EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
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THIS AGREEMENT AND PLAN OF REORGANIZATION dated as of October 7, 1997 (this
"AGREEMENT"), is entered into by and among Yahoo! Inc., a California corporation
("ACQUIROR"), ST Acquisition Corporation, a California corporation and a wholly-
owned subsidiary of Acquiror ("SUB"), and Four11 Corporation, a California
corporation ("TARGET").
RECITALS:
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A. The Boards of Directors of Acquiror, Sub and Target deem it advisable
and in the best interests of each corporation and the respective shareholders
that Acquiror and Target combine in order to advance the long-term business
interests of Acquiror and Target;
B. The combination of Acquiror and Target shall be effected by the terms
of this Agreement through a transaction in which Sub will merge with and into
Target, Target will become a wholly-owned subsidiary of Acquiror and the
shareholders of Target will become shareholders of Acquiror (the "MERGER");
C. For Federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE");
D. For accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests transaction;
E. As a condition and inducement to Acquiror's willingness to enter into
this Agreement, certain Target shareholders (including Xxxxxxx Xxxxxxxx, Xxxxx
X. Xxxxxx, Xxxxxx Xxxxxx Associates (and affiliated funds), Labrador Ventures
and 4C Ventures) have, concurrently with the execution of this Agreement,
executed and delivered Voting and Proxy Agreements in the form attached hereto
as Exhibit A (the "VOTING AGREEMENTS"), pursuant to which such shareholders
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have, among other things, agreed to vote their shares of Target capital stock in
favor of the Merger and to grant Acquiror irrevocable proxies to vote such
shares;
F. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, certain employees of Target who are also shareholders
of Target (including Xxxxxxx Xxxxxxxx, Xxxxx X. Xxxxxx, Xxxxx Xxxxxxx and Xxxxx
Xxxxxxxxx) have, concurrently with the execution of this Agreement executed and
delivered Noncompetition Agreements in the form attached hereto as Exhibit B
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(the "NONCOMPETITION AGREEMENTS"), which agreements shall only become effective
at the Effective Time (as defined in Section 1.1 below).
G. As a further condition and inducement to Acquiror's willingness to
enter into this Agreement, certain shareholders of Target have executed and
delivered to Acquiror Shareholders Agreements in the form attached hereto as
Exhibit D (the "AFFILIATES AGREEMENTS").
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NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I
THE MERGER
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Section 1.1 Effective Time of the Merger. Subject to the provisions
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of this Agreement, an agreement of merger (the "AGREEMENT OF MERGER") in such
mutually acceptable form as is required by the relevant provisions of the
California Corporations Code ("CALIFORNIA LAW") shall be duly executed and
delivered by the parties hereto and thereafter delivered to the Secretary of
State of the State of California for filing on the Closing Date (as defined in
Section 1.2). The Merger shall become effective upon the due and valid filing
of the Agreement of Merger with the Secretary of State of the State of
California or at such time thereafter as is provided in the Agreement of Merger
(the "EFFECTIVE TIME").
Section 1.2 Closing. The closing of the Merger (the "CLOSING") will
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take place at 10:00 a.m., California time, on a date to be specified by Acquiror
and Target, which shall be no later than the second business day after
satisfaction or waiver of the latest to occur of the conditions set forth in
Article VIII (other than the delivery of the officers' certificates referred to
therein) (the "CLOSING DATE"), at the offices of Venture Law Group, A
Professional Corporation, 0000 Xxxx Xxxx Xxxx, Xxxxx Xxxx, Xxxxxxxxxx unless
another date or place is agreed to in writing by Acquiror and Target.
Section 1.3 Effects of the Merger.
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(a) At the Effective Time (i) the separate existence of Sub shall
cease and Sub shall be merged with and into Target (Sub and Target are sometimes
referred to below as the "CONSTITUENT CORPORATIONS" and Target following
consummation of the Merger is sometimes referred to below as the "SURVIVING
CORPORATION"), (ii) the Articles of Incorporation of Sub shall be the Articles
of Incorporation of the Surviving Corporation and (iii) the Bylaws of Sub as in
effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation.
(b) At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of California Law. Without limiting the
generality of the foregoing, at and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of the Constituent Corporations.
Section 1.4 Directors and Officers. The directors of Sub immediately
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prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, and
the officers of Sub 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.
ARTICLE II
CONVERSION OF SECURITIES
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Section 2.1 Conversion of Capital Stock. At the Effective Time, by
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virtue of the Merger and without any action on the part of the holder of any
shares of Preferred Stock, $.01 par value, of Target (the "TARGET PREFERRED
STOCK) and shares of Common Stock, $.01 par value, of Target ("TARGET COMMON
STOCK") or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the
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capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, no par value, of the Surviving Corporation.
(b) Cancellation of Acquiror-Owned and Target-Owned Stock. All shares
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of Target Common Stock or Target Preferred Stock that are owned by Acquiror,
Sub, Target or any other direct or indirect wholly-owned Subsidiary (as defined
below) of Acquiror or Target shall be canceled and retired and shall cease to
exist and no stock of Acquiror or other consideration shall be delivered in
exchange. All shares of Common Stock, par value of $0.00067 per share, of
Acquiror ("ACQUIROR COMMON STOCK") owned by Target shall remain unaffected by
the Merger. As used in this Agreement, the word "SUBSIDIARY" means, with
respect to any other party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which held by such party or any Subsidiary of such
party do not have a majority of the voting interest in such partnership) or (ii)
at least a majority of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization or a majority of the profit interests in such other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.
(c) Exchange Ratio.
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(i) Subject to Sections 2.2 and 2.4, each issued and outstanding share
of Target Common Stock or Target Preferred Stock (other than shares to be
canceled in accordance with Section 2.1(b) and any Dissenting Shares as defined
in and to the extent provided in Section 2.3) shall be converted into the right
to receive a fraction of a fully paid and nonassessable share of Acquiror Common
Stock equal to the "Exchange Ratio" as defined in and determined in accordance
with the provisions of this Section 2.1(c). All such shares of Target Common
Stock or Target Preferred Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of Acquiror Common Stock and any cash in lieu of fractional
shares of Acquiror Common Stock to be issued or paid in consideration therefor
upon the surrender of such certificate in accordance with Section 2.4, without
interest.
(ii) The "EXCHANGE RATIO" for the conversion of the Target Common
Stock and the Target Preferred Stock shall be determined by dividing (x)
1,654,099 by (y) the sum of (A) the total number of shares of Target Common
Stock issued and outstanding at the Effective Time, plus (B) the total number of
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shares of Target Common Stock issuable upon conversion of all shares of Target
Preferred Stock issued and outstanding at the Effective Time, plus (C) the total
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number of shares of Target Common Stock issuable upon exercise for cash of
Target Options (as defined in Section 2.1(d)) outstanding at the Effective Time,
whether vested or unvested, plus (D) the total number of shares of Target Common
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Stock issuable upon exercise for cash of the Target Warrants (as defined in
Section 2.1(d)). Subject to Section 9.1(e), the Exchange Ratio shall not change
as a result a fluctuations in the market price of Acquiror Common Stock between
the date of this Agreement and the Effective Time.
(iii) If, between the date of this Agreement and the Effective Time,
the outstanding shares of Acquiror Common Stock shall have been changed into a
different number of shares or a different class by reason of any
reclassification, split-up, stock dividend or stock combination, then the
Exchange Ratio shall be correspondingly adjusted.
(d) Target Stock Options and Warrants. At the Effective Time, all then
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outstanding options, whether vested or unvested, ("TARGET OPTIONS") to purchase
Target Common Stock issued under Target's 1995 Stock Option Plan (the "TARGET
OPTION PLAN") and all outstanding warrants to purchase Target Common Stock
("TARGET WARRANTS") that by their terms survive the Closing will be assumed by
Acquiror in accordance with Section 6.5. All of the Target Options and all of
the Target Warrants are listed on Schedule 2.1(d) attached hereto. An updated
Schedule 2.1(d) of Target Options and Target Warrants shall be delivered by
Target to Acquiror on the Closing Date.
Section 2.2 Escrow Agreement. At the Effective Time or such later
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time as determined in accordance with Section 2.3(b), Acquiror will deposit in
escrow certificates representing 124,057 shares of Acquiror Common Stock. Such
shares shall be held in escrow on behalf of the persons who are the holders of
Target Common Stock and Target Preferred Stock in the Merger immediately prior
to the Effective Time (the "FORMER TARGET SHAREHOLDERS"), on a pro rata basis,
in accordance with each such Former Target Shareholders' percentage ownership
("PRO RATA PORTION") of Target Common Stock immediately prior to the Merger
(assuming conversion of all Target Preferred Stock to Target Common Stock).
Such shares (the "ESCROW SHARES") shall be held as security for the Former
Target Shareholders' indemnification obligations under Article X and pursuant to
the provisions of an escrow agreement (the "ESCROW AGREEMENT") to be executed
pursuant to Section 7.6.
Section 2.3 Dissenting Shares.
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(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of Target Common Stock or Target Preferred Stock held by a holder who
has exercised such holder's dissenter's rights in accordance with Chapter 13 of
California Law, and who, as of
the Effective Time, has not effectively withdrawn or lost such dissenter's
rights ("DISSENTING SHARES"), shall not be converted into or represent a right
to receive Acquiror Common Stock pursuant to Section 2.1, but the holder of the
Dissenting Shares shall only be entitled to such rights as are granted by
Chapter 13 of California Law.
(b) Notwithstanding the provisions of Section 2.3(a), if any holder of
shares of Target Common Stock or Target Preferred Stock who demands his
dissenter's rights with respect to such shares under Section 2.1 shall
effectively withdraw or lose (through failure to perfect or otherwise) his
rights to receive payment for the fair market value of such shares under
California Law, then, as of the later of the Effective Time or the occurrence of
such event, such holder's shares shall automatically be converted into and
represent only the right to receive Acquiror Common Stock and payment for
fractional shares as provided in Section 2.1(c) and 2.6, without interest, upon
surrender of the certificate or certificates representing such shares; provided
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that if such holder effectively withdraws or loses his right to receive payment
for the fair market value of such shares after the Effective Time, then, at such
time Acquiror will deposit in escrow certificates representing such holder's Pro
Rata Portion of the Escrow Shares.
(c) Target shall give Acquiror (i) prompt notice of any written
demands for payment with respect to any shares of capital stock of Target
pursuant to Chapter 13 of California Law, withdrawals of such demands, and any
other instruments served pursuant to California Law and received by the Target
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for dissenter's rights under California Law. Target shall
not, except with the prior written consent of Acquiror, voluntarily make any
payment with respect to any demands for dissenter's rights with respect to
Target Common Stock or Target Preferred Stock or offer to settle or settle any
such demands.
Section 2.4 Exchange of Certificates.
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(a) From and after the Effective Time, each holder of an outstanding
certificate or certificates ("CERTIFICATES") which represented shares of Target
Common Stock or Target Preferred Stock immediately prior to the Effective Time
shall have the right to surrender each Certificate to Acquiror, and receive in
exchange for all Certificates held by such holder a certificate representing the
number of whole shares of Acquiror Common Stock (other than the Escrow Shares)
into which the Target Common Stock or Target Preferred Stock evidenced by the
Certificates so surrendered shall have been converted pursuant to the provisions
of Article II of this Agreement. The surrender of Certificates shall be
accompanied by duly completed and executed Letters of Transmittal in such form
as may be mutually agreed by Acquiror and Target. Until surrendered, each
outstanding Certificate which prior to the Effective Time represented shares of
Target Common Stock or Target Preferred Stock shall be deemed for all corporate
purposes to evidence ownership of the number of whole shares of Acquiror Common
Stock into which the shares of Target Common Stock or Target Preferred Stock
have been converted but shall, subject to applicable dissenters rights under
California Law and Section 2.3, have no other rights. Subject to dissenters
rights under California Law and Section 2.3 from and after the Effective Time,
the holders of shares of Target Common Stock or Target Preferred Stock shall
cease to have any rights in respect of such shares and their rights shall be
solely in respect of the
Acquiror Common Stock into which such shares of Target Common Stock or Target
Preferred Stock have been converted. From and after the Effective Time, there
shall be no further registration of transfers on the records of Target of shares
of Target Common Stock or Target Preferred Stock outstanding immediately prior
to the Effective Time.
(b) If any shares of Acquiror 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 Acquiror, or its exchange agent,
any transfer or other taxes payable by reason of the foregoing or establish to
the satisfaction of Acquiror that such taxes have been paid or are not required
to be paid. Notwithstanding the foregoing, neither Acquiror or Target shall be
liable to a holder of shares of Target Common Stock or Target Preferred Stock
for shares of Acquiror Common Stock issuable to such holder pursuant to the
provisions of Article II of the 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, Acquiror shall issue in
exchange for such lost, stolen or destroyed Certificate the shares of Acquiror
Common Stock issuable in exchange therefor pursuant to the provisions of Article
II of the Agreement. The Board of Directors of Acquiror 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 Acquiror an indemnity
agreement against any claim that may be made against Acquiror with respect to
the Certificate alleged to have been lost, stolen or destroyed.
Section 2.5 Distributions with Respect to Unexchanged Shares . No
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dividends or other distributions declared or made after the Effective Time with
respect to Acquiror Common Stock with a record date after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
shares of Acquiror Common Stock represented thereby and no cash payment in lieu
of fractional shares shall be paid to any such holder pursuant to Section 2.6
below until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of applicable laws, following surrender of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Acquiror Common Stock issued in
exchange therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of Acquiror Common
Stock to which such holder is entitled pursuant to Section 2.6 below and the
amount of dividends or other distributions with a record date after the
Effective Time previously paid with respect to such whole shares of Acquiror
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
surrender and a payment date subsequent to surrender payable with respect to
such whole shares of Acquiror Common Stock.
Section 2.6 No Fractional Shares . No certificate or scrip representing
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fractional shares of Acquiror Common Stock shall be issued upon the surrender
for exchange of Certificates, and
such fractional share interests will not entitle the owner thereof to vote or to
any rights of a shareholder of Acquiror. Notwithstanding any other provision of
this Agreement, each holder of shares of Target Common Stock or Target Preferred
Stock exchanged pursuant to the Merger who would otherwise have been entitled to
receive a fraction of a share of Acquiror Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of Acquiror Common Stock multiplied by $51.3875 (the "CLOSING STOCK
PRICE").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TARGET
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Target represents and warrants to Acquiror and Sub that the statements
contained in this Article III are true and correct, except as set forth in the
disclosure schedule delivered by Target to Acquiror on or before the date of
this Agreement (the "TARGET DISCLOSURE SCHEDULE"). The Target Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article III.
