the amount so stated, the date each such item was paid or properly accrued and
the nature of the misrepresentations, breach of warranty or covenant to which
such items is related, DEI shall, unless DEI shall timely object in writing to
such claim or claims made in such Officer's Certificate pursuant to the
provisions of Section 7.4, deliver to Holding Company as promptly as
practicable, cash in an amount equal to such Losses. To the extent that DEI
indemnifies Holding Company for any accrued Loss, and such accrued Loss is
ultimately determined to exceed the amounts required by GAAP, Holding Company
shall promptly return such amount to DEI.
7.4 Resolution of Conflicts; Arbitration.
(i) In case DEI shall object in writing to any claim or claims made in any
Officer's Certificate within thirty (30) days after delivery of such Officer's
Certificate, DEI and Holding Company shall attempt in good faith to agree upon
the rights of the respective parties with respect to each of such claims. If
DEI and Holding Company should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties.
(ii) If no such agreement can be reached after good faith negotiation,
either Holding Company or DEI may demand arbitration of the matter pursuant to
this Section 7.4 unless the amount of the damage or Loss is at issue in
pending litigation with a third party, in which event arbitration shall not be
commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by
arbitration conducted by one arbitrator mutually agreeable to Holding Company
and DEI. In the event that within forty-five (45) days after submission of any
dispute to arbitration, Holding Company and DEI cannot mutually agree on one
arbitrator, Holding Company and DEI shall each select one arbitrator, and the
two arbitrators so selected shall select a third arbitrator. The arbitrator or
arbitrators, as the case may be, shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery while allowing
the parties an opportunity, adequate in the sole judgement of the arbitrator
or majority of the three arbitrators, as the case may be, to discover relevant
information from the opposing parties about the subject matter of the dispute.
The arbitrator or a majority of the three arbitrators, as the case may be,
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys' fees and costs, to the
extent as a competent court of law or equity, should the arbitrators or a
majority of the three arbitrators, as the case may be, determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without
44
substantial justification. The decision of the arbitrator or a majority of the
three arbitrators, as the case may be, as to the validity and amount of any
claim in such Officer's Certificate shall be binding and conclusive upon the
parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth
the award, judgment, decree or order awarded by the arbitrator(s).
(iii) Judgment upon any award rendered by the arbitrator(s) may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
▇▇▇▇▇ County, California, under the rules then in effect of the American
Arbitration Association. The arbitrator(s) shall determine how all expenses
relating to the arbitration shall be paid, including without limitation, the
respective expenses of each party, the fees of each arbitrator and the
administrative fee of the American Arbitration Association.
7.5 Third-Party Claims. Promptly after the receipt by any party hereto of a
notice of any claim, action, suit or proceeding of any third party (a "Third
Party Claim") which may be subject to indemnification hereunder, such party
(the "Indemnified Party") shall give written notice of such claim to the party
obligated to provide indemnification hereunder (the "Indemnifying Party"),
stating the nature and basis of such claim and the amount thereof, to the
extent known. Failure of the Indemnified Party to give such notice shall not
relieve the Indemnifying Party from any liability which it may have on account
of this indemnification or otherwise, except to the extent that the
Indemnifying Party is actually prejudiced thereby. The Indemnifying Party
shall be entitled to participate in the defense of and, if it agrees
unconditionally to indemnify the Indemnified Party for any and all Losses
incurred as a result of such Third Party Claim, to assume the defense of such
claim, action, suit or proceeding with counsel selected by the Indemnifying
Party and approved by the Indemnified Party (such approval not to be
unreasonably withheld). Upon the election by the Indemnifying Party to assume
the defense of, or otherwise contest, such claim, action, suit or proceeding,
the Indemnifying Party shall not be liable for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof, although the Indemnified Party shall have the right to participate in
the defense thereof and to employ counsel, at its own expense. Notwithstanding
the foregoing, the Indemnifying Party shall be liable for the reasonable fees
and expenses of counsel employed by the Indemnified Party, if and only to the
extent that (i) the Indemnifying Party has not employed counsel or counsel
reasonably acceptable to the Indemnified Party to assume the defense of such
action within a reasonable time after receiving notice of the commencement of
the action, (ii) the employment of counsel and the amount reimbursable
therefor by the Indemnified Party has been authorized in writing by the
Indemnifying Party, or (iii) there is an actual conflict of interests between
the Indemnifying Party and the Indemnified Party. The parties shall use
commercially reasonable efforts to minimize Losses from claims by third
parties and shall act in good faith in responding to, defending against,
settling or otherwise dealing with such claim, notwithstanding any dispute as
to liability as between the parties under this Article VII. The parties shall
also cooperate in any such defense, give each other reasonable access to all
information relevant thereto and use commercially reasonable efforts to make
employees and other representatives available on a mutually convenient basis
to provide additional information and explanation of any material provided in
connection therewith. No claim by a third party may be settled by the
Indemnifying Party without the written consent of the Indemnified Party (which
consent shall not be unreasonably withheld), except in the event that the
settlement involves (i) the payment of money only, for which the Indemnified
Party is totally indemnified by the Indemnifying Party, and (ii) the
unconditional release from all related liability of the Indemnified Party.
