Agreement and Plan of Merger and Reorganization - Lycos Inc. and Wired Ventures Inc.
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
LYCOS, INC.,
a Delaware corporation,
BF ACQUISITION CORP.,
a Delaware corporation,
WIRED VENTURES, INC.,
a Delaware corporation,
and
H. William Jesse, Jr., Louis Rossetto and Paul J. Salem
AS STOCKHOLDER REPRESENTATIVES
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Table of Contents
Page
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ARTICLE 1 DESCRIPTION OF TRANSACTION.................................. 1
1.1 Merger of Acquisition Sub into Ventures..................... 1
1.2 Effect of the Merger........................................ 1
1.3 Closing; Effective Time..................................... 1
Certificate of Incorporation and Bylaws; Directors and
1.4 Officers.................................................... 2
1.5 Merger Consideration........................................ 2
1.6 Effect on Capital Stock..................................... 7
Allocation of Merger Consideration--Actual Average Closing
Stock Price less than or equal to the Upper Collar Limit.... 9
Allocation of Merger Consideration--Actual Average Closing
Stock Price greater than the Upper Collar Limit but less
than or equal to $90.00..................................... 11
Allocation of Merger Consideration--Actual Average Closing
Stock Price greater than $90.00............................. 13
1.7 Dissenting Shares........................................... 14
1.8 Exchange of Certificates.................................... 15
1.9 Tax Consequences............................................ 16
1.10 Accounting Consequences..................................... 16
1.11 Further Action.............................................. 16
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF VENTURES.................. 17
2.1 Organization, Standing, Etc. ............................... 17
2.2 Wired Companies; Title to Wired Companies' Shares, Etc. .... 18
2.3 Capitalization of Ventures.................................. 18
2.4 Certificate of Incorporation and Bylaws..................... 18
2.5 Compliance with Other Instruments and Laws.................. 18
2.6 Governmental Authorizations and Consents.................... 19
2.7 No Violations............................................... 19
2.8 Financial Statements........................................ 19
2.9 Absence of Certain Changes or Events........................ 20
2.10 Title to Assets............................................. 21
2.11 Intellectual Property....................................... 21
2.12 Benefit Plans............................................... 22
2.13 Litigation.................................................. 25
2.14 Taxes....................................................... 26
2.15 Contracts................................................... 27
2.16 Insurance................................................... 28
2.17 Environmental Quality....................................... 28
2.18 Brokers..................................................... 29
2.19 Statements; Proxy Statement/Prospectus...................... 30
2.20 Governmental Permits........................................ 30
2.21 Major Customers............................................. 30
2.22 Traffic..................................................... 30
2.23 Accounts Receivable......................................... 31
2.24 Bank Accounts; Powers of Attorney........................... 31
2.25 Minute Books, Etc. ......................................... 31
2.26 Company Action.............................................. 31
2.27 Disclosure.................................................. 31
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND ACQUISITION SUB......................................... 32
3.1 Organization and Standing of Purchaser...................... 32
3.2 Charter and Bylaws.......................................... 32
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3.3 Capitalization of Purchaser................................ 32
3.4 Authorization.............................................. 32
3.5 Enforceability............................................. 32
3.6 Compliance with Other Instruments and Laws................. 33
3.7 Governmental Authorizations and Consents................... 33
3.8 Litigation................................................. 33
3.9 Brokers.................................................... 34
3.10 Public Filings............................................. 34
3.11 Statements; Proxy Statement/Prospectus..................... 34
3.12 Ownership of Ventures Stock................................ 35
3.13 Material Adverse Effect.................................... 35
ARTICLE 4 COVENANTS OF VENTURES...................................... 35
4.1 Conduct of Business........................................ 35
4.2 Access..................................................... 37
4.3 No-Shop Provision.......................................... 37
4.4 Meeting of Stockholders.................................... 38
4.5 Consent of Ventures' Stockholders to Certain Payments...... 38
ARTICLE 5 COVENANTS OF PURCHASER AND ACQUISITION SUB................. 38
5.1 Confidentiality............................................ 38
5.2 Investigation.............................................. 38
5.3 Employees.................................................. 39
5.4 Indemnification............................................ 39
5.5 Stock Options.............................................. 39
5.6 Nasdaq National Market..................................... 40
5.7 Advance Agreement.......................................... 40
5.8 Tax Refund Amount.......................................... 40
ARTICLE 6 COVENANTS OF ALL PARTIES................................... 41
6.1 Best Efforts; Further Assurances........................... 41
6.2 Certain Filings............................................ 41
6.3 Public Announcements....................................... 41
6.4 Tax Returns................................................ 42
6.5 Proxy Statement and Registration Statements................ 43
6.6 Tax-Free Reorganization.................................... 44
6.7 Tax Representation Letters................................. 44
6.8 Marketing Program Funding.................................. 44
ARTICLE 7 CONDITIONS TO OBLIGATIONS OF PURCHASER AND ACQUISITION SUB
TO CLOSE................................................... 45
7.1 Accuracy of Representations and Warranties................. 45
7.2 Performance................................................ 45
7.3 Certificate................................................ 45
7.4 Employment Agreements...................................... 45
7.5 No Injunction.............................................. 45
7.6 HSR Act.................................................... 45
7.7 Legal Opinion.............................................. 45
7.8 Stockholder Approval....................................... 45
7.9 Consents................................................... 46
7.10 Escrow Agreement........................................... 46
7.11 Resignations............................................... 46
7.12 Appraisal Rights........................................... 46
7.13 Termination of Agreements.................................. 46
7.14 Form S-4 Registration Statement............................ 46
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7.15 Tax Opinion................................................ 46
7.16 Quotation on Nasdaq National Market........................ 46
7.17 Consent of Ventures' Stockholders to Certain Payments...... 46
ARTICLE 8 CONDITIONS TO OBLIGATION OF VENTURES TO CLOSE.............. 47
8.1 Accuracy of Representations and Warranties................. 47
8.2 Performance................................................ 47
8.3 Certificate................................................ 47
8.4 No Injunction.............................................. 47
8.5 HSR Act.................................................... 47
8.6 Consents................................................... 47
8.7 Legal Opinion.............................................. 47
8.8 Stockholder Approval....................................... 47
8.9 Tax Opinion................................................ 48
8.10 Form S-4 Registration Statement............................ 48
8.11 Quotation on Nasdaq National Market........................ 48
ARTICLE 9 TERMINATION................................................ 48
9.1 Right to Terminate Agreement............................... 48
9.2 Effect of Termination...................................... 49
9.3 Failure to Close........................................... 49
ARTICLE 10 ADJUSTMENT PROCEDURES...................................... 49
10.1 Preparation of Final Closing Balance Sheet................. 49
10.2 Adjustment of Escrow Fund.................................. 51
ARTICLE 11 CERTAIN REMEDIES AND LIMITATIONS........................... 52
11.1 Expiration of Representations, Warranties and Covenants.... 52
11.2 Escrow Fund................................................ 52
11.3 Indemnification by Purchaser............................... 53
11.4 Defense of Third Party Actions............................. 53
11.5 Subrogation; No Contribution............................... 54
11.6 Exclusivity................................................ 55
11.7 Retention of Records....................................... 55
11.8 Notice as to Representations............................... 55
11.9 No Recission............................................... 55
ARTICLE 12 MISCELLANEOUS.............................................. 55
12.1 Material Adverse Effect.................................... 55
12.2 Knowledge of Ventures...................................... 56
12.3 Memorandum; Disclaimer of Projections...................... 56
12.4 Expenses................................................... 57
12.5 Notices.................................................... 58
12.6 Assignment................................................. 60
12.7 Entire Agreement; Amendment; Governing Law; etc. .......... 60
12.8 Counterparts............................................... 60
12.9 Venue...................................................... 60
12.10 Third-Party Rights......................................... 61
12.11 Titles and Headings........................................ 61
12.12 Exhibits and Schedules..................................... 61
12.13 Pronouns................................................... 61
12.14 Severability............................................... 61
12.15 Time of Essence............................................ 61
12.16 Interpretation............................................. 61
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TABLE OF EXHIBITS
Exhibit Description
------- -----------
A Forms of Voting Agreement
B Form of Tax Representation Letter of Ventures
C Form of Tax Representation Letter of Purchaser
D Form of Employment Agreement
E Form of Nondisclosure and Developments Agreement
F Opinion of Cooley Godward LLP
G Form of Escrow Agreement
H Opinion of Hutchins, Wheeler & Dittmar
Certain Exhibits and Schedules have been ommitted but will be provided by Lycos
on request.