Section 3.1 Organization of Target. Target is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California, has all requisite corporate power to own, lease and operate its
property and to carry on its business as now being conducted, and is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of its business or
ownership or leasing of properties makes such qualification or licensing
necessary and where the failure to be so qualified or licensed could result in a
material adverse effect on the business as presently conducted, assets
(including intangible assets), condition (financial or otherwise), prospects,
property, or result of operations (a "MATERIAL ADVERSE EFFECT") of Target. The
Target Disclosure Schedule contains a true and complete listing of the locations
of all sales offices, manufacturing facilities, and any other offices or
facilities of Target and a true and complete list of all states in which Target
maintains any employees. The Target Disclosure Schedule contains a true and
complete list of all states in which Target is duly qualified or licensed to
transact business as a foreign corporation.
Section 3.2 Target Capital Structure.
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(a) The authorized capital stock of Target consists of 15,000,000
shares of Target Common Stock and 3,945,106 shares of Target Preferred Stock, of
which 1,697,915 shares are designated as Series A Preferred Stock, and 2,247,191
shares are designated as Series B Preferred Stock. As of the date of this
Agreement, there are (i) 2,894,016 shares of Target Common Stock issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
29,042 of which are subject to repurchase rights under the Target Option Plan
and the agreements thereunder, (ii) 1,697,915 shares of Series A Preferred Stock
and 1,932,585 shares of Series B Preferred Stock issued and outstanding
(collectively, the "TARGET PREFERRED STOCK") all of which are validly issued,
fully paid and nonassessable, and all of which are convertible into Target
Common Stock on a one share for one share basis, (iii) warrants to purchase up
to 69,522 shares of Target Preferred Stock (collectively, the "WARRANT SHARES");
(iv) 3,700,022 shares of Target Common Stock reserved for future issuance upon
conversion of the Target Preferred Stock and the Warrant Shares; (v) 541,478
shares of Target Common Stock reserved for future issuance pursuant to Target
Options granted and outstanding under the Target Option Plan; and (vi) 537,836
shares of Target Common Stock reserved for issuance upon exercise of options
available to be granted in the future under the Target Option Plan. The issued
and outstanding shares of Target Common Stock and of each series of Target
Preferred Stock are held of record by the shareholders of Target as set forth
and identified in the shareholder list attached as Schedule 3.2(a) to the Target
Disclosure Schedule. The issued and outstanding Target Options are held of
record by the option holders as set forth and identified in the option holder
list provided to Acquiror or its representatives. The issued and outstanding
Target Warrants are held of record by the warrantholders as set forth and
identified in the warrantholder list provided to Acquiror or its
representatives. All shares of Target Common Stock and Target Preferred Stock
subject to issuance as specified above, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
shall be duly authorized, validly issued, fully paid and nonassessable. All
outstanding shares of Target Common Stock, Target Preferred Stock and
outstanding Target Options and Target Warrants (collectively "TARGET
SECURITIES") were issued in compliance with applicable federal and state
securities laws. Except as set forth in the Target Disclosure Schedule, there
are no obligations, contingent or otherwise, of Target to repurchase, redeem or
otherwise acquire any shares of Target Common Stock or Target Preferred Stock or
make any Investment (in the form of a loan, capital contribution or otherwise)
in any other entity. An updated Schedule 3.2(a) reflecting changes permitted by
this Agreement in the capitalization of Target between the date hereof and the
Effective Time shall be delivered by Target to Acquiror on the Closing Date.
(b) Except as set forth in this Section 3.2, there are no equity
securities of any class or series of Target, or any security exchangeable into
or exercisable for such equity securities, issued, reserved for issuance or
outstanding. Except as set forth in this Section 3.2, there are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Target is a party or by which it is bound obligating Target
to issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock of Target or obligating Target to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. Except as provided in this
Agreement or any transaction contemplated thereby, there are no voting trusts,
proxies or other agreements or understandings with respect to the voting of the
shares of capital stock of Target.
(c) All Target Options have been issued in accordance with the terms
of the Target Option Plan and pursuant to the standard forms of option agreement
previously provided to Acquiror or its representatives. No option will by its
terms require an adjustment in connection with the Merger. Neither the
consummation of transactions contemplated by this Agreement or the other
Transaction Documents (as defined in Section 3.3(a)) nor any action taken by
Target in connection with such transactions will result in (i) any acceleration
of vesting in favor of any optionee under any Target Option; (ii) any additional
benefits for any optionee under any Target Option; or (iii) the inability of
Acquiror after the Effective Date to exercise any right or benefit held by
Target prior to the Effective Date with respect to any Target Option assumed by
Acquiror, including, without limitation, the right to repurchase an optionee's
unvested shares on termination of such optionee's employment. The assumption by
Acquiror of Target Options in accordance with Section 6.5 hereunder will not (i)
give the optionees additional benefits which they did not have under their
options prior to such assumption (after taking into account the existing
provisions of the options, such as their respective exercise prices and vesting
schedules) and (ii) constitute a breach of the Target Plan or any agreement
entered into pursuant to such plan.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
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(a) Target has all requisite corporate power and authority to enter
into this Agreement and all Transaction Documents (as defined in this Section
3.3(a)) to which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The execution
and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated by this Agreement and such
Transaction Documents have been duly authorized by all necessary corporate
action on the part of Target, subject only to the approval of the Merger by
Target's shareholders under the provisions of California Law and Target's
Articles of Incorporation. This Agreement has been and such Transaction
Documents have been or, to the extent not executed as of the date hereof, will
be duly executed and delivered by Target. This Agreement and each of the
Transaction Documents to which Target is a party constitutes, and each of the
Transaction Documents to which Target will become a party when executed and
delivered by Target will constitute, assuming the due authorization, execution
and delivery by the other parties hereto, the valid and binding obligation of
Target, enforceable in accordance with their respective terms. For purposes of
this Agreement, "TRANSACTION DOCUMENTS" means all documents or agreements
required to be delivered by any party under this Agreement including the
Agreement of Merger, the Escrow Agreement, the Voting Agreements, the
Shareholders Agreements, the Affiliates Agreements and the Noncompetition
Agreements.
(b) The execution and delivery by Target of this Agreement and the
Transaction Documents to which it is or will become a party does not and the
consummation of the transactions contemplated by this Agreement and the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Target, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, lease, contract or other
agreement, instrument or obligation to which Target is a party or by which it or
any of its properties or assets may be bound, or (iii) conflict or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Target or any of its properties or
assets, except in the case of (ii) and (iii) for any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not have a
Material Adverse Effect on Target.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority
or instrumentality ("GOVERNMENTAL ENTITY") is required by or with respect to
Target in connection with the execution and delivery of this Agreement or of any
other Transaction Document to which it is or will become a party or the
consummation of the transactions contemplated by this Agreement or such
Transaction Document or the continuation of the business activities of Target
following consummation of the Merger without a Material Adverse Change (as
defined in Section 3.6(a)), except for (i) the filing of the Agreement of Merger
with the California Secretary of State, (ii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and the laws of any foreign country
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, could be expected to have a
Material Adverse Effect on Target.
Section 3.4 Financial Statements.
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(a) Target has delivered to Acquiror copies of Target's unaudited
balance sheet as of August 31, 1997 (the "MOST RECENT BALANCE SHEET") and
statements of operations, shareholders' equity and cash flow for the nine-month
period then-ended (together with the Most Recent Balance Sheet, the "TARGET
UNAUDITED FINANCIALS") and the audited balance sheets as of December 31, 1995
and 1996 and the related statements of operations, shareholders' equity and cash
flows for the fiscal year ended December 31, 1995 and the fiscal year ended
December 31, 1996, respectively (collectively, with the Target Unaudited
Financials, the "TARGET FINANCIAL STATEMENTS").
(b) The Target Financial Statements are complete and in accordance
with the books and records of Target and present fairly in all material respects
the financial position, results of operations and cash flows of Target as of
their historical dates and for the periods indicated. The Target Financial
Statements have been prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods. The reserves, if
any, reflected on the Target Financial Statements are adequate in light of the
contingencies with respect to which they are made.
(c) Target has no debt, liability, or obligation of any nature,
whether accrued, absolute, contingent, or otherwise, and whether due or to
become due, that is not reflected or reserved against in the Most Recent Balance
Sheet, except for those that may have been incurred after the date of the Most
Recent Balance Sheet or that would not reasonably be required, in accordance
with generally accepted accounting principles applied on a basis consistent with
prior periods, to be included in a balance sheet or the notes thereto, and
except that Target has not established any reserves with respect to the costs
and fees associated with this Agreement and the transactions contemplated
hereby. Except as noted in the previous sentence, all debts, liabilities, and
obligations incurred after the date of the Most Recent Balance Sheet were
incurred in the ordinary course of business, and are usual and normal in amount
and not material both individually and in the aggregate to Target.
Section 3.5 Tax Matters.
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(a) For purposes of this Section 3.5 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "TAXES" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, (A) imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, ozone depleting chemicals taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
(ii) The term "RETURNS" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(b) All Returns required to be filed by or on behalf of Target have
been duly filed on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Target under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis or have been accrued on the Most Recent Balance Sheet, and no
other Taxes are payable by Target with respect to items or periods covered by
such Returns (whether or not shown on or reportable on such Returns). Target
has withheld and paid over all Taxes required to have been withheld and paid
over, and complied with all information reporting and backup withholding
requirements, including maintenance of required records with respect thereto, in
connection with amounts paid or owing to any employee, creditor, independent
contractor, or other third party. There are no liens on any of the assets of
Target with respect to Taxes, other than liens for Taxes not yet due and payable
or for Taxes that Target is contesting in good faith through appropriate
proceedings and for which appropriate reserves have been established on the Most
Recent Balance Sheet. Target has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired.
(c) The amount of Target's liability for unpaid Taxes (whether actual
or contingent) for all periods through the date of the Most Recent Balance Sheet
does not, in the aggregate, exceed the amount of the current liability accruals
for Taxes reflected on the Most Recent Balance Sheet, and the Most Recent
Balance Sheet reflects proper accrual in accordance with generally accepted
accounting principles applied on a basis consistent with prior periods of all
liabilities for Taxes payable after the date of the Most Recent Balance Sheet
attributable to transactions and events occurring prior to such date. No
liability for Taxes has been incurred (or prior to Closing will be incurred)
since such date other than in the ordinary course of business.
(d) Acquiror has been furnished by Target with true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Target
relating to Taxes, and (ii) all federal and state income or franchise tax
Returns and state sales and use tax Returns for or including Target for all
periods since the inception of Target. Target does not do business in or derive
income from any state other than states for which Returns have been duly filed
and furnished to Acquiror.
(e) The Returns of or including Target have never been audited by a
government or taxing authority, nor is any such audit in process, threatened or,
to Target's knowledge, pending (either in writing or verbally, formally or
informally). No deficiencies exist or have been asserted (either in writing or
verbally, formally or informally), and Target has not received notice (either in
writing or verbally, formally or informally) that it has not filed a Return or
paid Taxes required to be filed or paid. Target is neither a party to any
action or proceeding for assessment or collection of Taxes, nor has such event
been asserted or threatened (either in writing or verbally, formally or
informally) against Target or any of its assets. No waiver or extension of any
statute of limitations is in effect with respect to Taxes or Returns of Target.
Target has disclosed on its federal and state income and franchise tax Returns
all positions taken therein that could give rise to a substantial understatement
penalty within the meaning of Code Section 6662 or comparable provisions of
applicable state tax laws.
(f) Target is not, nor has it ever been, a party to any tax sharing
agreement.
(g) Target is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code, and
Acquiror is not required to withhold tax by reason of Section 1445 of the Code.
Target is not a "consenting corporation" under Section 341(f) of the Code.
Target has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Target pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Target has not
agreed to, nor is it required to make any adjustment under Code Section 481(a)
by reason of, a change in accounting method. Target is not, nor has it been, a
"reporting corporation" subject to the information reporting and record
maintenance requirements of Section 6038A and the regulations thereunder.
Target is in compliance with the terms and conditions of any applicable tax
exemptions, agreements or orders
of any foreign government to which it may be subject or which it may have
claimed, and the transactions contemplated by this Agreement will not have any
adverse effect on such compliance.
(h) The Target Disclosure Schedule sets forth accurate and complete
information regarding Target's net operating losses for federal and each
applicable state tax purposes. Target has no net operating losses and credit
carryovers or other tax attributes currently subject to limitation under
Sections 382, 383, or 384 of the Code.
Section 3.6 Absence of Certain Changes or Events. Since August 31,
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1997 and as permitted by this Agreement, Target has not:
(a) suffered any material adverse change in its business as presently
conducted, assets (including intangible assets), condition (financial or
otherwise), prospects, property or results of operations ("MATERIAL ADVERSE
CHANGE").
(b) suffered any damage, destruction or loss, whether covered by
insurance or not, that has resulted, or could be expected to result, in a
Material Adverse Effect on Target;
(c) granted or agreed to make any increase in the compensation payable
or to become payable by Target to its officers or employees except in the
ordinary course of business and consistent with past practice to non-officer
employees;
(d) declared, set aside or paid any dividend or made any other
distribution on or in respect of the shares of the capital stock of Target or
declared any direct or indirect redemption, retirement, purchase or other
acquisition by Target of such shares;
(e) issued any shares of capital stock of Target or any warrants,
rights, options or entered into any commitment relating to the shares of Target
except for the issuance of shares of Target capital stock pursuant to the
exercise of Target Options and Target Warrants listed in the Target Disclosure
Schedule and the conversion of outstanding Target Preferred Stock;
(f) made any change in the accounting methods or practices it follows,
whether for general financial or tax purposes, or any change in depreciation or
amortization policies or rates adopted therein;
(g) sold, leased, abandoned or otherwise disposed of any real property
or any machinery, equipment or other operating property;
(h) sold, assigned, transferred, licensed or otherwise disposed of any
patent, trademark, trade name, brand name, copyright (or pending application for
any patent, trademark or copyright) invention, work of authorship, process,
know-how, formula or trade secret or interest thereunder or other intangible
asset;
(i) permitted or allowed any of its property or assets to be subjected
to any mortgage, deed of trust, pledge, lien, security interest or other
encumbrance of any kind (except those permitted under Section 3.7);
(j) made any capital expenditure or commitment individually in excess
of $10,000 or in the aggregate in excess of $50,000;
(k) paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets to, or entered into any agreement or arrangement
with, any of its Affiliates (as defined in Section 3.16), officers, directors or
shareholders or any affiliate or associate of any of the foregoing;
(l) made any amendment to or terminated any agreement which, if not so
amended or terminated, would be required to be disclosed on the Target
Disclosure Schedule; or
(m) agreed to take any action described in this Section 3.6 or outside
of its ordinary course of business or which would constitute a material breach
of any of the representations contained in this Agreement.
