EXHIBIT 2.1
MEMBERSHIP INTEREST PURCHASE AGREEMENT
--------------------------------------
THIS MEMBERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is dated as
of March 29, 1999 between SALON INTERNET, INC., a California corporation (the
"Buyer"), and WHOLE EARTH LECTRONIC LINK, INC., a California corporation ("Whole
Earth"), and Xxxxx X. Xxxx ("Xxxx," and together with Whole Earth, the
"Sellers").
R E C I T A L S
---------------
A. The Sellers own directly, beneficially and of record, 100% of the
issued and outstanding membership interests (the "Units") of The WELL, a
California limited liability company (the "Company").
B. The Buyer desires to acquire the Units from the Sellers, and the
Sellers desire to sell the Units to the Buyer, all upon the terms and subject to
the conditions set forth in this Agreement.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
contained in this Agreement and for other valuable consideration the Buyer and
the Sellers agree as follows:
ARTICLE ONE
TERMS OF THE TRANSACTION
SECTION 1.1. SALE AND PURCHASE.
-----------------
The Sellers, on the Closing Date (as defined in Section 1.4 below), shall
sell to the Buyer the number of Units set forth opposite each Seller's name
below:
Name Units
---- -----
Whole Earth: 1,500,000
Xxxx: 10,000
SECTION 1.2. PURCHASE PRICE.
--------------
Subject to adjustment as set forth in Section 1.3 hereof, the Buyer, on the
Closing Date, shall deliver to the Sellers, in payment of the purchase price
(the "Purchase Price") for the Units, certificates representing an aggregate of
684,412 shares (the "Shares") of Series C Preferred Stock of Seller (the "Series
C Preferred Stock"), payable as follows: to Whole Earth 611,891 Shares, to Xxxx
4,079 Shares, and deposited with U.S. Bank, as escrow agent (the "Escrow
Agent"), 68,442 Shares (the "Escrow Amount"). The Escrow Amount shall be held in
escrow in accordance with the terms of this Agreement and the escrow agreement
to be entered into among the Escrow Agent, Buyer and Sellers in the form
attached as Exhibit A hereto (the "Escrow Agreement").
---------
1
SECTION 1.3. PURCHASE PRICE ADJUSTMENTS.
---------------------------
(a) On the Closing Date, the Sellers shall deliver a balance sheet, which
conforms to the requirements of Section 2.7(b) hereof, as of a date no earlier
than three business days before the Closing Date (the "Closing Balance Sheet").
In the event that the Company's total members' equity as of the date of the
Closing Balance Sheet is less than the Company's total members' equity as of the
Balance Sheet Date (as defined in Section 2.7(a) hereof), then the Purchase
Price shall be reduced by the number of shares of Series C Preferred Stock which
is equal to the quotient of (i) the difference between the Company's total
members' equity as of the Balance Sheet Date and the Company's total members'
equity as of the date of the Closing Balance Sheet, divided by (ii) $2.63 per
share, rounded to the nearest whole share (the "Adjusted Purchase Price"). In
the event of any adjustment pursuant to this Section 1.3, the Escrow Amount and
the number of Shares to be received by each Seller shall be reduced
proportionately.
(b) In the event that the Buyer does not effectuate, (1) prior to an
underwritten registered initial public offering of Buyer Common Stock, (2) prior
to a merger or consolidation of the Buyer in which the Buyer shall not survive
and in which the shareholders of the Buyer do not own a majority of the Buyer's
outstanding stock following such merger or consolidation, (3) prior to the sale
of all or substantially all of the assets of the Buyer, or (4) within ninety
(90) days of the Closing Date, a stock split, stock dividend or similar event of
recapitalization exclusively with respect to its outstanding shares of Series C
Preferred Stock in connection with the issuance of additional shares of Series C
Preferred Stock (the "Financing Shares") in an equity financing to raise at
least $5,000,000 in working capital (a "Recapitalization Event") so that,
following such Recapitalization Event, each holder of Series C Preferred Stock
prior to such Recapitalization Event holds at least 1.35 times the number of
shares of Series C Preferred Stock following such Recapitalization Event (having
a liquidation price and conversion price equal to the liquidation price and
conversion price of the Financing Shares), then the Purchase Price (or Adjusted
Purchase Price, as the case may be) shall be increased by 76,044 shares of
Series C Preferred Stock (the "Additional Shares"). The Company shall issue the
Additional Shares to the Sellers and Escrow Agent in the same proportion as set
forth in Section 1.2 hereof.
SECTION 1.4. THE CLOSING.
-----------
The closing of the purchase and sale of the Shares (the "Closing") shall be
held at the offices of Xxxx Xxxx Xxxx & Freidenrich LLP, 000 Xxxxxxxx Xxxxxx,
Xxxx Xxxx, XX 00000, or at such other place as the parties may agree upon, on
March 25, 1999, or on such other date as the parties may agree upon.
SECTION 1.5. FURTHER ASSURANCES.
------------------
The Buyer and the Sellers, at their sole cost and expense, will do such
further acts and execute and deliver such further documents regarding their
obligations hereunder as may be required solely for the purpose of accomplishing
the purposes of this Agreement.
2
ARTICLE TWO
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
Each of the Sellers, jointly and severally, represents and warrants to the
Buyer (except as set forth on the Schedule of Exceptions attached hereto as
Exhibit B (the "Sellers' Schedule of Exceptions"), which exceptions shall be
---------
deemed to be representations and warranties as if made hereunder) as follows:
SECTION 2.1. POWER AND CAPACITY.
------------------
Whole Earth is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. Such Seller has all
requisite power and legal capacity to execute and deliver this Agreement, to
perform Seller's obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by such Seller, constitutes the valid and binding agreement of such
Seller and is enforceable against such Seller in accordance with its terms.
This Agreement has been duly authorized by the members of the Company.
SECTION 2.2. THE UNITS.
----------
Each Seller is the beneficial and record owner of the number of Units set
forth opposite such Seller's name in Section 1.1. The Units are held by the
Sellers as record owners thereof, free and clear of all liens, charges,
encumbrances, equities and claims whatsoever (other than encumbrances created by
this Agreement) and are not subject to any restriction with respect to their
transferability (other than restrictions on transfer under applicable federal
and state securities laws). No third party has grounds for any claims against
the Units, the Company or the Sellers with respect to the transactions
contemplated hereby.
SECTION 2.3. CONFLICTING INSTRUMENTS; CONSENTS.
---------------------------------
(a) The execution and delivery by each Seller of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, violate
any provision of the articles of organization or the operating agreement of the
Company (or the articles of incorporation or bylaws of Whole Earth), or result
in the creation of any lien, security interest, charge or encumbrance upon the
Units (other than encumbrances created by this Agreement) or any of the assets
or properties of the Company under, conflict with or result in a breach of,
create an event of default (or event that, with the giving of notice or lapse of
time or both, would constitute an event of default) under, or give any third
party the right to accelerate any obligation under, any order, award, judgment
or decree to which the Company is a party or by which the Company or any assets
or properties of the Company are bound or any Company Contract (as defined in
Section 2.13).
(b) The execution and delivery by each Seller of this Agreement does not,
and the consummation of the transactions contemplated hereby will not, result in
a violation of, or require any authorization, approval, consent or other action
by, or registration, declaration or filing with or notice to, any court or
administrative or governmental body pursuant to, any statute, law, rule,
3
regulation or ordinance applicable to the Company or such Seller. There is no
pending action, suit, proceeding or, to the knowledge of such Seller,
investigation before or by any court or governmental body or agency to restrain
or prevent the consummation of the transactions contemplated by this Agreement.
SECTION 2.4. ORGANIZATION AND AUTHORITY.
--------------------------
(a) The Company is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of California. The
Company has all requisite power and authority to own or lease and operate its
properties and assets and to carry on its business as now conducted.
(b) The articles of organization and the operating agreement and all
amendments thereto, and the minute books and membership unit transfer records of
the Company furnished to the Buyer for review are accurate and complete.
SECTION 2.5. SUBSIDIARIES.
------------
The Company does not own, either directly or indirectly, any capital stock
or other equity interests of any corporation, partnership, limited liability
company, joint venture or other entity.
SECTION 2.6. CAPITALIZATION.
--------------
The Company has 1,510,000 Units issued and outstanding, all of which have
been duly authorized and validly issued, are fully paid and non-assessable and
were issued by the Company in compliance with all applicable federal and state
securities laws, rules and regulations. There is no outstanding or authorized
option, subscription, warrant, call, right, commitment or other agreement of any
character obligating the Company to sell or issue any additional membership
interests or any other securities convertible into or exercisable for or
evidencing the right to subscribe for any membership interests.
SECTION 2.7. FINANCIAL STATEMENTS.
--------------------
(a) The Sellers have furnished the Buyer with copies of the audited
financial statements of the Company for the fiscal year ended December 31, 1998,
including a balance sheet as at December 31, 1998 (the "Balance Sheet" and such
date, the "Balance Sheet Date"), and the related statement of income for the
twelve-month period then ended (collectively, the "Financial Statements").
(b) The Financial Statements: (i) are correct and complete in all material
respects and have been prepared in accordance with the books and records of the
Company; (ii) have been prepared in accordance with generally accepted
accounting principles ("GAAP"); (iii) reflect and provide adequate reserves in
respect of all known liabilities of the Company as of such date; and (iv)
present fairly the financial condition of the Company at such date and the
results of its operations for the fiscal period then ended. The Company
maintains a standard system of accounting established and administered in
accordance with GAAP.
4
SECTION 2.8. REAL PROPERTY.
-------------
The Company does not own any real property. Section 2.8 of the Sellers'
-----------
Schedule of Exceptions lists a description of each lease of real property under
which the Company is a sub-lessee (the "Leased Property") and, to the knowledge
of such Seller, holds valid leasehold interest free and clear of any liens,
claims or encumbrances created by the Company. No breach or event of default on
the part of the Company and no event that, with the giving of notice or lapse of
time or both, would constitute such breach or event of default, has occurred and
is continuing unremedied that could reasonably be expected to have a material
adverse affect on the business, prospects, condition, affairs or operations of
the Company or on its properties or assets (a "Company Material Adverse
Effect").
SECTION 2.9. PERSONAL PROPERTY AND INTELLECTUAL PROPERTY.
-------------------------------------------
(a) Except as described in subsection (b) hereof, the Company owns all
personal property reflected on the Balance Sheet and all personal property
acquired by the Company since the date of the Balance Sheet (except such
personal property as has been disposed of in the ordinary course of business),
free and clear of any liens, security interests, charges or encumbrances created
by the Company ("Liens"), except for (i) Liens for property taxes not yet due
and payable and (ii) Liens that, either individually or in the aggregate, could
not reasonably be expected to have a Company Material Adverse Effect.
(b) The Company owns and possesses or is licensed under all patents, patent
applications, licenses, trademarks, trade names, brand names, trade secrets,
inventions and copyrights employed in the operation of its business as now
conducted and as proposed to be conducted by the Company, with no infringement
of or conflict with the rights of others respecting any of the same. To the
knowledge of such Seller, the operation of the Company's business as now
conducted or as proposed to be conducted by the Company does not infringe any
patent, copyright, trade secret or other proprietary rights of any third
parties. There are no outstanding options, licenses, or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to patents, patent
applications, licenses, trademarks, trade names, brand names, inventions,
proprietary rights and copyrights of any other person or entity. The Company is
not obligated to make any payments by way of royalties, fees or otherwise to any
owner, licensor of, or other claimant to any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. The Company has not
received any communications alleging that it has violated or, by conducting its
business as proposed by the Company, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is such Seller aware of
any basis for the foregoing. There are no agreements, understandings,
instruments, contracts, judgments, orders, writs or decrees to which the Company
is a party or by which it is bound which involve indemnification by the Company
with respect to infringements of proprietary rights.
5
SECTION 2.10. EMPLOYEE AND LABOR MATTERS.
--------------------------
(a) Set forth in Section 2.10 of the Sellers' Schedule of Exceptions is a
------------
true and complete list of: (i) the name of each person employed by the Company,
the title or job classification of each such person and the current rate of
compensation of each such person; (ii) the name of each person, if any, holding
tax or other powers of attorney from the Company and a summary of the terms
thereof; and (iii) the name of each director and officer of the Company.
(b) Set forth in Section 2.10 of the Sellers' Schedule of Exceptions is a
------------
true and complete list of each current employment contract and consulting
agreement entered into by the Company, or by which the Company is bound, and
each deferred compensation, bonus, incentive compensation, savings, severance or
termination pay agreement or plan and any other employee benefit plan,
agreement, arrangement or commitment, whether formal or informal, not required
to be listed in Section 2.11 of the Sellers' Schedule of Exceptions, maintained,
------------
entered into or contributed to by the Company for the benefit of any current or
former director, officer or employee of the Company (the "Non-ERISA Plans").
