1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CNET, INC.
AUCTIONGATE INTERACTIVE, INC.
AND
THE STOCKHOLDERS OF
AUCTIONGATE INTERACTIVE, INC.
FEBRUARY 19, 1999
2
EXHIBITS:
Exhibit A Form of Employment Agreement
Exhibit B Form of Legal Opinion of Buyer's Counsel
SCHEDULES:
3.03 Capitalization
3.07(a) Financial Statements
3.07(c) Operating Statistics
3.09 Liabilities
3.15 Leased Properties
3.16 Material Contracts
3.18 Intellectual Property
3
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 19, 1999 (this
"Agreement"), is by and among CNET, Inc., a Delaware corporation ("Buyer"),
AuctionGate Interactive, Inc., a California corporation (the "Company"), and
Xxxxx Xxxxx and Xxxxx Xxxxxxxx, the sole stockholders of the Company (the
"Stockholders").
WHEREAS, Buyer and the Company have determined that the merger of the
Company with and into Buyer ("Merger"), with Buyer surviving, and conversion of
the issued and outstanding shares of common stock of the Company (the "Company
Common Stock") into the right to receive shares of common stock, $0.0001 par
value, of Buyer (the "Buyer Common Stock"), on the terms and subject to the
conditions of this Agreement and in accordance with the General Corporation Law
of the State of California ("California Law") and the Section 252 of the
General Corporation Law of the State of Delaware ("Delaware Law") would be
advantageous and beneficial to their respective corporations and stockholders;
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. On the terms and subject to the conditions
set forth in this Agreement, and in accordance with applicable federal and
state law, at the Effective Time (as defined in Section 1.02), the Company
shall be merged with and into Buyer. As a result of the Merger, the separate
corporate existence of the Company shall cease and Buyer shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"). Certain
terms used in this Agreement are defined in Section 10.02.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this
Agreement is terminated pursuant to Section 8.01, and subject to the
satisfaction or waiver of the conditions set forth in Article VI, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Buyer as soon
as practicable (but in any event within five business days) after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other date, time and place as Buyer and the Company may agree; provided, that
the conditions set forth in Article VI shall have been satisfied or waived at
or prior to such time. The date on which the Closing takes place is referred to
herein as
4
the "Closing Date." As promptly as practicable on or within five (5) days after
the Closing Date, the parties hereto shall cause the Merger to be consummated
by filing a certificate of merger 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, Delaware Law (the date and time of such filing, or such
later date or time agreed upon by Buyer and the Company and set forth therein,
being the "Effective Time"). As promptly as practicable on or within five (5)
days after the Closing Date, the parties shall also file a certificate of
merger with the Secretary of State of the State of California, in such form as
required by, and executed in accordance with the relevant provisions of,
California Law.
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of California
Law and Delaware Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges
and powers of the Company and Buyer will vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and the Buyer shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04. Articles of Incorporation; Bylaws. At the Effective
Time, the Articles of Incorporation and bylaws of Buyer, as in effect
immediately prior to the Effective Time, shall be the Articles of Incorporation
and bylaws of the Surviving Corporation unless and until amended as provided
therein and pursuant to Delaware Law.
SECTION 1.05. Directors and Officers. The directors and officers of
Buyer immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation at the Effective Time, each to hold
office in accordance with the bylaws of the Surviving Corporation, in each case
until their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Consideration; Conversion and Cancellation of
Securities. At the Effective Time, by virtue of the Merger and without any
action on the part of Buyer, the Company or their respective stockholders:
(a) Prior to the Effective Time, all outstanding preferred stock
of the Company will be converted into Company Common Stock and all outstanding
options or warrants to purchase Company Common Stock will be exercised.
(b) Subject to the other provisions of this Article II, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into 5.3542 shares of pre-split Buyer Common
Stock, which equals (i) six and a half million dollars ($6,500,000), divided by
$121.40 (the average last sales price of the Buyer Common Stock on the Nasdaq
National Market System ("Nasdaq") as reported in the West Coast edition of the
Wall Street Journal for the five trading days preceding (but not including) the
date of this
5
Agreement) (the "Conversion Price"), divided by (ii) 10,000, which is the total
number of outstanding shares of Company Common Stock immediately prior to the
Effective Time.
(c) All shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired, and each
certificate previously evidencing the Company Common Stock outstanding
immediately prior to the Effective Time (the "Converted Shares") shall
thereafter represent the right to receive Buyer Common Stock in accordance with
this Article II. The Stockholders shall cease to have any rights with respect
to such Converted Shares except as otherwise provided herein or by law.
Certificates previously evidencing Converted Shares shall be exchanged for
Buyer Common Stock upon the surrender of such certificates in accordance with
the provisions of Section 2.02, without interest.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) Each Stockholder shall be entitled to receive, upon surrender
to Buyer or its transfer agent of certificates previously evidencing Converted
Shares, as soon as practicable after the Closing Date, a certificate
representing the Converted Shares so surrendered, registered in the name of
such Stockholder. Until so surrendered and exchanged, each certificate
previously evidencing Converted Shares shall represent solely the right to
receive Buyer Common Stock.
(b) All shares of Buyer Common Stock issued upon the surrender
for exchange of certificates previously representing Converted Shares in
accordance with the terms hereof (including any adjustments pursuant to Section
2.02(c)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Converted Shares. At and after the Effective Time, there
shall be no further registration of transfers on the stock transfer books of
the Surviving Corporation of Company Common Stock that was outstanding
immediately prior to the Effective Time. If, after the Effective Time,
certificates which previously evidenced Converted Shares are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
(c) No certificates or scrip evidencing fractional shares of
Buyer Common Stock shall be issued upon the surrender for exchange of
certificates, and such fractional share interests will not entitle the owner
thereof to any rights as a stockholder of Buyer. In lieu of any such fractional
shares, the number of shares of Buyer Common Stock issuable to any Stockholder
in connection with the Merger shall be rounded up to the nearest whole share.
(d) Buyer shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former holder
of Converted Shares such amounts as Buyer (or any affiliate thereof) is
required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Buyer, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of the Converted Shares in respect of which such deduction and
withholding was made by Buyer.
6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant
(provided that, with respect to each of the Stockholders, any representation or
warranty that relates solely to matters involving the Company shall be limited
to such Stockholder's knowledge) to Buyer that:
SECTION 3.01. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of California, has all requisite corporate power and authority to own,
lease and operate its properties and to carry on its business as it is now
being conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary.
SECTION 3.02. Articles and Bylaws. The Company has furnished to Buyer
complete and correct copies of its Articles of Incorporation and bylaws, in
each case as amended or restated, of the Company. The Company is not in
violation of any of the provisions of its Articles of Incorporation or bylaws.
SECTION 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of (i)
100,000 shares of Company Common Stock, of which 10,000 shares are issued and
outstanding. All of the outstanding capital stock of the Company is held of
record and beneficially by the Stockholders as indicated in Schedule 3.03, free
and clear of all security interests, liens, claims, pledges, agreements,
charges or other encumbrances of any nature whatsoever. All of the outstanding
capital stock of the Company is duly authorized, validly issued, fully paid and
nonassessable, and has not been issued in violation of (nor are any of the
authorized shares of capital stock of the Company subject to) any preemptive or
similar rights created by statute, the Articles of Incorporation or bylaws of
the Company or any agreement to which the Company is a party or bound.