Section 3.7 Title and Related Matters. Target has good and marketable
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title to all the properties, interests in properties and assets, real and
personal, reflected in the Most Recent Balance Sheet or acquired after the date
of the Most Recent Balance Sheet (except properties, interests in properties and
assets sold or otherwise disposed of since the date of the Most Recent Balance
Sheet in the ordinary course of business), free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except the
lien of current taxes not yet due and payable. The equipment of Target used in
the operation of its business is, taken as a whole, (i) adequate for the
business conducted by Target and (ii) in good operating condition and repair,
ordinary wear and tear excepted. All real or personal property leases to which
Target is a party are valid, binding, enforceable and effective in accordance
with their respective terms. To the knowledge of Target, there is not under any
of such leases any existing default or event of default or event which, with
notice or lapse of time or both, would constitute a default. The Target
Disclosure Schedule contains a description of all personal property with an
individual net book value in excess of $10,000 or categories of such property
(which may be described based upon such categories) in excess of $35,000, or
real property leased or owned by Target, describing its interest in said
property. True and correct copies of Target's real property and personal
property leases have been provided to Acquiror or its representatives.
Section 3.8 Proprietary Rights.
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(a) Target owns all right, title and interest in and to, or otherwise
possesses legally enforceable rights, or is licensed to use, all patents,
copyrights, technology, software, software tools, know-how, processes, trade
secrets, trademarks, service marks, trade names, Internet domain names and other
proprietary rights used in or necessary for the conduct of Target's business as
conducted to the date of this Agreement, including, without limitation, the
technology, information, databases, data lists, data compilations, and all
proprietary rights developed or discovered or used in connection with or
contained in all versions and
implementations of Target's World Wide Web sites (including xxx.xxxx00.xxx
and xxx.xxxxxxxxxx.xxx) or any product which has been or is being distributed or
sold by Target or currently is under development by Target or has previously
been under development by Target (collectively, including such Web site, the
"TARGET PRODUCTS"), free and clear of all liens, claims and encumbrances
(including without limitation linking, licensing and distribution rights) (all
of which are referred to as "TARGET PROPRIETARY RIGHTS"). In addition, Target
is not aware of any legal restrictions or impediments that would prevent Target
from conducting its business as proposed to conducted in Target's Business Plan
dated June 1997. The Target Disclosure Schedule contains an accurate and
complete (i) description of all patents, trademarks (with separate listings of
registered and unregistered trademarks), trade names, Internet domain names and
registered copyrights in or related to the Target Products or otherwise included
in the Target Proprietary Rights and all applications and registration
statements therefor, including the jurisdictions in which each such Target
Proprietary Right has been issued or registered or in which any such application
of such issuance and registration has been filed, (ii) list of all licenses and
other agreements with third parties (the "THIRD PARTY LICENSES") relating to any
material patents, copyrights, trade secrets, software, inventions, technology,
know-how, processes or other proprietary rights that Target is licensed or
otherwise authorized by such third parties to use, market, distribute or
incorporate in Target Products (such patents, copyrights, trade secrets,
software, inventions, technology, know-how, processes or other proprietary
rights are collectively referred to as the "THIRD PARTY TECHNOLOGY") and (iii)
list of all licenses and other agreements with third parties relating to any
material information, compilations, data lists or databases that Target is
licensed or otherwise authorized by such third parties to use, market,
disseminate distribute or incorporate in Target Products. All of Target's
patents, copyrights, trademark, trade name or Internet domain name registrations
related to or in the Target Products are valid and in full force and effect; and
consummation of the transactions contemplated by this Agreement will not alter
or impair any such rights. No claims have been asserted or threatened against
Target (and Target is not aware of any claims which are likely to be asserted or
threatened against Target or which have been asserted or threatened against
others relating to Target Proprietary Rights or Target Products) by any person
challenging Target's use, possession, manufacture, sale or distribution of
Target Products under any Target Proprietary Rights (including, without
limitation, the Third Party Technology) or challenging or questioning the
validity or effectiveness of any material license or agreement relating thereto
(including, without limitation, the Third Party Licenses) or alleging a
violation of any person's or entity's privacy, personal or confidentiality
rights. There is no valid basis for any claim of the type specified in the
immediately preceding sentence which could in any material way relate to or
interfere with the continued enhancement and exploitation by Target of any of
the Target Products. None of the Target Products nor the use or exploitation of
any Target Proprietary Rights in its current business infringes on the rights of
or constitutes misappropriation of any proprietary information or intangible
property right of any third person or entity, including without limitation any
patent, trade secret, copyright, trademark or trade name and Target has not been
sued in any suit, action or proceeding which involves a claim of such
infringement, misappropriation or unfair competition.
(b) Except as set forth in the Target Disclosure Schedule, Target has
not granted any third party any right to manufacture, reproduce, distribute,
market or exploit any of
the Target Products or any adaptations, translations, or derivative works based
on the Target Products or any portion thereof. Target has not knowingly granted
any third party any right to allow users of Target's World Wide Web site to link
to other World Wide Web or Internet sites. Except with respect to the rights of
third parties to the Third Party Technology, no third party has any express
right to manufacture, reproduce, distribute, market or exploit any works or
materials of which any of the Target Products are a "derivative work" as that
term is defined in the United States Copyright Act, Title 17, U.S.C. Section
101.
(c) All material designs, drawings, specifications, source code,
object code, scripts, documentation, flow charts, diagrams, data lists,
databases, compilations and information incorporating, embodying or reflecting
any of the Target Products at any stage of their development (the "TARGET
COMPONENTS") were written, developed and created solely and exclusively by
employees of Target without the assistance of any third party or entity or were
created by third parties who assigned ownership of their rights to Target by
means of valid and enforceable consultant confidentiality and invention
assignment agreements, copies of which have been delivered to Acquiror. Target
has at all times used commercially reasonable efforts customary in its industry
to treat the Target Proprietary Rights related to Target Products and Target
Components as containing trade secrets and has not disclosed or otherwise dealt
with such items in such a manner as intended or reasonably likely to cause the
loss of such trade secrets by release into the public domain.
(d) To Target's knowledge, no employee, contractor or consultant of
Target is in violation in any material respect of any term of any written
employment contract, patent disclosure agreement or any other written contract
or agreement relating to the relationship of any such employee, consultant or
contractor with Target or, to Target's knowledge, any other party because of the
nature of the business conducted by Target. The Target Disclosure Schedule
lists all employee, contractors and consultants who have participated in any way
in the development of the Target Products or the Target Proprietary Rights.
(e) Each person presently or previously employed by Target (including
independent contractors, if any) with access authorized by Target to
confidential information has executed a confidentiality and non-disclosure
agreement pursuant to the form of agreement previously provided to Acquiror or
its representatives. Such confidentiality and non-disclosure agreements
constitute valid and binding obligations of Target and such person, enforceable
in accordance with their respective terms.
(f) No product liability or warranty claims have been communicated in
writing to or threatened against Target.
(g) To Target's knowledge, there is no material unauthorized use,
disclosure, infringement or misappropriation of any Target Proprietary Rights,
or any Third Party Technology to the extent licensed by or through Target, by
any third party, including any employee or former employee of Target. Target has
not entered into any agreement to indemnify
any other person against any charge of infringement of any Target Proprietary
Rights, other than indemnification provisions contained in purchase orders
arising in the ordinary course of business.
(h) Target has taken all steps customary and reasonable in the
industry to protect and preserve the confidentiality and proprietary nature of
all Intellectual Property and other confidential information not otherwise
protected by patents, patent applications or copyright ("CONFIDENTIAL
INFORMATION"). All use, disclosure or appropriation of Confidential Information
owned by Target by or to a third party has been pursuant to the terms of a
written agreement between Target and such third party. All use, disclosure or
appropriation of Confidential Information not owned by Target has been pursuant
to the terms of a written agreement between Target and the owner of such
Confidential Information, or is otherwise lawful.
Section 3.9 Employee Benefit Plans.
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(a) The Target Disclosure Schedule lists, with respect to Target and
any trade or business (whether or not incorporated) which is treated as a single
employer with Target (an "ERISA AFFILIATE") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all material employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (ii) each loan to a non-officer employee in excess of
$10,000, loans to officers and directors and any stock option, stock purchase,
phantom stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129), life
insurance or accident insurance plans, programs or arrangements, (iii) all
bonus, pension, profit sharing, savings, deferred compensation or incentive
plans, programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of Target and that do
not generally apply to all employees, and (v) any current or former employment
or executive compensation or severance agreements, written or otherwise, as to
which unsatisfied obligations of Target of greater than $10,000 remain for the
benefit of, or relating to, any present or former employee, consultant or
director of Target as to which (with respect to any of items (i) through (v)
above) any potential liability is borne by Target (together, the "TARGET
EMPLOYEE PLANS").
(b) Target has made available to Acquiror or its representatives a
copy of each of the Target Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets, summary
plan descriptions and other authorizing documents, and, to the extent still in
its possession, any material employee communications relating thereto) and has,
with respect to each Target Employee Plan which is subject to ERISA reporting
requirements, provided copies of any Form 5500 reports filed for the last three
plan years. Any Target Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation, or has applied to the Internal Revenue Service for such
a determination letter prior to the expiration of the requisite period under
applicable
Treasury Regulations or Internal Revenue Service pronouncements in which to
apply for such determination letter and to make any amendments necessary to
obtain a favorable determination. Target has also furnished Acquiror with the
most recent Internal Revenue Service determination letter issued with respect to
each such Target Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss of the
tax-qualified status of any Target Employee Plan subject to Code Section 401(a).
(c) (i) None of the Target Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person; (ii) there has been no
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Target Employee Plan, which could
reasonably be expected to have, in the aggregate, a Material Adverse Effect on
Target; (iii) each Target Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a Material Adverse Effect on Target, and Target and
each subsidiary or ERISA Affiliate have performed all material obligations
required to be performed by them under, are not in any material respect in
default, under or violation of, and have no knowledge of any material default or
violation by any other party to, any of the Target Employee Plans; (iv) neither
Target nor any subsidiary or ERISA Affiliate is subject to any material
liability or penalty under Sections 4976 through 4980 of the Code or Title I of
ERISA with respect to any of the Target Employee Plans; (v) all material
contributions required to be made by Target or any subsidiary or ERISA Affiliate
to any Target Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Target Employee
Plan for the current plan years; (vi) with respect to each Target Employee Plan,
no "reportable event" within the meaning of Section 4043 of ERISA (excluding any
such event for which the thirty (30) day notice requirement has been waived
under the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; and (vii) no Target Employee
Plan is covered by, and neither Target nor any subsidiary or ERISA Affiliate has
incurred or expects to incur any material liability under Title IV of ERISA or
Section 412 of the Code. With respect to each Target Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section 3(2) of
ERISA or an employee welfare benefit plan within the meaning of Section 3(1) of
ERISA, Target has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed) and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
Target Employee Plan except as would not give rise, in the aggregate, to a
Material Adverse Effect on Target. No suit, administrative proceeding, action
or other litigation has been brought, or to the best knowledge of Target is
threatened, against or with respect to any such Target Employee Plan, including
any audit or inquiry by the IRS or United States Department of Labor. Neither
Target nor any ERISA Affiliate is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multi-employer plan" as defined in
Section 3(37) of ERISA.
(d) With respect to each Target Employee Plan, Target and each of its
United States subsidiaries have complied with (i) the applicable health care
continuation and notice provisions of the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") and the
proposed regulations thereunder and (ii) the applicable requirements of the
Family Leave Act of 1993 and the regulations thereunder, except to the extent
that such failure to comply would not, in the aggregate, have a Material Adverse
Effect on Target.
(e) The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Target or any other ERISA Affiliate to severance benefits or any
other payment (including, without limitation, unemployment compensation, golden
parachute or bonus), except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting of any such benefits, or (iii)
increase any benefits or the amount of compensation due any such employee or
service provider.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by Target or other ERISA Affiliate
relating to, or change in participation or coverage under, any Target Employee
Plan which would materially increase the expense of maintaining such Plan above
the level of expense incurred with respect to that Plan for the most recent
fiscal year included in the Target Financial Statements.
Section 3.10 Bank Accounts. The Target Disclosure Schedule sets forth
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the names and locations of all banks, trusts, companies, savings and loan
associations, and other financial institutions at which Target maintains
accounts of any nature and the names of all persons authorized to draw thereon
or make withdrawals therefrom.
Section 3.11 Contracts.
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(a) Except as set forth on the Target Disclosure Schedule:
(i) Target has no agreements, contracts or commitments that provide
for the sale, licensing or distribution by Target of any Target Products or
Target Proprietary Rights. Without limiting the foregoing, Target has not
granted to any third party (including, without limitation, OEMs and site-license
customers) any rights to reproduce, manufacture or distribute any of the Target
Products, nor has Target granted to any third party any exclusive rights of any
kind (including, without limitation, exclusivity with regard to categories of
advertisers on Target's World Wide Web site, territorial exclusivity or
exclusivity with respect to particular versions, implementations or translations
of any of the Target Products), nor has Target granted any third party any right
to market any of the Target Products under any private label or "OEM"
arrangements, nor has Target granted any license of any Target trademarks or
servicemarks.
(ii) Target has no Third Party Licenses.
(iii) Target has no agreements, contracts or commitments that call
for fixed and/or contingent payments or expenditures by or to Target (including,
without limitation, any advertising or revenue sharing arrangement).
(iv) Target has no purchase agreement, contract or commitment that
calls for fixed and/or contingent payments by Target.
(v) Target has no outstanding sales or advertising contract,
commitment or proposal (including, without limitation, insertion orders,
slotting agreements or other agreements under which Target has allowed third
parties to advertise on or otherwise be included in Target's World Wide Web
sites) that Target currently expects to result in any loss to Target upon
completion or performance thereof.
(vi) Target has no outstanding agreements, contracts or commitments
with officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that are not cancelable by Target "at
will" and without liability, penalty or premium.
(vii) Target has no employment, independent contractor or similar
agreement, contract or commitment that is not terminable on no more than thirty
(30) days' notice without penalty, liability or premium of any type, including
without limitation severance or termination pay.
(viii) Target has no currently effective collective bargaining
or union agreements, contracts or commitments.
(ix) Target is not restricted by agreement from competing with any
person or from carrying on its business anywhere in the world.
(x) Target is under no liability or obligation, and no such
outstanding claim has been made, with respect to the return to Target of
inventory or merchandise in the possession of wholesalers, distributors,
retailers, or other customers, except such liabilities, obligations and claims
as, in the aggregate, do not exceed $35,000, and which have been adequately
reserved for in the Target Financial Statements.
(xi) Target has not guaranteed any obligations of other persons or
made any agreements to acquire or guarantee any obligations of other persons.
(xii) Target has no outstanding loan or advance to any person; nor is
it party to any line of credit, standby financing, revolving credit or other
similar financing arrangement of any sort which would permit the borrowing by
Target of any sum not reflected in the Most Recent Balance Sheet.
(xiii) Target has no agreements pursuant to which Target has agreed
to manufacture for, supply to or distribute to any third party any Target
Products or Target Components.
True and correct copies of each document or instrument listed on the Target
Disclosure Schedule pursuant to this Section 3.11(a) (the "MATERIAL CONTRACTS")
have been provided to Acquiror or its representatives.
