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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
LYCOS, INC.
DI ACQUISITION CORP.
INTERNET MUSIC DISTRIBUTION, INC.,
AND
THE SHAREHOLDERS OF INTERNET MUSIC DISTRIBUTION, INC.
DATED AS OF
JULY 17, 1999
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TABLE OF CONTENTS
ARTICLE I.........................................................................................................7
1.1 The Merger.................................................................................................7
1.2 Effective Time.............................................................................................8
1.3 Effect of the Merger.......................................................................................8
1.4 Certificate of Incorporation; By-Laws......................................................................8
1.5 Directors and Officers.....................................................................................8
1.6 Additional Actions.........................................................................................8
ARTICLE II........................................................................................................9
2.1 Merger Consideration.......................................................................................9
2.2 Conversion of Shares.......................................................................................9
2.3 Exchange of Certificates..................................................................................12
2.4 No Fractional Securities..................................................................................13
2.5 Stock Transfer Books......................................................................................13
2.6 No Further Ownership Rights in Company Stock..............................................................13
2.7 Adjustment Events.........................................................................................13
2.8 Escrow....................................................................................................13
2.9 Tax Consequences..........................................................................................14
2.10 Treatment of Shareholder Notes Payable and Notes Receivable..............................................14
2.11 PC Transaction Fees......................................................................................14
ARTICLE III......................................................................................................15
3.1 Corporate Organization....................................................................................15
3.2 Authorization.............................................................................................15
3.3 Consents and Approvals; No Violations.....................................................................16
3.4 Capitalization............................................................................................16
3.5 Financial Statements......................................................................................17
3.6 Absence of Undisclosed Liabilities........................................................................17
3.7 Absence of Certain Changes or Events......................................................................18
3.8 Legal Proceedings, etc....................................................................................18
3.9 Taxes.....................................................................................................18
3.10 Title to Properties and Related Matters..................................................................20
3.11 Intellectual Property; Proprietary Rights; Employee Restrictions.........................................21
3.12 Contracts...............................................................................................23
3.13 Employees; Employee Benefits.............................................................................24
3.14 Compliance with Applicable Law...........................................................................26
3.15 Ability to Conduct the Business..........................................................................26
3.16 Major Customers..........................................................................................27
3.17 Consultants, Sales Representatives and Other Agents......................................................27
3.18 Accounts Receivable......................................................................................27
3.19 Insurance................................................................................................28
3.20 Bank Accounts; Powers of Attorney........................................................................28
3.21 Minute Books, etc........................................................................................28
3.22 Related Person Indebtedness and Contracts................................................................28
3.23 Brokers; Payments; Expenses..............................................................................28
3.24 Disclosure...............................................................................................28
3.25 Year 2000 Compliance.....................................................................................29
ARTICLE IV.......................................................................................................29
4.1 Authorization etc.........................................................................................29
4.2 Parent Common Stock.......................................................................................30
ARTICLE V........................................................................................................32
5.1 Corporate Organization....................................................................................32
5.2 Authorization.............................................................................................33
5.3 Consents and Approvals; No Violations.....................................................................33
5.4 Capitalization............................................................................................34
5.5 SEC Reports and Financial Statements.....................................................................34
5.6 Absence of Certain Changes................................................................................35
5.7 Litigation................................................................................................35
ARTICLE VI.......................................................................................................35
6.1 Conduct of Business of the Company........................................................................35
6.2 Other Negotiations........................................................................................37
ARTICLE VII......................................................................................................37
7.1 Access to Properties and Records..........................................................................37
7.2 Reasonable Efforts; etc...................................................................................38
7.3 Material Events...........................................................................................38
7.4 Registration Statement on Form S-8........................................................................38
7.5. Fees and Expenses........................................................................................38
7.6 Employees.................................................................................................38
7.7 Directors and Officers Indemnification....................................................................38
7.8 Non-competition...........................................................................................39
7.9 Post-Closing Payment......................................................................................39
ARTICLE VIII.....................................................................................................39
8.1 Representations and Warranties True.......................................................................39
8.2 Performance...............................................................................................40
8.3 Absence of Litigation.....................................................................................40
8.4 Consents..................................................................................................40
8.5 Additional Agreements....................................................................................40
8.6 Opinion of Xxxxxxx Coie...................................................................................41
8.7 Delivery of Certificates for Cancellation.................................................................41
8.8 Appraisal Rights..........................................................................................41
8.9 Termination of Shareholders' Agreement....................................................................41
8.10 Certificate of Merger....................................................................................41
ARTICLE IX.......................................................................................................41
9.1 Representations and Warranties True.......................................................................42
9.2 Performance...............................................................................................42
9.3 Absence of Litigation.....................................................................................42
9.4 Consents..................................................................................................42
9.5 Additional Agreements.....................................................................................43
9.6 Opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx....................................................................43
9.7 Certificate of Merger.....................................................................................43
9.8 Shares of Parent Common Stock.............................................................................43
ARTICLE X........................................................................................................43
10.1 Termination..............................................................................................43
10.2 Effect of Termination....................................................................................44
ARTICLE XI.......................................................................................................44
11.1 Indemnity Obligations of the Shareholders................................................................44
11.2 Appointment of Representative............................................................................45
11.3 Notification of Claims...................................................................................45
11.4 Duration.................................................................................................46
11.5 Escrow...................................................................................................46
11.6 Limitation on Indemnification............................................................................47
11.7 No Contribution..........................................................................................47
ARTICLE XII......................................................................................................48
12.1 Registration Rights......................................................................................48
12.2 Indemnification..........................................................................................50
12.3 Current Public Information...............................................................................51
12.4 Termination of Registration Rights.......................................................................51
12.5 Transferability of Registration Rights...................................................................51
ARTICLE XIII.....................................................................................................51
13.1 Amendment................................................................................................51
13.2 Waiver of Compliance.....................................................................................51
13.3 Notices..................................................................................................52
13.4 Assignment...............................................................................................53
13.5 No Third Party Beneficiaries.............................................................................53
13.6 Public Announcements.....................................................................................53
13.7 Counterparts.............................................................................................53
13.8 Headings.................................................................................................53
13.9 Entire Agreement.........................................................................................54
13.10 Governing Law...........................................................................................54
EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Form of Letter of Transmittal
Exhibit C Indemnity and Escrow Agreement
Exhibit D Form of Employment and Non-Competition Agreement
Exhibit E Form of Consulting and Non-Competition Agreement
Exhibit F Form of Nondisclosure and Inventions Agreement
Exhibit G Opinion of Xxxxxxx Coie LLP
Exhibit H Opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 17, 1999 by and among
Lycos, Inc., a corporation organized under the laws of the State of Delaware
(the "Parent"), DI Acquisition Corp., a corporation organized under the laws of
the State of Delaware and a wholly-owned subsidiary of the Parent
("Acquisition"), Internet Music Distribution, Inc., a corporation organized
under the laws of the State of Delaware (the "Company"), and each of the
Shareholders of the Company, each of whom is listed on the signature page hereto
(each, a "Shareholder" and collectively, the "Shareholders").
WHEREAS, the respective Boards of Directors of the Parent, Acquisition
and the Company have approved the merger of Acquisition with and into the
Company (the "Merger"), pursuant to which the Company will be the surviving
corporation and the Shareholders will be entitled to receive the consideration
provided for in this Agreement, all upon the terms and subject to the conditions
set forth herein; and
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1......The Merger. (a) At the Effective Time (as defined in Section
1.2), and subject to and upon the terms and conditions of this Agreement and the
Delaware General Corporation Law (the "DGCL"), Acquisition shall be merged with
and into the Company, the separate corporate existence of Acquisition shall
cease, and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Article X and subject to the satisfaction or waiver of the conditions set forth
in Articles VIII and IX, the consummation of the Merger (the "Closing") will
take place as promptly as practicable (and in any event within two business
days) after satisfaction or waiver of the conditions set forth in Articles VIII
and IX, at the offices of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional
Corporation, 000 Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, unless another date,
time or place is agreed to in writing by the Company and the Parent. The date on
which the Merger is consummated is referred to herein as the "Closing Date."
1.2......Effective Time. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Articles VIII and IX, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger as contemplated by the DGCL in the form of Exhibit A hereto (the
"Certificate of Merger"), together with any required related certificates, with
the Secretary of State of the State of Delaware, in such form as required by,
and executed in accordance with the relevant provisions of, the DGCL (the time
of such filing being the "Effective Time").
1.3......Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Acquisition shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Acquisition shall become the debts, liabilities and duties of the Surviving
Corporation.
..4 Certificate of Incorporation; By-Laws
(a) Certificate of Incorporation. Unless otherwise determined
by the Parent prior to the Effective Time, the Certificate of Incorporation of
Acquisition, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with the DGCL and such Certificate of Incorporation.
(b) By-Laws. Unless otherwise determined by the Parent prior
to the Effective Time, the By-Laws of Acquisition, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended in accordance with the DGCL, the Certificate of
Incorporation of the Surviving Corporation and such By-Laws.
1.5......Directors and Officers. The directors of Acquisition
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of
Acquisition immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
1.6......Additional Actions. If, at any time after the Effective Time,
the Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in or to any of the rights, properties
or assets of Acquisition or the Company acquired or to be acquired by reason of,
or as a result of, the Merger, or otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of Acquisition
or the Company, all such deeds, bills of sale, assignments and assurances and to
do, in the name and on behalf of Acquisition or the Company, all such other acts
and things necessary or desirable to vest, perfect or confirm any and all right,
title or interest in, to or under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES
2.1......Merger Consideration. Except as set forth in Section 2.2(e)
hereof, the consideration payable in the Merger to holders of shares of the
Company's common stock, par value $.0001 per share ("Company Common Stock")
shall consist solely of shares of the common stock, par value $.01 per share, of
the Parent ("Parent Common Stock"), such shares of Parent Common Stock to be
issuable at the Closing and from time to time thereafter pursuant to Section 2.2
in accordance with the terms of this Agreement. Such shares of Parent Common
Stock issuable at the Closing as provided herein shall in the aggregate be
referred to as the "Initial Merger Consideration."
..2 Conversion of Shares
(a) Conversion of Shares. (i) Each share of Company Common
Stock (including Option Shares, as defined in Section 2.2(c)) issued and
outstanding as of the Effective Time (other than shares owned by holders who
have properly exercised their rights of appraisal within the meaning of Section
262 of the DGCL ("Dissenting Shares")) shall, by virtue of the Merger and
without any action on the part of the holder thereof, automatically be converted
into that number of shares of Parent Common Stock as shall be obtained by
dividing (A) the number of shares obtained by dividing $55,050,000 (including
the Parent's obligation with respect to attorneys' fees), less accounts
receivable of the Company in the amount of $20,000 and less the Closing Date PC
Transaction Fee (as defined in Section 2.11 hereof), by the Applicable Average
Closing Price (as defined in Section 2.2(a)(iii)) by (B) the total number of
Fully Diluted Shares (as defined below), with the resulting quotient (carried to
two decimal places) being referred to herein as the "Exchange Ratio." "Fully
Diluted Shares" shall be equal to the total number of outstanding shares of
Company Common Stock, immediately prior to the Closing Date, calculated on a
fully diluted, fully converted basis as though all convertible debt and equity
securities and options (whether vested or unvested) and warrants had been
converted or exercised. The aggregate number of shares of Parent Common Stock
issued pursuant to this Section 2.2(a) shall be referred to in this Agreement as
the "Merger Shares." For purposes of this Agreement, the term "Average Closing
Market Price" shall mean the average of the last quoted sale price per share of
Parent Common Stock on the Nasdaq National Market during the twenty (20)
consecutive trading days ending on (and including) the earlier of (A) the
trading day immediately preceding the Closing Date and (B) July 21, 1999.
Schedule 2.2 attached hereto sets forth, with respect to the Initial Merger
Consideration, (i) the Average Closing Market Price, (ii) the Exchange Ratio and
(iii) the aggregate number of Merger Shares.
(ii).....The Initial Merger Consideration will be increased based on
the average number of "Unique Users" recorded by the Surviving Corporation
during the eleventh (11th) and twelfth (12th) months (the "Measurement Period")
following the first day of the first calendar month following the Closing (the
"Average Unique User Count"). For purposes hereof, "Unique User" shall mean a
user that, during the Measurement Period, has accessed a downloaded player that
has been tagged with a specific user ID since May 26, 1999. A player will only
be tagged with a specific user ID after being downloaded following a referral
from a Qualified Site or after typing in the URL xxx.xxxxxxx.xxx or URLs of
other Sonique-branded sites or after using a bookmark to xxx.xxxxxxx.xxx or to
other Sonique-branded sites. A "Qualified Site" shall mean any Website NOT part
of the Lycos Network (which shall include any site owned, operated, or
co-branded by the Parent, excluding xxx.xxxxxxx.xxx and other Sonique-branded
sites). Both the Parent and the Company agree to use their best efforts to
implement appropriate tracking technology on the xxx.xxxxxxx.xxx and
Sonique-branded sites. From May 26, 1999 until the Effective Time, all existing
players already tagged with a user ID will be considered to be validly tagged
for consideration as a Unique User. From the Effective Time until the earlier of
two weeks or the time as such technology is implemented, a maximum of 14,000
downloaded players per day will be tagged with a user ID. Thereafter, in the
event that the Parent and the Company cannot reasonably determine that an
individual player download resulted via a Qualified Site, such individual player
will not be tagged with a user ID for consideration as a Unique User. The
maximum possible Earn-Out shall be $15 million, and the actual Earn-Out shall be
an amount equal to: the Average Unique User Count divided by 12,000,000,
multiplied by $15 million (such amount not to exceed $15 million referred to as
the "Earn-Out"). The Shareholders shall be eligible to receive a pro rata
portion of the actual Earn-Out, after subtracting the Earn-Out Date PC
Transaction Fee (as defined in Section 2.11 hereof). The Earn-Out shall be paid
within thirty (30) business days after expiration of the Measurement Period, and
may be paid, in the sole discretion of the Parent, in either cash or shares of
Parent Common Stock; provided that the aggregate cash portion of the actual
Earn-Out payment shall not exceed twenty percent (20%) of the aggregate value of
the Initial Merger Consideration plus the aggregate Earn-Out. In the event that
the Earn-Out is paid in shares of Parent Common Stock, the aggregate number of
such shares issuable shall be determined by dividing the total dollar amount of
the Earn-Out by the average of the last quoted sale price per share of Parent
Common Stock on the Nasdaq National Market for each of the twenty (20) trading
days immediately preceding the last day of the Measurement Period.
