Exhibit 4.1
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
GO2NET, INC.
3I ACQUISITION CORP.
XXXXXXXXX.XXX CORPORATION
AND
THE PRINCIPAL SHAREHOLDERS OF
XXXXXXXXX.XXX CORPORATION
DATED
JULY 1, 1999
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TABLE OF CONTENTS
ARTICLE I
THE MERGER........................................................................................................1
1.1 The Merger......................................................................................1
1.2 Effective Time..................................................................................2
1.3 Effect of the Merger............................................................................2
1.4 Certificate of Incorporation; By-Laws...........................................................2
1.5 Directors and Officers..........................................................................2
1.6 Additional Actions..............................................................................2
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES...............................................................................3
2.1 Merger Consideration............................................................................3
2.2 Conversion of Shares............................................................................3
2.3 Exchange of Certificates........................................................................7
2.4 No Fractional Securities........................................................................8
2.5 Stock Transfer Books............................................................................8
2.6 No Further Ownership Rights in Company Stock....................................................8
2.7 Adjustment Event................................................................................8
2.8 Escrow..........................................................................................8
2.9 Tax Consequences................................................................................9
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY.........................................................................................9
3.1 Corporate Organization..........................................................................9
3.2 Authorization..................................................................................10
3.3 Consents and Approvals; No Violations..........................................................10
3.4 Capitalization.................................................................................11
3.5 Financial Statements; Business Information.....................................................11
3.6 Absence of Undisclosed Liabilities.............................................................12
3.7 Absence of Certain Changes or Events...........................................................12
3.8 Legal Proceedings, etc.........................................................................13
3.9 Taxes..........................................................................................13
3.10 Title to Properties and Related Matters........................................................15
3.11 Intellectual Property; Proprietary Rights; Employee Restrictions...............................16
3.12 Contracts......................................................................................18
3.13 Employees; Employee Benefits...................................................................20
3.14 Compliance with Applicable Law.................................................................22
3.15 Ability to Conduct the Business................................................................22
3.16 Major Customers................................................................................22
3.17 Consultants, Sales Representatives and Other Agents............................................22
3.18 Accounts Receivable............................................................................23
3.19 Insurance......................................................................................23
3.20 Bank Accounts; Powers of Attorney..............................................................23
3.21 Minute Books, etc..............................................................................23
3.22 Related Person Indebtedness and Contracts......................................................24
3.23 Brokers; Payments..............................................................................24
3.24 Company Action.................................................................................24
3.25 Year 2000 Matters..............................................................................24
3.26 Disclosure.....................................................................................24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDERS....................................................................................25
4.1 Authorization; etc.............................................................................25
4.2 Parent Common Stock............................................................................26
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION CORP...............................................................................28
5.1 Corporate Organization.........................................................................28
5.2 Authorization..................................................................................29
5.3 Consents and Approvals; No Violations..........................................................29
5.4 Capitalization.................................................................................30
5.5 SEC Reports and Financial Statements...........................................................30
5.6 Litigation.....................................................................................31
5.7 Compliance with Applicable Law.................................................................31
5.8 Brokers; Payments..............................................................................31
5.9 Disclosure.....................................................................................32
5.10 Validity of Shares.............................................................................32
5.11 No Material Adverse Change.....................................................................32
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME..................................................................32
6.1 Conduct of Business of the Company.............................................................32
6.2 Conduct of Business of Acquisition Corp........................................................34
6.3 Conduct of Parent and Acquisition Corp.........................................................34
6.4 Other Negotiations.............................................................................34
ARTICLE VII
ADDITIONAL AGREEMENTS............................................................................................34
7.1 Access to Properties and Records...............................................................34
7.2 Transfer of Shares.............................................................................35
7.3 Reasonable Efforts; etc........................................................................35
7.4 Material Events................................................................................35
7.5 Fees and Expenses..............................................................................35
7.6 Nasdaq National Market Listing.................................................................35
7.7 Tax Treatment..................................................................................35
7.8 Indemnification................................................................................36
7.9 Exchange Act Reports...........................................................................36
7.10 Supplements to Disclosure Schedules............................................................36
7.11 Legends........................................................................................37
ARTICLE VIII
COVENANTS OF CERTAIN PRINCIPAL SHAREHOLDERS......................................................................37
8.1 Non-competition................................................................................37
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF
THE PARENT AND ACQUISITION CORP..................................................................................37
9.1 Representations and Warranties True............................................................37
9.2 Performance....................................................................................38
9.3 Absence of Litigation..........................................................................38
9.4 Consents.......................................................................................38
9.5 Additional Agreements..........................................................................38
9.6 Delivery of Certificates for Cancellation......................................................39
9.7 Appraisal Rights...............................................................................39
9.8 Certificate of Merger..........................................................................39
9.9 Payment of Indebtedness........................................................................39
9.10 Insight Capital Partners III, L.P.............................................................39
9.11 Indemnification Agreements.....................................................................39
9.12 Opinion of Xxxxxxxx & Xxxxxxxx, LLP............................................................39
9.13 Opinion of Fillmore Xxxxxxxxx & Xxxxxxxxx, X.X.................................................39
9.14 Supporting Documents...........................................................................40
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS...........................................................................40
10.1 Representations and Warranties True............................................................40
10.2 Performance....................................................................................40
10.3 Absence of Litigation..........................................................................40
10.4 Consents.......................................................................................41
10.5 Additional Agreements..........................................................................41
10.6 Certificates of Merger.........................................................................41
10.7 Cash and Shares of Parent Common Stock; Option Shares; Escrow Deposit..........................41
10.8 Opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx.........................................................42
10.9 Supporting Documents...........................................................................42
ARTICLE XI
TERMINATION......................................................................................................42
11.1 Termination....................................................................................42
11.2 Effect of Termination..........................................................................43
ARTICLE XII
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES...................................................................................43
12.1 Indemnity Obligations..........................................................................43
12.2 Notification of Claims.........................................................................44
12.3 Duration.......................................................................................45
12.4 Escrow.........................................................................................46
12.5 No Contribution................................................................................47
ARTICLE XIII
REGISTRATION RIGHTS..............................................................................................47
13.1 Registrable Shares.............................................................................47
13.2 Required Registration..........................................................................47
13.3 Effectiveness; Suspension Right................................................................48
13.4 Expenses.......................................................................................48
13.5 Indemnification................................................................................49
13.6 Procedures for Sale of Shares Under Registration Statement.....................................51
13.7 Transferability of Registration Rights.........................................................52
ARTICLE XIV
MISCELLANEOUS PROVISIONS.........................................................................................52
14.1 Amendment......................................................................................52
14.2 Waiver of Compliance...........................................................................52
14.3 Notices........................................................................................52
14.4 Assignment.....................................................................................53
14.5 No Third Party Beneficiaries...................................................................53
14.6 Public Announcements...........................................................................54
14.7 Counterparts...................................................................................54
14.8 Headings.......................................................................................54
14.9 Entire Agreement...............................................................................54
14.10 Governing Law..................................................................................54
EXHIBITS
Exhibit A-1 Articles of Merger (Utah)
Exhibit A-2 Certificate of Merger (Delaware)
Exhibit B Form of Letter of Transmittal
Exhibit C Escrow Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Assignment of Inventions and Confidentiality Agreement
Exhibit F Form of Opinions
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of July 1, 1999 by and among
Go2Net, Inc., a corporation organized under the laws of the State of Delaware
(the "Parent"), 3I Acquisition Corp., a corporation organized under the laws of
the State of Delaware and a wholly-owned subsidiary of the Parent ("Acquisition
Corp."), Xxxxxxxxx.Xxx Corporation, a corporation organized under the laws of
the State of Utah (the "Company"), and those shareholders (the "Principal
Shareholders") identified on the signature pages hereto.
WHEREAS, the respective Boards of Directors of the Parent, Acquisition
Corp. and the Company have approved the merger of the Company with and into
Acquisition Corp. (the "Merger"), pursuant to which Acquisition Corp. will be
the surviving corporation and the stockholders of the Company immediately prior
to such merger will be entitled to receive the consideration provided for in
this Agreement, all upon the terms and subject to the conditions set forth
herein;
WHEREAS, it is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to be
legally bound hereby, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. (a) At the Effective Time (as defined in Section 1.2),
and subject to and upon the terms and conditions of this Agreement, the Utah
Revised Business Corporation Act (the "UBCA") and the Delaware General
Corporation Law (the "DGCL"), the Company shall be merged with and into
Acquisition Corp., the separate corporate existence of the Company shall cease,
and Acquisition Corp. shall continue as the surviving corporation. Acquisition
Corp. as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
(b) Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Article XI and subject to the satisfaction or waiver of the conditions set forth
in Articles IX and X, the consummation of the Merger (the "Closing") will take
place as promptly as practicable (and in any event within two (2) business days)
after satisfaction or waiver of the conditions set forth in Articles IX and X,
at the offices of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A Professional Corporation, 000
Xxxxxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, unless another date, time or place is
agreed to in writing by the Company and the Parent. The date of such Closing is
referred to herein as the "Closing Date."
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1.2 Effective Time. As promptly as practicable after the satisfaction
or waiver of the conditions set forth in Articles IX and X, the parties hereto
shall cause the Merger to be consummated by filing agreements or certificates of
merger as contemplated by the UBCA and the DGCL in the forms of Exhibit A-1 and
A-2 hereto (collectively, the "Certificates of Merger"), together with any
required related certificates, with the Secretary of State of the State of Utah
and the Secretary of State of the State of Delaware, in such form as required
by, and executed in accordance with the relevant provisions of, the UBCA and the
DGCL (the time of such filings being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificates of Merger and
the applicable provisions of the UBCA and the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of the Company and
Acquisition Corp. shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Acquisition Corp. shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; By-Laws.
(a) Certificate of Incorporation. Unless otherwise determined
by the Parent prior to the Effective Time, at the Effective Time, the
Certificate of Incorporation of Acquisition Corp., as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended in accordance with the UBCA and
such Certificate of Incorporation, except that the name of Acquisition Corp.
shall be changed to "Xxxxxxxxx.Xxx Corp."
(b) By-Laws. Unless otherwise determined by the Parent prior
to the Effective Time, the By-Laws of Acquisition Corp., as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with the UBCA, the Articles
of Incorporation of the Surviving Corporation and such By-Laws.
1.5 Directors and Officers. The directors of Acquisition Corp.
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other acts or things are necessary or
desirable to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in or to any of the rights, properties
or assets of Acquisition Corp. or the Company acquired or to be acquired by
reason of,
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or as a result of, the Merger, or otherwise to carry out the purposes of this
Agreement, the Surviving Corporation and its proper officers and directors shall
be authorized to execute and deliver, in the name and on behalf of Acquisition
Corp. or the Company, all such deeds, bills of sale, assignments and assurances
and to do, in the name and on behalf of Acquisition Corp. or the Company, all
such other acts and things necessary or desirable to vest, perfect or confirm
any and all right, title or interest in, to or under such rights, properties or
assets in the Surviving Corporation or otherwise to carry out the purposes of
this Agreement.
ARTICLE II
CONSIDERATION; CONVERSION OF SHARES
2.1 Merger Consideration. Except as set forth in Section 2.2(e) hereof,
the consideration payable in the Merger to (i) holders of shares of the
Company's Common Stock, $.001 par value ("Company Common Stock"), shall consist
of shares of (a) the Common Stock, $.01 par value per share, of the Parent
("Parent Common Stock"), and (b) cash and (ii) holders of Stock Options (as
hereinafter defined) shall consist of options to purchase shares of Parent
Common Stock, such shares of Parent Common Stock, options and cash to be
issuable at the Closing and from time to time thereafter pursuant to Section
2.2(a)(ii) in accordance with the terms of this Agreement. Such shares of Parent
Common Stock issuable, options to purchase shares of Parent Common Stock and
cash payable at the Closing as provided herein shall in the aggregate be
referred to as the "Initial Merger Consideration".
2.2 Conversion of Shares.
(a) Conversion of Shares.
(i) Each share of Company Common Stock issued and outstanding as
of the Effective Time (other than shares owned by holders who have properly
exercised their rights of appraisal within the meaning of Part 13 of the UBCA
("Dissenting Shares")) shall, by virtue of the Merger and without any action on
the part of the holder thereof, automatically be converted into (A) an amount in
cash equal to the quotient obtained by dividing (x) $13,500,000 by (y) the total
number of Fully Diluted Shares (as herein defined) (excluding all stock options)
as of the Effective Time and (B) that number of shares of Parent Common Stock as
shall be obtained by dividing (i) the difference between (1) the number of
shares obtained by dividing $77,000,000 by the Closing Market Price (as
hereinafter defined) and (2) the Option Shares (as hereinafter defined) by (ii)
the total number of Fully Diluted Shares (as herein defined) (excluding all
stock options). Such resulting quotients are collectively referred to herein as
the "Exchange Ratio." "Fully Diluted Shares" shall be equal to the total number
of outstanding shares of Company Common Stock, immediately prior to the Closing
Date, calculated on a fully diluted, fully converted basis as though all
convertible debt and equity securities and options (whether vested or unvested)
and warrants had been converted or exercised. The aggregate number of shares of
Parent Common Stock issued pursuant to this Section 2.2(a) shall be referred
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to in this Agreement as the "Merger Shares." For purposes of this Agreement, the
term "Closing Market Price" shall mean the average of the last quoted sale price
for shares of Parent Common Stock on The Nasdaq National Market for each of the
five trading days ending immediately prior to the Effective Time. Schedule 2.2
attached hereto sets forth, with respect to the Initial Merger Consideration,
(i) the Closing Market Price, (ii) the Exchange Ratio, (iii) the aggregate
number of Merger Shares, (iv) the aggregate number of Option Shares (as defined
below), and (v) the aggregate cash payment to be paid in connection with the
Merger, with the allocation among the shareholders and option holders.
(ii) The Initial Merger Consideration will be increased as more
specifically described in Schedule 2.2 in the event that during the respective
six month period described in Schedule 2.2 the Surviving Corporation achieves
the specified amounts of revenues and earnings before taxes for such period. The
revenues and earnings before taxes will be computed by Parent, in accordance
with generally accepted accounting principles applied on a basis consistent with
the Company's past practices, within thirty (30) days of the end of each six
month period and, to the extent earned, such additional consideration shall be
paid, at the Parent's option, in shares of Parent Common Stock (or the stock of
any entity, or parent of such entity, that acquires all or substantially all of
the assets or outstanding securities of Parent or with or into which Parent
merges, and that issues shares of its equity securities in connection with such
acquisition or merger (an "Acquiror")) (valued based on the average of the last
quoted sale price for such Common Stock for the five days immediately prior to
the thirtieth day after the end of such six month period) (the "Additional
Shares"), cash or any combination thereof. Providing no objections are made
pursuant to this Section 2.2, such additional purchase price shall be paid on
the earlier of the (i) expiration of the objection period provided below and
(ii) receipt of written notice from the Shareholder Representatives that no
objection will be made, otherwise such payment shall be made upon resolution of
any such objection. The additional purchase price will be allocated in
accordance with Schedule 2.2.
At such time as the Surviving Corporation's revenues and earnings
before taxes are determined for each six-month period described above in this
Section 2.2(a)(ii), Parent shall provide the Shareholder Representatives with a
statement setting forth the calculation of such revenues and earnings for such
period. In the event that the Shareholder Representatives do not object to the
determination by Parent of such revenues and earnings by written notice of
objection (the "Notice of Objection") delivered to Parent within thirty (30)
days after the Shareholder Representatives' receipt of such determination, such
Notice of Objection to describe in reasonable detail the Shareholder
Representatives' proposed adjustments to the proposed revenues and earnings
determination, the proposed revenues and earnings for such period shall be
deemed final and binding.
If the Shareholder Representatives do deliver a Notice of Objection to
Parent, then the dispute shall be resolved as follows:
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(W) The Shareholder Representatives and Parent shall promptly
endeavor to agree upon the calculation of revenues and earnings before
taxes for such period. In the event that a written agreement
determining the amount of revenues and earnings has not been reached
within ten (10) days after the date of receipt by Parent from the
Shareholder Representatives of the Notice of Objection thereto, then
Parent's determination of revenues and earnings and the Notice of
Objection shall be submitted to a nationally recognized firm of
certified public accountants mutually acceptable to Parent and the
Shareholder Representatives (the "Arbitrator").
(X) Within thirty (30) days of the submission of any dispute
concerning the determination of revenues and earnings to the
Arbitrator, the Arbitrator shall render a decision in accordance with
this Section 2.2(a)(ii) along with a statement of reasons therefor. The
decision of the Arbitrator shall be final and binding upon the parties
hereto.
(Y) The fees and expenses of the Arbitrator for any
determination under this Section 2.2(a)(ii) shall be borne equally by
Parent, on the one hand, and all the Shareholders and optionholders pro
rata, on the other hand, such fees attributable to the Shareholders and
optionholders to be deducted from any amounts to be paid to the
Shareholders and optionholders pursuant to this Section 2.2(a)(ii).
