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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
By and Among
CNET, INC.
NETVENTURES, INC.
and
THE STOCKHOLDERS OF
NETVENTURES, INC.
February 2, 1999
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SCHEDULES
3.03 Capitalization
3.05 No Conflict; Required Filings and Consent
3.06 Permits
3.07(a) Financial Statements
3.08 Absence of Certain Changes or Events
3.11 Tax Matter
3.14 Brokers
3.15 Leased Properties
3.16 Material Contracts
3.17 Principal Customers and Suppliers
3.18 Intellectual Property
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 2, 1999 (this
"Agreement"), is by and among CNET, Inc., a Delaware corporation ("Buyer"),
Netventures, Inc., a California corporation (the "Company"), Xxxxx Xxxxxxxxx and
Xxxx Xxxxxx (the "Founders"), and the other stockholders of the Company
identified on the signature pages hereto (the "Minority Stockholders" and,
together with the Founders, the "Stockholders").
WHEREAS, Buyer and the Company have determined that the merger of the
Company with and into Buyer ("Merger"), with Buyer surviving, and conversion of
the issued and outstanding shares of common stock, no par value, of the Company
(the "Company Common Stock") into the right to receive shares of common stock,
$0.0001 par value, of Buyer (the "Buyer Common Stock"), on the terms and subject
to the conditions of this Agreement and in accordance with the General
Corporation Law of the State of California ("California Law") and the General
Corporation Law of the State of Delaware ("Delaware Law") would be advantageous
and beneficial to their respective corporations and stockholders;
WHEREAS, for federal income tax purposes, it is intended that the
Merger qualify as a tax-free reorganization under the provisions of section
368(a) of the United States Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. On the terms and subject to the conditions
set forth in this Agreement, and in accordance with applicable federal and state
law, at the Effective Time (as defined in Section 1.02), the Company shall be
merged with and into Buyer. As a result of the Merger, the separate corporate
existence of the Company shall cease and Buyer shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). Certain terms used in
this Agreement are defined in Section 10.02.
SECTION 1.02. Closing; Closing Date; Effective Time. Unless this
Agreement is terminated pursuant to Section 8.01, and subject to the
satisfaction or waiver of the conditions set forth in Article VI, the
consummation of the Merger and the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Buyer as soon
as practicable (but in any event within five business days) after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other date, time and place as Buyer and the Company
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may agree; provided, that the conditions set forth in Article VI shall have been
satisfied or waived at or prior to such time. The date on which the Closing
takes place is referred to herein as the "Closing Date." As promptly as
practicable on the Closing Date, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger with the Secretary of State of the
State of Delaware, in such form as required by, and executed in accordance with
the relevant provisions of, Delaware Law (the date and time of such filing, or
such later date or time agreed upon by Buyer and the Company and set forth
therein, being the "Effective Time"). As promptly as practicable on the Closing
Date, the parties shall also file a certificate of merger with the Secretary of
State of the State of California, in such form as required by, and executed in
accordance with the relevant provisions of, California Law.
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of California
Law and Delaware Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time, all the properties, rights, privileges
and powers of the Company and Buyer will vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and the Buyer shall become the
debts, liabilities and duties of the Surviving Corporation.
SECTION 1.04. Articles of Incorporation; Bylaws. At the Effective Time,
the Articles of Incorporation and bylaws of Buyer, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation and bylaws
of the Surviving Corporation unless and until amended as provided therein and
pursuant to Delaware Law.
SECTION 1.05. Directors and Officers. The directors and officers of
Buyer immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation at the Effective Time, each to hold office
in accordance with the bylaws of the Surviving Corporation, in each case until
their respective successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Consideration; Conversion and Cancellation of Securities.
At the Effective Time, by virtue of the Merger and without any action on the
part of Buyer, the Company or their respective stockholders:
(a) Prior to the Effective Time, all outstanding preferred
stock of the Company will be converted into Company Common Stock and all
outstanding warrants to purchase Company Common Stock will be exercised.
(b) Subject to the other provisions of this Article II, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into .0096274 shares of Buyer Common Stock,
which equals (i) eight million dollars ($8,000,000), based upon the average last
sales price of the Buyer Common Stock on the Nasdaq National Market System
("Nasdaq") as reported in the West Coast edition of the Wall Street
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Journal for the twenty trading days preceding (but not including) the date of
this Agreement (the "Conversion Price"), divided by (iii) 10,761,143, which is
the total number of outstanding shares of Company Common Stock immediately prior
to the Effective Time.
(c) All shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired, and each
certificate previously evidencing the Company Common Stock outstanding
immediately prior to the Effective Time (the "Converted Shares") shall
thereafter represent the right to receive Buyer Common Stock in accordance with
this Article II. The Stockholders shall cease to have any rights with respect to
such Converted Shares except as otherwise provided herein or by law.
Certificates previously evidencing Converted Shares shall be exchanged for Buyer
Common Stock upon the surrender of such certificates in accordance with the
provisions of Section 2.02, without interest.
SECTION 2.02. Exchange and Surrender of Certificates.
(a) Each Stockholder shall be entitled to receive, upon
surrender to Buyer or its transfer agent of certificates previously evidencing
Converted Shares, as soon as practicable after the Closing Date, a certificate
representing the Converted Shares so surrendered, registered in the name of such
Stockholder. Until so surrendered and exchanged, each certificate previously
evidencing Converted Shares shall represent solely the right to receive Buyer
Common Stock.
(b) All shares of Buyer Common Stock issued upon the surrender
for exchange of certificates previously representing Converted Shares in
accordance with the terms hereof (including any adjustments pursuant to Section
2.02(c)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Converted Shares. At and after the Effective Time, there
shall be no further registration of transfers on the stock transfer books of the
Surviving Corporation of Company Common Stock that was outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates which
previously evidenced Converted Shares are presented to the Surviving Corporation
for any reason, they shall be canceled and exchanged as provided in this Article
II.
(c) No certificates or scrip evidencing fractional shares of
Buyer Common Stock shall be issued upon the surrender for exchange of
certificates, and such fractional share interests will not entitle the owner
thereof to any rights as a stockholder of Buyer. In lieu of any such fractional
shares, the number of shares of Buyer Common Stock issuable to any Stockholder
in connection with the Merger shall be rounded up to the nearest whole share.
(d) Buyer shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former holder
of Converted Shares such amounts as Buyer (or any affiliate thereof) is required
to deduct and withhold with respect to the making of such payment under the
Code, or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by Buyer, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the former holder of the
Converted Shares in respect of which such deduction and withholding was made by
Buyer.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
The Company and the Founders and, with respect to Sections 3.05, 3.12
and 3.19 only, the Minority Stockholders hereby represent and warrant to Buyer
that:
SECTION 3.01. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of California, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the ownership or leasing of its
properties makes such qualification necessary.
SECTION 3.02. Articles and Bylaws. The Company has furnished to Buyer
complete and correct copies of its Articles of Incorporation and bylaws, in each
case as amended or restated, of the Company. The Company is not in violation of
any of the provisions of its Articles of Incorporation or bylaws.
SECTION 3.03. Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 15,000,000 shares of Company Common Stock, of which 10,761,143 shares are
issued and outstanding; and (ii) 5,000,000 shares of Preferred Stock, no par
value per share, none of which are issued and outstanding. All of the
outstanding capital stock of the Company is held of record and beneficially by
the Stockholders as indicated in Schedule 3.03, and except as set forth in
Schedule 3.03, is free and clear of all security interests, liens, claims,
pledges, agreements, charges or other encumbrances of any nature whatsoever. All
of the outstanding capital stock of the Company is duly authorized, validly
issued, fully paid and nonassessable, and has not been issued in violation of
(nor are any of the authorized shares of capital stock of the Company subject
to) any preemptive or similar rights created by statute, the Articles of
Incorporation or bylaws of the Company or any agreement to which the Company is
a party or bound.