(b) Except as indicated in Schedule 3.03, no shares of capital
stock of the Company are reserved for any purpose or held in treasury by the
Company and there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company is a party
relating to the issued or unissued capital stock of the Company or obligating
the Company to grant, issue or sell any shares of the capital stock of the
Company.
(c) There are no obligations, contingent or otherwise, of the
Company to (i) repurchase, redeem or otherwise acquire any shares of the
capital stock of the Company or (ii) provide material funds to, or make any
material investment in (in the form of a loan, capital contribution or
otherwise), or provide any guarantee with respect to the obligations of, any
other person. There are no agreements, arrangements or commitments of any
character (contingent or otherwise) pursuant to which any person is or may be
entitled to receive any payment based on the revenues or earnings, or
calculated in accordance therewith, of the Company. There are no
7
voting trusts, proxies or other agreements or understandings to which the
Company is a party or by which the Company is bound with respect to the voting
of any shares of capital stock of the Company.
(d) The Company (i) does not directly or indirectly own, (ii) has
not agreed to purchase or otherwise acquire and (iii) does not hold any
interest convertible into or exchangeable or exercisable for, any capital stock
(or equivalent equity interest) of any corporation, partnership, joint venture
or other business association or entity.
SECTION 3.04. Authority. The Company has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and the Stockholders and constitutes the legal, valid
and binding obligation of the Company and the Stockholders enforceable against
the Company and the Stockholders in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company
and the Stockholders does not, and the consummation of the transactions
contemplated hereby will not (i) conflict with or violate the Articles of
Incorporation or bylaws, in each case as amended or restated, of the Company,
(ii) conflict with or violate any federal, state, foreign or local law,
statute, ordinance, rule, regulation, order, judgment or decree (collectively,
"Laws") applicable to the Stockholders or the Company or by which any of their
properties or assets is bound or subject or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or result
in the creation of any lien or encumbrance on any of the properties or assets
of the Company pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which any Stockholder or the Company is a party or by or to which any
Stockholder or the Company or any of their properties or assets is bound or
subject. The Board of Directors of the Company has taken all actions necessary
under California Law, including approving the transactions contemplated by this
Agreement and taking appropriate actions under California Law or any other
applicable stockholder protection laws, to ensure that any restrictions on
business combinations or the owning or voting of the capital stock of the
Company do not, and will not, apply with respect to or as a result of the
transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company
and the Stockholders does not, and consummation of the transactions
contemplated hereby will not, require the Company or any Stockholder to obtain
any consent, license, permit, approval, waiver, authorization or order of, or
to make any filing with or notification to, any governmental or
8
regulatory authority, domestic or foreign (each individually, a "Governmental
Entity," and collectively, "Governmental Entities"), except for the filing and
recordation of appropriate merger documents as required by California Law and
Delaware Law.
SECTION 3.06. Permits; Compliance. Except as set forth in Schedule
3.06, the Company is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action, proceeding or investigation pending or, to
the Company's knowledge, threatened regarding suspension or cancellation of any
of the Company Permits. The Company and its assets and operations are currently
and have at all times been in compliance in all material respects with (a) all
Laws applicable to the Company and its operations or by or to which any of its
assets is bound or subject, including without limitation all Laws related to
environmental protection, employee benefits, labor and employment and
occupational health and safety, and (b) all of the Company Permits, if
obtained. The Company has not received from any Governmental Entity any written
notification with respect to possible violations of Laws.
SECTION 3.07. Financial Statements.
(a) Schedule 3.07(a) includes (i) the unaudited balance sheet
data of the Company as of January 31, 1999 and the unaudited statements of
operations, retained earnings and cash flows of the Company for the year ended
on such date and (ii) contains the unaudited balance sheet of the Company (the
"Latest Balance Sheet") as of January 31, 1999 (the "Latest Balance Sheet
Date") and the unaudited statements of operations, retained earnings and cash
flows for the twelve months ended on such date.
(b) Each of the foregoing financial statements (i) has been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved except as may be indicated
on notes thereto and (ii) fairly present in all material respects the financial
position of the Company as of the respective dates thereof and the results of
its operations and cash flows for the periods indicated, except that the
interim financial statements are subject to normal and recurring year-end
adjustments, which will not be material individually or in the aggregate.
(c) Schedule 3.07(c) sets forth certain statistics concerning the
operations of the Company, which are accurate (subject to the margins of error
indicated on such schedule for certain of such statistics).
(d) All accounts receivable reflected in the Latest Balance Sheet
or generated since the Latest Balance Sheet Date arose in the ordinary course
of business and are fully collectible in the ordinary course of business,
without resort to litigation, at the face amount thereof less any reserve
reflected in the Latest Balance Sheet, and will not be subject to counterclaim,
set-off or other reduction.
9
SECTION 3.08. Absence of Certain Changes or Events. Since the Latest
Balance Sheet Date, the Company has conducted its business only in the ordinary
course and in a manner consistent with past practice and there has not been:
(a) any damage, destruction or loss (whether or not covered by insurance) with
respect to any material assets of the Company; (b) any change by the Company in
its accounting methods, principles or practices; (c) any declaration, setting
aside or payment of any dividends or distributions in respect of shares of the
capital stock of the Company or any redemption, purchase or other acquisition
by the Company of any of its securities; (d) any increase in the benefits
under, or the establishment or amendment of, any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing or other employee
benefit plan, or any increase in the compensation payable or to become payable
to directors, officers or employees of the Company, except for annual bonuses
or merit increases in salaries or wages in the ordinary course of business and
consistent with past practice; (e) any payment or other transfer of assets by
the Company to any Stockholder, other than compensation payments in the
ordinary course of business and consistent with past practice; (f) any
revaluation by the Company of any of its assets, including the writing down or
off of notes or accounts receivable, other than in the ordinary course of
business and consistent with past practices; (g) any entry by the Company into
any commitment or transaction material to the Company including, without
limitation, incurring or agreeing to incur capital expenditures in excess of
$50,000; (h) any incurrence of indebtedness for borrowed money other than trade
payables incurred in the ordinary course of business; (i) a loss, or written
notice threatening a loss, of any customer or supplier set forth on Schedule
3.17(a); (j) the termination of employment (whether voluntary or involuntary)
of any officer or key employee of the Company; or (k) any change, occurrence or
circumstance having or reasonably likely to have, individually or in the
aggregate, a material adverse effect on the business, operations, assets,
financial condition, results of operations or prospects of the Company.
SECTION 3.09. No Undisclosed Liabilities. The Company does not have
any direct or indirect debts, liabilities or obligations, whether known or
unknown, absolute, accrued, contingent or otherwise ("Liabilities"), except (a)
Liabilities fully reflected in the Latest Balance Sheet and related financial
statement notations; (b) trade payables and accrued expenses incurred in the
ordinary course of business and consistent with past practice since the Latest
Balance Sheet Date; (c) obligations to be performed in the ordinary course of
business, consistent with past practice, under the Material Contracts (as
defined in Section 3.16) or under agreements not required to be disclosed
pursuant to Section 3.16; and (d) Liabilities described in Schedule 3.09. In
addition, the Company did not assume any liabilities of RacingData, Inc., a
California corporation, upon the spin-off of the Company from RacingData, Inc.
on January 28, 1999, other than the Liabilities described in Schedule 3.09 and
certain other ordinary course of business Liabilities that have been previously
disclosed to Buyer by the Company.