This section 7.5 shall not apply to disputes relating to Taxes.
7.6 Exclusive Remedy. Following the Effective Time, except with respect to
any knowing or intentional or fraudulent breaches of the representations and
warranties of the Company or DEI contained in this Agreement, the sole and
exclusive remedy of Holding Company for any claim for breaches of
representation and warranties of the Company or DEI arising under this
Agreement shall be the indemnification provided in this Article VII.
7.7 Indemnification For Taxes. Parent and Holding Company agree to indemnify
and hold DEI and its affiliates harmless from and against (a) any and all
Taxes, expenses, costs and other damages attributable in whole or in part to
any breach of any (i) representation, warranty, covenant, agreement or promise
contained in the Certificates delivered pursuant to Section 6.2(a) hereof, or
(ii) any agreement, covenant or promise made by Parent and/or Holding Company
in this Agreement, any Transaction Agreement, or in any instrument delivered
45
pursuant to such agreements, in each case that relate to Taxes, (b) Taxes
attributable to any action or transaction occurring on the Closing Date after
the Effective Time, other than in the ordinary course of business, or (c)
Taxes attributable to the Company or any Subsidiary thereof with respect to
any period or portion thereof commencing after the Closing.
ARTICLE VIII
Termination, Amendment and Waiver
8.1 Termination. This Agreement may be terminated and the Mergers abandoned
at any time prior to the Effective Time:
(a) by mutual consent of DEI, the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not occurred
by December 31, 1998 provided, however, that the right to terminate this
Agreement under this Section 8.1(b)(i) shall not be available to any party
(who, in the case of the Company, shall include DEI) whose action or
failure to act has been a principal cause of or resulted in the failure of
the Mergers to occur on or before such date and such action or failure to
act constitutes a material breach of this Agreement; (ii) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Mergers; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Mergers by any Governmental Body that would make consummation of the
Mergers illegal;
(c) by Parent or the Company if (i) the Parent Shareholders' Meeting
(including any adjournments or postponements thereof) shall have been held
and completed and Parent's shareholders shall have taken a final vote on
the matters set forth in Section 5.2(b) hereof, and (ii) such matters shall
not have been approved at such meeting by the required Parent Shareholder
Vote (provided, further, that the right to terminate this Agreement under
Section 8.1(c) shall not be available to Parent or the Company where the
failure to obtain the required Parent Shareholder Vote shall have been
caused by the action or failure to act of such party and such action or
failure to act constitutes a material breach by such party of this
Agreement);
(d) by Parent or the Company if there shall be any governmental action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Mergers by any Governmental Body, which
would: (i) prohibit Holding Company's ownership or operation of any
material portion of the business of the Company or (ii) compel Holding
Company or the Company to dispose of or hold separate all or a material
portion of the business or assets of the Company or Holding Company as a
result of the Mergers;
(e) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty
or covenant contained in this Agreement on the part of the Company or DEI,
or if any representation or warranty on the part of the Company or DEI
shall have become untrue, in either case such that the condition set forth
in Sections 6.3(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue and
such inaccuracy in such representation or warranty or breach shall not have
been cured within thirty (30) calendar days after written notice to the
Company and DEI; provided, however, that, no cure period shall be required
for a breach which by its nature cannot be cured;
(f) by the Company or DEI if neither the Company nor DEI is in material
breach of their respective obligations under this Agreement and there has
been a breach of any representation, warranty or covenant contained in this
Agreement on the part of Parent, or if any representation or warranty of
Parent shall have become untrue, in either case such that the condition set
forth in Section 6.2(b) would not be satisfied as of the time of such
breach or as of the time such representation or warranty shall have become
untrue and such inaccuracy in such representations and warranties or such
breach shall not have been cured within thirty (30) calendar days after
written notice to Parent; provided, however, that no cure period shall be