(b) Except as indicated in Schedule 3.03, no shares of capital
stock of the Company are reserved for any purpose or held in treasury by the
Company and there are no options, warrants or other rights, agreements,
arrangements or commitments of any character to which the Company is a party
relating to the issued or unissued capital stock of the Company or obligating
the Company to grant, issue or sell any shares of the capital stock of the
Company.
(c) There are no obligations, contingent or otherwise, of the
Company to (i) repurchase, redeem or otherwise acquire any shares of the capital
stock of the Company or (ii) provide material funds to, or make any material
investment in (in the form of a loan, capital contribution or otherwise), or
provide any guarantee with respect to the obligations of, any other person.
There are no agreements, arrangements or commitments of any character
(contingent or otherwise) pursuant to which any person is or may be entitled to
receive any payment based on
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the revenues or earnings, or calculated in accordance therewith, of the Company.
There are no voting trusts, proxies or other agreements or understandings to
which the Company is a party or by which the Company is bound with respect to
the voting of any shares of capital stock of the Company.
(d) The Company (i) does not directly or indirectly own, (ii)
has not agreed to purchase or otherwise acquire and (iii) does not hold any
interest convertible into or exchangeable or exercisable for, any capital stock
(or equivalent equity interest) of any corporation, partnership, joint venture
or other business association or entity.
SECTION 3.04. Authority. The Company has all requisite corporate power
and authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by the Company and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and the Stockholders and constitutes the legal, valid
and binding obligation of the Company and the Stockholders enforceable against
the Company and the Stockholders in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) Except as set forth on Schedule 3.05, the execution and
delivery of this Agreement by the Company and the Stockholders does not, and the
consummation of the transactions contemplated hereby will not (i) conflict with
or violate the Articles of Incorporation or bylaws, in each case as amended or
restated, of the Company, (ii) conflict with or violate any federal, state,
foreign or local law, statute, ordinance, rule, regulation, order, judgment or
decree (collectively, "Laws") applicable to the Stockholders or the Company or
by which any of their properties or assets is bound or subject or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of any lien or encumbrance on any of the
properties or assets of the Company pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any Stockholder or the Company is a party or
by or to which any Stockholder or the Company or any of their properties or
assets is bound or subject. The Board of Directors of the Company has taken all
actions necessary under California Law, including approving the transactions
contemplated by this Agreement and taking appropriate actions under California
Law or any other applicable stockholder protection laws, to ensure that any
restrictions on business combinations or the owning or voting of the capital
stock of the Company do not, and will not, apply with respect to or as a result
of the transactions contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the
Company and the Stockholders does not, and consummation of the transactions
contemplated hereby will not,
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require the Company or any Stockholder to obtain any consent, license, permit,
approval, waiver, authorization or order of, or to make any filing with or
notification to, any governmental or regulatory authority, domestic or foreign
(each individually, a "Governmental Entity," and collectively, "Governmental
Entities"), except for the filing and recordation of appropriate merger
documents as required by California Law and Delaware Law.
SECTION 3.06. Permits; Compliance. Except as set forth in Schedule
3.06, the Company is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action, proceeding or investigation pending or, to
the Company's knowledge, threatened regarding suspension or cancellation of any
of the Company Permits. The Company and its assets and operations are currently
and have at all times been in compliance with (a) all Laws applicable to the
Company and its operations or by or to which any of its assets is bound or
subject, including without limitation all Laws related to environmental
protection, employee benefits, labor and employment and occupational health and
safety, and (b) all of the Company Permits, if obtained. The Company has not
received from any Governmental Entity any written notification with respect to
possible violations of Laws.
SECTION 3.07. Financial Statements.
(a) Schedule 3.07(a) contains the unaudited balance sheet of
the Company (the "Latest Balance Sheet") as of October 31, 1998 (the "Latest
Balance Sheet Date") and the unaudited statements of operations for the twelve
months ended on such date.
(b) Each of the foregoing financial statements (i) has been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved and (ii) fairly present in
all material respects the financial position of the Company as of the respective
dates thereof and the results of its operations and cash flows for the periods
indicated, except that the interim financial statements are subject to normal
and recurring year-end adjustments, which will not be material individually or
in the aggregate.
(c) All accounts receivable reflected in the Latest Balance
Sheet or generated since the Latest Balance Sheet Date arose in the ordinary
course of business and are fully collectible in the ordinary course of business,
without resort to litigation, at the face amount thereof less any reserve
reflected in the Latest Balance Sheet, and will not be subject to counterclaim,
set-off or other reduction.
SECTION 3.08. Absence of Certain Changes or Events. Except as set forth
in Schedule 3.08 and except for the transactions contemplated by this Agreement,
since the Latest Balance Sheet Date, the Company has conducted its business only
in the ordinary course and in a manner consistent with past practice and there
has not been: (a) any damage, destruction or loss (whether or not covered by
insurance) with respect to any material assets of the Company; (b) any change by
the Company in its accounting methods, principles or practices; (c) any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of the capital stock
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of the Company or any redemption, purchase or other acquisition by the Company
of any of its securities; (d) any increase in the benefits under, or the
establishment or amendment of, any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing or other employee benefit
plan, or any increase in the compensation payable or to become payable to
directors, officers or employees of the Company, except for annual bonuses or
merit increases in salaries or wages in the ordinary course of business and
consistent with past practice; (e) any payment or other transfer of assets by
the Company to any Stockholder, other than compensation payments in the ordinary
course of business and consistent with past practice; (f) any revaluation by the
Company of any of its assets, including the writing down or off of notes or
accounts receivable, other than in the ordinary course of business and
consistent with past practices; (g) any entry by the Company into any commitment
or transaction material to the Company including, without limitation, incurring
or agreeing to incur capital expenditures in excess of $50,000; (h) any
incurrence of indebtedness for borrowed money other than trade payables incurred
in the ordinary course of business; (i) a loss, or written notice threatening a
loss, of any customer or supplier set forth on Schedule 3.17; (j) the
termination of employment (whether voluntary or involuntary) of any officer or
key employee of the Company; or (k) any change, occurrence or circumstance
having or reasonably likely to have, individually or in the aggregate, a
material adverse effect on the business, operations, assets, financial
condition, results of operations or prospects of the Company.
SECTION 3.09. No Undisclosed Liabilities. Except as set forth in
Schedule 3.09, the Company does not have any direct or indirect debts,
liabilities or obligations, whether known or unknown, absolute, accrued,
contingent or otherwise ("Liabilities"), except (a) Liabilities fully reflected
in the Latest Balance Sheet and related financial statement notations; (b) trade
payables and accrued expenses incurred in the ordinary course of business and
consistent with past practice since the Latest Balance Sheet Date; (c)
obligations to be performed in the ordinary course of business, consistent with
past practice, under the Material Contracts (as defined in Section 3.16) or
under agreements not required to be disclosed pursuant to Section 3.16; and (d)
any obligation to pay the Company Expenses (as defined in Section 5.11).
SECTION 3.10. Absence of Litigation. Except as set forth in Schedule
3.10, there is no claim, action, suit, litigation, proceeding, arbitration or
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the Company's knowledge, threatened
against the Company or any assets or rights of the Company. The Company is not
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or award
of any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
SECTION 3.11. Taxes.