(Z) In determining revenues and earnings, Parent shall provide
the Shareholder Representatives and their representatives reasonable
access to the books and records of the Surviving Corporation and
Parent, and Parent shall (and shall cause the Surviving Corporation to)
cooperate with the Shareholder Representatives and their
representatives in their analysis and determination of revenues and
earnings. The Shareholder Representatives shall also be entitled to
have reasonable access to the work papers of any accountants retained
by Parent and the Surviving Corporation in connection with the
determination of revenues and earnings and shall be entitled to discuss
such working papers with Parent, the Surviving Corporation and those
persons responsible for the preparation thereof.
Parent shall, and shall cause the Surviving Corporation to, maintain
the Surviving Corporation as a separate entity with separate internal financial
reporting until June 30, 2001. The Surviving Corporation (or any of its
successors) shall not (i) consolidate with or merge into any other entity unless
it is the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfer or convey all or substantially all of its properties and
assets to any other person or entity, unless and in each such case, the
surviving corporation or entity or the person or entity acquiring such assets
agrees in writing to be bound by this Section 2.2(a)(ii) and any other terms and
conditions of this Agreement related hereto.
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(b) Treasury Shares. Each share of Company Common Stock held
in the Company's treasury as of the Effective Time, if any, shall, by virtue of
the Merger, be canceled without payment of any consideration therefor.
(c) Stock Options. At the Effective Time, each outstanding
option to purchase shares of Company Common Stock, whether vested or unvested
(each a "Stock Option"), shall be deemed assumed by the Parent and deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Stock Option prior to the Effective Time (including terms
and conditions relating to such Stock Option's term, exercisability, vesting
schedule and status as an "incentive stock option" under Section 422 of the
Code), the number (rounded down to the nearest whole number) of shares of Parent
Common Stock equal to the product obtained by multiplying the aggregate number
of shares of Company Common Stock subject to such Stock Option by the number of
shares of Parent Common Stock as shall be obtained by dividing (x) the quotient
obtained by dividing $90,500,000 by the Closing Market Price by (y) the number
of Fully Diluted Shares (including Stock Options) as of the Effective Time. The
exercise price for each share of Parent Common Stock issuable upon exercise of
such Stock Options shall be the price per share equal to (i) the aggregate
exercise price for Company Common Stock otherwise purchasable pursuant to such
Stock Option divided by (ii) the number of shares of Parent Common Stock deemed
purchasable pursuant to such Stock Option (the exercise price per share, so
determined, being rounded up to the nearest full cent). No payment shall be made
for fractional shares. The aggregate number of shares of Parent Common Stock
issuable upon the exercise of Stock Options assumed by Parent pursuant to this
Section 2.2(c) shall be referred to in this Agreement as the "Option Shares."
Any adjustment to an incentive stock option made under this Section 2.2(c) shall
comply with Section 424(a) of the Code.
(d) Acquisition Corp. Shares. Each share of common stock, par
value $0.01 per share, of Acquisition Corp. issued and outstanding at the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, automatically be converted into one fully paid and
nonassessable share of common stock of the Surviving Corporation, as such shares
of common stock are constituted immediately following the Effective Time.
(e) Dissenting Shares. Any Dissenting Shares shall be
converted into the right to receive from the Parent such consideration as may be
determined to be due with respect to each such Dissenting Share pursuant to Part
13 of the UBCA; provided, however, that Dissenting Shares held by a holder who
shall, after the Effective Time of the Merger, withdraw his demand for appraisal
or lose his right of appraisal as provided in Part 13 of the UBCA, shall be
deemed to be converted, as of the Effective Time of the Merger, into the right
to receive such holder's pro rata portion of the Initial Merger Consideration in
accordance with the procedures specified in Section 2.3. The Company shall give
Parent (i) prompt notice of any written demands for appraisal, withdrawals of
demands for appraisal and any other instruments served pursuant to Part 13 of
the UBCA received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under Part 13
of the UBCA.
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The Company will not voluntarily make any payment with respect to any demands
for appraisal and will not, except with the prior written consent of Parent,
settle or offer to settle any such demands.
2.3 Exchange of Certificates.
(a) At the Closing, certificates (the "Certificates")
representing all of the issued and outstanding shares of Company Common Stock
shall be surrendered for cancellation and termination in the Merger. At the
Effective Time, each Certificate shall be canceled in exchange for the amount in
cash and a certificate representing the number of whole shares of Parent Common
Stock (other than the Escrow Shares, as defined below) into which the Company
Common Stock evidenced by the Certificates so surrendered shall have been
converted pursuant to Section 2.2(a) of this Agreement. Such certificates
representing shares of Parent Common Stock will be delivered to the Shareholders
within ten (10) business days after the Closing. The cash component of the
Initial Merger Consideration shall, at Closing, be wired to an account
designated by the Shareholder Representatives (as such term is defined in the
Escrow Agreement) for further distribution by the Shareholder Representatives
pro rata to the Shareholders (as herein defined) in the amounts set forth on
Schedule 2.2 attached hereto, less any expenses allocated to the Shareholders
pursuant to Section 7.5. The surrender of Certificates shall be accompanied by
duly completed and executed Letters of Transmittal in the form of Exhibit B
attached hereto. Until surrendered, each outstanding Certificate which prior to
the Effective Time represented shares of Company Common Stock shall be deemed
for all corporate purposes to evidence ownership of (A) the number of whole
shares of Parent Common Stock into which the shares of Company Common Stock have
been converted and (B) the amount of cash issuable upon conversion of such
shares of Company Common Stock, but shall, subject to applicable appraisal
rights under the UBCA and Section 2.2(e), have no other rights. Subject to
appraisal rights under the UBCA and Section 2.2(e), from and after the Effective
Time, the holders of shares of Company Common Stock shall cease to have any
rights in respect of such shares and their rights shall be solely in respect of
the amount of cash and Parent Common Stock into which such shares of Company
Common Stock have been converted.
(b) If any cash is to be paid and any shares of Parent Common
Stock are to be issued in the name of a person other than the person in whose
name the Certificate(s) surrendered in exchange therefor is registered, it shall
be a condition to the issuance of such shares that (i) the Certificate(s) so
surrendered shall be transferable, and shall be properly assigned, endorsed or
accompanied by appropriate stock powers, (ii) such transfer shall otherwise be
proper and (iii) the person requesting such transfer shall pay Parent, or its
exchange agent, any transfer or other taxes payable by reason of the foregoing
or establish to the reasonable satisfaction of Parent that such taxes have been
paid or are not required to be paid. Notwithstanding the foregoing, neither
Parent nor the Company shall be liable to a holder of shares of Company Common
Stock for cash and shares of Parent issuable to such holder pursuant to the
provisions of Section 2.2(a) of this Agreement that are delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
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(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, Parent shall issue in
exchange for such lost, stolen or destroyed Certificate the cash and shares of
Parent Common Stock issuable in exchange therefor pursuant to the provisions of
Section 2.2(a) of this Agreement. The Board of Directors of Parent may in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to provide to Parent an
indemnity agreement against any claim that may be made against Parent with
respect to the Certificate alleged to have been lost, stolen or destroyed.
2.4 No Fractional Securities. No fractional shares of Parent Common
Stock shall be issuable by the Parent upon the conversion of shares of Company
Common Stock in the Merger pursuant to Section 2.2(a) hereof. In lieu of any
such fractional shares, each holder of Company Common Stock who would otherwise
have been entitled to receive a fraction of a share of Parent Common Stock shall
be entitled to receive instead an amount in cash equal to such fraction
multiplied by the Closing Market Price.
2.5 Stock Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed, and there shall be no further registration
of transfers of Company Common Stock thereafter on the records of the Company.
2.6 No Further Ownership Rights in Company Stock. The amount of cash
and the Merger Shares delivered upon the surrender for exchange of shares of
Company Common Stock in accordance with the terms hereof and the payment of any
additional amounts pursuant to Section 2.2(a)(ii) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares, and there
shall be no further registration of transfers on the records of the Surviving
Corporation of shares of Company Common Stock which were outstanding immediately
prior to the Effective Time. If, after the Effective Time, certificates for
shares of Company Common Stock are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article II.
2.7 Adjustment Event. If, between the date hereof and the Effective
Time or during any period of time in which the value of Parent Common Stock is
required to be determined for payments made pursuant to Section 2.2(a), the
issued and outstanding shares of Parent Common Stock shall have been combined,
split, reclassified or otherwise changed into a different number of shares or a
different class of shares, an appropriate adjustment to the Exchange Ratio and
the calculations made pursuant to Sections 2.2(a)(ii) and 2.2(c) shall be made
to fully reflect such change in such manner as is reasonably and mutually
acceptable to the Parent and the Shareholder Representatives.
2.8 Escrow. At the Effective Time, Parent will deposit in escrow on
behalf of the holders of Company Common Stock certificates representing Merger
Shares with a value based upon the Closing Market Price equal to ten percent
(10%) of the Initial Merger Consideration (which shall reduce the Merger Shares
issuable to such holders of Company Common Stock
8
under Section 2.2(a)) allocated among the holders of Company Common Stock based
on the number of shares of Company Common Stock held at the Effective Time
(collectively, the "Escrow Deposit"). The Escrow Deposit shall be held by and
registered in the name of Continental Stock Transfer & Trust Co., as Escrow
Agent, as security for the indemnification obligations under Article XII
pursuant to the provisions of an Escrow Agreement (the "Escrow Agreement") in
the form of Exhibit C attached hereto.
2.9 Tax Consequences. For Federal income tax purposes, the parties
intend that Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" within the meaning of Section 368(a) of the Code. Accordingly,
both prior to and after the Closing, each of the parties agrees that all of its
books and records shall be maintained and all federal, state and local income
tax returns and schedules thereto shall be filed in a manner consistent with the
Merger being qualified as a forward triangular merger under Section 368(a)(2)(D)
of the Code. Each party shall provide to each other such information, reports,
returns or schedules as may be reasonably required to assist such party in
accounting for and reporting the Merger being so qualified.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represent and warrant to the Parent and Acquisition Corp.
as set forth below, subject to the exceptions set forth in the disclosure
schedules attached hereto (the "Disclosure Schedules"), the section numbers and
letters of which correspond to the section and subsection numbers and letters of
this Agreement. Notwithstanding anything to the contrary contained in this
Agreement, any information disclosed in one section of the Disclosure Schedules
shall, should the existence of the information be relevant to any other section
of the Disclosure Schedules, be deemed to be disclosed in all sections of the
Disclosure Schedules but only to the extent that the relevance of such
information to such other section is reasonably apparent in the section of the
Disclosure Schedules on which such information is disclosed. The disclosure of
any information shall not be deemed to constitute an acknowledgment that such
information is required to be disclosed in connection with the representations
and warranties made by the Company in this Agreement or that it is material, nor
shall such information be deemed to establish a standard of materiality.
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Utah. The Company has no Subsidiaries (as that term is hereinafter defined). The
Company has all requisite corporate power and authority to own, operate and
lease the properties and assets it now owns, operates and leases and to carry on
its business as presently conducted. The Company is duly qualified to transact
business as a foreign corporation and is in good standing in the jurisdictions
set forth in Schedule 3.1, which are the only jurisdictions where such
qualification is required by reason of
9
the nature of the properties and assets currently owned, operated or leased by
it or the business currently conducted by it, except for such jurisdictions
where the failure to be so qualified would not have a Company Material Adverse
Effect (as defined below). The Company has previously delivered to the Parent
complete and correct copies of its Articles of Incorporation (certified by the
secretary of state of the jurisdiction in which it was formed as of a recent
date) and its ByLaws (certified by the Secretary of the Company as of a recent
date). Except as set forth in Schedule 3.1, neither the Company's Articles of
Incorporation nor its By-Laws have been amended since the date of certification
thereof, nor has any action been taken for the purpose of effecting any
amendment of such instrument. The term "Company Material Adverse Effect" means,
for purposes of this Agreement, any change, event or effect that is, or that
would be, materially adverse to the business, operations, assets, liabilities,
financial condition or results of operations of the Company.
3.2 Authorization. The Company has full corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly approved by the Board of
Directors and shareholders of the Company, and no other corporate action on the
part of the Company is necessary to approve and authorize the execution and
delivery of this Agreement or (subject to the filing of the Certificates of
Merger pursuant to the UBCA and the DGCL) the consummation of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding agreement of the Company,
enforceable in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in law or in equity.
3.3 Consents and Approvals; No Violations. Subject to (a) the filing of
the Certificates of Merger with the Secretary of State of the State of Utah and
the Secretary of State of the State of Delaware and (b) compliance with
applicable federal and state securities laws, the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby will not:
(i) violate or conflict with any provision of the Articles of Incorporation or
By-Laws of the Company, (ii) breach, violate or constitute an event of default
(or an event which with the lapse of time or the giving of notice or both would
constitute an event of default) under, give rise to any right of termination,
cancellation, modification or acceleration under, or require any consent or the
giving of any notice under, any note, bond, indenture, mortgage, security
agreement, lease, license, franchise, permit, agreement or other instrument or
obligation to which the Company is a party, or by which the Company or any of
its properties or assets may be bound, or result in the creation of any lien,
claim or encumbrance or other right of any third party of any kind whatsoever
upon the properties or assets of the Company pursuant to the terms of any such
instrument or obligation, other than any breach, violation, default,
termination, cancellation, modification or acceleration which would not have a
Company Material Adverse Effect, (iii) violate or conflict with any law,
statute, ordinance, code,
10
rule, regulation, judgment, order, writ, injunction, decree or other instrument
of any Federal, state, local or foreign court or governmental or regulatory
body, agency or authority applicable to the Company or by which any of its
properties or assets may be bound except for such violations and conflicts which
would not have a Company Material Adverse Effect or (iv) require, on the part of
the Company, any filing or registration with, or permit, license, exemption,
consent, authorization or approval of, or the giving of any notice to, any
governmental or regulatory body, agency or authority, other than any filing,
registration, permit, license, exemption, consent, authorization, approval or
notice which if not obtained would not have a Company Material Adverse Effect.
3.4 Capitalization.
(a) The authorized capital stock of the Company consists of
100,000,000 shares of Company Common Stock, of which 859,295 shares are issued.
Schedule 3.4(a) sets forth a complete and correct list of the record and
beneficial ownership of the issued and outstanding shares of Company Common
Stock. All of the issued and outstanding shares of Company Common Stock were
duly authorized and validly issued and are fully paid and nonassessable, and
were not issued in violation of any preemptive rights or Federal or state
securities laws. Except as disclosed in Schedule 3.4(a) hereto, the Company has
never repurchased or redeemed any shares of its capital stock, and there are no
amounts owed or which may be owed to any person by the Company as a result of
any repurchase or redemption of shares of its capital stock. Except as disclosed
in Schedule 3.4(a) hereto, there are no agreements, arrangements or
understandings to which the Company is a party or by which it is bound to redeem
or repurchase any shares of its capital stock. Except as set forth in Schedule
3.4(a), there are no outstanding options, warrants or other rights to purchase,
or any securities convertible into or exchangeable for, shares of the capital
stock of the Company, and there are no agreements, arrangements or
understandings to which the Company is a party or by which it is bound pursuant
to which the Company is or may be required to issue additional shares of its
capital stock.
(b) The Company does not own, directly or indirectly, any
equity securities, or options, warrants or other rights to acquire equity
securities, or securities convertible into or exchangeable for equity
securities, of any other corporation, or any partnership interest in any general
or limited partnership or unincorporated joint venture (a "Subsidiary").
3.5 Financial Statements; Business Information. (a) Attached hereto as
Schedule 3.5(a) are (i) the unaudited balance sheets of the Company as of
December 31, 1998 and the statements of income for the fiscal period then ended,
and (ii) the unaudited balance sheets of the Company as of May 31, 1999 and the
statements of income of the Company for the five months then ended (hereinafter
collectively referred to as the "Financial Statements"). The Financial
Statements (i) have been prepared from the books and records of the Company,
(ii) have been prepared in accordance with generally accepted accounting
principles consistently applied during the periods covered thereby except where
non-compliance would not be material
11
in amount or effect, and (iii) present fairly in all material respects the
financial condition and results of operations of the Company as at the dates,
and for the periods, stated therein, except that the interim Financial
Statements are subject to normal year-end adjustments which will not be
individually or in the aggregate material in amount or effect and the Financial
Statements do not include footnotes.
(b) Schedule 3.5(b) attached hereto sets forth the aggregate
monthly transaction value processed by the Company for the period commencing on
January 1, 1999 and ending on May 31, 1999 separately for each credit card
processing transaction and automated clearing house transaction consummated
during such period and the monthly number of transactions processed during such
five month period.
3.6 Absence of Undisclosed Liabilities. Except (i) as set forth on
Schedule 3.6, (ii) as set forth or reserved against in the balance sheet of the
Company dated as of May 31, 1999, included in the Financial Statements (the
"Balance Sheet") and (iii) for obligations and liabilities incurred since May
31, 1999 in the ordinary course of business, which do not individually or in the
aggregate exceed $25,000, the Company does not have any material liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
of the type required to be reflected or disclosed on a balance sheet or the
notes thereto as required according to generally accepted accounting principles.