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement And Plan Of Merger And Reorganization (this "Agreement") is
entered into as of May 26, 1999 by and among Lycos, Inc., a Delaware
corporation ("Purchaser"), BF Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Purchaser ("Acquisition Sub"), Wired Ventures, Inc.,
a Delaware corporation ("Ventures"), and H. William Jesse, Jr., Louis Rossetto
and Paul J. Salem, as stockholder representatives (the "Stockholder
Representatives"). This Agreement amends and restates in its entirety that
certain Agreement and Plan of Merger and Reorganization, dated as of October 5,
1998, as amended and restated on November 25, 1998, among the parties hereto;
provided, however, that all representations and warranties will be deemed made
as of October 5, 1998 and all references to "as of the date of this Agreement"
or language of similar import will be deemed to refer to October 5, 1998.
Recitals
A. Purchaser, Acquisition Sub and Ventures intend to effect a merger of
Acquisition Sub into Ventures in accordance with this Agreement and applicable
laws (the "Merger"). Upon consummation of the Merger, Acquisition Sub will
cease to exist, and Ventures will become a wholly-owned subsidiary of
Purchaser.
B. The respective boards of directors of Purchaser, Acquisition Sub and
Ventures have adopted this Agreement and approved the Merger.
C. As a condition and inducement to Purchaser's willingness to enter into
this Agreement, certain stockholders of Ventures have, concurrently with the
execution of this Agreement, executed and delivered to Purchaser a Voting
Agreement in one of the forms attached hereto as Exhibit A, pursuant to which
such stockholders have agreed to vote their shares of Ventures' capital stock
in favor of the Merger and to grant Purchaser irrevocable proxies to vote such
shares.
Agreement
The parties to this Agreement, intending to be legally bound, agree as
follows:
ARTICLE I
DESCRIPTION OF TRANSACTION
1.1 Merger of Acquisition Sub into Ventures. Upon the terms and subject to
the conditions set forth in this Agreement, at the Effective Time (as defined
in Section 1.3), Acquisition Sub shall be merged with and into Ventures, and
the separate existence of Acquisition Sub shall cease. Ventures will continue
as the surviving corporation in the Merger (the "Surviving Corporation").
1.2 Effect of the Merger. The Merger shall have the effects set forth in this
Agreement and in the applicable provisions of the Delaware General Corporation
Law ("DGCL") and other applicable law.
1.3 Closing; Effective Time. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Cooley Godward LLP, One Maritime Plaza, 20th Floor, San Francisco,
California, at 10:00 a.m. on a date to be agreed by Purchaser and Ventures (the
"Closing Date"), which shall be no later than the third business day after the
satisfaction or waiver of the conditions set forth in Articles 7 and 8.
Contemporaneously with the Closing, a properly executed agreement of merger or
certificate of merger conforming to the requirements of the DGCL shall be filed
with the Secretary of State of the State of Delaware. The Merger shall take
effect at the time such agreement of merger or certificate of merger is filed
with the Secretary of State of the State of Delaware (the "Effective Time").
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1.4 Certificate of Incorporation and Bylaws; Directors and Officers. Unless
otherwise agreed by Purchaser and Ventures prior to the Effective Time:
(a) the Certificate of Incorporation of Ventures, as amended by the
agreement of merger or the certificate of merger, as the case may be, shall
be the Certificate of Incorporation of the Surviving Corporation;
(b) the Bylaws of Acquisition Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation;
(c) the directors of the Surviving Corporation immediately after the
Effective Time shall be the individuals who are directors of Acquisition
Sub immediately prior to the Effective Time; and
(d) the officers of the Surviving Corporation immediately after the
Effective Time shall be the individuals who are officers of Acquisition Sub
immediately prior to the Effective Time.
1.5 Merger Consideration.
(a) The consideration to be paid by Purchaser in the Merger (the "Merger
Consideration") shall consist of the following components: the Merger
Shares (as hereinafter defined), the Cash Portion (as hereinafter defined),
the Tax Refund Amount (as hereinafter defined) and the Advance Escrow
Amount (as hereinafter defined).
(b) For purposes of this Agreement:
(1) The term "Merger Shares" shall mean a number of shares of Common
Stock of Purchaser, $.01 par value per share ("Purchaser Common Stock"),
equal to the sum of the Digital Shares and the Cash Balance Shares, where:
(i) the term "Digital Shares" means a number of shares of Purchaser
Common Stock, rounded to the nearest full share, equal to $95 million
divided by the Average Closing Stock Price (as hereinafter defined);
provided that, in no event shall the number of Digital Shares exceed
4,602,713; and
(ii) the term "Cash Balance Shares" means a number of shares of
Purchaser Common Stock, rounded to the nearest full share, equal to the
Cash Share Value (as hereinafter defined) divided by the Average
Closing Stock Price.
(2) The term "Cash Balance" shall mean the cash amount equal to (i) Wired
Cash at Closing, (ii) minus Wired Borrowings at Closing, (iii) minus Wired
Adjusted Working Capital Shortfall at Closing, (iv) minus the Closing
Expense Adjustment Amount (as such terms are hereinafter defined).
(3) The term "Cash Share Value" shall mean the Cash Balance; provided,
however, that: (i) to the extent the Merger Shares would otherwise exceed
19.9% of the outstanding capital stock of Purchaser as of the Closing Date,
the Cash Share Value shall be decreased and the Cash Portion shall be
correspondingly increased and (ii) if the Average Closing Stock Price is
less than or equal to the Lower Collar Limit (as hereinafter defined),
Purchaser shall have the option, in its sole discretion, to decrease the
Cash Share Value and to correspondingly increase the Cash Portion.
Notwithstanding any other provision of this Agreement to the contrary, the
Cash Share Value shall not be decreased and the Cash Portion shall not be
increased if and to the extent such decrease would result in the Equity
Cash Value (as hereinafter defined) exceeding twenty percent (20%) of the
Total Equity Value (as hereinafter defined). For purposes hereof, "Equity
Cash Value" shall mean the sum of (A) the Cash Portion payable to the
holders of Ventures Capital Stock plus (B) $9,767,868 plus (C) the dollar
amount of the cash to be paid to the holders of Ventures Capital Stock with
respect to fractional shares pursuant to Section 1.6(d) plus (D) two
multiplied by the cash amount that would have been paid to the holders of
Dissenting Shares (as defined in Section 1.7) if such holders had not
dissented plus (E) two multiplied by the amount equal to (I) the number of
shares of Purchaser Common Stock that would have been issued to the holders
of Dissenting Shares if such holders had not dissented multiplied by (II)
the closing price of Purchaser Common Stock
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on the trading date immediately prior to the Effective Time. For purposes
hereof, "Total Equity Value" shall mean (x) the number of shares of
Purchaser Common Stock issued to the holders of Ventures Capital Stock
pursuant to Section 1.6A, 1.6B or 1.6C (other than to the holders of
Dissenting Shares and other than such shares as are placed in the Escrow
Fund on behalf of the holders of Ventures Capital Stock pursuant to Section
1.6A(b), 1.6B(b) or 1.6C(b)) multiplied by the closing price of Purchaser
Common Stock on the trading date immediately prior to the Effective Time
plus (y) the Equity Cash Value, Notwithstanding any other provision of this
Agreement to the contrary, the Cash Share Value shall not be decreased if
and to the extent such decrease would result in the Warrant Cash Value (as
hereinafter defined) exceeding twenty percent (20%) of the Total Warrant
Value (as hereinafter defined). For purposes hereof, "Warrant Cash Value"
shall mean the sum of (A) the Cash Portion payable to the holders of
Warrants plus (B) $32,132 plus (C) the dollar amount of the cash to be paid
to Warrant holders with respect to fractional shares pursuant to Section
1.6(d). For purposes hereof, "Total Warrant Value" shall mean (x) the
number of shares of Purchaser Common Stock issued to the holders of
Warrants pursuant to Section 1.6 (other than such shares as are placed in
the Escrow Fund on behalf of Warrant holders pursuant to Section 1.6A(b),
1.6B(b) or 1.6C(b)) multiplied by the closing price of Purchaser Common
Stock on the trading date immediately prior to the Effective Time plus (y)
the Warrant Cash Value.