required for a breach which by its nature cannot be cured;
46
(g) by the Company, prior to obtaining the Required Parent Shareholder
Vote and after receipt by Parent of an Acquisition Proposal for Parent, if
(x) by the end of the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reaffirm its recommendation to stockholders of
Parent to vote for the Mergers, the Board of Directors of Parent fails to
so publicly reaffirm; or (y) by the later of the end of (A) the tenth
business day following the public announcement of an Acquisition Proposal
for Parent or (B) the third business day following (but not including) the
day the Company notifies Parent that it wishes the Board of Directors of
the Parent to publicly reject such publicly announced Acquisition Proposal,
the Board of Directors of Parent fails to publicly reject such Acquisition
Proposal; or (z) the Board of Directors of Parent shall have changed its
recommendation to its shareholders to vote in favor of approval of the
transactions contemplated hereby;
(h) by Parent, prior to obtaining the Required Parent Shareholder Vote
upon five days' prior notice to the Company (the "Parent Superior Proposal
Notice"), if, as a result of a Parent Superior Proposal by a party other
than the Company or any of its Affiliates, the board of directors of Parent
determines in good faith, after considering applicable provisions of state
law, after consultation with outside counsel that acceptance of the Parent
Superior Proposal is necessary for the board of directors to act in a
manner consistent with its fiduciary duties under applicable law; provided,
however, that the board of directors of Parent, in making any such
determination, shall have considered all concessions which have then been
offered by the Company (it being understood that prior to any such
termination Parent shall, and shall cause its respective financial and
legal advisors to, negotiate with the Company to make such adjustments in
the terms and conditions of this Agreement in favor of Parent as would
induce Parent to proceed with a transaction with the Company rather than
consummation of an Acquisition Proposal made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(h) Parent must pay to the Company in
immediately available funds the fees required to be paid pursuant to
Section 8.3(a) hereof. In addition, Parent agrees that it shall not
terminate this Agreement pursuant to this Section 8.1(h) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after the Company's receipt of a Parent Superior Proposal Notice in
respect of the Parent Superior Proposal to be accepted;
(i) by Parent, prior to obtaining the Required Company Shareholder Vote
and after receipt by the Company of an Acquisition Proposal for the
Company, if (x) by the end of the third business day following (but not
including) the day Parent notifies the Company that it wishes the Board of
Directors of the Company to publicly reaffirm its recommendation to
stockholders of the Company to vote for the Mergers, the Board of Directors
of the Company fails to so publicly reaffirm; or (y) by the later of the
end of (A) the tenth business day following the public announcement of an
Acquisition Proposal for the Company or (B) the third business day
following (but not including) the day Parent notifies the Company that it
wishes the Board of Directors of the Company to publicly reject such
publicly announced Acquisition Proposal, the Board of Directors of the
Company fails to publicly reject such Acquisition Proposal; or (z) the
Board of Directors of the Company shall have changed its recommendation to
its shareholders to vote in favor of approval of the transactions
contemplated hereby;
(j) by the Company, prior to obtaining the Required Company Shareholder
Vote, upon five days' prior notice to Parent (the "Company Superior
Proposal Notice"), if, as a result of a Company Superior Proposal by a
party other than Parent or any of its Affiliates, the Board of Directors of
the Company determines in good faith, after considering applicable
provisions of state law, after consultation with outside counsel that
acceptance of the Company Superior Proposal is consistent with its
fiduciary duties under applicable law; provided, however, that the board of
directors of the Company, in making any such determination, shall have
considered all concessions which have then been offered by Parent (it being
understood that prior to any such termination the Company shall, and shall
cause its respective financial and legal advisors to, negotiate with Parent
to make such adjustments in the terms and conditions of this Agreement in
favor of the Company as would induce the Company to proceed with a
transaction with Parent rather than consummation of an Acquisition Proposal
made by a third party).