(b) All of the Material Contracts listed on the Target Disclosure
Schedule are valid, binding, in full force and effect, and enforceable by Target
in accordance with their
respective terms. No Material Contract contains any liquidated damages, penalty
or similar provision. To the knowledge of Target, no party to any such Material
Contract intends to cancel, withdraw, modify or amend such contract, agreement
or arrangement.
(c) Target is not in default under or in breach or violation of, nor,
to Target's knowledge, is there any valid basis for any claim of default by
Target under, or breach or violation by Target of, any Material Contract which
default could have a Material Adverse Effect on Target. To Target's knowledge,
no other party is in default under or in breach or violation of, nor is there
any valid basis for any claim of default by any other party under or any breach
or violation by any other party of, any Material Contract.
(d) Except as specifically indicated on the Target Disclosure
Schedule, none of the Material Contracts provides for indemnification by Target
of any third party. No claims have been made or threatened that would require
indemnification by Target, and Target has not paid any amounts to indemnify any
third party as a result of indemnification requirements of any kind.
Section 3.12 Orders, Commitments and Returns. All accepted
-------------------------------
advertising arrangements entered into by Target for, and all material
agreements, contracts, or commitments for the purchase of supplies by Target,
were made in the ordinary course of business. To the knowledge of Target, no
outstanding purchase or outstanding lease commitment of Target is in excess of
the normal, ordinary and usual requirements of its business or was made at any
price (on both a per unit and aggregate basis) materially in excess of the
current market price at the time made, or contains terms and conditions
materially more onerous to Target than those usual and customary in the
industry. There are no oral contracts or arrangements for the sale of
advertising or any other product or service by Target.
Section 3.13 Compliance With Law. Target and the operation of its
-------------------
business are in compliance in all material respects with all applicable laws and
regulations. Neither Target nor, to Target's knowledge, any of its employees has
directly or indirectly paid or delivered any fee, commission or other sum of
money or item of property, however characterized, to any finder, agent,
government official or other party in the United States or any other country,
that was or is in violation of any federal, state, or local statute or law or of
any statute or law of any other country having jurisdiction. Target has not
participated directly or indirectly in any boycotts or other similar practices
affecting any of its customers. Target has complied in all material respects at
all times with any and all applicable federal, state and foreign laws, rules,
regulations, proclamations and orders relating to the importation or exportation
of its products.
Section 3.14 Labor Difficulties; No Discrimination.
-------------------------------------
(a) Target is not engaged in any unfair labor practice and is not in
material violation of any applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours. There is no
unfair labor practice complaint against Target actually pending or, to the
knowledge of Target, threatened before the National Labor Relations Board. There
is no strike, labor dispute, slowdown, or stoppage actually pending or, to the
knowledge of Target, threatened against Target. To the knowledge of Target, no
union
organizing activities are taking place. No grievance, nor any arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and, to the knowledge of Target, no claims therefor exist. No collective
bargaining agreement that is binding on Target restricts it from relocating or
closing any of its operations. Target has not experienced any material work
stoppage or other material labor difficulty.
(b) There is and has not been any claim against Target and received by
Target, or to Target's knowledge, threatened against Target, based on actual or
alleged race, age, sex, disability or other harassment or discrimination, or
similar tortuous conduct, nor to the knowledge of Target, is there any basis for
any such claim.
(c) There are no pending claims against Target or any of its
Subsidiaries under any workers compensation plan or policy or for long term
disability. Neither Target nor any of its subsidiaries has any material
obligations under COBRA with respect to any former employees or qualifying
beneficiaries thereunder. There are no proceedings pending or, to the knowledge
of Target, threatened, between Target and any of their respective employees,
which proceedings have or could reasonably be expected to have a Material
Adverse Effect on Target.
Section 3.15 Trade Regulation. Target has not terminated its
----------------
relationship with or refused to ship Target Products to any dealer, distributor,
OEM, third party marketing entity or customer which had theretofore paid or been
obligated to pay Target in excess of $35,000 over any consecutive twelve (12)
month period. All of the prices charged by Target in connection with the
marketing or sale of any products or services have been in compliance with all
applicable laws and regulations. No claims have been communicated or threatened
in writing against Target with respect to wrongful termination of any dealer,
distributor or any other marketing entity, discriminatory pricing, price fixing,
unfair competition, false advertising, or any other violation of any laws or
regulations relating to anti-competitive practices or unfair trade practices of
any kind, and to Target's knowledge, no specific situation, set of facts, or
occurrence provides any basis for any such claim.
Section 3.16 Insider Transactions. To the knowledge of Target, no
--------------------
affiliate ("AFFILIATE") as defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT") of Target has any interest in any
equipment or other property, real or personal, tangible or intangible,
including, without limitation, any Target Proprietary Rights or any creditor,
supplier, customer, manufacturer, agent, representative, or distributor of
Target Products; provided, however, that no such Affiliate or other person shall
-------- -------
be deemed to have such an interest solely by virtue of the ownership of less
than 1% of the outstanding stock or debt securities of any publicly-held
company, the stock or debt securities of which are traded on a recognized stock
exchange or quoted on the National Association of Securities Dealers Automated
Quotation System.
Section 3.17 Employees, Independent Contractors and Consultants. The
--------------------------------------------------
Target Disclosure Schedule lists and describes all past and all currently
effective written or, to Target's knowledge, oral consulting, independent
contractor and/or employment agreements and other material agreements concluded
with individual employees, independent contractors or
consultants to which Target is a party. True and correct copies of all such
written agreements have been provided to Acquiror or its representatives. All
independent contractors have been properly classified as independent contractors
for the purposes of federal and applicable state tax laws, laws applicable to
employee benefits and other applicable law except as would not give rise, in the
aggregate, to a Material Adverse Effect on Target. All salaries and wages paid
by Target are in compliance in all material respects with applicable federal,
state and local laws. Also shown on the Target Disclosure Schedule are the names
and positions of all persons whose annual rate of compensation, including cash
bonuses and other cash payments of any kind, as of the date of this Agreement is
in excess of $90,000.
Section 3.18 Insurance. The Target Disclosure Schedule contains a
---------
list of the principal policies of fire, liability and other forms of insurance
currently or previously held by Target, and all claims made by Target under such
policies. To the knowledge of Target, Target has not done anything, either by
way of action or inaction, that might invalidate such policies in whole or in
part. There is no claim pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and Target is otherwise in compliance with the terms of
such policies and bonds in all material respects. Target has no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
Section 3.19 Litigation. There is no private or governmental action,
----------
suit, proceeding, claim, arbitration or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Target or any of
its Subsidiaries, threatened against Target or any of its properties or any of
its officers or directors (in their capacities as such) that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
Target. There is no judgment, decree or order against Target, or, to the
knowledge of Target, any of its respective directors or officers (in their
capacities as such). All litigation to which Target is a party (or, to the
knowledge of Target, threatened to become a party) is disclosed in the Target
Disclosure Schedule. To Target's knowledge, no circumstances exist that could
reasonably be expected to result in a claim against Target as a result of the
conduct of Target's business (including, without limitation, any claim of
infringement of any intellectual property right).
Section 3.20 Governmental Authorizations and Regulations. Target has
-------------------------------------------
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Target currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Target's business or
the holding of any such interest, and all of such authorizations are in full
force and effect, except where the failure to obtain or have any such Target
authorizations could not reasonably be expected to have a Material Adverse
Effect on Target.
Section 3.21 Subsidiaries. Target has no Subsidiaries. Target does
------------
not own or control (directly or indirectly) any capital stock, bonds or other
securities of, and does not have any proprietary interest in, any other
corporation, general or limited partnership, firm, association or
business organization, entity or enterprise, and Target does not control
(directly or indirectly) the management or policies of any other corporation,
partnership, firm, association or business organization, entity or enterprise.
Section 3.22 Compliance with Environmental Requirements. Target has
------------------------------------------
obtained all permits, licenses and other authorizations which are required under
federal, state and local laws applicable to Target and relating to pollution or
protection of the environment, including laws or provisions relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials, substances, or wastes into air,
surface water, groundwater, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants or hazardous or toxic materials,
substances, or wastes or which are intended to assure the safety of employees,
workers or other persons. Target is in compliance in all material respects with
all terms and conditions of all such permits, licenses and authorizations in all
material respects. Target is not aware of, nor has Target received written
notice of, any conditions, circumstances, activities, practices, incidents, or
actions which may form the basis of any claim, action, suit, proceeding,
hearing, or investigation of, by, against or relating to Target, based on or
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the emission, discharge, release or
threatened release into the environment, of any pollutant, contaminant, or
hazardous or toxic substance, material or waste, or relating to the safety of
employees, workers or other persons.
Section 3.23 Corporate Documents. Target has furnished to Acquiror or
-------------------
its representatives for its examination; (a) copies of its Articles of
Incorporation and Bylaws, as amended to date; (b) its minute book containing all
records required to be set forth of all proceedings, consents, actions, and
meetings of the shareholders, the board of directors and any committees thereof;
(c) all material permits, orders, and consents issued by any regulatory agency
with respect to Target, or any securities of Target, and all applications for
such permits, orders, and consents; and (d) the stock transfer books of Target
setting forth all transfers of any capital stock. The corporate minute books,
stock certificate books, stock registers and other corporate records of Target
are complete and accurate, and the signatures appearing on all documents
contained therein are the true signatures of the persons purporting to have
signed the same. All actions reflected in such books and records were duly and
validly taken in compliance with the laws of the applicable jurisdiction.
Target's Articles of Incorporation, including all amendments thereto through and
including the date hereof, is attached as an appendix to the Target Disclosure
Schedule.
Section 3.24 No Brokers. Except for the fees of BT Alex. Xxxxx,
----------
neither Target nor, to Target's knowledge, any Target shareholder is obligated
for the payment of fees or expenses of any broker or finder in connection with
the origin, negotiation or execution of this Agreement or the other Transaction
Documents or in connection with any transaction contemplated hereby or thereby.
Target has provided to Acquiror or its representatives a true and complete copy
of its engagement letter, and all other agreements relating to the Merger, with
BT Alex. Xxxxx.
Section 3.25 Pooling of Interests . To Target's knowledge, neither
--------------------
Target nor any of its Affiliates has, through the date of this Agreement, taken
or agreed to take any action which would prevent Acquiror from accounting for
the business combination to be effected by the Merger as a pooling of interests.
Section 3.26 Advertisers, Customers and Suppliers . As of the date
------------------------------------
hereof, no advertiser or other customer which individually accounted for more
than 5% of Target's gross revenues during the 12-month period preceding the date
hereof, and no supplier of Target, has canceled or otherwise terminated, or made
any written threat to Target to cancel or otherwise terminate its relationship
with Target, or has at any time on or after December 31, 1996 decreased
materially its services or supplies to Target in the case of any such supplier,
or its usage of the services or products of Target in the case of such customer,
and to Target's knowledge, no such supplier or customer intends to cancel or
otherwise terminate its relationship with Target or to decrease materially its
services or supplies to Target or its usage of the services or products of
Target, as the case may be. From and after the date hereof, no customer which
individually accounted for more than 5% of Target's gross revenues during the
12-month period preceding the Closing Date, has canceled or otherwise
terminated, or made any written threat to Target to cancel or otherwise
terminate, for any reason, including without limitation the consummation of the
transactions contemplated hereby, its relationship with Target, and to Target's
knowledge, no such customer intends to cancel or otherwise terminate its
relationship with Target or to decrease materially its usage of the services or
products of Target. Target has not knowingly breached, so as to provide a
benefit to Target that was not intended by the parties, any agreement with, or
engaged in any fraudulent conduct with respect to, any customer or supplier or
Target.
Section 3.27 Target Action . The Board of Directors of Target, by
-------------
unanimous written consent or at a meeting duly called and held, has by the
unanimous vote of all directors (i) determined that the Merger is fair and in
the best interests of Target and its shareholders, (ii) approved the Merger and
this Agreement in accordance with the provisions of California Law, and (iii)
directed that this Agreement and the Merger be submitted to Target shareholders
for their approval and resolved to recommend that Target shareholders vote in
favor of the approval of this Agreement and the Merger.
Section 3.28 Offers . Target has suspended or terminated, and has the
------
legal right to terminate or suspend, all negotiations and discussions of
Acquisition Transactions (as defined in Section 5.6) with parties other than
Acquiror.
Section 3.29 Information Statement . The information supplied by Target
---------------------
for inclusion in the information statement to be sent to the shareholders of
Target in connection with the meeting of Target shareholders to consider the
Merger (the "TARGET SHAREHOLDERS MEETING") or in connection with any written
consent of shareholders of Target (such information statement as amended or
supplemented is referred to herein as the "INFORMATION STATEMENT") shall not, on
the date the Information Statement is first mailed to Target shareholders, at
the time of the Target Shareholders Meeting, or written consent of shareholders
and at the Effective Time, contain any statement which is false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading. If at any time
prior to the Effective Time any event of information should be discovered by
Target which should be set forth in an amendment to the Information Statement,
Target shall promptly inform Acquiror and Sub and shall communicate such
information to the Target shareholders in an appropriate manner. Notwithstanding
the foregoing, Target makes no representation, warranty or covenant with respect
to any information supplied by Acquiror or Sub which is contained in any of the
foregoing documents.
Section 3.30 Accounts Receivable. Subject to any reserves set forth
-------------------
in the Most Recent Balance Sheet, the accounts receivable shown on the Most
Recent Balance Sheet represent and will represent bona fide claims against
debtors for sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the Most Recent Balance Sheet is sufficient
to provide for any losses which may be sustained on realization of the
receivables.
Section 3.31 Disclosure. No statements by Target contained in this
----------
Agreement, its exhibits and schedules nor in any of the certificates or
documents, including any of the Transaction Documents, delivered or required to
be delivered by Target to Acquiror or Sub under this Agreement contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. Target has disclosed to
Acquiror all material information of which it is aware relating specifically to
the operations and business of Target as of the date of this Agreement or the
transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND SUB
--------------------------------------------------
Acquiror and Sub represent and warrant to Target that, except as disclosed
in a filing with the Securities and Exchange Commission (the "COMMISSION"), the
statements contained in this Article IV are true and correct.
Section 4.1 Organization of Acquiror and Sub. Each of Acquiror and
--------------------------------
its Subsidiaries, including Sub, is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation and has all requisite corporate power to own, lease and operate
its property and to carry on its business as now being conducted and is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed would have a
Material Adverse Effect on Acquiror.
Section 4.2 Acquiror Capital Structure. The authorized capital stock
--------------------------
of Acquiror consists of 225,000,000 shares of Acquiror Common Stock and
10,000,000 shares of Preferred Stock, par value $0.00067 per share ("ACQUIROR
PREFERRED STOCK"), of which there were issued and outstanding as of the close of
business on September 30, 1997, 43,099,792 shares of Acquiror Common Stock and
no shares of Acquiror Preferred Stock. There are no other outstanding shares of
capital stock or voting securities of Acquiror other than shares of Acquiror
Common Stock issued after October 1, 1997 under the Yahoo! Inc. 1996 Employee
Stock
Purchase Plan (the "ESPP") or upon the exercise of options issued under the
Yahoo! Inc. 1995 Stock Option Plan and the Yahoo! Inc. 1996 Director Stock
Option Plan. The authorized capital stock of Sub consists of 1,000 shares of
Common Stock, all of which are issued and outstanding and are held by Acquiror.