Immediately following the close of trading on the trading date immediately
prior to the Effective Time (or the business day immediately prior to the
Effective Time, if later), Purchaser will calculate the Cash Share Value
and provide such calculation to Ventures in writing.
(4) The term "Average Closing Stock Price" shall mean the average of the
closing prices of one share of Purchaser Common Stock for the twenty (20)
consecutive most recent days that Purchaser Common Stock has traded on the
Nasdaq National Market ("NNM") ending on the third trading day preceding
the Effective Time, as reported on the NNM; provided, however, that the
Average Closing Stock Price shall not be greater than $42.86 (the "Upper
Collar Limit") or less than $20.64 (the "Lower Collar Limit").
(5) The term "Actual Average Closing Stock Price" shall mean the average
of the closing prices of one share of Purchaser Common Stock for the five
(5) consecutive most recent days that the Purchaser Common Stock has traded
on the NNM ending on the third trading day preceding the Effective Time, as
reported on the NNM.
(6) The term "Advance Escrow Amount" shall mean any and all amounts that
are delivered to or for the benefit of Ventures at any time, or from time
to time, pursuant to the escrow arrangements (the "Advance Escrow")
established under Section 10.2(b) of that certain Asset Purchase Agreement
dated as of May 7, 1998 among Advance Magazine Publishers Inc., Ventures,
Wired Magazine Group, Inc., Wired Digital, Inc., Wired Books, Inc., Wired
Television, Inc. and The Chase Manhattan Bank, as Escrow Agent, as amended
(the "Advance Agreement"), less any portion of such amounts that is
required to be delivered to Purchaser pursuant to Section 10.2 below.
(7) The term "Cash Portion" shall mean the amount of Merger
Consideration, if any, to be paid in cash pursuant to the provisos to the
definition of Cash Share Value.
(8) The term "Common Share Value" shall mean $12,538,700.
(9) The term "Closing Expense Adjustment Amount" shall mean any amounts
in excess of $2.5 million paid or payable by Ventures at or prior to the
Closing pursuant to Section 12.4.
(10) The term "Series A Share Value" shall mean 78.8% of the Residual
Share Value (as hereinafter defined).
(11) The term "Series B Share Value" shall mean $20.00 times the number
of shares of Ventures Series B Preferred Stock (as hereinafter defined)
outstanding immediately prior to the Effective Time.
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(12) The term "Series C Share Value" shall mean the sum of:
(i) $5.71 times the number of shares of Ventures Series C Preferred
Stock (as hereinafter defined) outstanding immediately prior to the
Effective Time (the "Series C Liquidation Value");
(ii) all Series C Accrued Dividends (as hereinafter defined);
(iii) 26.903553% of the Series B Share Value (the "Series C/B
Participation Value"); and
(iv) 21.2% of the Residual Share Value (as hereinafter defined).
(13) The term "Series C Accrued Dividends" shall mean the sum of (i)
$1,718,829 and (ii) $5,085.85 times the number of calendar days in the
period beginning January 1, 1998 and ending the day prior to the Closing
Date.
(14) The term "Residual Share Value" shall mean $95 million less the sum
of (i) the Common Share Value, (ii) the Series B Share Value, (iii) the
Series C Liquidation Value, (iv) the Series C Accrued Dividends and (v) the
Series C/B Participation Value.
(15) The term "Tax Refund Amount" shall mean the cash amount equal to the
federal and state tax refunds actually received by Purchaser with respect
to the Wired Companies' (as hereinafter defined) pre-Closing tax periods,
including without limitation refunds generated by the carryback of losses
of any of the Wired Companies following the Closing, less any fees and
expenses incurred by Purchaser in connection with the receipt of such
refunds by Purchaser; provided, however, that such net amount shall not
exceed $5 million. Notwithstanding the foregoing, the $5 million amount
shall be reduced by the tax effect on Purchaser or the Wired Companies of
the disallowance of any deduction claimed by Ventures or the Wired
Companies with respect to pre-Closing tax periods, but such amount shall
not constitute a Loss for purposes of Article 11 of this Agreement to the
extent of such reduction. The computation of refunds generated by the
carryback of losses of any of the Wired Companies following the Closing
shall include all refunds that would reasonably be available if Purchaser
had prepared its post-Closing tax returns and made its tax elections in a
manner so as to maximize the dollar value of such refunds, determined
solely with regard to the operations of the acquired Wired Companies on a
stand-alone basis.
(16) The term "Wired Cash at Closing" shall mean all cash and cash
equivalents of the Wired Companies as of the Closing (including any cash
held by Ventures that represents the exercise price of stock options
exercised for cash after the date hereof), as reflected on the Preliminary
Closing Balance Sheet (as hereinafter defined), minus an amount of cash
sufficient to fund Ventures' obligation to pay the amounts identified on
Schedule 1.5 (the "Cash Exclusions"); provided, however, that for purposes
of calculating Wired Cash at Closing, Ventures shall be deemed to hold an
incremental amount of cash equal to the sum of (A) the Marketing Program
Funding Amount described in Section 6.8, (B) any amounts paid by Ventures
at or prior to the Closing pursuant to Section 12.4, and (C) the aggregate
exercise price of all stock options presently held by or hereafter granted
to employees of the Wired Companies (but not non-employees), as described
in Schedule 2.3, and Warrants (as defined in Section 2.3) to the extent
such stock options and Warrants are either held unexercised at the Closing
Date or net-exercised between the date hereof and the Closing Date.
(17) The term "Wired Borrowings at Closing" shall mean all indebtedness
for borrowed money of the Wired Companies as of the Closing, as reflected
on the Preliminary Closing Balance Sheet. Obligations under capitalized
leases shall not constitute Wired Borrowings at Closing.
(18) The term "Wired Adjusted Working Capital Shortfall at Closing" shall
mean the absolute value of the difference between (i) $432,172 and (ii) the
adjusted working capital (i.e., current assets less current liabilities) of
the Wired Companies as of the Closing, as reflected on the Preliminary
Closing Balance Sheet; provided, however, that, for the purpose of
calculating Wired Adjusted Working Capital Shortfall at Closing only, Wired
Cash at Closing (together with the offsetting Cash Exclusions) and Wired
Borrowings at Closing shall be disregarded, and no amounts payable by
Ventures pursuant to Section 12.4 at or prior to the Closing shall be
deemed to be a current liability. Notwithstanding the foregoing, Wired
Adjusted Working Capital Shortfall at Closing shall be zero if the adjusted
working capital described in subparagraph (ii) above is $432,172 or
greater.
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(19) The term "Pass-Through Component" shall mean (i) the number of
shares of Purchaser Common Stock, rounded to the nearest full share, equal
to the Cash Balance divided by the Actual Average Closing Stock Price (the
"Cash Pass-Through Shares"), (ii) the Cash Portion, (iii) the Advance
Escrow Amount and (iv) the Tax Refund Amount.
(20) The term "Cash Premium Component" shall mean the number of shares of
Purchaser Common Stock, if any, by which the number of Cash Balance Shares
as determined under Section 1.5(b)(1)(ii) exceeds the number of Cash Pass-
Through Shares.
(21) The term "Series A Per Share Amount" shall mean what each share of
Ventures Series A Preferred Stock is automatically converted into pursuant
to Section 1.6A(a)(2), 1.6B(a)(2) or 1.6C(a)(2).
(22) The final result (but not interim results) of all calculations of
fractions, ratios and percentages shall be rounded to six (6) decimal
places.