3.7 Absence of Certain Changes or Events. Except as set forth in
Schedule 3.7, since May 31, 1999, the Company has carried on its business in all
material respects in the ordinary course and consistent with past practice.
Except as set forth on Schedule 3.7 hereto, since May 31, 1999, the Company has
not: (i) incurred any material obligation or liability (whether absolute,
accrued, contingent or otherwise) except in the ordinary course of business and
consistent with past practice; (ii) experienced any Company Material Adverse
Effect; (iii) made any change in accounting principal or practice or in its
method of applying any such principal or practice, (iv) suffered any material
damage, destruction or loss, whether or not covered by insurance, affecting its
properties, assets or business; (v) mortgaged, pledged or subjected to any lien,
charge or other encumbrance, or granted to third parties any rights in, any of
its assets, tangible or intangible; (vi) sold or transferred any of its assets,
except in the ordinary course of business and consistent with past practice, or
canceled or compromised any debts or waived any claims or rights of a material
nature; (vii) issued any additional shares of capital stock or any rights,
options or warrants to purchase, or securities convertible into or exchangeable
for, shares of its capital stock; (viii) declared or paid any dividends on or
made any distributions (however characterized) in respect of shares of its
capital stock; (ix) repurchased or redeemed any shares of its capital stock; (x)
granted any general or specific increase in the compensation payable or to
become payable to any of its Employees (as that term is hereinafter defined) or
any bonus or service award or other like benefit, or instituted, increased,
augmented or improved any Benefit Plan (as that term is hereinafter defined); or
(xi) entered into any agreement to do any of the foregoing.
12
3.8 Legal Proceedings, etc. Except as set forth in Schedule 3.8, there
are no suits, actions, claims, proceedings (including, without limitation,
arbitral or administrative proceedings) or investigations pending or, to the
best knowledge of the Company (which, for purposes of this Agreement shall mean
the actual knowledge of the Principal Shareholders and Chief Financial Officer
of the Company), threatened against the Company or its properties, assets or
business or, to the best knowledge of the Company, pending or threatened against
any of the officers, directors, employees, agents or consultants of the Company
in connection with the business of the Company. There are no such suits,
actions, claims, proceedings or investigations pending against the Company, or,
to the best knowledge of the Company, threatened against the Company challenging
the validity or propriety of the transactions contemplated by this Agreement.
There is no judgment, order, injunction, decree or award (whether issued by a
court, an arbitrator or an administrative agency) to which the Company is a
party, or involving the Company's properties, assets or business, which is
unsatisfied or which requires continuing compliance therewith by the Company.
3.9 Taxes. The Company represents and warrants the following:
(a) Except as set forth in Schedule 3.9, the Company has duly
and timely filed, all Tax returns and other filings in respect of Taxes (as that
term is hereinafter defined) required to be filed by it or prior to the date
hereof, and has in a timely manner paid all Taxes which are (or will be) due for
all periods ending on or before the date hereof, whether or not shown on such
returns, except to the extent the Company has established adequate reserves on
the Balance Sheet for such Taxes. All such Tax returns have been accurately and
completely prepared in all material respects in compliance with all laws, rules
and regulations.
(b) Except as set forth in Schedule 3.9 hereto, there are no
actions or proceedings currently pending or, to the best knowledge of the
Company, threatened against the Company by any governmental authority for the
assessment or collection of Taxes, no claim for the assessment or collection of
Taxes has been asserted against the Company, and there are no matters under
discussion by the Company with any governmental authority regarding claims for
the assessment or collection of Taxes. Any unpaid Taxes that have been claimed
or imposed as a result of any examinations of any Tax return of the Company by
any governmental authority are being contested in good faith and have been
disclosed in writing to the Parent. Except as set forth in Schedule 3.9, there
are no agreements or applications by the Company for an extension of time for
the assessment or payment of any Taxes nor any waiver of the statute of
limitations in respect of Taxes. There are no Tax liens on any of the assets of
the Company, except for liens for Taxes not yet due or payable. Except as set
forth in Schedule 3.9, to the best knowledge of the Company, no claim has been
received from any taxing authority in a jurisdiction in which the Company does
not file Tax returns that it is or may be subject to taxation by that
jurisdiction.
(c) For purposes of this Agreement, the terms "Tax" and
"Taxes" shall mean and include any and all United States, state, local, foreign
or other income, sales, use, withholding, employment, payroll, social security,
property taxes and all other taxes of any kind,
13
deficiencies, fees or other governmental charges, including, without limitation,
any installment payment for taxes and contributions or other amounts determined
with respect to compensation paid to directors, officers, employees or
independent contractors from time to time imposed by or required to be paid to
any governmental authority (including penalties and additions to tax thereon,
penalties for failure to file a return or report, and interest on any of the
foregoing).
(d) Except as set forth in Schedule 3.9, there is no
agreement, plan or arrangement covering any employee or independent contractor
or former employee or independent contractor of the Company that, considered
individually or considered collectively with any other such agreement, plan or
arrangement, will, or could reasonably be expected to, give rise directly or
indirectly to the payment of any amount that would not be deductible pursuant to
Section 280G of the Code or that would be subject to an excise tax under Section
4999 of the Code, and as to any payment pursuant to any agreement, plan or
arrangement set forth on Schedule 3.9, all requisite shareholder votes will be
taken or obtained by the Company prior to the Effective Time so as to avoid the
characterization of each such payment as a "parachute payment" for purposes of
Sections 280G and 4999 of the Code.
(e) Except as set forth in Schedule 3.9, the Company is not
and has never been a party to or bound by any tax indemnity agreement, tax
sharing agreement, tax allocation agreement or similar agreement or arrangement
and the Company does not have any liability for Taxes of any person (other than
the Company) under Treasury Regulation 1.1502-6 (or any similar provision of
state, local or foreign law).
(f) Except as set forth in Schedule 3.9, the Company has
withheld all amounts from its employees and other persons required to be
withheld under the tax, social security, unemployment and other withholding
provisions of all federal, state, local and foreign laws.
(g) The Company is not a "consenting corporation" within the
meaning of Section 341(f)(1) of the Code, or comparable provisions of any state
statutes, and none of the assets of the Company are subject to an election under
Section 341(f) of the Code or comparable provisions of any state statutes.
(h) The Company is not, and has not been, a "United States
real property holding corporation" within the meaning of Section 897(c)(2) of
the Code.
(i) Except as set forth in Schedule 3.9, there are no
accounting method changes or proposed or threatened accounting method changes of
the Company, nor any other item, that could give rise to an adjustment under
Section 481 of the Code for periods after the Closing Date, and the Company will
not be required to make any such Section 481 adjustment as a result of the
transaction contemplated by this Agreement.
(j) Except as set forth in Schedule 3.9, no power of attorney
has been granted by the Company and is currently in force with respect to any
matter relating to Taxes.
14
(k) The Company further represents and warrants the following
to the extent that, with respect to each of the following, the breach thereof
results in the failure of the transaction contemplated by this Agreement to
qualify as a reorganization under Section 368(a) of the Code:
(i) Acquisition Corp. will acquire at least ninety percent (90%) of the
fair market value of the net assets held by Company immediately prior to the
Merger and at least seventy percent (70%) of the fair market value of the gross
assets held by Company immediately prior to the Merger. For purposes of this
representation, amounts used by Company to pay its reorganization expenses, and
all distributions and redemptions (except for regular, normal dividends) made by
Company immediately preceding the Merger will be included as assets of Company
held immediately prior to the Merger.
(ii) The liabilities of Company to be assumed by
Acquisition Corp.
and the liabilities to which the transferred assets of Company will be subject
were incurred by Company in the ordinary course of its business.
(iii) Company and the Shareholders will pay their
respective expenses,
if any, incurred in connection with the Merger, provided that such expenses
incurred by the Company in excess of $100,000 will be paid by the Shareholders.
(iv) There is no intercorporate indebtedness existing between Company
and Acquisition Corp. or between Company and Parent that was issued, was
acquired, or will be settled at a discount.
3.10 Title to Properties and Related Matters. (a) Except as set forth
on Schedule 3.10(a), the Company has good and valid title to all personal
property, tangible or, excluding any Intellectual Property Rights (as defined in
Section 3.11), intangible, which the Company purports to own, including the
properties reflected on the Balance Sheet or acquired after the date thereof
(other than properties and assets sold or otherwise disposed of in the ordinary
course of business and consistent with past practice since May 31, 1999), free
and clear of any claims, liens, pledges, security interests or encumbrances of
any kind whatsoever (other than (i) purchase money security interests and common
law vendor's liens, in each case for goods purchased on open account in the
ordinary course of business and having a fair market value of less than $10,000
in each individual case), (ii) liens for Taxes not yet due and payable, and
(iii) such imperfections of title and encumbrances, if any, that are not
material in character, amount or extent and that do not materially detract from
the value, or materially interfere with the use of, the property subject thereto
or affected thereby. Collectively, such property and the Intellectual Property
Rights disclosed on Schedule 3.11 constitute all property, tangible or
intangible, necessary to conduct the Company's business as presently conducted.
(b) The Company does not own any real property or any interest
in real property, except as set forth in Schedule 3.10(d).
15
(c) Schedule 3.10(c) sets forth a list, which is correct and
complete in all material respects, of all equipment, machinery, instruments,
vehicles, furniture, fixtures and other items of personal property currently
owned or leased by the Company with a book value as of May 31, 1999, in each
case of $10,000 or more. All such personal property is in suitable operating
condition (ordinary and reasonable wear and tear excepted) and is physically
located in or about one of the Company's places of business and is owned by the
Company or is leased by the Company under one of the leases set forth in
Schedule 3.10(d). Except as disclosed in Schedule 3.10(c), none of such personal
property is subject to any agreement or commitment for its use by any person
other than the Company. The maintenance and operation of such personal property
has been in material conformance with all applicable laws and regulations except
for such non-conformance as would not have a Company Material Adverse Effect.
Except as set forth on Schedule 3.10(c), there are no assets leased by the
Company that are owned, directly or indirectly, by any Related Person (as that
term is hereinafter defined in Section 3.22).
(d) Schedule 3.10(d) sets forth a complete and correct list of
all real property and personal property leases to which the Company is a party.
The Company has previously delivered to the Parent complete and correct copies
of each lease (and any amendments or supplements thereto) listed in Schedule
3.10(d). Except as set forth in Schedule 3.10(d), (i) each such lease is valid
and binding, and in full force and effect; except to the extent that applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights may affect such validity or enforceability,
(ii) neither the Company nor (to the best knowledge of the Company or the
Principal Shareholders) any other party is in default under any such lease, and
no event has occurred which constitutes, or with the lapse of time or the giving
of notice or both would constitute, a default by the Company or (to the best
knowledge of the Company) a default by any other party under such lease; (iii)
to the best knowledge of the Company, there are no disputes or disagreements
between the Company and any other party with respect to any such lease; and (iv)
there is no requirement under any such lease that the Company either obtain the
lessor's consent to, or notify the lessor of, the consummation of the
transactions contemplated by this Agreement.
3.11 Intellectual Property; Proprietary Rights; Employee Restrictions.
(a) Set forth on Schedule 3.11 is a list of all registered copyrights, copyright
registrations and copyright applications, trademark registrations and
applications for registration, patents and patent applications, trademarks,
service marks, trade names and Internet domain names that are used by the
Company in the Company's business as presently conducted and that are not
commercially available generally. The items listed on Schedule 3.11, together
with all other intellectual property rights owned by the Company and used in
connection with its business and (i) all licenses, assignments and releases of
intellectual property rights of others in material works embodied in the
Company's products, (ii) any and all intellectual property rights, licenses,
databases, computer programs and other computer software user interfaces,
know-how, trade secrets, customer lists, proprietary technology, processes and
formulae, source code, object code, algorithms, architecture, structure, display
screens, layouts, development tools, instructions, templates and marketing
materials created by or on behalf of the Company, and (iii) inventions,
16
trade dress, logos and designs created by or on behalf of the Company are
referred to as "Intellectual Property Rights." All Intellectual Property Rights
purported to be owned by the Company which were developed, worked on or
otherwise held by any employee, officer, consultant or otherwise are owned free
and clear by the Company by operation of law or have been validly assigned to
the Company. True and correct copies of all such licenses, assignments and
releases of Intellectual Property Rights have been provided to Parent prior to
the date hereof, all of which are valid and binding and in full force and
effect; except to the extent that applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights may affect such validity or enforceability. All services provided to the
Company by non-employees in respect of the creation, modification or improvement
of any Intellectual Property Rights of the Company (including, without
limitation, software, hardware, copyrightable works and the like) have been
performed pursuant to agreements with the Company that assign to the Company
ownership of such Intellectual Property Rights, each of which is a valid and
binding and in full force and effect; except to the extent that applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights may affect such validity or enforceability. The
Intellectual Property Rights (along with other commercially available generally
intellectual property rights) are sufficient in all material respects to carry
on the business of the Company as presently conducted. The Company has exclusive
ownership of or license to use all Intellectual Property Rights identified in
Schedule 3.11 as owned or licensed by the Company or has obtained any licenses,
releases or assignments reasonably necessary to use all third parties'
Intellectual Property Rights in works embodied in the Company's products. The
present business activities or products of the Company do not infringe any
Intellectual Property Rights of others. Except as set forth in Schedule 3.11,
the Company has not received any notice or other claim from any person asserting
that any of the Company's present activities infringe in any material respect or
may infringe any Intellectual Property Rights of such person.
The Company has the right to use all trade secrets, data, customer
lists, log files, hardware designs, programming processes, software and other
information required for or incident to its products or its business (including,
without limitation, the operation of its Web sites) as presently conducted in
any material respect and has no reason to believe that any of such information
that is provided to the Company by third parties will not continue to be
provided to the Company on the same terms and conditions as currently exist. The
Company has taken all reasonable measures to protect and preserve the security
and confidentiality of its trade secrets and other confidential information. To
the best knowledge of the Company , all trade secrets and other confidential
information of the Company are not part of the public domain or knowledge, nor,
to the best knowledge of the Company , have they been misappropriated by any
person having an obligation to maintain such trade secrets or other confidential
information in confidence for the Company. To the best knowledge of the Company
, no employee or consultant of the Company has used any trade secrets or other
confidential information of any other person in the course of their work for the
Company.
17
The Company is the exclusive owner of all right, title and interest in
its Intellectual Property Rights as purported to be owned by the Company, and to
the Company's best knowledge, such Intellectual Property Rights are valid and in
full force and effect. No university, government agency (whether federal or
state) or other organization which sponsored research and development conducted
by the Company or has any claim of right to or ownership of or other encumbrance
upon the Intellectual Property Rights of the Company. The Company is not aware
of any infringement by others of its copyrights or other Intellectual Property
Rights in any of its products, technology or services, or any violation of the
confidentiality of any of its proprietary information. To the Company's best
knowledge, the Company is not making unlawful use of any confidential
information or trade secrets of any past or present employees of the Company.
Except as set forth in Schedule 3.11, neither the Company nor, to the
best knowledge of the Company and the Principal Shareholders, any of the
Company's Principal Shareholders or employees, have any agreements or
arrangements with current or former employers of such Principal Shareholders or
employees that would interfere with such Principal Shareholder's or employees'
ability to develop or assign to the Company any Intellectual Property Rights
developed by such Principal Shareholder or employee for the Company and related
to (i) confidential information or trade secrets of such employers, or (ii) the
assignment of rights by such Principal Shareholders or employees to any
inventions, know-how or intellectual property of any kind. The Company and the
Principal Shareholders have previously delivered to Parent true and correct
copies of each agreement listed on Schedule 3.11. No such Principal Shareholders
or employees are bound by any consulting agreement relating to confidential
information or trade secrets of another entity that are being violated by such
persons. The activities of the Company's employees on behalf of the Company do
not violate in any material respects any agreements or arrangements known to the
Company or any of the Principal Shareholders which any such employees or
consultants have with former employers or any other entity to whom such
employees or consultants may have rendered consulting services.