The Sellers have delivered to the Buyer true and correct copies of each such
Non-ERISA Plan. The Company is not in default under any such Non-ERISA Plan.
(c) The Company is not a party to any contract or collective bargaining
agreement with any labor organization.
(d) All obligations of the Company for unemployment compensation benefits,
pension benefits, salaries, wages, bonuses, sick leave, vacation and other forms
of compensation payable to the officers, directors and other employees and
independent contractors of the Company through the Balance Sheet Date have been
paid or adequate accruals therefore have been made in the Balance Sheet.
(e) There is no controversy pending between the Company and any of its
employees that, individually or in the aggregate, could reasonably be expected
to have a Company Material Adverse Effect, and no complaint is pending against
the Company before the National Labor Relations Board or any state or local
agency.
(f) Each employee of the Company has executed an agreement regarding
confidentiality and proprietary information, the form of which has been provided
to special counsel to the Buyer. To the knowledge of such Seller, none of the
Company's employees is in violation thereof. To the knowledge of such Seller,
the employees of the Company are not obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of his or her best efforts to promote the interests
of the Company or that would conflict with the Company's business as conducted
or as proposed to be conducted by the Company or that would prevent any such
employee from assigning inventions to the Company. Neither the execution nor
delivery of this Agreement, nor the carrying on of the Company's business as
proposed to be conducted by the Company, will conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default under,
any contract, covenant or instrument under which any of
6
such employees is now obligated. The Company and such Seller do not believe
that it is or will be necessary for the Company to utilize any inventions of any
of its employees made prior to their employment by the Company.
SECTION 2.11. ERISA PLANS.
-----------
(a) Set forth in Section 2.11 of the Sellers' Schedule of Exceptions is a
------------
complete list of each employee benefit plan as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA") (collectively referred
to as the "ERISA Plans") established, maintained or contributed to by the
Company or any ERISA Affiliate or to which the Company or any ERISA Affiliate
has an obligation to contribute amounts. As used herein, the term "ERISA
Affiliate" means a corporation which is a member of a controlled group of
corporations with the Company within the meaning of Section 414(b) of the
Internal Revenue Code of 1986 (the "Code"), a trade or business (including a
sole proprietorship, partnership, trust, estate or corporation) which is under
common control with the Company within the meaning of Section 414(c) of the
Code, or a member of an affiliated service group with the Company within the
meaning of Section 414(m) or Section 414(o) of the Code.
(b) Full payment has been made of all amounts that the Company is required
under applicable law or any ERISA Plan to have paid as contributions to or
benefits under any ERISA Plan as of the last day of the most recent fiscal year
of such ERISA Plan ended prior to the date hereof. The Company has made
adequate provision in accordance with GAAP for liabilities to meet current
contributions or benefit payments.
(c) A favorable determination has been issued by the IRS with respect to
the qualified status of each of the ERISA Plans intended to be qualified under
Section 401(a) of the Code, and with respect to the tax exempt status under
Section 501(a) of the Code of any trust through which such ERISA Plans are
funded and any trust or other entity established with respect to an ERISA Plan
and intended to be qualified as a tax exempt organization under Section 501(c)
of the Code. Nothing has occurred since the date of each such determination or
recognition letter that would adversely affect such qualification or exemption.
SECTION 2.12. COMPLIANCE AND LITIGATION.
-------------------------
(a) The Company has complied with all applicable federal, state, local or
other governmental statutes, regulations, orders and restrictions in respect of
the conduct of the Company's business and ownership of its properties, except
for such failures to comply as, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. The Company
has all federal, state and local franchises, licenses, permits and other
governmental approvals necessary for the conduct of the Company's business and
the ownership of its properties, except for such franchises, license, permits or
governmental approvals as, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect.
(b) There is no action, proceeding or investigation pending, or, to the
knowledge of such Seller, threatened, against the Company or its officers,
directors or members, or to the knowledge of such Seller, against employees of
the Company (or, to the knowledge of such Seller, any basis
7
therefor or threat thereof): (1) which could reasonably be expected to result,
either individually or in the aggregate, in (a) any material adverse change in
the business, prospects, conditions, affairs or operations of the Company or in
any of its properties or assets, or (b) any material impairment of the right or
ability of the Company to carry on its business as now conducted or as proposed
to be conducted by the Company, or (c) any material liability on the part of the
Company; or (2) which questions the validity of this Agreement, or any action
taken or to be taken in connection herewith, including in each case, without
limitation, actions pending or threatened involving the prior employment of any
of the Company's employees, the use in connection with the Company's business of
any information or techniques allegedly proprietary to any of the former
employers of such employees or their obligations under any agreements with prior
employers. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company currently intends to initiate.
SECTION 2.13. MATERIAL CONTRACTS.
------------------
(a) Set forth in Section 2.13 of the Sellers' Schedule of Exceptions is a
------------
list of any of the following written or oral agreements or arrangements to which
the Company is a party: (i) consulting agreements for the employment of any
officer, employee or other person on a full-time, part-time or consulting basis;
(ii) loans, credit agreements or other agreements relating to the borrowing or
lending of money by the Company; or (iii) licensing, development, joint venture
or similar agreements relating to intellectual property under which the Company
is the licensor or licensee or is entitled to receive or required to pay
royalties; or (iv) agreements calling for annual payments in excess of Ten
Thousand Dollars ($10,000).
(b) The Company is not in breach of or in default under its material
obligations under any of the agreements or arrangements set forth in Section
-------
2.13 of the Sellers' Schedule of Exceptions (collectively, the "Company
----
Contracts"), and no event has occurred that, with the giving of notice or lapse
of time or both, would constitute such a breach or default, which, individually
or in the aggregate, could reasonably be expected to have a Company Material
Adverse Effect. The Sellers have furnished the Buyer with a true and complete
copy of all written Company Contracts and with accurate descriptions of all oral
Company Contracts.
SECTION 2.14. CONDUCT OF BUSINESS.
-------------------
Since the Balance Sheet Date the Company has conducted its business in the
ordinary course, has maintained its assets and properties in at least as good
order and condition as existed on the Balance Sheet Date (other than wear as may
be accounted for by normal use) and as is necessary to continue to conduct it
business and has not:
(a) incurred any obligation or liability (absolute, accrued, contingent or
other), except in the ordinary course of business or in connection with the
performance of this Agreement, none of which individually or in the aggregate
could reasonably be expected to have a Company Material Adverse Effect;
8
(b) discharged or satisfied any lien or encumbrance, or paid or satisfied
any obligation or liability (absolute, accrued, contingent or other), other than
liabilities reflected on the Balance Sheet or incurred since the Balance Sheet
Date in the ordinary course of business;
(c) mortgaged, pledged or subjected to any lien or encumbrance any of the
assets or properties of the Company;
(d) sold, assigned or transferred any assets or property, or canceled any
debt or claim or waived any right under any Company Contract, other than in the
ordinary course of business;
(e) made any capital expenditures in excess of $10,000 in each instance;
(f) made any loan to, or incurred any indebtedness from, any director,
officer or member, declared, set aside or paid to any member any distribution in
respect of its membership interests, or redeemed or repurchased any of its
membership interests;
(g) paid any commission, salary or bonus to any director, officer or
member, other than the payment of wages or salaries or other amounts owed in the
ordinary course of business;
(h) experienced any damage, destruction or loss (whether or not covered by
insurance) affecting the assets, properties or business which could reasonably
be expected to have a Company Material Adverse Effect;
(i) reclassified or changed in any manner the outstanding membership
interests of the Company or issued or agreed to issue any membership interest in
the Company; or
(j) incurred any material adverse change in its financial condition or
assets.
SECTION 2.15. TAX MATTERS.
-----------
(a) The Company has timely filed, or will have timely filed, all tax
returns and tax reports required to be filed by it prior to the Closing Date
under applicable federal, state and local tax laws and has timely paid all
taxes, assessments, fees and other governmental charges for periods prior to the
Closing Date shown due on such tax returns.
(b) The Company does not have any tax liability for periods ending on or
prior to the Balance Sheet Date for which an adequate tax reserve has not been
established on the Balance Sheet. Without limiting the foregoing, the books and
records of the Company include adequate provision for all taxes, assessments,
fees and other governmental charges that have been or may in the future be
assessed against the Company for all periods ending prior to the Closing Date,
and the Company is not, and will not be as of the Closing Date, liable for
taxes, assessments, fees and other governmental charges for which the Company
has not made adequate provision in its books and records.
(c) Set forth in Section 2.15 of the Sellers' Schedule of Exceptions is a
------------
true and complete list of tax returns filed by the Company pursuant to
applicable federal, state or local tax laws that have been examined or audited
by the IRS or other appropriate taxing authority during the preceding
9
seven years. All deficiencies proposed as a result of such examinations or
audits have been paid or finally settled or are being challenged in good faith
by appropriate proceedings. The results of any settlement and the necessary
adjustments resulting therefrom properly are reflected in the Balance Sheet.
There is no tax examination or audit of the Company by any taxing authority
currently pending. There is no outstanding agreement or waiver made by or on
behalf of the Company for the extension of time for any applicable statute of
limitations and the Company has not requested any extension of time in which to
file any tax return.
SECTION 2.16. ABSENCE OF UNDISCLOSED LIABILITIES.
----------------------------------
The Company does not have any indebtedness or liability, whether accrued,
fixed or contingent, other than (a) liabilities reflected in the Balance Sheet,
(b) liabilities incurred in the ordinary course of business of the Company
consistent with past practice subsequent to the Balance Sheet Date, none of
which, individual or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect, (c) liabilities to be reflected in the Closing
Balance Sheet and (d) liabilities set forth in the Sellers' Schedule of
Exceptions.
SECTION 2.17. INSURANCE.
---------
The Company has in full force and effect fire and casualty insurance
policies, and insurance against other hazards, risks and liabilities to persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated. Set forth in Section 2.17 of the Sellers'
------------
Schedule of Exceptions is a true and complete list and description of all
policies of property, casualty, general business and other insurance covering
for the Company. There is no claim, action, suit or proceeding arising out of
or based upon any of such policies of insurance, and to the knowledge of such
Seller no basis for any such claim, action, suit or proceeding exists.
SECTION 2.18. BANK ACCOUNTS.
-------------
Set forth in Section 2.18 of the Sellers' Schedule of Exceptions is a true
------------
and complete list of all bank accounts of the Company, including the name and
address of each bank, the account numbers and the authorized signatories.
SECTION 2.19. TRANSACTIONS WITH RELATED PARTIES.
---------------------------------
Set forth in Section 2.19 of the Sellers' Schedule of Exceptions is a true
------------
and complete list or description of all notes, advances or accounts (other than
commission, salary, bonus reimbursements and other payments made by the Company
in the normal course of business) receivable or payable by the Company from or
to any director, officer, employee or member of the Company or any of their
affiliates, as well as all agreements or arrangements under which the Company
receives goods or services from any such persons. Since the Balance Sheet Date,
the Company has not incurred any obligation or liability to, or become a
creditor of any unit holder or former unit holder of the Company or any relative
or affiliate of any unit holder or former unit holder of the Company.
10
SECTION 2.20 INVESTMENT INTENT.
The Shares and, the Shares of Common Stock issuable upon conversion thereof
are being acquired for the Seller's account, for investment and not with a view
to, or resale in connection with, any distribution or public offering thereof
within the meaning of the Securities Act of 1933, as amended or California law.
SECTION 2.21. BROKERS AND FINDERS.
-------------------
Neither the Sellers nor the Company has retained any broker or finder in
connection with the transactions contemplated by this Agreement.
SECTION 2.22 DISCLOSURE.
----------
No representation or warranty by the Sellers in this Agreement, or in any
document or certificate furnished or to be furnished to the Buyer pursuant
hereto or in connection with the transactions contemplated hereby, when taken
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein and therein, in the light of the circumstances under which they were
made, not misleading. The Company has fully provided the Buyer with all the
information which the Buyer has requested for deciding whether to purchase the
Units.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents, warrants and covenants to each of the Sellers (except
as set forth on the Schedule of Exceptions attached hereto as Exhibit C (the
---------
"Buyer's Schedule of Exceptions"), which exceptions shall be deemed to be
representations and warranties as if made hereunder) as follows:
SECTION 3.1. ORGANIZATION AND STANDING.
-------------------------
The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of California and has all requisite
corporate power and authority to carry on its business as now conducted and as
proposed to be conducted. The Buyer is qualified or licensed to do business as
a foreign corporation in all jurisdictions where such qualification or licensing
is required, except where the failure to so qualify could reasonably be expected
to have a material adverse effect on the business, prospects, condition, affairs
or operations of the Buyer or on its properties or assets (a "Buyer Material
Adverse Effect").
SECTION 3.2. CORPORATE POWER.