(iii) The "Applicable Average Closing Price" shall mean:
(A) the Average Closing Market Price, in the event that the Average Closing
Market Price equals an amount greater than or equal to the Minimum Collar Amount
(as herein defined) and less than or equal to the Maximum Collar Amount (as
herein defined);
(B) $110.18 (the "Maximum Collar Amount"), in the event that the Average
Closing Market Price is greater than the Maximum Collar Amount; or
(C) $73.45 (the "Minimum Collar Amount"), in the event that the Average
Closing Market Price is less than the Minimum Collar Amount.
(b) Treasury Shares. Each share of Company Common Stock held
in the Company's treasury as of the Effective Time, if any, shall, by virtue of
the Merger, be canceled without payment of any consideration therefor.
(c) Company Common Stock Granted Under 1999 Stock Plan. All
issued and outstanding shares of Company Common Stock that were issued upon
exercise of options under the Company's 1999 Stock Plan (the "Option Shares")
shall be converted as set forth in Section 2.2(a)(i); provided that (A) the
shares of Parent Common Stock issuable in exchange for such Option Shares shall
be subject to the same restrictions and vesting periods applicable to such
Option Shares under the Company's 1999 Stock Option Plan and any restricted
related stock award agreement or restricted share grant agreement and (B)
certificates evidencing such shares of Parent Common Stock will be issued at
Closing and held in Escrow by Parent until such times that such shares are
vested.
(d) Acquisition Shares. Each share of common stock, par value
$0.01 per share, of Acquisition issued and outstanding at the Effective Time
shall, by virtue of the Merger and without any action on the part of the holder
thereof, automatically be converted into one fully paid and nonassessable share
of common stock of the Surviving Corporation, as such shares of common stock are
constituted immediately following the Effective Time.
(e) Dissenting Shares. Any Dissenting Shares shall be
converted into the right to receive from the Surviving Corporation such
consideration as may be determined to be due with respect to each such
Dissenting Share pursuant to Section 262 of the DGCL; provided, however, that
shares of Company Common Stock that are Dissenting Shares at the Effective Time
of the Merger and are held by a holder who shall, after the Effective Time of
the Merger, withdraw his demand for appraisal or lose his right of appraisal as
provided in the Section 262 of the DGCL, shall be deemed to be converted, as of
the Effective Time of the Merger, into the right to receive the Merger Shares in
accordance with the procedures specified in Section 2.3. The Company shall give
Parent (i) prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other instruments served pursuant to Section 262
of the DGCL received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under Section
262 of the DGCL. The Company will not voluntarily make any payment with respect
to any demands for appraisal and will not, except with the prior written consent
of Parent, settle or offer to settle any such demands. It is understood and
agreed that the obligation to make any payment under Section 262 of the DGCL
shall be exclusively that of the Surviving Corporation and that Parent shall be
under no obligation to perform and discharge any such obligation or to reimburse
or make any contribution to the capital of the Surviving Corporation to enable
it to perform and discharge any such obligation.
..3 Exchange of Certificates
(a) From and after the Effective Time, each holder of an
outstanding certificate or certificates (the "Certificates") which represented
shares of Company Common Stock immediately prior to the Effective Time shall
have the right to surrender each Certificate to Parent, and receive in exchange
for all Certificates held by such holder a certificate representing the number
of whole shares of Parent Common Stock (other than the Escrow Shares (as defined
in Section 2.8)) into which the Company Common Stock evidenced by the
Certificates so surrendered shall have been converted pursuant to Section 2.2(a)
of this Agreement. The surrender of Certificates shall be accompanied by duly
completed and executed Letters of Transmittal in the form of Exhibit B attached
hereto. Until surrendered, each outstanding Certificate which prior to the
Effective Time represented shares of Company Common Stock shall be deemed for
all corporate purposes to evidence ownership of the number of whole shares of
Parent Common Stock into which the shares of Company Common Stock have been
converted but shall, subject to applicable appraisal rights under the DGCL and
Section 2.2(e), have no other rights. Subject to appraisal rights under the DGCL
and Section 2.2(e), from and after the Effective Time, the holders of shares of
Company Common Stock shall cease to have any rights in respect of such shares
and their rights shall be solely in respect of the Parent Common Stock into
which such shares of Company Common Stock have been converted.
(b) If any shares of Parent Common Stock are to be issued in
the name of a person other than the person in whose name the Certificate(s)
surrendered in exchange therefor is registered, it shall be a condition to the
issuance of such shares that (i) the Certificate(s) so surrendered shall be
transferable, and shall be properly assigned, endorsed or accompanied by
appropriate stock powers, (ii) such transfer shall otherwise be proper and (iii)
the person requesting such transfer shall pay Parent, or its exchange agent, any
transfer or other taxes payable by reason of the foregoing or establish to the
satisfaction of Parent that such taxes have been paid or are not required to be
paid. Notwithstanding the foregoing, neither Parent nor the Company shall be
liable to a holder of shares of Company Common Stock for shares of Parent or the
Company issuable to such holder pursuant to the provisions of Section 2.2(a) of
this Agreement that are delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Certificate the shares of Parent
Common Stock issuable in exchange therefor pursuant to the provisions of Section
2.2(a). The Board of Directors of Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificate to provide to Parent an indemnity agreement
against any claim that may be made against Parent with respect to the
Certificate alleged to have been lost, stolen or destroyed.
2.4 No Fractional Securities. No fractional shares of Parent Common
Stock shall be issuable by the Parent upon the conversion of shares of Company
Common Stock in the Merger pursuant to Section 2.2(a) hereof. In lieu of any
such fractional shares, each holder of Company Common Stock who would otherwise
have been entitled to receive a fraction of a share of Parent Common Stock shall
be entitled to receive instead an amount in cash equal to such fraction
multiplied by the Applicable Average Closing Price.
2.5 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of Company Common Stock thereafter on the records of the Company.
2.6 No Further Ownership Rights in Company Stock. The Merger Shares
delivered upon the surrender for exchange of shares of Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
2.7 Adjustment Events. If, between the date hereof and the Effective
Time, the issued and outstanding shares of Parent Common Stock shall have been
combined, split, reclassified or otherwise changed into a different number of
shares or a different class of shares, an appropriate adjustment to the Exchange
Ratio shall be made to fully reflect such change in such manner as is reasonably
acceptable to the Parent and the Company.
2.8 Escrow. At the Effective Time, Parent will deposit in escrow, on a
pro rata basis, certificates representing forty percent (40%) of the Merger
Shares, together with stock powers duly endorsed in blank (collectively, the
"Escrow Shares "). The Escrow Shares shall be held as security for the
indemnification obligations under Article XI pursuant to the provisions of an
Indemnity and Escrow Agreement (the "Escrow Agreement ") in the form of Exhibit
C attached hereto. On the date which is 180 days after the Closing Date, if
there are any Escrow Shares representing over 33.33% of the Merger Shares
remaining in the Escrow Fund (less any Escrow Shares being held subject to an
Indemnity Claim delivered by Parent in accordance with the terms of the Escrow
Agreement on or prior to 180 days after the Closing Date), such excess amount
shall be distributed by the Escrow Agent to the Shareholders pursuant to the
Escrow Agreement. With respect to those Shareholders who hold Option Shares that
will be converted into Merger Shares that are part vested and part unvested, the
unvested Merger Shares held by each such Shareholder will be used for Escrow
Shares and, if at the Effective Time, less than forty percent (40%) of a
Shareholder's Merger Shares are unvested, all of the unvested Merger Shares of
such Shareholder will be used for Escrow Shares and that percentage of the
vested Merger Shares of such Shareholder necessary to bring such Shareholder's
Escrow Shares to the forty percent (40%) level will be delivered to the Escrow
Agent by Parent. With respect to those Shareholders who are executing Employment
and Non-Competition Agreements or Consulting and Non-Competition Agreements and
who hold shares of Company Common Stock that will be converted into Merger
Shares that are partially subject to forfeiture, the Merger Shares subject to
forfeiture held by each such Shareholder will be used for Escrow Shares and, if
at the Effective Time, less than forty percent (40%) of a Shareholder's Merger
Shares are subject to forfeiture, all of such Merger Shares that are subject to
forfeiture will be used for Escrow Shares and that percentage of the Merger
Shares of such Shareholder that are not subject to forfeiture necessary to bring
such Shareholder's Escrow Shares to the forty percent (40%) level will be
delivered to the Escrow Agent by Parent.
2.9 Tax Consequences. For Federal income tax purposes, it is intended
that the Merger constitute a reorganization within the meaning of Section 368(a)
of the Code, and that this Agreement constitute a "plan of reorganization"
within the meaning of Section 368(a) of the Code.
2.10 Treatment of Shareholder Notes Payable and Notes Receivable. At
Closing, the amount of notes receivable on the Company's books with respect to a
particular Shareholder shall be applied to reduce the amount of notes payable to
such Shareholder on the Company's books, and the excess amount of notes payable
to such Shareholder shall be paid, on a dollar for dollar basis, to such
Shareholder by Parent in the form of shares of Parent Common Stock valued at the
closing price per share of Parent Common Stock on the Nasdaq National Market on
the first trading day immediately preceding the Closing Date.
2.11 PC Transaction Fees. Xxxxxxx Coie LLP shall be entitled to receive
(a) at the Effective Time, that number of shares of Parent Common Stock
determined by dividing $440,000 (the "Closing Date PC Transaction Fee") by the
Applicable Average Closing Price and (b) within thirty (30) business days after
expiration of the Measurement Period, .8% of the aggregate Earn-Out, payable in
the form of shares of Parent Common Stock, with the number of shares being
determined as set forth in Section 2.2 (a)(ii) hereof (the "Earn-Out Date PC
Transaction Fee"). The shares of Parent Common Stock received by Xxxxxxx Coie
LLP under this Section 2.11 shall be entitled to the registration rights set
forth in Article XII hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders jointly and severally
represent and warrant to the Parent and Acquisition that:
3.1 Corporate Organization. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has no Subsidiaries (as defined in Section 3.4(b)). The
Company has all requisite corporate power and authority to own, operate and
lease the properties and assets it now owns, operates and leases and to carry on
its business as presently conducted. The Company is duly qualified to transact
business as a foreign corporation and in good standing in the jurisdictions set
forth in Schedule 3.1, which are the only jurisdictions where such qualification
is required by reason of the nature of the properties and assets currently
owned, operated or leased by the Company or the business currently conducted by
it, except for such jurisdictions where the failure to be so qualified would not
have a Company Material Adverse Effect (as defined below). The Company has
previously delivered to the Parent complete and correct copies of its
Certificate of Incorporation (certified by the Secretary of State of the State
of Delaware as of a recent date) and its By-Laws (certified by the Secretary of
the Company as of a recent date). Except as set forth in Schedule 3.1, neither
the Certificate of Incorporation nor the By-Laws of the Company have been
amended since the respective dates of certification thereof, nor has any action
been taken for the purpose of effecting any amendment of such instruments. The
term "Company Material Adverse Effect" means any change, event or effect that
is, or that would reasonably likely be, materially adverse to the business,
operations, assets, liabilities, financial condition or results of operations of
the Company.
3.2 Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors and the stockholders of the Company, and no other corporate action on
the part of the Company is necessary to approve and authorize the execution and
delivery of this Agreement or (subject to the filing of the Certificate of
Merger pursuant to the DGCL) the consummation of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company and
constitutes the valid and binding agreement of the Company, enforceable in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditors, rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in law or in equity.
3.3 Consents and Approvals; No Violations. Subject to the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
compliance with applicable federal and state securities laws, and except as
disclosed in Schedule 3.3, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not: (i) violate or
conflict with any provision of the Certificate of Incorporation or By-Laws of
the Company; (ii) breach, violate or constitute an event of default (or an event
which with the lapse of time or the giving of notice or both would constitute an
event of default) under, give rise to any right of termination, cancellation,
modification or acceleration under, or require any consent or the giving of any
notice under, any note, bond, indenture, mortgage, security agreement, lease,
license, franchise, permit, agreement or other instrument or obligation to which
the Company is a party, or by which the Company or any of its properties or
assets may be bound, or result in the creation of any lien, claim or encumbrance
or other right of any third party of any kind whatsoever upon the properties or
assets of the Company pursuant to the terms of any such instrument or
obligation, other than any breach, violation, default, termination,
cancellation, modification or acceleration which would not, individually or in
the aggregate, have a Company Material Adverse Effect; (iii) violate or conflict
with any law, statute, ordinance, code, rule, regulation, judgment, order, writ,
injunction, decree or other instrument of any Federal, state, local or foreign
court or governmental or regulatory body, agency or authority applicable to the
Company or by which any of its properties or assets may be bound, except for
such violations and conflicts which would not, individually or in the aggregate,
have a Company Material Adverse Effect or result in a fine or penalty in excess
of $10,000 individually or in the aggregate; or (iv) require, on the part of the
Company, any filing or registration with, or permit, license, exemption,
consent, authorization or approval of, or the giving of any notice to, any
governmental or regulatory body, agency or authority, other than any filing,
registration, permit, license, exemption, consent, authorization, approval or
notice which if not obtained or made would not have a Company Material Adverse
Effect or result in a fine or penalty in excess of $10,000 individually or in
the aggregate. Without limiting the generality of clause (ii) above, neither the
Company nor any of the Shareholders is a party to any agreement, arrangement or
understanding which contemplates the sale of the business of the Company, in
whole or in part, whether by means of a sale of shares, sale of assets, merger,
consolidation or otherwise.