Notwithstanding the foregoing, prior to or contemporaneous with any
termination under Section 8.1(j) the Company must pay to Parent in
immediately available funds the fees required to be paid pursuant to
47
Section 8.3(c) hereof. In addition, the Company agrees that it shall not
terminate this agreement pursuant to this Section 8.1(j) at any time prior
to 180 days after the date of this Agreement nor at any time prior to five
days after Parent's receipt of a the Company Superior Proposal Notice in
respect of the Company Superior Proposal to be accepted.
(k) by the Company, provided that neither it nor DEI is in breach of this
Agreement, in the event that the Form S-4 Registration Statement has not
been declared effective by the SEC on or prior to the day that is 60
calender days following the day, if any, Parent receives initial written
comments from the SEC in respect of the disclosures set forth therein
(tolled for any period of Federal government strike or extraordinary
shutdown that affects the SEC);
(l) by the Company, provided that neither it nor DEI is in breach of this
Agreement, if there shall be in effect a preliminary injunction or
permanent injunction issued by a court of competent jurisdiction against
Parent preventing Parent from generally using or materially limiting the
ability of Parent to generally use Intellectual Property that is both
material to and necessary for the conduct of Parent's business as currently
conducted (taken as a whole); or
(m) by Parent, provided that it is not in breach of this Agreement, if
there shall be in effect a preliminary injunction or permanent injunction
issued by a court of competent jurisdiction against the Company preventing
the Company from generally using or materially limiting the ability of the
Company to generally use Intellectual Property that is both material to and
necessary for the conduct of the Company's business as currently conducted
(taken as a whole).
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 8.1 and subject to the payment of any amounts due under
Section 8.3, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Holding Company, Parent, Sub, DEI or
the Company, or their respective officers, directors or shareholders, provided
that each party shall remain liable for any willful breaches of such party's
covenants hereunder or intentional or willful breaches of such party's
representations and warranties hereunder (other than in the case of Parent,
Section 3.17, for which Parent shall bear no liability) prior to its
termination; provided further that the provisions of Sections 5.4, 5.5, 8.3
and Article IX of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Termination Fees.
(a) If this Agreement is terminated by (i) the Company as a result of a
breach of Section 4.2(b) by Parent, or (ii) by the Company pursuant to its
rights under Section 8.1(g), or (iii) by Parent pursuant to its rights under
Section 8.1(h), Parent shall pay to the Company a fee of $17 million, plus the
amount of any documented out-of-pocket expenses incurred by the Company and
its Affiliates in connection with the negotiation and preparation of this
Agreement and the Transaction Agreements and any other ancillary agreements
executed and delivered in connection with the transactions contemplated hereby
and thereby (including fees of counsel and accountants) up to the date of such
termination up to a maximum aggregate of $1.5 million (collectively,
"Expenses") in cash minus any amounts as may have been previously paid by such
party pursuant to this Section 8.3.
(b) If :
(i) this Agreement is terminated by a party pursuant to Section 8.1(c)
following a failure of the shareholders of Parent to grant the necessary
approvals described in Section 5.2; and
(ii) prior to such meeting of the shareholders of Parent (and following
the date hereof), there shall have been publicly announced an Acquisition
Proposal involving Parent (whether or not such Acquisition Proposal shall
have been rejected or shall have been withdrawn prior to the time of such
termination or of the shareholders' meeting); and
(iii) within 12 months of any such termination described in clause (b)(i)
above, Parent becomes a majority-owned subsidiary of the offeror of such
Acquisition Proposal or an Affiliate thereof or accepts a
48
written offer to consummate or consummates an Acquisition Proposal with
such offeror or Affiliate thereof which would result in the acquisition of
50% or more of the voting power of Parent (a "Majority Acquisition
Proposal");
then Parent, upon the signing of a definitive agreement relating to such
Majority Acquisition Proposal, or, if no such agreement is signed then at
the closing (and as a condition of the closing) of Parent becoming such a
subsidiary or of such Majority Acquisition Proposal, shall pay to the
Company a fee of $17 million plus Expenses, minus any amounts as may have
been previously paid by such party pursuant to this Section 8.3.