3.12 Contracts. (a) Except as set forth in Schedule 3.12(a) (or in
Schedule 3.4(a), Schedule 3.10(d), Schedule 3.11, or Schedule 3.13(a)), the
Company is not a party to, or subject to:
(i) any contract, arrangement or understanding, or series of related
contracts, arrangements or understandings, which involves annual expenditures
or receipts by the Company of more than $25,000;
(ii) any note, indenture, credit facility, mortgage, security agreement or
other contract, arrangement or understanding relating to or evidencing
indebtedness for money borrowed or a security interest or mortgage in the assets
of the Company;
(iii) any guaranty issued by the Company;
18
(iv) any contract, arrangement or understanding relating to the
acquisition, issuance or transfer of any securities;
(v) any contract, arrangement or understanding relating to the
acquisition, transfer, distribution, use, development, sharing or license of any
technology or Intellectual Property Rights other than licenses granted in the
ordinary course of business with a term of less than one year;
(vi) any contract, arrangement or understanding granting to any person
the right to use any property or property right of the Company other than
licenses granted in the ordinary course of business with a term of less than one
year;
(vii) any contract, arrangement or understanding restricting the Company's
or any Subsidiary's right to (A) engage in any business activity or compete with
any business, or (B) develop or distribute any technology;
(viii) any contract, arrangement or understanding relating to the
employment of, or the performance of services of, any employee, consultant or
independent contractor and pursuant to which the Company is required to pay more
than $25,000 per year;
(ix) any contract, arrangement or understanding with a Related Person (as
that term is hereinafter defined); or
(x) any outstanding offer, commitment or obligation to enter into any
contract or arrangement of the nature described in subsections (i) through (ix)
of this subsection 3.12(a).
(b) The Company has previously made available for inspection
and copying to the Parent complete and correct copies (or, in the case of oral
contracts, a complete and correct description) of each contract (and any
amendments or supplements thereto) listed on Schedule 3.12(a). Except as set
forth in Schedule 3.12(b), (i) each contract listed in Schedule 3.12(a) is in
full force and effect; (ii) neither the Company nor (to the best knowledge of
the Company or the Principal Shareholders) any other party is in default under
any material contract, and no event has occurred which constitutes, or with the
lapse of time or the giving of notice or both would constitute, a default by the
Company or (to the best knowledge of the Company) a default by any other party
under such contract; (iii) to the best knowledge of the Company, there are no
disputes or disagreements between the Company and any other party with respect
to any material contract; and (iv) each other party to each material contract
has consented or been given notice (or prior to the Closing shall have consented
or been given notice), where such consent or the giving of such notice is
necessary, sufficient that such contract shall remain in full force and effect
following the consummation of the transactions contemplated by this Agreement
without modification in the rights or obligations of the Company thereunder.
19
(c) Except as set forth and described in Schedule 3.12(c), the
Company has not issued any warranty or any agreement or commitment to indemnify
any person other than in the ordinary course of business.
3.13 Employees; Employee Benefits.
(a) Schedule 3.13(a) sets forth the names of all current
employees of the Company (the "Employees") and such Employee's job title, the
location of employment of such Employee, such Employee's current salary, the
amount of any bonuses or other compensation paid since December 31, 1998 to such
Employee, the date of employment of such Employee and the accrued vacation time
of such Employee. Schedule 3.13(a) hereto sets forth a true and correct
statement of the liability, if any, of the Company for accrued but unused sick
pay. Except as set forth on Schedule 3.13(a), there are no outstanding loans
from the Company to any officer, director, employee, agent or consultant of the
Company, or to any other Related Person. Schedule 3.13(a) hereto sets forth a
complete and correct description of all severance policies of the Company.
Complete and correct copies of all written agreements with Employees and all
employment policies, and all amendments and supplements thereto, have previously
been delivered or made available to the Parent, and a list of all such
agreements and policies is set forth on Schedule 3.13(a). None of the Employees
has, to the best knowledge of the Company or the Principal Shareholders,
indicated a desire to terminate his or her employment, or any intention to
terminate his or her employment upon a sale of, or business combination relating
to, the Company or in connection with the transactions contemplated by this
Agreement. Except as set forth on Schedule 3.13(a), since December 31, 1998, the
Company has not (i) increased the salary or other compensation payable or to
become payable to or for the benefit of any of the Employees, (ii) increased the
term or tenure of employment for any Employee, except in the ordinary course of
business consistent with past practice, (iii) increased the amounts payable to
any of the Employees upon the termination of any such person's employment or
(iv) adopted, increased, augmented or improved benefits granted to or for the
benefit of any of the Employees under any Benefit Plan.
(b) Except as disclosed on Schedule 3.13(b), the Company has
complied in all material respects with Title VII of the Civil Rights Act of
1964, as amended, the Age Discrimination in Employment Act, as amended, the Fair
Labor Standards Act, as amended, the Immigration Reform and Control Act of 1986,
and all applicable laws, rules and regulations governing payment of minimum
wages and overtime rates, the withholding and payment of taxes from
compensation, discriminatory practices with respect to employment and discharge,
or otherwise relating to the conduct of employers with respect to Employees or
potential employees, and there have been no claims made or, to the best
knowledge of the Company or the Principal Shareholders, threatened thereunder
against the Company arising out of, relating to or alleging any violation of any
of the foregoing. Except as disclosed in Schedule 3.13(b), there are no material
controversies, strikes, work stoppages, picketing or disputes pending or, to the
best knowledge of the Company or the Principal Shareholders, threatened between
the Company and any of the Employees or Former Employees; no labor union or
other collective bargaining unit
20
represents or has ever represented any of the Employees, including any "leased
employees" (within the meaning of Section 414(n) of the Code); no organizational
effort by any labor union or other collective bargaining unit currently is under
way or, to the best knowledge of the Company or the Principal Shareholders,
threatened with respect to any Employees; and the consent of no labor union or
other collective bargaining unit is required to consummate the transactions
contemplated by this Agreement.
(c) Schedule 3.13(c) sets forth a list of each material
defined benefit and defined contribution plan, stock ownership plan, employment
or consulting agreement, executive compensation plan, bonus plan, incentive
compensation plan or arrangement, deferred compensation agreement or
arrangement, agreement with respect to temporary employees or "leased employees"
(within the meaning of Section 414(n) of the Code), vacation pay, sickness,
disability or death benefit plan (whether provided through insurance, on a
funded or unfunded basis or otherwise), employee stock option, stock
appreciation rights or stock purchase plan, severance pay plan, cafeteria plan,
arrangement or practice, employee relations policy, practice or arrangement, and
each other employee benefit plan, program or arrangement, including, without
limitation, each "employee benefit plan" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which
has been maintained by the Company for the benefit of or relating to any of the
Employees or to any Former Employees or their dependents, survivors or
beneficiaries, whether or not legally binding, whether written or oral or
whether express or implied, all of which are hereinafter referred to as the
"Benefit Plans."
(d) No Benefit Plan is either an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) or other form of retirement plan
intended to meet the requirements of Section 401(a) of the Code. No Benefit Plan
is an "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) that
at any time prior to the Closing was not exempt from the annual reporting
requirement set forth in Section 104(a) of ERISA. No Benefit Plan is a
"voluntary employees beneficiary association" (within the meaning of section
501(c)(9) of the Code) and there have been no other "welfare benefit funds"
(within the meaning of Section 419 of the Code) relating to Employees or Former
Employees. No event or condition exists with respect to any Benefit Plan that
could subject the Company to any material Tax under Section 4980B of the Code,
or other applicable law. With respect to each Benefit Plan, the Company has
heretofore delivered or made available to the Parent complete and correct copies
of the following documents, where applicable and to the extent available: (i)
the most recent summary plan description and all modifications, as well as all
other descriptions distributed to Employees or set forth in any manuals or other
documents, (ii) the text of the Benefit Plan and of any trust, insurance or
annuity contracts maintained in connection therewith and (iii) the most recent
actuarial report, if any, relating to the Benefit Plan.
(e) There is no agreement, plan or arrangement covering any
employee or independent contractor or former employee or independent contractor
of the Company that considered individually or considered collectively with any
other such agreement, plan or arrangement, will, or could reasonably be expected
to, give rise directly or indirectly to the
21
payment of any amount as a result of the Merger that would not be deductible
pursuant to Section 280G of the Code or that would be subject to an excise tax
under Section 4999 of the Code.
3.14 Compliance with Applicable Law. The Company is not in violation in
any material respect of any applicable safety, health, environmental or other
law, statute, ordinance, code, rule, regulation, judgment, order, injunction,
writ or decree of any Federal, state, local or foreign court or governmental or
regulatory body, agency or authority having, asserting or claiming jurisdiction
over it or over any part of its business, operations, properties or assets,
except for any violation that would not have a Company Material Adverse Effect.
The Company has not received any notice alleging any such violation, nor to the
best knowledge of the Company or any Principal Shareholders, is there any
inquiry, investigation or proceedings relating thereto.
3.15 Ability to Conduct the Business. There is no agreement,
arrangement or understanding, nor any judgment, order, writ, injunction or
decree of any court or governmental or regulatory body, agency or authority
applicable to the Company or to which the Company is a party or by which it (or
any of its properties or assets) is bound, that will prevent the use by the
Surviving Corporation, after the Effective Time, of the properties and assets
owned by, the business conducted by or the services rendered by the Company on
the date hereof, in each case on substantially the same basis as the same are
used, owned, conducted or rendered on the date hereof. The Company has in force,
and is in compliance with, in all material respects, all material governmental
permits, licenses, exemptions, consents, authorizations and approvals used in or
required for the conduct of their business as presently conducted, all of which
shall continue in full force and effect, without requirement of any filing or
the giving of any notice and without modification thereof, following the
consummation of the transactions contemplated hereby. The Company has not
received any notice of, and to the best knowledge of the Company, there are no
inquiries, proceedings or investigations relating to or which could result in
the revocation or modification of any such permit, license, exemption, consent,
authorization or approval.
3.16 Major Customers. Schedule 3.16 sets forth a complete and correct
list of the ten largest customers of the Company, in terms of revenue recognized
in respect of such customers during the month ended May 31, 1999, showing the
amount of revenue recognized for each such customer during such period. Except
as set forth and described in Schedule 3.16, to the best knowledge of the
Company or any Principal Shareholders, the Company has not received any notice
or other communication (written or oral) from any of the customers listed in
Schedule 3.16 hereto terminating or reducing in any material respect, or setting
forth an intention to terminate or reduce in the future, or otherwise reflecting
a material adverse change in, the business relationship between such customer
and the Company.
3.17 Consultants, Sales Representatives and Other Agents. Schedule 3.17
hereto sets forth a complete and correct list of the names and addresses of each
consultant, sales
22
representative or other agent (other than any such person performing solely
clerical functions) currently engaged by the Company who is not an employee of
the Company, the commission rates or other compensation applicable with respect
to each such person and the amount of commissions or other compensation earned
by each such person for the five months ended May 31, 1999. Complete and correct
copies of all current agreements between the Company and any such person have
previously been delivered or made available by the Company to the Parent.
3.18 Accounts Receivable. All accounts receivable of the Company
reflected on the balance sheet at May 31, 1999 (i) arose from bona fide
transactions in the ordinary course of business and consistent with past
practice, and (ii) except as set forth on Schedule 3.18, are owned by the
Company free and clear of any security interest, lien, encumbrance, or to the
best knowledge of the Company, claims, and (iii) are accurately and fairly
reflected on the balance sheet. The reserves for bad debts reflected on the
balance sheet were calculated in accordance with generally accepted accounting
principles consistent with past practice and, to the best knowledge of the
Company, are adequate.
3.19 Insurance. Schedule 3.19 hereto is a true and complete list of all
insurance policies carried by the Company with respect to its business, together
with, in respect of each such policy, the name of the insurer, the number of the
policy, the annual policy premium payable therefor, the limits of coverage, the
deductible amount (if any), the expiration date thereof and each pending claim
thereunder. Complete and correct copies of each certificate of insurance have
previously been delivered or made available by the Company to the Parent. All
such policies are in full force and effect. All premiums due thereon have been
paid in a timely manner.
3.20 Bank Accounts; Powers of Attorney. Schedule 3.20 sets forth a complete
and
correct list showing:
(i) all bank accounts of the Company, together with, with respect to
each such account, the account number, the names of all signatories thereof, the
authorized powers of each such signatory and the approximate balance thereof on
the date of this Agreement; and
(ii) the names of all persons holding powers of attorney from the
Company and a summary statement of the terms thereof.
3.21 Minute Books, etc. The minute books, stock certificate book and
stock ledger of the Company are complete and correct in all material respects.
The minute books of the Company contain accurate and complete records of all
meetings or written consents to action of the Board of Directors and
shareholders of the Company and accurately reflect all corporate actions of the
Company which are required by law to be passed upon by the Board of Directors or
shareholders of the Company.
23
3.22 Related Person Indebtedness and Contracts. Schedule 3.22 sets
forth a complete and correct summary of all contracts, commitments, arrangements
and understandings not described elsewhere in this Agreement between the Company
and any of the following (collectively, "Related Persons"): (i) the Principal
Shareholders; (ii) the spouses and children of any of the Principal Shareholders
(collectively, "near relatives"); (iii) any trust for the benefit of any of the
Principal Shareholders or any of their respective near relatives; or (iv) any
corporation, partnership, joint venture or other entity or enterprise owned or
controlled by any of the Principal Shareholders or by any of their respective
near relatives. All amounts contributed by the Principal Shareholders to the
Company have been treated as contributions to Company equity and have not been
treated as, nor do they constitute, indebtedness of the Company to its Principal
Shareholders.
3.23 Brokers; Payments. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company or
the Principal Shareholders. The Company has suspended or terminated, and has the
legal right to terminate or suspend, all negotiations and discussions of
Acquisition Transactions (as defined in Section 6.3) with parties other than
Parent. No valid claim exists against the Company or, based on any action by the
Company, against the Surviving Corporation or the Parent for payment of any
"topping," "break-up" or "bust-up" fee or any similar compensation or payment
arrangement as a result of the transactions contemplated hereby.
3.24 Company Action. The Board of Directors of the Company, by
unanimous written consent or at a meeting duly called and held, has (i)
determined that the Merger is fair and in the best interests of the Company and
its shareholders, (ii) approved the Merger and this Agreement in accordance with
the provisions of the UBCA, and (iii) directed that this Agreement and the
Merger be submitted to the Company shareholders for their approval and resolved
to recommend that the Company's shareholders vote in favor of the approval of
this Agreement and the Merger. The shareholders of the Company have approved the
Merger and this Agreement in accordance with the provisions of the UBCA.
3.25 Year 2000 Matters. All computer hardware and software owned,
licensed or otherwise used by the Company will not perform differently and
experience any material malfunctions or usage problems due to the change in the
calendar year from 1999 to the year 2000, and with respect to any computer
hardware or software licensed or otherwise used by the Company which are
supplied by third parties, the foregoing representation is limited to the
Company's best knowledge of the capabilities of such hardware and software.
3.26 Disclosure. No representation or warranty by the Company contained
in this Agreement and no statement contained, when considered together as a
whole, in any of the Disclosure Schedules delivered or to be delivered pursuant
to this Agreement by the Company contains or will contain any untrue statement
of a material fact or omits or will omit to state any
24
material fact necessary to make the statements contained therein, in light of
the circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL SHAREHOLDERS
4.1 Authorization; etc. The Principal Shareholders severally and not
jointly represent and warrant to the Parent and Acquisition Corp. as follows:
(i) Each of the Principal Shareholders is the sole and exclusive record
and beneficial owner of the shares or options to purchase shares of the
Company's capital stock set forth opposite his or her name in Schedule 3.4
hereto, free and clear of any claims, liens, pledges, options, rights of first
refusal or other encumbrances or restrictions of any nature whatsoever (other
than restrictions on transfer imposed under applicable securities laws), and,
except as set forth on Schedule 3.4 hereto, there are no agreements,
arrangements or understandings to which such Shareholder is a party (other than
this Agreement) involving the purchase, sale or other acquisition or disposition
of the shares owned by such Principal Shareholder; (ii) such Principal
Shareholder shall (A) concurrently with such Principal Shareholder's execution
and delivery of this Agreement, execute and deliver to Parent a written consent
in which such Principal Shareholder voted all shares of capital stock owned by
such Principal Shareholder in favor of the Merger and the adoption of this
Agreement by the Company, (B) at the Effective Time, deliver or cause to be
delivered to the Parent certificates representing all shares of Company Common
Stock owned by such Principal Shareholder, each such certificate to be duly
endorsed for transfer and free and clear of any claims, liens, pledges, options,
rights of first refusal or other encumbrances or restrictions of any nature
whatsoever (other than restrictions imposed under applicable securities laws);
(iii) such Principal Shareholder has all necessary legal capacity, right, power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, and this Agreement constitutes a valid and
binding obligation of such Principal Shareholder enforceable in accordance with
its terms, except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors, rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in law
or in equity; and (iv) the execution and delivery of this Agreement by such
Principal Shareholder and the consummation of the transactions contemplated
hereby will not (A) violate or conflict with any provision of any partnership
agreement or other constitutional documents of any such Principal Shareholder
that is constituted as a general or limited partnership, (B) breach, violate or
constitute an event of default (or an event which with the lapse of time or the
giving of notice or both would constitute an event of default) under, give rise
to any right of termination, cancellation, modification or acceleration under or
require any consent or the giving of any notice under, any note, bond,
indenture, mortgage, security agreement, lease, license, franchise, permit,
agreement or other instrument or obligation to which such Principal Shareholder
is a party, or by which such
25
Principal Shareholder or the shares of Company Common Stock held by such
Principal Shareholder may be bound, or result in the creation of any material
lien, claim or encumbrance or other right of any third party of any kind
whatsoever upon the properties or assets of such Principal Shareholder pursuant
to the terms of any such instrument or obligation, which breach, violation or
event of default would have a material adverse effect on such Principal
Shareholder's ability to perform such Principal Shareholder's obligations
hereunder, or (C) to such Principal Shareholder's best knowledge, violate or
conflict with any law, statute, ordinance, code, rule, regulation, judgment,
order, writ, injunction, decree or other instrument of any court or governmental
or regulatory body, agency or authority applicable to such Principal Shareholder
or by which such the shares of or options to purchase Company Common Stock held
by such Principal Shareholder may be bound.