SECTION 3.10. Absence of Litigation. There is no claim, action, suit,
litigation, proceeding, arbitration or investigation of any kind, at law or in
equity (including actions or proceedings seeking injunctive relief), pending
or, to the Company's knowledge, threatened against the Company or any assets or
rights of the Company. The Company is not subject to any continuing order of,
consent decree, settlement agreement or other similar written agreement with,
or, continuing investigation by, any Governmental Entity, or any judgment,
order, writ,
10
injunction, decree or award of any Government Entity or arbitrator, including,
without limitation, cease-and-desist or other orders.
SECTION 3.11. Taxes.
(a) (i) all returns and reports ("Tax Returns") of or with
respect to any Tax which is required to be filed on or before the Closing Date
by or with respect to the Company have been or will be duly and timely filed,
(ii) all items of income, gain, loss, deduction and credit or other items
required to be included in each such Tax Return have been or will be so
included and all information provided in each such Tax Return is true, correct
and complete, (iii) all Taxes which have become or will become due with respect
to the period covered by each such Tax Return have been or will be timely paid
in full, (iv) all withholding Tax requirements imposed on or with respect to
the Company have been or will be satisfied in full in all respects, and (v) no
penalty, interest or other charge is or will become due with respect to the
late filing of any such Tax Return or late payment of any such Tax.
(b) There are no Tax Returns of or with respect to the Company
with extended or waived statutes of limitations that have not been audited by
the applicable governmental authority.
(c) There is not in force any extension of time with respect to
the due date for the filing of any Tax Return of or with respect to the Company
or any waiver or agreement for any extension of time for the assessment,
collection or payment of any Tax of or with respect to the Company.
(d) The Company has previously delivered to Buyer true and
complete copies of each written Tax allocation or sharing agreement and a true
and complete description of each unwritten Tax allocation or sharing
arrangement affecting the Company, if any.
(e) There are no pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against the Company for
or with respect to any Taxes of the Company; no assessment, deficiency or
adjustment has been assessed or proposed with respect to any Tax Return of or
with respect to the Company; and there is no reasonable basis on which any
claim for material Taxes can be asserted against the Company.
(f) Except for statutory liens for current Taxes not yet due, no
liens for Taxes exist upon the assets of any of the Company.
(g) The Company will not be required to include any amount in
income for any taxable period beginning after the Closing Date as a result of a
change in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with respect
to any such taxable period.
11
(h) To the Company's and the Stockholders' knowledge based on the
advice of their professional tax advisors, none of the transactions
contemplated by this Agreement will result in any Tax liability or the
recognition of any item of income or gain to the Company.
(i) None of the property of the Company is held in an arrangement
for which partnership Tax Returns are being filed, and the Company does not own
any interest in any controlled foreign corporation (as defined in section 957
of the Code), passive foreign investment company (as defined in section 1296 of
the Code) or other entity the income of which is required to be included in the
income of the Company.
(j) The Company has never been subject to Taxes in any
jurisdiction outside the United States.
(k) The Company has had in effect since its corporate inception a
valid, binding, timely filed election to be taxed pursuant to Subchapter S of
the Code, is not liable for any federal income taxes as a "C corporation" and
has no net unrealized built in gain potentially subject to tax under Section
1374 of the Code.
SECTION 3.12. Tax Matters; Pooling. Neither the Company nor any of its
Stockholders or other affiliates has taken or agreed to take any action that
would prevent the Merger from (i) constituting a reorganization qualifying
under the provisions of section 368(a) of the Code or (ii) being treated for
financial accounting purposes as a "pooling of interests" (the "Pooling
Transaction") in accordance with generally accepted accounting principles and
the rules, regulations and interpretations of the Securities and Exchange
Commission (the "SEC").
SECTION 3.13. Certain Business Practices. Neither the Company, the
Stockholders nor their agents or other representatives has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property or services in contravention of applicable law.
SECTION 3.14. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
SECTION 3.15. Leased Properties. Schedule 3.15 sets forth a
description (including the street address) of all real property leased by the
Company (the "Leased Properties"). No premises other than the Leased Properties
are used in the business of the Company.
SECTION 3.16. Certain Material Contracts.
(a) Schedule 3.16 lists each agreement and arrangement (whether
written or oral and including all amendments thereto) to which the Company is a
party or a beneficiary or by which the Company is bound that is material,
directly or indirectly, to the business of the Company (collectively, the
"Material Contracts"), including without limitation (i) any licensing,
advertising, promotion, consulting or services agreements pursuant to which the
Company earns
12
revenue; (ii) any licensing, supply, or services agreements pursuant which the
Company is entitled or obligated to acquire any assets or services from any
person; (iii) any insurance policies; (iv) any employment, consulting,
non-competition, separation, collective bargaining, union or labor agreements
or arrangements; (v) any agreement evidencing, securing, guarantying or
otherwise relating to any indebtedness for which the Company has any Liability,
(vi) any agreement with or for the benefit of any Stockholder of the Company,
or any affiliate or family member thereof (which agreements are specifically
identified as such in Schedule 3.16); (vii) any capital or operating leases or
conditional sales agreements relating to vehicles or equipment; and (viii) any
other agreement or arrangement pursuant to which the Company could be required
to make or be entitled to receive aggregate payments in excess of $50,000.
(b) The Company has performed in all material respects all of its
obligations under each Material Contract and there exists no breach or default
(or event that with notice or lapse of time would constitute a breach or
default) under any Material Contract.
(c) Each Material Contract is valid, binding and in full force
and effect and enforceable in accordance with its respective terms. There has
been no termination or, to the Company's knowledge, threatened termination or
notice of default under any Material Contract. The Company has delivered to
Buyer a copy of each written Material Contract and a written summary of the
material terms of each oral Material Contract.
SECTION 3.17. Principal Customers and Suppliers; Competing Interests.
Since January 1, 1998, no such supplier or customer of the Company has notified
the Company that it has canceled or otherwise terminated, or, to the Company's
knowledge, threatened to cancel or otherwise terminate, its relationship with
the Company, and there has not been any material dispute with any such customer
or supplier. None of the Stockholders, the Company, nor, to the Company's
knowledge, any director or officer of the Company owns, directly or indirectly,
an interest in any entity that is a competitor, customer or supplier of the
Company or that otherwise has material business dealings with the Company,
provided that the foregoing will not apply to any investment in publicly traded
securities constituting less than 1% of the outstanding securities in such
class.
SECTION 3.18. Intellectual Property Rights.