All outstanding shares of Acquiror and Sub have been duly authorized, validly
issued, fully paid and are nonassessable and free of any liens or encumbrances
other than any liens or encumbrances created by or imposed upon the holders
thereof. As of the close of business on September 30, 1997,, Acquiror has
reserved an aggregate of 9,540,890 shares of Common Stock for issuance to
employees, directors and independent contractors upon exercise of outstanding
options to acquire shares of Acquiror Common Stock issued under the Acquiror
stock option plans and an aggregate of 48,000 shares of Common Stock for
issuance upon exercise of outstanding warrants. Other than as contemplated by
this Agreement or under the ESPP, and except as described in this Section 4.2,
there are no other options, warrants, calls, rights, commitments or agreements
to which Acquiror or Sub is a party or by which either of them is bound
obligating Acquiror or Sub to issue, deliver, sell, repurchase or redeem, or
cause to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of Acquiror or Sub or obligating Acquiror or Sub to grant, extend
or enter into any such option, warrant, call, right, commitment or agreement.
The shares of Acquiror Common Stock to be issued pursuant to the Merger
(including shares of Acquiror Common Stock issued upon exercise of Target
Options and Target Warrants assumed by Acquiror) will be duly authorized,
validly issued, fully paid, and non-assessable and issued in compliance with all
applicable federal or state securities laws.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
-----------------------------------------------------
(a) Each of Acquiror and Sub has all requisite corporate power and
authority to enter into this Agreement and the other Transaction Documents to
which it is or will become a party and to consummate the transactions
contemplated by this Agreement and such Transaction Documents. The execution
and delivery of this Agreement and such Transaction Documents and the
consummation of the transactions contemplated by this Agreement and such
Transaction Documents have been duly authorized by all necessary corporate
action on the part of Acquiror and Sub. This Agreement has been and such
Transaction Documents have been or, to the extent not executed as of the date
hereof, will be duly executed and delivered by Acquiror and Sub. This Agreement
and each of the Transaction Documents to which Acquiror or Sub is a party
constitutes, and each of the Transaction Documents to which Acquiror or Sub will
become a party when executed and delivered by Acquiror or Sub will constitute,
the valid and binding obligation of Acquiror or Sub, enforceable in accordance
with its terms.
(b) The execution and delivery by Acquiror or Sub of this Agreement
and the Transaction Documents to which it is or will become a party does not,
and consummation of the transactions contemplated by this Agreement or the
Transaction Documents to which it is or will become a party will not, (i)
conflict with, or result in any violation or breach of any provision of the
Articles of Incorporation or Bylaws of Acquiror or Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Acquiror or Sub
is a party or by which either of them or any of their properties or assets may
be bound, or (iii) conflict or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Acquiror or Sub or any of their properties or assets, except in
the case of (ii) and (iii) for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not have a Material
Adverse Effect on Acquiror and its Subsidiaries, taken as a whole.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Acquiror or Sub in connection with the execution and delivery of this
Agreement or the Transaction Documents to which it is or will become a party or
the consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of the Agreement of Merger with the California Secretary of
State, (ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country, and (iii) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, could be expected to have a Material Adverse Effect on
Acquiror and its Subsidiaries, taken as a whole.
Section 4.4 Commission Filings; Financial Statements.
----------------------------------------
(a) Acquiror has filed with the Commission and made available to
Target or its representatives all forms, reports and documents required to be
filed by Acquiror with the Commission since December 31, 1996 (collectively, the
"ACQUIROR COMMISSION REPORTS"). The Acquiror Commission Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended, (the "SECURITIES ACT"), and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing) contain any untrue statement of a material fact or omit
to state a material fact required to be stated in such Acquiror Commission
Reports or necessary in order to make the statements in such Acquiror Commission
Reports, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the Acquiror Commission Reports, including any Acquiror
Commission Reports filed after the date of this Agreement until the Closing,
complied or will comply as to form in all material respects with the applicable
published rules and regulations of the Commission with respect thereto, was
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved (except as may be indicated
in the notes to such financial statements or, in the case of unaudited
statements, as permitted by Form 10-Q of the Commission) and fairly presented
the consolidated financial position of Acquiror and its Subsidiaries as at the
respective dates and the consolidated results of its operations and cash flows
for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not or are not expected to be material in amount.
Section 4.5 Absence of Certain Changes or Events. Since December 31,
------------------------------------
1996, Acquiror and its Subsidiaries have conducted their business only in the
ordinary course and, since such date, there has not been (i) any Material
Adverse Change of Acquiror and any of its Subsidiaries, taken as a whole; or
(ii) any damage, destruction or loss (whether or not covered by insurance) with
respect to Acquiror or any of its Subsidiaries having a Material Adverse Effect
on Acquiror and its Subsidiaries, taken as a whole.
Section 4.6 Compliance with Laws. Acquiror has complied with, is not
--------------------
in violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which would not have a Material Adverse
Effect on Acquiror and its Subsidiaries, taken as a whole.
Section 4.7 Pooling of Interests. To its knowledge, neither Acquiror
--------------------
nor any of its affiliates has taken or agreed to take any action which would
prevent Acquiror from accounting for the business combination to be effected by
the Merger as a pooling of interests.
Section 4.8 Interim Operations of Sub. Sub was formed solely for the
-------------------------
purpose of engaging in the transactions contemplated by this Agreement, has
engaged in no other business activities and has conducted its operations only as
contemplated by this Agreement.
Section 4.9 Disclosure. No statements by Acquiror contained in this
----------
Agreement, its exhibits and schedules, nor any of the certificates or documents,
including any of the Transaction Documents, required to be delivered by Acquiror
or Sub to Target under this Agreement contains any untrue statement of material
fact or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
Section 4.10 Shareholders Consent . No consent or approval of the
--------------------
shareholders of Acquiror is required or necessary for Acquiror to enter into
this Agreement or the Transaction Documents or to consummate the transactions
contemplated hereby and thereby.
ARTICLE V
PRECLOSING COVENANTS OF TARGET
------------------------------
Section 5.1 Approval of Target Shareholders . Prior to the Closing Date
-------------------------------
and at the earliest practicable date following the date hereof, Target will
solicit written consents from its shareholders seeking, or hold a shareholders'
meeting (the "TARGET SHAREHOLDERS' MEETING") for the purpose of seeking,
approval of this Agreement, the Merger and related matters. If Target holds a
shareholders' meeting, the Board of Directors will solicit proxies from Target's
shareholders to vote such shareholders' shares at the Target Shareholders'
Meeting. In soliciting such written consent or proxies, the Board of Directors
of Target will recommend to the shareholders of Target that they approve this
Agreement and the Merger and shall use its reasonable efforts to obtain the
approval of the shareholders of Target entitled to vote on or consent to this
Agreement and the Merger in accordance with California Law and Target's
Articles of Incorporation. Target will prepare as soon as reasonably practicable
the Information Statement and if it holds a shareholders' meeting, a proxy
statement, in form and substance reasonably acceptable to Acquiror, with respect
to the solicitation of written consents and/or proxies from the shareholders of
Target to approve this Agreement, the Merger and related matters. The
Information Statement shall be in such form and contain such information so as
to permit compliance by Acquiror with the requirements of Regulation D under the
Securities Act in connection with the issuance of shares of Acquiror Common
Stock in the Merger.
Section 5.2 Advice of Changes. Target will promptly advise Acquiror
-----------------
in writing of any event occurring subsequent to the date of this Agreement which
would render any representation or warranty of Target contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue or inaccurate in any material respect.
Section 5.3 Operation of Business. During the period from the date of
---------------------
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, Target agrees (except to the extent that
Acquiror shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due, subject to good faith
disputes over such debts or taxes, to pay or perform other obligations when due,
and, to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Target shall promptly notify Acquiror of any event or
occurrence not in the ordinary course of business of Target. Except as
expressly contemplated by this Agreement, Target shall not, without the prior
written consent of Acquiror:
(a) Accelerate, amend or change the period of exercisability or the
vesting schedule of options or restricted stock granted under any employee stock
plan or agreements or authorize cash payments in exchange for any Target Option
or any options granted under any of such plans except as specifically required
by the terms of such plans or any related agreements or any such agreements in
effect as of the date of this Agreement and disclosed in the Target Disclosure
Schedule;
(b) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of such party, or purchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service by such
party;
(c) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into shares of its capital stock, or
subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any such
shares or other convertible securities, other than (i) the issuance of (A)
shares of Target Common Stock issuable upon exercise of Target Options or Target
Warrants, which are outstanding on the date of this Agreement or (B) shares of
Target Common Stock issuable upon conversion of shares of Target Preferred Stock
or (ii) the repurchase of shares of Common Stock from terminated employees
pursuant to the terms of outstanding stock restriction or similar agreements;
(d) 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;
(e) Sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the business
of Target, except in the ordinary course of business;
(f) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary or
wages of non-officer employees in accordance with past practices, (ii) grant any
additional severance or termination pay to, or enter into any employment or
severance agreements with, officers, (iii) grant any severance or termination
pay to, or enter into any employment or severance agreement, with any non-
officer employee, except in accordance with past practices, (iv) enter into any
collective bargaining agreement, or (v) establish, adopt, enter into or amend in
any material respect any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(g) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable;
(h) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or warrants or rights to
acquire any debt securities or guarantee any debt securities of others, in
excess of $25,000;
(i) Amend or propose to amend its Articles of Incorporation or Bylaws;
(j) incur or commit to incur any capital expenditures in excess of
$50,000 in the aggregate or in excess of $25,000 as to any individual matter;
(k) lease, license, sell, transfer or encumber or permit to be
encumbered any asset, Target Proprietary Right or other property associated with
the business of Target (including sales or transfers to Affiliates of Target),
except non-exclusive licenses to end users in the ordinary course of business;
(1) enter into any lease or contract for the purchase or sale of any
property, real or personal except in the ordinary course of business;
(m) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained up to the date
of this Agreement, subject only to ordinary wear and tear;
(n) change accounting methods;
(o) amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business;
(p) loan any amount to any person or entity, or guaranty or act as a
surety for any obligation, except in the ordinary course of business;
(q) waive or release any material right or claim, except in the
ordinary course of business;
(r) make or change any Tax or accounting election, change any annual
accounting period, adopt or change any accounting method, file any amended
Return, enter into any closing agreement, settle any Tax claim or assessment
relating to Target, surrender any right to claim refund of Taxes, consent to any
extension or waiver of the limitation period applicable to any Tax claim or
assessment relating to Target, or take any other action or omit to take any
action, if any such election, adoption, change, amendment, agreement,
settlement, surrender, consent or other action or omission would have the effect
of increasing the Tax liability of Target or Acquiror;
(s) do anything that would cause there to be a Material Adverse Change
with respect to Target;
(t) enter into any agreement in which the obligation of Target exceeds
$50,000 or shall not terminate or be subject to termination for convenience
within 180 days following execution;
(u) enter into any agreement not in the ordinary course of business
(including without limitation any material licenses to information or databases,
any OEM agreements, any exclusive agreements of any kind, or any agreements
providing for obligations that would extend beyond six months of the date of
this Agreement); or
(v) take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (u) above, or any action which is reasonably
likely to make any of Target's representations or warranties contained in this
Agreement untrue or incorrect in any material respect on the date made (to the
extent so limited) or as of the Effective Time.
Section 5.4 Access to Information. Until the Closing, Target shall
---------------------
allow Acquiror and its agents reasonable free access during normal business
hours upon reasonable notice to its files, books, records, and offices,
including, without limitation, any and all information relating to taxes,
commitments, contracts, leases, licenses, and personal property and financial
condition. Until the Closing, Target shall cause its accountants to cooperate
with Acquiror and its agents in
making available all financial information requested, including without
limitation the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants. No information or knowledge
obtained in any investigation pursuant to this Section shall effect or be deemed
to modify any representation or warranty contained in this Agreement or its
exhibits and schedules. All such access shall be subject to the terms of the
Confidentiality Agreement (as defined in Section 7.1).
Section 5.5 Satisfaction of Conditions Precedent. Target will use its
------------------------------------
best efforts to satisfy or cause to be satisfied all the conditions precedent
which are set forth in Sections 8.1 and 8.2, and Target will use its best
efforts to cause the transactions contemplated by this Agreement to be
consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties which may be necessary or reasonably
required on its part in order to effect the transactions contemplated by this
Agreement. Target shall use its best efforts to obtain any and all consents
necessary with respect to those Material Contracts listed on Schedule 5.5 of the
Target Disclosure Schedule in connection with the Merger (the "MATERIAL
CONSENTS").
Section 5.6 Other Negotiations. Target will not (and it will not
------------------
permit any of its officers, directors, employees, agents and Affiliates on its
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 Acquiror) regarding any acquisition of Target, any merger or
consolidation with or involving Target, or any acquisition of any material
portion of the stock or assets of Target or any material license of Target
Proprietary 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 Acquiror. If between the date
of this Agreement and the termination of this Agreement pursuant to Section 9.1,
Target receives from a third party any offer or indication of interest regarding
any Acquisition Transaction, or any request for information regarding any
Acquisition Transaction, Target shall (i) notify Acquiror immediately (orally
and in writing) of such offer, indication of interest or request, including the
identity of such party and the full terms of any proposal therein, and (ii)
notify such third party of Target's obligations under this Agreement.
ARTICLE VI
PRECLOSING AND OTHER COVENANTS OF ACQUIROR AND SUB
--------------------------------------------------
Section 6.1 Advice of Changes. Acquiror and Sub will promptly advise
-----------------
Target in writing of any event occurring subsequent to the date of this
Agreement which would render any representation or warranty of Acquiror or Sub
contained in this Agreement, if made on or as of the date of such event or the
Closing Date, untrue or inaccurate in any material respect.
Section 6.2 Reservation of Acquiror Common Stock. Acquiror shall
------------------------------------
reserve for issuance, out of its authorized but unissued capital stock, the
maximum number of shares
of Acquiror Common Stock as may be issuable upon consummation of the Merger,
including shares of Acquiror Common Stock that will be issued upon exercise of
Target Options and Target Warrants assumed by Acquiror.
Section 6.3 Satisfaction of Conditions Precedent. Acquiror and Sub
------------------------------------
will use their best efforts to satisfy or cause to be satisfied all the
conditions precedent which are set forth in Sections 8.1 and 8.3, and Acquiror
and Sub will use their best efforts to cause the transactions contemplated by
this Agreement to be consummated, and, without limiting the generality of the
foregoing, to obtain all consents and authorizations of third parties and to
make all filings with, and give all notices to, third parties which may be
necessary or reasonably required on its part in order to effect the transactions
contemplated hereby.