---------------
The Buyer has now, or will have at the Closing Date, all requisite
corporate power necessary for the authorization, execution and delivery of this
Agreement. This Agreement is a
11
valid and binding obligation of the Company enforceable in accordance with its
terms, except as the same may be limited by bankruptcy, insolvency, moratorium,
and other laws of general application affecting the enforcement of creditors'
rights.
SECTION 3.3. SUBSIDIARIES.
------------
The Buyer does not control, directly or indirectly, any other corporation,
association or business entity.
SECTION 3.4. CAPITALIZATION.
--------------
The authorized capital stock of the Buyer is 25,000,000 shares of Common
Stock and 20,435,000 shares of Preferred Stock, of which 5,017,500 have been
designated Series A Preferred Stock, 5,017,500 have been designated Series A-1
Preferred Stock, 2,200,000 have been designated Series B Preferred Stock,
2,200,000 have been designated Series B-1 Preferred Stock, 3,000,000 have been
designated Series C Preferred Stock and 3,000,000 have been designated Series C-
1 Preferred Stock. There are issued and outstanding 791,667 shares of the
Buyer's Common Stock, 5,000,000 shares of Series A Preferred Stock, no shares of
Series A-1 Preferred Stock, 1,898,733 shares of Series B Preferred Stock, no
shares of Series B-1 Preferred Stock, 1,330,798 shares of Series C Preferred
Stock and no shares of Series C-1 Preferred Stock. The holders of record of the
presently issued and outstanding Common Stock, options to purchase Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
immediately prior to the Closing are as set forth in Section 3.4 of the Buyer's
-----------
Schedule of Exceptions ("Shareholder and Optionholder List"). All such issued
and outstanding shares have been duly authorized and validly issued, are fully
paid and nonassessable, and were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. The holders of any and
all rights, options, warrants or conversion rights to purchase or acquire from
the Buyer any of its capital stock, along with the number of shares of capital
stock issuable upon exercise of such rights, are set forth in Section 3.4 of the
-----------
Buyer's Schedule of Exceptions. The Buyer has reserved at least 5,017,500
shares of Common Stock for issuance upon conversion of the Series A and Series
A-1 Preferred Stock, 2,200,000 shares of Common Stock for issuance upon
conversion of the Series B and Series B-1 Preferred Stock, 3,000,000 shares of
Common Stock for issuance upon conversion of the Series C and Series C-1
Preferred Stock, and 3,750,000 shares of Common Stock for future issuance to
employees, consultants, officers or directors upon exercise of options granted
or to be granted under stock or other option plans or arrangements approved by
the Buyer's Board of Directors. Except for such rights, there are no
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition from the Buyer of any shares of its capital stock. The
Buyer is not a party or subject to any agreement or understanding between any
persons or entities, which affects or relates to the voting or giving of written
consents with respect to any securities.
SECTION 3.5. AUTHORIZATION.
-------------
(a) Corporate Action. All corporate action on the part of the Buyer, its
----------------
officers, directors and stockholders necessary for the issuance of the Shares
and the issuance of the
12
Common Stock issuable upon conversion of the Shares and the authorization,
execution and performance of the Buyer's obligations hereunder. The Buyer has
duly reserved an aggregate of at least 684,412 shares of Common Stock for
issuance upon conversion of the Shares.
(b) Valid Issuance. The Shares, when issued in compliance with the
--------------
provisions of this Agreement, and the shares of Common Stock issued upon
conversion of the Shares, when issued in accordance with the provisions of the
Articles of Incorporation, as amended to date (the "Buyer's Articles"), will be
validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances created by the Buyer; provided, however, that all such shares may
-------- -------
be subject to restrictions on transfer under state and/or federal securities
laws, and as may be required by future changes in such laws. The rights,
preferences, privileges and restrictions of the Shares are as set forth in the
Buyer's Articles.
SECTION 3.6. NO PREEMPTIVE RIGHTS.
--------------------
No person has any right of first refusal or any preemptive rights in
connection with the issuance of the Shares or the issuance of the Common Stock
upon conversion of the Shares.
SECTION 3.7. PATENTS, TRADEMARKS, ETC.
------------------------
The Buyer owns and possesses or is licensed under all patents, patent
applications, licenses, trademarks, trade names, brand names, trade secrets,
inventions and copyrights employed in the operation of its business as now
conducted and as proposed to be conducted, with no infringement of or conflict
with the rights of others respecting any of the same. To the knowledge of the
Buyer, the operation of the Buyer's business as now conducted or as proposed to
be conducted does not infringe any patent, copyright, trade secret or other
proprietary rights of any third parties. There are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the Buyer
bound by or a party to any options, licenses or agreements of any kind with
respect to patents, patent applications, licenses, trademarks, trade names,
brand names, inventions, proprietary rights and copyrights of any other person
or entity. The Buyer is not obligated to make any payments by way of royalties,
fees or otherwise to any owner, licensor of, or other claimant to any patent,
trademark, trade name, copyright or other intangible asset, with respect to the
use thereof or in connection with the conduct of its business, or otherwise.
The Buyer has not received any communications alleging that it has violated or,
by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity, nor is the Buyer aware of any
basis for the foregoing. There are no agreements, understandings, instruments,
contracts, judgments, orders, writs or decrees to which the Buyer is a party or
by which it is bound which involve indemnification by the Buyer with respect to
infringements of proprietary rights.
SECTION 3.8. COMPLIANCE WITH OTHER INSTRUMENTS.
---------------------------------
The Buyer is not in violation of any term of the Buyer's Articles or the
Buyer's bylaws, as amended to date (the "Buyer's Bylaws"), nor is the Buyer in
violation of or in default in any material respect under the terms of any
mortgage, indenture, contract, agreement, instrument,
13
judgment or decree, the violation of which could reasonably be expected to have
a Buyer Material Adverse Effect on the Buyer, and to the knowledge of the Buyer,
is not in violation of any order, statute, rule or regulation applicable to the
Buyer, the violation of which could reasonably be expected to have a Buyer
Material Adverse Effect. The execution, delivery and performance of and
compliance with this Agreement, and the issuance of the Shares will not (a)
result in any such violation, or (b) be in conflict with or constitute a default
under any such term, or (c) result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Buyer
pursuant to any such term. To the knowledge of the Buyer, there is no such term
or any such order, statute, rule or regulation which adversely affects, or in
the future which could reasonably be expected to have a Buyer Material Adverse
Effect.
SECTION 3.9. PROPRIETARY AGREEMENTS; EMPLOYEES.
---------------------------------
Each employee of the Buyer has executed an agreement regarding
confidentiality and proprietary information. To the knowledge of the Buyer,
none of its employees is in violation thereof, and the Buyer will use its best
efforts to prevent such violations. To the knowledge of the Buyer, the
employees of the Buyer are not obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
the Buyer or that would conflict with the Buyer's business as conducted or as
proposed to be conducted or that would prevent any such employee from assigning
inventions to the Buyer. Neither the execution nor delivery of this Agreement,
nor the carrying on of the Buyer's business as proposed, will conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
default under, any contract, covenant or instrument under which any of such
employees is now obligated. The Buyer does not believe that it is or will be
necessary for the Buyer to utilize any inventions of any of its employees made
prior to their employment by the Buyer.
SECTION 3.10. LITIGATION, ETC.
---------------
There is no action, proceeding or investigation pending, or, to the
knowledge of the Buyer, threatened, against the Buyer or its officers, directors
or shareholders, or to the knowledge of the Buyer, against employees of the
Buyer (or, to the knowledge of the Buyer, any basis therefor or threat thereof):
(1) which could reasonably be expected to result, either individually or in the
aggregate, in (a) any material adverse change in the business, prospects,
conditions, affairs or operations of the Buyer or in any of its properties or
assets, or (b) any material impairment of the right or ability of the Buyer to
carry on its business as now conducted or as proposed to be conducted, or (c)
any material liability on the part of the Buyer; or (2) which questions the
validity of this Agreement, or any action taken or to be taken in connection
herewith, including in each case, without limitation, actions pending or
threatened involving the prior employment of any of the Buyer's employees, the
use in connection with the Buyer's business of any information or techniques
allegedly proprietary to any of the former employers of such employees or their
obligations under any agreements with prior employers. The Buyer is
14
not a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality. There
is no action, suit, proceeding or investigation by the Buyer currently pending
or which the Buyer currently intends to initiate.
SECTION 3.11. GOVERNMENTAL CONSENT.
--------------------
Except for the filing of a Notice of Transaction pursuant to Section
25102(f) of the California Corporations Code, no consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Buyer is required in connection with: (a) the valid
execution and delivery of this Agreement; or (b) the issuance of the Shares or
the issuance of the shares of Common Stock issuable upon conversion of the
Shares.
SECTION 3.12. OFFERING.
--------
In reliance on the representations and warranties of the Purchasers in
Section 2 hereof, the offer, sale and issuance of the Shares in conformity with
the terms of this Agreement will not result in a violation of the requirements
of Section 5 of the Securities Act of 1933, as amended (the "Securities Act") or
the qualification or registration requirements of applicable blue sky laws.
SECTION 3.13. TAXES.
-----
The Buyer has filed all tax returns that are required to have been filed
with appropriate federal, state, county and local governmental agencies or
instrumentalities, except where the failure to do so, when taken together with
all other such failures, would not have a material adverse effect upon the
Buyer. The Buyer has not elected pursuant to the Code to be treated as a
Subchapter S corporation or a collapsible corporation pursuant to Section 341(f)
or Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to methods of accounting,
depreciation or amortization) which could reasonably be expected to have a Buyer
Material Adverse Effect. The Buyer has paid or established reserves for all
income, franchise and other taxes, assessments, governmental charges, penalties,
interest and fines due and payable by it on or before the Closing.
SECTION 3.14. TITLE.
-----
The Buyer owns its property and assets free and clear of all liens,
mortgages, loans or encumbrances except liens for current taxes, and such
encumbrances and liens which arise in the ordinary course of business and do not
materially impair the Buyer's ownership or use of such property or assets. With
respect to the property and assets leased by the Buyer, the Buyer is in
compliance with such leases and, to the knowledge of the Buyer, holds valid
leasehold interests free and clear of any liens, claims or encumbrances.
15
SECTION 3.15. MATERIAL CONTRACTS AND COMMITMENTS.
----------------------------------
All of the contracts, mortgages, indentures, agreements, instruments and
transactions to which the Buyer is a party or by which it is bound (including
purchase orders to the Buyer or placed by the Buyer) which involve obligations
of, or payments to, the Buyer in excess of Twenty-Five Thousand Dollars
($25,000) and all agreements between the Buyer and its officers, directors,
consultants and employees are set forth in Section 3.15 of the Buyer's Schedule
------------
of Exceptions (the "Buyer Contracts"). All of the Buyer Contracts are valid,
binding and in full force and effect in all material respects and enforceable by
the Buyer in accordance with their respective terms in all material respects,
subject to the effect of applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or affecting
enforcement of creditors' rights and rules or laws concerning equitable
remedies. The Buyer is not in material default under any of such contracts.
SECTION 3.16. FINANCIAL STATEMENTS.
--------------------
The Buyer has delivered to the Sellers the unaudited balance sheets and
related statements of operation as of December 31, 1998 and for the nine month
period then ended (the "Buyer's Financial Statements"). The Buyer's Financial
Statements are in accordance with the books and records of the Buyer, are
complete and correct, and fairly and accurately present the financial condition
and operating results of the Buyer for the periods indicated therein, all in
conformity with "GAAP", except that the unaudited Buyer's Financial Statements
do not contain footnotes or reflect the interperiod adjustments required by
GAAP. As of December 31, 1998, the Buyer did not have any liabilities,
absolute, contingent, or otherwise, which in accordance with GAAP are required
to be disclosed or reserved for other than as set forth in the Buyer's Financial
Statements. Other than a reduction in cash and cash equivalents in the ordinary
course of business, since December 31, 1998, there has been no material adverse
change in the Buyer's financial condition or assets. The Buyer maintains and
will continue to maintain a standard system of accounting established and
administered in accordance with GAAP.
SECTION 3.17. ABSENCE OF CHANGES.