4.2 Parent Common Stock.
Each Principal Shareholder, severally and not jointly, acknowledges,
represents and warrants to the Parent and Acquisition Corp. as follows:
(i) Such Principal Shareholder understands that the shares of Parent
Common Stock to be issued to such Shareholder in the Merger will not have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
or any state securities law by reason of specific exemptions under the
provisions thereof which depend in part upon the other representations and
warranties made by the Principal Shareholder in this Agreement. Such Principal
Shareholder understands that the Parent is relying, in part, upon the Principal
Shareholder's representation and warranties contained in this Section 4.2 for
the purpose of determining whether this transaction meets the requirements for
such exemptions.
(ii) Such Principal Shareholder has such knowledge, skill and experience in
business, financial and investment matters so that the Principal Shareholder is
capable of evaluating the merits and risks of an investment in the Parent Common
Stock pursuant to the transactions contemplated by this Agreement or to the
extent that the Principal Shareholder has deemed it appropriate to do so, the
Principal Shareholder has relied upon appropriate professional advice regarding
the tax, legal and financial merits and consequences of an investment in Parent
Common Stock pursuant to the transactions contemplated by this Agreement.
(iii) Such Principal Shareholder has made, either alone or together with
the Principal Shareholder's advisors, such independent investigation of the
Parent, its management and related matters as the Principal Shareholder deems to
be, or such advisors have advised to be, necessary or advisable in connection
with an investment in the Parent Common Stock through the transactions
contemplated by this Agreement; and the Principal Shareholder and advisors have
received all information and data that the Principal Shareholder and such
advisors believe to be necessary in order to reach an informed decision as to
the advisability of
26
an investment in the Parent Common Stock pursuant to the transactions
contemplated by this Agreement.
(iv) Such Principal Shareholder has reviewed the Principal Shareholder's
financial condition and commitments, alone and together with the Principal
Shareholder's advisors, and, based on such review, the Principal Shareholder is
satisfied that (A) the Principal Shareholder has adequate means of providing for
the Principal Shareholder's financial needs and possible contingencies and has
assets or sources of income which, taken together, are more than sufficient so
that he could bear the risk of loss of the Principal Shareholder's entire
investment in the Parent Common Stock, (B) the Principal Shareholder has no
present or contemplated future need to dispose of all or any portion of the
Parent Common Stock to satisfy any existing or contemplated undertaking, need or
indebtedness, and (C) the Principal Shareholder is capable of bearing the
economic risk of an investment in the Parent Common Stock for the indefinite
future. Such Shareholder shall furnish any additional information about the
Principal Shareholder reasonably requested by the Parent to assure the
compliance of this transaction with applicable federal and state securities
laws.
(v) Such Principal Shareholder understands that the shares of the
Parent Common Stock to be received by the Principal Shareholder in the
transactions contemplated hereby will be "restricted securities" under
applicable federal securities laws and that the Securities Act and the rules of
the Securities and Exchange Commission (the "SEC") promulgated thereunder
provide in substance that the Principal Shareholder may dispose of such shares
only pursuant to an effective registration statement under the Securities Act or
an exemption from registration if available. Such Principal Shareholder further
understands that, except as provided in Article XII, the Parent has no
obligation or intention to register the sale of any of the shares of the Parent
Common stock to be received by the Principal Shareholder in the transactions
contemplated hereby, or take any other action so as to permit sales pursuant to,
the Securities Act. Accordingly, except as provided in Article XIII, the
Principal Shareholder understands that the Principal Shareholder may dispose of
such shares only in transactions which are of a type exempt from registration
under the Securities Act, including (without limitation) a "private placement,"
in which event the transferee will acquire such shares as "restricted
securities" and subject to the same limitations as in the hands of the Principal
Shareholder. Such Principal Shareholder further understands that applicable
state securities laws may impose additional constraints upon the sale of
securities. As a consequence, the Principal Shareholder understands that the
Principal Shareholder may have to bear the economic risk of an investment in the
Parent Common Stock to be received by the Principal Shareholder pursuant to the
transactions contemplated hereby for an indefinite period of time.
(vi) Except as provided in Article XIII, such Principal Shareholder is
acquiring shares of the Parent Common Stock pursuant to the transactions
contemplated hereby for investment only and not with a view to or intention of
or in connection with any resale or distribution of such shares or any interest
therein.
27
(vii) The certificate(s) evidencing the shares of the
Parent Common
Stock to be issued pursuant to the transactions contemplated hereby shall bear
the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities laws and may not be sold or transferred
in the absence of such registration or an exemption therefrom
under the Securities Act of 1933, as amended, and applicable
state securities laws."
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PARENT AND ACQUISITION CORP.
The Parent and Acquisition Corp. jointly and severally represent and
warrant to the
Company that:
5.1 Corporate Organization. Each of the Parent and Acquisition Corp. is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of the Parent and Acquisition Corp. has all
requisite corporate power and authority to own, operate and lease the properties
and assets it now owns, operates and leases and to carry on its business as
presently conducted. The Parent and Acquisition Corp. are each duly qualified to
transact business as a foreign corporation and are each in good standing in the
jurisdictions set forth opposite their respective names in Schedule 5.1, which
are the only jurisdictions where such qualification is required by reason of the
nature of the properties and assets currently owned, operated or leased by the
Parent or Acquisition Corp. or the business currently conducted by them, except
for such jurisdictions where the failure to be so qualified would not have a
Go2Net Material Adverse Effect (as defined below). Acquisition Corp. is a
corporation newly formed by Parent and has not conducted any business other than
as expressly set forth in or contemplated by this Agreement. The Parent has
previously delivered to the Company complete and correct copies of (i) its
Certificate of Incorporation (certified by the Secretary of State of Delaware as
of a recent date) and its By-Laws (certified by the Secretary of the Parent as
of a recent date) and (ii) the Certificate of Incorporation of Acquisition Corp.
and all amendments thereto to the date hereof (certified by the Secretary of
State of the State of Delaware as of a recent date) and the By-Laws of
Acquisition Corp. (certified by the secretary of Acquisition Corp. as of a
recent date). Neither the Certificate of Incorporation nor the By-Laws of the
Parent or Acquisition Corp. has been amended since the respective dates of
certification thereof, nor has any action been taken for the purpose of
effecting any amendment of such instruments. The term "Go2Net Material Adverse
Effect" means for purposes of this Agreement, any change, event or effect that
is, or would be, materially adverse to the business, operation, assets,
liabilities, financial condition or results of operations of the Parent and
Acquisition Corp., taken as a whole.
28
5.2 Authorization. Each of the Parent and Acquisition Corp. has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly approved by the Boards of Directors of the Parent and Acquisition
Corp. and by the Parent as the sole stockholder of Acquisition Corp., and no
other corporate proceedings on the part of the Parent or Acquisition Corp. are
necessary to approve and authorize the execution and delivery of this Agreement
or (subject to the filing of the Certificates of Merger pursuant to the UBCA and
the DGCL) the consummation of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Parent and Acquisition
Corp. and constitutes the valid and binding agreement of the Parent and
Acquisition Corp., enforceable in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or in
law).
5.3 Consents and Approvals; No Violations. Subject to (a) the filing of
Certificates of Merger with the Secretary of State of the State of Utah and the
Secretary of State of the State of Delaware and (b) compliance with applicable
federal and state securities laws, the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not: (i)
violate or conflict with any provisions of the Certificate of Incorporation or
By-Laws of the Parent or Acquisition Corp.; (ii) breach, violate or constitute
an event of default (or an event which with the lapse of time or the giving of
notice or both would constitute an event of default) under, give rise to any
right of termination, cancellation, modification or acceleration under, or
require any consent or the giving of any notice under, any note, bond,
indenture, mortgage, security agreement, lease, license, franchise, permit,
agreement or other instrument or obligation to which the Parent or Acquisition
Corp. are parties, or by which any of them or any of their respective properties
or assets may be bound, or result in the creation of any lien, claim or
encumbrance of any kind whatsoever upon the properties or assets of the Parent
or Acquisition Corp. pursuant to the terms of any such instrument or obligation,
other than any breach, violation, default, termination, cancellation,
modification or acceleration which would not have a Go2Net Material Adverse
Effect; (iii) violate or conflict with any law, statute, ordinance, code, rule,
regulation, judgment, order, writ, injunction or decree or other instrument of
any Federal, state, local or foreign court or governmental or regulatory body,
agency or authority applicable to the Parent or Acquisition Corp. or by which
any of their respective properties or assets may be bound, except for such
violations or conflicts which would not have a Go2Net Material Adverse Effect;
or (iv) require, on the part of the Parent or Acquisition Corp., any filing or
registration with, or permit, license, exemption, consent, authorization or
approval of, or the giving of any notice to, any governmental or regulatory
body, agency or authority other than any filing, registration, permit, license,
exemption, consent, authorization, approval or notice which if not obtained or
made would not have a Go2Net Material Adverse Effect.
29
5.4 Capitalization. (a) The authorized capital stock of the Parent
consists of 499,000,000 shares of Parent Common Stock, of which 27,198,416
shares are issued and outstanding as of June 25, 1999 and 1,000,000 shares of
Preferred Stock, of which 300,000 shares are designated Series A Convertible
Preferred Stock and of which 300,000 shares are issued and outstanding as of
June 25, 1999. All of the issued and outstanding shares of Parent Common Stock
are duly authorized, validly issued, fully paid and nonassessable, and none of
such shares has been issued in violation of any applicable preemptive rights.
There are no agreements or commitments to which the Parent is a party or by
which it is bound for the redemption or repurchase of any shares of its capital
stock. Except for options issued under the Parent's employee stock option plans,
including those assumed in connection with prior acquisition transactions
(collectively, the "Stock Option Plans"), there are no outstanding options,
warrants or other rights to purchase, or securities convertible into or
exchangeable for, shares of the capital stock of the Parent, and (except as
contemplated by this Agreement and except with respect to options issued under
the Stock Option Plans) there are no agreements or commitments to which the
Parent is a party or by which it is bound pursuant to which the Parent is or may
become obligated to issue additional shares of its capital stock.
(b) The authorized capital stock of Acquisition Corp. consists
of 1,000 shares of common stock, par value $0.01 per share, of which 100 shares
are issued and outstanding, all of which shares are owned beneficially and of
record by the Parent. There are no outstanding options, warrants or other rights
to purchase, or securities convertible into or exchangeable for, shares of the
capital stock of Acquisition Corp., and there are no agreements or commitments
to which Acquisition Corp. is a party or by which it is bound pursuant to which
Acquisition Corp. is or may become obligated to issue additional shares of its
capital stock.
5.5 SEC Reports and Financial Statements. The Parent has heretofore
delivered or made available to the Company complete and correct copies of all
reports and other filings filed by the Parent with the SEC pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder (the "Acts") since and including the filing date of the
Registration Statement with respect to the Parent's initial public offering
(such reports and other filings collectively referred to herein as the "SEC
Filings"). The SEC Filings constitute all of the documents required to be filed
by the Parent under the Securities Act and Exchange Act since such date. All
documents required to be filed as exhibits to the SEC Filings have been so
filed, and all contracts so filed as exhibits are in full force and effect,
except those which are expired in accordance with their terms, and neither
Parent nor any of its subsidiaries is in default thereunder. As of their
respective dates, the SEC Filings did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited financial statements of the
Parent included in the SEC Filings comply in all material respects with the
published rules and regulations of the SEC with respect thereto, and such
audited financial statements (i) were prepared from the books and records of the
Parent, (ii) were prepared in accordance with generally accepted accounting
principles applied on a consistent
30
basis (except as may be indicated therein or in the notes or schedules thereto)
and (iii) present fairly the financial position of the Parent as at the dates
thereof and the results of operations and cash flows (or changes in financial
position, for the fiscal year ended September 30, 1998 and earlier years) for
the periods then ended. The unaudited financial statements included in the SEC
Filings comply in all material respects with the published rules and regulations
of the SEC with respect thereto; and such unaudited financial statements (i)
were prepared from the books and records of the Parent, (ii) were prepared in
accordance with generally accepted accounting principles, except as otherwise
permitted under the Exchange Act and the rules and regulations thereunder, on a
consistent basis (except as may be indicated therein or in the notes or
schedules thereto) and (iii) present fairly the financial position of the Parent
as at the dates thereof and the results of operations and cash flows (or changes
in financial condition) for the periods then ended, subject to normal year-end
adjustments and any other adjustments described therein or in the notes or
schedules thereto. The foregoing representations and warranties in this Section
5.5 shall also be deemed to be made with respect to all filings made with the
SEC on or before the Effective Time.
5.6 Litigation. There are no suits, actions, claims, proceedings
(including, without limitation, arbitral or administrative proceedings) or
investigations pending or, to the knowledge of the Parent and Acquisition Corp.,
threatened against the Parent, Acquisition Corp. or their respective properties,
assets or business or, to the knowledge of the Parent and Acquisition Corp.,
pending or threatened against any of their respective officers, directors,
employees, agents or consultants in connection with their respective businesses.
There are no such suits, actions, claims, proceedings or investigations pending,
or, to the knowledge of the Parent and Acquisition Corp., threatened challenging
the validity or propriety of the transactions contemplated by this Agreement.
There is no judgment, order, injunction, decree or award (whether issued by a
court, an arbitrator or an administrative agency) to which either the Parent or
Acquisition Corp. is a party, or involving the Parent's or Acquisition Corp.'s
respective properties, assets or business, which is unsatisfied or which
requires continuing compliance therewith by the Parent or Acquisition Corp.
5.7 Compliance with Applicable Law. The Parent is not in violation of
any applicable safety, health, environmental or other law, statute, ordinance,
code, rule, regulation, judgment, order, injunction, writ or decree of any
Federal, state, local or foreign court or governmental or regulatory body,
agency or authority having, asserting or claiming jurisdiction over it or over
any part of its business, operations, properties or assets, except where any
such violation would not have a Go2Net Material Adverse Effect. The Parent has
not received any notice alleging any such violation, nor to the knowledge of the
Parent, is there any inquiry, investigation or proceedings relating thereto.
5.8 Brokers; Payments. No broker, investment banker, financial advisor
or other person is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Parent or
Acquisition Corp.
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5.9 Disclosure. No representation or warranty by the Parent or
Acquisition Corp. contained in this Agreement and no statement contained in any
of the Disclosure Schedules delivered or to be delivered pursuant to this
Agreement by Parent or Acquisition Corp. contains or will contain, when
considered together as a whole, any untrue statement of a material fact or omits
or will omit to state any material fact necessary to make the statements
contained therein not misleading, in light of the circumstances under which they
were made.
5.10 Validity of Shares. Assuming the accuracy of the representations
contained in Article IV and the Letter of Transmittal executed by each holder of
Company Common Stock, the shares of Parent Common Stock to be issued in
connection with the Merger will, when issued in accordance with this Agreement,
be duly authorized, validly issued, fully paid and nonassessable, will not be
subject to any preemptive or other statutory right of stockholders, will be
issued in compliance with applicable U.S. Federal and state securities laws and
will be free of any liens or encumbrances.