Section 6.4 Nasdaq National Market Listing. Acquiror shall cause the
------------------------------
shares of Acquiror Common Stock issuable to the shareholders of Target in the
Merger, including shares of Acquiror Common Stock issuable upon exercise of
Acquiror Options and/or Acquiror Warrants, to be authorized for listing on the
Nasdaq National Market.
Section 6.5 Stock Options and Warrants.
-------------------------- -
(a) At the Effective Time, each outstanding Target Option under the
Target Option Plan, whether vested or unvested, shall be assumed by Acquiror and
deemed to constitute an option (a "ACQUIROR OPTION") to acquire, on the same
terms and conditions as were applicable under the Target Option, the same number
of shares of Acquiror Common Stock as the holder of such Target Option would
have been entitled to receive pursuant to the Merger had such holder exercised
such option in full immediately prior to the Effective Time (rounded down to the
nearest whole number), at a price per share (rounded up to the nearest whole
cent) equal to (i) the aggregate exercise price for the shares of Target Common
Stock otherwise purchasable pursuant to such Target Option divided by (ii) the
number of full shares of Acquiror Common Stock deemed purchasable pursuant to
such Acquiror Option in accordance with the foregoing; provided, however, that,
-------- -------
in the case of any Target Option to which Section 422 of the Code applies
("INCENTIVE STOCK OPTIONS"), the option price, the number of shares purchasable
pursuant to such option and the terms and conditions of exercise of such option
shall be determined in order to comply with Section 424(a) of the Code. In
connection with the assumption by Acquiror of the Target Options pursuant to
this Section 6.5(a), Target shall be deemed to have assigned to Acquiror,
effective at the Effective Time, Target's right to repurchase unvested shares of
Target Common Stock issuable upon the exercise of the Target Options or
previously issued upon the exercise of options granted under the Target Option
Plan, in accordance with the terms of the Target Option Plan and the related
stock option agreements and stock purchase agreements entered into under the
Target Option Plan.
(b) As soon as practicable after the Effective Time, Acquiror shall
deliver to the participants in the Target Option Plan appropriate notice setting
forth such participants' rights pursuant thereto and the grants pursuant to the
Target Option Plan shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.5 after giving effect to
the Merger). Acquiror shall comply with the terms of the Target Option Plan and
use
best efforts to ensure, to the extent required
by, and subject to the provisions of, such Target Option Plan and Sections 422
and 424(a) of the Code, that Target Options which qualified as incentive stock
options prior the Effective Time continue to qualify as incentive stock options
after the Effective Time.
(c) Acquiror shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquiror Common Stock for delivery
upon exercise of Target Options assumed in accordance with this Section 6.5. As
soon as practicable after the Effective Time and in any event no later than 10
business days after the Closing Date, Acquiror shall file a registration
statement on Form S-8 (or any successor or other appropriate forms) under the
Securities Act or another appropriate form with respect to the shares of
Acquiror Common Stock subject to such options and shall use its best efforts to
maintain the effectiveness of such registration statement or registration
statements (and maintain the current status of the prospectus or prospectuses
contained therein) for so long as such options remain outstanding.
(d) Each Target Warrant, to the extent outstanding at the Effective
Time, whether or not exercisable and whether or not vested at the Effective
Time, shall remain outstanding at the Effective Time. At the Effective Time,
Target Warrants shall, by virtue of the Merger and without any further action on
the part of Target or the holder of any of Target Warrants (unless further
action may be required by the terms of any of Target Warrants), be assumed by
Acquiror and each Target Warrant assumed by Acquiror shall be exercisable upon
the same terms and conditions as under the applicable warrant agreements with
respect to such Target Warrants, except that (A) each such Target Warrant shall
be exercisable for that whole number of shares of Acquiror Common Stock (rounded
to the nearest whole share) into which the number of shares of Target Common
Stock subject to such Target Warrant would be converted under Section 2.1(c),
and (B) the exercise price per share of Acquiror Common Stock shall be an amount
equal to the exercise price per share of Target Common Stock subject to such
Target Warrant in effect immediately prior to the Effective Time divided by the
Exchange Ratio (the exercise price per share, so determined, being rounded to
the nearest full cent). From and after the Effective Time, all references to
Target in the warrant agreements underlying Target Warrants shall be deemed to
refer to Acquiror. Acquiror further agrees that, notwithstanding any other term
of this Section 6.5(d) to the contrary, if required under the terms of Target
Warrants or if otherwise appropriate under the terms of Target Warrants, it will
execute a supplemental agreement with the holders of Target Warrants to
effectuate the foregoing. No payment shall be made for fractional shares.
Acquiror shall (i) on or prior to the Effective Time, reserve for issuance the
number of shares of Acquiror Common Stock that will become subject to warrants
to purchase Acquiror Common Stock ("ACQUIROR WARRANTS") pursuant to this Section
6.5(d), (ii) from and after the Effective Time, upon exercise of the Acquiror
Warrants in accordance with the terms thereof, make available for issuance all
shares of Acquiror Common Stock covered thereby and (iii) as promptly as
practicable following the Effective Time, issue to each holder of an outstanding
Target Warrant a document evidencing the foregoing assumption by Acquiror.
(e) Employees of Target as of the Effective Time shall be permitted to
participate in the ESPP commencing on the first enrollment date following the
Effective Time, subject to compliance with the eligibility and other provisions
of such plan.
(f) Employees of Target at the Effective Time will be provided with
employee benefit plans by the Surviving Corporation or Acquiror which in the
aggregate are no less favorable to such employees than those provided from time
to time by Acquiror and its Subsidiaries to similarly situated employees. If
any employee of Target becomes a participant in any employee benefit plan,
program, policy or arrangement of Acquiror, such employee shall be given credit
for all service prior to the Effective Time with Target to the extent
permissible under such plan, program, policy or arrangement.
Section 6.6 Registration of Shares Issued in the Merger .
------------------------------------------- -
(a) Registrable Shares. For purposes of this Agreement, "REGISTRABLE
------------------
SHARES" shall mean the shares of Acquiror Common Stock issued in the Merger,
including any and all Escrow Shares, and the shares of Acquiror Common Stock
issuable upon the exercise of the Target Warrants assumed by Acquiror pursuant
to Section 6.5(d), but excluding shares of Acquiror Common Stock issued in the
Merger or issuable upon the exercise of the Target Warrants that have been sold
or otherwise transferred by the shareholders of Target who initially received
such shares in the Merger or by the holder of the Target Warrants prior to the
effective date of the Registration Statement (as defined below) (collectively,
the "HOLDERS") and excluding shares of Acquiror Common Stock issuable upon
exercise of Target Options (the issuance of which will be registered on Form S-
8); provided however, that a distribution of shares of Acquiror Common Stock
issued in the Merger without additional consideration, to underlying beneficial
owners (such as the general and limited partners, shareholders or trust
beneficiaries of a Holder) shall not be deemed such a sale or transfer for
purposes of this Section 6.6 and such underlying beneficial owners shall be
entitled to the same rights under this Section 6.6 as the initial Holder from
which the Registrable Shares were received and shall be deemed a Holder for the
purposes of this Section 6.6.
(b) Required Registration. Acquiror shall use its best efforts to
---------------------
prepare and file with the Commission a registration statement on Form S-3 (or
such successor or other appropriate form) under the Securities Act with respect
to the Registrable Shares (the "REGISTRATION STATEMENT") and to effect all such
registrations, qualifications and compliances (including, without limitation,
obtaining appropriate qualifications under applicable state securities or "blue
sky" laws and compliance with any other applicable governmental requirements or
regulations) as any selling Holder may reasonably request and that would permit
or facilitate the sale of Registrable Shares (provided however that Acquiror
shall not be required in connection therewith to qualify to do business or to
file a general consent to service of process in any such state or jurisdiction),
in each case so that such Registration Statement and all other such
registrations, qualifications and compliances may become effective on or prior
to the date that Acquiror publicly issues its initial press release of
Acquiror's financial results for the fiscal year ending December 31, 1997 and
reflecting at least thirty days of combined operations of Acquiror and Target
(the "POOLING RELEASE DATE").
(c) Effectiveness; Suspension Right.
-------------------------------
(i) Acquiror will use its best efforts to maintain the effectiveness
of the Registration Statement and other applicable registrations, qualifications
and compliances for up to one (1) year from the Closing Date (the "REGISTRATION
EFFECTIVE PERIOD"), and from time to time will amend or supplement the
Registration Statement and the prospectus contained therein as and to the extent
necessary to comply with the Securities Act, the Exchange Act and any applicable
state securities statute or regulation, subject to the following limitations and
qualifications.
(ii) Following the later to occur of the Pooling Release Date and such
date as the Registration Statement is first declared effective, the Holders will
be permitted (subject in all cases to Section 6.7 below) to offer and sell
Registrable Shares during the Registration Effective Period in the manner
described in the Registration Statement provided that the Registration Statement
remains effective and has not been suspended.
(iii) Notwithstanding any other provision of this Section 6.6 but
subject to Section 6.7, Acquiror shall have the right at any time to require
that all Holders suspend further open market offers and sales of Registrable
Shares whenever, and for so long as, in the reasonable judgment of Acquiror
after consultation with counsel there is or may be in existence material
undisclosed information or events with respect to Acquiror (the "SUSPENSION
RIGHT"). In the event Acquiror exercises the Suspension Right, such suspension
will continue for the period of time reasonably necessary for disclosure to
occur at a time that is not detrimental to Acquiror and its shareholders or
until such time as the information or event is no longer material, each as
determined in good faith by Acquiror after consultation with counsel. Acquiror
will promptly give the Holders notice of any such suspension and will use all
reasonable efforts to minimize the length of the suspension.
(d) Expenses. The costs and expenses to be borne by Acquiror for
--------
purposes of this Section 6.6 shall include, without limitation, printing
expenses (including a reasonable number of prospectuses for circulation by the
selling Holders), legal fees and disbursements of counsel for Acquiror, "blue
sky" expenses, accounting fees and filing fees, but shall not include
underwriting commissions or similar charges, legal fees and disbursements of
counsel for the selling Holders.
(e) Indemnification.
---------------
(i) To the extent permitted by law, Acquiror will indemnify and hold
harmless each Holder, any underwriter (as defined in the Securities Act) for
such Holder, its officers, directors, shareholders or partners and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"): (A) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or
supplements thereto, (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (C) any violation or alleged violation by Acquiror of
the Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and Acquiror will pay to each such Holder (and its officers,
directors, shareholders or partners), underwriter or controlling person, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
6.6(e)(i) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of Acquiror; nor shall Acquiror be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon (a) a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in the Registration Statement by
any such Holder, or (b) a Violation that would not have occurred if such Holder
had delivered to the purchaser the version of the Prospectus most recently
provided by Acquiror to the Holder as of the date of such sale.
(ii) To the extent permitted by law, each selling Holder will
indemnify and hold harmless Acquiror, each of its directors, each of its
officers who has signed the Registration Statement, each person, if any, who
controls Acquiror within the meaning of the Securities Act, any underwriter, any
other Holder selling securities pursuant to the Registration Statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation
(which includes without limitation the failure of the Holder to comply with the
prospectus delivery requirements under the Securities Act, and the failure of
the Holder to deliver the most current prospectus provided by Acquiror prior to
such sale), in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in the Registration Statement or such
Violation is caused by the Holder's failure to deliver to the purchaser of the
Holder's Registrable Shares a prospectus (or amendment or supplement thereto)
that had been made available to the Holder by Acquiror; and each such Holder
will pay any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this Section 6.6(e)(ii) in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
6.6(e)(ii) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld. The
aggregate indemnification and contribution liability of each Holder under this
Section 6.6(e)(ii) shall not exceed the net proceeds received by such Holder in
connection with sale of shares pursuant to the Registration Statement.
(iii) Each person entitled to indemnification under this Section
6.6(e) (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought and shall permit the Indemnifying Party to
assume the defense of any such claim and any litigation resulting therefrom,
provided that counsel for the Indemnifying Party who conducts the defense of
--------
such claim or any litigation resulting therefrom shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense, and
provided further that the failure of any Indemnified Party to give notice as
-------- -------
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 6.6 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall (except with the consent of each Indemnified Party) consent to entry of
any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(iv) To the extent that the indemnification provided for in this
Section 6.6(e) is held by a court of competent jurisdiction to be unavailable to
an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
6.7 Procedures for Sale of Shares Under Registration Statement.
----------------------------------------------------------
(a) Notice and Approval. If any Holder shall propose to sell any
-------------------
Registrable Shares pursuant to the Registration Statement, it shall notify
Acquiror of its intent to do so (including the proposed manner and timing of all
sales) at least two (2) full trading days prior to such sale, and the provision
of such notice to Acquiror shall conclusively be deemed to reestablish and
reconfirm an agreement by such Holder to comply with the registration provisions
set forth in this Agreement. Unless otherwise specified in such notice, such
notice shall be deemed to constitute a representation that any information
previously supplied by such Holder expressly for inclusion in the Registration
Statement (as the same may have been superseded by subsequent such information)
is accurate as of the date of such notice. At any time within such
two (2) trading-day period, Acquiror may refuse to permit the Holder to resell
any Registrable Shares pursuant to the Registration Statement; provided,
however, that in order to exercise this right, Acquiror must deliver a
certificate in writing to the Holder to the effect that
a delay in such sale is necessary because a sale pursuant to the Registration
Statement in its then-current form without the addition of material, non-public
information about Acquiror, could constitute a violation of the federal
securities laws. Notwithstanding the foregoing, Acquiror will ensure that in any
event the Holders shall have at least twenty (20) trading days (prorated for
partial quarters) available to sell Registrable Shares during each calendar
quarter (or portion thereof) from the Pooling Release Date until the first
anniversary of the Closing Date.
(b) Delivery of Prospectus. For any offer or sale of any of the
----------------------
Registrable Shares by a Holder in a transaction that is not exempt under the
Securities Act, the Holder, in addition to complying with any other federal
securities laws, shall deliver a copy of the final prospectus (or amendment of
or supplement to such prospectus) of Acquiror covering the Registrable Shares in
the form furnished to the Holder by Acquiror to the purchaser of any of the
Registrable Shares on or before the settlement date for the purchase of such
Registrable Shares.
(c) Copies of Prospectuses. Subject to the provisions of this Section
----------------------
6.7, when a Holder is entitled to sell and gives notice of its intent to sell
Registrable Shares pursuant to the Registration Statement, Acquiror shall,
within two (2) trading days following the request, furnish to such Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Shares, such prospectus shall not as of the date
of delivery to the Holder include an 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 not misleading or incomplete in the light of the
circumstances then existing.