..4 Capitalization
(a) The authorized capital stock of the Company consists of
1,200,000 shares of Company Common Stock, of which 990,013 shares are issued and
outstanding. Schedule 3.4(a) sets forth a complete and correct list of the
record ownership of the issued and outstanding shares of Company Common Stock.
All of the issued and outstanding shares of Company Common Stock were duly
authorized and validly issued and are fully paid and nonassessable, and were not
issued in violation of any preemptive rights or Federal or state securities
laws. Except as disclosed in Schedule 3.4(a), the Company has never repurchased
or redeemed any shares of its capital stock, and there are no amounts owed or
which may be owed to any person by the Company as a result of any repurchase or
redemption of shares of its capital stock. Except as disclosed in Schedule
3.4(a), there are no agreements, arrangements or understandings to which the
Company is a party or by which it is bound to redeem or repurchase any shares of
its capital stock. Except as set forth in Schedule 3.4(a), there are no
outstanding options, warrants or other rights to purchase, or any securities
convertible into or exchangeable for, shares of the capital stock of the
Company, and there are no agreements, arrangements or understandings to which
the Company is a party or by which it is bound pursuant to which the Company is
or may be required to issue additional shares of its capital stock.
(b) The Company does not own, directly or indirectly, any
equity securities, or options, warrants or other rights to acquire equity
securities, or securities convertible into or exchangeable for equity
securities, of any other corporation, or any partnership interest in any general
or limited partnership or unincorporated joint venture (a "Subsidiary").
3.5 Financial Statements. Attached hereto as Schedule 3.5 are the
unaudited balance sheet of the Company as of June 30, 1999 and the unaudited
statements of income and statements of cash flows of the Company for the period
August 1, 1998 through June 30, 1999, including the notes thereto (hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements (i) have been prepared from the books and records of the Company,
(ii) have been prepared in accordance with generally accepted accounting
principles consistently applied (except as may be expressly indicated therein or
on the face of the schedules or notes to such Financial Statements) during the
periods covered thereby and (iii) present fairly in all material respects the
financial condition, results of operations and cash flows of the Company as at
the dates, and for the periods, stated therein, except that the Financial
Statements are subject to normal year-end adjustments which will not be
individually or in the aggregate material in amount or effect and do not include
footnotes.
3.6 Absence of Undisclosed Liabilities. Except (i) as set forth or
reserved against in the balance sheet of the Company dated as of June 30, 1999,
included in the Financial Statements (the "Balance Sheet"), (ii) for obligations
incurred since June 30, 1999 in the ordinary course of business which are not,
individually or in the aggregate, material in amount, and (iii) as set forth in
Schedule 3.6, the Company does not have any liabilities or obligations of any
nature, whether accrued, absolute, contingent or otherwise. Except for the
Closing Date PC Transaction Fee and Earn-Out Date PC Transaction Fee, the
Company does not, and will not at Closing, have any obligation to pay any
amounts to Xxxxxxx Coie LLP.
3.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.7, since June 30, 1999, the Company has carried on its business in
the ordinary course and consistent with past practice. Except as set forth in
Schedule 3.7, since June 30, 1999, the Company has not: (i) incurred any
material obligation or liability (whether absolute, accrued, contingent or
otherwise) except in the ordinary course of business and consistent with past
practice; (ii) experienced any Company Material Adverse Effect; (iii) made any
change in any accounting principle or practice or in its methods of applying any
such principle or practice; (iv) suffered any material damage, destruction or
loss, whether or not covered by insurance, affecting its properties, assets or
business; (v) mortgaged, pledged or subjected to any lien, charge or other
encumbrance, or granted to third parties any rights in, any of its assets,
tangible or intangible; (vi) sold or transferred any of its assets, except in
the ordinary course of business and consistent with past practice, or canceled
or compromised any debts or waived any claims or rights of a material nature;
(vii) issued any additional shares of capital stock or any rights, options or
warrants to purchase, or securities convertible into or exchangeable for, shares
of its capital stock; (viii) declared or paid any dividends on or made any
distributions (however characterized) in respect of shares of its capital stock;
(ix) repurchased or redeemed any shares of its capital stock; (x) granted any
general or specific increase in the compensation payable or to become payable to
any of their Employees (as defined in Section 3.13(a)) or any bonus or service
award or other like benefit, or instituted, increased, augmented or improved any
Benefit Plan (as defined in Section 3.13(c)); (xi) increased the term or tenure
of employment for any Employee, except in the ordinary course of business
consistent with past practice, (xii) increased the amounts payable to any of the
Employees upon the termination of any such person's employment; or (xiii)
entered into any agreement to do any of the foregoing.
3.8 Legal Proceedings, etc. Except as disclosed in Schedule 3.8, there
are no suits, actions, claims, proceedings (including, without limitation,
arbitral or administrative proceedings) or investigations pending or, to the
best knowledge of the Company or any Shareholder, threatened, against the
Company or its properties, assets or business or, to the best knowledge of the
Company or any Shareholder, pending or threatened against any of the officers,
directors, employees, agents or consultants of the Company in connection with
the business of the Company. There are no such suits, actions, claims,
proceedings or investigations pending, or, to the best knowledge of the Company
or any Shareholder, threatened, challenging the validity or propriety of the
transactions contemplated by this Agreement. There is no judgment, order,
injunction, decree or award (whether issued by a court, an arbitrator or an
administrative agency) to which the Company is a party, or involving the
Company's properties, assets or business, which is unsatisfied or which requires
continuing compliance therewith by the Company.
..9 Taxes
(a) Except as set forth in Schedule 3.9, the Company has duly
and timely filed, or will duly and in a timely manner file, all Tax returns and
other filings in respect of Taxes (as defined below) required to be filed by it
or which are required to be filed by it on or prior to the Effective Time, and
has in a timely manner paid (or will in a timely manner pay) all Taxes which are
(or will be) due, whether or not shown on such returns. All such Tax returns
have been, or will be when filed, accurately and completely prepared in all
material respects in compliance with all laws, rules and regulations. The
provisions for Taxes payable reflected in the Financial Statements are adequate
under generally accepted accounting principles.
(b) Except as set forth in Schedule 3.9, there are no actions
or proceedings currently pending or, to the knowledge of the Company or any
Shareholder, threatened against the Company by any governmental authority for
the assessment or collection of Taxes, no claim for the assessment or collection
of Taxes has been asserted against the Company, and there are no matters under
discussion with any governmental authority regarding claims for the assessment
or collection of Taxes. Any Taxes that have been claimed or imposed as a result
of any examinations of any tax return of the Company by any governmental
authority are being contested in good faith and have been disclosed in writing
to the Parent. There are no agreements or applications by the Company for an
extension of time for the assessment or payment of any Taxes nor any waiver of
the statute of limitations in respect of Taxes. There are no Tax liens on any of
the assets of the Company, except for liens for Taxes not yet due or payable
that are being contested in good faith in appropriate proceedings.
(c) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean and include any and all United States, state, local, foreign
or other income, sales, use, withholding, employment, payroll, social security,
property taxes and all other taxes of any kind, deficiencies, fees or other
governmental charges, including, without limitation, any installment payment for
taxes and contributions or other amounts determined with respect to compensation
paid to directors, officers, employees or independent contractors from time to
time imposed by or required to be paid to any governmental authority (including
penalties and additions to tax thereon, penalties for failure to file a return
or report, and interest on any of the foregoing).
(d) The Company has not, with regard to any assets or property
held, acquired or to be acquired by the Company, filed a consent to the
application of Section 341(f) of the Code.
(e) Except as set forth in Schedule 3.9, no Shareholder is a
foreign person within the meaning of Section 1445 of the Code and the Treasury
Regulations promulgated thereunder.
(f) There is no agreement, plan or arrangement covering any
employee or independent contractor or former employee or independent contractor
of the Company that, considered individually or considered collectively with any
other such agreement, plan or arrangement, will, or could reasonably be expected
to, give rise directly or indirectly to the payment of any amount that would not
be deductible pursuant to Section 280G of the Code or that would be subject to
an excise tax under Section 4999 of the Code.
(g) The Company is not and has never been a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation agreement
or similar agreement or arrangement and does not have any liability for Taxes of
any person (other than the Company) under Treasury Regulation 1.1502-6 (or any
similar provision of state, local or foreign law).
(h) The Company has withheld amounts from its employees and
other persons required to be withheld under the tax, social security,
unemployment and other withholding provisions of all federal, state, local and
foreign laws.
3.10 Title to Properties and Related Matters. (a) Except as set forth
on Schedule 3.10(a), the Company has good and valid title to all material
personal property, tangible or intangible, which the Company purports to own,
including the properties reflected on the Balance Sheet or acquired after the
date thereof (other than properties and assets sold or otherwise disposed of in
the ordinary course of business and consistent with past practice since June 30,
1999), free and clear of any claims, liens, pledges, security interests or
encumbrances of any kind whatsoever (other than (i) purchase money security
interests and common law vendor's liens, in each case for goods purchased on
open account in the ordinary course of business and having a fair market value
of less than $5,000 in each individual case), (ii) liens for Taxes not yet due
and payable, and (iii) such imperfections of title and encumbrances, if any,
that are not material in character, amount or extent and that do not materially
detract from the value, or materially interfere with the use of, the property
subject thereto or affected thereby.
(b) The Company does not own any real property or any interest
in real property.
(c) Schedule 3.10(c) sets forth a complete and correct list of
all equipment, machinery, instruments, vehicles, furniture, fixtures and other
items of personal property currently owned, leased or used by the Company with a
book value as of June 30, 1999, in each case of $5,000 or more. All such
personal property is in good operating condition (ordinary and reasonable wear
and tear excepted), is physically located in or about one of the Company's
places of business and is owned by the Company or is leased by the Company under
one of the leases set forth in Schedule 3.10(d). None of such personal property
is subject to any agreement or commitment for its use by any person other than
the Company. The maintenance and operation of such personal property is
appropriate for personal property of such nature and is and has been in material
conformance with all applicable laws and regulations, except as would not,
individually or in the aggregate, have a Company Material Adverse Effect or
result in a fine or penalty in excess of $5,000 individually or in the
aggregate. There are no assets leased by the Company or used in the business of
the Company that are owned, directly or indirectly, by any Related Person (as
defined in Section 3.22).
(d) Schedule 3.10(d) sets forth a complete and correct list of
all real property and personal property leases to which the Company is a party.
The Company has previously delivered to the Parent complete and correct copies
of each lease (and any amendments or supplements thereto) listed in Schedule
3.10(d). Except as set forth in Schedule 3.10(d), (i) each such lease is valid
and binding and in full force and effect; (ii) neither the Company nor (to the
best knowledge of the Company or any Shareholder) any other party is in default
under any such lease, and no event has occurred which constitutes, or with the
lapse of time or the giving of notice or both would constitute, a default by the
Company or (to the best knowledge of the Company or any Shareholder) a default
by any other party under such lease; (iii) to the best knowledge of the Company
or any Shareholder, there are no disputes or disagreements between the Company
and any other party with respect to any such lease; and (iv) the lessor under
each such lease has consented or been given notice (or prior to the Closing
shall have consented or been given notice), where such consent or the giving of
such notice is necessary, sufficient that such lease shall remain in full force
and effect following the consummation of the transactions contemplated by this
Agreement without requiring modification in the rights or obligations of the
lessee under any such lease.
3.11 Intellectual Property; Proprietary Rights; Employee Restrictions.
(a) The Company has disclosed in Schedule 3.11 all copyrights, copyright
registrations and copyright applications, trademark registrations and
applications for registration, patents and patent applications, trademarks,
service marks, trade names, trade secrets, Internet domain names or other
proprietary rights (collectively, the "Disclosed Intellectual Property Rights"
and together with any and all licenses, databases, computer programs and other
computer software user interfaces, know-how, trade secrets, customer lists,
proprietary technology, processes and formulae, source code, object code,
algorithms, architecture, structure, display screens, layouts, development
tools, instructions, templates, marketing materials, inventions, trade dress,
logos and designs and all documentation and electronic media constituting,
describing or relating to the foregoing, the "Intellectual Property Rights")
used in the Company's business as presently conducted, including all
Intellectual Property Rights used in connection with or contained in all
versions of the Company's World Wide Web sites and all licenses, assignments and
releases of Intellectual Property Rights of others in material works embodied in
its products. Schedule 3.11 separately lists the (i) owned Intellectual Property
Rights and (ii) licensed Intellectual Property Rights. All Intellectual Property
Rights purported to be owned by the Company and held by any employee, officer or
consultant have been validly assigned to the Company. The Intellectual Property
Rights are sufficient to carry on the business of the Company as presently
conducted and as the Company reasonably anticipates its business to be
conducted. The Company has exclusive ownership of or license to use all
Intellectual Property Rights identified in Schedule 3.11 or has obtained any
licenses, releases or assignments reasonably necessary to use all third parties'
Intellectual Property Rights in works embodied in its products. The past and
present business activities or products of the Company did not and do not
infringe any Intellectual Property Rights of others. The Company has not
received any notice or other claim from any person asserting that any of the
Company's activities infringe or may infringe any Intellectual Property Rights
of such person.