(a) For purposes of this Agreement, "Intellectual Property" means
all (i) patents, copyrights and copyrightable works, trademarks, service marks,
trade names, service names, brand names, logos, trade dress, Internet domain
names and all goodwill symbolized thereby and appurtenant thereto; (ii) trade
secrets, inventions, technology, know-how, proprietary information, research
material, specifications, surveys, designs, drawings and processes; (iii)
computer software and related documentation, including without limitation
operating software, network software, firmware, middleware, design software,
design tools, management information systems, systems documentation and
instructions, databases and the tangible objects in which the foregoing rights
are embodied (collectively, "Software"); (iv) artwork, photographs, editorial
copy and materials, formats and designs, including without limitation all
content currently or previously displayed through Internet sites operated by
the Company; (v) customer, partner,
13
prospect and marketing lists, market research data, sales data and traffic and
user data; (vi) registrations, applications, recordings, common law rights,
"moral" rights of authors, licenses (to or from the Company) and other
agreements relating to any of the foregoing; (vii) rights to obtain renewals,
reissues, extensions, continuations, divisions or equivalent extensions of
legal protection pertaining to the foregoing; and (viii) claims, causes of
action or other rights at law or in equity arising out of or relating to any
infringement, misappropriation, distortion, dilution or other unauthorized use
or conduct in derogation of the foregoing occurring prior to the Closing.
(b) There are no registrations or applications for registration
of any Intellectual Property or any licenses (to or from the Company) with
respect to any registered Intellectual Property.
(c) The Company owns or has the right to use pursuant to Material
Contracts all Intellectual Property used by the Company in connection with or
necessary to the operation of its business, without infringing on or otherwise
acting adversely to the rights or claimed rights of any person. The Company is
not obligated to pay any royalty or other consideration to any person in
connection with the use of any such Intellectual Property.
(d) No claim has been asserted against the Company to the effect
that the use of any Intellectual Property by the Company infringes the rights
of any person. To the Company's knowledge, no other person is currently
infringing upon the rights of the Company with respect to the Company's
Intellectual Property.
SECTION 3.19. Investor Representations.
(a) The Company and the Stockholders understand that the Buyer
Common Stock to be issued to them in the Merger will constitute "restricted
securities" under the Securities Act of 1933, as amended (the "Securities
Act"). Consequently, the Stockholders will be able to resell such Buyer Common
Stock only (i) pursuant to an effective registration statement covering such
resale or (ii) pursuant to an exemption from registration, such as the
exemption provided under rule 144 under the Securities Act ("Rule 144").
(b) Each Stockholder (i) has a preexisting personal or business
relationship with the Company and (ii) by reason of such Stockholder's business
or financial experience or the business or financial experience of such
Stockholder's professional advisors who are unaffiliated with and who are not
compensated by Buyer or any affiliate or selling agent of Buyer, directly or
indirectly, could be reasonably assumed to have the capacity to protect such
Stockholder's interests in connection with this Agreement.
(c) The Stockholders acknowledge receipt of the SEC Documents (as
defined in Section 4.04) and acknowledge that they have been given the
opportunity to ask questions of representatives of Buyer and to receive
reasonable additional information to the extent requested in connection with
their evaluation of an investment in the Buyer Common Stock.
14
(d) The Stockholders acknowledge that the Buyer Common Stock will
bear a restrictive legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND THE
HOLDER HEREOF CANNOT MAKE ANY SALE, ASSIGNMENT, OR OTHER TRANSFER OF SUCH
SECURITIES WITHOUT REGISTRATION UNDER OR EXEMPTION FROM SUCH ACTS AND LAWS. THE
ISSUER MAY REQUIRE EVIDENCE OF SUCH REGISTRATION OR EXEMPTION PRIOR TO ANY SUCH
TRANSFER."
SECTION 3.20. Affiliates and Employees. The Stockholders are the only
persons who may be deemed to be "affiliates" of the Company within the meaning
of Rule 144 under the Securities Act
SECTION 3.21. Information Supplied. Without limiting any of the
representations and warranties contained herein, no written representation or
written warranty of the Company or the Stockholders and no statement by the
Company or the Stockholders contained in the Schedules to this Agreement
contains any untrue statement of material fact, or omits to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which such statements were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the
Stockholders that:
SECTION 4.01. Organization and Qualification. Buyer is a corporation
duly organized, validly existing and in good standing under Delaware Law and
has all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted by it or the ownership or leasing of
its properties makes such qualification necessary.
SECTION 4.02. Authority. Buyer has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consent.
15
(a) The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated hereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Buyer, (ii) conflict with or violate any Laws applicable to Buyer
or by which any of its properties or assets is bound or subject, or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give others any
rights of termination, amendment, acceleration or cancellations of, or require
payment under, or result in the creation of any lien or encumbrance on any of
the properties or assets of Buyer pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Buyer is a party or by or to which Buyer or
any of its properties is bound or subject. The Board of Directors of Buyer has
taken all actions necessary under Delaware Law, including approving the
transactions contemplated by this Agreement and taking appropriate actions
under Delaware Law or any other applicable stockholder protection Laws, to
ensure that any restrictions on business combinations or the owning or voting
of the Buyer Common Stock do not, and will not, apply with respect to or as a
result of the transactions contemplate by this Agreement.
(b) The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated hereby will not,
require Buyer to obtain any consent, license, permit, approval, waiver,
authorization or order of, or to make any filing with or notification to, any
Governmental Entities, except for the filing and recordation of appropriate
merger documents as required by California Law or Delaware Law.
SECTION 4.04. Compliance. Buyer and its assets and operations are
currently and have at all times been in compliance in all material respects
with (a) all Laws applicable to Buyer and its operations or by or to which any
of its assets is bound or subject, including without limitation all Laws
related to environmental protection, employee benefits, labor and employment
and occupational health and safety, and (b) all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and order necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted, if
obtained. Buyer has not received from any Governmental Entity any written
notification with respect to possible violations of Laws.
SECTION 4.05. SEC Documents. Buyer has delivered to the Company and
the Stockholders a true and complete copy of Buyer's Annual Report on Form 10-K
for the year ended December 31, 1997 its quarterly reports on Form 10-Q for the
quarter ended September 30, 1998, and its definitive proxy statement for its
annual meeting of stockholders held in 1998 (together, the "SEC Documents"). As
of their respective dates, the SEC Documents complied in all material respects
with the applicable requirements of the Exchange Act and the rules and
regulations of the SEC thereunder, and none of the Buyer SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
SECTION 4.06. Financial Statements. The financial statements of Buyer,
including the notes thereto, included in the SEC Documents (the "Buyer
Financial Statements") were
16
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, and have been prepared in accordance with United States
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto). The Buyer Financial Statements fairly
present the consolidated financial condition and operating results of Buyer and
its subsidiaries at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring year-end
adjustments). There has been no material change in Buyer accounting policies
except as described in the notes to the Buyer Financial Statements.
SECTION 4.07. No Material Adverse Changes. Since the date of Buyer
Financial Statements included in the SEC Documents, there has not been any
change, occurrence or circumstance having or reasonably likely to have,
individually or in the aggregate, a material and adverse effect on the
financial condition of Buyer that has not been disclosed to the Company and the
Stockholders.
SECTION 4.08. Absence of Litigation. There is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which Buyer
has received written notice, which seeks to enjoin, alter or materially delay
any of the transactions contemplated by this Agreement.
SECTION 4.09. Tax Matters; Pooling. Neither Buyer nor, to the
knowledge of Buyer, any of its affiliates, has taken or agreed to take any
action that would prevent the Merger from (i) constituting a reorganization
qualifying under the provisions of section 368(a) of the Code or (ii) being
treated for financial purposes as a Pooling Transaction in accordance with
generally accepted accounting principles and the rules, regulations and
interpretations of the SEC.