(a) Except as set forth on Schedule 3.11, (i) all returns and
reports ("Tax Returns") of or with respect to any Tax which is required to be
filed on or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain, loss,
deduction and credit or other items required to be included in each such Tax
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Return have been or will be so included and all information provided in each
such Tax Return is true, correct and complete, (iii) all Taxes which have become
or will become due with respect to the period covered by each such Tax Return
have been or will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be satisfied in full
in all respects, and (v) no penalty, interest or other charge is or will become
due with respect to the late filing of any such Tax Return or late payment of
any such Tax.
(b) There are no Tax Returns of or with respect to the Company
with extended or waived statutes of limitations.
(c) Except as set forth on Schedule 3.11, there is not in
force any extension of time with respect to the due date for the filing of any
Tax Return of or with respect to the Company or any waiver or agreement for any
extension of time for the assessment, collection or payment of any Tax of or
with respect to the Company.
(d) To the Company's knowledge, there are no pending audits,
actions, proceedings, investigations, disputes or claims with respect to or
against the Company for or with respect to any Taxes of the Company; no
assessment, deficiency or adjustment has been assessed or proposed with respect
to any Tax Return of or with respect to the Company; and there is no reasonable
basis on which any claim for material Taxes can be asserted against the Company,
other than those disclosed (and to which are attached true and complete copies
of all audit or similar reports) on Schedule 3.11.
(e) Except for statutory liens for current Taxes not yet due,
no liens for Taxes exist upon the assets of any of the Company.
(f) The Company will not be required to include any amount in
income for any taxable period beginning after the Closing Date as a result of a
change in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with respect to
any such taxable period.
(g) To the Company's knowledge, none of the transactions
contemplated by this Agreement will result in any Tax liability or the
recognition of any item of income or gain to the Company.
(h) None of the property of the Company is held in an
arrangement for which partnership Tax Returns are being filed, and the Company
does not own any interest in any controlled foreign corporation (as defined in
section 957 of the Code), passive foreign investment company (as defined in
section 1296 of the Code) or other entity the income of which is required to be
included in the income of the Company.
(i) The Company has never been subject to Taxes in any
jurisdiction outside the United States.
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SECTION 3.12. Tax Matters; Pooling. Neither the Company nor any of its
Stockholders or other affiliates has taken or agreed to take any action that
would prevent the Merger from (i) constituting a reorganization qualifying under
the provisions of section 368(a) of the Code or (ii) being treated for financial
accounting purposes as a "pooling of interests" (the "Pooling Transaction") in
accordance with generally accepted accounting principles and the rules,
regulations and interpretations of the Securities and Exchange Commission (the
"SEC").
SECTION 3.13. Certain Business Practices. Neither the Company, the
Founders nor their agents or other representatives has, directly or indirectly,
made or authorized any payment, contribution or gift of money, property or
services, whether or not in contravention of applicable law, (a) to any
political organization, or the holder of or any aspirant to any elective or
appointive public office, except for personal political contributions not
involving the direct or indirect use of funds of the Company, or (b) as a
kickback or bribe to any person.
SECTION 3.14. Brokers. Except as set forth on Schedule 3.14, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 3.15. Leased Properties. Schedule 3.15 sets forth a description
(including the street address) of all real property leased by the Company (the
"Leased Properties"). No premises other than the Leased Properties are used in
the business of the Company.
SECTION 3.16. Certain Material Contracts.
(a) Schedule 3.16 lists each agreement and arrangement
(whether written or oral and including all amendments thereto) to which the
Company is a party or a beneficiary or by which the Company is bound that is
material, directly or indirectly, to the business of the Company (collectively,
the "Material Contracts"), including without limitation (i) any licensing,
advertising, promotion, consulting or services agreements pursuant to which the
Company earns revenue; (ii) any licensing, supply, or services agreements
pursuant which the Company is entitled or obligated to acquire any assets or
services from any person; (iii) any insurance policies; (iv) any employment,
consulting, non-competition, separation, collective bargaining, union or labor
agreements or arrangements; (v) any agreement evidencing, securing, guarantying
or otherwise relating to any indebtedness for which the Company has any
Liability, (vi) any agreement with or for the benefit of any Stockholder of the
Company, or any affiliate or family member thereof (which agreements are
specifically identified as such in Schedule 3.16); (vii) any capital or
operating leases or conditional sales agreements relating to vehicles or
equipment; and (viii) any other agreement or arrangement pursuant to which the
Company could be required to make or be entitled to receive aggregate payments
in excess of $50,000.
(b) Except as set forth in Schedule 3.16, the Company has
performed in all material respects all of its obligations under each Material
Contract and there exists no breach or
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default (or event that with notice or lapse of time would constitute a breach or
default) under any Material Contract.
(c) Except as set forth on Schedule 3.16 (and, with respect to
the six Software Development, License and Co-Branding Agreements listed on
Schedule 3.16, as related to the notice of assignment requirements of such
agreements), each Material Contract is valid, binding and in full force and
effect and enforceable in accordance with its respective terms. There has been
no termination or, to the Company's knowledge, threatened termination or notice
of default under any Material Contract. Except as set forth on Schedule 3.16,
the Company has delivered to Buyer a copy of each written Material Contract.
SECTION 3.17. Principal Customers and Suppliers; Competing Interests.
Set forth in Schedule 3.17 is a list of the ten largest customers by dollar
volume of the Company and the ten largest suppliers by dollar volume of the
Company (with the amount of revenues or payments, as applicable, attributable to
each such customer and supplier) for 1997 and the first eleven months of 1998.
Except as set forth in Schedule 3.17, since October 30, 1997, no such supplier
or customer of the Company has notified the Company that it has canceled or
otherwise terminated, or, to the Company's knowledge, threatened to cancel or
otherwise terminate, its relationship with the Company, and there has not been
any material dispute with any such customer or supplier. None of the
Stockholders, the Company, nor, to the Company's knowledge, any director or
officer of the Company owns, directly or indirectly, an interest in any entity
that is a competitor, customer or supplier of the Company or that otherwise has
material business dealings with the Company, provided that the foregoing will
not apply to any investment in publicly traded securities constituting less than
1% of the outstanding securities in such class.
SECTION 3.18. Intellectual Property Rights.
(a) For purposes of this Agreement, "Intellectual Property" means all
(i) patents, copyrights and copyrightable works, trademarks, service marks,
trade names, service names, brand names, logos, trade dress, Internet domain
names and all goodwill symbolized thereby and appurtenant thereto; (ii) trade
secrets, inventions, technology, know-how, proprietary information, research
material, specifications, surveys, designs, drawings and processes; (iii)
computer software and related documentation, including without limitation
operating software, network software, firmware, middleware, design software,
design tools, management information systems, systems documentation and
instructions, databases and the tangible objects in which the foregoing rights
are embodied (collectively, "Software"); (iv) artwork, photographs, editorial
copy and materials, formats and designs, including without limitation all
content currently or previously displayed through Internet sites operated by the
Company; (v) customer, partner, prospect and marketing lists, market research
data, sales data and traffic and user data; (vi) registrations, applications,
recordings, common law rights, "moral" rights of authors, licenses (to or from
the Company) and other agreements relating to any of the foregoing; (vii) rights
to obtain renewals, reissues, extensions, continuations, divisions or equivalent
extensions of legal protection pertaining to the foregoing; and (viii) claims,
causes of action or other rights at law or in equity arising out of or relating
to any infringement, misappropriation, distortion, dilution or other
unauthorized use or conduct in derogation of the foregoing occurring prior to
the Closing.