The Company has the right to use, free and clear of claims or
rights of others, all trade secrets, customer lists, hardware designs,
programming processes, software and other information required for or incident
to its products or its business as presently conducted or contemplated. The
Company has taken all reasonable measures to protect and preserve the security
and confidentiality of its Intellectual Property Rights. All employees and
consultants of the Company involved in the design, review, evaluation or
development of products or Intellectual Property Rights have executed
nondisclosure and assignment of inventions agreements sufficient to protect the
confidentiality of the Company's Intellectual Property Rights and to vest in the
Company exclusive ownership of such Intellectual Property Rights. To the
knowledge of the Company and the Shareholders, all trade secrets and other
confidential information of the Company are presently valid and protectable and
are not part of the public domain or knowledge, nor, to the knowledge of the
Company and the Shareholders, have they been used, divulged or appropriated for
the benefit of any person other than the Company or otherwise to the detriment
of the Company. To the knowledge of the Company and the Shareholders, no
employee or consultant of the Company has used any trade secrets or other
confidential information of any other person in the course of their work for the
Company.
The Company is the exclusive owner of all right, title and
interest in its Intellectual Property Rights as purported to be owned by the
Company and such Intellectual Property Rights are valid and in full force and
effect. No university, government agency (whether federal or state) or other
organization has sponsored research and development conducted by the Company or
has any claim of right to or ownership of or other encumbrance upon the
Intellectual Property Rights of the Company. The Company is not aware of any
infringement by others of its copyrights or other Intellectual Property Rights
in any of its products, technology or services, or any violation of the
confidentiality of any of its proprietary information. To the Company's and the
Shareholders' knowledge, the Company is not making unlawful use of any
confidential information or trade secrets of any past or present employees of
the Company.
Neither the Company nor, to the knowledge of the Company and
the Shareholders, any of the Company's employees, have any agreements or
arrangements with former employers of such employees relating to confidential
information or trade secrets of such employers or are bound by any consulting
agreement relating to confidential information or trade secrets of another
entity that are being violated by such persons. The activities of the Company's
employees on behalf of the Company do not violate any agreements or arrangements
known to the Company which any such employees have with former employers or any
other entity to whom such employees may have rendered consulting services.
(b) All officers and key employees, including all developers
(contract or otherwise) of or to the Company, have executed and delivered to and
in favor of the Company an agreement regarding the protection of confidential
and proprietary information and the assignment to the Company of all
Intellectual Property Rights arising from the services performed for the Company
by such persons. The Company has all franchises, permits, licenses and other
rights and privileges reasonably necessary to permit it to own its property and
to conduct its business as it is presently conducted and reasonably anticipated
to be conducted.
3.12 Contracts. (a) Except as set forth in Schedule 3.12(a), the
Company is not a party to, or subject to:
(i) any contract, arrangement or understanding, or
series of related contracts, arrangements or understandings, which involves
annual expenditures or receipts by the Company of more than $10,000;
(ii) any note, indenture, credit facility, mortgage,
security agreement or other contract, arrangement or understanding relating to
or evidencing indebtedness for money borrowed or a security interest or mortgage
in the assets of the Company;
(iii) any guaranty issued by the Company;
(iv) any contract, arrangement or understanding
relating to the acquisition, issuance or transfer of any securities;
(v) any contract, arrangement or understanding
relating to the acquisition, transfer, distribution, use, development, sharing
or license of any technology or Intellectual Property Rights;
(vi) any contract, arrangement or understanding
granting to any person the right to use any material property or material
property right of the Company;
(vii) any contract, arrangement or understanding
restricting the Company's right to (A) engage in any business activity or
compete with any business, or (B) develop or distribute any technology;
(viii) any contract, arrangement or understanding
relating to the employment of, or the performance of services of, or the
compensation, bonus, severance or other payments to, any employee, consultant
or independent contractor;
(ix) any contract, arrangement or understanding with
a Related Person (as defined in Section 3.22); or
(x) any outstanding offer, commitment or obligation
to enter into any contract or arrangement of the nature described in
subsections (i) through (ix) of this subsection 3.12(a).
(b) The Company has previously made available for inspection
and copying to the Parent complete and correct copies (or, in the case of oral
contracts, a complete and correct description) of each contract (and any
amendments or supplements thereto) listed on Schedule 3.12(a). Except as set
forth in Schedule 3.12(b), (i) each contract listed in Schedule 3.12(a) is in
full force and effect; (ii) neither the Company nor (to the best knowledge of
the Company or any Shareholder) any other party is in default under any such
contract, and no event has occurred which constitutes, or with the lapse of time
or the giving of notice or both would constitute, a default by the Company or
(to the best knowledge of the Company or any Shareholder) a default by any other
party under such contract; (iii) to the best knowledge of the Company or any
Shareholder, there are no disputes or disagreements between the Company and any
other party with respect to any such contract; and (iv) each other party to each
such contract has consented or been given notice (or prior to the Closing shall
have consented or been given notice), where such consent or the giving of such
notice is necessary, sufficient that such contract shall remain in full force
and effect following the consummation of the transactions contemplated by this
Agreement without modification in the rights or obligations of the Company
thereunder.
(c) Except as set forth in Schedule 3.12(c), all indebtedness
of the Company for monies borrowed by the Company is prepayable at any time at
the option of the Company, without premium or penalty.
(d) Except as set forth and described in Schedule 3.12(d), the
Company has not issued any warranty or any agreement or commitment to indemnify
any person.
..13 Employees; Employee Benefits
(a) Schedule 3.13(a) sets forth the names of all current
employees of the Company (the "Employees") and such Employee's job title, the
location of employment of such Employee, such Employee's current salary, the
amount of any bonuses or other compensation ever paid to such Employee, the date
of employment of such Employee, the accrued vacation time of such Employee and a
description of the annual total compensation arrangements currently applicable
to such Employee. Except as set forth on Schedule 3.13(a), no employee is
entitled to any bonus compensation. The Company has accrued on its books and
records all obligations for salaries, benefits and other compensation with
respect to its Employees and former employees ("Former Employees"), to the
extent required by generally accepted accounting principles, including, but not
limited to, vacation pay, severance, bonuses, incentive and deferred
compensation, and all commissions and other fees payable to salespeople, sales
representatives and other agents. Schedule 3.13(a) sets forth a true and correct
statement of the liability, if any, of the Company for accrued but unused sick
pay. Except as set forth on Schedule 3.13(a), there are no outstanding loans
from the Company to any officer, director, employee, agent or consultant of the
Company, or to any other Related Person. Schedule 3.13(a) hereto sets forth a
complete and correct description of all severance policies of the Company.
Complete and correct copies of all written agreements with Employees and all
employment policies, and all amendments and supplements thereto, have previously
been delivered or made available to the Parent, and a list of all such
agreements and policies is set forth in Schedule 3.12(a). None of the Employees
has, to the knowledge of the Company or any Shareholder, indicated a desire to
terminate his or her employment, or any intention to terminate his or her
employment upon a sale of, or business combination relating to, the Company or
in connection with the transactions contemplated by this Agreement.
(b) The Company has complied with Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination in Employment Act, as
amended, the Fair Labor Standards Act, as amended, the Immigration Reform and
Control Act of 1986, and all applicable laws, rules and regulations governing
payment of minimum wages and overtime rates, the withholding and payment of
taxes from compensation, discriminatory practices with respect to employment and
discharge, or otherwise relating to the conduct of employers with respect to
Employees or potential employees, except as would not, individually or in the
aggregate, have a Company Material Adverse Effect or result in a fine or penalty
in excess of $5,000 individually or in the aggregate, and there have been no
claims made or, to the knowledge of the Company or any Shareholder, threatened,
thereunder against the Company arising out of, relating to or alleging any
violation of any of the foregoing. Except as disclosed in Schedule 3.13(b),
there are no controversies, strikes, work stoppages, picketing or disputes
pending or, to the knowledge of the Company or any Shareholder, threatened,
between the Company and any of the Employees or Former Employees; no labor union
or other collective bargaining unit represents or has ever represented any of
the Employees, including any "leased employees" (within the meaning of Section
414(n) of the Code); no organizational effort by any labor union or other
collective bargaining unit currently is under way or, to the knowledge of the
Company or the Shareholders, threatened, with respect to any Employees; and the
consent of no labor union or other collective bargaining unit is required to
consummate the transactions contemplated by this Agreement.
(c) The Company has never maintained any of the following for
the benefit of any person: defined benefit and defined contribution plan, stock
ownership plan, executive compensation plan, bonus plan, incentive compensation
plan or arrangement, deferred compensation agreement or arrangement, agreement
with respect to temporary employees or "leased employees" (within the meaning of
Section 414(n) of the Code), vacation pay, sickness, disability or death benefit
plan (whether provided through insurance, on a funded or unfunded basis or
otherwise), employee stock option, stock appreciation rights or stock purchase
plan, severance pay plan, arrangement or practice, employee relations policy,
practice or arrangement, or any other employee benefit plan, program or
arrangement, including, without limitation, any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), which has been maintained by the Company for the
benefit of or relating to any of the Employees or to any Former Employees or
their dependents, survivors or beneficiaries, whether or not legally binding,
whether written or oral or whether express or implied.
(d) Except as indicated on Schedule 3.13(e), the Company has
no obligation to provide medical or other benefits to Employees or Former
Employees or their survivors, dependents and beneficiaries, except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1986 or
applicable state medical benefits continuation law. Except as disclosed in
Schedule 3.13(e), the Company will not incur any liability under any severance
agreement, deferred compensation agreement, employment or similar agreement as a
result of the consummation of the transactions contemplated by this Agreement.
(e) There has been and will be no "excess parachute payment"
(as that term is defined in Section 280G(b)(1) of the Code) to any of the
Employees as a result of the consummation of the transactions contemplated
hereby.
(f) Except as indicated in Schedule 3.13(f), all employees,
consultants, sales representatives and other agents employed or engaged by the
Company are legally able to be employed or engaged in the United States to the
full extent necessary to perform their duties to the Company.
3.14 Compliance with Applicable Law. The Company is not in violation of
any applicable safety, health, environmental or other law, statute, ordinance,
code, rule, regulation, judgment, order, injunction, writ or decree of any
Federal, state, local or foreign court or governmental or regulatory body,
agency or authority having, asserting or claiming jurisdiction over it or over
any part of its business, operations, properties or assets, except for any such
violations which would not, individually or in the aggregate have a Company
Material Adverse Effect or result in a fine or penalty in excess of $5,000
individually or in the aggregate. The Company has not received any notice
alleging any such violation, nor to the knowledge of the Company or any
Shareholder, is there any inquiry, investigation or proceedings relating
thereto.
3.15 Ability to Conduct the Business. There is no agreement,
arrangement or understanding, nor any judgment, order, writ, injunction or
decree of any court or governmental or regulatory body, agency or authority
applicable to the Company or to which the Company is a party or by which it (or
any of its properties or assets) is bound, that will prevent the use by the
Surviving Corporation, after the Effective Time, of the properties and assets
owned by, the business conducted by or the services rendered by the Company on
the date hereof, in each case on substantially the same basis as the same are
used, owned, conducted or rendered on the date hereof. The Company has in force
and is in compliance with all governmental permits, licenses, exemptions,
consents, authorizations and approvals used in or required for the conduct of
their business as presently conducted, all of which shall continue in full force
and effect, without requirement of any filing or the giving of any notice and
without modification thereof, following the consummation of the transactions
contemplated hereby. The Company has not received any notice of, and to the
knowledge of the Company or any Shareholder, there are no inquiries, proceedings
or investigations relating to or which could result in the revocation or
modification of any such permit, license, exemption, consent, authorization or
approval.
3.16 Major Customers. Schedule 3.16 sets forth a complete and correct
list, for each month during the period of August 1, 1998 through June 30, 1999,
of the five largest customers of the Company in terms of revenue recognized in
respect of such customers, showing the amount of revenue recognized for each
such customer during such period. Except as set forth and described in Schedule
3.16, to the knowledge of the Company or any Shareholder, the Company has not
received any notice or other communication (written or oral) from any of the
customers listed in Schedule 3.16 terminating or reducing in any material
respect, or setting forth an intention to terminate or reduce in the future, or
otherwise reflecting a material adverse change in, the business relationship
between such customer and the Company.
3.17 Consultants, Sales Representatives and Other Agents. Schedule 3.17
sets forth a complete and correct list of the names and addresses of each
consultant, sales representative or other agent (other than any such person
performing solely clerical functions) currently engaged by the Company who is
not an employee of the Company and who has collectively ever received
compensation in excess of $10,000, the commission rates or other compensation
applicable with respect to each such person and the amount of commissions or
other compensation ever earned by each such person. Complete and correct copies
of all current agreements between the Company and any such person have
previously been delivered or made available by the Company to the Parent.
3.18 Accounts Receivable. All accounts receivable of the Company (i)
arose from bona fide transactions in the ordinary course of business and
consistent with past practice, (ii) are owned by the Company free and clear of
any claim, security interest, lien or other encumbrance and (iii) are accurately
and fairly reflected on the Balance Sheet, or, with respect to accounts
receivable of the Company created on or after June 30, 1999, are accurately and
fairly reflected in the books and records of the Company. The reserves for bad
debts reflected on the Balance Sheet are adequate and were calculated in
accordance with generally accepted accounting principles consistent with past
practice.
3.19 Insurance. The Company carries no insurance policies with respect
to its business.
3.20 Bank Accounts; Powers of Attorney. Schedule 3.21 sets forth
a complete and correct list showing:
(i) all bank accounts of the Company, together with,
with respect to each such account, the account number, the names of all
signatories thereof and the authorized powers of each such signatory; and
(ii) the names of all persons holding powers of
attorney from the Company and a summary statement of the terms thereof.