(c) Not later than ten (10) business days prior to the Closing, Ventures
shall prepare in good faith and deliver to Purchaser an estimated consolidated
balance sheet of Ventures and the other Wired Companies as of the Closing Date
(the "Preliminary Closing Balance Sheet"). Except for the fact that it is based
on estimates and the absence of footnotes, the Preliminary Closing Balance
Sheet shall be prepared in accordance with U.S. generally accepted accounting
principles ("GAAP") on a basis consistent with that used in the preparation of
the Financial Statements (as hereinafter defined). Based on the Preliminary
Closing Balance Sheet, Ventures shall calculate Wired Cash at Closing and Wired
Adjusted Working Capital Shortfall at Closing, and Ventures shall calculate
Wired Cash at Closing and Wired Adjusted Working Capital Shortfall at Closing,
and Ventures shall deliver such calculations to Purchaser with the Preliminary
Closing Balance Sheet. Within five (5) business days after such delivery,
Purchaser shall concur in such Preliminary Closing Balance Sheet and
calculations or deliver to Ventures is proposed alternatives thereto. If
Ventures and Purchaser cannot agree within two (2) business days on the
appropriate values for Wired Cash at Closing and Wired Adjusted Working Capital
Shortfall at Closing, then Ventures and Purchaser shall submit their respective
proposed values to Arthur Andersen LLP, who shall be asked to select, for each
of such items, either Ventures' or Purchaser's proposed value as the more
correct value in accordance with the standards set forth herein. If both values
proposed by one of the parties are selected, the other party shall pay the fees
and expenses of Arthur Andersen LLP; otherwise such fees and expenses shall be
shared equally between the parties. The conditions to Closing set forth in
Articles 7 and 8 shall be deemed not to have been met until after the
determination of Wired Cash at Closing and Wired Adjusted Working Capital
Shortfall at Closing.
1.6 Effect on Capital Stock.
(a) Capital Stock Ventures. At the Effective Time, by virtue of the
Merger and without any further action on the part of Purchaser, Acquisition
Sub, Ventures or any stockholder of Ventures or of Acquisition Sub all
outstanding shares of capital stock of Ventures, 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 immediately prior to the Effective Time, shall be
converted into, or exchanged for, the Merger Consideration. If the Actual
Average Closing Stock Price is less than or equal to the Upper Collar
Limit, the Merger Consideration shall be allocated as set forth in Section
1.6A. If the Actual Average Closing Stock Price is greater than the Upper
Collar Limit but less than or equal to $90.00, the Merger Consideration
shall be allocated as set forth in Section 1.6B. If the Actual Average
Closing Stock Price is greater than $90.00, the Merger Consideration shall
be allocated as set forth in Section 1.6C. In no case shall more than one
of either Section 1.6A, Section 1.6B or Section 1.6C apply.
(b) Stock Options and Warrants. At the Effective Time, all Options (as
defined in Section 2.3) will be assumed by Purchaser in accordance with
Section 5.5. Each Warrant issued and outstanding immediately prior to the
Effective Time will be canceled and extinguished and, with the consent of
the holder thereof, converted into the right to receive cash and stock in
amounts equal to the difference
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between (i) the product of the Series A Per Share Amount (as defined
herein) and the number of shares of Ventures Series A Preferred Stock
issuable upon full cash exercise of such Warrant and (ii) the aggregate
cash exercise price of such Warrant.
(c) Capital Stock of Acquisition Sub. At the Effective Time, each share
of Common Stock, $0.01 par value per share, of Acquisition Sub (the
"Acquisition Sub Common Stock") issued and outstanding immediately prior to
the Effective Time shall be converted into one validly issued, fully paid
and nonassessable share of Common Stock, $0.01 par value per share, of the
Surviving Corporation. At and after the Effective Time, each certificate
evidencing ownership of shares of Acquisition Sub Common Stock shall
evidence ownership of such shares of capital stock of the Surviving
Corporation.
(d) Fractional Shares. No fraction of a share of Purchaser Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Ventures Common Stock, Ventures Series A Preferred Stock,
Ventures Series B Preferred Stock or Ventures Series C Preferred Stock
(collectively, the "Ventures Capital Stock") or Warrants (after aggregating
all fractional shares of Purchaser Common Stock that otherwise would be
received by such holder) shall receive from Purchaser an amount of cash
(rounded to the nearest whole cent) equal to the product of (1) such
fraction and (2) the Average Closing Stock Price.
(e) Adjustments for Changes in Stock. If, between the date of this
Agreement and the Effective Time, the outstanding shares of Purchaser
Common Stock or Ventures Capital Stock (or any class or series thereof) are
changed into a different number or class of shares by reason of any stock
dividend, subdivision, reclassification, recapitalization, split-up,
combination or similar transaction, the exchange ratios for the Ventures
Capital Stock set forth in Sections 1.6A, 1.6B and 1.6C below and, in the
case of changes in the Purchaser Common Stock, the Upper Collar Limit, the
Lower Collar Limit and any other references to per share values of
Purchaser Common Stock shall be appropriately adjusted. With respect to the
Escrow Shares, if, between the Effective Time and the date of termination
of the Escrow Fund, the outstanding shares of Purchaser Common Stock are
changed into a different number or class of shares by reason of any stock
dividend, subdivision, reclassification, recapitalization, split-up,
combination or similar transaction, the number and type of Escrow Shares
shall be appropriately adjusted.
(f) Escrow. At the Closing, on behalf of the holders of the outstanding
Ventures Capital Stock, Options and Warrants and pursuant to Article 11,
Purchaser shall deposit with State Street Bank and Trust Company (the
"Escrow Agent"): (1) that number of shares of Purchaser Common Stock
representing 10% of the total number of shares of Purchaser Common Stock
issuable pursuant to Section 1.6A(a), 1.6B(a) or 1.6C(a), less 10% of that
number of shares obtained by dividing the amount of Wired Cash at Closing
by the Average Closing Stock Price; and (2) instruments or other
documentation representing Options to purchase 10% of the shares of
Purchaser Common Stock issuable upon the exercise of all Options
(collectively, the "Escrow Shares").
1.6A Allocation of Merger Consideration--Actual Average Closing Stock Price
less than or equal to the Upper Collar Limit.
(a) Conversion of Shares.
(1) Each share of Common Stock of Ventures, $0.001 par value per share
(the "Ventures Common Stock"), issued and outstanding immediately prior to
the Effective Time (other than any Dissenting Shares (as defined in Section
1.7)) will be canceled and extinguished and automatically converted into
that fraction of a share of the Purchaser Common Stock equal to the Common
Share Value divided by the product of (A) the total number of shares of
Ventures Common Stock outstanding on a fully-diluted, fully-converted basis
as though all convertible debt and equity securities (excluding Ventures
Series A Preferred Stock, Ventures Series B Preferred Stock and Ventures
Series C Preferred Stock) and options (whether vested or unvested) and
warrants (other than the Warrants) that are convertible into or exercisable
for Ventures Common Stock had been converted into or exercised for Ventures
Common Stock immediately prior to the Effective Time (the "Fully-diluted
Common Shares Outstanding") and
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(B) the Average Closing Stock Price. The term "Common Upper Collar
Fraction" shall refer to the greater of (i) that fraction of a share of
Purchaser Common Stock into which each share of Ventures Common Stock would
be converted pursuant to this Section 1.6A(a)(1) if the Average Closing
Stock Price were equal to $42.86 or (ii) if the Average Closing Stock Price
were less than $42.86, that fraction of a share of Purchaser Common Stock
into which each share of Ventures Common Stock would be converted pursuant
to this Section 1.6A(a)(1) at the Average Closing Stock Price.