------------------
Since December 31, 1998, (a) the Buyer has not entered into any transaction
which was not in the ordinary course of business, (b) there has been no material
adverse change in the condition (financial or otherwise) of the business,
property, assets or liabilities of the Buyer other than changes in the ordinary
course of its business, none of which, individually or in the aggregate, has
been materially adverse, (c) there has been no damage to, destruction of or loss
of physical property (whether or not covered by insurance) materially adversely
affecting the assets, prospects, financial condition, operating results,
business or operations of the Buyer, (d) the Buyer has not declared or paid any
dividend or made any distribution on its stock, or redeemed, purchased or
otherwise acquired any of its stock, (e) the Buyer has not materially changed
any compensation arrangement or agreement with any of its key employees or
executive officers, or materially changed the rate of pay of its employees as a
group, (f) the Buyer has not changed or amended any material contract by which
the Buyer or any of its assets are bound or subject, except as contemplated by
this Agreement, (g) there has been no resignation or termination of
16
employment of any key officer or employee of the Buyer and the Buyer does not
know of any impending resignation or termination of employment of any such
officer or employee that if consummated could reasonably be expected to have a
Buyer Material Adverse Effect, (h) there has been no change, except in the
ordinary course of business, in the material contingent obligations of the Buyer
(nor in any contingent obligation of the Buyer regarding any director,
stockholder or key employee or officer of the Buyer) by way of guaranty,
endorsement, indemnity, warranty or otherwise, (i) there have been no loans made
by the Buyer to any of its employees, officers or directors other than travel
advances and other advances made in the ordinary course of business, (j) there
has been no waiver by the Buyer of a valuable right or of a material debt owing
to it, and (k) there has not been any satisfaction or discharge of any lien,
claims or encumbrance or any payment of any obligation by the Buyer, except in
the ordinary course of business and which could not be reasonably expected to
have a Buyer Material Adverse Effect.
SECTION 3.18. OUTSTANDING INDEBTEDNESS.
------------------------
The Buyer has no indebtedness for borrowed money which it has directly or
indirectly created, incurred, assumed or guaranteed, or with respect to which it
has otherwise become liable, directly or indirectly.
SECTION 3.19. CERTAIN TRANSACTIONS.
--------------------
The Buyer is not indebted, directly or indirectly, to any of its employees,
officers, directors or stockholders or to their spouses or children, in any
amount whatsoever; and none of said employees, officers, directors,
stockholders, or any member of their immediate families, are indebted to the
Buyer or have any direct or indirect ownership interest in any firm or
corporation with which the Buyer is affiliated or with which the Buyer has a
business relationship. No such employee, officer, director, stockholder, or any
member of their immediate families, is, directly or indirectly, interested in
any material contract with the Buyer. The Buyer is not guarantor or indemnitor
of any indebtedness of any other person, firm or corporation.
SECTION 3.20. EMPLOYEE BENEFIT PLANS.
----------------------
The Buyer does not have any "employee benefit plan" as defined in the
Employee Retirement Income Security Act of 1974, as amended.
SECTION 3.21. ENVIRONMENTAL AND SAFETY LAWS.
-----------------------------
To the knowledge of the Buyer, the Buyer is not in violation of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety. To the knowledge of the Buyer, no material
expenditures are or will be required in order to comply with any such existing
statute, law, or regulation.
17
SECTION 3.22. INSURANCE.
---------
The Buyer has in full force and effect fire and casualty insurance
policies, and insurance against other hazards, risks and liabilities to persons
and property to the extent and in the manner customary for companies in similar
businesses similarly situated.
SECTION 3.23. LABOR AGREEMENTS AND ACTIONS.
----------------------------
The Buyer is not aware that any officer or key employee intends to
terminate his or her employment with the Buyer, nor does the Buyer have a
present intention to terminate the employment of any of the foregoing. Subject
to general principles related to wrongful termination of employees, the
employment of each officer and employee of the Buyer is terminable at the will
of the Buyer.
SECTION 3.24. BROKERS AND FINDERS.
-------------------
The Buyer has not retained any broker or finder in connection with the
transactions contemplated by this Agreement.
SECTION 3.25. REGISTRATION RIGHTS.
-------------------
Other than as granted pursuant to that certain Second Amended and Restated
Rights Agreement dated September 18, 1998, between Buyer and certain investors
in Buyer (the "Rights Agreement") the Buyer has not granted or agreed to grant
any right to register (as that term is defined in the Rights Agreement)
securities, including piggyback registration rights, to any person or entity.
SECTION 3.26. CORPORATE DOCUMENTS; MINUTE BOOKS.
---------------------------------
Except for amendments necessary to satisfy representations and warranties
or conditions contained herein (the form of which amendments has been approved
by Purchaser), the Bylaws of the Buyer are in the form previously provided to
the Sellers. The minute books of the Buyer previously provided to the Sellers
contain a complete summary of all meetings of directors and stockholders since
the time of incorporation of the Buyer.
SECTION 3.27. DISCLOSURE.
----------
No representation or warranty by the Buyer in this Agreement, or in any
document or certificate furnished or to be furnished to the Sellers pursuant
hereto or in connection with the transactions contemplated hereby, when taken
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary to make the statements
made herein and therein, in the light of the circumstances under which they were
made, not misleading. The Buyer has fully provided the Seller with all the
information which the Seller has requested for deciding whether to purchase the
Shares.
18
ARTICLE FOUR
MUTUAL COVENANTS
SECTION 4.1. ACCESS; COOPERATION RE TAXES.
----------------------------
From the date hereof through the Closing Date, the parties hereto will give
one another and their respective financial advisors, legal counsel, independent
accountants and other representatives reasonable access during normal business
hours to all properties, documents, contracts, employees and records of the
Company or Buyer, as the case may be, and will furnish one another with copies
of such documents and with such information with respect to the Company or the
Buyer, as the case may be, any such party may reasonably request from time to
time. Sellers shall be entitled to all losses or other income tax credits
attributable to the Company's operations during the period from January 1, 1999
through the Closing Date. After the Closing Date, the Buyer will give Sellers
and their financial advisors, legal counsel, independent accountants and other
representatives reasonable access during normal business hours to such records
of the Company, and will furnish Sellers with copies of such documents and with
such information with respect to the Company as Sellers may reasonably request
in order for Sellers to complete tax returns for the period from January 1, 1999
through the Closing Date.
SECTION 4.2. THIRD PARTY CONSENTS.
--------------------
From the date hereof through the Closing Date, each party hereto will use
reasonable commercial efforts to obtain or cause to be obtained all consents,
approvals and authorizations that are necessary under applicable law or the
Contracts to be obtained by such party in connection with the consummation of
the transactions contemplated by this Agreement; provided, however, that neither
-------- -------
the Sellers nor the Company shall be required to pay or provide any monetary or
other consideration in kind for any such consents, approvals and authorizations
under the Contracts.
SECTION 4.3. NOTICE OF DEFAULT.
-----------------
From the date hereof through the Closing Date, each party will take all
actions reasonably necessary to render accurate as of the Closing Date their
representations and warranties contained herein and to perform or cause to be
satisfied each covenant or condition to be performed or satisfied as
contemplated by this Agreement. Each party hereto will promptly give notice to
the other parties of the occurrence of any event known to such party of that
results in a breach of any representation or warranty by such party or the
failure of such party to comply with any covenant, condition or agreement
contained herein. From the date hereof through the Closing Date, each party
hereto will promptly disclose to the other parties all information that comes to
such party's attention that, to such party's knowledge, is material to an
understanding of the assets, properties, business, financial condition or
results of operations of the Company or Buyer, as the case may be.
19
SECTION 4.4. OTHER AGREEMENTS.
----------------
On the Closing Date, the Sellers shall become parties to, and shall have
all the rights and benefits of a Preferred Holder under the Rights Agreement
with respect to the Shares, which shall be considered part of the Series C
Shares for purposes of the Rights Agreement.
ARTICLE FIVE
CONDUCT OF BUSINESS
SECTION 5.1. COVENANTS OF THE COMPANY.
------------------------
During the period from the date of this Agreement and continuing until the
earlier of the termination of this Agreement or the Closing Date, the Sellers
agree (except to the extent that the Buyer shall otherwise consent in writing),
to cause the Company 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, , to pay or perform its other obligations when due
(subject in all cases to good faith disputes), and, to the extent consistent
with such business, to use all reasonable efforts consistent with past practices
and policies to (i) preserve intact its present business organization, (ii) keep
available the services of its present officers and key employees and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees and others having business dealings with it. The Sellers shall
promptly notify the Buyer of any event or occurrence not in the ordinary course
of business of the Company where such event or occurrence would result in a
breach of any covenant of the Company set forth in this Agreement or cause any
representation or warranty of the Sellers set forth in this Agreement to be
untrue as of the date of, or giving effect to, such event or occurrence. Except
as expressly contemplated by this Agreement, the Sellers shall not allow the
Company to, without the prior written consent of the Buyer:
(a) Grant any options under any employee plan of the Seller, accelerate,
amend or change the period of exercisability under any outstanding options, or
authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the Company's intellectual property rights other than in
the ordinary course of business consistent with past practices;
(c) Make any distributions (whether in cash or other property) in respect
of any of its securities;
(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 other than acquisitions involving aggregate consideration of
not more than Ten Thousand Dollars ($10,000);
20
(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
the Company;
(f) Take any action to (i) increase or agree to increase the compensation
payable or to become payable to its officers or employees, (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, pension,
retirement, deferred compensation, employment, termination, severance or other
plan, trust, fund, policy or arrangement for the benefit of any members,
officers or employees;
(g) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business;
(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, other
than indebtedness incurred under outstanding lines of credit consistent with
past practice;
(i) Amend or propose to amend its Articles of Organization or operating
agreement, except as contemplated by this Agreement;
(j) Incur or commit to incur any individual capital expenditure other than
the existing commitments set forth on Exhibit B;
---------
(k) Enter into or commit to enter into any data or marketing agreement
involving any revenue guarantees or revenue-sharing arrangements;
(l) Amend or terminate any Company Contract , except in the ordinary course
of business;
(m) Waive or release any material right or claim, except in the ordinary
course of business;
(n) Initiate any litigation or arbitration proceeding; or
(o) Take or agree to take, in writing or otherwise, any of the actions
described in Sections (a) through (n) above, or any action which is reasonably
likely to make any of the Sellers' representations or warranties contained in
this Agreement untrue or incorrect in any material respect (without regard to
any materially qualifications contained therein) on the date made (to the extent
so limited) or as of the Closing Date.
21
SECTION 5.2. NO SOLICITATION BY SELLERS.
--------------------------
During the period from the date of this Agreement until the earlier of the
termination of this Agreement or the Closing Date, the Sellers and the Company
shall not, directly or indirectly, through any officer, director, employee,
representative or agent, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock or similar transactions
involving the Company, other than the transactions contemplated by this
Agreement (any of the foregoing inquiries or proposals being referred to in this
Agreement as a "Company Acquisition Proposal"), (ii) engage in negotiations or
discussions concerning, or provide any non-public information to any person or
entity relating to, any Company Acquisition Proposal, or (iii) agree to, approve
or recommend any Company Acquisition Proposal.
ARTICLE SIX
INDEMNIFICATION
SECTION 6.1. INDEMNIFICATION OBLIGATION.
--------------------------
(a) Subject to the limitations set forth in Section 6.2, the Sellers (for
the purposes of this Section 5.1(a) the "Seller Indemnifying Parties") shall
indemnify and hold harmless the Company, the Buyer and their affiliates
(collectively, the "Buyer Indemnified Parties") in respect of any and all
claims, actions, causes of action, arbitrations, proceedings, losses, damages,
liabilities and expenses (including, without limitation, settlement costs,
reasonable attorneys' fees and any other out-of-pocket costs of investigation),
incurred by the Buyer Indemnified Parties in connection with each and all of the
following:
(i) Any breach of any representation or warranty of the Sellers
contained herein or in any instrument delivered at the Closing by the Sellers;
(ii) Any breach of any covenant, agreement or obligation of the
Sellers contained herein or in any instrument delivered at the Closing by the
Sellers; and
(iii) Any and all liabilities and obligations of the Company of any
nature, whether known or unknown, arising from or as a result of the operation
of the Company's business prior to the Closing, other than liabilities referred
to in Section 2.16 of this Agreement.
(b) The Buyer shall indemnify and hold harmless the Sellers and their
affiliates (collectively, the "Seller Indemnified Parties") in respect of any
and all claims, actions, causes of action, arbitrations, proceedings, losses,
damages, liabilities and expenses (including, without limitation, settlement
costs, reasonable attorneys' fees and any other out-of-pocket costs of
investigation), incurred by the Seller Indemnified Parties in connection with
each and all of the following:
22
(i) any breach of any representation or warranty of the Buyer
contained herein or in any instrument delivered at the Closing by the Buyer;
(ii) any breach of any covenant, agreement or obligation of the Buyer
contained herein or in any instrument delivered at the Closing by the Buyer; and
(iii) all liabilities and obligations of the Company of any nature,
whether known or unknown, arising from or as a result of the operation of the
Company's business after the Closing.
SECTION 6.2. LIMITATIONS.
-----------
(a) The Buyer Indemnified Parties shall not be permitted to enforce any
claim for indemnification pursuant to this Agreement until the aggregate of all
Buyer Indemnified Parties' claims for indemnification exceed the amount of
$25,000 (the "Buyer Threshold Amount"). Once claims in excess of the Buyer
Threshold Amount have been asserted by the Buyer Indemnified Parties, the total
amount of the claims, including the Buyer Threshold Amount, may be pursued or
recovered against the Sellers; provided, however, that the maximum liability of
-------- -------
the Sellers for indemnification pursuant to this Agreement shall in no event
exceed the Escrow Amount.