3.21 Minute Books, etc. The stock certificate book and stock ledger of
the Company are complete and correct. The minute books of the Company contain
accurate and complete records of all meetings or written consents to action of
the Board of Directors and Shareholders of the Company and accurately reflect
all corporate actions of the Company which are required by law to be passed upon
by the Board of Directors or Shareholders of the Company.
3.22 Related Person Indebtedness and Contracts. Schedule 3.22 sets
forth a complete and correct summary of all contracts, commitments, arrangements
and understandings not described elsewhere in this Agreement between the Company
and any of the following (collectively, "Related Persons"): (i) the
Shareholders; (ii) the spouses and children of any of the Shareholders
(collectively, "near relatives"); (iii) any trust for the benefit of any of the
Shareholders or any of their respective near relatives; or (iv) any corporation,
partnership, joint venture or other entity or enterprise owned or controlled by
any of the Shareholders or by any of their respective near relatives.
3.23 Brokers; Payments; Expenses. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or any Shareholder. No valid claim exists against the
Company or the Surviving Corporation or, based on any action by the Company,
against the Parent for payment of any "topping," "break-up" or "bust-up" fee or
any similar compensation or payment arrangement as a result of the transactions
contemplated hereby. There are no fees or expenses owed to accountants or
bankers or other persons in connection with the transactions contemplated hereby
that will not be paid prior to Closing, other than the Closing Date PC
Transaction Fee and the Earn-Out Date PC Transaction Fee.
3.24 Disclosure. No representation or warranty by the Company or any of
the Shareholders contained in this Agreement and no statement contained in any
of the Disclosure Schedules, certificates or other documents or instruments
delivered or to be delivered pursuant to this Agreement by the Company or its
representatives or any of the Shareholders contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make the statements contained therein not misleading.
3.25 Year 2000 Compliance. The Company has identified all of its
systems and software that are subject to Year 2000 Compliance risk and all of
such systems and software are Year 2000 Compliant. As used herein, "Year 2000
Compliant" shall mean, with respect to software, whether embedded or otherwise,
the ability to consistently and accurately handle date information before, on
and after January 1, 2000 without a loss of functionality, including but not
limited to accepting date input, providing date output, performing calculations
on dates or portions of dates and comparing, sequencing, storing and displaying
dates (including all leap year considerations).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
4.1 Authorization etc. Each of the Shareholders represents and
warrants, severally, to the Parent and Acquisition as follows:
(i) that such Shareholder is the sole and exclusive record and beneficial
owner of the shares of the Company's Common Stock and Stock Options set forth
opposite such Shareholder's name in Schedule 3.4, free and clear of any claims,
liens, pledges, options, rights of first refusal or other encumbrances or
restrictions of any nature whatsoever (other than restrictions on transfer
imposed under applicable securities laws), and, there are no agreements,
arrangements or understandings to which such Shareholder is a party (other than
this Agreement) involving the purchase, sale or other acquisition or disposition
of the shares owned by such Shareholder;
(ii) that such Shareholder shall, at the Effective Time, deliver to the
Parent certificates representing all shares of Company Stock owned by such
Shareholder, each such certificate to be duly endorsed for transfer and free and
clear of any claims, liens, pledges, options, rights of first refusal or other
encumbrances or restrictions of any nature whatsoever (other than restrictions
imposed under applicable securities laws);
(iii) that such Shareholder has all necessary legal capacity, right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and this Agreement constitutes a valid and
binding obligation of such Shareholder enforceable in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors, rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in law
or in equity; and
(iv) that the execution and delivery of this Agreement by such Shareholder
and the consummation of the transactions contemplated hereby will not (A)
violate or conflict with any provision of any partnership agreement or other
constitutional documents of any such Shareholder that is constituted as a
general or limited partnership, (B) breach, violate or constitute an event of
default (or an event which with the lapse of time or the giving of notice or
both would constitute an event of default) under, give rise to any right of
termination, cancellation, modification or acceleration under or require any
consent or the giving of any notice under, any note, bond, indenture, mortgage,
security agreement, lease, license, franchise, permit, agreement or other
instrument or obligation to which such Shareholder is a party, or by which such
Shareholder or the shares of Company Stock held by such Shareholder may be
bound, or result in the creation of any lien, claim or encumbrance or other
right of any third party of any kind whatsoever upon the properties or assets of
such Shareholder pursuant to the terms of any such instrument or obligation,
which breach, violation or event of default would impair such Shareholder's
ability to perform such Shareholder's obligations hereunder, or (C) violate or
conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction, decree or other instrument of any court or governmental
or regulatory body, agency or authority applicable to such Shareholder or by
which such shares of Company Common Stock held by such Shareholder may be bound.
..2 Parent Common Stock
Each Shareholder severally acknowledges, represents and warrants to the
Parent and Acquisition as follows:
(i) The Shareholder understands that the shares of Parent Common Stock to
be issued to the Shareholder in the Merger will not have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or any state
securities law by reason of specific exemptions under the provisions thereof
which depend in part upon the other representations and warranties made by the
Shareholder in this Agreement. The Shareholder understands that the Parent is
relying upon the Shareholder's representations and warranties contained in this
Section 4.2 for the purpose of determining whether this transaction meets the
requirements for such exemptions. The information contained in the Investor
Questionnaire executed by such Shareholder and delivered to Parent in connection
with this Agreement is accurate, complete and correct.
(ii) The Shareholder has such knowledge, skill and experience in business,
financial and investment matters so that the Shareholder is capable of
evaluating the merits and risks of an investment in the Parent Common Stock
pursuant to the transactions contemplated by this Agreement or to the extent
that the Shareholder has deemed it appropriate to do so, the Shareholder has
relied upon appropriate professional advice regarding the tax, legal and
financial merits and consequences of an investment in Parent Common Stock
pursuant to the transactions contemplated by this Agreement.
(iii) The Shareholder has made, either alone or together with the
Shareholder's advisors, such independent investigation of the Parent, its
management and related matters as the Shareholder deems to be, or such advisors
have advised to be, necessary or advisable in connection with an investment in
the Parent Common Stock through the transactions contemplated by this Agreement;
and the Shareholder and advisors have received all information and data that the
Shareholder and such advisors believe to be necessary in order to reach an
informed decision as to the advisability of an investment in the Parent Common
Stock pursuant to the transactions contemplated by this Agreement.
(iv) The Shareholder has reviewed the Shareholder's financial condition and
commitments, alone and together with the Shareholder's advisors, and, based on
such review, the Shareholder is satisfied that (A) the Shareholder has adequate
means of providing for the Shareholder's financial needs and possible
contingencies and has assets or sources of income which, taken together, are
more than sufficient so that he could bear the risk of loss of the Shareholder's
entire investment in the Parent Common Stock, (B) the Shareholder has no present
or contemplated future need to dispose of all or any portion of the Parent
Common Stock to satisfy any existing or contemplated undertaking, need or
indebtedness, and (C) the Shareholder is capable of bearing the economic risk of
an investment in the Parent Common Stock for the indefinite future. The
Shareholder shall furnish any additional information about the Shareholder
reasonably requested by the Parent to assure the compliance of this transaction
with applicable federal and state securities laws.
(v) The Shareholder understands that the shares of the Parent Common Stock
to be received by the Shareholder in the transactions contemplated hereby will
be "restricted securities" under applicable federal securities laws and that the
Securities Act and the rules of the Securities and Exchange Commission
promulgated thereunder provide in substance that the Shareholder may dispose of
such shares only pursuant to an effective registration statement under the
Securities Act or an exemption from registration if available. The Shareholder
further understands that, except as provided in Article XII, the Parent has no
obligation or intention to register the sale of any of the shares of the Parent
Common Stock to be received by the Shareholder in the transactions contemplated
hereby, or take any other action so as to permit sales pursuant to, the
Securities Act. Accordingly, except as provided in Article XII, the Shareholder
understands that the Shareholder may dispose of such shares only in transactions
which are of a type exempt from registration under the Securities Act, including
(without limitation) a "private placement," in which event the transferee will
acquire such shares as "restricted securities" and subject to the same
limitations as in the hands of the Shareholder. The Shareholder further
understands that applicable state securities laws may impose additional
constraints upon the sale of securities. As a consequence, the Shareholder
understands that the Shareholder may have to bear the economic risk of an
investment in the Parent Common Stock to be received by the Shareholder pursuant
to the transactions contemplated hereby for an indefinite period of time.
(vi) The Shareholder is acquiring shares of the Parent Common Stock
pursuant to the transactions contemplated hereby for investment only and not
with a view to or intention of or in connection with any resale or distribution
of such shares or any interest therein.
(vii) The certificate(s) evidencing the shares of the Parent Common Stock
to be issued pursuant to the transactions contemplated hereby shall bear the
following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold or transferred
in the absence of such registration or an exemption therefrom
under the Securities Act of 1933, as amended, and applicable
state securities laws."
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION
The Parent and Acquisition jointly and severally represent and warrant
to the Company and the Shareholders that:
5.1 Corporate Organization. Each of the Parent and Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Parent and Acquisition has all requisite
corporate power and authority to own, operate and lease the properties and
assets it now owns, operates and leases and to carry on its business as now
being conducted. The Parent and Acquisition are each duly qualified to transact
business as a foreign corporation and are each in good standing in the
jurisdictions where such qualification is required by reason of the nature of
the properties and assets currently owned, operated or leased by the Parent or
Acquisition or the business currently conducted by them, except for such
jurisdictions where the failure to be so qualified would not have a Lycos
Material Adverse Effect (as defined below). The Parent has previously delivered
to the Company complete and correct copies of (i) its Certificate of
Incorporation (certified by the Secretary of State of Delaware as of a recent
date) and its By-Laws (certified by the Secretary of the Parent as of a recent
date) and (ii) the Certificate of Incorporation of Acquisition and all
amendments thereto to the date hereof (certified by the Secretary of State of
the State of Delaware as of a recent date) and the By-Laws of Acquisition
(certified by the secretary of Acquisition as of a recent date). Neither the
Certificate of Incorporation nor the By-Laws of the Parent or Acquisition has
been amended since the respective dates of certification thereof, nor has any
action been taken for the purpose of effecting any amendment of such
instruments. The term "Lycos Material Adverse Effect" means any change, event or
effect that is, or would be, materially adverse to the business, operation,
assets, liabilities, financial condition or results of operations of the Parent
and Acquisition, taken as a whole.
5.2 Authorization. Each of the Parent and Acquisition has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Boards of Directors of the Parent and Acquisition and
by the Parent as the sole shareholder of Acquisition, and no other corporate
proceedings on the part of the Parent or Acquisition are necessary to approve
and authorize the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Parent and Acquisition and constitutes the valid and
binding agreement of the Parent and Acquisition, enforceable in accordance with
its terms, except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or in law).
5.3 Consents and Approvals; No Violations. Subject to the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware and
compliance with applicable federal and state securities laws, the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not: (i) violate or conflict with any provisions of the Certificate
of Incorporation or By-Laws of the Parent or Acquisition; (ii) breach, violate
or constitute an event of default (or an event which with the lapse of time or
the giving of notice or both would constitute an event of default) under, give
rise to any right of termination, cancellation, modification or acceleration
under, or require any consent or the giving of any notice under, any note, bond,
indenture, mortgage, security agreement, lease, license, franchise, permit,
agreement or other instrument or obligation to which the Parent or Acquisition
is a party, or by which any of them or any of their respective properties or
assets may be bound, or result in the creation of any lien, claim or encumbrance
of any kind whatsoever upon the properties or assets of the Parent or
Acquisition pursuant to the terms of any such instrument or obligation, other
than any breach, violation, default, termination, cancellation, modification or
acceleration which would not have a Lycos Material Adverse Effect; (iii) violate
or conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction or decree or other instrument of any Federal, state,
local or foreign court or governmental or regulatory body, agency or authority
applicable to the Parent or Acquisition or by which any of their respective
properties or assets may be bound, except for such violations or conflicts which
would not have a Lycos Material Adverse Effect; or (iv) require, on the part of
the Parent or Acquisition, any filing or registration with, or permit, license,
exemption, consent, authorization or approval of, or the giving of any notice
to, any governmental or regulatory body, agency or authority other than any
filing, registration, permit, license, exemption, consent, authorization,
approval or notice which if not obtained or made would not have a Lycos Material
Adverse Effect.
5.4 Capitalization. (a) The authorized capital stock of the Parent
consists of 300,000,000 shares of Parent Common Stock, of which 43,613,990
shares were issued and outstanding on June 1, 1999 and 5,000,000 shares of
Preferred Stock, none of which are issued or outstanding. Except as set forth in
Schedule 5.4, all of the issued and outstanding shares of Parent Common Stock
are (and all shares of Parent Common Stock to be issued in connection with the
Merger, when issued in accordance with this Agreement, shall be) duly
authorized, validly issued, fully paid and nonassessable, and none of such
shares has been or will be issued in violation of any applicable preemptive
rights. On May 18, 1999, the Board of Directors of the Company authorized a
2-for-1 stock split (in the form of a stock dividend) which stock split will be
paid on July 26, 1999 to Stockholders of record on July 16, 1999.
(b) The authorized capital stock of Acquisition consists of
1,000 shares of common stock, par value $0.01 per share, of which 100 shares are
issued and outstanding, all of which shares are owned beneficially and of record
by the Parent.