SECTION 4.10. Certain Business Practices. Neither the Buyer nor its
agents or other representatives has, directly or indirectly, made or authorized
any payment, contribution or gift of money, property or services in
contravention of applicable law.
SECTION 4.11. Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Buyer.
SECTION 4.12. Employees of the Company. Buyer shall continue to
employ, for a reasonable period of time, on a full-time basis the current
employees of the Company (the "Company Employees") with salaries equal to or
greater than their current salaries with the Company, as well as standard
employee benefits, except as otherwise mutually agreed upon by Xxxxx Xxxxx and
Buyer. Buyer will provide prior written notice to Mr. Hafiz if Buyer desires to
terminate any of the Company Employees within one month after the Closing.
17
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Buyer,
the Company will:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) use commercially reasonable efforts to preserve substantially
intact its business organization, maintain its Material Contracts, Company
Permits and Intellectual Property and other material rights, retain the
services of its respective officers and key employees and maintain its
relationships with its material customers and suppliers;
(c) maintain and keep its properties and assets in as good repair
and condition as at present, ordinary wear and tear excepted;
(d) maintain and keep in full force and effect insurance
comparable in amount and scope of coverage to that currently in effect; and
(e) from the date of this Agreement and to the Effective Time,
promptly supplement or amend the Schedules to this Agreement with respect to
any matter that arises or that is required to be set forth or listed in the
Schedules or is necessary to complete or correct any information in the
Schedules; provided, that for purposes of determining the rights and
obligations of the parties hereunder (other than the obligation of the Company
under this Section 5.01(e)), any such supplemental or amended disclosure will
not be deemed to have been disclosed to Buyer unless Buyer otherwise expressly
consents in writing.
SECTION 5.02. Negative Covenants of the Company. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Buyer,
from the date of this Agreement until the Effective Time, the Company will not
do any of the following:
(a) amend or otherwise modify any of the Material Contracts or
Company Permits;
(b) (i) effect any reorganization or recapitalization; (ii) issue
any capital stock or any option, warrant or similar agreement with respect to
its capital stock; (iii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock; or
(iv) adopt or propose to adopt any amendments to its Articles of Incorporation
or bylaws;
(c) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets, except for dispositions of
inventories and of assets in the ordinary course of business and consistent
with past practice;
18
(d) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy;
(e) take (and will use reasonable best efforts to prevent any
affiliate of the Company from taking) any action that, in the judgment of KPMG
Peat Marwick would cause the Merger not to be treated as a Pooling Transaction
for financial accounting purposes;
(f) take any action that would result in a breach (as of the
Closing) of any of the representations and warranties set forth in Section
3.08;
(g) pay or agree to pay any dividend, distribution, or other
payment to any of its Stockholders;
(h) pay or agree to pay any bonus, incentive compensation, or
similar payment to any of its employees or increase the compensation of any
Stockholder or other employee;
(i) make any material expenditure or commitment except in the
ordinary course of business consistent with past practice; or
(j) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03. Non-Solicitation. Each of the Company and the
Stockholders hereby covenants and agrees that it will not, and will not permit
any of its affiliates, as applicable, to initiate, solicit or encourage
(including by way of furnishing information or assistance), or take any other
action to facilitate, any inquiries or the making of any proposal relating to,
or that may reasonably be expected to lead to, any Competing Transaction (as
defined below), or enter into discussions or negotiate with any person or
entity in furtherance of such inquiries or to obtain a Competing Transaction,
or agree to or endorse any Competing Transaction, or authorize or permit any of
the officers, directors or employees of the Company or any investment banker,
financial advisor, attorney, accountant or other representative retained by the
Company, any Stockholder or any of their affiliates, as applicable, to take any
such action, and the Company or the Stockholders, as the case may be, shall
promptly notify Buyer of all relevant terms of any such inquiries and proposals
received by the Company, or any of its affiliates, as applicable, or by any
such officer, director, investment banker, financial advisor, attorney,
accountant or other representative relating to any of such matters and if such
inquiry or proposal is in writing, the Company or the Stockholders, as the case
may be, shall promptly deliver or cause to be delivered to Buyer a copy of such
inquiry or proposal. For purposes of this Agreement, "Competing Transaction"
means any of the following (other than the transactions contemplated by this
Agreement) involving the Company: (a) any merger, consolidation, share
exchange, business combination or similar transaction; (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 5% or more of the
assets of the Company, or (c) any offer for 5% or more of the outstanding
shares of capital stock of the Company.
SECTION 5.04. Confidential Information.
19
(a) The assets of the Company include certain commercially
valuable technical and non-technical confidential or proprietary information of
the Company (collectively, "Confidential Information"). Confidential
Information means all information used by the Company in connection with
operating its business that is not generally known to others in similar areas
of business, including without limitation (i) trade secrets, software, work
product, processes, analyses and know-how related to the architecture and
operation of the Company's business or the submission, collection or
organization of its contents; (ii) customer and prospect lists and other
marketing, advertising, pricing, strategic and business plans and information
related to the Company's business; and (iii) information concerning traffic at
the Company's Internet sites and financial information concerning the operation
of the Company's business.
(b) Prior to the Closing, the confidentiality and nondisclosure
provisions of the existing Letter of Intent among Buyer, the Stockholders and
the Company, dated as of January 25, 1999 (the "Nondisclosure Agreement"), will
remain in full force and effect and will apply to the Confidential Information,
notwithstanding the execution of this Agreement. Upon termination of this
Agreement for any reason, Buyer shall promptly return to the Company all
Confidential Information, including copies thereof, and destroy any notes,
compilations, analyses or other material that incorporates or otherwise
includes such Confidential Information.
(c) The Stockholders acknowledge and agree that, following the
Closing, the Confidential Information will be the sole and exclusive property
of the Surviving Corporation. Following the Closing, neither Stockholder will,
directly or indirectly, use any Confidential Information for his own benefit or
disclose any Confidential Information to any person (except in the course of
performing authorized duties for Buyer or the Surviving Corporation). At
Buyer's request after the Closing, the Stockholders will promptly deliver to
Buyer or the Surviving Corporation all documents, computer disks and other
computer storage devices, computer printouts, manuals and other papers and
materials (including all copies thereof in whatever form) containing or
incorporating any Confidential Information that are in his possession or under
his control.
SECTION 5.05. Access and Information.
(a) The Company shall (i) afford to Buyer and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Buyer Representatives") reasonable access
at reasonable times, upon reasonable prior notice, to the officers, employees,
agents, properties, offices and other facilities of the Company and to the
books and records thereof, (ii) furnish promptly to Buyer and the Buyer
Representatives such information concerning the business, properties,
contracts, records and personnel of the Company (including, without limitation,
financial, operating and other data and information) as may be reasonably
requested, from time to time, by Buyer, and (iii) authorize Buyer to contact
and obtain relevant information from the Company's accountants, material
customers and suppliers and any governmental agencies having dealings with the
Company.
20
(b) No investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the parties which
are herein contained and each such representation and warranty shall survive
such investigation.
SECTION 5.06. Appropriate Action; Consents.