(2) Each share of Series A Preferred Stock of Ventures, $0.001 par value
per share (the "Ventures Series A Preferred Stock"), issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into:
(i) that fraction of a share of Purchaser Common Stock equal to the
quotient obtained by dividing (A) the sum of the Series A Share Value
and the aggregate exercise price of all Warrants outstanding
immediately prior to the Effective Time by (B) the product of (1) the
total number of shares of Ventures Series A Preferred Stock outstanding
on a fully-diluted, fully-converted basis as though all convertible
debt and warrants which are convertible into or exercisable for
Ventures Series A Preferred Stock had been converted into or exercised
for Ventures Series A Preferred Stock immediately prior to the
Effective Time (the "Fully-diluted Series A Shares Outstanding") and
(2) the Average Closing Stock Price. The term "Series A Upper Collar
Fraction" shall refer to the greater of (i) that fraction of a share of
Purchaser Common Stock into which each share of Ventures Series A
Preferred Stock would be converted pursuant to this Section
1.6A(a)(2)(i) if the Average Closing Stock Price were equal to $42.86
and the Series C Accrued Dividends were equal to $4,343,130 or (ii) if
the Average Closing Stock Price were less than $42.86, that fraction of
a share of Purchaser Common Stock into which each share of Ventures
Series A Preferred Stock would be converted pursuant to this Section
1.6A(a)(2)(i) at the Average Closing Stock Price and if the Series C
Accrued Dividends were equal to $4,343,130;
(ii) that fraction of a share of Purchaser Common Stock equal to
78.8% of the Cash Share Value divided by the product of (A) the Fully-
diluted Series A Shares Outstanding and (B) the Average Closing Stock
Price;
(iii) the right to receive that fraction of the Advance Escrow Amount
equal to 0.788 divided by the number of Fully-diluted Series A Shares
Outstanding;
(iv) the right to receive that fraction of the Cash Portion equal to
0.788 divided by the number of Fully-diluted Series A Shares
Outstanding; and
(v) the right to receive that fraction of the Tax Refund Amount equal
to 0.788 divided by the number of Fully-diluted Series A Shares
Outstanding.
(3) Each share of Series B Preferred Stock of Ventures, $0.001 par value
per share (the "Ventures Series B Preferred Stock") issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into that
fraction of a share of Purchaser Common Stock equal to the Series B Share
Value divided by the product of (A) the total number of shares of Ventures
Series B Preferred Stock outstanding on a fully-diluted, fully-converted
basis as though all convertible debt and warrants which are convertible
into or exercisable for Ventures Series B Preferred Stock has been
converted into or exercised for Ventures Series B Preferred Stock
immediately prior to the Effective Time (the "Fully-diluted Series B Shares
Outstanding") and (B) the Average Closing Stock Price. The term "Series B
Upper Collar Fraction" shall refer to the greater of (i) that fraction of a
share of Purchaser Common Stock into which each share of Ventures Series B
Preferred Stock would be converted pursuant to this Section 1.6A(a)(3) if
the Average Closing Stock Price were equal to $42.86 or (ii) if the Average
Closing Stock Price were less than $42.86, that fraction of a share of
Purchaser Common Stock into which each share of Ventures Series B Preferred
Stock would be converted pursuant to this Section 1.6A(a)(3) at the Average
Closing Stock Price.
(4) Each share of Series C Preferred Stock, $0.001 par value per share
(the "Ventures Series C Preferred Stock"), issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into:
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(i) that fraction of a share of Purchaser Common Stock equal to the
Series C Share Value divided by the product of (A) the total number of
shares of Ventures Series C Preferred Stock outstanding on a fully-
diluted, fully-converted basis as though all convertible debt and
warrants which are convertible into or exercisable for Ventures Series
C Preferred Stock had been converted into or exercised for Ventures
Series C Preferred Stock immediately prior to the Effective Time (the
"Fully-diluted Series C Shares Outstanding") and (B) the Average
Closing Stock Price. The term "Series C Upper Collar Fraction" shall
refer to the greater of (i) that fraction of a share of Purchaser
Common Stock into which each share of Ventures Series C Preferred Stock
would be converted pursuant to this Section 1.6A(a)(4)(i) if the
Average Closing Stock Price were equal to $42.86 and the Series C
Accrued Dividends were equal to $4,343,130 or (ii) if the Average
Closing Stock Price were less than $42.86, that fraction of a share of
Purchaser Common Stock into which each share of Ventures Series C
Preferred Stock would be converted pursuant to this Section
1.6A(a)(4)(i) at the Average Closing Stock Price and if the Series C
Accrued Dividends were equal to $4,343,130;
(ii) that fraction of a share of Purchaser Common Stock equal to
21.2% of the Cash Share Value divided by the product of (A) the Fully-
diluted Series C Shares Outstanding and (B) the Average Closing Stock
Price;
(iii) the right to receive that fraction of the Advance Escrow Amount
equal to 0.212 divided by the number of Fully-diluted Series C Shares
Outstanding;
(iv) the right to receive that fraction of the Cash Portion equal to
0.212 divided by the number of Fully-diluted Series C Shares
Outstanding; and
(v) the right to receive that fraction of the Tax Refund Amount equal
to 0.212 divided by the number of Fully-diluted Series C Shares
Outstanding.
(b) Escrow Shares If this Section 1.6A governs the allocation of the Merger
Consideration, the portion of the Escrow Shares deemed to have been contributed
shall be determined as follows:
(1) Each of the holders of Ventures Common Stock (including holders of
Options to purchase Ventures Common Stock) shall be deemed to have
contributed 10% of the aggregate number of shares of Purchaser Common Stock
(including Purchaser Common Stock issuable upon exercise of such Options)
to which each such holder is entitled under Sections 1.6A(a) and 5.5.
(2) Of the balance of the Escrow Shares:
(i) 78.8% shall be deemed to have been contributed on behalf of the
holders of Ventures Series A Preferred Stock (including holders of
Warrants to purchase Ventures Series A Preferred Stock) in proportion
to the aggregate number of shares of Purchaser Common Stock (including
Purchaser Common Stock issuable upon exercise of such Warrants) to
which each such holder is entitled under Sections 1.6(b) and 1.6A(a);
and
(ii) 21.2% shall be deemed to have been contributed on behalf of the
holders of Ventures Series C Preferred Stock in proportion to the
aggregate number of shares of Purchaser Common Stock to which each such
holder is entitled under Section 1.6A(a).
1.6B Allocation of Merger Consideration--Actual Average Closing Stock Price
greater than the Upper Collar Limit but less than or equal to $90.00.
(a) Conversion of Shares.
(1) Each share of Ventures Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into (A) that
fraction of a share of Purchaser Common Stock equal to (i) the Common Upper
Collar Fraction minus (ii) for each $1.00 increase in the Actual Average
Closing Stock Price above the Upper Collar Limit, that fraction of a share
of the Purchaser Common Stock equal to 1,383.1559 (or the
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applicable portion for increases in the Actual Average Closing Stock Price
less than $1.00) divided by the Fully-diluted Common Shares Outstanding and
(B) for each $1.00 increase in the Actual Average Closing Stock Price above
the Upper Collar Limit, the right to receive that percentage of the Pass-
Through Component equal to .217586% (or the applicable portion for
increases in the Actual Average Closing Stock Price less than $1.00)
divided by the Fully-diluted Common Shares Outstanding.
(2) Each share of Ventures Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be canceled and extinguished and automatically
converted into: (A) that fraction of a share of Purchaser Common Stock
equal to (i) the Series A Upper Collar Fraction plus (ii) for each $1.00
increase in the Actual Average Closing Stock Price above the Upper Collar
Limit, that fraction of a share of Purchaser Common Stock equal to
8,514.6003 (or the applicable portion for increases in the Actual Average
Closing Stock Price less than $1.00) divided by the Fully-diluted Series A
Shares Outstanding; (B) the right to receive that percentage of the Pass-
Through Component equal to (i) 78.8% minus for each $1.00 increase in the
Actual Average Closing Stock Price above the Upper Collar Limit, .570087%
(or the applicable portion for increases in the Actual Average Closing
Stock Price less than $1.00), (ii) divided by the Fully-diluted Series A
Shares Outstanding; and (C) the right to receive (i) 78.8% of the Cash
Premium Component (ii) divided by the Fully-diluted Series A Shares
Outstanding.