6.8 Certain Employee Benefit Matters. From and after the Effective
--------------------------------
Time, employees of Target at the Effective Time will be provided with employee
benefits by the Surviving Corporation or Acquiror which in the aggregate are no
less favorable to such employees than those provided from time to time by
Acquiror to similarly situated employees. If any employee of Target becomes a
participant in any employee benefit plan, program, policy or arrangement of
Acquiror, such employee shall be given credit for all service prior to the
Effective Time with Target to the extent permissible under such plan, program,
policy or arrangement. All Target Options assumed by Acquiror at the Effective
Time pursuant to the terms of Section 6.5(a) shall remain outstanding following
the Effective on the same terms and conditions as prior to the Effective Time,
subject to the adjustments contemplated by such Section 6.5.
ARTICLE VII
OTHER AGREEMENTS
----------------
Section 7.1 Confidentiality. Each party acknowledges Acquiror and
---------------
Target have previously executed a Mutual Non-Disclosure Agreement dated March
18, 1997 (the "CONFIDENTIALITY AGREEMENT"), which agreement shall continue in
full force and effect in accordance with its terms.
Section 7.2 No Public Announcement. The parties have agreed upon the
----------------------
form and substances of a joint press release announcing the consummation of the
Merger, which shall be issued at a time and in a manner mutually agreed upon.
Other than such joint press release, the parties shall make no public
announcement concerning this Agreement, their discussions or any other
memoranda, letters or agreements between the parties relating to the Merger;
provided, however, that either of the parties, but only after reasonable
-------- -------
consultation with the other, may make disclosure if required under applicable
law.
Section 7.3 Regulatory Filings; Consents; Reasonable Efforts. Subject
------------------------------------------------
to the terms and conditions of this Agreement, Target and Acquiror shall use
their respective best efforts to (i) make all necessary filings with respect to
the Merger and this Agreement under the Exchange Act and applicable blue sky or
similar securities laws and obtain required approvals and clearances with
respect thereto and supply all additional information requested in connection
therewith; (ii) make merger notification or other appropriate filings with
federal, state or local governmental bodies or applicable foreign governmental
agencies and obtain required approvals and clearances with respect thereto and
supply all additional information requested in connection therewith; (iii)
obtain all consents, waivers, approvals, authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Merger; and (iv) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable, but no later than November 15, 1997.
Section 7.4 Pooling Accounting . Target and Acquiror shall each use its
------------------
best efforts to cause the business combination to be effected by the Merger to
be accounted for as a pooling of interests. Acquiror shall not take any action
that would adversely affect the ability of Acquiror to account for the business
combination to be effected by the Merger as a pooling of interests.
Section 7.5 Further Assurances. Prior to and following the Closing,
------------------
each party agrees to cooperate fully with the other parties and to execute such
further instruments, documents and agreements and to give such further written
assurances, as may be reasonably requested by any other party to better evidence
and reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
Section 7.6 Escrow Agreement. On or before the Effective Date,
----------------
Acquiror shall, and the parties hereto shall exercise their best efforts to
cause the Escrow Agent (as defined in Section 10.2) and the Shareholders' Agents
(as defined in Section 10.9) to enter into an Escrow Agreement in the form
attached hereto as Exhibit E.
---------
Section 7.7 FIRPTA. Target shall, prior to the Closing Date, provide
------
Acquiror with a properly executed Foreign Investment and Real Property Tax Act
of 1980 ("FIRPTA") FIRPTA Notification Letter, substantially in the form of
Exhibit F attached hereto, which states that shares of capital stock of Target
---------
do not constitute "United States real property interests" under Section 897(c)
of the Code, for purposes of satisfying Acquiror's obligations under Treasury
Regulation Section 1.1445-2(c)(3). In addition, simultaneously with delivery of
such FIRPTA
Notification Letter, Target shall provide to Acquiror, as agent for Target, a
form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and substantially in
the form of Exhibit F attached hereto, along with written authorization for
---------
Acquiror to deliver such notice form to the Internal Revenue Service on behalf
of Target upon the Closing of the Merger.
Section 7.8 Blue Sky Laws. Acquiror shall take such steps as may be
-------------
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Acquiror Common Stock in connection
with the Merger. Target shall use its best efforts to assist Acquiror as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Acquiror Common Stock in
connection with the Merger.
Section 7.9 Information Statement; Other Filings; Board Recommendations .
-----------------------------------------------------------
Within two business days after the execution of this Agreement, Target and
Acquiror will prepare, and Target will distribute the Information Statement to
the shareholders of Target at the earliest practicable time. As promptly as
practicable after the date of this Agreement, Target and Acquiror will prepare
and file any other filings required under the Exchange Act, the Securities Act
or any other Federal, foreign or state securities or blue sky laws relating to
the Merger and the transactions contemplated by this Agreement (the "OTHER
FILINGS"). The Information Statement and the Other Filings will comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Information Statement or
any Other Filing, Target or Acquiror, as the case may be, will promptly inform
the other of such occurrence and cooperate in making any appropriate amendment
or supplement, and/or mailing to shareholders of Target, such amendment or
supplement. The Information Statement will include the recommendation of the
Board of Directors of Target in favor of adoption and approval of this Agreement
and approval of the Merger.
Section 7.10 Tax-Free Reorganization . No party shall take any action
-----------------------
either prior to or after the Effective Time that could reasonably be expected to
cause the Merger to fail to qualify as a "reorganization" under Section 368(a)
of the Code.
ARTICLE VIII
CONDITIONS TO MERGER
--------------------
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. '
----------------------------------------------------------
The respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction, in all material respects, prior to the
Closing Date of the following conditions:
(a) Shareholder Approval. The shareholders of Target entitled to vote
--------------------
on or consent to this Agreement and the Merger in accordance with the California
Law and Target's Articles of Incorporation shall have approved this Agreement
and the Merger.
(b) Approvals. Other than the filing provided for by Section 1.2, all
---------
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
shall have been filed, occurred or been obtained.
(c) No Injunctions or Restraints; illegality. No temporary
----------------------------------------
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or restricting
conduct or operation of the business of Acquiror after the Merger shall have
been issued, nor shall any proceeding brought by a domestic administrative
agency or commission or other domestic Governmental Entity, seeking any of the
foregoing be pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger which makes the consummation of the Merger illegal.
(d) Pooling Letter. Acquiror shall have received a letter from Price
--------------
Waterhouse LLP dated as of the Closing Date and addressed to Acquiror, regarding
that firm's concurrence with Acquiror's management's and Target's management's
conclusion that the business combination to be effected by the Merger will
qualify as a pooling of interests transaction under generally accepted
accounting principles if consummated in accordance with this Agreement.
(e) Nasdaq. The shares of Acquiror Common Stock to be issued in the
------
Merger shall have been approved for quotation on the Nasdaq National Market.
Section 8.2 Additional Conditions to Obligations of Acquiror and Sub .
--------------------------------------------------------
The obligations of Acquiror and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Acquiror and Sub:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Target set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except for changes
contemplated by this Agreement; and Acquiror shall have received a certificate
signed on behalf of Target by the chief executive officer and the chief
financial officer of Target to such effect.
(b) Performance of Obligations of Target. Target shall have performed
------------------------------------
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date; and Acquiror shall have received
a certificate signed on behalf of Target by the chief executive officer and the
chief financial officer of Target to such effect.
(c) Blue Sky Laws. Acquiror shall have received all state securities
-------------
or "Blue Sky" permits and other authorizations necessary to issue shares of
Acquiror Common Stock pursuant to the Merger.
(d) Conversion of Preferred Stock; Dissenting Shareholders. All
------------------------------------------------------
outstanding shares of Target Preferred Stock shall have been converted into
shares of Target Common Stock on a one-share for one-share basis, and not more
than 2.5% of Target's issued and outstanding capital stock as of the Closing
shall be held by persons electing dissenters' rights under California Law as to
such shares.
(e) Escrow Agreement. The Escrow Agent and Shareholders' Agents shall
----------------
have executed and delivered to Acquiror the Escrow Agreement and such agreement
shall remain in full force and effect.
(f) Shareholder's Agreements. Each shareholder of Target who is not
------------------------
an "affiliate" of Target and who is receiving shares of Acquiror Common Stock in
the Merger shall have executed and delivered to Acquiror a Shareholders
Agreement, in the form attached hereto as Exhibit C, and such agreements shall
--------
remain in full force and effect.
(g) Ancillary Agreements. Each of the Affiliates' Agreements and
--------------------
Noncompetition Agreements executed and delivered concurrently with the execution
of this Agreement shall remain in full force and effect.
(h) Opinion of Target's Counsel. Acquiror shall have received an
---------------------------
opinion dated the Closing Date of Xxxx Xxxx Xxxx & Freidenrich, A Professional
Corporation, counsel to Target, as to the matters in the form attached hereto as
Exhibit G.
---------
(i) Approvals. All authorizations, consents (including the Material
---------
Consents), or approvals of, or notifications to any third party, required by
Target's contracts, agreements or other obligations in connection with the
consummation of the Merger shall have occurred or been obtained.
(j) Termination of Agreements. The following agreements between
-------------------------
Target and certain of its shareholders shall have been terminated: (i) the
Amended and Restated Rights Agreement dated September 30, 1996 among Target and
the purchasers of Target's Series B Preferred Stock identified on Exhibit A
thereto, (ii) the Series B Preferred Stock Purchase Agreement dated as of
September 30, 1996 among Target and the purchasers identified on the Schedule of
Purchasers thereto, (iii) the Rights Agreement dated September 15, 1995 by and
among SLED Online, Inc., Xxxxxxx Xxxxxxxx, Xxxxx X. Xxxxxx, and the purchasers
of Target's Series A Preferred Stock, or (iv) the Series A Preferred Stock
Purchase Agreement dated as of September 15, 1995 among SLED Online, Inc. and
the persons identified on the Schedule of Purchasers thereto.
(k) No Material Adverse Change. Target shall not have suffered any
--------------------------
Material Adverse Change since the date of this Agreement.
Section 8.3 Additional Conditions to Obligations of Target . The
----------------------------------------------
obligation of Target to effect the Merger is subject to the satisfaction of each
of the following conditions, any of which may be waived, in writing, exclusively
by Target:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Acquiror and Sub set forth in this Agreement shall be true and
correct in all material respects as of the date of this Agreement and (except to
the extent such representations speak as of an earlier date) as of the Closing
Date as though made on and as of the Closing Date, and Target shall have
received a certificate signed on behalf of Acquiror by the chief executive
officer and the chief financial officer of Acquiror to such effect.
(b) Performance of Obligations of Acquiror and Sub. Acquiror and Sub
----------------------------------------------
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date; and
Target shall have received a certificate signed on behalf of Acquiror by the
chief executive officer and the chief financial officer of Acquiror to such
effect.
(c) Tax Opinion. Target shall have received the opinion of Xxxx Xxxx
-----------
Xxxx & Freidenrich, A Professional Corporation, counsel to Target, to the effect
that the Merger will be treated for Federal income tax purposes as a tax-free
reorganization within the meaning of Section 368(a) of the Code.
(d) Opinion of Acquiror's Counsel. Target shall have received an
-----------------------------
opinion dated the Closing Date of Venture Law Group, A Professional Corporation,
counsel to Acquiror, as to the matters attached hereto as Exhibit H.
---------
ARTICLE IX
TERMINATION AND AMENDMENT
-------------------------
Section 9.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Effective Time:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target, by giving written notice to the
other party, if a court of competent jurisdiction or other Governmental Entity
shall have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Merger, except, if such party relying on
such order, decree or ruling or other action shall not have complied with its
respective obligations under Sections 5.5 or 6.3 of this Agreement, as the case
may be;
(c) by Acquiror or Target, by giving written notice to the other
party, if the other party is in material breach of any representation, warranty,
or covenant of such other party contained in this Agreement, which breach shall
not have been cured, if subject to cure, within 10 business days following
receipt by the breaching party of written notice of such breach by the other
party;
(d) by Acquiror, by giving written notice to Target, if the Closing
shall not have occurred on or before November 15, 1997 by reason of the failure
of any condition precedent under Section 8.1 or 8.2 (unless the failure results
primarily from a breach by Acquiror of any representation, warranty, or covenant
of Acquiror contained in this Agreement), provided that such date shall be
automatically extended so long as Target shall be expeditiously working to cure
any representation, warranty, or covenant identified by Acquiror pursuant to
subsection (c) above;
(e) by Target, by giving written notice to Acquiror, if the Closing
shall not have occurred on or before November 15, 1997 by reason of the failure
of any condition precedent under Section 8.1 or 8.3 (unless the failure results
primarily from a breach by Target of any representation, warranty, or covenant
of Target contained in this Agreement), provided that such date shall be
--------
automatically extended so long as Acquiror shall be expeditiously working to
cure any representation, warranty, or covenant identified by Target pursuant to
subsection (c) above;
(f) by Acquiror, by giving written notice to Target, if the required
approvals of the shareholders of Target contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required consents or
votes upon a vote taken at a meeting of shareholders, duly convened therefor or
at any adjournment thereof; or
(e) by Target, by giving written notice to Acquiror, if the average of
the closing sales prices of Acquiror Common Stock reported in the Wall Street
Journal on the basis of information provided by the Nasdaq Stock Market for each
of the five trading days immediately preceding (but not including) the first
date on which all of the conditions set forth in Article VIII shall have been
satisfied or, if permissible, waived, shall be less than $35.97 per share (as
adjusted for any stock splits, reclassifications, stock dividends or the like
between the date of this Agreement and the date of termination).
Section 9.2 Effect of Termination. In the event of termination of
---------------------
this Agreement as provided in Section 9.1, this Agreement shall immediately
become void and there shall be no liability or obligation on the part of
Acquiror, Target, Sub or their respective officers, directors, shareholders or
Affiliates, except as set forth in Section 9.3 and further except to the extent
that such termination results from the willful breach by any such party of any
of its representations, warranties or covenants set forth in this Agreement.
Section 9.3 Fees and Expenses.
-----------------
(a) Except as set forth in this Section 9.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated. Target has submitted a budget to Acquiror for completion
of the Merger. Target shall use its best efforts to consummate the Merger
within such budget and shall not enter into any agreement inconsistent with such
budget.
(b) If the Merger is consummated, all legal, accounting, investment
banking, broker's and finder's fees and expenses incurred by Target or its
shareholders in connection with the Merger shall be deemed expenses of the
shareholders of Target to the extent such fees and expenses exceed $275,000
(exclusive of fees payable to BT Alex. Xxxxx) and shall be borne by the
shareholders of Target to such extent and will not become obligations of Target.
Target will make arrangements for the payments of such fees acceptable to
Acquiror. Any such fees and expenses in excess of $275,000 (exclusive of fees
payable to BT Alex. Xxxxx) incurred by Target shall be recoverable from the
Escrow Fund (as defined in Section 10.2) as Damages (as defined in Section 10.1)
without regard to the damage threshold as contemplated by Section 10.3.