(c) If this Agreement is terminated by (i) Parent as a result of a breach of
Section 4.2(a) by the Company, or (ii) by Parent pursuant to its rights under
Section 8.1(i), or (iii) by the Company pursuant to its rights under Section
8.1(j), the Company shall pay to Parent a fee of $17 million, plus the amount
of any documented out-of-pocket expenses incurred by Parent and its Affiliates
in connection with the negotiation and preparation of this Agreement and the
Transaction Agreements and any other ancillary agreements executed and
delivered in connection with the transactions contemplated hereby and thereby
(including fees of counsel and accountants) up to the date of such termination
up to a maximum aggregate of $1.5 million in cash minus any amounts as may
have been previously paid by such party pursuant to this Section 8.3.
(d) Expenses. The parties agree that the agreements contained in this
Section 8.3 are an integral part of the transactions contemplated by this
Agreement. No termination by a party of this Agreement under this Article VIII
shall be effective unless and until all fees required to be then paid by such
party pursuant to Section 8.3 hereof shall have been received in immediately
available funds by the other party. Notwithstanding anything to the contrary
contained in this Section 8.3, if one party fails to pay to the other any fee
due under Sections 8.3(a) or (b) or (c) within the time required under Section
8.1(h) or 8.1(j), if applicable, or within 5 business days of the event giving
rise to the payment of such fees in all other cases, in addition to any
amounts paid or payable pursuant to such sections, the defaulting party shall
pay the out-of-pocket costs and expenses (including reasonable legal fees and
expenses) in connection with any action, including the filing of any lawsuit
or other legal action, taken to collect payment together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Citibank N.A.
from the date such fee was required to be paid. The fees and expenses set
forth in this Section 8.3 shall not be the exclusive remedy available against
any party that willfully breaches this Agreement.
8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of Parent, Sub,
DEI and the Company.
8.5 Extension; Waiver. At any time prior to the Effective Time, Parent and
Sub, on the one hand, and the Company and DEI, on the other hand, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be valid only if set forth in an instrument in writing signed on behalf of
such party.
ARTICLE IX
General Provisions
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified or
overnight mail (return receipt requested) or sent via facsimile (with
acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice), provided, however, that notices sent by mail will not be deemed given
until received:
49
(a) if to Holding Company, Parent or Sub, to:
Infoseek
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, President
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone No: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
Professional Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company, to
Starwave, Inc.
c/o DEI
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to DEI, to:
DEI
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
O'Melveny & ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: C. ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇
9.2 Interpretation. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
50
9.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Transaction Agreements, the Confidentiality Agreement, and the documents and
instruments and other agreements among the parties and/or their Affiliates
hereto referenced herein or entered into in connection herewith: (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both
written and oral, among the parties with respect to the subject matter hereof;
(b) are not intended to confer upon any other person any rights or remedies
hereunder; and (c) shall not be assigned (other than by operation of law)
without the written consent of the other party. The obligations of the parties
hereto shall be binding on the respective legal successor and assigns to the
parties and the successors in interest of all or substantially all of the
business of the respective parties.
9.5 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will not
preclude the exercise of any other remedy.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.9 Attorneys Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the
prevailing party may be entitled).
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IN WITNESS WHEREOF, Holding Company, Parent, the Company and DEI have caused
this Agreement to be signed, all as of the date first written above.
Infoseek Corporation Starwave Corporation
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
By: _________________________________ By: _________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:President and Chief Title:Vice President
Executive Officer
Infoseek Corporation Disney Enterprises, Inc.
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇ ▇. ▇▇▇▇
By: _________________________________ By: _________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇ Name: ▇▇▇▇ ▇. ▇▇▇▇
Title:President and Chief Title:Vice President
Executive Officer
[SIGNATURE PAGE TO REORGANIZATION AGREEMENT]
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