5.11 No Material Adverse Change. Since the date of Parent's Report on
Form 10-Q for its fiscal quarter ended March 31, 1999, there has been no
material adverse change in the business, operations or financial condition of
Parent and its subsidiaries, taken as a whole.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE TIME
6.1 Conduct of Business of the Company. During the period commencing on
the date hereof and continuing until the Effective Time, the Company agrees that
the Company, except as otherwise expressly contemplated by this Agreement or
agreed to in writing by the Parent:
(a) will carry on its business only in the ordinary course and
consistent with past practice;
(b) will not declare or pay any dividend on or make any other
distribution (however characterized) in respect of shares of its capital stock;
(c) will not, directly or indirectly, redeem or repurchase, or
agree to redeem or repurchase, any shares of its capital stock;
(d) will not amend its Certificate of Incorporation or By-Laws;
(e) will not issue, or agree to issue, any shares of its
capital stock, or any options, warrants or other rights to acquire shares of its
capital stock, or any securities convertible into or exchangeable for shares of
its capital stock;
32
(f) will not combine, split or otherwise reclassify any shares
of its capital stock;
(g) will not form a Subsidiary;
(h) will use its commercially reasonable best efforts to
preserve intact its present business organization, keep available the services
of its officers and key employees and preserve its relationships with clients
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be materially impaired at the Effective Time;
(i) will not (i) make any capital expenditures individually in
excess of $10,000 or in the aggregate in excess of $25,000, (ii) enter into any
license, distribution, OEM, reseller, joint venture or other similar agreement,
(iii) enter into or terminate any lease of, or purchase or sell, any real
property, (iv) enter into any leases of personal property involving individually
in excess of $10,000 annually or in the aggregate in excess of $25,000 annually,
(v) incur or guarantee any additional indebtedness for borrowed money, (vi)
create or permit to become effective any security interest, mortgage, lien,
charge or other encumbrance on its properties or assets, or (vii) enter into any
agreement to do any of the foregoing;
(j) will not adopt or amend any Benefit Plan for the benefit
of Employees, or increase the salary or other compensation (including, without
limitation, bonuses or severance compensation) payable or to become payable to
its Employees or accelerate, amend or change the period of exercisability or the
vesting schedule of options granted under any stock option plan or agreements
except as specifically required by the terms of such plans or agreements, or
enter into any agreement to do any of the foregoing;
(k) will not accelerate receivables or delay payables;
(l) will promptly advise the Parent of the commencement of, or
threat of (to the extent that such threat comes to the knowledge of the Company)
any claim, action, suit, proceeding or investigation against, relating to or
involving the Company or any of its directors, officers, employees, agents or
consultants in connection with their businesses or the transactions contemplated
hereby that could reasonably be expected to have a Company Material Adverse
Effect;
(m) will use its commercially reasonable efforts to maintain
in full force and effect all insurance policies maintained by the Company on the
date hereof;
(n) will not enter into any agreement to dissolve, merge,
consolidate or, except in the ordinary course, sell any material assets of the
Company, or acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation,
33
partnership or other business organization or division, or otherwise acquire or
agree to acquire any assets in excess of $10,000 in the aggregate;
(o) during the period commencing on the date hereof and
continuing until the Effective Time, the Company will not take any action which
would cause the Merger to fail to qualify as a reorganization under the
provisions of Section 368(a) of the Code; and
(p) will not change the Company's method of accounting and
will not make any Tax elections that would adversely affect Parent or its
subsidiaries without the consent of Parent.
6.2 Conduct of Business of Acquisition Corp. During the period
commencing on the date hereof and continuing until the Effective Time,
Acquisition Corp. shall not engage in any activities of any nature except as
provided in or contemplated by this Agreement.
6.3 Conduct of Parent and Acquisition Corp. During the period
commencing on the date hereof and continuing until the Effective Time, neither
the Parent not Acquisition Corp. will take any action which would cause the
Merger to fail to qualify as a reorganization under the provisions of Section
368(a) of the Code.
6.4 Other Negotiations. Neither the Company nor any of the Principal
Shareholders will (nor will they permit any of their respective officers,
directors, employees, agents, partners and affiliates on their behalf to) take
any action to solicit, initiate, seek, encourage or support any inquiry,
proposal or offer from, furnish any information to, or participate in any
discussions or negotiations with, any corporation, partnership, person or other
entity or group (other than Parent) regarding any acquisition of the Company,
any merger or consolidation with or involving the Company, or any acquisition of
any material portion of the stock or assets of the Company, or any equity or
debt financing of the Company or any material license of Intellectual Property
Rights (any of the foregoing being referred to in this Agreement as an
"Acquisition Transaction") or enter into an agreement concerning any Acquisition
Transaction with any party other than Parent. If between the date of this
Agreement and the termination of this Agreement pursuant to Article XI, the
Company receives from a third party any offer to negotiate or consummate an
Acquisition Transaction, the Company shall (i) notify Parent immediately (orally
and in writing) of such offer, including the identity of such party and the
terms of any proposal therein, and (ii) notify such third party of the Company's
obligations under this Agreement.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 Access to Properties and Records. The Company and the Parent will
provide each other and their respective accountants, counsel and other
authorized advisors, with reasonable access, during business hours, to their
premises and properties and their books and records
34
(including, without limitation, contracts, leases, insurance policies,
litigation files, minute books, accounts, working papers and tax returns filed
and in preparation) and will cause its officers to furnish to each other and
their respective authorized advisors such additional financial, tax and
operating data and other information pertaining to their respective businesses
as the Company or the Parent, as the case may be, shall from time to time
reasonably request. All of such data and information shall be kept confidential
by Parent and the Company unless and until the Merger is consummated.
7.2 Transfer of Shares. The Principal Shareholders agree that they (i)
shall not dispose of or in any way encumber their shares prior to the
consummation of the transactions contemplated hereby, (ii) shall use their best
efforts to cause, and take no action inconsistent with, the approval and
consummation of said transactions and (iii) at the Closing shall surrender the
stock certificates representing all shares of Company Stock owned by them, duly
endorsed for transfer.
7.3 Reasonable Efforts; etc. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use his/its reasonable efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
including obtaining any consents, authorizations, exemptions and approvals from,
and making all filings with, any governmental or regulatory authority, agency or
body which are necessary in connection with the transactions contemplated by
this Agreement.
7.4 Material Events. At all times prior to the Effective Time, each
party shall promptly notify the others in writing of the occurrence of any event
which will or may result in the failure to satisfy any of the conditions
specified in Article IX or Article X hereof.
7.5 Fees and Expenses. The Parent and the Company shall bear and pay
all of their own fees, costs and expenses relating to the transactions
contemplated by this Agreement, including, without limitation, the fees and
expenses of their respective counsel, accountants, brokers and financial
advisors, except that the shareholders of the Company (the "Shareholders") shall
be responsible for all such fees, costs and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby in
excess of $100,000 and such fees, costs and expenses shall be deemed expenses of
the Shareholders and paid by the Shareholders on a pro rata basis based on their
percentage ownership of the Company on the Closing Date.
7.6 Nasdaq National Market Listing. Parent shall cause the shares of
Parent Common Stock issuable in the Merger to be authorized for listing on The
Nasdaq National Market prior to the time that such shares are required to be
issued.
7.7 Tax Treatment. Each of the Parent, Acquisition Corp., the Company and
the Principal Shareholders shall use their reasonable commercial efforts to
cause the Merger to
35
qualify as a reorganization under Section 368(a) of the Code. Parent and its
subsidiaries will not take, or cause the Surviving Corporation to take, any
action after the Effective Time which will cause the Merger to fail to qualify
as a reorganization under the provisions of Section 368(a) of the Code,
including, without limitation, any payment pursuant to Section 2.2(a)(ii) of
consideration other than shares of Parent Common Stock if such payment, taking
into account any claims against the Escrow Deposit, would cause the percentage
of total Merger consideration constituting cash or other non-Parent Common Stock
consideration to be in excess of 50% of the total Merger consideration.
7.8 Indemnification.
(a) The Surviving Corporation shall assume at the Effective
Time, and shall be liable for a period of six years commencing at the Effective
Time for, the Company's obligations to indemnify (excluding any and all claims
arising (i) in connection with the transactions contemplated by this Agreement
and (ii) pursuant to Article XII hereof, defend and hold harmless each person
who is or has been at any time prior to the Effective Time, or who becomes prior
to the Effective Time, an officer, director or employee of the Company (the
"Company Indemnified Parties") in respect of acts or omissions occurring on or
prior to the Effective Time to the extent provided in the Surviving
Corporation's Certificate of Incorporation and Bylaws in effect on the date
hereof.
(b) If the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person or entity and
shall not be the continuing or surviving person of such consolidation or merger
or (ii) transfers all or substantially all of its properties and assets to any
persons or entity, then and in each such case, proper provision shall be made so
that the survivor or transferee shall assume the indemnification obligations
provided for in Section 7.8(a).
7.9 Exchange Act Reports. Parent shall timely file all reports required
to be filed under the Exchange Act, during the period commencing on the date
hereof and ending on June 30, 2002.
7.10 Supplements to Disclosure Schedules. From time to time prior to
the Effective Time, the Company shall supplement or amend the Disclosure
Schedules with respect to any matter hereafter arising that, if existing or
occurring at or prior to the date of this Agreement, would have been required to
be set forth or described in the Disclosure Schedules or that is necessary to
correct any information in the Disclosure Schedules or in any representation and
warranty of the Company that has been rendered inaccurate thereby. Solely for
purposes of determining the accuracy of the representations and warranties of
the Company contained in Article III in order to determine the fulfillment of
the conditions set forth in Section 9.1, the Disclosure Schedules delivered by
the Company shall be deemed to include only that information contained therein
on the date of this Agreement and shall be deemed to exclude any information
contained in any subsequent supplement or amendment thereto.
36
7.11 Legends. The Company shall re-issue a certificate without the
legend described in Section 4.2 and the Letter of Transmittal to the holder of
such certificate, if the shares represented by such certificate are being
transferred pursuant to an effective registration statement under the Securities
Act or if the shares represented by such certificate may be publicly sold
pursuant to Rule 144(k) under the Securities Act.
ARTICLE VIII
COVENANTS OF CERTAIN PRINCIPAL SHAREHOLDERS
8.1 Non-competition. Each of the Principal Shareholders hereby
severally and not jointly agrees that for a period of two (2) years after the
date hereof, he, she or it will not, directly or indirectly, alone or as a
partner, officer, director, employee, consultant, agent, independent contractor
or stockholder of any company or business organization, engage in any business
activity, or have a financial interest in any business activity (excepting only
the ownership of not more than 5% of the outstanding securities of any class of
any entity listed on an exchange or regularly traded in the over-the-counter
market), which is directly or indirectly in competition with the products or
services being developed, marketed, sold or otherwise provided by the Company,
or which is directly or indirectly detrimental to the Company's business as of
the Closing Date ("Competitive Activity"). Such Principal Shareholder further
agrees that, for a period of two (2) years from after the date hereof, he, she
or it will not in any capacity, either separately, jointly or in association
with others, directly or indirectly, solicit or contact in connection with, or
in furtherance of, a Competitive Activity any of the Company's employees,
consultants, agents, suppliers, customers or prospects that were such with
respect to the Company at any time during the one year immediately preceding the
date hereof or that become such with respect to the Company at any time during
the one year immediately following the date hereof. Such Principal Shareholder's
obligations under this Section 8.1 shall survive the termination or cessation of
his, her or its employment with the Company and shall not be limited by Article
XII hereof.
ARTICLE IX
CONDITIONS TO THE OBLIGATIONS OF
THE PARENT AND ACQUISITION CORP.
The obligation of the Parent and Acquisition Corp. to consummate the
transactions contemplated hereby shall be subject to the satisfaction, on or
prior to the Closing Date, of each of the following conditions (any of which may
be waived in writing by the Parent and Acquisition Corp. in their sole
discretion):
9.1 Representations and Warranties True. The representations and
warranties of the Company and the Principal Shareholders which are contained in
this Agreement, or contained in any Schedule, certificate or instrument
delivered or to be delivered pursuant to this Agreement,
37
shall be true and correct in all material respects at and as of the Closing Date
as though such representations and warranties were made on and as of the Closing
Date, and at the Closing the Company shall have delivered to the Parent and
Acquisition Corp. a certificate (signed on behalf of the Company by the
President of the Company) to that effect with respect to all such
representations and warranties made by the Company, and the Principal
Shareholders shall have executed and delivered to the Parent and Acquisition
Corp. a certificate to that effect with respect to all such representations and
warranties made by the Principal Shareholders.
9.2 Performance. The Company and the Principal Shareholders shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by them
on or prior to the Closing Date, and at the Closing the Company shall have
delivered to the Parent and Acquisition Corp. a certificate (duly executed on
behalf of the Company by the President and the Chief Financial Officer of the
Company) to that effect with respect to all such obligations required to have
been performed or complied with by the Company on or before the Closing Date,
and the Principal Shareholders shall have executed and delivered to the Parent
and Acquisition Corp. a certificate to that effect with respect to all such
obligations required to have been performed or complied with by the Principal
Shareholders on or before the Closing Date.
9.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority), and no
investigation by any governmental or regulatory body, agency or authority shall
have been commenced with respect to the transactions contemplated hereby or with
respect to the Company which would have a material adverse effect on the
transactions contemplated hereby or have a Company Material Adverse Effect.
9.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by the Company or any Shareholder in connection with the
Merger and the other transactions contemplated by this Agreement (including
those identified on Schedule 3.3) shall have been obtained and shall be in full
force and effect.
9.5 Additional Agreements. Parent shall have the following agreements:
(i) Employment Agreements, in a form satisfactory to Parent, executed by
each of Xxxxx X. Xxxxx and W. Xxxxxxx Xxxxxxx (the "Key Employees");
(ii) the Escrow Agreement annexed as Exhibit C hereto, duly
executed by the Shareholder Representatives and the Escrow Agent;
38
(iii) the Letter of Transmittal in the form of Exhibit B duly
executed by holders of at least 90% of the outstanding shares of Company Common
Stock (the "Letter of Transmittal"); and
(iv) a FIRPTA Certificate, duly executed by the Company.
9.6 Delivery of Certificates for Cancellation. The share certificates
representing at least 90% of the issued and outstanding shares of Company Common
Stock as of the Closing Date, duly endorsed in blank, shall have been
surrendered for cancellation.
9.7 Appraisal Rights. The holders of at least 90% of the issued and
outstanding shares of Company Stock shall have voted in favor of the approval of
the Merger and the transactions contemplated hereby and no holders of shares of
Company Stock shall have demanded appraisal rights in respect of the Merger.
9.8 Certificate of Merger. The Company shall have executed and
delivered to the Parent counterparts of the Certificates of Merger to be filed
with the Secretary of State of the State of Utah and the Secretary of State of
the State of Delaware in connection with the Merger.
9.9 Payment of Indebtedness. At or prior to the Effective Time, the
Company shall have paid in full all outstanding indebtedness such that at the
Closing the Company shall not have any outstanding indebtedness other than
accounts payable incurred in the ordinary course of business.
9.10 Insight Capital Partners III, L.P. Prior to the Closing, Insight
Capital Partners III, L.P. ("Insight") and the Company shall have entered into
and consummated a stock purchase agreement whereby Insight acquires from the
Company shares of Company Common Stock with an aggregate value of $1,400,000 in
consideration for the conversion into equity of all outstanding indebtedness to
Insight and the payment by Insight to the Company of $500,000.
9.11 Indemnification Agreements. The Company shall have delivered to
Parent evidence that the Indemnification Agreements entered into by the Company
and each of W. Xxxxxxx Xxxxxxx, Xxxxx X. Xxxxx, Xxxxx Xxxxx and Xxxx X. Xxxxxxx
are terminated and are of no further force and effect.
9.12 Opinion of Xxxxxxxx & Xxxxxxxx, LLP. The Company shall have
delivered to Parent an opinion of Xxxxxxxx & Xxxxxxxx, LLP, special counsel to
the Company in substantially the form annexed as Exhibit F hereto.
9.13 Opinion of Fillmore Xxxxxxxxx & Xxxxxxxxx, X.X. The Company shall
have delivered to Parent an opinion of Fillmore Xxxxxxxxx & Xxxxxxxxx, X.X. in
substantially the form annexed as Exhibit F hereto.
39
9.14 Supporting Documents. The Company shall have delivered to the
Parent a certificate of the Secretary of the Company, dated the Closing Date,
certifying on behalf of the Company (i) that attached thereto is a true and
complete copy of the By-Laws of such Company as in effect on the date of such
certification; (ii) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors and Shareholders of such Company
authorizing the execution, delivery and performance of this Agreement and the
consummation of the Merger; and (iii) to the incumbency and specimen signature
of each officer of the Company executing on behalf of such company this
Agreement and the other agreements related hereto.
ARTICLE X
CONDITIONS TO THE OBLIGATIONS OF THE
COMPANY AND THE PRINCIPAL SHAREHOLDERS
The obligation of the Company and the Principal Shareholders to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction, on or prior to the Closing Date of each of the following
conditions (any of which may be waived in writing by the Company and the
Principal Shareholders in their sole discretion):
10.1 Representations and Warranties True. The representations and
warranties of each of the Parent and Acquisition Corp. contained in this
Agreement, or contained in any Schedule, certificate or other instrument or
document delivered or to be delivered pursuant to this Agreement, shall be true
and correct in all material respects at and as of the Closing Date as though
such representations and warranties were made on and as of the Closing Date, and
at the Closing each of the Parent and Acquisition Corp. shall have delivered to
the Company and the Shareholders a certificate (signed on its behalf by its
President or its Chief Financial Officer) to that effect with respect to all
such representations and warranties made by such entity.
10.2 Performance. Each of the Parent and Acquisition Corp. shall have
performed and complied in all material respects with all of the obligations
under this Agreement which are required to be performed or complied with by them
on or prior to the Closing Date, and at the Closing each of the Parent and
Acquisition Corp. shall have delivered to the Company and the Shareholders a
certificate, signed on its behalf by its President or its Chief Financial
Officer, to that effect with respect to all such obligations required to have
been performed or complied with by such entity on or before the Closing Date.