(c) Acquiror shall pay Target a termination fee of $5,000,000 upon (i)
the termination of this Agreement by Target pursuant to Section 9.1(c) if the
breach by Acquiror giving rise to Target's right of termination was intentional
on the part of Acquiror or (ii) the termination of this Agreement by Acquiror
pursuant to Section 9.1(d) if the failure of the condition precedent under
Section 8.1 or 8.2 giving rise to the right of termination results primarily
from an intentional breach by Acquiror or Sub. Termination of this Agreement
and
receipt of the termination fee contemplated by this subsection will not
constitute liquidated damages nor represent Target's exclusive remedy for
Acquiror's willful breach of any representation, warranty or covenant contained
in this Agreement.
(d) Target shall pay Acquiror a termination fee of $5,000,000 upon (i)
the termination of this Agreement by Acquiror pursuant to Section 9.1(c) if the
breach by Target giving rise to Acquiror's right of termination was intentional
on the part of Target or (ii) the termination of this Agreement by Target
pursuant to Section 9.1(e) if the failure of the condition precedent under
Section 8.1 or 8.3 giving rise to the right of termination results primarily
from an intentional breach by Target. Termination of this Agreement and receipt
of the termination fee contemplated by this subsection will not constitute
liquidated damages nor represent Acquiror's exclusive remedy for Target's
willful breach of any representation, warranty or covenant contained in this
Agreement.
(e) In the event that either party shall fail to pay amounts owing
pursuant to any of subsections (c) or (d) above when due, interest shall be
paid on such unpaid amounts, commencing on the date such amounts became due, at
a rate equal to the rate of interest publicly announced by Citibank, N.A., from
time to time in the City of New York, at such bank's Base Rate plus 3%.
ARTICLE X
ESCROW AND INDEMNIFICATION
--------------------------
Section 10.1 Indemnification. From and after the Effective Time and
---------------
subject to the limitations contained in Section 10.2, the Former Target
Shareholders will severally and pro rata, in accordance with their Pro Rata
Portion, indemnify and hold Acquiror harmless against any loss, expense,
liability or other damage, including attorneys' fees, to the extent of the
amount of such loss, expense, liability or other damage (collectively "DAMAGES")
that Acquiror has incurred by reason of the breach or alleged breach by Target
of any representation, warranty, covenant or agreement of Target contained in
this Agreement that occurs or becomes known to Acquiror during the Escrow Period
(as defined in Section 10.4 below).
Section 10.2 Escrow Fund. As security for the indemnities in Section
-----------
10.1, as soon as practicable after the Effective Date, the Escrow Shares shall
be registered in the name of, and be deposited with, Chase Trust Company of
California (or such other institution selected by Acquiror with the reasonable
consent of Target) as escrow agent (the "ESCROW AGENT"), such deposit to
constitute the Escrow Fund (the "ESCROW FUND") and to be governed by the terms
set forth in this Article X and in the Escrow Agreement. Notwithstanding the
foregoing, the indemnification obligations of the Former Target Shareholders
pursuant to this Article X shall be limited to the amount and assets deposited
and present in the Escrow Fund and Acquiror shall not be entitled to pursue any
claims for indemnification under this Article X against the Former Target
Shareholders directly or personally and the sole recourse of Acquiror shall be
to make claims against the Escrow Fund in accordance with the terms of the
Escrow Agreement.
Section 10.3 Damage Threshold. Notwithstanding the foregoing, the
----------------
Former Target Shareholders shall have no liability under Section 10.1 and
Acquiror may not receive any shares from the Escrow Fund unless and until an
Officer's Certificate or Certificates (as defined in Section 10.5 below) for an
aggregate amount of Acquiror's Damages in excess of $100,000 has been delivered
to the Shareholders' Agents and to the Escrow Agent; provided, however, that
-------- -------
after an Officer's Certificate or Certificates for an aggregate of $100,000 in
Damages has been delivered, Acquiror shall be entitled to receive Escrow Shares
equal in value to the full amount of Damages identified in such Officer's
Certificate or Certificates.
Section 10.4 Escrow Periods. The Escrow Fund shall terminate upon the
--------------
issuance of Acquiror's auditor's opinion for the financial statements for
Acquiror and its Subsidiaries for the fiscal year ending December 31, 1997 (the
period from the Closing to such date referred to as the "ESCROW PERIOD"),
provided, however, that the number of Escrow Shares, which, in the reasonable
-------- -------
judgment of Acquiror, subject to the objection of the Shareholders' Agents and
the subsequent resolution of the matter in the manner provided in Section 10.8,
are necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate theretofore delivered to the Escrow Agent and the Shareholders'
Agents prior to termination of the Escrow Period with respect to Damages
incurred or litigation pending prior to expiration of the Escrow Period, shall
remain in the Escrow Fund until such claims have been finally resolved.
Section 10.5 Claims Upon Escrow Fund. Upon receipt by the Escrow
-----------------------
Agent on or before the last day of the Escrow Period of a certificate signed by
any appropriately authorized officer of Acquiror (an "OFFICER'S CERTIFICATE"):
(i) Stating the aggregate amount of Acquiror's Damages or an estimate
thereof, in each case to the extent known or determinable at such time, and,
(ii) Specifying in reasonable detail the individual items of such
Damages included in the amount so stated, the date each such item was paid or
properly accrued or arose, and the nature of the misrepresentation, breach or
claim to which such item is related, the Escrow Agent shall, subject to the
provisions of Sections 10.3 and 10.8 hereof, deliver to Acquiror out of the
Escrow Fund, as promptly as practicable, Escrow Shares having a value equal to
such Damages all in accordance with the Escrow Agreement and Section 10.6 below.
Amounts paid or distributed from the Escrow Fund shall be paid or distributed
pro rata among the Holders (as defined in the Escrow Agreement) based upon their
respective percentage interests therein at the time.
Section 10.6 Valuation. For the purpose of compensating Acquiror for
---------
its Damages pursuant to this Agreement, the value per share of the Escrow Shares
shall be the Closing Stock Price.
Section 10.7 Objections to Claims. At the time of delivery of any
--------------------
Officer's Certificate to the Escrow Agent, a duplicate copy of such Officer's
Certificate shall be delivered to the Shareholders' Agents (as defined in
Section 10.9 below) and for a period of thirty (30) days after such delivery,
the Escrow Agent shall make no delivery of Escrow Shares pursuant to Section
10.4 unless the Escrow Agent shall have received written authorization from the
Shareholders' Agents to make such delivery. After the expiration of such thirty
(30) day period, the Escrow Agent shall make delivery of the Escrow Shares in
the Escrow Fund in accordance with Section 10.4, provided that no such delivery
--------
may be made if the Shareholders' Agents shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent and to Acquiror prior to the expiration of such
thirty (30) day period.
Section 10.8 Resolution of Conflicts.
-----------------------
(a) In case the Shareholders' Agents shall so object in writing to any
claim or claims by Acquiror made in any Officer's Certificate, Acquiror shall
have thirty (30) days to respond in a written statement to the objection of the
Shareholders' Agents. If after such thirty (30) day period there remains a
dispute as to any claims, the Shareholders' Agents and Acquiror shall attempt in
good faith for thirty (30) days to agree upon the rights of the respective
parties with respect to each of such claims. If the Shareholders' Agents and
Acquiror should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and shall
distribute the Escrow Shares from the Escrow Fund in accordance with the terms
of the memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Acquiror or the Shareholders' Agents may, by written notice to the other,
demand arbitration of the matter unless the amount of the damage or loss is at
issue in pending litigation with a third party, in which event arbitration shall
not be commenced until such amount is ascertained or both parties agree to
arbitration; and in either such event the matter shall be settled by arbitration
conducted by three arbitrators. Within fifteen (15) days after such written
notice is sent, Acquiror (on the one hand) and the Shareholders' Agents (on the
other hand) shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 10.4, the Escrow Agent shall be entitled to act in
accordance with such decision and make or withhold payments out of the Escrow
Fund in accordance with such decision.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Santa
Xxxxx or San Mateo County, California under the commercial rules then in effect
of the American Arbitration Association. The non-prevailing party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative fee of the American Arbitration Association, and the expenses,
including, without limitation, the reasonable attorneys' fees and costs,
incurred by the prevailing party to the arbitration.
Section 10.9 Shareholders' Agents.
--------------------
(a) Xxxxxxx Xxxxxxxx and Xxxxxxx Xxxxxx shall be constituted and
appointed as agents (the "SHAREHOLDERS' AGENTS") for and on behalf of the Former
Target Shareholders to give and receive notices and communications, to authorize
delivery to Acquiror of the Escrow Shares or other property from the Escrow Fund
in satisfaction of claims by Acquiror, to object to such deliveries, to agree
to, negotiate, enter into settlements and compromises of, and demand arbitration
and comply with orders of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in the judgment of the
Shareholders' Agents for the accomplishment of the foregoing. All actions of
the Shareholders' Agents shall be taken jointly, not individually. Such agency
may be changed by the holders of a majority in interest of the Escrow Shares
from time to time upon not less than ten (10) days' prior written notice to
Acquiror. No bond shall be required of the Shareholders' Agents, and the
Shareholders' Agents shall receive no compensation for services. Notices or
communications to or from the Shareholders' Agents shall constitute notice to or
from each of the Former Target Shareholders.
(b) The Shareholders' Agents shall not be liable for any act done or
omitted hereunder as Shareholders' Agent while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. The Former
Target Shareholders shall severally and pro rata, in accordance with their Pro
Rata Portion, indemnify the Shareholders' Agents and hold them harmless against
any loss, liability or expense incurred without gross negligence or bad faith on
the part of the Shareholders' Agents and arising out of or in connection with
the acceptance or administration of their duties hereunder under this Agreement
or the Escrow Agreement.
(c) The Shareholders' Agents shall have reasonable access to
information about Target and Acquiror and the reasonable assistance of Target's
and Acquiror's officers and employees for purposes of performing their duties
and exercising their rights under this Article X, provided that the
--------
Shareholders' Agents shall treat confidentially and not disclose any nonpublic
information from or about Target or Acquiror to anyone (except on a need to know
basis to individuals who agree to treat such information confidentially).
Section 10.10 Actions of the Shareholders' Agents. A decision, act,
-----------------------------------
consent or instruction of the Shareholders' Agents shall constitute a decision
of all of the Former Target Shareholders for whom shares of Acquiror Common
Stock otherwise issuable to them are deposited in the Escrow Fund and shall be
final, binding and conclusive upon each such Former
Target Shareholder, and the Escrow Agent and Acquiror may rely upon any
decision, act, consent or instruction of the Shareholders' Agents as being the
decision, act, consent or instruction of each and every such Former Target
Shareholder. The Escrow Agent and Acquiror are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Shareholders' Agents.
Section 10.11 Claims. In the event Acquiror becomes aware of a third-
------
party claim which Acquiror believes may result in a demand against the Escrow
Fund, Acquiror shall notify the Shareholders' Agents of such claim, and the
Shareholders' Agents and the Former Target Shareholders for whom shares of
Acquiror Common Stock otherwise issuable to them are deposited in the Escrow
Fund shall be entitled, at their expense, to participate in any defense of such
claim. Acquiror shall have the right in its sole discretion to settle any such
claim; provided, however, that Acquiror may not affect the settlement of any
-------- -------
such claim without the consent of the Shareholders' Agents, which consent shall
not be unreasonably withheld; provided further that the Shareholder's Agent
-------- -------
shall be permitted to settle any claim arising out of claims or assertions
contained in the Acquiror's notice (including any legal fees relating thereto
payable by the Former Target Shareholders) for an amount up to the value of the
assets remaining in the Escrow Fund. In the event that the Shareholders' Agents
have consented to any such settlement, the Shareholders' Agents shall have no
power or authority to object to the amount of any claim by Acquiror against the
Escrow Fund for indemnity with respect to such settlement.
ARTICLE XI
MISCELLANEOUS
-------------
Section 11.1 Survival of Representations and Covenants. All
-----------------------------------------
representations, warranties, covenants and agreements of Target contained in
this Agreement shall survive the Closing and any investigation at any time made
by or on behalf of Acquiror until the end of the Escrow Period. If Escrow
Shares or other assets are retained in the Escrow Fund beyond expiration of the
period specified in the Escrow Agreement, then (notwithstanding the expiration
of such time period) the representation, warranty, covenant or agreement
applicable to such claim shall survive until, but only for purposes of, the
resolution of the claim to which such retained Escrow Shares or other assets
relate. All representations, warranties, covenants and agreements of Acquiror
contained in this Agreement shall terminate as of the Effective Time, provided
--------
that the covenants and agreements contained in Sections 6.5, 6.6, 6.7 and 9.3
shall survive the Closing and shall continue in full force and effect.
Section 11.2 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or two business days after being mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
with a copy to:
(a) if to Acquiror or Sub:
Yahoo! Inc.
0000 Xxxxxxx Xxxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, XX 00000
Attention: Chief Executive Officer
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
with a copy at the same address to the attention of the General
Counsel and Secretary and with a copy to:
Venture Law Group
A Professional Corporation
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
(b) if to Target, to:
Four11 Corporation
0000 Xxxxxx Xxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attention: President
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich
A Professional Corporation
000 Xxxxxxxx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Fax No: (000) 000-0000
Telephone No: (000) 000-0000
Section 11.3 Interpretation. When a reference is made in this
--------------
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. Whenever the words "INCLUDE,"
"INCLUDES" or "INCLUDING" are used in this Agreement they shall be deemed to be
followed by the words "WITHOUT LIMITATION." The phrase "MADE AVAILABLE" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available.
Section 11.4 Counterparts. This Agreement may be executed in two or
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more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
Section 11.5 Entire Agreement; No Third Party Beneficiaries. This
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Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement, and the Transaction Documents (a) constitute the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) are not intended to confer upon any person other than the parties hereto
(including without limitation any Target employees) any rights or remedies
hereunder.
Section 11.6 Governing Law. This Agreement shall be governed and
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construed in accordance with the laws of the State of California without regard
to any applicable conflicts of law.
Section 11.7 Assignment. Neither this Agreement nor any of the
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rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
Section 11.8 Amendment . This Agreement may be amended by the parties
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hereto, at any time before or after approval of matters presented in connection
with the Merger by the shareholders of Target, but after any such shareholder
approval, no amendment shall be made which by law requires the further approval
of shareholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 11.9 Extension; Waiver . At any time prior to the Effective
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Time, the parties hereto may, to the extent legally allowed, (i) extend the time
for the performance of any of the obligations or the other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations or warranties
contained herein or in any document delivered pursuant hereto and (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
[Signature Page Follows]
IN WITNESS WHEREOF, Acquiror, Sub and Target have caused this Agreement and
Plan of Reorganization to be signed by their respective officers thereunto duly
authorized as of the date first written above.
FOUR11 CORPORATION YAHOO! INC.
By: /s/ Xxxxxxx Xxxxxxxx By: /s/ Xxxxxxx Xxxxxx
--------------------------- ----------------------------
Title: President/CEO Title: President and CEO
------------------------ -------------------------
ST ACQUISITION
CORPORATION
By: /s/ Xxxxxxx Xxxxxx
----------------------------
Title: President
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[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