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(b) Schedule 3.18 sets forth all registered patents, trademarks, and
copyrights held by the Company. Except as set forth in Schedule 3.18, there are
no registrations or applications for registration of any patents, tradenames or
copyrights in the name of the Company.
(c) The Company owns or has the right to use pursuant to Material
Contracts all Intellectual Property used by the Company in connection with or
necessary to the operation of its business, without infringing on or otherwise
acting adversely to the rights or claimed rights of any person. Except as set
forth on Schedule 3.18, the Company is not obligated to pay any royalty or other
consideration to any person in connection with the use of any such Intellectual
Property.
(d) No claim has been asserted against the Company to the effect that
the use of any Intellectual Property by the Company infringes the rights of any
person. To the Company's knowledge, no other person is currently infringing upon
the rights of the Company with respect to the Company's Intellectual Property.
SECTION 3.19. Investor Representations.
(a) The Company and the Stockholders understand that the Buyer
Common Stock to be issued to them in the Merger will constitute "restricted
securities" under the Securities Act of 1933, as amended (the "Securities Act").
Consequently, each Stockholder must bear the economic risk of ownership of such
Buyer Common Stock indefinitely, and the Stockholders will be able to resell
such Buyer Common Stock only (i) pursuant to an effective registration statement
covering such resale or (ii) pursuant to an exemption from registration, such as
the exemption provided under rule 144 under the Securities Act ("Rule 144").
(b) Each Stockholder (i) has a preexisting personal or
business relationship with the Company or the Founders and (ii) by reason of
such Stockholder's business or financial experience or the business or financial
experience of such Stockholder's professional advisors who are unaffiliated with
and who are not compensated by Buyer or any affiliate or selling agent of Buyer,
directly or indirectly, could be reasonably assumed to have the capacity to
protect such Stockholder's interests in connection with this Agreement.
(c) The Stockholders acknowledge receipt of the SEC Documents
(as defined in Section 4.04) and acknowledge that they have been given the
opportunity to ask questions of representatives of Buyer and to receive
reasonable additional information to the extent requested in connection with
their evaluation of an investment in the Buyer Common Stock.
(d) The Stockholders acknowledge that the Buyer Common Stock
will bear a restrictive legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND THE
HOLDER HEREOF CANNOT MAKE ANY SALE, ASSIGNMENT, OR OTHER TRANSFER OF SUCH
SECURITIES WITHOUT
14
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACTS AND LAWS. THE ISSUER MAY REQUIRE
EVIDENCE OF SUCH REGISTRATION OR EXEMPTION PRIOR TO ANY SUCH TRANSFER."
SECTION 3.20. Affiliates and Employees. The Founders are the only
persons who may be deemed to be "affiliates" of the Company within the meaning
of Rule 144 under the Securities Act. With the exception of consulting
arrangements, the Founders are the only persons who have ever been employed by
the Company.
SECTION 3.21. Information Supplied. Without limiting any of the
representations and warranties contained herein, no written representation or
written warranty of the Company or the Founders and no statement by the Company
or the Founders contained in the Schedules to this Agreement contains any untrue
statement of material fact, or omits to state a material fact necessary in order
to make the statements contained therein, in light of the circumstances under
which such statements were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company and the
Stockholders that:
SECTION 4.01. Organization and Qualification. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary.
SECTION 4.02. Authority. Buyer has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Buyer and the consummation by Buyer of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Buyer and constitutes the legal, valid and binding obligation of Buyer,
enforceable against it in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consent.
(a) The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated hereby will not (i)
conflict with or violate the charter or bylaws, in each case as amended or
restated, of Buyer, (ii) conflict with or violate any Laws applicable to Buyer
or by which any of its properties or assets is bound or subject, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under any note, bond, mortgage,
indenture, contract, agreement, lease,
15
license, permit, franchise or other instrument or obligation to which Buyer is a
party or by or to which Buyer or any of its properties is bound or subject.
(b) The execution and delivery of this Agreement by Buyer does
not, and the consummation of the transactions contemplated hereby will not,
require Buyer to obtain any consent, license, permit, approval, waiver,
authorization or order of, or to make any filing with or notification to, any
Governmental Entities, except for the filing and recordation of appropriate
merger documents as required by California Law or Delaware Law.
SECTION 4.04. SEC Documents. Buyer has delivered to the Company and the
Founders a true and complete copy of Buyer's Annual Report on Form 10-K for the
year ended December 31, 1997 its quarterly reports on Form 10-Q for the quarter
ended September 30, 1998, and its definitive proxy statement for its annual
meeting of stockholders held in 1998 (together, the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material respects with
the applicable requirements of the Exchange Act and the rules and regulations of
the SEC thereunder, and none of the Buyer SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 4.05. Financial Statements. The financial statements of Buyer,
including the notes thereto, included in the SEC Documents (the "Buyer Financial
Statements") were complete and correct in all material respects as of their
respective dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, and have been prepared in accordance with United States
generally accepted accounting principles applied on a basis consistent
throughout the periods indicated and consistent with each other (except as may
be indicated in the notes thereto). The Buyer Financial Statements fairly
present the consolidated financial condition and operating results of Buyer and
its subsidiaries at the dates and during the periods indicated therein (subject,
in the case of unaudited statements, to normal, recurring year-end adjustments).
There has been no material change in Buyer accounting policies except as
described in the notes to the Buyer Financial Statements.
SECTION 4.06. Tax Matters; Pooling. Neither Buyer nor, to the knowledge
of Buyer, any of its affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a reorganization qualifying under the
provisions of section 368(a) of the Code.
SECTION 4.07. No Material Adverse Changes. Since the date of the Buyer
Financial Statements included in the SEC Documents, the Buyer has conducted its
business in the ordinary course and there has not occurred: (a) any material
adverse change in the financial condition, liabilities, assets or business of
Buyer; (b) any amendment or change in the Articles of Incorporation or Bylaws of
Buyer; or (c) any damage to, destruction or loss of any assets of Buyer,
(whether or not covered by insurance) that materially and adversely affects the
financial condition of Buyer.
16
SECTION 4.08. Litigation. There is no action, suit, proceeding, claim,
arbitration or investigation pending, or as to which Buyer has received written
notice, which seeks to enjoin, alter or materially delay any of the transactions
contemplated by this Agreement.
SECTION 4.09. Capitalization. The authorized and outstanding
capitalization of Buyer consists of (i) a total of 5,000,000 authorized shares
of preferred stock, $.01 par value per share (the "Preferred Stock"), none of
which is issued or outstanding, and (ii) a total of 25,000,000 authorized shares
of Common Stock, of which 17,193,033 shares were issued and outstanding as of
February 2, 1999. All of such outstanding shares are validly issued, fully paid
and nonassessable, and none of such outstanding shares was issued in violation
of any preemptive rights. In addition to the foregoing, as of December 18, 1998,
Buyer had reserved an aggregate of 2,664,247 additional shares for issuance upon
exercise of outstanding warrants and options, consisting of the following: (a)
149,950 shares reserved for issuance upon exercise of outstanding warrants; (b)
1,160,308 shares reserved for issuance upon exercise of outstanding options
granted under Buyer's 1994 Stock Option Plan; and (c) 1,353,989 shares reserved
for issuance upon exercise of outstanding stock options granted under Buyer's
1997 Stock Plan. Except for the foregoing warrants and options and any
additional options that may be granted under the 1994 Stock Option Plan or the
1997 Stock Option Plan after the date hereof, there are not outstanding any
options, warrants or similar agreements for the purchase from Buyer any shares
of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of Buyer's capital stock.
ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company. The Company hereby
covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Buyer,
the Company will:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) use commercially reasonable efforts to preserve
substantially intact its business organization, maintain its Material Contracts,
Company Permits and Intellectual Property and other material rights, retain the
services of its respective officers and key employees and maintain its
relationships with its material customers and suppliers;
(c) maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
(d) maintain and keep in full force and effect insurance
comparable in amount and scope of coverage to that currently in effect; and
(e) from the date of this Agreement and to the Effective Time,
promptly supplement or amend the Schedules to this Agreement with respect to any
matter that arises or
17
that is required to be set forth or listed in the Schedules or is necessary to
complete or correct any information in the Schedules; provided, that for
purposes of determining the rights and obligations of the parties hereunder
(other than the obligation of the Company under this Section 5.01(e)), any such
supplemental or amended disclosure will not be deemed to have been disclosed to
Buyer unless Buyer otherwise expressly consents in writing.
SECTION 5.02. Negative Covenants of the Company. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by Buyer,
from the date of this Agreement until the Effective Time, the Company will not
do any of the following:
(a) amend or otherwise modify any of the Material Contracts or
Company Permits;
(b) (i) effect any reorganization or recapitalization; (ii)
issue any capital stock or any option, warrant or similar agreement with respect
to its capital stock; (iii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock; or
(iv) adopt or propose to adopt any amendments to its Articles of Incorporation
or bylaws;
(c) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets, except for dispositions of
inventories and of assets in the ordinary course of business and consistent with
past practice;
(d) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy;
(e) take (and will use reasonable best efforts to prevent any
affiliate of the Company from taking) any action that, in the judgment of KPMG
Peat Marwick would cause the Merger not to be treated as a Pooling Transaction
for financial accounting purposes;
(f) take any action that would result in a breach (as of the
Closing) of any of the representations and warranties set forth in Section 3.08;
(g) pay or agree to pay any dividend, distribution, or other
payment to any of its Stockholders;
(h) pay or agree to pay any bonus, incentive compensation, or
similar payment to any of its employees or increase the compensation of any
Stockholder or other employee;
(i) make any material expenditure or commitment except in the
ordinary course of business consistent with past practice; or
(j) agree in writing or otherwise to do any of the foregoing.
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SECTION 5.03. Non-Solicitation. Each of the Company and the Founders
hereby covenants and agrees that it will not, and will not permit any of its
affiliates, as applicable, to initiate, solicit or encourage (including by way
of furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal relating to, or that may
reasonably be expected to lead to, any Competing Transaction (as defined below),
or enter into discussions or negotiate with any person or entity in furtherance
of such inquiries or to obtain a Competing Transaction, or agree to or endorse
any Competing Transaction, or authorize or permit any of the officers, directors
or employees of the Company or any investment banker, financial advisor,
attorney, accountant or other representative retained by the Company, any
Founder or any of their affiliates, as applicable, to take any such action, and
the Company or the Founders, as the case may be, shall promptly notify Buyer of
all relevant terms of any such inquiries and proposals received by the Company,
or any of its affiliates, as applicable, or by any such officer, director,
investment banker, financial advisor, attorney, accountant or other
representative relating to any of such matters and if such inquiry or proposal
is in writing, the Company or the Founders, as the case may be, shall promptly
deliver or cause to be delivered to Buyer a copy of such inquiry or proposal.
For purposes of this Agreement, "Competing Transaction" means any of the
following (other than the transactions contemplated by this Agreement) involving
the Company: (a) any merger, consolidation, share exchange, business combination
or similar transaction; (b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 5% or more of the assets of the Company, or (c)
any offer for 5% or more of the outstanding shares of capital stock of the
Company.
SECTION 5.04. Confidential Information.
(a) The assets of the Company include certain commercially valuable
technical and non-technical confidential or proprietary information of the
Company (collectively, "Confidential Information"). Confidential Information
means all information used by the Company in connection with operating its
business that is not generally known to others in similar areas of business,
including without limitation (i) trade secrets, software, work product,
processes, analyses and know-how related to the architecture and operation of
the Company's business or the submission, collection or organization of its
contents; (ii) customer and prospect lists and other marketing, advertising,
pricing, strategic and business plans and information related to the Company's
business; and (iii) information concerning traffic at the Company's Internet
sites and financial information concerning the operation of the Company's
business.
(b) Prior to the Closing, the confidentiality and nondisclosure
provisions of the existing Nondisclosure Agreement between Buyer and the
Company, dated as of November 17, 1998 (the "Nondisclosure Agreement"), will
remain in full force and effect and will apply to the Confidential Information,
notwithstanding the execution of this Agreement. Upon termination of this
Agreement for any reason, Buyer shall promptly return to the Company all
Confidential Information, including copies thereof, and destroy any notes,
compilations, analyses or other material that incorporates or otherwise includes
such Confidential Information.
(c) The Founders acknowledge and agree that, following the Closing, the
Confidential Information will be the sole and exclusive property of the
Surviving Corporation. Following the
19
Closing, neither Founder will, directly or indirectly, use any Confidential
Information for his own benefit or disclose any Confidential Information to any
person (except in the course of performing authorized duties for Buyer or the
Surviving Corporation). At Buyer's request after the Closing, the Founders will
promptly deliver to Buyer or the Surviving Corporation all documents, computer
disks and other computer storage devices, computer printouts, manuals and other
papers and materials (including all copies thereof in whatever form) containing
or incorporating any Confidential Information that are in his possession or
under his control.
SECTION 5.05. Access and Information.
(a) The Company shall (i) afford to Buyer and its officers,
directors, employees, accountants, consultants, legal counsel, agents and other
representatives (collectively, the "Buyer Representatives") reasonable access at
reasonable times, upon reasonable prior notice, to the officers, employees,
agents, properties, offices and other facilities of the Company and to the books
and records thereof, (ii) furnish promptly to Buyer and the Buyer
Representatives such information concerning the business, properties, contracts,
records and personnel of the Company (including, without limitation, financial,
operating and other data and information) as may be reasonably requested, from
time to time, by Buyer, and (iii) authorize Buyer to contact and obtain relevant
information from the Company's accountants, material customers and suppliers and
any governmental agencies having dealings with the Company.
(b) No investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the parties which
are herein contained and each such representation and warranty shall survive
such investigation.
SECTION 5.06. Appropriate Action; Consents; Filings.
(a) Each of Buyer, the Founders and the Company shall use (and
shall cause each of their respective subsidiaries to use, as applicable) all
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary, proper or advisable under
applicable Law or otherwise to consummate and make effective the transactions
contemplated by this Agreement, and (ii) obtain from any Governmental Entities
or other third parties any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Buyer or the Company
or any of their subsidiaries or affiliates, as applicable, in connection with
the authorization, execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby, including, without limitation, the
Merger. The Founders, the Company and Buyer shall furnish all information
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable Law in connection with the transactions
contemplated by this Agreement.