10.3 Absence of Litigation. No statute, rule or regulation shall have
been enacted or promulgated, and no order, decree, writ or injunction shall have
been issued and shall remain in effect, by any court or governmental or
regulatory body, agency or authority which restrains, enjoins or otherwise
prohibits the consummation of the transactions contemplated hereby, and no
action, suit or proceeding before any court or governmental or regulatory body,
agency or authority shall have been instituted by any person (or instituted or
threatened by any governmental or regulatory body, agency or authority) and no
investigation by any governmental
40
or regulatory body, agency or authority shall have been commenced with respect
to the transactions contemplated hereby or with respect to the Parent or
Acquisition Corp. which would have a material adverse effect on the transactions
contemplated hereby or on the business of the Parent and Acquisition Corp. taken
as a whole.
10.4 Consents. All approvals, consents, waivers and authorizations
required to be obtained by Parent or Acquisition Corp. in connection with the
Merger and the other transactions contemplated by this Agreement (including
those identified on Schedule 5.3) shall have been obtained and shall be in full
force and effect.
10.5 Additional Agreements. The Parent shall have executed and
delivered (and shall have agreed to cause the Surviving Corporation to execute
and deliver immediately following the Effective Time, as applicable)
counterparts of the following agreements;
(i) the Employment Agreements referred to in Section 9.5(i) hereof; and
(ii) the Escrow Agreement referred to in Section 9.5(ii)
hereof, together with counterparts signed by the Escrow Agent.
10.6 Certificates of Merger. The Parent and Acquisition Corp. shall
have executed and delivered to the Company counterparts of the Certificates of
Merger to be filed with the Secretary of the State of the State of Utah and the
Secretary of State of the State of Delaware in connection with the Merger.
10.7 Cash and Shares of Parent Common Stock; Option Shares; Escrow Deposit.
(a) At the Closing the Parent shall deliver to the Shareholder
Representatives the cash portion of the Initial Merger Consideration and, within
ten (10) days after the Closing Date, shares of Parent Common Stock issuable to
the Shareholders pursuant to Section 2.2(a) hereof, as provided in Section 2.3
hereof.
(b) As soon as practicable after the Closing and in any event
within ten (10) days after the Closing, Parent shall deliver to the Company
optionholders option agreements executed by Parent for the Option Shares
pursuant to Section 2.2(c).
(c) As soon as practicable after the Closing and in any event
within ten (10) days after the Closing, Parent will deliver to the persons and
in the allocations listed on Schedule 10.7(c) option agreements, which, in the
aggregate, may be exercised at an exercise price per share equal to the last
quoted sale price for shares of Parent Common Stock on The Nasdaq National
Market on the Closing Date for shares of Parent Common Stock equal to ten
percent (10%) of the number of shares of Parent Common Stock issuable as part of
the Initial Merger Consideration.
41
(d) As soon as practicable after the Closing and in any event
within ten (10) days after the Closing, Parent shall deliver to the Escrow Agent
the shares of Parent Common Stock constituting the Escrow Deposit pursuant to
Section 2.8.
10.8 Opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx. Parent shall have
delivered to the Company an opinion of Xxxxxxxx, Xxxxxxx & Xxxxxxx, A
Professional Corporation, counsel to the Parent and Acquisition Corp., in
substantially the form annexed as Exhibit F hereto.
10.9 Supporting Documents.
(a) The Parent shall have delivered to the Company a
certificate of the Secretary of the Parent, dated the Closing Date, certifying
on behalf of the Parent (i) that attached thereto is a true and complete copy of
the By-Laws of such Parent as in effect on the date of such certification; (ii)
that attached thereto is a true and complete copy of all resolutions adopted by
the Board of Directors of such Parent authorizing the execution, delivery and
performance of this Agreement and the consummation of the Merger; and (iii) to
the incumbency and specimen signature of each officer of the Parent executing on
behalf of such Parent this Agreement and the other agreements related hereto.
(b) Acquisition Corp. shall have delivered to the Company a
certificate of the Secretary of Acquisition Corp., dated the Closing Date,
certifying on behalf of Acquisition Corp. (i) that attached thereto is a true
and complete copy of the By-Laws of such Acquisition Corp. as in effect on the
date of such certification; (ii) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors and stockholders of
such Acquisition Corp. authorizing the execution, delivery and performance of
this Agreement and the consummation of the Merger; and (iii) to the incumbency
and specimen signature of each officer of Acquisition Corp. executing on behalf
of such Acquisition Corp. this Agreement and the other agreements related
hereto.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the mutual written consent of the Company and the Parent;
(b) by either the Company or the Parent
(i) if any court or governmental or regulatory agency, authority or body
shall have enacted, promulgated or issued any statute, rule, regulation, ruling,
writ or injunction, or taken any other action, restraining, enjoining or
otherwise prohibiting the
42
transactions contemplated hereby and all appeals and means of appeal therefrom
have been exhausted; or
(ii) if the Effective Time shall not have occurred on or before July 15,
1999; provided, however, that the right to terminate this Agreement pursuant to
this Section 11.1(b)(ii) shall not be available to any party whose (or whose
affiliate(s)') breach of any representation or warranty or failure to perform or
comply with any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before such date;
or
(c) by the Company, if any of the conditions specified in
Article X have not been met or waived prior to such time as such condition can
no longer be satisfied; or
(d) by the Parent, if any of the conditions specified in
Article IX shall not have been met or waived prior to such time as such
condition can no longer be satisfied.
11.2 Effect of Termination. In the event of termination of this
Agreement, this Agreement shall forthwith become void and there shall be no
liability on the part of any of the parties hereto or (in the case of the
Company, the Parent and Acquisition Corp.) their respective officers or
directors, except for Sections 7.5 and 14.6, and the last sentence of Section
7.1, which shall remain in full force and effect, and except that nothing herein
shall relieve any party from liability for a breach of this Agreement prior to
the termination hereof.
ARTICLE XII
INDEMNIFICATION; SURVIVAL OF
REPRESENTATIONS AND WARRANTIES
12.1 Indemnity Obligations. (a) Subject to Sections 12.3 and 12.4
hereof, each of the Shareholders by approval of the Merger hereby jointly and
severally agree to indemnify and hold the Parent harmless from, and to reimburse
the Parent for, any Losses (as that term is hereinafter defined) arising out of,
based upon or resulting from (i) any inaccuracy in or breach of any
representation or warranty of the Company set forth in Article III of this
Agreement or any Schedule or certificate delivered by the Company pursuant
hereto; (ii) any breach or nonfulfillment of, or any failure to perform, any of
the covenants, agreements or undertakings of the Company (which covenants,
agreements or undertakings were to be performed or complied with on or prior to
the consummation of the Merger) which are contained in this Agreement; or (iii)
any claims arising prior to the Closing involving personal injury, death or
physical damage to the tangible or real property of the Company or any other
person which otherwise would have been covered by fire, property, casualty or
liability insurance if the Company had such insurance in place for all periods
prior to the Closing. For purposes of this Agreement, the term "Losses" shall
mean any and all losses, damages, deficiencies, liabilities, obligations,
actions, claims, suits, proceedings, demands, assessments, judgments,
recoveries, fees, costs and expenses
43
(including, without limitation, all out-of-pocket expenses, reasonable
investigation expenses and reasonable fees and disbursements of accountants and
counsel) of any nature whatsoever, net of insurance proceeds actually realized
by Parent.
(b) Subject to Sections 12.3 and 12.4 hereof, each of the
Shareholders by approval of the Merger hereby severally and not jointly agree to
indemnify and hold the Parent harmless from, and to reimburse the Parent for,
any losses arising out of, based upon or resulting from (i) any inaccuracy in or
breach of any representation or warranty of such Shareholder set forth in such
Shareholder's Transmittal Letter, or, with respect to the Principal
Shareholders, of such Principal Shareholder set forth in Article IV of this
Agreement, or any Schedule or certificate delivered by such Shareholder or
Principal Shareholder pursuant hereto or thereto; or (ii) any breach of
nonfulfillment of, or any failure to perform, any of the covenants, agreements
or undertakings of such Shareholder (which covenants, agreements or undertakings
were to be performed or complied with on or prior to the consummation of the
Merger) which are contained in the Transmittal Letter, or with respect to the
Principal Shareholders, of such Principal Shareholder set forth in Section 6.4
or Article VII of this Agreement, or any Schedule or certificate delivered by
such Shareholder or Principal Shareholder pursuant hereto or thereto.
12.2 Notification of Claims. Subject to the provisions of Section 12.3
below, in the event of the occurrence of an event pursuant to which the Parent
shall seek indemnity pursuant to Section 12.1, the Parent shall provide the
Shareholder Representatives, and, if such indemnity is sought against a
Shareholder pursuant to Section 12.1(b), the Shareholder against whom
indemnification is sought with prompt written notice (a "Claim Notice") of such
event and shall otherwise promptly make available to the Shareholder
Representatives, and, if applicable, such Shareholder, all relevant information
which is material to the claim and which is in the possession of the indemnified
party. The Claim Notice shall describe in reasonable detail the facts giving
rise to any indemnification hereunder and shall include in such Claim Notice (if
then known) the amount or method of computation of the amount of such claim and
a reference to the provisions of this Agreement or the Transmittal Letter upon
which such claim is based. Parent's failure to give a timely Claims Notice or to
promptly furnish the Shareholder Representatives, and, if applicable, such
Shareholder, with any relevant data and documents in connection with any
Third-Party Claim (as that term is hereinafter defined) shall not constitute a
defense (in part or in whole) to any claim for indemnification by such party,
except and only to the extent that such failure shall result in any prejudice to
any of the Shareholders.
(b) After the giving of any Claim Notice pursuant hereto, the
amount of indemnification to which Parent shall be entitled under this Article
XII shall be determined by (A) written agreement between the Parent, the
Shareholder Representatives and, if such indemnification is sought against a
Shareholder pursuant to Section 12.1(b) the Shareholder against whom
indemnification is sought or (B) a final judgment or decree of any court of
competent jurisdiction. The judgment or decree of a court shall be deemed final
when the time for appeal, if any, shall have expired and no appeal shall have
been taken or when all appeals taken shall have been finally determined.
44
(c) The Shareholder Representatives and, if such
indemnification is sought against a Shareholder pursuant to Section 12.1(b) the
Shareholder against whom indemnification is sought shall have the right to elect
to join in, and in such event to conduct and control, through counsel of its
choosing reasonably acceptable to Parent, the defense, settlement, adjustment or
compromise of any claim of any third party (a "Third Party Claim") as to which
indemnification will be sought by such third party from the Parent. The expense
of any such defense, settlement, adjustment or compromise, including such
counsel, shall be borne by the Shareholders with respect to indemnification
sought pursuant to Section 12.1(a) and by the Shareholders against whom
indemnification is sought with respect to indemnification sought pursuant to
Section 12.1(b); provided such expenses shall be paid from amounts held in
escrow for indemnification sought pursuant to Section 12.1(a) and from the Pro
Rata Portion (as defined below) of the Escrow Deposit attributable to the
Shareholders against whom indemnification is sought pursuant to Section 12.1(b).
Unless the Shareholder Representatives, or, if applicable, the Shareholder,
elects to assume such defense, settlement, adjustment or compromise, Parent
shall have the right to settle any such Third Party Claim; provided, however,
that Parent may not effect the settlement, adjustment or compromise of any such
Third Party Claim without the written consent of the Shareholders
Representatives, or, if applicable, the Shareholder, which consent shall not be
unreasonably withheld. In the event that the Shareholder Representatives, or, if
applicable, the Shareholder, has consented in writing to any such settlement,
adjustment or compromise, the Shareholders shall have no power or authority to
object to the amount of any claim by Parent against the escrow for indemnity
with respect to such settlement, adjustment or compromise. The Shareholder
Representatives or, if applicable, the Shareholder, shall have the right to
settle, adjust, or compromise any Third Party Claim, the defense of which is
controlled by the Shareholder Representatives, or, if applicable, the
Shareholder using amounts held in escrow; provided, however, that, unless the
settlement, adjustment or compromise involves no more than the payment of an
amount that is less than the amount of funds then remaining in the escrow (or
with respect to indemnification sought pursuant to Section 12.1(b), the Pro Rata
Portion of the Escrow Deposit attributable to the Shareholders against whom
indemnification is sought) and provides for the unconditional release of Parent,
the Company and their respective affiliates, the Shareholders may not effect the
settlement, adjustment, compromise or satisfaction of any such Third Party Claim
without the consent of the Parent, which consent shall not be unreasonably
withheld. In connection with any Third Party Claim, the indemnified party, or
the indemnifying party if it has assumed the defense of such claim pursuant to
the foregoing, shall diligently pursue the defense of such Third Party Claim.
12.3 Duration. All representations and warranties set forth in this
Agreement, the Transmittal Letters and any Schedules or certificates delivered
pursuant hereto or thereto, and all covenants, agreements and undertakings of
the parties contained in or made pursuant to this Agreement, the Transmittal
Letter and any Schedules or certificates delivered pursuant hereto or thereto,
and the rights of the parties to seek indemnification with respect thereto,
shall survive the Closing but, except in respect of any claims for
indemnification as to which a Claim Notice shall have been duly given prior to
the Escrow Release Date (as defined below), all representations, warranties,
covenants, agreements and undertakings of the Company and the Shareholders
45
contained in this Agreement and the Letters of Transmittal or any certificate or
Schedule delivered pursuant hereto or thereto shall expire on the first
anniversary of the Closing Date (the "Escrow Release Date"), at which time the
indemnification provided in Article XII shall terminate. Notwithstanding the
foregoing, (i) obligations provided in Article VIII and Section 13.5 and (ii)
obligations arising from the breaches of the representations and warranties set
forth in Sections 3.4 and 3.9 (the "Covered Representations") and arising from
fraud shall each survive the Closing Date until expiration of the applicable
statute of limitations.
12.4 Escrow. At the Effective Time, the Escrow Deposit shall be
delivered by Parent to the Escrow Agent, to be held for a period ending on the
Escrow Release Date, except the Escrow Deposit may be withheld after the Escrow
Release Date to satisfy claims for indemnification which are the subject to a
Claims Notice delivered prior to the Escrow Release Date. The Escrow Deposit
shall be held and disbursed by the Escrow Agent in accordance with an Escrow
Agreement in the form attached hereto as Exhibit C. For the purpose of any claim
against the Escrow Deposit hereunder, the value per share of the Escrow Deposit
shall be deemed to be the Closing Market Price. Except with respect to claims
based on the obligations provided in Article VIII and Section 13.5 and for fraud
committed by the Company or the Shareholders, which are not limited, if the
Closing occurs, Parent and Acquisition Corp. agree that Parent's right to
indemnification pursuant to Section 12.1 shall constitute Parent's and
Acquisition Corp.'s sole and exclusive remedy and recourse against the
Shareholders for Losses attributable to any inaccuracy or breach of any
representation or warranty, or any breach or nonfulfillment of or any failure to
perform the covenants, agreements or undertakings, of the Company or the
Shareholders which is contained in this Agreement or the Letters of Transmittal
or any Schedule or certificate delivered pursuant hereto or thereto. Except (i)
with respect to claims based on fraud committed by the Company or a Shareholder
or (ii) Losses arising under Article VIII or Section 13.5, the maximum liability
of any Shareholder shall be limited to such Shareholder's Pro Rata Portion (as
defined below) of the Escrow Deposit (or with respect to a claim for indemnity
pursuant to Section 12.1(a)(iii), such Shareholder's Pro Rata Portion of up to
$3,000,000 of the Escrow Deposit); provided, however, that the maximum liability
of any Shareholder for a breach of a Covered Representation shall be limited to
such Shareholder's Pro Rata Portion of the Losses up to the net proceeds of the
Merger consideration received by each such Shareholder pursuant to Sections
2.2(a)(i) and 2.2(a)(ii); and, provided further, that no Shareholder shall have
any liability for indemnification pursuant to Section 12.1(b) on account of any
other Shareholder. Notwithstanding anything to the contrary contained herein,
except for indemnification claims relating to Covered Representations, the
Shareholders shall have no liability for indemnification pursuant to this
Article XII until the aggregate Losses to the Parent and the Company exceed One
Hundred and Fifty Thousand Dollars ($150,000), at which point the Shareholders
shall be liable for the full amount of all Losses in excess of such amount. For
purposes of this Agreement, a "Pro Rata Portion" of a Shareholder as to any
Losses or as to the Escrow Deposit shall mean that fraction of such amount,
where the numerator is the number of shares of Company Common Stock held by such
Shareholder as of the Closing Date and the denominator is the total number of
shares of Company Common Stock outstanding as of the Closing Date.
46
12.5 No Contribution. The Shareholders hereby waive, acknowledge and
agree that the Principal Shareholders shall not have and shall not exercise or
assert (or attempt to exercise or assert), any right of contribution or right of
indemnity against the Company or the Surviving Corporation in connection with
any indemnification payments which the Principal Shareholders are required to
make under this Article XII.