(3) Each share of Ventures Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be canceled and extinguished and automatically
converted into (A) that fraction of a share of Purchaser Common Stock equal
to (i) the Series B Upper Collar Fraction minus (ii) for each $1.00
increase in the Actual Average Closing Stock Price above the Upper Collar
Limit, that fraction of a share of Purchaser Common Stock equal to
2,067.3308 (or the applicable portion for increases in the Actual Average
Closing Stock Price less than $1.00) divided by the Fully-diluted Series B
Shares Outstanding and (B) for each $1.00 increase in the Actual Average
Closing Stock Price above the Upper Collar Limit, the right to receive that
percentage of the Pass-Through Component equal to .185855% (or the
applicable portion for increases in the Actual Average Closing Stock Price
less than $1.00) divided by the Fully-diluted Series B Shares Outstanding.
(4) Each share of Ventures Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be canceled and extinguished and automatically
converted into: (A) that fraction of a share of Purchaser Common Stock
equal to (i) the Series C Upper Collar Fraction minus (ii) for each $1.00
increase in the Actual Average Closing Stock Price above the Upper Collar
Limit, that fraction of a share of Purchaser Common Stock equal to
5,064.1135 (or the applicable portion for increases in the Actual Average
Closing Stock Price less than $1.00) divided by the Fully-diluted Series C
Shares Outstanding; (B) the right to receive that percentage of the Pass-
Through Component equal to (i) 21.2% plus for each $1.00 increase in the
Actual Average Closing Stock Price above the Upper Collar Limit, .166646%
(or the applicable portion for increases in the Actual Average Closing
Stock Price less than $1.00) (ii) divided by the Fully-diluted Series C
Shares Outstanding; and (C) the right to receive (i) 21.2% of the Cash
Premium Component (ii) divided by the Fully-diluted Series C Shares
Outstanding.
(b) Escrow Shares. If this Section 1.6B governs the allocation of the Merger
Consideration, the Escrow Shares shall be deemed to have been contributed on
behalf of the holders of Ventures Capital Stock, Options and Warrants ratably
in proportion to the percentage of the Merger Consideration received and
Options held by each such holder.
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1.6C Allocation of Merger Consideration--Actual Average Closing Stock Price
greater than $90.00.
(a) Conversion of Shares.
(1) Each share of Ventures Common Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into (A) that
fraction of a share of Purchaser Common Stock equal to (i) $20,461,337
divided by (ii) the product of the Actual Average Closing Stock Price and
the Fully-diluted Common Shares Outstanding and (B) the right to receive
that percentage of the Pass-Through Component equal to 10.257% divided by
the Fully-diluted Common Shares Outstanding.
(2) Each share of Venture Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into:
(i) that fraction of a share of Purchaser Common Stock equal to (A)
the sum of (i) $103,585,521 plus (ii) zero if the Actual Average
Closing Stock Price is less than $105, $1,000,000 if the Actual Average
Closing Stock Price is greater than or equal to $115 but less than
$115, $2,000,000 if the Actual Average Closing Stock Price is greater
than or equal to $115 but less than $115, $2,000,000 if the Actual
Average Closing Stock Price is greater than or equal to $115 but less
than $125, $3,000,000 if the Actual Average Closing Stock Price is
greater than or equal to $125 but less than $135, $4,000,000 if the
Actual Average Closing Stock Price is greater than or equal to $135 but
less than $145, or $5,000,000 if the Actual Average Closing Stock Price
is greater than or equal to $145 plus (iii) 78.8% of (1) 2,216,519
multiplied by the Actual Average Closing Stock Price minus
(2) $199,486,701 divided by (B) the product of the Actual Average
Closing Stock Price and the Fully-diluted Series A Shares Outstanding;
(ii) the right to receive that percentage of the Pass-Through
Component equal to 51.9261% divided by the Fully-diluted Series A
Shares Outstanding; and
(iii) the right to receive (A) 78.8% of the Cash Premium Component
(B) divided by the Fully-diluted Series A Shares Outstanding.
(3) Each share of Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any Dissenting Shares)
will be canceled and extinguished and automatically converted into (A) that
fraction of a share of Purchaser Common Stock equal to (i) $17,477,392
divided by (ii) the product of the Actual Average Closing Stock Price and
the Fully-diluted Series B Shares Outstanding and (B) the right to receive
that percentage of the Pass-Through Component equal to 8.7612% divided by
the Fully-diluted Series B Shares Outstanding.
(4) Each share of Ventures Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than any
Dissenting Shares) will be canceled and extinguished and automatically
converted into:
(i) that fraction of a share of Purchaser Common Stock equal to (A)
the sum of (i) $57,962,541 minus (ii) zero if the Actual Average
Closing Stock Price is less than $105, $1,000,000 if the Actual Average
Closing Stock Price is greater than or equal to $105 but less than
$115, $2,000,000 if the Actual Average Closing Stock Price is greater
than or equal to $115 but less than $125, $3,000,000 if the Actual
Average Closing Stock Price is greater than or equal to $125 but less
than $135, $4,000,000 if the Actual Average Closing Stock Price is
greater than or equal to $135 but less than $145, or $5,000,000 if the
Actual Average Closing Stock Price is greater than or equal to $145
plus (iii) 21.2% of (1) 2,216,519 multiplied by the Actual Average
Closing Stock Price minus (2) $199,486,701 divided by (B) the product
of the Actual Average Closing Stock Price and the Fully-diluted Series
C Shares Outstanding:
(ii) the right to receive that percentage of the Pass-Through
Component equal to 29.0557% divided by the Fully-diluted Series C
Shares Outstanding; and
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(iii) the right to receive (A) 21.2% of the Cash Premium Component
(B) divided by the Fully-diluted Series C Shares Outstanding.
(b) Escrow Shares. If this Section 1.6C governs the allocation of the
Merger Consideration, the Escrow Shares shall be deemed to have been
contributed on behalf of the holders of Ventures Capital Stock, Options and
Warrants ratably in proportion to the percentage of the Merger
Consideration received and Options and Warrants held by each such holder.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of Ventures Capital Stock who (1) has the right under
applicable law to demand dissenter's or appraisal rights for such shares, (2)
has demanded and perfected such rights under applicable law and (3) as of the
Effective Time, has not effectively withdrawn or lost such rights ("Dissenting
Shares"), shall not be converted into Purchaser Common Stock pursuant to
Section 1.6A(a), 1.6B(a) or 1.6C(a), but the holder thereof shall only be
entitled to such rights as are granted by applicable law.
(b) Notwithstanding the foregoing, if any holder of shares of Ventures
Capital Stock who has the right under applicable law to demand and who does
demand appraisal of such shares under applicable law shall effectively withdraw
or lost (through failure to perfect or otherwise) the right to appraisal, then,
as of the later of the Effective Time and the occurrence of such event, such
holder's shares shall automatically be converted into and represent only
Purchaser Common Stock in accordance with Section 1.6A(a), 1.6B(a) or 1.6C(a),
whichever is applicable.
(c) Ventures shall give Purchaser (1) prompt written notice of any written
demands for appraisal, withdrawals of demands for appraisal and any other
instruments served on Ventures pursuant to applicable law and (2) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under applicable law. Ventures will not voluntarily make any
payment with respect to any demands for appraisal and will not, except with the
prior written consent of Purchaser, settle or offer to settle any such demands.
It is understood and agreed that the obligation to make any payment under
applicable law shall be exclusively that of the surviving corporation and that
Purchaser (i) shall be under no obligation to perform and discharge any such
obligation or to reimburse or make any contribution to the capital of the
surviving corporation to enable it to perform or discharge any such obligation,
and (ii) shall have no recourse pursuant to Article 11 of this Agreement or
otherwise against the Wired Companies or their affiliates or stockholders with
respect to any such demands or obligation.
1.8 Exchange of Certificates.
(a) Boston EquiServe, Purchaser's transfer agent, shall serve as an exchange
agent in the Merger (the "Exchange Agent").
(b) At the Effective Time, Purchaser shall (1) authorize the Exchange Agent
to make available in accordance with this Article 1 the shares of Purchaser
Common Stock issuable pursuant to Section 1.6A(a), 1.6B(a) or 1.6C(a) in
exchange for outstanding shares of Ventures Capital Stock and (2) deliver to
the Exchange Agent cash in the amount of the Cash Portion plus cash in an
amount sufficient for payment in lieu of fractional shares pursuant to Section
1.6(d).