(b) The Seller Indemnified Parties shall not be permitted to enforce any
claim for indemnification pursuant to Sections 6.1(b)(i) and (ii) of this
Agreement until the aggregate of all Seller Indemnified Parties' claims for
indemnification pursuant to such sections exceed the amount of $25,000 (the
"Seller Threshold Amount"). Once claims in excess of the Seller Threshold
Amount have been asserted by the Seller Indemnified Parties, the total amount of
the claims pursuant to such sections, including the Seller Threshold Amount, may
be pursued or recovered against the Buyer; provided, however, that the maximum
-------- -------
liability of the Buyer for indemnification pursuant to Sections 6.1(b)(i) and
(ii) of this Agreement shall in no event exceed Two Hundred Thousand Dollars
($200,000). Nothing in this Section 6.2(b) shall limit the Seller Indemnified
Parties' claims for indemnification pursuant to Section 6.1(b)(iii).
(c) Claims for indemnification made under this Agreement may be made during
the period from the Closing Date until the first anniversary of the Closing
Date; provided, however, that claims pursuant to Section 6.1(b)(iii) may be made
-------- -------
at any time after the Closing Date.
(d) The provisions of this Article Six shall be the exclusive rights and
remedies of the Buyer and Seller.
SECTION 6.3. NOTICE OF CLAIMS.
----------------
Whenever any claim shall arise for indemnification, the indemnified parties
shall promptly notify the indemnifying parties in writing of the claim and, when
known, the facts constituting the basis for such claim and the amount or
estimate of the amount of the liability arising from such claim; provided,
--------
however, that failure of the indemnified parties to timely give such notice
-------
shall not be a defense to the liability of the indemnifying parties for such
claim, but the indemnifying parties
23
may recover from the indemnified parties any actual damages arising from the
indemnified parties' failure to give such timely notice. A copy of any notice
of claims by a Buyer Indemnified Party shall be concurrently delivered by such
Buyer Indemnified Party to the Escrow Agent.
SECTION 6.4. MANNER OF DEFENSE OF THIRD PARTY CLAIMS.
---------------------------------------
In connection with any claim giving rise to indemnity hereunder resulting
from or arising out of any claim or legal proceeding by a person other than the
indemnified parties, the indemnifying parties at their sole cost and expense,
may, upon written notice to the indemnified parties assume the defense of any
such claim or legal proceeding. If the indemnifying parties assume the defense
of any such claim or legal proceeding, the indemnifying parties shall select
counsel reasonably acceptable to the indemnified parties to conduct the defense
of such claims or legal proceedings and, at their sole cost and expense, shall
take all steps necessary in the defense or settlement thereof. The indemnifying
parties shall not consent to a settlement of, or the entry of any judgment
arising from, any such claim or legal proceeding, without the prior written
consent of the indemnified parties, unless the indemnifying parties admit in
writing their liability to hold the indemnified parties harmless from and
against any losses, damages, expenses and liabilities arising out of such
settlement. The indemnified parties shall be entitled to participate in (but
not control) the defense of any such action, with their own counsel and at their
own expense. If the indemnifying parties do not assume the defense of any such
claim or litigation resulting therefrom in accordance with the terms hereof, the
indemnified parties may defend against such claim or litigation in such manner
as they may deem appropriate, including, but not limited to, settling such claim
or litigation, after giving notice of the same to the indemnifying parties on
such terms as the indemnified parties may deem appropriate. The indemnifying
parties shall be entitled to participate in the defense of any action by the
indemnified parties, which participation shall be limited to contributing
information to the defense and being advised of its status. In any action by
the indemnified parties seeking indemnification from the indemnifying parties in
accordance with the provisions of this Section, the indemnifying parties shall
not be entitled to question the manner in which the indemnified parties defended
such claim or litigation or the amount of or nature of any such settlement.
SECTION 6.5. MANNER OF INDEMNIFICATION FOR INDEMNIFYING PARTY CLAIMS.
-------------------------------------------------------
Within thirty (30) days of receipt of notice by the indemnifying parties of
a claim by the indemnified parties (or such longer period not to exceed sixty
(60) days as may be required to investigate such claim), including, without
limitation, a claim for damages, settlement and attorneys fees or costs not
assumed or paid by the indemnified parties under Section 6.4, the indemnifying
parties shall either satisfy such claim by the payment of cash (or, at the
option of Sellers, Shares out of the Escrow Amount) to the indemnified parties
for the full amount of such claim or notify the indemnifying parties in writing
that it contests such claim (a copy of any notice of contest by Sellers shall be
concurrently delivered by Sellers to the Escrow Agent). If the indemnifying
parties fail to satisfy such claim or provide such written notice of contest,
the claim shall be deemed contested. If the parties, acting in good faith,
cannot reach an agreement within ninety (90) days after notice was first given
by the indemnifying parties hereunder, then such parties may seek any remedy
available to them at law or equity.
24
SECTION 6.6. DISPOSITION OF ESCROW AMOUNT.
-----------------------------
The obligations of Sellers pursuant to this Article Six shall may be satisfied,
at the option of Sellers, by the payment of cash or Shares out of the Escrow
Amount; provided, however, that the maximum liability of the Sellers for
-------- -------
indemnification pursuant to this Agreement shall in no event exceed the Escrow
Amount. No later than twelve months after the Closing, the Escrow Agreement
shall instruct the Escrow Agent to pay over to Sellers the Escrow Amount then
being held pursuant to the Escrow Agreement, unless at such time there is
pending against Sellers one or more indemnifiable claims, in which case that
portion of the Escrow Amount equal to the aggregate amount of indemnifiable
claims shall continue to be held by the Escrow Agent in accordance with this
Agreement and the Escrow Agreement and the remainder shall be paid over to
Sellers. If and to the extent that, from time to time pursuant to the
provisions of this Agreement, it is determined in accordance with this Article
Six that Buyer is entitled to indemnification, the Escrow Agreement shall
instruct the Escrow Agent to pay over to the Buyer the Escrow Amount, or portion
thereof, necessary to satisfy, to the extent possible, such claim or claims.
ARTICLE SEVEN
CONDITIONS TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer hereunder shall be subject to the
satisfaction, as of the Closing Date, of the following conditions (any of which
may be waived in writing, in whole or in part, by the Buyer):
SECTION 7.1. REPRESENTATIONS AND WARRANTIES; COVENANTS.
-----------------------------------------
The representations and warranties of the Sellers contained in this
Agreement shall be true and correct in all respects as of the Closing Date as if
made on the Closing Date. The Sellers shall have duly performed and satisfied
all covenants and agreements required by this Agreement to be performed or
satisfied by the Sellers at or prior to the Closing Date. The Buyer shall have
been furnished with certificates of the Sellers, dated the Closing Date,
certifying the fulfillment of the foregoing conditions.
SECTION 7.2. CERTAIN DOCUMENTS.
-----------------
The Sellers shall have furnished the Buyer with the following documents:
(a) the articles of organization of the Company, as amended to date, duly
certified by the Secretary of State of the State of California as of the most
recent practical date;
(b) certificates as to the good standing of the Company and payment of all
taxes as of the most recent practical date, executed by the Secretary of State
of the State of California;
(c) the operating agreement of the Company, duly certified by the Secretary
of the Company as being in full force and effect on the Closing Date;
25
(d) resignations, effective on the Closing Date, of all directors and
officers of the Company;
(e) originals or copies of all consents, approvals and authorizations that
are necessary under applicable law or the Company Contracts to be obtained by
the Sellers or the Company in connection with the consummation of the
transactions contemplated by this Agreement;
(f) the Closing Balance Sheet, certified by the Sellers as being true and
correct in all material respects as of the Closing Date; and
(g) such other documents relating to the Company as the Buyer may
reasonably request.
SECTION 7.3. LEGAL MATTERS.
-------------
All legal matters, and the form and substance of all documents to be
delivered by the Sellers to the Buyer at the Closing, shall be satisfactory to
counsel for the Buyer.
SECTION 7.4. LEGAL PROCEEDINGS.
-----------------
No action, suit, claim, proceeding, inquiry or investigation by or before
any federal, state, local or other governmental court, arbitrator or agency
shall have been initiated or, to the knowledge of the Buyer, threatened, seeking
to prevent or enjoin the transactions contemplated by this Agreement.
SECTION 7.5. COMPANY EMPLOYEES.
-----------------
Xxxx Xxxxxxxx shall have executed an offer letter with the Company in
substantially the form attached hereto as Exhibit D.
---------
SECTION 7.6. LEGAL OPINION.
-------------
The Buyer shall have received an opinion of legal counsel to the Sellers in
the form and substance attached hereto as Exhibit E.
---------
SECTION 7.7 SUBLEASE.
--------
The Company shall have entered into a written sublease for its current
facility in form and substance reasonably acceptable to the Buyer.
SECTION 7.8 AMENDMENT TO ARTICLES OF INCORPORATION.
--------------------------------------
The Buyer shall have amended its Articles of Incorporation to increase the
number of authorized shares of Series C Preferred Stock and Series C-1 Preferred
Stock each to 3,000,000.
26
ARTICLE EIGHT
CONDITIONS TO THE SELLERS' OBLIGATIONS
The obligations of the Sellers hereunder shall be subject to the
satisfaction, as of the Closing Date, of the following conditions (any of which
may be waived in writing, in whole or in part, by the Sellers):
SECTION 8.1. REPRESENTATIONS AND WARRANTIES; COVENANTS.
-----------------------------------------
The representations and warranties of the Buyer contained in this Agreement
shall be true and correct in all material respects (without regard to any
materiality qualifications contained therein) as of the Closing Date as if made
on the Closing Date. The Buyer shall have duly performed and satisfied all
covenants and agreements required by this Agreement to be performed or satisfied
by the Buyer at or prior to the Closing Date. The Sellers shall have been
furnished with a certificate of the Buyer, dated the Closing Date, certifying
the fulfillment of the foregoing conditions.
SECTION 8.2. CERTAIN DOCUMENTS.
-----------------
The Buyer shall have furnished the Sellers with the following documents or
certificates:
(a) the articles of incorporation of the Buyer as amended to date, duly
certified by the Secretary of State of the State of California as of the most
recent practical date;
(b) certificates as to the good standing of the Buyer and payment of all
taxes as of the most recent practical date, executed by the Secretary of State
of the State of California;
(c) the bylaws of Buyer, duly certified by the Secretary of Buyer as being
in full force and effect on the Closing Date;
(d) copies of the resolutions of the Board of Directors approving the
transactions contemplated by this Agreement, including, without limitation, the
authorization and issuance of the Shares;
(e) originals or copies of all consents, approvals and authorizations that
are necessary under applicable law or the Buyer Contracts to be obtained by the
Buyer in connection with the consummation of the transactions contemplated by
this Agreement;
(f) such other documents relating to the Buyer as the Sellers may
reasonably request; and
(g) certificates in the respective names of the Sellers evidencing the
Shares.
SECTION 8.3. LEGAL MATTERS.
-------------
All legal matters, and the form and substance of all documents to be
delivered by the Buyer to the Sellers at the Closing, shall be satisfactory to
counsel for the Sellers.
27
SECTION 8.4. LEGAL PROCEEDINGS.
-----------------
No action, suit, claim, proceeding, inquiry or investigation by or before
any federal, state, local or other governmental court, arbitrator or agency
shall have been initiated or, to the knowledge of the Sellers, threatened,
seeking to prevent or enjoin the transactions contemplated by this Agreement.
SECTION 8.5. LEGAL OPINION.
-------------
The Sellers shall have received an opinion of legal counsel to the Buyer in
the form and substance attached hereto as Exhibit F.
---------
SECTION 8.6. EMPLOYEES.
----------
Buyer shall have offered employment to all current employees of the Company
as of the Closing. All Company employees who have accepted employment by the
Buyer will be eligible for participation in Buyer's health, life, and disability
insurance programs, in accordance with the existing terms and conditions of such
programs, and be given year-for-year credit for years of service with the
Company, and retain all accrued vacation time or pay and sick time, through the
Closing Date.
ARTICLE NINE
MISCELLANEOUS
SECTION 9.1. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLERS.
----------------------------------------------------------------
The representations and warranties of the Sellers made in this Agreement
(including the Schedules) or any certificate, instrument or other document
delivered in connection herewith shall survive the Closing Date for a period of
one year.
SECTION 9.2. PUBLICITY.
Neither party will make any public announcement regarding the subject
matter of this Agreement without the prior written consent of the other party.
SECTION 9.3 Expenses.