5.5 SEC Reports and Financial Statements. The Parent has heretofore
delivered or made available to the Company complete and correct copies of all
reports and other filings filed by the Parent with the SEC pursuant to the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (the "Exchange Act") since August 1, 1997 (such reports and other
filings collectively referred to herein as the "Exchange Act Filings"). The
Exchange Act Filings constitute all of the documents required to be filed by the
Parent under the Exchange Act with the SEC since such date. As of their
respective dates, the Exchange Act Filings did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements of the Parent included in the Exchange Act
Filings at the time of their filing complied in all material respects with the
published rules and regulations of the SEC with respect thereto, and such
audited consolidated financial statements (i) were prepared from the books and
records of the Parent and its consolidated subsidiaries, (ii) were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes or schedules thereto)
and (iii) present fairly the financial position of the Parent and its
consolidated subsidiaries as at the dates thereof and the results of their
operations and cash flows (or changes in financial position, for the fiscal year
ended July 31, 1997 and earlier years) for the periods then ended. The unaudited
financial statements included in the Exchange Act Filings at the time of their
filing complied in all material respects with the published rules and
regulations of the SEC with respect thereto; and such unaudited financial
statements (i) were prepared from the books and records of the Parent and its
consolidated subsidiaries, (ii) were prepared in accordance with generally
accepted accounting principles, except as otherwise permitted under the Exchange
Act and the rules and regulations thereunder, on a consistent basis (except as
may be indicated therein or in the notes or schedules thereto) and (iii) present
fairly the financial position of the Parent and its consolidated subsidiaries as
at the dates thereof and the results of their operations and cash flows (or
changes in financial condition) for the periods then ended, subject to normal
year-end adjustments and any other adjustments described therein or in the notes
or schedules thereto.
5.6 Absence of Certain Changes. Since June 30, 1999, the business of
the Parent has been conducted in the ordinary course and consistent with past
practice. Except as set forth in Schedule 5.6 or in the Exchange Act Filings
filed before the date hereof, since June 30, 1999, there has been no Lycos
Material Adverse Effect.
5.7 Litigation. Except as set forth on Schedule 5.7, as of the date
hereof, there is no action, suit, proceeding, claim or arbitration or, to
Parent's knowledge, investigation pending, that would have a Lycos Material
Adverse Effect, nor, to the knowledge of the Parent, is there a threatened
action, suit, proceeding, claim, arbitration or investigation against Parent or
any of its subsidiaries that would have a Lycos Material Adverse Effect or that
in any manner challenges or seeks to prevent, enjoin, alter or delay any of the
transactions contemplated by this Agreement.
ARTICLE VI
CONDUCT OF BUSINESS OF THE COMPANY
PRIOR TO THE EFFECTIVE TIME
6.1 Conduct of Business of the Company. During the period commencing on
the date hereof and continuing until the Effective Time, except as otherwise
expressly contemplated by this Agreement or agreed to in writing by the Parent,
the Company and each of the Shareholders agree that the Company,:
(a) will carry on its business only in the ordinary course and consistent
with past
practice;
(b) will not declare or pay any dividend on or make any other distribution
(however characterized) in respect of shares of its capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or agree to
redeem or repurchase, any shares of its capital stock;
(d) will not amend its Certificate of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its capital stock
(except pursuant to the exercise of currently outstanding warrants or options),
or any options, warrants or other rights to acquire shares of its capital stock,
or any securities convertible into or exchangeable for shares of its capital
stock;
(f) will not combine, split or otherwise reclassify any shares of its
capital stock;
(g) will not form a Subsidiary;
(h) will use its commercially reasonable best efforts to preserve intact
its present business organization, keep available the services of its officers
and key employees and preserve its relationships with clients and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be materially impaired at the Effective Time;
(i) will not (i) make any capital expenditures individually in excess of
$5,000 or in the aggregate in excess of $10,000, (ii) enter into any license,
distribution, OEM, reseller, joint venture or other similar agreement, (iii)
enter into or terminate any lease of, or purchase or sell, any real property,
(iv) enter into any leases of personal property involving individually in excess
of $5,000 annually or in the aggregate in excess of $10,000 annually, (v) incur
or guarantee any additional indebtedness for borrowed money, (vi) create or
permit to become effective any security interest, mortgage, lien, charge or
other encumbrance on its properties or assets, or (vii) enter into any agreement
to do any of the foregoing;
(j) will not adopt or amend any Benefit Plan for the benefit of Employees,
or increase the salary or other compensation (including, without limitation,
bonuses or severance compensation) payable or to become payable to its Employees
(except pursuant to existing contractual obligations which have been disclosed
to the Parent) or accelerate, amend or change the period of exercisability or
the vesting schedule of options granted under any stock option plan or
agreements except as specifically required by the terms of such plans or
agreements, or enter into any agreement to do any of the foregoing;
(k) will promptly advise the Parent of the commencement of, or threat of
(to the extent that such threat comes to the knowledge of the Company or any of
the Shareholders) any claim, action, suit, proceeding or investigation against,
relating to or involving the Company or any of its directors, officers,
employees, agents or consultants in connection with the Company's business or
the transactions contemplated hereby that could, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect;
(l) will use its commercially reasonable best efforts to maintain in full
force and effect all insurance policies maintained by the Company on the date
hereof; and
(m) will not enter into any agreement to dissolve, merge, consolidate or,
except in the ordinary course, sell any material assets of the Company or
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in or substantial portion of the assets of, or by
any other manner, any business or any corporation, partnership or other business
organization or division, or otherwise acquire or agree to acquire any assets in
excess of $10,000 in the aggregate.
6.2 Other Negotiations. Neither the Company nor any Shareholder will
(nor will they permit any of their respective officers, directors, employees,
agents, partners and affiliates on their behalf to) take any action to solicit,
initiate, seek, encourage or support any inquiry, proposal or offer from,
furnish any information to, or participate in any negotiations with, any
corporation, partnership, person or other entity or group (other than Parent)
regarding any acquisition of the Company, any merger or consolidation with or
involving the Company, or any acquisition of any material portion of the stock
or assets of the Company, or any equity or debt financing of the Company or any
material license of Intellectual Property Rights (any of the foregoing being
referred to in this Agreement as an "Acquisition Transaction") or enter into an
agreement concerning any Acquisition Transaction with any party other than
Parent. If between the date of this Agreement and the earlier of (a) the
Effective Time and (b) termination of this Agreement pursuant to Article X, the
Company receives from a third party any offer to negotiate or consummate an
Acquisition Transaction, the Company shall immediately (i) notify Parent (orally
and in writing) of such offer, including the identity of such party and the
terms of any proposal therein, and (ii) notify such third party in writing of
the Company's obligations under this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Properties and Records. Between the date of this
Agreement and the Effective Time, the Company will provide the Parent and its
accountants, counsel and other authorized advisors with reasonable access, to
its premises and properties and its books and records (including, without
limitation, contracts, leases, insurance policies, litigation files, minute
books, accounts, working papers and tax returns filed and in preparation) and
will cause its officers to furnish to Parent and its authorized advisors such
additional financial, tax and operating data and other information pertaining to
its business as Parent shall from time to time reasonably request.
7.2 Reasonable Efforts; etc. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including obtaining any consents, authorizations, exemptions and approvals from,
and making all filings with, any governmental or regulatory authority, agency or
body which are necessary in connection with the transactions contemplated by
this Agreement.
7.3 Material Events. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of the occurrence of any event
which will or may result in the failure to satisfy any of the conditions
specified in Article VIII or Article IX hereof.
7.4 Registration Statement on Form S-8. As promptly as practicable
following the Effective Time, but in no event later than the tenth business day
following the Effective Time, the Parent shall cause to be filed with the SEC,
if necessary, one or more Registration Statements on Form S-8 covering the
shares of Parent Common Stock issuable pursuant to the arrangements described in
Section 2.2(c) hereof.
7.5. Fees and Expenses. The parties hereto shall bear and pay all of
their own fees, costs and expenses relating to the transactions contemplated by
this Agreement, including, without limitation, the fees and expenses of their
respective counsel, accountants, brokers and financial advisors, except that,
subject to Section 2.11 hereof the Shareholders shall be responsible for all the
fees, costs and expenses incurred by the Company in connection with this
Agreement (excluding the first $50,000) and the transactions contemplated hereby
and such fees, costs and expenses shall be deemed to be expenses of the
Shareholders (excluding the first $50,000).
7.6 Employees. Parent shall have sole discretion as to whether to offer
employment to the employees of the Company at the Effective Time and to require
each such employee to enter into an employment agreement with Parent.
7.7 Directors and Officers Indemnification. The Certificate of
Incorporation of Acquisition shall include exculpatory and indemnification
provisions substantially identical to those now existing in the Certificate of
Incorporation of the Company for the benefit of any individual who served as a
director or officer of the Company at any time prior to the Effective Time,
except for any changes which may be required to conform with changes in
applicable law and any changes which do not affect the application of such
provisions to acts or omissions of such individuals prior to the Effective Time
and except that the Surviving Corporation shall not be required to indemnify,
defend or hold harmless any director or officer of the Company prior to the
Effective Time with respect to claims, losses or liabilities arising from or
relating to the Company's execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
7.8 Non-competition. Each of the Shareholders hereby severally and not
jointly agrees that for a period of two (2) years after the date hereof, he or
she will not, directly or indirectly, alone or as a partner, officer, director,
employee, consultant, agent, independent contractor or stockholder of any
company or business organization, engage in, or have a financial interest in any
business engaged in (excepting only the ownership of not more than 5% of the
outstanding securities of any class of any entity listed on an exchange or
regularly traded in the over-the-counter market), the development, promotion,
and/or marketing of digital audio playing software applications that contain
certain functionalities, including but not limited to search, navigation,
downloading functionality, e-commerce capabilities and burning/ripping
functionality, that are substantially music focused ("Competitive Activity").
Such Shareholder further agrees that, for a period of two (2) years from after
the date hereof, he or she will not in any capacity, either separately, jointly
or in association with others, directly or indirectly, solicit or contact in
connection with, or in furtherance of, a Competitive Activity any of the
Company's employees, consultants, agents, suppliers, customers or prospects that
were such with respect to the Company at any time during the one year
immediately preceding the date hereof or that become such with respect to the
Company or Buyer or any of its affiliates at any time during the one year
immediately following the date hereof. Such Shareholder's obligations under this
Section 7.8 shall survive the termination or cessation of his or her employment
with the Company and shall not be limited by any other provision of this
Agreement.
7.9 Post-Closing Payment. Parent agrees to pay deferred compensation in
the amount of $223,250 to the employees owed such deferred compensation in the
form of shares of Parent Common Stock with the number of shares based on the
Applicable Average Closing Price.
ARTICLE VIII
CONDITIONS TO THE OBLIGATIONS OF
THE PARENT AND ACQUISITION
The obligation of the Parent and Acquisition to consummate the
transactions contemplated hereby shall be subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which may
be waived in writing by the Parent in its sole discretion):
8.1 Representations and Warranties True. The representations and
warranties of the Company and of each of the Shareholders which are contained in
this Agreement, or contained in any Schedule, certificate or other instrument or
document delivered or to be delivered pursuant to this Agreement, shall be true
and correct at and as of the Closing Date as though such representations and
warranties were made on and as of the Closing Date, and at the Closing the
Company shall have delivered to the Parent and Acquisition a certificate (signed
on behalf of the Company by the President and Treasurer of the Company) to that
effect with respect to all such representations and warranties made by the
Company, and each Shareholder shall have executed and delivered to the Parent
and Acquisition a certificate to that effect with respect to all such
representations and warranties made, jointly and severally or severally, by such
Shareholder.
8.2 Performance. The Company and each of the Shareholders shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by them
on or prior to the Closing Date, and at the Closing the Company shall have
delivered to the Parent and Acquisition a certificate (duly executed on behalf
of the Company by the President and Treasurer of the Company) to that effect
with respect to all such obligations required to have been performed or complied
with by the Company on or before the Closing Date, and each Shareholder shall
have executed and delivered to the Parent and Acquisition a certificate to that
effect with respect to all such obligations required to have been performed or
complied with by such Shareholder on or before the Closing Date.
8.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority), and no
investigation by any governmental or regulatory body, agency or authority shall
have been commenced with respect to the transactions contemplated hereby or with
respect to the Company which would have a material adverse effect on the
transactions contemplated hereby or on the business of the Company taken as a
whole.
8.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by the Company or any Shareholder in connection with the
Merger and the other transactions contemplated by this Agreement shall have been
obtained and shall be in full force and effect.
8.5 Additional Agreements. Parent shall have received the
following documents:
(i) the Employment and Non-Competition Agreement in the form of Exhibit D
hereto, duly executed by the Company and Al-Xxxx Xxxxxx;
(ii) the Consulting and Non-Competition Agreement in the form of Exhibit E
hereto, duly executed by the Company and each of Xxxx Xxxxxx and Xxxxxxx Xxxxxx;
(iii) the Nondisclosure and Developments Agreement in the form of Exhibit F
hereto, duly executed by each employee of the Company who is not required to
execute an Employment Agreement;
(iv) the Indemnity and Escrow Agreement annexed as Exhibit C
hereto, duly executed by Xxxx Xxxxxx, as Representative of the Shareholders
under such Escrow Agreement, together with counterparts signed by the escrow
agent named therein and blank stock powers executed by each of the Shareholders
with respect to such Shareholder's portion of the Escrow Shares; and
(v) Resignations of all directors of the Company, effective as of the
Effective Time.
8.6 Opinion of Xxxxxxx Coie. The Company shall have delivered to the
Parent an opinion of Xxxxxxx Coie LLP, counsel to the Company and the
Shareholders, in the form attached as Exhibit G hereto.
8.7 Delivery of Certificates for Cancellation. The share certificates
representing at least 95% of the issued and outstanding shares of Company Common
Stock as of the Closing Date, duly endorsed in blank, shall have been
surrendered for cancellation.