ARTICLE XIII
REGISTRATION RIGHTS
13.1 Registrable Shares. For purposes of this Agreement, "Registrable
Shares" shall mean the shares of Parent Common Stock (or any Acquiror) issued in
connection with the Merger; and any shares of Parent Common Stock issued upon
the exercise of Stock Options which are exercised prior to the filing of the
Registration Statement (as defined below); provided, however, that a
distribution of shares of Parent Common Stock issued in the Merger without
additional consideration, to underlying beneficial owners (such as the general
and limited partners, members, stockholders or trust beneficiaries of a
Shareholder) shall not be deemed such a sale or transfer for purposes of this
Article XIII and such underlying beneficial owners shall be entitled to the same
rights under this Article XIII as the initial Shareholder from which the
Registrable Shares were received and shall be deemed a Shareholder for the
purposes of this Article XIII.
13.2 Required Registration. Parent shall prepare and file with the SEC
as soon as practicable after (a) the date hereof, but in no event later than 20
days after the Effective Time a registration statement on Form S-3 (and Form S-8
with respect to the Stock Options and Option Shares) (or such successor or other
appropriate form) under the Securities Act with respect to the Registrable
Shares issued as part of the Initial Merger Consideration or issuable upon
exercise of the Stock Options (the "Initial Registration Statement") and (b) as
soon as practicable after each issuance of the Additional Shares as set forth in
Section 2.2 hereof, but in no event later than 20 days after each such issuance
a registration statement on Form S-3 (and Form S-8 with respect to any
additional Registerable Shares issuable upon exercise of then outstanding Stock
Options) (or such successor or other appropriate form) under the Securities Act
(each a "Subsequent Registration Statement" and, together with the Initial
Registration Statement, the "Registration Statement") and to effect all such
registrations, qualifications and compliances (including, without limitation,
obtaining appropriate qualifications under applicable state securities or "Blue
Sky" laws and compliance with any other applicable governmental requirements or
regulations) as any selling Shareholder may reasonably request and that would
permit or facilitate the sale of Registrable Shares (provided however that
Parent shall not be required in connection therewith to qualify to do business
or to file a general consent to service of process in any such state or
jurisdiction). Notwithstanding the foregoing, in the event the Closing occurs on
or before July 1, 1999, Parent shall file the Initial Registration Statement
with the SEC no later then July 13, 1999.
47
13.3 Effectiveness; Suspension Right.
(a) Parent will use its best efforts to cause each
Registration Statement to become effective under the Securities Act (including
without limitation the filing of any amendments or other documents necessary for
such effectiveness) and to maintain the effectiveness of (i) the Initial
Registration Statement and other applicable registrations, qualifications and
compliances until one year from the Closing Date and (ii) each Subsequent
Registration Statement and other applicable registrations, qualifications and
compliances until one year from the effective date of each such Subsequent
Registration Statement (collectively, the "Registration Effective Period"), and
from time to time will amend or supplement each Registration Statement and the
prospectus contained therein as and to the extent necessary to comply with the
Securities Act, the Exchange Act and any applicable state securities statute or
regulation, subject to the following limitations and qualifications.
(b) Following such date as each Registration Statement is
first declared effective, the Shareholders will be permitted to offer and sell
the Registrable Shares registered therein during the Registration Effective
Period in the manner described in the Registration Statement provided that the
Registration Statement remain effective and have not been suspended.
(c) Notwithstanding any other provision of this Article XIII,
Parent shall have the right at any time to require that all Shareholders suspend
further open market offers and sales of Registrable Shares pursuant to the
Registration Statement whenever, and for so long as, in the reasonable judgment
of Parent, upon written advice of counsel, there is in existence material
undisclosed information or events with respect to Parent (the "Suspension
Right"). In the event Parent exercises the Suspension Right, such suspension
will continue for the period of time reasonably necessary for disclosure to
occur at the earliest time that such disclosure would not have a material
adverse effect on Parent, as determined in good faith by Parent after
consultation with counsel, provided that the holders of Registrable Shares will
be afforded the right to effect open market offers and sales of Registrable
Shares for a minimum of fifteen (15) trading days during each calendar quarter;
provided, further, that any such suspension shall apply only for so long as
"affiliates" (as defined in Rule 501 under the Securities Act of 1933) of the
Parent are restricted from selling shares of Parent Common Stock; provided
further that the one-year registration period will be extended by a period of
time equal to the aggregate of all such periods of suspension by Parent under
this Section 13.3. Parent will promptly give the Shareholders written notice of
any such suspension and will use its best efforts to minimize the length of the
suspension.
13.4 Expenses. The costs and expenses to be borne by Parent for
purposes of this Article XIII shall include, without limitation, printing
expenses (including a reasonable number of prospectuses for circulation by the
selling Shareholders), legal fees and disbursements of counsel for Parent, "blue
sky" expenses, accounting fees and filing fees, but shall not include
48
underwriting commissions or similar charges, legal fees (if any) and
disbursements of counsel for the selling Shareholders.
13.5 Indemnification.
(a) To the extent permitted by law, Parent will indemnify and
hold harmless each Shareholder, any underwriter (as defined in the Securities
Act) for such Shareholder, its officers, directors, stockholders or partners and
each person, if any, who controls such Shareholder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, or liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (A) any untrue statement
or alleged untrue statement of a material fact contained or incorporated by
reference in the Registration Statement, including any preliminary prospectus or
final prospectus contained therein or any amendments or supplements thereto, (B)
the omission or alleged omission to state or incorporate by reference therein a
material fact required to be stated or incorporated by reference therein, or
necessary to make the statements included or incorporated by reference therein
not misleading, or (C) any violation or alleged violation by Parent of the
Securities Act, the Exchange Act, any state securities law or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law; and Parent will pay to each such Shareholder (and its officers,
directors, stockholders or partners), underwriter or controlling person, any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section
13.5(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of Parent (which consent may not be unreasonably withheld); nor shall Parent be
liable in any such case for any such loss, claim, damage, liability, or action
to the extent that it arises out of or is based upon (i) a Violation which
occurs in reliance upon and in conformity with written information furnished by
any such Shareholder expressly for use in the Registration Statement, or (ii) a
Violation that would not have occurred if such Shareholder had delivered to the
purchaser the version of the Prospectus most recently provided by Parent to the
Shareholder as of a date prior to such sale.
(b) To the extent permitted by law, each selling Shareholder,
severally and not jointly, will indemnify and hold harmless Parent, each of its
directors, each of its officers who has signed the Registration Statement, each
person, if any, who controls Parent within the meaning of the Securities Act,
any underwriter, any other Shareholder selling securities pursuant to the
Registration Statement and any controlling person of any such underwriter or
other Shareholder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Securities Act, the Exchange Act or other federal or state law, insofar as, and
only to the extent that, such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation (which
49
includes without limitation the failure of the Shareholder to comply with the
prospectus delivery requirements under the Securities Act, and the failure of
the Shareholder to deliver the most current prospectus provided by Parent prior
to the date of such sale), in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Shareholder expressly for use in the Registration
Statement or such Violation is caused by the Shareholder's failure to deliver to
the purchaser of the Shareholder's Registrable Shares a prospectus (or amendment
or supplement thereto) that had been made available to the Shareholder by Parent
prior to the date of the sale; and each such Shareholder will pay any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this Section 13.5(b) in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 13.5(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Shareholder, which consent
shall not be unreasonably withheld. The aggregate indemnification and
contribution liability of each Shareholder under this Section 13.5(b) shall not
exceed the net proceeds received by such Shareholder in connection with sale of
shares pursuant to the Registration Statement.
(c) Each person entitled to indemnification under this Section
13.5 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought and shall permit the Indemnifying Party to assume the defense of any such
claim and any litigation resulting therefrom, provided that counsel for the
Indemnifying Party who conducts the defense of such claim or any litigation
resulting therefrom shall be approved by the Indemnified Party (whose approval
shall not unreasonably be withheld), and the Indemnified Party may participate
in such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 13.5 unless the
Indemnifying Party is materially prejudiced thereby. No Indemnifying Party, in
the defense of any such claim or litigation, shall (except with the consent of
each Indemnified Party) consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) To the extent that the indemnification provided for in
this Section 13.5 is held by a court of competent jurisdiction to be unavailable
to an Indemnified Party with respect to any loss, liability, claim, damage or
expense referred to herein, then the Indemnifying Party, in lieu of indemnifying
such Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one
50
had and of the Indemnified Party on the other in connection with the statements
or omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault of
the Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue of alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
13.6 Procedures for Sale of Shares Under Registration Statement.
(a) Notice and Approval. If any Shareholder shall propose to
sell (which may include an intent to sell over a specific period of time)
Registrable Shares pursuant to the Registration Statement, it shall notify
Parent of its intent to do so (including the proposed manner and timing of all
sales) at least one (1) full trading day prior to such sale, and the provision
of such notice to Parent shall conclusively be deemed to reestablish and
reconfirm an agreement by such Shareholder to comply with the registration
provisions set forth in this Agreement. Unless otherwise specified in such
notice, such notice shall be deemed to constitute a representation that any
information previously supplied by such Shareholder expressly for inclusion in
the Registration Statement (as the same may have been superseded by subsequent
such information) is accurate as of the date of such notice. At any time within
such one (1) trading-day period, Parent may refuse to permit the Shareholder to
resell any Registrable Shares pursuant to the Registration Statement; provided,
however, that in order to exercise this right, Parent must deliver a certificate
in writing to the Shareholder to the effect that a delay in such sale is
necessary because a sale pursuant to the Registration Statement in its
then-current form without the addition of material, non-public information about
Parent, could constitute a violation of the federal securities laws.
Notwithstanding the foregoing, Parent will ensure that in any event the
Shareholders shall have at least fifteen (15) trading days (prorated for partial
quarters) available to sell Registrable Shares during each calendar quarter (or
portion thereof) from the Initial Release Date until the expiration of the
applicable Registration Effective Period.
(b) Delivery of Prospectus. For any offer or sale of any of
the Registrable Shares by a Shareholder in a transaction that is not exempt
under the Securities Act, the Shareholder, in addition to complying with any
other federal securities laws, shall deliver a copy of the final prospectus (or
amendment of or supplement to such prospectus) of Parent covering the
Registrable Shares in the form furnished to the Shareholder by Parent to the
purchaser of any of the Registrable Shares on or before the settlement date for
the purchase of such Registrable Shares.
(c) Copies of Prospectuses. Subject to the provisions of this
Section 13.6, when a Shareholder is entitled to sell and gives notice of its
intent to sell Registrable Shares pursuant to the Registration Statement, Parent
shall, within two (2) trading days following the request, furnish to such
Shareholder a reasonable number of copies of a supplement to or in
51
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Shares, such prospectus shall
not as of the date of delivery to the Shareholder include an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statement therein not misleading or incomplete in the
light of the circumstances then existing.
13.7 Transferability of Registration Rights. The rights under this
Article XIII are not transferable except (a) a transfer by will or intestacy,
(b) estate planning transfers consisting of gifts to the spouse or issue of the
transferee and transfers to trusts for the benefit of the spouse or issue of the
transferee, (c) a transfer to the constituent partners of a Shareholder that is
a partnership as part of a pro rata distribution of the shares of Parent Common
Stock held by such partnership so long as all such transferees appoint a single
representative as their attorney-in-fact for the purpose of receiving any
notices and exercising their rights under this Article XIII or otherwise
pursuant to Section 13.1, or (d) with the written consent of Parent.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Amendment. This Agreement may be amended by written agreement
among the Company and the Parent prior to the Effective Time.
14.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant or agreement contained herein may be waived only by a written notice
from the party or parties entitled to the benefits thereof. No failure by any
party hereto to exercise, and no delay in exercising, any right hereunder, shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right hereunder preclude any other or future exercise of that right by that
party.
14.3 Notices. All notices and other communications hereunder shall be
deemed given if given in writing and delivered personally, by registered or
certified mail, return receipt requested, postage prepaid, or by overnight
courier to the party to receive the same at its respective address set forth
below (or at such other address as may from time to time be designated by such
party to the others in accordance with this Section 14.3):
(a) if to the Company or the Principal Shareholders, to:
Xxxxxxxxx.Xxx Corporation
0000 X. Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, XX 00000-0000
Attention: Xxxxx X. Xxxxx
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with copies to:
Xxxxxxxx & Xxxxxxxx, LLP
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, XX 00000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
(b) if to the Parent or Acquisition Corp., to:
Go2Net, Inc.
000 Xxxxx Xxxxxx
Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx
with copies to:
Xxxxxxxx, Xxxxxxx & Xxxxxxx
A Professional Corporation
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, Xx., Esq.
All such notices and communications hereunder shall be deemed given
when received, as evidenced by the signed acknowledgment of receipt of the
person to whom such notice or communication shall have been personally
delivered, the acknowledgment of receipt returned to the sender by the
applicable postal authorities or the confirmation of delivery rendered by the
applicable overnight courier service.
14.4 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors (or, in the case of the Principal Shareholders, their
respective heirs, administrators, executors and personal representatives) and
permitted assigns. Neither this Agreement nor any rights, duties or obligations
hereunder shall be assigned by any party hereto without the prior written
consent of the other parties hereto, except that vested rights to receive
payment or to initiate legal action with respect to causes of action that have
accrued hereunder shall be assignable by devise, descent or operation of law.
14.5 No Third Party Beneficiaries. Neither this Agreement or any
provision hereof nor any Schedule, certificate or other instrument delivered
pursuant hereto, nor any agreement to be entered into pursuant hereto or any
provision hereof, is intended to create any right, claim or remedy in favor of
any person or entity, other than the parties hereto and their respective
successors (or, in the case of the Principal Shareholders, their respective
heirs, administrators,
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executors and personal representatives) and permitted assigns and any other
parties indemnified under Article XII.
14.6 Public Announcements. Promptly after the Effective Time, the
Parent and the Company shall issue a press release in such form as they shall
mutually agree. Other than as provided in the immediately preceding sentence,
none of the parties hereto shall, except as mutually agreed by the Parent and
the Company, or except as may be required by law or applicable regulatory
authority (including, without limitation, the rules applicable to Nasdaq
National Market companies), issue any reports, releases, announcements or other
statements to the public relating to the transactions contemplated hereby.
14.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.8 Headings. The article and section headings contained in this
Agreement are solely for convenience of reference, are not part of the agreement
of the parties and shall not be used in construing this Agreement or in any way
affect the meaning or interpretation of this Agreement.
14.9 Entire Agreement. This Agreement, and the Schedules, certificates
and other instruments and documents delivered pursuant hereto, together with the
other agreements referred to herein and to be entered into pursuant hereto,
embody the entire agreement of the parties hereto in respect of, and there are
no other agreements or understandings, written or oral, among the parties
relating to, the subject matter hereof, other than the Confidentiality
Agreements. This Agreement supersedes all prior agreements and understandings,
written or oral, between the parties with respect to such subject matter, other
than the Confidentiality Agreements.
14.10 Governing Law. The parties hereby agree that this Agreement, and
the respective rights, duties and obligations of the parties hereunder, shall be
governed by and construed in accordance with the General Corporation Law of the
State of Delaware as to matters within the scope thereof and, as to all other
matters, shall be governed by and construed with the laws of the State of
Washington, without giving effect to principles of conflicts of law thereunder.
Each of the parties hereby (i) irrevocably consents and agrees that any legal or
equitable action or proceeding arising under or in connection with this
Agreement shall be brought exclusively in the Federal or state courts sitting in
Seattle, Washington and any court to which an appeal may be taken in any such
litigation, and (ii) by execution and delivery of this Agreement, irrevocably
submits to and accepts, with respect to any such action or proceeding, for
itself and in respect of its properties and assets, generally and
unconditionally, the jurisdiction of the aforesaid courts, and irrevocably
waives any and all rights such party may now or hereafter have to object to such
jurisdiction.
[Remainder of Page Intentionally Left Blank]
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GO2NET, INC.
COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition Corp. and the Company's
Principal Shareholders named below have caused this Agreement to be duly
executed and delivered as an instrument under seal as of the date first above
written.
PARENT:
GO2NET, INC.
By:_______________________________________
Name: Xxxxxxx X. Xxxxxxxx
Title: Chief Executive Officer
ACQUISITION CORP.:
3I ACQUISITION CORP.
By:_______________________________________
Name: Xxxxxxx X. Xxxxxxxx
Title: Chief Executive Officer
THE COMPANY:
XXXXXXXXX.XXX CORPORATION
By:_______________________________________
Name: Xxxxx X. Xxxxx
Title: President
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GO2NET, INC.
COUNTERPART SIGNATURE PAGE
TO AGREEMENT AND PLAN OF MERGER
IN WITNESS WHEREOF, the Parent, Acquisition Corp., and the Company's
Principal Shareholders named below have caused this Agreement to be duly
executed and delivered as an instrument under seal as of the date first above
written.
PRINCIPAL SHAREHOLDERS:
---------------------------------------
Xxxxx X. Xxxxx
---------------------------------------
W. Xxxxxxx Xxxxxxx
-S-2-