--------
In the event the Closing is completed, the expenses incurred by the Company
will be borne by the Sellers, except that the following expenses relating to the
transaction will be accrued by the Company and become post-closing obligations
of the surviving company to be paid on the Closing Date: the accounting and
legal fees and expenses of the Company in an amount not to exceed Seventy-Five
($75,000) Dollars. In the event the Closing does not take place, each party
shall pay its own expenses in connection with the preparation and performance of
this Agreement and the
28
consummation of the transactions contemplated hereby, including without
limitation all fees and expenses of investment bankers, financial advisors,
legal counsel, independent accountants and actuaries.
SECTION 9.4. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed and enforced in
accordance with the internal, substantive laws of the State of California,
without giving effect to the conflict of laws rules thereof.
SECTION 9.5. NOTICES.
-------
All notices, consents, requests, instructions, approvals and other
communications provided for herein shall be deemed validly given, made or served
if in writing and delivered personally or sent by certified mail, postage
prepaid, or by overnight courier, or by telex, telecopier or telegraph, charges
prepaid:
(a) if to the Buyer, addressed to:
Salon Internet, Inc.
000 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
Attention: Chief Executive Officer
Telephone:
Telecopier:
with a copy to:
Xxxx Xxxx Xxxx & Freidenrich LLP
000 Xxxxxxxx Xxx.
Xxxx Xxxx, XX 00000
Attention: Xxx Xxxxxxx
Telephone: (000)000-0000
Telecopier: (000)000-0000
(b) if to the Sellers, addressed to:
c/o Rosewood Stone Group
0000 Xxxxxxxxx Xxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx Xxxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
29
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
Xxx Xxxxxxxxxx Xxxxxx, Xxxxxxx Xxxxx
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxxx Xxxxx
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
or such other address as shall be furnished in writing by any party to the
others.
SECTION 9.6. JURISDICTION; AGENT FOR SERVICE.
-------------------------------
Legal proceedings commenced by the Sellers or the Buyer arising out of any
of the transactions or obligations contemplated by this Agreement shall be
brought exclusively in the federal courts, or in the absence of federal
jurisdiction in state courts, in either case in the State of California. The
Buyer and the Sellers irrevocably and unconditionally submit to the jurisdiction
of such courts and agree to take any and all future action necessary to submit
to the jurisdiction of such courts. The Buyer and the Sellers irrevocably waive
any objection that they now have or hereafter may have to the laying of venue of
any suit, action or proceeding brought in any such court and further irrevocably
waive any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum. Final judgment against the
Sellers or the Buyer in any such suit shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment, a certified or true copy of which
shall be conclusive evidence of the fact and the amount of any indebtedness or
liability of the Sellers or the Buyer therein described, or by appropriate
proceedings under any applicable treaty or otherwise.
SECTION 9.7. ENTIRE AGREEMENT.
----------------
This Agreement represents the entire agreement between the parties and
supersedes and cancels any prior oral or written agreement, letter of intent or
understanding related to the subject matter hereof.
SECTION 9.8. BINDING EFFECT.
--------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement.
SECTION 9.9. AMENDMENTS; WAIVERS.
-------------------
No provision of this Agreement may be terminated, amended, supplemented,
waived or modified other than by an instrument in writing signed by the party
against whom the enforcement of the termination, amendment, supplement, waiver
or modification is sought.
30
SECTION 9.10. COUNTERPARTS.
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original and all of which together shall be deemed to
be one and the same instrument, and shall become effective when one or more
counterparts have been signed by each of the parties.
SECTION 9.11. SEVERABILITY.
------------
In the event any provision, or portion thereof, of this Agreement is held
by a court having proper jurisdiction to be unenforceable in any jurisdiction,
then such portion or provision shall be deemed to be severable as to such
jurisdiction (but, to the extent permitted by law, not elsewhere) and shall not
affect the remainder of this Agreement, which shall continue in full force and
effect. If any provision of this Agreement is held to be so broad as to be
unenforceable, such provision shall be interpreted to be only so broad as is
necessary for it to be enforceable.
SECTION 9.12. KNOWLEDGE.
----------
For the purposes of this Agreement, the phrase (i) "to the knowledge of
such Seller" shall mean the actual knowledge, after due inquiry within the
Company, of any of the Sellers or the Company's directors and executive
officers, and (ii) "to the knowledge of the Buyer" shall mean the actual
knowledge, after due inquiry within the Buyer, of any of the Buyer's executive
officers.
(The remainder of this page has been left blank intentionally.)
31
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the day and year first above written.
BUYER:
SALON INTERNET, INC.
By: /s/ Authorized Officer
------------------------------
Name: Authorized Officer
Title:
SELLERS:
WHOLE EARTH LECTRONIC LINK, INC.
By: /s/ Authorized Officer
-------------------------------
Name: Authorized Officer
Title:
/s/ Xxxxx X. Xxxx
-----------------------------------
XXXXX X. XXXX
32
EXHIBIT A
---------
Form of Escrow Agreement
EXHIBIT B
---------
SELLERS' SCHEDULE OF EXCEPTIONS
2.3(a) Discussions 1.5 license from Well Engaged 2/25/99
Sublease, effective as of March 22, 1999, for approximately 424 sf of
office space at 0000 Xxxxxxxxx Xxx, Xxxxxxxxx, Xxxxxxxxxx; from Well
Engaged LLC
Certain commercial shrinkwrap licenses held by the Company may, by their
terms, limit the transfer of the license in connection with a change in
control. (see Schedule 2.9)
2.4(b) The Company does not maintain membership unit transfer records, except
for Exhibit A to the Operating Agreement.
2.8 Sublease, effective as of March 22, 1999, for approximately 424 sf of
office space at 0000 Xxxxxxxxx Xxx, Xxxxxxxxx, Xxxxxxxxxx; from Well
Engaged LLC
2.9 (b) Intellectual Property
Reprint permissions:
6/1/98 to Xxxxx Xxxxxxx to use a webpage in his book Hosting Web Communities
-----------------------
1/28/98 to Lucent Books to use a webpage in the book The Internet
------------
4/16/97 to Course Technology to use several web pages in the books,
The World Wide Web Featuring Netscape Communicator 4 Software and
---------------------------- ---------------------------------
The World Wide Web Featuring Internet Explorer 4 by Xxxxxx+Xxxxxx
------------------------------------------------
9/4/96 to Xxxxx Xxxxxxxxx to use several web pages in his book
2/28/96 to Xxxx Xxxxxx to use the Members' Agreement as part of
a seminar "Doing Business on the Internet"
4/24/95 to IDG Books to use a logo and webpage in its book Creating Cool
-------------
Web Pages with HTML
-------------------
5/15/95 to the U.S. Distance Learning Association to use portions of
user manual for their online documentation 7/12/95 to Xxxx Xxxxxx/Black
Point Group to use a quote in the book Electronic Highway Robbery
--------------------------
10/20/98 email to Xxxx Xxxxxxxxx regarding an acknowledgment for use of the
common-law xxxx, "yoyow". (You own your own words.) Xxxx has
acknowledged the foregoing pursuant to an email to the Company, but it
has not been put in a final agreement.
1
Copyrights - The Company does not hold copyright to
individual postings by subscribers. As per general Internet
publishing principles, the individuals hold the rights to their
postings.
Trademarks -
Assignment dated March 10, 1999 from Whole Earth Lectronic Link to The WELL
LLC, assigning the U.S. registered service xxxx.
Assignment dated March 10, 1999 from Whole Earth Lectronic Link to The WELL
LLC, assigning the foreign registered service marks and pending service xxxx
applications.
Domain names -
2/23/99 The Company requested Network Solutions to correct the domain name
records for xxxx.xxx and xxxx.xx.xx.xx, which are still registered under the
name of Whole Earth Lectronic Link. This request is still pending with Network
Solutions.
6/4/98 Network Solutions advised the Company that it placed the domain name
"xxxxxxx.xxx" on hold after the Company disputed a third-party registration.
12/14/98 The registrant of the domain name xxxxx.xxx (note three l's) has agreed
in email to sign over that url to the Company. Final documentation is pending.
Whole Earth Network, Inc. continues to use the domain name xxxx.xxx in the
provision of web services to former Whole Earth Lectronic Link customers. The
Asset Purchase Agreement by which Link and others sold Whole Earth Networks LLC
to GST/Whole Earth Network, Inc. (dated 3/12/98) provides that such use will be
terminated within a reasonable time. The Company has not requested Whole Earth
Network to do so.
Technology licenses -
Picospan license from Whole Earth Lectronic Link 7/1/97
Discussions 1.5 license from Well Engaged 2/25/99
sendmail (freeware)
mail.local (freeware)
qpopper (freeware
imapd (freeware)
comsat (freeware)
Berkeley Mail (freeware)
fetchmail (freeware)
pine (freeware)
ipine (freeware)
mail (freeware)
elm (freeware)
Zmail licensed from vendor
2
Netscape Communications and Commerce Servers (shrinkwrap license)
ImageClub Clip Art licensed from Adobe (shrinkwrap)
NcFTPD licensed from vendor (shrinkwrap)
Solaris 2.5.1, licensed from Sun (shrinkwrap)
Unix version of PGP licensed from vendor (shrinkwrap)
PC version of PGP (shareware)
Access Watch license
Cybercash provided as part of Colocation Services Agreement (ISP)
RBASE licensed from Microrim
Filemaker licensed from vendor (shrinkwrap)
Desktop applications such as MsWord, Excel licensed from vendor
(shrinkwrap)
Indemnifications:
Colocation Services Agreement with Whole Earth Networks
Reference is made to Section 2.12(b) of this Schedule of Exceptions
Year 2000. The Company is currently working to resolve the potential impact
of the Year 2000 on the processing of date-sensitive information by the
Company's computerized information systems. Based on preliminary
information, costs of addressing potential corrections are not currently
expected to have material adverse impact on the Company's financial
position, results of operations, or cash flows in future periods. However,
if the Company, its customers or vendors are unable to resolve such
processing issues in a timely manner, it could result in material financial
risk.
2.10 (a)
Employee List
LAST FIRST TITLE DOH SALARY
Xxxxxxxxxxx Xxxxxxxxx Helpdesk 10/08/97 $13.00/xx
Xxxx-Xxxxxxx Xxxxxxx Asst. Conference Manager 11/23/98 $15.87/hr
Xxxx Xxxxxx Customer Service/Billing Rep 06/08/98 $13.50/hr
Xxxxxx Xxxx Programmer 01/16/94 $48,630.00
Xxxx Xxxxx Marketing Director 07/01/98 $33,000.00
Xxxxx Xxxxxxx Helpdesk/Technical Assistant 10/06/97 $15.00/hr
Xxxxxxxx Xxxx Executive Director 12/16/91 $65,000.00
3
Officers: Xxxxx X. Xxxx, Chairman
Xxxx Xxxxxxxx, Executive Director
Xxxx Xxxxxxx, Chief Financial Officer
Xxxxxxx Xxxxxx, Secretary
Directors: Xxxxx Xxxx
Xxxxx Xxxxx
Xxxxxxx Xxxxxx
ADP has a Limited Power of Attorney to file employment tax returns and make
deposits electronically, in connection with the Company's payroll processing
2.10 (b)
Offer letter to Xxxxxxxxx Xxxxxxxxxxx dated 10/2/98
Offer letter to Xxxxxxx Xxxx-Xxxxxxx dated 11/11/98
Offer letter to Xxxxxx Xxxx dated 5/29/98
Offer letter to Xxxxx Xxxx dated 7/1/98
Offer letter to Xxxxxxx Xxxxx dated 5/15/98
Offer letter to Xxxx Xxxxxx dated 3/16/99
Whole Earth has entered into a letter agreement with Xxxx Xxxxxxxx, on
9/20/98, as amended on March 15, 1999, which provides for the payment of
cash or other consideration upon the sale of the Company. Pursuant to the
letter agreement, Xx. Xxxxxxxx will be entitled to receive 10,456 of the
Shares issuable to Whole Earth under the Agreement.
Certain former employees and directors were promised lifetime complimentary
accounts on The WELL. Xxxx Xxxxxxxx is the only current employee who has
been promised a lifetime account. The total comprises 40 accounts, of which
12 are held by Sellers.
Current employees receive a free Internet connectivity account during the
term of their employment. They also receive a free Well account for
themselves and for one guest. If they leave the company in good standing,
they are allowed to maintain one complimentary Well account for a period of
time depending upon their length of service to the company (i.e. six months
comp for 1 year of service, 1 year comp for 2 years of service, and 1 year
for each additional year of service thereafter)
Volunteer hosts receive complimentary accounts, some of which include
Internet connectivity.
Consulting agreement dated 12/16/98 with Xxxx Xxxxxxx, pursuant to which he
provides
4
part-time system administration services at the rate of $50 per hour.