(b) Each of Buyer, the Founders and the Company shall give (or
shall cause their respective subsidiaries and affiliates, as applicable, to
give) any notices to third parties, and use (and cause their respective
subsidiaries and affiliates, as applicable, to use) all reasonable efforts to
obtain any third party consents (i) necessary, proper or advisable to consummate
the transactions contemplated by this Agreement, or (ii) otherwise required
under any Material
20
Contracts, Company Permits or other agreements in connection with, or in order
to allow the Company to continue to be entitled to the benefits thereof
following, the consummation of the transactions contemplated hereby. In the
event that any party shall fail to obtain any third party consent described
above and the parties agree to consummate the Merger without such consent, such
party shall use its best efforts, and shall take any such actions reasonably
requested by the other parties, to limit the adverse effect upon the Company and
Buyer, their respective subsidiaries, and their respective businesses resulting,
or which could reasonably be expected to result after the Effective Time, from
the failure to obtain such consent.
SECTION 5.07. Pooling; Tax Treatment.
(a) The Company and the Founders will use all reasonable
efforts to cause the Merger to be treated for financial accounting purposes as a
Pooling Transaction, and shall not take, and shall use all reasonable efforts to
prevent any of their affiliates from taking, any actions which could prevent the
Merger from being treated for financial accounting purposes as a Pooling
Transaction.
(b) Each party hereto shall use all reasonable efforts to
cause the Merger to qualify, and shall not take, and shall use all reasonable
efforts to prevent any affiliate of such party from taking, any actions which
could prevent the Merger from qualifying as a reorganization under the
provisions of section 368(a) of the Code.
SECTION 5.08. Public Announcements. Buyer may issue a press release
regarding the Merger and shall consult with the Company before issuing any press
release or otherwise making any public statements with respect to the Merger.
The Company shall not issue any press release or make any public statement prior
to such press release by Buyer, except as otherwise required by applicable Law.
SECTION 5.09. Nasdaq Listing. Buyer shall use all reasonable efforts to
cause the shares of Buyer Common Stock to be issued in the Merger to be approved
for listing on Nasdaq as soon as practicable following the Effective Time.
SECTION 5.10. Fees, Expenses and Other Payments. At the Closing, Buyer
will pay all transaction costs and expenses (including, without limitation, all
fees and expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by the Company or the
Stockholders in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby (collectively, "Company Expenses"). Buyer liability
hereunder shall be for up to a maximum amount of $20,000 with any amount in
excess of $20,000 (the "Additional Company Expenses") paid for by the
Stockholders. The Additional Company Expenses shall be paid for by the
Stockholders through a reduction in the number of shares of Buyer Common Stock
to be issued to the Stockholders in the Merger pursuant to Section 2.01(b) equal
to (i) Additional Company Expenses divided by (ii) the Conversion Price. Buyer
shall issue one check at the Closing to each such applicable counsel or
consultant reflecting both the Buyer and Stockholder contribution to payment for
the Company Expenses. Any amounts due that
21
exceed the estimates agreed upon by the Stockholders and Buyer for the Company
Expenses shall be borne by the Founders.
SECTION 5.11. Employment Agreements. At the Closing, the Surviving
Corporation will enter into an employment agreement with each of the Founders in
substantially in the form of Exhibit A attached hereto.
SECTION 5.12. Stockholder Release. Effective upon the Closing, each
Stockholder, for itself and its heirs, executors, administrators, successors and
assigns, hereby fully and unconditionally releases and forever discharges and
holds harmless the Company and its officers, directors, successors and assigns
from any and all claims, demands, losses, costs, expenses (including reasonable
attorneys' fees and expenses), obligations, liabilities, and damages of every
kind and nature whatsoever, arising or existing (or based on facts occurring)
prior to the Closing and relating in any way, directly or indirectly, to the
Company or the transactions contemplated hereby; provided that the foregoing
release will not affect any obligations of Buyer to any Stockholder under this
Agreement, any other agreements expressly contemplated hereby or any other
agreement executed at or after the Closing. This Agreement constitutes a
unanimous written consent of the Stockholders authorizing and approving the
Merger and the transactions contemplated hereby.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01. Conditions to Obligations of Buyer. The obligations of
Buyer to effect the Merger and the other transactions contemplated hereby are
also subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived in writing by Buyer, in
whole or in part:
(a) Each of the representations and warranties of the Company
and the Stockholders contained in this Agreement shall be true and correct in
all material respects as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such earlier
date).
(b) Each of the Company and the Stockholders shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or prior to
the Closing Date. Buyer shall have received a closing certificate signed by the
President of the Company and by each of the Founders, dated the Closing Date, to
such effect.
(c) Buyer shall have received a closing certificate signed by
the President of the Company and by each of the Founders substantially in the
form of Exhibit B attached hereto.
22
(d) No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect and
which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger (an "Order"); and no such Governmental Entity or
third party shall have initiated or threatened to initiate any proceeding
seeking an Order.
(e) Counsel to the Company shall have delivered to Buyer its
written opinion substantially in the form of Exhibit C attached hereto.
(f) Each of the Company and the Stockholders shall have
obtained each consent and approval necessary in order that the transactions
contemplated hereby do not constitute a material breach or violation of, or
result in a right of termination or acceleration of any encumbrance on any
material portion of the Company's properties or assets, any Material Contract,
material arrangement or understanding or any material license, franchise or
Company Permit.
(g) Buyer shall have received reasonably satisfactory
assurances from KPMG Peat Marwick on the Closing Date that the Merger should be
treated for financial accounting purposes as a Pooling Transaction.
(h) The total Liabilities of the Company of the type that
would be reflected in a balance sheet of the Company prepared as of the Closing
Date in accordance with generally accepted accounting principles shall not
exceed $55,000.
(i) All proceedings taken by the Company and all instruments
executed and delivered by the Company and the Stockholders, as applicable, on or
prior to the Closing Date in connection with the transactions herein
contemplated shall be reasonably satisfactory in form and substance to Buyer.
(j) Buyer has completed its due diligence investigation of the
Company's technology and related Intellectual Property, and Buyer is satisfied
with the results of its investigation, in its sole discretion. Buyer's Board of
Directors has approved the execution and delivery of this Agreement, the Merger
and the transactions contemplated hereby.
(k) Notwithstanding the passing of the date upon which the
Company's repayment obligation ceased with respect to that certain fifty
thousand dollars ($50,000) paid by Buyer to the Company as a deposit pursuant to
that certain letter between Buyer and the Company dated November 30, 1998 and
amended December 21, 1998, the Company hereby agrees to extend such repayment
drop dead date to February 25, 1999 and to repay such deposit amount to Buyer in
cash or by check at the Closing.
SECTION 6.02. Conditions to Obligations of the Company and the
Stockholders. The obligation of the Company to effect the Merger and the other
transactions contemplated
23
hereby is also subject to the satisfaction at or prior to the Closing Date of
the following conditions, any or all of which may be waived in writing by the
Company, in whole or in part:
(a) Each of the representations and warranties of Buyer
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date as though made on and as of the Closing Date (except to
the extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct in all material respects as of such earlier date). The Company shall
have received a certificate of an executive officer of the Buyer, dated the
Closing Date, to such effect.
(b) Buyer shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Closing Date. The Company
shall have received a certificate of an executive officer of the Buyer, dated
the Closing Date, to such effect.
(c) No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Order which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; and no such Governmental Entity or third
party shall have initiated or threatened to initiate any proceeding seeking an
Order.
(d) Counsel to Buyer shall have delivered to the Company its
written opinion substantially in the form of Exhibit D attached hereto.