(a) Each of Buyer, the Stockholders and the Company shall use
(and shall cause each of their respective subsidiaries to use, as applicable)
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable Law or otherwise to consummate and make effective the
transactions contemplated by this Agreement, and (ii) obtain from any
Governmental Entities or other third parties any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made by
Buyer or the Company or any of their subsidiaries or affiliates, as applicable,
in connection with the authorization, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby, including,
without limitation, the Merger. The Stockholders, the Company and Buyer shall
furnish all information required for any application or other filing to be made
pursuant to the rules and regulations of any applicable Law in connection with
the transactions contemplated by this Agreement.
(b) Each of Buyer, the Stockholders and the Company shall give
(or shall cause their respective subsidiaries and affiliates, as applicable, to
give) any notices to third parties, and use (and cause their respective
subsidiaries and affiliates, as applicable, to use) all reasonable efforts to
obtain any third party consents (i) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, or (ii) otherwise
required under any Material Contracts, Company Permits or other agreements in
connection with, or in order to allow the Company to continue to be entitled to
the benefits thereof following, the consummation of the transactions
contemplated hereby. In the event that any party shall fail to obtain any third
party consent described above and the parties agree to consummate the Merger
without such consent, such party shall use its best efforts, and shall take any
such actions reasonably requested by the other parties, to limit the adverse
effect upon the Company and Buyer, their respective subsidiaries, and their
respective businesses resulting, or which could reasonably be expected to
result after the Effective Time, from the failure to obtain such consent.
SECTION 5.07. Pooling; Tax Treatment.
(a) The parties will use all reasonable efforts to cause the
Merger to be treated for financial accounting purposes as a Pooling
Transaction, and shall not take, and shall use all reasonable efforts to
prevent any of their affiliates from taking, any actions which could prevent
the Merger from being treated for financial accounting purposes as a Pooling
Transaction.
(b) Each party hereto shall use all reasonable efforts to cause
the Merger to qualify, and shall not take, and shall use all reasonable efforts
to prevent any affiliate of such party from taking, any actions which could
prevent the Merger from qualifying as a reorganization under the provisions of
section 368(a) of the Code.
21
SECTION 5.08. Public Announcements. Buyer may issue a press release
regarding the Merger and shall consult with the Company before issuing any
press release or otherwise making any public statements with respect to the
Merger. The Company shall not issue any press release or make any public
statement prior to such press release by Buyer, except as otherwise required by
applicable Law.
SECTION 5.9. Nasdaq Listing. Buyer shall use all reasonable efforts to
cause the shares of Buyer Common Stock to be issued in the Merger to be
approved for listing on Nasdaq as soon as practicable following the Effective
Time.
SECTION 5.10. Fees, Expenses and Other Payments. At the Closing, Buyer
will pay all transaction costs and expenses (including, without limitation, all
fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by the Company or
the Stockholders in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby (collectively, "Company Expenses"), up to a
maximum amount of $20,000. Any Company Expenses in excess of such amount will
be paid by the Stockholders.
SECTION 5.11. Employment Agreements. At the Closing, the Surviving
Corporation will enter into an employment agreement with Xxxxx Xxxxx in
substantially in the form of Exhibit A attached hereto.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01. Conditions to Obligations of Buyer. The obligations of
Buyer to effect the Merger and the other transactions contemplated hereby are
also subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived in writing by Buyer, in
whole or in part:
(a) Each of the representations and warranties of the Company and
the Stockholders contained in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such
earlier date).
(b) Each of the Company and the Stockholders shall have performed
or complied in all material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on or prior to the
Closing Date.
(c) No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and which has
the effect of making the Merger illegal or otherwise prohibiting
22
consummation of the Merger (an "Order"); and no such Governmental Entity or
third party shall have initiated or threatened to initiate any proceeding
seeking an Order.
(d) Each of the Company and the Stockholders shall have obtained
each consent and approval necessary in order that the transactions contemplated
hereby do not constitute a material breach or violation of, or result in a
right of termination or acceleration of any encumbrance on any material portion
of the Company's properties or assets, any Material Contract, material
arrangement or understanding or any material license, franchise or Company
Permit.
(e) Buyer shall have received reasonably satisfactory assurances
from KPMG Peat Marwick on the Closing Date that the Merger should be treated
for financial accounting purposes as a Pooling Transaction.
(f) The total Liabilities of the Company of the type that would
be reflected in a balance sheet of the Company prepared as of the Closing Date
in accordance with generally accepted accounting principles shall not exceed
$45,000.
(g) All proceedings taken by the Company and all instruments
executed and delivered by the Company and the Stockholders, as applicable, on
or prior to the Closing Date in connection with the transactions herein
contemplated shall be reasonably satisfactory in form and substance to Buyer.
(h) Buyer has completed its due diligence investigation of the
Company's technology and related Intellectual Property, and Buyer is satisfied
with the results of its investigation in its sole discretion.
(i) Buyer's Board of Directors has approved the execution and
delivery of this Agreement, the Merger and the transactions contemplated
hereby.
SECTION 6.02. Conditions to Obligations of the Company and the
Stockholders. The obligation of the Company to effect the Merger and the other
transactions contemplated hereby is also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by the Company, in whole or in part:
(a) Each of the representations and warranties of Buyer contained
in this Agreement shall be true and correct in all material respects as of the
Closing Date as though made on and as of the Closing Date (except to the extent
such representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date).
(b) Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
23
(c) No Governmental Entity or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
Order which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; and no such Governmental Entity or
third party shall have initiated or threatened to initiate any proceeding
seeking an Order.
(d) Counsel to Buyer shall have delivered to the Company its
written opinion substantially in the form of Exhibit B attached hereto.
(e) All proceedings taken by Buyer and all instruments executed
and delivered by Buyer on or prior to the Closing Date in connection with the
transactions herein contemplated shall be reasonably satisfactory in form and
substance to the Company.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification of Buyer. Notwithstanding any
investigation by Buyer or the Buyer Representatives, the Stockholders, jointly
and severally, will indemnify and hold Buyer, its subsidiaries and their
respective affiliates, directors, officers, employees and agents (collectively,
the "Buyer Indemnified Parties") harmless from any and all Liabilities,
obligations, claims, contingencies, damages, costs and expenses, including all
court costs and reasonable attorneys' fees (collectively, "Losses"), that any
Buyer Indemnified Party may suffer or incur as a result of or relating to:
(a) the breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or pursuant hereto or any
allegation by a third party that, if true, would constitute such a breach; or
(b) the breach of any covenant or agreement of the Company or the
Stockholders under this Agreement or any allegation by a third party that, if
true, would constitute such a breach;
provided that (i) the Buyer Indemnified Parties will not be entitled to
indemnification under paragraph (a) of this Section 7.01 unless the aggregate
amount of all Losses for which indemnification is sought by the Buyer
Indemnified Parties pursuant to such paragraph exceeds $50,000, in which case
the Buyer Indemnified Parties will be entitled to indemnification for the full
amount of all such Losses; and (ii) the Buyer Indemnified Parties will not be
entitled to indemnification under paragraph (a) of this Section 7.01 in an
aggregate amount exceeding $1,000,000. Any claim for indemnification under this
Section 7.01 will be satisfied through the return by the Stockholders of Buyer
Common Stock having a value (based on the Conversion Price) equal to the amount
of such claim.