(c) No later than three (3) business days prior to the mailing date of the
notice of meeting of stockholders (or written consent of stockholders in lieu
of meeting), Purchaser shall provide Ventures with copies of the following
materials: (1) a letter of transmittal in customary form and (2) instructions
for use in effecting the surrender of Ventures certificates and (3) any other
documents required to be signed by a holder of a certificate or certificates
(the "Ventures Certificates") that immediately prior to the Effective Time
represented outstanding shares of Ventures Capital Stock or warrants that were
converted into shares of Purchaser Common Stock pursuant to Section 1.6A(a),
1.6B(a) or 1.6C(a) and cash in lieu of any fractional shares pursuant to
Section 1.6(d) in order to surrender such Ventures Certificates in exchange for
certificates representing the
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Purchaser Common Stock and portion of the Cash Portion pursuant to Section
1.6A(a), 1.6B(a) or 1.6C(a) and cash in lieu of any fractional shares pursuant
to Section 1.6(d). Holders of Ventures Certificates who complete and validly
execute and submit such documents in accordance with the instructions thereto,
together with such Ventures Certificates (or affidavit of loss and indemnity in
accordance with Section 1.8(e) below), to Purchaser at the Closing shall be
deemed to have effected a surrender of such Ventures Certificates to the
Exchange Agent for cancellation in accordance with the requirements of Section
1.8(d) below. Promptly after the Effective Time, but in no event later than ten
(10) business days thereafter, Purchaser shall cause the Exchange Agent to mail
to each such holder who has surrendered Ventures Certificates at the Closing
(i) certificates evidencing the number of full shares of Purchaser Common Stock
and portion of the Cash Portion into which the shares of Ventures Capital Stock
represented by the Ventures Certificates so surrendered by such holder were
converted pursuant to Section 1.6A(a), 1.6B(a) or 1.6C(a) and (ii) cash in lieu
of any fractional shares in accordance with Section 1.6(d).
(d) Promptly after the Effective Time, but in no event later than ten (10)
business days thereafter, Purchaser shall cause the Exchange Agent to mail to
each holder of record (as of the Effective Time) of Ventures Certificates that
did not surrender such Certificate pursuant to Section 1.8(c), the following
materials: (1) a letter of transmittal in customary form and (2) instructions
for use in effecting the surrender of the Ventures Certificates in exchange for
certificates representing the Purchaser Common Stock and portion of the Cash
Portion pursuant to Section 1.6A(a), 1.6B(a) or 1.6C(a) and cash in lieu of any
fractional shares pursuant to Section 1.6(d). Upon surrender of Ventures
Certificates for cancellation to the Exchange Agent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Ventures Certificates shall be
entitled to receive in exchange therefor certificates representing the number
of whole shares of Purchaser Common Stock and portion of the Cash Portion into
which their shares of Ventures Capital Stock were converted at the Effective
Time and payment in lieu of fractional shares that such holders have the right
to receive pursuant to Section 1.6(d). Until so surrendered, outstanding
Ventures Certificates will be deemed from and after the Effective Time, for all
corporate purposes, to evidence the ownership of the number of full shares of
Purchaser Common Stock and portion of the Cash Portion into which the shares of
Ventures Capital Stock represented thereby were so converted and the right to
receive an amount in cash in lieu of any fractional shares in accordance with
Section 1.6(d).
(e) In the event any Ventures Certificates have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Ventures Certificates, upon the making of an affidavit of that fact
by the holder thereof in a form reasonably acceptable to Purchaser,
certificates representing the shares of Purchaser Common Stock and portion of
the Cash Portion into which the shares of Ventures Capital Stock represented by
such Ventures Certificates were converted pursuant to Section 1.6A(a), 1.6B(a)
or 1.6C(a) and any cash for fractional shares pursuant to Section 1.6(d).
Purchaser may in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Ventures
Certificate to provide to Purchaser an indemnity agreement, reasonable in form
and substance, against any claim that may be made against Purchaser with
respect to the Ventures Certificate alleged to have been lost, stolen or
destroyed.
1.9 Tax Consequences. For federal income tax purposes, the Merger is intended
to constitute a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). The parties to this
Agreement hereby adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Treasury
Regulations.
1.10 Accounting Consequences. For financial reporting purposes, the Merger is
intended to be accounted for as a purchase.
1.11 Further Action. If, at any time after the Effective Time, any further
action is determined by Purchaser to necessary or desirable to carry out the
purposes of this Agreement or to vest the Surviving Corporation with full
right, title and possession of and to all rights and property of Acquisition
Sub and Ventures, the officers and directors of the Surviving Corporation and
Purchaser shall be fully authorized (in the name of Acquisition Sub, in the
name of Ventures and otherwise) to take such action.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF VENTURES
Except as set forth in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), of which the Schedules referred to below are a part,
and in the documents and other materials identified in the Disclosure Schedule,
the section numbers and letters of which correspond to the section and
subsection numbers and letters of this Agreement, Ventures represents and
warrants to Purchaser as follows:
2.1 Organization, Standing, Etc. of the Wired Companies; Corporate
Authorization; Enforceability.
(a) Each of the Wired Companies is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization and has all requisite corporate power and authority to carry on
its business as currently conducted and to own or lease and to operate its
properties. Each of the Wired Companies is qualified to do business and is in
good standing in each jurisdiction in which the property owned, leased or
operated by it, or the nature of the business conducted by it, makes such
qualification necessary and in which the failure to so qualify would have a
material adverse effect on the business, operations, financial condition or
results of operations of the Wired Companies, taken as a whole (a "Material
Adverse Effect on Wired"). With respect to each of the Wired Companies, the
jurisdiction in which it is organized and qualified to do business is listed in
Schedule 2.1.
(b) Ventures 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 all other documents and instruments executed
or to be executed by Ventures pursuant to this Agreement have been duly
authorized by all necessary corporate and other action on the part of Ventures.
This Agreement and all other documents and instruments executed or to be
executed by Ventures pursuant to this Agreement have been, or will have been,
at the time of their respective executions and deliveries, duly executed and
delivered by a duly authorized officer of Ventures.
(c) This Agreement and all other agreements executed or to be executed by
Ventures pursuant to this Agreement constitute, or will constitute, the valid
and legally binding obligations of Ventures, enforceable in accordance with
their respective terms, except as such enforceability may be limited by
equitable principles and by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or similar laws relating to or affecting the rights of
creditors generally.
2.2 Wired Companies; Title to Wired Companies' Shares, Etc. Schedule 2.2
contains a list of each corporation or other entity of which Ventures owns,
directly or indirectly, 50% or more of the outstanding equity interests
(collectively with Ventures, the "Wired Companies") and the capitalization and
ownership thereof. Except as set forth in Schedule 2.2, each of the equity
interests in the Wired Companies owned by Ventures is free and clear of any
lien, pledge, charge, adverse claim, security interest, encumbrance (including
any imposed by law in any jurisdiction), title retention agreement, option,
equity or right to purchase of any kind except for restrictions on transfer
imposed by applicable securities laws. Except as set forth in Schedule 2.2, the
Wired Companies do no own any shares of capital stock or other securities of,
or have an ownership interest in, any corporation, partnership, association or
other entity.