BENEFITS TYPE GROUP NUMBER
CARRIER
HIPC Medical 2009689
Delta Dental Dental 000162 0003
Vision Service Plan Vision 12017037 01
Reliance Standard Life Life GL 2880 001
UNUM Disability 513000 003
Note that, except for the HIPC plan, these benefit policies are not
assignable to purchaser.
2.10 (d) No accruals are booked for sick leave or unemployment benefits.
2.11(a) Rosewood Stone Group, Inc. and Related Companies
Profit-Sharing 401(k) Plan (as amended)
Note that Seller has only requested copy of the IRS determination letter
relating to this Plan.
2.12(a) The applicability to the Internet of existing laws in various
jurisdictions governing issues such as property ownership, sales and other
taxes, libel and personal privacy is uncertain and make take years to resolve.
For example, tax authorities in a number of states are currently reviewing the
appropriate tax treatment of companies engaged in online commerce, and new state
tax regulations may subject the Company to additional state sales and income
taxes. Any such new legislation or regulations, the application of laws and
regulations from jurisdictions whose laws do not currently apply to the
Company's business, or the application of existing laws and regulations to the
Internet and commercial online services could have a material adverse effect on
the Company's business, operating results, and financial condition.
2.12 (b) 4/6/98 letter from MCI alleging "spam" originating from the Company's
servers; we informed MCI by telephone on 4/10/98 that we would
cooperate with any investigation 5/6/98 letter to Postal Inspector
regarding customer complaint and refund 6/25/98 email in response to
email from NSKinsella alleging that a subscriber was libelling his
client, advising that the Company's policy is that it is not
responsible for such matters and that such dispute should be resolved
between such parties.
8/9/97 email from subscriber regarding alleged libel.
The Company from time to time receives communications from subscribers or third
parties alleging libel, defamation, harassment, intellectual property
infringement, or other claims. Like other Internet companies, the Company's
policy is that it is not responsible for such matters and the disputes should be
resolved between the parties. Without limiting the foregoing, in the event
5
of intellectual property infringement claims, the Company has in the past
attempted to contact the alleged infringer and ask that the infringing material
be removed.
Prior to the Company's formation in July 1997, its operations were conducted
through Whole Earth Lectronic Link, Inc. Whole Earth received communications
similar to the foregoing from time to time.
2.13(a)
Colocation Services Agreement with GST/Whole Earth Network dated 2/26/98
Billing and Services Agreement among The WELL, Whole Earth Lectronic Link, and
GST/Whole Earth Network dated 2/18/98
Agreement between Public Conference Hosts and The WELL
Members' Agreement (with individual subscribers)
Proprietary Rights Assignment dated as of 7/1/97 from Whole Earth Lectronic
Link, Inc.
Consulting agreement dated 9/25/96 with Xxxxxxxx Xxxx (work is completed but
ongoing obligation to maintain a link to her website)
Consulting agreement dated 12/16/98 with Xxxx Xxxxxxx
Sun Microsystems Support Agreement (effective 7/16/98 to 7/15/99)
Paymentech Merchant Agreement dated 2/12/98
National Writers Union letter agreement dated 1/15/99
Sirius Connections letter agreement dated 11/5/98
The Writer's Club letter agreement dated 10/15/98
Sublease agreement with Well Engaged (described above)
Consent to Sublease agreement dated March 17, 1999
Client Account Agreement and Authorization to Debit with ADP dated 8/8/97
Technology licenses -
Picospan license from Whole Earth Lectronic Link 7/1/97
Discussions 1.5 license from Well Engaged 2/25/99
sendmail (freeware)
mail.local (freeware)
qpopper (freeware
imapd (freeware)
comsat (freeware)
Berkeley Mail (freeware)
fetchmail (freeware)
pine (freeware)
ipine (freeware)
mail (freeware)
elm (freeware)
Zmail licensed from vendor
Netscape Communications and Commerce Servers (shrink wrap license)
ImageClub Clip Art licensed from Adobe (shrinkwrap)
6
NcFTPD licensed from vendor (shrinkwrap)
Solaris 2.5.1, licensed from Sun (shrink wrap)
Unix version of PGP licensed from vendor (shrinkwrap)
PC version of PGP (shareware)
Access Watch license
RBASE licensed from Microrim
Filemaker licensed from vendor (shrinkwrap)
Desktop applications such as MsWord, Excel licensed from vendor
(shrinkwrap)
Offer letters -
Offer letter to Xxxxxxxxx Xxxxxxxxxxx dated 10/2/98
Offer letter to Xxxxxxx Xxxx-Xxxxxxx dated 11/11/98
Offer letter to Xxxxxx Xxxx dated 5/29/98
Offer letter to Xxxxx Xxxx dated 7/1/98
Offer letter to Xxxxxxx Xxxxx dated 5/15/98
Offer letter to Xxxx Xxxxxx dated 3/16/99
Certain former employees and directors were promised lifetime complimentary
accounts on The WELL. Xxxx Xxxxxxxx and Xxxx Xxxxxx are current employee
who are entitled to lifetime accounts. The total comprises 40 accounts, of
which 12 are Sellers'.
2.14 Since the Balance Sheet Date (12/31/98)
2/22/99 Engaged Price Waterhouse Coopers to conduct an audit of 1997-98
2/22/99 Engaged Pisenti&Brinker, CPA's, to provide assistance in the
audit Sublease, effective as of March 22, 1999, for approximately 424 sf of
office space at 0000 Xxxxxxxxx Xxx, Xxxxxxxxx, Xxxxxxxxxx; from Well
Engaged LLC; and
Consent to Sublease Agreement dated March 17, 1999
Signed standard form offer letter with Xxxx Xxxxxx March 16, 1999
Will terminate Xxxxxx.xxx Associates Agreement dated 9/29/98 immediately
prior to Closing.
2.15(a) It is anticipated that extensions of time to file 1998 income tax
return (federal and state) will be applied for on April 15, 1999.
2.15(b) County property taxes are not accrued; the forms are due on April 1,
1999 and payment is not due until August 1, 1999.
2.15(c) None
2.17 *Atlantic Mutual Insurance Co., Policy No. 000-00-00-00
Commercial Package covering Property, General Liability, Commercial
Crime, with $5M Umbrella Liability
*E-Risk Services, LLC Policy No. 90000175, for Employment Practices
Liability
7
*Republic Indemnity, Policy No. 031870-03, covering Worker's
Compensation
*Lloyd's of London, Policy No. MC45735, Professional Liability policy
*Note: These policies are not assignable to Purchaser.
State of Washington Unemployment Insurance Business XX#000-000-000
Xxxxx xx Xxxxxxxx Unemployment Insurance Account Xx. 000000.00-0
Xxxxx xx Xxxxxxxxxx EDD Account No. 000-0000-0
2.18 West America Bank
checking account no. 0506-358175
Xxx Xxxxxx Xxxxx
Xxxxxxxxx XX 00000
Signatories: Xxxx Xxxxxxx, Xxxxxxx Xxxxxx
2.19 Interco liabilities as of 3/25/99
Account receivable from Whole Earth Lectronic Link
under the Billing + Services Agreement $16,130
Account payable to Well Engaged
for rent (net of misc charges) $ 3,780
Account payable to Rosewood Stone Group
for insurance from inception $ 290
Colocation Services Agreement with GST/Whole Earth Network, Inc.* dated
2/26/98 Billing and Services Agreement among The WELL, Whole Earth
Lectronic Link, and
GST/Whole Earth Network, Inc.* dated 2/18/98
Picospan license from Whole Earth Lectronic Link 7/1/97
Discussions 1.5 license from Well Engaged 2/25/99
Sublease, effective as of March 22, 1999, for approximately 424 sf of
office space at
0000 Xxxxxxxxx Xxx, Xxxxxxxxx, Xxxxxxxxxx; from Well Engaged LLC
8
EXHIBIT C
---------
Buyer's Schedule of Exceptions
Pursuant to Article Three of that certain Membership Interest Purchase
Agreement dated March ___, 1999 (the "Agreement") between Salon Internet, Inc.
(the "Company") and Whole Earth Lectronic Link, Inc. ("Whole Earth") and Xxxxx
X. Xxxx ("Xxxx," together with Whole Earth, the "Sellers"), the Buyer hereby
delivers this Schedule of Exceptions (the "Schedule"). The section numbers in
this Schedule correspond to the section numbers in the Agreement. Any
information disclosed under any section in this Schedule is deemed to be
disclosed and incorporated in any other section of this Schedule where such
disclosure would be appropriate. Capitalized terms used in this Schedule,
unless otherwise specified, have the meanings given them in the Agreement.
Section 3.1
-----------
The Company currently is qualified to do business in California, Massachusetts
and New York. The Company employs one person working out of an office which is
not leased by the Company in Washington, D.C. The Company employs ten people in
New York City and leases office space in the building known as 0000 Xxxxxxxx, xx
xxx Xxxxxxx xx Xxxxxxxxx, Xxxx, Xxxxxx and State of New York.
Section 3.4
-----------
The Company's Shareholder and Optionholder List is attached hereto.
-------------------------------------------------------------------
The Company has issued warrants to purchase (1) 17,500 shares of Series A
Preferred Stock, 23,734 shares of Series B Preferred Stock and up to 19,365
shares of Series C Preferred Stock to Imperial Bank, (2) 158,228 shares of
Series B Preferred Stock to America Online ("AOL") and (3) up to 282,320, 62,738
and 94,106 shares of Common Stock to each of Adobe Ventures II, L.P., ASCII
Ventures, L.P. and H&Q Salon Investors, L.P., respectively.
Pursuant to his employment agreement with the Company, Xxxxxxx X'Xxxxxxx, the
Company's President, has a right of first refusal to participate in certain
future sales of equity securities by the Company to maintain his pro rata share
of the Company's common stock prior to such offering. Xx. X'Xxxxxxx has waived
this right in connection with the transactions contemplated by the Agreement.
Pursuant to the Rights Agreement, certain stockholders have rights to purchase
certain future sales of equity securities by the Company to maintain their pro
rata share of the Company's capital stock prior to such offering. Such rights
are not applicable to the transactions contemplated by the Agreement.
The Company has engaged Daiwa Securities America Inc. to assist the Company in
raising additional funding. The projections contained in the Private Placement
Memorandum (the "PPM") assume that additional funding is obtained by the
Company. No commitment for such funding exists as of the date hereof, there can
be no assurance that such funding will be obtained, and the projections
contained in the PPM are not likely to be achieved without such additional
funding. The Company's failure to obtain such funding would have a material
adverse affect on the Company's financial condition.
1
The Company and certain of the holders of the Company's Preferred Stock have
entered into a Voting Agreement dated September 18, 1998 pursuant to which these
holders agree to vote to elect certain designees of such holders.
Section 3.7
-----------
Borders has a license to reproduce Salon book and music reviews in any of its
stores or electronically display reviews on its Web site.
Xxxxxxxxxxxxxx.xxx has a license to reproduce Salon book and music reviews in
any of its stores or electronically display reviews on its Web site.
The Company has an agreement with XxXxxx.xxx pursuant to which the parties each
provide the other with proprietary content.
Pursuant to an agreement (the "UFS Agreement"), United Features Syndicate
("UFS") has the worldwide right to syndicate the Company's proprietary content
to print and online newspapers, and in return the Company receives fifty percent
(50%) of the revenues that UFS receives from such syndication.
The Company has agreements with AOL and AltaVista whereby the Company pays these
parties to publish the Company's proprietary content on their Web sites.
The Company has an agreement with Penguin Books pursuant to which the Company
has agreed to author an anthology, using some content previously published by
the Company.
The Company has an agreement with Random House/Villard pursuant to which the
Company has agreed to author a book, using some content previously published by
the Company.
The Company has written arrangements with C/Net, Netscape, Snap!, CNN, Xx.xxx,
WebTV, PointCast, Echostar and RocketBook whereby these vendors publish the
Company's proprietary content on their respective Web sites or in their
respective electronic information products and provide links to the Company's
Web site without charge. The Company and the aforementioned third parties
mutually agree on the content to be provided on such third parties' Web sites.
The Company is a party to a Membership and E-Commerce Systems Development
Agreement dated August 14, 1998 with eMergingMedia, Inc., as amended by a letter
agreement last signed August 15, 1998 (the "eMergingMedia Agreement"), pursuant
to which eMergingMedia has agreed to perform certain e-commerce development
services for the Company. Under the terms of the eMergingMedia Agreement, (i)
eMergingMedia grants the Company a limited license with respect to certain
eMergingMedia intellectual property used in the development process and (ii) the
Company grants eMergingMedia a limited license with respect to certain
intellectual property necessary for eMergingMedia to fulfill its obligations
under the eMergingMedia Agreement.
From time to time, the Company publishes on its Web site the copyrighted works
of third parties such as excerpts from copyrighted books, with the permission of
the copyright owner(s), such as publishing houses, or otherwise in compliance
with copyright laws including the `fair use' exception.