8.8 Appraisal Rights. The holders of at least 95% of the issued and
outstanding shares of Company Stock shall have voted in favor of the approval of
the Merger and the transactions contemplated hereby and holders of no more than
5% of the issued and outstanding shares of Company Stock shall have demanded
appraisal rights in respect of the Merger.
8.9 Termination of Shareholders' Agreement. The Shareholders' Agreement
between the Company and certain of its Shareholders shall have been terminated,
effective no later than the Effective Time.
8.10 Certificate of Merger. The Company shall have executed and
delivered to the Parent counterparts of the Certificate of Merger to be filed
with the Secretary of State of the State of Delaware in connection with the
Merger.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE SHAREHOLDERS
The obligation of the Company and the Shareholders to consummate the
transactions contemplated by this Agreement shall be subject to the
satisfaction, on or prior to the Closing Date, of each of the following
conditions (any of which may be waived in writing by the Company and the
Shareholders in their sole discretion):
9.1 Representations and Warranties True. The representations and
warranties of each of the Parent and Acquisition contained in this Agreement, or
contained in any Schedule, certificate or other instrument or document delivered
or to be delivered pursuant to this Agreement, shall be true and correct at and
as of the Closing Date as though such representations and warranties were made
on and as of the Closing Date, and at the Closing each of the Parent and
Acquisition shall have delivered to the Company and the Shareholders a
certificate, signed on its behalf by its President and its Chief Financial
Officer, to that effect with respect to all such representations and warranties
made by such entity.
9.2 Performance. Each of the Parent and Acquisition shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by them
on or prior to the Closing Date, and at the Closing each of the Parent and
Acquisition shall have delivered to the Company and the Shareholders a
certificate, signed on its behalf by its President and its Chief Financial
Officer, to that effect with respect to all such obligations required to have
been performed or complied with by such entity on or before the Closing Date.
9.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority) and no
investigation by any governmental or regulatory body, agency or authority shall
have been commenced with respect to the transactions contemplated hereby or with
respect to the Parent or its subsidiaries which, in the reasonable judgment of
the Company's Board of Directors, would have a material adverse effect on the
transactions contemplated hereby or on the business of the Parent and its
subsidiaries taken as a whole.
9.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by Parent or Acquisition in connection with the Merger
and the other transactions contemplated by this Agreement shall have been
obtained and shall be in full force and effect.
9.5 Additional Agreements. The Parent shall have executed and delivered
(and shall have agreed to cause the Surviving Corporation to execute and deliver
immediately following the Effective Time, as applicable) counterparts of the
following agreements:
(i) the Employment and Non-Competition Agreement referred to in
Section 8.5(i) hereof;
(ii) the Consulting and Non-Competition Agreements referred to in
Section 8.5(ii) hereof;
(iii) the Nondisclosure and Developments Agreements referred to
in Section 8.5(iii) hereof; and
(iv) the Escrow Agreement referred to in Section 8.5(iv) hereof,
together with counterparts signed by the escrow agent named therein.
9.6 Opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx. The Parent shall have
delivered to the Company an opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx in the form
annexed as Exhibit H hereto.
9.7 Certificate of Merger. The Parent and Acquisition shall have
executed and delivered to the Company counterparts of the Certificate of Merger
to be filed with the Secretary of State of the State of Delaware in connection
with the Merger.
9.8 Shares of Parent Common Stock. Subject to the delivery of
certificates referenced in Section 8.7, deposit into escrow of shares of Parent
Common Stock contemplated under Sections 2.8 and 11.5 and pursuant to the
employment and consulting agreements listed on Schedule 9.8, of the number of
shares of Parent Common Stock set forth in such agreements, at the Closing the
Parent shall deliver to the Shareholders of the Company the shares of Parent
Common Stock issuable to the Shareholders of the Company pursuant to Section
2.2(a) hereof (subject to Section 2.2(c) hereof).
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the mutual written consent of the Company and the
Parent;
(b) by either the Company or the Parent
(i) if any court or governmental or regulatory agency, authority
or body shall have enacted, promulgated or issued any statute, rule,
regulation, ruling, writ or injunction, or taken any other action,
restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby and all appeals and means of appeal therefrom have
been exhausted; or
(ii) if the Effective Time shall not have occurred on or before
July 26, 1999; provided, however, that the right to terminate this
Agreement pursuant to this Section 10.1(b)(ii) shall not be available
to any party whose (or whose affiliate(s)') breach of any
representation or warranty or failure to perform or comply with any
obligation under this Agreement has been the cause of, or resulted in,
the failure of the Effective Time to occur on or before such date;
(c) by the Company, if any of the conditions specified in
Article IX have not been met or waived prior to such time as such condition can
no longer be satisfied; or
(d) by the Parent, if any of the conditions specified in
Article VIII shall not have been met or waived prior to such time as such
condition can no longer be satisfied.
10.2 Effect of Termination. In the event of termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or (in the case of the
Company, the Parent and Acquisition) their respective officers or directors,
except for Sections 7.6, 13.6 and 13.7 and the last sentence of Section 7.1,
which shall remain in full force and effect, and except that nothing herein
shall relieve any party from liability for a breach of this Agreement prior to
the termination hereof.
ARTICLE XI
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
11.1 Indemnity Obligations of the Shareholders. Each of the
Shareholders hereby jointly and severally, to the extent of the Escrow Shares,
and several but not joint beyond the Escrow Shares, agrees to indemnify and hold
the Parent harmless from, and to reimburse the Parent for, any Indemnity Claims
(as that term is hereinafter defined) arising under the terms and conditions of
this Agreement. For purposes of this Agreement, the term "Indemnity Claim" shall
mean any and all losses, damages, deficiencies, liabilities, obligations,
actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, fees, costs and expenses (including, without limitation, all
out-of-pocket expenses, reasonable investigation expenses and reasonable fees
and disbursements of accountants and counsel) of any nature whatsoever
(collectively, "Losses") arising out of, based upon or resulting from (i) any
inaccuracy in or breach of any representation and warranty of the Company or the
Shareholders which is contained in this Agreement or any Schedule or certificate
delivered pursuant hereto or thereto; or (ii) any breach or nonfulfillment of,
or any failure to perform, any of the covenants, agreements or undertakings of
the Company (which covenants, agreements or undertakings were to be performed or
complied with on or prior to the consummation of the Merger) or the Shareholders
which are contained in or made pursuant to the terms and conditions of this
Agreement. Each of the Shareholders further agrees that the Parent shall be
entitled to make a claim against the Escrow Shares for reimbursement in full of
any and all Losses incurred by Parent or the Company as a result of any claim
made by Xxxxxxx Xxxxxxx against Parent or the Company based on any matter
arising under or related to the Employment Agreement, dated May 18, 1999,
between the Company and Xxxxxxx Xxxxxxx, or the Restricted Stock Award
Agreement, dated May 18, 1999, between the Company and Xxxxxxx Xxxxxxx and,
notwithstanding anything in this Agreement to the contrary, the limitation set
forth in Section 11.6(a) shall not apply to reimbursement for such Losses.
11.2 Appointment of Representative. Each of the Shareholders hereby
appoints Xxxx Xxxxxx as such Shareholder's exclusive agent to act on such
Shareholder's behalf with respect to any and all Indemnity Claims arising under
this Agreement. In such representative capacity, or any person who shall succeed
in such representative capacity pursuant to the terms of the Escrow Agreement
referred to in Sections 8.5 and 9.5 hereof, is sometimes referred to in this
Agreement as the "Representative." The Representative shall take, and the
Shareholders agree that the Representative shall take, any and all actions which
he believes are necessary or appropriate under this Agreement for and on behalf
of the Shareholders, as fully as if the Shareholders were acting on their own
behalf, including, without limitation, defending all Indemnity Claims,
consenting to, compromising or settling all Indemnity Claims, conducting
negotiations with the Parent and its representatives regarding such claims,
dealing with the Parent and the Escrow Agent under the Escrow Agreement referred
to in Sections 8.5 and 9.5 hereof with respect to all matters arising under such
Escrow Agreement, taking any and all other actions specified in or contemplated
by this Agreement and engaging counsel, accountants or other representatives in
connection with the foregoing matters. The Parent and such Escrow Agent shall
have the right to rely upon all actions taken or omitted to be taken by the
Representative pursuant to this Agreement and the Escrow Agreement, all of which
actions or omissions shall be legally binding upon each of the Shareholders. The
Shareholders hereby agree to indemnify and hold harmless Xxxx Xxxxxx in his
capacity as Representative from and against any loss, liability, damage, demand,
claim, cost, suit, action or cause of action, judgment, award, assessment,
interest, penalty or expense (including, without limitation, reasonable
attorneys' fees) suffered or incurred by, for, on account of, arising from, or
in connection with Xx. Xxxxxx'x role as Representative.
11.3 Notification of Claims. Subject to the provisions of Section 11.4
below, in the event of the occurrence of an event which the Parent asserts
constitutes an Indemnity Claim, Parent shall provide the Representative (on
behalf of the indemnifying parties) with prompt written notice of such event and
shall otherwise promptly make available to the Representative all relevant
information which is material to the claim and which is in the possession of the
indemnified party. If such event involves the claim of any third party (a
"Third-Party Claim"), the Representative on behalf of the indemnifying parties
shall have the right to elect to join in the defense, settlement, adjustment or
compromise of any such Third-Party Claim, and to employ counsel to assist the
indemnifying parties in connection with the handling of such claim, at the sole
expense of the indemnifying parties, and no such claim shall be settled,
adjusted or compromised, or the defense thereof terminated, without the prior
consent of the indemnifying parties unless and until the indemnifying parties
shall have failed, after the lapse of a reasonable period of time, but in no
event more than 30 days after written notice to it of the Third-Party Claim, to
join in the defense, settlement, adjustment or compromise of the same. Parent's
failure to give timely notice or to promptly furnish the Representative with any
relevant data and documents in connection with any Third-Party Claim shall not
constitute a defense (in part or in whole) to any claim for indemnification by
the indemnifying parties, except and only to the extent that such failure shall
result in any material prejudice to the indemnifying parties. If so desired by
any indemnifying parties, such parties may elect, at such parties' sole expense,
to assume control of the defense, settlement, adjustment or compromise of any
Third-Party Claim, insofar as such claim relates to the liability of the
indemnifying parties, provided that such indemnifying parties shall obtain the
consent of Parent before entering into any settlement, adjustment or compromise
of such claim, or ceasing to defend against such claim. In connection with any
Third-Party Claim, the indemnified party, or the indemnifying parties if they
have assumed the defense of such claim pursuant to the preceding sentence, shall
diligently pursue the defense of such Third-Party Claim.
11.4 Duration. Except as otherwise provided in this Agreement, all
representations, warranties, covenants and agreements of the parties contained
in or made pursuant to this Agreement, and the rights of the parties to seek
indemnification with respect thereto, shall survive the Closing but, except in
respect of any claims for indemnification as to which notice shall have been
duly given prior to the relevant expiration date set forth below, the
representations and warranties of the Company and the Shareholders contained in
this Agreement shall expire on the first anniversary of the Closing Date. To be
duly given, any such notice shall set forth in reasonable detail the nature of
such claim, the provisions under this Agreement pursuant to which such claim is
being asserted and, to the extent feasible, a reasonable estimate of the
anticipated amount of such claim.
.1.5 Escrow
(a) At the Effective Time, the Escrow Shares shall be
delivered, on a pro rata basis, together with a stock power endorsed in blank
from each Holder, to State Street Bank and Trust Company, as escrow agent (the
"Escrow Agent") to be held for a period ending on the first anniversary of the
Closing Date. Parent may make a claim for any Losses indemnified hereunder until
the first anniversary of the Closing Date. The Escrow Shares shall be held and
disbursed by the Escrow Agent in accordance with an Escrow Agreement in the form
attached hereto as Exhibit C.
(b) Except with respect to (i) claims based on fraud committed
by the Company or any Shareholder which are not limited and (ii) claims under
Sections 3.4, 3.9, 3.11 and 3.13 with respect to which the limitations are set
forth in Section 11.6 hereof and for which claims must be brought first against
the Escrow Shares to the extent thereof, if the Closing occurs, Parent agrees
that (A) Parent's sole and exclusive remedy and recourse against each of the
Shareholders under this Agreement for Losses attributable to any inaccuracy in
or breach of any representations or warranties or covenants contained herein
shall be against such Shareholder's pro rata share of the Escrow Shares held in
escrow pursuant to the Escrow Agreement and (B) with respect to Indemnity Claims
related to an inaccuracy in or breach of any representation, warranty or
covenant other than under Section 3.4, 3.9, 3.11 or 3.13, the Shareholders'
maximum indemnification obligation shall be ten percent (10%) of the Merger
Shares.
11.6 Limitation on Indemnification. The Shareholders' obligations under
this Article XI are subject to the following limitation: (a) Parent shall not be
entitled to any recovery for an Indemnity Claim under Section 11.1 until the
total amount of all Indemnity Claims under Section 11.1 exceeds Seventy-Five
Thousand Dollars ($75,000) and then Parent shall only be entitled to recovery
for the excess of Indemnity Claims over Seventy-Five Thousand Dollars ($75,000);
(b) the maximum indemnification obligation of the Shareholders with respect to
claims based on any inaccuracy in or breach of Section 3.4, 3.9 or 3.13 shall be
one hundred percent (100%) of the sum of the Initial Merger Consideration and
the Earn-Out based on the value of the Initial Merger Consideration on the
Closing Date and the value of the Earn-Out as determined under Section 2.2(a)
hereof (such sum hereinafter referred to as the "Aggregate Merger
Consideration"); (c)the maximum indemnification obligation of the Shareholders
with respect to claims based on any inaccuracy in or breach of Section 3.11, if
the Company or any Shareholder had actual knowledge, prior to Closing, that any
representation or warranty in Section 3.11 was inaccurate or false or had been
breached, shall be one hundred percent (100%) of the Aggregate Merger
Consideration; and (d) the maximum indemnification obligation of the
Shareholders with respect to claim based on any inaccuracy in or breach of
Section 3.11 shall be forty percent (40%) of the Aggregate Merger Consideration
if neither the Company nor any Shareholder had actual knowledge, prior to
Closing, that any representation or warranty in Section 3.11 was inaccurate or
false or had been breached. Notwithstanding anything in this Agreement to the
contrary, nothing contained in this Section 11.6 or in Section 11.5 shall limit
a claim based on fraud committed by the Company or any Shareholder.