(e) All proceedings taken by Buyer and all instruments
executed and delivered by Buyer on or prior to the Closing Date in connection
with the transactions herein contemplated shall be reasonably satisfactory in
form and substance to the Company.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. Indemnification of Buyer. Notwithstanding any
investigation by Buyer or the Buyer Representatives, the Founders, jointly and
severally, will indemnify and hold Buyer, its subsidiaries and their respective
affiliates, directors, officers, employees and agents (collectively, the "Buyer
Indemnified Parties") harmless from any and all Liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all court costs
and reasonable attorneys' fees (collectively, "Losses"), that any Buyer
Indemnified Party may suffer or incur as a result of or relating to:
(a) the breach of any representation or warranty made by the Company or
the Stockholders in this Agreement or pursuant hereto or any allegation by a
third party that, if true, would constitute such a breach; or
24
(b) the breach of any covenant or agreement of the Company or the
Stockholders under this Agreement or any allegation by a third party that, if
true, would constitute such a breach;
provided that (i) the Buyer Indemnified Parties will not be entitled to
indemnification under paragraph (a) of this Section 7.01 unless the aggregate
amount of all Losses for which indemnification is sought by the Buyer
Indemnified Parties pursuant to such paragraph exceeds $50,000, in which case
the Buyer Indemnified Parties will be entitled to indemnification for the full
amount of all such Losses; and (ii) the Buyer Indemnified Parties will not be
entitled to indemnification under paragraph (a) of this Section 7.01 in an
aggregate amount exceeding $1,000,000. Any claim for indemnification under this
Section 7.01 will be satisfied through the return by the Founders of Buyer
Common Stock having a value (based on the Conversion Price) equal to the amount
of such claim.
SECTION 7.02. Survival. The Buyer Indemnified Parties' rights to
indemnification under paragraph (a) of this Section 7.01 will survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby until the first anniversary of the Closing;
provided that any claim for indemnification will survive until such claim is
finally resolved if a Buyer Indemnified Party notifies the Founders of such
claim in reasonable detail prior to the date on which such claim would otherwise
expire hereunder.
SECTION 7.03. Notice. The Buyer Indemnified Parties entitled to receive
indemnification under this Article VII agree to give prompt written notice to
the Founders upon the occurrence of any indemnifiable Loss or the assertion of
any claim or the commencement of any action or proceeding in respect of which
such a Loss may reasonably be expected to occur (a "Claim"), but the Buyer
Indemnified Parties' failure to give such notice will not affect their rights to
indemnification under this Article VII, except to the extent that the Founders
are materially prejudiced thereby. Such written notice will include a reference
to the event or events forming the basis of such Loss or Claim and the amount
involved, unless such amount is uncertain or contingent, in which event the
Buyer Indemnified Parties will give a later written notice when the amount
becomes fixed.
SECTION 7.04. Defense of Claims. The Founders may elect to assume and
control the defense of any Claim, including the employment of counsel reasonably
satisfactory to the Buyer Indemnified Parties and the payment of expenses
related thereto, if (a) the Founders acknowledge their obligation to indemnify
the Buyer Indemnified Parties for any Losses resulting from such Claim and
provide reasonable evidence to the Buyer Indemnified Parties of its financial
ability to satisfy such obligation; (b) the Claim does not seek to impose any
liability or obligation on the Buyer Indemnified Parties other than for money
damages; and (c) the Claim does not relate to the Buyer Indemnified Parties'
relationship with their customers or employees. If such conditions are satisfied
and the Buyer Indemnifying Parties select to assume and control the defense of a
Claim, then (i) the interests represented by the Founders will not be liable for
any settlement of such Claim effected without the consent of the Buyer
Indemnifying Parties, which consent will not be unreasonably withheld; (ii) the
Founders may settle such Claim without the consent of the Buyer Indemnified
Parties; and (iii) the Buyer Indemnified Parties may employ
25
separate counsel and participate in the defense thereof, but the Buyer
Indemnified Parties will be responsible for the fees and expenses of such
counsel unless (A) the Founders have failed to adequately assume the defense of
such Claim or to employ counsel with respect thereto or (B) a conflict of
interest exists between the interests of the Buyer Indemnified Parties and the
interests represented by the Founders that requires representation by separate
counsel, in which case the fees and expenses of such separate counsel will be
paid by the Founders. If such conditions are not satisfied, the Buyer
Indemnified Parties may assume and control the defense of the Claim; provided
that the Buyer Indemnified Parties may not settle any such Claim without the
consent of the Founders, which consent will not be unreasonably withheld, and
further provided that the Founders are given a reasonable opportunity to
participate in such defense (at the Founders' expense).
SECTION 7.05. Exclusive Remedy. Buyer Indemnified Parties' right to
indemnification under this Article VII shall be their sole and exclusive remedy
for any breach of the Company's and Stockholders' representations and warranties
contained in this Agreement.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated at any time
prior to the Effective Time, as follows:
(a) by mutual consent of Buyer and the Company;
(b) by Buyer, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Sections 6.01(a) or (b) would
be incapable of being satisfied by February 25, 1999; provided that, in any
case, a willful breach shall be deemed to cause such conditions to be incapable
of being satisfied for purposes of this Section 8.01(b);
(c) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Buyer set forth in this
Agreement, or if any representation or warranty of Buyer shall have become
untrue, in either case such that the conditions set forth in Sections 6.02(a) or
(b) would be incapable of being satisfied by February 25, 1999; provided that,
in any case, a willful material breach shall be deemed to cause such conditions
to be incapable of being satisfied for purposes of this Section 8.01(c);
(d) by either Buyer or the Company, if there shall be any
Order that is final and nonappealable preventing the consummation of the Merger,
except if the party relying on such Order to terminate this Agreement has not
complied with its obligations under Section 5.06 of this Agreement;
(e) by either Buyer or the Company, if the Merger shall not
have been consummated before February 25, 1999.
26
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.01 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.02. Effect of Termination. In the event of the termination of
this Agreement pursuant to Section 8.01, this Agreement shall forthwith become
void, there shall be no liability on the part of the parties to the other
parties and all rights and obligations of any party hereto shall cease, except
that nothing herein shall relieve any party of any liability for any breach of
such party's representations, warranties, covenants or agreements contained in
this Agreement. Nothing herein shall be construed to cause the Nondisclosure
Agreement to terminate upon the termination of this Agreement.
SECTION 8.03. Amendment. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, Buyer,
on the one hand, and the Company, on the other hand, may (a) extend the time for
the performance of any of the obligations or other acts of the other party
hereto, (b) waive any inaccuracies in the representations and warranties of the
other party contained herein or in any document delivered pursuant hereto and
(c) waive compliance by the other party with any of the agreements or conditions
contained herein. Any such extension or waiver shall be valid only if set forth
in an instrument in writing signed by the party to be bound thereby.
ARTICLE IX
REGISTRATION RIGHTS
SECTION 9.01. Registration Statement. Within ten (10) days of the
Closing Date, Buyer will prepare and file with the SEC, pursuant to the
Securities Act, a registration statement on Form S-3 (the "Registration
Statement") covering the resale of 50% of the Buyer Common Stock issued to the
Stockholders in the Merger (collectively, the "Registered Shares") in a
continuous offering. Buyer will use commercially reasonable efforts to cause the
Registration Statement to become effective as soon as practicable after the
Closing and to remain effective until the earlier of (i) the date that all of
the Registered Shares have been sold by the Stockholders or (ii) the first
anniversary of the Closing. The Stockholders will not sell any Registered Shares
under the Registration Statement unless, at the time of sale, the Registration
Statement (and the most recently filed post-effective amendment thereto, if any)
has been declared effective. The period of time during which the Registration
Statement is effective is referred to as the "Registration Period."
SECTION 9.02. Limitations on Sale.