As part of its regular business, the Company engages freelance writers and
artists as independent contractors, mostly pursuant to written agreements
entered into in advance between the Company and
2
each such party. Pursuant to these agreements, the Company has a perpetual, non-
exclusive right to reproduce any content produced by the writer or artist within
the scope of his or her agreement with the Company. All content published by the
Company has been either produced by employees who have signed the Company's
standard assignment of inventions agreement, freelance artists subject to
written agreements described in the first sentence of this paragraph, or by
freelance writers who generally are subject to the written agreements describe
in the first sentence of this paragraph.
The Company currently pays approximately a 25% royalty fee to freelance writers
and artists when the Company receives a license fee for a reprint of material in
print publications. Such royalty fees totaled approximately $3,000 in the
fiscal year ended March 31, 1998.
The Company uses commercially available third-party software to construct and
present its Web site and for internal office applications.
Section 3.8
-----------
The Company is in violation of certain financial covenants under its Loan
Agreement with Imperial Bank. With respect to such violations through November
30, 1998, the Company received a forebearance letter from Imperial Bank, and
issued a warrant to Imperial Bank to purchase up to 19,365 shares of its Series
C Preferred Stock.
Section 3.14
------------
In connection with the Company's Loan Agreement with Imperial Bank, Imperial
received a security interest in all of the Company's intellectual property and
certain capital equipment.
Section 3.15
------------
Series A Preferred Stock Purchase Agreement dated December 22, 1995, as amended
August 2, 1996 and February 6, 1997.
Series B Preferred Stock Purchase Agreement dated November 28, 1997.
Series C Preferred Stock Purchase Agreement dated September 18, 1998.
First Amended and Restated Voting Agreement dated September 18, 1998.
Reference is made to the outstanding warrants listed in Section 3.4 of the
Schedule of Exceptions.
Loan Agreement with Imperial Bank dated April 13, 1998.
Services Agreement with Xxx Xxxxxxx dated August 2, 1998 (six month equity
financing brokerage agreement)
Affiliate Agreement with xxxxxxxxxxxxxx.xxx dated November 1, 1998.
Letter of Agreement with XxXxxx.xxx dated January 26, 1999.
America Online Anchor Tenancy Agreement dated August 1, 1998
3
Alta Vista Content Agreement dated August 6, 1998
Penguin Xxxxxx Inc. book publishing agreement dated April 15, 1998
Random House/Villard book publishing agreement dated October 16, 1998.
United Features Syndicate Agreement.
Xxxxxxx Xxxxx Narraway and Partners Agency Agreement dated November 13, 1998.
Microsoft Corporation Expedia Promotion Agreement dated October 22, 1998.
Insertion Orders for more than $25,000:
1. BBDO dated August 26, 1998 for $300,000
2. Xxxx Interactive dated June 1998 for $223,600
3. US Access Bank dated September 23, 1998 for $54000
4. Lexus dated September 28, 1998 for $225,000
5. Ford Motor Media The New Hollywood Sponsorship dated November 11, 1998 for
$129,500
5. Ford Motor Media Explorer dated November 25, 1998 for $75,000
6. Discover Brokerage dated January 26, 1999 for $53,200
Lease agreement with TW Associates dated June 25, 1997 (lease for office space
at 000 Xxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxxxxxxx, XX 94103).
Lease agreement with ZAPCO 1500 Investment dated March 1998 (lease for office
space at 0000 Xxxxxxxx, Xxx Xxxx, XX 10036)
Agreements with Directors and Officers:
1. Employment Agreement with Xxxxxxx X'Xxxxxxx dated November 7, 1997.
2. Common Stock Purchase Agreement with Xxxxx Xxxxxx dated July 5, 1995.
3. Stock option agreements with Xxxxxxx X'Xxxxxxx and Xxxxx Xxxxxx.
4. Employee inventions and confidentiality agreements with Messrs. X'Xxxxxxx
and Talbot.
5. Agreement with Xxxxx Xxxxxxxxxx pursuant to which the Company pays Xx.
Xxxxxxxxxx Board fees and agreed to grant him an option to purchase 75,000
shares of common stock.
The Company has numerous ordinary course agreements with non-officer employees
and consultants, including stock option agreements, inventions and
confidentiality agreements, and freelance writer and artist consulting
agreements.
The Company has entered into an Agency Agreement with Daiwa Securities America,
Inc. to assist the Company in obtaining additional financing. Pursuant to this
agreement, Daiwa will receive cash compensation and warrants to purchase Company
stock based on the amount of financing Daiwa obtains for the Company.
Outstanding Accounts Receivable over $25,000: Borders owes the Company
approximately $108,000, Xxxxxxxx and Xxxxxx owes the Company approximately
$53,281, Empower Health Organization owes the Company approximately $75,000,
Ford Motor Media owes the Company approximately $89,574,
4
Xxxx & Partners owes the Company approximately $82,283, and Saatchi & Saatchi
owes the Company approximately $60,520.
Outstanding Accounts Payable over $25,000: The Company owes AOL approximately
$125,000, Accrue Software approximately $25,500, and Value Click approximately
$51,000.
Section 3.16
------------
Since November 30, 1998, the Company has continued to use cash to finance
operations in the ordinary course. Consequently, as of the Closing, the
Company's financial condition has been materially adversely affected relative to
its financial condition at November 30, 1998.
Section 3.17
------------
The Company's Vice President of Advertising Sales, Xxxx Xxxxxx, terminated her
employment with the Company effective February 5, 1999.
Section 3.18
------------
The Company currently has a loan agreement with Imperial Bank for capital
equipment and a line of credit based on the Company's accounts receivable. The
outstanding balance on this loan as of January 28, 1999 is $575,652.
Section 3.20
------------
Employee benefits offered to employees include a 401(K) plan, health, dental and
long-term disability insurance, and paid holidays and vacation time.
Section 3.22
------------
The Company currently has the following insurance: (i) property insurance in the
coverage amount of $660,000; (ii) general liability insurance in the coverage
amount of $2 million (other than Products-Completed Operations which is in the
amount of $1 million) and umbrella insurance in the amount of $2 million; (iii)
workers compensation insurance, and (iv) Errors and Omissions insurance for
employees and freelance contractors in the amount of $5 million. The Company is
investigating directors and officers insurance and key man life insurance on
Xxxxxxx X'Xxxxxxx and Xxxxx Xxxxxx.
Section 3.23
------------
Xxxxxxx X'Xxxxxxx'x employment with the Company is subject to an employment
agreement.
5
EXHIBIT D
---------
Form of Offer Letter
DATE
Name
ADDRESS
Dear (NAME),
I am pleased to offer you a position with The Well as its [Executive
Director], reporting to (SUPERVISOR). If you decide to join us, here's a
summary of the compensation package:
. You will receive a monthly salary of (MONTHLY SALARY), less applicable
withholding, which will be paid semi-monthly in accordance with the The
Well's normal payroll procedures.
. You will be granted (NUMBER) employee incentive options, subject to
approval from the company's Board of Directors. The options are in
accordance with Salon Internet, Inc.'s stock option plan (4 year
vesting).
As an employee of The Well, you are also eligible to receive certain employee
benefits including those on the enclosed list below:
. Health Care Insurance
. Dental Insurance with Phoenix Home Life
. Paid vacation and the standard Salon Paid Holiday program
. 401K Investment Plan
. Disability coverage through UNUM
Further details of the plan are available from Xxxxx XxXxxx (000-000-0000 or
xxxxx@xxxxxxxxxxxxx.xxx)
If you choose to accept this offer, your employment with The Well will be
voluntarily entered into and will be for no specified period. As a result, you
will be free to resign at any time, for any reason or for no reason, as you deem
appropriate. The Well will have a similar right and may conclude its employment
relationship with you at any time, with or without cause.
For purposes of federal immigration law, you will be required to provide to The
Well documentary evidence of your identity and eligibility for employment in the
United States. Such documentation must be provided to us within three (3)
business days of your date of hire, or our employment relationship with you may
be terminated.
In the event of any dispute or claim relating to or arising out of our
employment relationship, this agreement, or the termination of our employment
relationship (including, but not limited to, any claims of wrongful termination
or age, sex, disability, race or other discrimination), you and The Well agree
that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association in San
Jose, California. However, we agree that this arbitration provision shall not
apply to any disputes or claims relating to or arising out of the misuse or
misappropriation of Salon's trade secrets or proprietary information.
To indicate your acceptance of The Well's offer, please sign and date this
letter in the space provided below and return it to me. A duplicate original is
enclosed for your records. You will be required to sign a Employee Inventions
and Proprietary Rights Assignment Agreement as a condition of your employment.
This letter, along with any agreements relating to proprietary rights between
you and The Well, set forth the terms of your employment with The Well's and
supersede any prior representations or agreements, whether written or oral. This
letter may not be modified or amended except by a written agreement, signed by
The Well and by you.
We look forward to working with you at The Well. Welcome aboard!
Sincerely,
The Well AGREED TO AND ACCEPTED
_____________________________ ____________________________
XXXXXXX X'XXXXXXX NAME
EXHIBIT E
---------
Form of Sellers' Legal Opinion
EXHIBIT F
---------
Form of Buyer's Legal Opinion
1. The Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of California. The Buyer has all requisite
corporate power to own and operate its properties and assets, and to carry on
its business as presently conducted.
2. The Buyer has all requisite corporate power to enter into the Agreement,
the Escrow Agreement and the Rights Agreement (collectively, the "Agreements"),
to sell the Shares and to carry out and perform its obligations under the terms
thereof. The Agreements have been duly authorized by all necessary corporate
action on the part of the Buyer and have been duly executed and delivered by the
Buyer. The Agreements are valid and binding obligations of the Buyer,
enforceable in accordance with their terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting the enforcement of creditors' rights.
3. The authorized capital stock of the Buyer consists of 25,000,000 shares of
Common Stock (the "Common Stock") and 20,435,000 shares of Preferred Stock, of
which 5,017,500 have been designated Series A Preferred Stock; 5,017,500 have
been designated Series A-1 Preferred Stock; 2,200,000 have been designated
Series B Preferred Stock; 2,200,000 have been designated Series B-1 Preferred
Stock; 3,000,000 have been designated Series C Preferred Stock and 3,000,000
have been designated Series C-1 Preferred Stock. Prior to the issuance of the
Shares at the Closing there were issued and outstanding 791,667 shares of Common
Stock, 5,000,000 shares of Series A Preferred Stock, 1,898,733 shares of Series
B Preferred Stock and 1,330,798 shares of Series C Preferred Stock. All such
issued and outstanding shares have been duly authorized and are validly issued,
fully paid and nonassessable. The rights, preferences and privileges of, and
restrictions on, the Shares are as stated in the Buyer's Articles of
Incorporation, as amended (the "Articles"). To our knowledge, except as
described or disclosed in the Agreements or in Exhibits thereto, there are no
outstanding rights, options, warrants, conversion rights or agreements for the
purchase or acquisition from the Buyer of any shares of its capital stock or any
securities convertible into or ultimately exchangeable or exercisable for any
shares of its capital stock.
4. The Shares, when issued in compliance with the provisions of the
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. Except as described or disclosed in the Agreements or in the
Articles, the issuance of the Shares is not subject to any preemptive rights or,
to our knowledge, rights of first refusal created by the Buyer. The shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and are not subject to any preemptive rights or, to our knowledge,
rights of first refusal created by the Buyer in its bylaws or in any material
agreement and, upon conversion of the Shares in accordance with the Articles and
cancellation of the Shares, will be duly authorized, validly issued, fully paid
and nonassessable.
5. Neither the execution, delivery or performance of the Agreement, nor the
issuance of the Shares, nor the issuance of the Common Stock issuable upon
conversion of the Shares, will violate any term of the Articles or the Buyer's
bylaws; and, to our knowledge, such transactions will not, in any material
respect, violate or conflict with or constitute a default under the provisions
of any material agreement, judgment, decree or order binding upon the Buyer.
6. To our knowledge, except as described or disclosed in the Agreement or in
Exhibits thereto, no action, suit, proceeding or investigation is pending or
threatened against the Buyer or its properties, which might have a material
adverse effect on the Buyer's financial condition.
7. All consents, approvals and authorizations of and filings with any federal
or California governmental authority required on the part of the Buyer, if any,
in connection with the valid execution and delivery of the Agreement or the
consummation of the transactions contemplated thereby have been obtained or
made, except, if required, filings to be made under the Securities Act of 1933,
as amended, and the California Corporate Securities Law of 1968, as amended,
after the sale of the Shares.
8. Subject to the accuracy of your representations and warranties set forth
in Section 2 of the Agreement, the offer and sale of the Shares in conformity
with the terms of the Agreement are in compliance with or exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended.