11.7 No Contribution. Each Shareholder hereby waives, and acknowledges
and agrees that such Holder shall not have and shall not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of indemnity or
other right or remedy against the Parent or the Company in connection with any
indemnification obligation or any other liability which such Shareholder may
become subject under or in connection with this Agreement or the Escrow
Agreement.
ARTICLE XII
REGISTRATION RIGHTS
12.1 Registration Rights. (a) Parent shall file with the SEC a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public resale offering of the shares of Parent Common Stock issued at the
Closing (including the shares of Parent Common Stock issued pursuant to Sections
2.11 and 7.9 hereof) within thirty (30) days after the Closing Date (provided
that the Shareholders have timely performed their obligations hereunder) and
shall use commercially reasonable efforts to cause such registration statement
to become and remain effective for the period ending on the first to occur of
(x) the date the distribution described in the registration statement is
complete or (y) the first anniversary of the Closing Date. If for any reason
Parent is not eligible to file such registration statement on Form S-3 (or any
successor form to Form S-3), Parent shall effect such registration using such
form as Parent is then eligible to use.
(b) In the case of any registration pursuant to this Section
12.1, Parent shall keep each person whose securities are to be registered
thereunder (a "Selling Stockholder") advised of the initiation and completion of
such registration. At its expense, except as provided in Section 12.1(b)(iv)
below, Parent will promptly:
(i) Prepare and file with the SEC the registration statement
described in Section 12.1(a) above and thereafter use commercially
reasonable efforts to cause such registration statement to become
effective;
(ii) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectuses used
in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement;
(iii) Furnish to the Selling Stockholders such numbers of copies
of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act, and such other documents
as they may reasonably request in order to facilitate the disposition
of the securities covered by such registration statement;
(iv) Use commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Selling Stockholders, provided that Parent
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(v) Notify each Selling Stockholder covered by such registration
statement at any time when a prospectus relating thereto is required
to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing;
(vi) Cause all such shares of Parent Common Stock to be listed on
each securities exchange or market system on which similar securities
issued by the Parent are then listed; and
(vii) Provide a transfer agent and registrar for all such shares
of Parent Common Stock not later than the effective dates of such
registration statements.
(c) Each Selling Stockholder and the Company shall provide
Parent with all necessary and reasonable assistance in the preparation and
filing of the registration statement required to be prepared and filed by Parent
and all other obligations of Parent under this Section 12.1. Parent's
obligations under this Section 12.1 are conditioned in all respects on the
provision of all necessary and reasonable assistance to Parent by each Selling
Stockholder.
(d) Parent shall pay the expenses incurred by it in complying
with its obligations under this Article XII, including all registration and
filing fees, exchange listing fees, fees and expenses of counsel for Parent, and
fees and expenses of accountants for Parent.
(e) Parent shall have the right, upon the advice of the Board
of Directors of Parent (the "Board"), upon giving written notice to each Selling
Stockholder of the exercise of such right, to require such Selling Stockholder
not to sell any shares pursuant to the registration statement filed pursuant to
Section 12.1(a) for a reasonable period (as determined in good faith by the
Board) from the date on which such notice is given (a "black-out period"), if
(i)(A) Parent or any of its subsidiaries is engaged in or proposes to engage in
discussions or negotiations with respect to, or has proposed or taken a
substantial step to commence, or there otherwise is pending, any merger,
acquisition, other form of business combination, divestiture, tender offer,
financing or other transaction, or there is an event or state of facts relating
to Parent or any of its subsidiaries, in each case which is material to Parent
(as reasonably determined by the Board) (any such negotiation, step, event or
state of facts being herein called "Material Activity"), (B) in the reasonable
judgment of the Board, after consultation with and acting upon the written
advice of outside counsel, disclosure of such Material Activity would be
necessary or advisable under applicable securities laws and (C) such disclosure
would, in the reasonable judgment of the Board, be adverse to the interests of
Parent, or (ii) the Board, in its reasonable judgment, deems it necessary to
file a post-effective amendment to such registration statement or to prepare a
supplement to, or otherwise amend, the form of prospectus contained therein.
During any such black-out period, each Selling Stockholder agrees not to sell
any shares under such registration statement for such period of time as the
Board, acting on the advice of outside counsel, may in good xxxxx xxxx
advisable; provided, however, that no single black-out period will be longer
than thirty (30) calendar days and, in the aggregate, all black-out periods in
any twelve (12) month period shall not include more than ninety (90) calendar
days. The period of effectiveness of any registration statement in effect at the
time of a black-out period and the termination period under Section 12.4(a)
shall be extended for a period equal to the black-out period.
12.2 Indemnification. (a) Parent agrees to indemnify and hold harmless,
to the extent permitted by law, each holder of Parent Common Stock with rights
under this Section 12, against all damages caused by any untrue or alleged
untrue statement of material fact contained in any registration statement,
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as the same are caused by or contained in any information
furnished in writing to Parent by such holder expressly for use therein or by
such holder's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after Parent has furnished
such holder with a sufficient number of copies of the same.
(b) In connection with any registration statement in which a
holder of Parent Common Stock with rights under this Section 12 is
participating, each such holder will furnish to Parent in writing such
information and affidavits as Parent reasonably requests for use in connection
with any such registration statement or prospectus and, to the extent permitted
by law, will indemnify and hold harmless Parent, its directors and officers and
each Person who controls Parent (within the meaning of the Securities Act)
against all damages resulting from any untrue or alleged untrue statement of
material fact contained in the registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but only to the extent that such
untrue statement or omission is contained in any information or affidavit so
furnished in writing by such holder specifically for use in such registration
statement; provided that the obligation to indemnify will be several, not joint
and several, among such holders and the liability of each such holder will be in
proportion to and limited to the net amount received by such holder from the
sale of Parent Common Stock with rights under this Section 12, pursuant to such
registration statement.
(c) Any Person entitled to indemnification under this Section
12.2 will (i) give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any consent to
the entry of any judgment or any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel for all parties indemnified by such indemnifying party with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim.
12.3 Current Public Information. Until the earlier of the second
anniversary of the Closing Date or the date all shares of Parent Common Stock
subject to this Section 12 have been sold, Parent will timely file all reports
required to be filed by it under the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations adopted by the SEC
thereunder, and will take such further action as any holder or holders of Parent
Common Stock with rights under Section 12.1 may reasonably request, all to the
extent required to enable such holders to sell their shares pursuant to Rule 144
under the Securities Act and pursuant to Form S-3 or similar registration form
hereunder adopted by the SEC. Upon written request, Parent will deliver to such
holders a written statement as to whether it has complied with such
requirements.
12.4 Termination of Registration Rights. Notwithstanding the foregoing
provisions of this Article XII, Parent's obligations pursuant to Sections 12.1
and 12.2 shall terminate upon (a) the first anniversary of the Closing Date, or
(b) if earlier, with respect to a given Shareholder, at the time such
Shareholder may sell all of his or her shares of Parent Common Stock in
compliance with Rule 144 in a single 90 day period under the Securities Act.
12.5 Transferability of Registration Rights. The rights under this
Section 12 are not transferable except (a) a transfer by will or intestacy, (b)
estate planning transfers consisting of gifts to the spouse or issue of the
transferee and transfers to trusts for the benefit of the spouse or issue of the
transferee, or (c) with the written consent of Parent.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
13.1 Amendment. This Agreement may be amended by written agreement
among each of the parties hereto prior to the Effective Time.
13.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written notice
from the party or parties entitled to the benefits thereof. No failure by any
party hereto to exercise, and no delay in exercising, any right hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or future exercise of that right by that
party.
13.3 Notices. All notices and other communications hereunder shall be
deemed given if given in writing and delivered personally, by registered or
certified mail, return receipt requested, postage prepaid, or by overnight
courier to the party to receive the same at its respective address set forth
below (or at such other address as may from time to time be designated by such
party to the others in accordance with this Section 13.3):
(a) if to the Company, to:
Internet Music Distribution, Inc.
000 Xxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attention: President
with a copy to:
Xxxxxxx Coie LLP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx, Esq.
(b) if to the Parent or Acquisition, to:
Lycos, Inc.
000-0 Xxxxxx Xxxx Xxxx
Xxxxxxx, XX 00000
Attention: Chief Financial Officer
with copies to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Esq.
(c) If to the Shareholders or the Representative:
Xxxx Xxxxxx
c/o Perkins Coie LLP
000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Xxxx Xxxxxx, Esq.
All such notices and communications hereunder shall be deemed given
when received, as evidenced by the signed acknowledgment of receipt of the
person to whom such notice or communication shall have been personally
delivered, the acknowledgment of receipt returned to the sender by the
applicable postal authorities or the confirmation of delivery rendered by the
applicable overnight courier service.
13.4 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors (or, in the case of the Shareholders, their respective
heirs, administrators, executors and personal representatives) and permitted
assigns. Neither this Agreement nor any rights, duties or obligations hereunder
shall be assigned by any party hereto without the prior written consent of the
other parties hereto, except that vested rights to receive payment or to
initiate legal action with respect to causes of action that have accrued
hereunder shall be assignable by devise, descent or operation of law.
13.5 No Third Party Beneficiaries. Neither this Agreement or any
provision hereof nor any Schedule, certificate or other instrument delivered
pursuant hereto, nor any agreement to be entered into pursuant hereto or any
provision hereof, is intended to create any right, claim or remedy in favor of
any person or entity, other than the parties hereto and their respective
successors (or, in the case of the Shareholders, their respective heirs,
administrators, executors and personal representatives) and permitted assigns.
13.6 Public Announcements. Promptly upon execution and delivery of this
Agreement, the Parent and the Company shall issue a press release in such form
as they shall mutually agree. Thereafter, and prior to the consummation of the
Merger or the termination of this Agreement, none of the parties hereto shall,
except as mutually agreed by the Parent and the Company, or except as may be
required by law or applicable regulatory authority (including, without
limitation, the rules applicable to Nasdaq National Market companies), issue any
reports, releases, announcements or other statements to the public relating to
the transactions contemplated hereby.
13.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.8 Headings. The article and section headings contained in this
Agreement are solely for convenience of reference, are not part of the agreement
of the parties and shall not be used in construing this Agreement or in any way
affect the meaning or interpretation of this Agreement.
13.9 Entire Agreement. This Agreement, and the Schedules, certificates
and other instruments and documents delivered pursuant hereto, together with the
other agreements referred to herein and to be entered into pursuant hereto,
embody the entire agreement of the parties hereto in respect of, and there are
no other agreements or understandings, written or oral, among the parties
relating to, the subject matter hereof, other than the Nondisclosure Agreement.
This Agreement supersedes all prior agreements and understandings, written or
oral, between the parties with respect to such subject matter, other than the
Nondisclosure Agreement.
13.10 Governing Law. The parties hereby agree that this Agreement, and
the respective rights, duties and obligations of the parties hereunder, shall be
governed by and construed in accordance with the laws of The Commonwealth of
Massachusetts, without giving effect to principles of conflicts of law
thereunder, except for the provisions of Article I hereto setting forth the
provisions for consummating, and the effects of, the Merger, which shall be
governed by and construed in accordance with the laws of the State of Delaware.
* * *
LYCOS, INC.
COUNTERPART SIGNATURE PAGE
AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the
Shareholders named below have caused this Agreement to be duly executed and
delivered as an instrument under seal as of the date first above written.
LYCOS, INC.
By: /s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: C00/CFO
DI ACQUISITION CORP.
By: /s/Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
LYCOS, INC.
COUNTERPART SIGNATURE PAGE
AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the
Shareholders named below have caused this Agreement to be duly executed and
delivered as an instrument under seal as of the date first above written.
INTERNET MUSIC DISTRIBUTION, INC.
By: /s/Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: President
LYCOS, INC.
COUNTERPART SIGNATURE PAGE
AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the
Shareholders named below have caused this Agreement to be duly executed and
delivered as an instrument under seal as of the date first above written.
SHAREHOLDERS:
/s/Xxxx Xxxxxx
Xxxx Xxxxxx
/s/Al-Xxxx Xxxxxx
Al-Xxxx Xxxxxx
/s/Xxxxxxx Xxxxxx
Xxxxxxx Xxxxxx
GLOBAL ASSET CAPITAL, LLC
By: /s/ Xxxx Xxxxxx
Name: Xxxx Xxxxxx
Title: Managing Director
/s/Pol Llovett
Pol Llovett
/s/Xxxx Xxxxxx
Xxxx Xxxxxx
/s/Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxx
/s/Xxx Xxxxx
Xxx Xxxxx
LYCOS, INC.
COUNTERPART SIGNATURE PAGE
AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition, the Company and the
Shareholders named below have caused this Agreement to be duly executed and
delivered as an instrument under seal as of the date first above written.
SHAREHOLDERS:
MR2V, LLC
By: /s/ Xxxxx X. Xxxxx
Name: Xxxxx X. Xxxxx
Title: CEO/Founder
/s/ Xxxx Million
Xxxx Million
/s/ Xxxxx Xxxxx
Xxxxx Xxxxx
/s/ Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxx
/s/ Xxxxxx XxXxxx
Xxxxxx XxXxxx