SECTION 7.02. Survival. The Buyer Indemnified Parties' rights to
indemnification under paragraph (a) of this Section 7.01 will survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby until the first anniversary of the
24
Closing; provided that any claim for indemnification will survive until such
claim is finally resolved if a Buyer Indemnified Party notifies the
Stockholders of such claim in reasonable detail prior to the date on which such
claim would otherwise expire hereunder.
SECTION 7.03. Notice. The Buyer Indemnified Parties entitled to
receive indemnification under this Article VII agree to give prompt written
notice to the Stockholders upon the occurrence of any indemnifiable Loss or the
assertion of any claim or the commencement of any action or proceeding in
respect of which such a Loss may reasonably be expected to occur (a "Claim"),
but the Buyer Indemnified Parties' failure to give such notice will not affect
their rights to indemnification under this Article VII, except to the extent
that the Stockholders are materially prejudiced thereby. Such written notice
will include a reference to the event or events forming the basis of such Loss
or Claim and the amount involved, unless such amount is uncertain or
contingent, in which event the Buyer Indemnified Parties will give a later
written notice when the amount becomes fixed.
SECTION 7.04. Defense of Claims. The Stockholders may elect to assume
and control the defense of any Claim, including the employment of counsel
reasonably satisfactory to the Buyer Indemnified Parties and the payment of
expenses related thereto, if (a) the Stockholders acknowledge their obligation
to indemnify the Buyer Indemnified Parties for any Losses resulting from such
Claim and provide reasonable evidence to the Buyer Indemnified Parties of its
financial ability to satisfy such obligation; (b) the Claim does not seek to
impose any liability or obligation on the Buyer Indemnified Parties other than
for money damages; and (c) the Claim does not relate to the Buyer Indemnified
Parties' relationship with their customers or employees. If such conditions are
satisfied and the Buyer Indemnifying Parties select to assume and control the
defense of a Claim, then (i) the interests represented by the Stockholders will
not be liable for any settlement of such Claim effected without the consent of
the Buyer Indemnifying Parties, which consent will not be unreasonably
withheld; (ii) the Stockholders may settle such Claim without the consent of
the Buyer Indemnified Parties; and (iii) the Buyer Indemnified Parties may
employ separate counsel and participate in the defense thereof, but the Buyer
Indemnified Parties will be responsible for the fees and expenses of such
counsel unless (A) the Stockholders have failed to adequately assume the
defense of such Claim or to employ counsel with respect thereto or (B) a
conflict of interest exists between the interests of the Buyer Indemnified
Parties and the interests represented by the Stockholders that requires
representation by separate counsel, in which case the fees and expenses of such
separate counsel will be paid by the Stockholders. If such conditions are not
satisfied, the Buyer Indemnified Parties may assume and control the defense of
the Claim; provided that the Buyer Indemnified Parties may not settle any such
Claim without the consent of the Stockholders, which consent will not be
unreasonably withheld, and further provided that the Stockholders are given a
reasonable opportunity to participate in such defense (at the Stockholders'
expense).
SECTION 7.05. Exclusive Remedy. Buyer Indemnified Parties' right to
indemnification under this Article VII shall be their sole and exclusive remedy
for any breach of the Company's and Stockholders' representations and
warranties contained in this Agreement.
25
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any
time prior to the Effective Time, as follows:
(a) by mutual consent of Buyer and the Company;
(b) by Buyer, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement,
or if any representation or warranty of the Company shall have become untrue,
in either case such that the conditions set forth in Sections 6.02(a) or (b)
would be incapable of being satisfied by February 28, 1999; provided that, in
any case, a willful breach shall be deemed to cause such conditions to be
incapable of being satisfied for purposes of this Section 8.01(b);
(c) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Buyer set forth in this
Agreement, or if any representation or warranty of Buyer shall have become
untrue, in either case such that the conditions set forth in Sections 6.03(a)
or (b) would be incapable of being satisfied by February 28, 1999; provided
that, in any case, a willful material breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
8.01(c);
(d) by either Buyer or the Company, if there shall be any Order
that is final and nonappealable preventing the consummation of the Merger,
except if the party relying on such Order to terminate this Agreement has not
complied with its obligations under Section 5.06 of this Agreement;
(e) by either Buyer or the Company, if the Merger shall not have
been consummated before February 28, 1999.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.02. Effect of Termination. In the event of the termination
of this Agreement pursuant to Section 8.01, this Agreement shall forthwith
become void, there shall be no liability on the part of the parties to the
other parties and all rights and obligations of any party hereto shall cease,
except that nothing herein shall relieve any party of any liability for any
breach of such party's representations, warranties, covenants or agreements
contained in this Agreement. Nothing herein shall be construed to cause the
Nondisclosure Agreement to terminate upon the termination of this Agreement.
SECTION 8.03. Amendment. This Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
26
SECTION 8.04. Waiver. At any time prior to the Effective Time, Buyer,
on the one hand, and the Company, on the other hand, may (a) extend the time
for the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto and
(c) waive compliance by the other party with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party to be bound
thereby.
ARTICLE IX
REGISTRATION RIGHTS
SECTION 9.01. Registration Statement. Within ten (10) days of the
Closing Date, Buyer will prepare and file with the SEC, pursuant to the
Securities Act, a registration statement on Form S-3 (the "Registration
Statement") covering the resale of 50% of the Buyer Common Stock issued to the
Stockholders in the Merger (collectively, the "Registered Shares") in a
continuous offering. Buyer will use commercially reasonable efforts to cause
the Registration Statement to become effective as soon as practicable after the
Closing and to remain effective until the earlier of (i) the date that all of
the Registered Shares have been sold by the Stockholders or (ii) the first
anniversary of the Closing. The Stockholders will not sell any Registered
Shares under the Registration Statement unless, at the time of sale, the
Registration Statement (and the most recently filed post-effective amendment
thereto, if any) has been declared effective. The period of time during which
the Registration Statement is effective is referred to as the "Registration
Period."
SECTION 9.02. Limitations on Sale.
(a) Each Stockholder will notify Buyer two business days prior to
selling any Registered Shares pursuant to the Registration Statement. If, upon
receipt of such a notice, Buyer certifies to such Stockholder in writing that
(i) due to a change in circumstances or a pending transaction, the Registration
Statement contains 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 and (ii) the public disclosure required to correct such
misstatement or omission would be impracticable or injurious to Buyer, then the
Stockholder will refrain from selling any Registered Shares pursuant to the
Registration Statement for the period of time requested by Buyer (a "Blackout
Period"). Buyer may impose no more than four Blackout Periods, which may not
exceed 45 calendar days each and may not exceed 60 calendar days in the
aggregate. Buyer will use reasonable efforts to minimize the time period during
which the Stockholders are required to refrain from selling under this
paragraph.
(b) In addition to the foregoing restrictions, the Stockholders
will not sell, transfer or otherwise dispose of any shares of Buyer Common
Stock or otherwise reduce their risk of loss with respect to any of the Buyer
Common Stock issued to them in the Merger until Buyer has publicly released
earnings covering at least 30 days of combined operations of the Surviving
Corporation (the "Earnings Statement"). Buyer will use commercially reasonable
efforts to release such earnings as soon as reasonably practicable after the
Closing; provided that
27
Buyer will not be required to publicly release earnings for a period other
than a full calendar quarter.