(a) Each Stockholder will notify Buyer two business days prior
to selling any Registered Shares pursuant to the Registration Statement. If,
upon receipt of such a notice,
27
Buyer certifies to such Stockholder in writing that (i) due to a change in
circumstances or a pending transaction, the Registration Statement contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and (ii) the public disclosure required to correct such misstatement or omission
would be impracticable or injurious to Buyer, then the Stockholder will refrain
from selling any Registered Shares pursuant to the Registration Statement for
the period of time requested by Buyer (a "Blackout Period"). Buyer may impose no
more than four Blackout Periods, which may not exceed 45 calendar days each and
may not exceed 60 calendar days in the aggregate. Buyer will use reasonable
efforts to minimize the time period during which the Stockholders are required
to refrain from selling under this paragraph.
(b) In addition to the foregoing restrictions, the Founders
will not sell, transfer or otherwise dispose of any shares of Buyer Common Stock
or otherwise reduce their risk of loss with respect to any of the Buyer Common
Stock issued to them in the Merger until Buyer has publicly released earnings
covering at least 30 days of combined operations of the Surviving Corporation.
Buyer will use commercially reasonable efforts to release such earnings as soon
as reasonably practicable after the Closing; provided that Buyer will not be
required to publicly release earnings for a period other than a full calendar
quarter.
SECTION 9.03. Information. Each Stockholder will furnish to Buyer, at
Buyer's reasonable request, such information regarding the ownership of
Registered Shares by such Stockholder and the intended method of disposition
thereof as is required in connection with the preparation of a registration
statement covering the Registered Shares.
SECTION 9.04. Expenses. Buyer will bear all expenses arising or
incurred in connection with any registration of the Registered Shares hereunder,
including without limitation registration fees, printing expenses and Buyer's
accounting and legal fees and expenses; provided that each Stockholder will bear
the expense of any underwriting fees, discounts or commissions applicable to its
sale of the Registered Shares and the fees and expenses of any separate legal
counsel or accounting firm engaged by such Stockholder.
SECTION 9.05. Indemnification.
(a) Buyer agrees to indemnify the Stockholders and each
underwriter and selling broker of the Registered Shares registered hereunder and
their respective officers and directors and each person or entity, if any, who
controls any of the foregoing within the meaning of Section 15 of the Securities
Act and their respective successors against all Losses arising out of or
relating to any untrue statement (or alleged untrue statement) of a material
fact contained in the Registration Statement or any prospectus included therein
or incident thereto or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and agrees to reimburse the Stockholders and such other
persons for any legal and other expenses reasonably incurred by them in
connection with investigating or defending any claim or action related to such a
Loss; provided, however, that Buyer will not be liable in any such case if and
to the extent that (i) such statement or omission was made in reliance upon
information (including, without limitation, written negative responses
28
to inquiries) furnished to Buyer in writing by a Stockholder expressly for use
in the Registration Statement or such a prospectus or (ii) a Stockholder fails
to deliver or cause to be delivered a copy of the final prospectus relating to
such offering (as then amended or supplemented) to the person asserting such
claim and such final prospectus would have cured the defect giving rise to such
Loss.
(b) Each Stockholder will indemnify Buyer, the other
Stockholders and their respective officers and directors and each person or
entity, if any, who controls any of the foregoing within the meaning of Section
15 of the Securities Act and their respective successors against all Losses
arising out of or relating to any untrue statement (or alleged untrue statement)
of a material fact contained in the Registration Statement or any prospectus
included therein or incident thereto or any omission (or alleged omission) to
state therein a material fact required to be stated or necessary to make the
statements therein not misleading, and will reimburse Buyer, the other
Stockholders and such other persons for any legal and any other expenses
reasonably incurred by them in connection with investigating or defending any
claim or action related to such a Loss; provided, however, that this
subparagraph (b) shall apply only in the case of and to the extent specified in
clauses (i) and (ii) of the preceding paragraph.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any of the two preceding paragraphs, the
indemnified and indemnifying parties shall comply with the notice and defense of
claims provisions of Sections 7.03 and 7.04 with respect to such proceeding.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been duly
given upon receipt, if delivered personally or by overnight delivery service or
if mailed by registered or certified mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like changes of address) or sent by
electronic transmission to the facsimile number specified below:
(a) If to Buyer, to:
CNET, Inc.
000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx & Xxxx, L.L.P.
0000 Xxxx Xxxxxx
Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: R. Xxxxxxx Xxxxxxx
Facsimile: (000) 000-0000
29
(b) If to the Company, to:
Netventures, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Britton, Silberman, & Xxxxxxxxx, L.L.P.
000 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxxxx, XX 00000
Attention: Xxx Xxxxxxxxx
Facsimile: (000) 000-0000
SECTION 10.02. Certain Definitions. For the purposes of this Agreement,
the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(b) "business day" means any day other than a day on which
banks in the State of California are authorized or obligated to be closed.
(c) "control" (including the terms "controlled," "controlled
by," and "under common control with") means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit arrangement
or otherwise.
(d) "knowledge" of or "known" by a person, with respect to any
matter in question, means (i) in the case of the Company, if any Founder or any
executive officer of the Company has actual knowledge of such matter or would
have knowledge of such matter following due inquiry, and (ii) in the case of
Buyer, if any executive officer of Buyer has actual knowledge of such matter or
would have knowledge of such matter following due inquiry.
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as used
in Section 13(d) of the Exchange Act).
(f) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing
30
authority or agency, including, without limitation, (i) income, franchise,
profits, gross receipts, minimum, alternative minimum, estimated, ad valorem,
value added, sales, use, service, real or personal property, capital stock,
license, payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and gains taxes, (ii) customs, duties, imposts,
charges, levies or other similar assessments of any kind, and (iii) interest,
penalties and additions to tax imposed with respect thereto.
SECTION 10.03. Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
SECTION 10.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
SECTION 10.05. Entire Agreement. This Agreement (together with the
Exhibits and the Schedules to this Agreement) and the Nondisclosure Agreement
constitute the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties or between
any of them, with respect to the subject matter hereof.
SECTION 10.06. Assignment. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.07. Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement, except as expressly provided with respect to Indemnified
Parties in Article VII.
SECTION 10.08. Specific Performance. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
31
SECTION 10.09. Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 10.10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
SECTION 10.11. Counterparts. This Agreement may be executed in multiple
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CNET, INC.
/s/ XXXXXXX X. XXXXXXX
---------------------------------------
Chief Financial Officer
NETVENTURES, INC.
/s/ XXXXX XXXXXXXXX
---------------------------------------
President and Chief Executive Officer
STOCKHOLDERS:
Founders:
/s/ XXXXX XXXXXXXXX
---------------------------------------
Xxxxx Xxxxxxxxx
/s/ XXXX XXXXXX
---------------------------------------
Xxxx Xxxxxx
Minority Stockholders
/s/ XXXXX XXXX
---------------------------------------
Xxxxxx Boom
CNA TRUST F/B/O XXXXX XXXX
/s/ CNA TRUST CORPORATION
---------------------------------------
Authorized Officer
/s/ XXXXXX XXXXXXX
---------------------------------------
Xxxxxx Xxxxxxx
/s/ XXX XXXXXX
---------------------------------------
Xxx Xxxxxx
/s/ XXX XXXXX XXXXXXXXX
---------------------------------------
Xxx Xxxxx Xxxxxxxxx
/s/ XXXX XXXXXXX
---------------------------------------
Xxxx Xxxxxxx
/s/ XXXXX XXXXXXXXX
---------------------------------------
Xxxxx Xxxxxxxxx