(c) To the extent Blackout Period(s) occurs or the Earnings
Statement is delayed more than 30 days from the end of the period covered by
such statement (an "Earnings Statement Delay"), Buyer will use commercially
reasonable efforts to cause the Registration Statement to remain effective for
an additional period of time beyond the first anniversary of the Closing equal
to the aggregate number of days of such Blackout Period(s) and Earnings
Statement Delay, unless all of the Registered Shares have been sold by the
Stockholders prior to the first anniversary of the Closing.
SECTION 9.03. Information. Each Stockholder will furnish to Buyer, at
Buyer's reasonable request, such information regarding the ownership of
Registered Shares by such Stockholder and the intended method of disposition
thereof as is required in connection with the preparation of a registration
statement covering the Registered Shares.
SECTION 9.04. Expenses. Buyer will bear all expenses arising or
incurred in connection with any registration of the Registered Shares
hereunder, including without limitation registration fees, printing expenses
and Buyer's accounting and legal fees and expenses; provided that each
Stockholder will bear the expense of any underwriting fees, discounts or
commissions applicable to its sale of the Registered Shares and the fees and
expenses of any separate legal counsel or accounting firm engaged by such
Stockholder.
SECTION 9.05. Indemnification.
(a) Buyer agrees to indemnify the Stockholders and each
underwriter and selling broker of the Registered Shares registered hereunder
and their respective officers and directors and each person or entity, if any,
who controls any of the foregoing within the meaning of Section 15 of the
Securities Act and their respective successors against all Losses arising out
of or relating to any untrue statement (or alleged untrue statement) of a
material fact contained in the Registration Statement or any prospectus
included therein or incident thereto or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse the
Stockholders and such other persons for any legal and other expenses reasonably
incurred by them in connection with investigating or defending any claim or
action related to such a Loss; provided, however, that Buyer will not be liable
in any such case if and to the extent that (i) such statement or omission was
made in reliance upon information (including, without limitation, written
negative responses to inquiries) furnished to Buyer in writing by a Stockholder
expressly for use in the Registration Statement or such a prospectus or (ii) a
Stockholder fails to deliver or cause to be delivered a copy of the final
prospectus relating to such offering (as then amended or supplemented) to the
person asserting such claim and such final prospectus would have cured the
defect giving rise to such Loss.
(b) Each Stockholder will indemnify Buyer, the other Stockholders
and their respective officers and directors and each person or entity, if any,
who controls any of the
28
foregoing within the meaning of Section 15 of the Securities Act and their
respective successors against all Losses arising out of or relating to any
untrue statement (or alleged untrue statement) of a material fact contained in
the Registration Statement or any prospectus included therein or incident
thereto or any omission (or alleged omission) to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading, and will reimburse Buyer, the other Stockholders and such other
persons for any legal and any other expenses reasonably incurred by them in
connection with investigating or defending any claim or action related to such
a Loss; provided, however, that this subparagraph (b) shall apply only in the
case of and to the extent specified in clauses (i) and (ii) of the preceding
paragraph.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any of the two preceding paragraphs, the
indemnified and indemnifying parties shall comply with the notice and defense
of claims provisions of Sections 7.03 and 7.04 with respect to such proceeding.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally or by overnight delivery service or
if mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission to the facsimile number specified below:
(a) If to Buyer, to:
CNET, Inc.
000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: R. Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
(b) If to the Company, to:
AuctionGate Interactive, Inc.
00000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxx Xxxxxx, Xxxxxxxxxx 00000
29
Attention: Xxxxx Xxxxx
Facsimile: (000) 000-0000
If to the Stockholders, to:
Xxxxx Xxxxx
00000 Xxxx Xxxxxxx, Xxxxx 0000
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Xxxxx Xxxxxxxx
0000-0 Xxxxx 00xx Xxxxxx
Xxxxxxx, XX 00000
Facsimile: (000) 000-0000
with a copy to:
Xxxxxxx & Associates
0000 X. Xxxxxxxx Xxx., Xxxxx X
Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxx
Facsimile: (000) 000-0000
SECTION 10.02. Certain Definitions. For the purposes of this
Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(b) "business day" means any day other than a day on which banks
in the State of California are authorized or obligated to be closed.
(c) "control" (including the terms "controlled," "controlled by,"
and "under common control with") means the possession, directly or indirectly,
or as trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or
as trustee or executor, by contract or credit arrangement or otherwise.
(d) "knowledge" of or "known" by a person, with respect to any
matter in question, means (i) in the case of the Company, if any executive
officer of the Company has actual knowledge of such matter or would have
knowledge of such matter following due inquiry, (ii) in the case of each of the
Stockholders, if such Stockholder had actual knowledge of such matter and (iii)
in the case of Buyer, if any executive officer of Buyer has actual knowledge of
such matter or would have knowledge of such matter following due inquiry.
30
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as used
in Section 13(d) of the Exchange Act).
(f) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation, (i)
income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability, employment,
social security, workers compensation, unemployment compensation, utility,
severance, excise, stamp, windfall profits, transfer and gains taxes, (ii)
customs, duties, imposts, charges, levies or other similar assessments of any
kind, and (iii) interest, penalties and additions to tax imposed with respect
thereto.
SECTION 10.03. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 10.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that transactions contemplated hereby are fulfilled to the
extent possible.
SECTION 10.05. Entire Agreement. This Agreement (together with the
Exhibits and the Schedules to this Agreement) and the Nondisclosure Agreement
constitute the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties or
between any of them, with respect to the subject matter hereof.
SECTION 10.06. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.07. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, except as expressly provided with respect to Indemnified
Parties in Article VII.
SECTION 10.08. Specific Performance. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and covenants
hereunder, including its
31
failure to take all actions as are necessary on its part to the consummation of
the Merger, will cause irreparable injury to the other parties for which
damages, even if available, will not be an adequate remedy. Accordingly, each
party hereby consents to the issuance of injunctive relief by any court of
competent jurisdiction to compel performance of such party's obligations and to
the granting by any court of the remedy of specific performance of its
obligations hereunder.
SECTION 10.09. Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive to,
and not exclusive of, any rights or remedies otherwise available.
SECTION 10.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of law.
SECTION 10.11. Counterparts. This Agreement may be executed in
multiple counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
32
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CNET, INC.
/s/ HALSEY MINOR
------------------------
Chief Executive Officer
AUCTIONGATE INTERACTIVE, INC.
/s/ XXXXX XXXXX
------------------------
Chief Executive Officer
STOCKHOLDERS:
/s/ XXXXX XXXXX
------------------------
Xxxxx Xxxxx
/s/ XXXXX XXXXXXXX
------------------------
Xxxxx Xxxxxxxx
I, Xxxxx Xxxxxxxx, Assistant Secretary of CNET, Inc., hereby certify that this
agreement has been adopted by CNET, Inc. pursuant to Section 251(f) of the
Delaware General Corporate Law and that all of the conditions specified in the
first sentence of such subsection have been satisfied by CNET, Inc.
/s/ XXXXX XXXXXXXX
------------------------
Xxxxx Xxxxxxxx
Assistant Secretary