2.3 Capitalization of Ventures. The authorized capital stock of Ventures
consists of: (a) 30,000,000 shares of Preferred Stock, par value $0.001 per
share, of which 15,300,000 shares have been designated Series A Preferred
Stock, 700,000 shares have been designated Series B Preferred Stock, 3,800,000
shares have been designated Series C Preferred Stock and 50,000 shares have
been designated Series D Preferred Stock; and (b) 45,000,000 shares of Common
Stock. As of the date of this Agreement, the shares of Ventures Capital Stock
that are issued and outstanding consist of 15,199,794 shares of Ventures Series
A Preferred Stock, 625,000 shares of Ventures Series B Preferred Stock,
3,762,760 shares of Ventures Series C Preferred Stock, no shares of Ventures
Series D Preferred Stock and 96,223 shares of Ventures Common Stock. All of the
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issued and outstanding shares of Ventures Capital Stock are owned of record by
the persons set forth on Schedule 2.3. Each issued and outstanding share of
Ventures Capital Stock has been duly authorized and validly issued and is fully
paid and nonassessable. Except for warrants to purchase an aggregate of 50,000
shares of Ventures Series A Preferred Stock (the "Warrants") and options to
purchase an aggregate of 2,297,430 shares of Ventures Common Stock (the
"Options"), and except as set forth on Schedule 2.3, no subscriptions, options,
warrants, calls or rights of any kind, directly or indirectly to purchase or
otherwise acquire any shares of capital stock of any of the Wired Companies,
and no securities directly or indirectly convertible into or exchangeable for
any shares of capital stock of any of the Wired Companies are outstanding. The
Options are held by present or former directors, officers and employees of and
consultants to the Wired Companies, in the amounts and with the exercise prices
and vesting schedules set forth on Schedule 2.3.
2.4 Certificate of Incorporation and Bylaws. Copies of the certificate of
incorporation and bylaws or other organizational documents of each of the Wired
Companies have been made available to Purchaser, and each such copy is true,
correct and complete.
2.5 Compliance with Other Instruments and Laws. The execution and delivery of
this Agreement and all other documents and instruments executed or to be
executed by Ventures pursuant to this Agreement, and the consummation of the
transactions contemplated hereby, will not (A) conflict with or result in any
violation of or default under any provision of the charter or bylaws of any of
the Wired Companies, (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 any note, bond security agreement,
mortgage, indenture, trust, lease, partnership or other agreement or other
instrument, permit, concession, grant, franchise or license, or give rise to
any right of termination, cancellation, modification or acceleration under, or
require any consent or the giving of any notice under, any agreement or other
instrument or obligation to which any of the Wired Companies is a party, or by
which any of the Wired Companies or any of their 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 any of the Wired Companies pursuant to the terms of any such instrument or
obligation, the result of which (either individually or in the aggregate) would
have a Material Adverse Effect on Wired, or (C) violate or conflict with any
law, judgment, order, decree, statute, law, ordinance, rule or regulation, writ
injunction, decree or other instrument of any Federal, state, local or foreign
court or governmental or regulatory body, agency or authority applicable to any
of the Wired Companies or by which any of their properties or assets may be
bound, the result of which (either individually or in the aggregate) would have
a Material Adverse Effect on Wired. Ventures has complied with all of its
obligations under Section 1.5 of the Advance Agreement and Advance Magazine
Publishers Inc. ("AMP") has waived any rights under Section 1.5 to purchase
Ventures or Wired Digital, Inc.
2.5 Governmental Authorizations and Consents. Except as set forth on Schedule
2.6, no material consents, licenses, approvals or authorizations of, or
registrations or declarations with, any governmental authority, agency, bureau
or commission, or any third party, are required to be obtained or made by any
of the Wired Companies in connection with the execution, delivery, performance,
validity and enforceability of this Agreement or the Merger, other than (a) a
filing with the Federal Trade Commission and the Department of Justice under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (b) the approval of Ventures' stockholders in accordance with applicable
law, (c) filing the Certificate of Merger under the DGCL and (d) other
consents, licenses, approvals, authorizations, registrations or declarations,
where the failure to obtain such would not have a Material Adverse Effect on
Wired.
2.7 No Violations. None of the Wired Companies is in violation of any term of
its certificate of incorporation or bylaws or other charter documents or any
note, bond, security agreement, mortgage, indenture, instrument or agreement
relating to indebtedness for borrowed money or of any judgment, decree or order
which names such entity, or of any term of any other instrument, contract or
agreement, which violation either individually or when aggregated with all
other such violations, would have a Material Adverse Effect on Wired. None of
the Wired Companies is in violation of any law, ordinance, rule or governmental
regulation
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applicable to it or any of its properties or of any judgment, order, writ,
injunction, decree or other instrument of any federal, state, local or foreign
court or governmental or regulatory body, which violation either individually
or when aggregated with all other such violations would have a Material Adverse
Effect on Wired.
2.8 Financial Statements. Ventures has delivered to Purchaser (a) the
consolidated balance sheets of Ventures as of December 31, 1997, 1996 and 1995
and the related consolidated statements of income, stockholders' equity and
cash flows for the years then ended, accompanied in each case by the opinion
thereon of KPMG Peat Marwick LLP, independent public accountants, and (b) the
unaudited consolidated balance sheet of Ventures (the "Unaudited Balance
Sheet") as of August 31, 1998 (the "Balance Sheet Date") and the related
unaudited consolidated statements of income, stockholders' equity and cash
flows for the eight months then ended (such financial statements, including the
notes thereto, hereinafter being referred to as the "Financial Statements").
The Financial Statements are attached hereto as Schedule 2.8. All of the
Financial Statements have been prepared from the books and records of Ventures
and have been prepared in accordance with GAAP and present fairly in all
material respects the consolidated financial position of Ventures as of the
dates thereof and the consolidated results of its operations for the periods
then ended, except that the unaudited financial statements were prepared on an
interim basis, are subject to normal year-end adjustments and do not contain
all the footnote disclosures required by GAAP consistently applied. None of the
Wired Companies has any debts, obligations, guaranties of the obligations of
others or liabilities of the type required to be disclosed in a balance sheet
prepared in accordance with GAAP or the notes thereto, except for (a) debts,
obligations, guaranties and liabilities reflected or reserved against in the
Unaudited Balance Sheet, (b) debts, obligations, guaranties and liabilities
referred to in this Agreement or any of the Schedules hereto or in any of the
documents or other materials identified in the Schedules hereto (excluding
obligations or liabilities arising from the breach or violation of the
documents or other materials identified in the Schedules, unless such
obligations or liabilities are specifically identified in the Schedules), (c)
debts, obligations, guaranties and liabilities incurred or entered into in the
ordinary course of business after the Balance Sheet Date, and (d) debts,
obligations and liabilities directly or indirectly relating to this Agreement
and the other agreements and instruments being executed and delivered in
connection herewith and the transactions referred to herein and therein
(including obligations to pay legal, accounting and investment banker fees and
other amounts in connection therewith).
2.9 Absence of Certain Changes or Events. Except as set forth in Schedule 2.9
and except for (a) any transfers, borrowings, dividends or guaranties between
the Wired Companies that were made, paid or incurred in the ordinary course of
business, (b) transactions and other matters contemplated by this Agreement and
any changes, indebtedness, agreements, encumbrances, damages, liabilities or
obligations arising therefrom or relating thereto, and (c) matters disclosed in
the Financial Statements, since the Balance Sheet Date, none of the Wired
Companies has:
(a) declared, set aside, made or paid any dividend or other distribution
in respect of its capital stock or purchased or redeemed, directly or
indirectly, any shares of its capital stock;
(b) issued or sold any shares of its capital stock of any class or any
subscriptions, options, warrants, calls or other rights to purchase
directly or indirectly any such shares or any securities directly or
indirectly convertible into or exchangeable for such shares (except for
sales of Ventures Capital Stock upon exercise of Warrants and Options or
conversion of convertible securities outstanding on the Balance Sheet
Date);
(c) incurred any indebtedness for money borrowed by any of the Wired
Companies or issued or sold any debt securities;
(d) mortgaged, pledged or subjected to any lien, lease, security interest
or other charge or encumbrance any of its properties or assets, tangible or
intangible;
(e) acquired or disposed of any material assets or properties except in
the ordinary course of business and consistent with past practice, or
canceled or compromised any debts or knowingly waived any claims or rights
of a material nature;
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(f) granted to any officer, director or employee any increase in
compensation, except in the ordinary course of its current personnel
policies consistent with past practice 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);
(g) suffered any damage, destruction or loss (whether or not covered by
insurance) that has had or would reasonably be expected to have a Material
Adverse Effect on Wired;
(h) incurred any material obligation or liability (whether absolute,
accrued, contingent or otherwise) except for fair equivalent value or in
the ordinary course of business and consistent with past practice;
(i) experienced any Material Adverse Effect on Wired;
(j) made any change in any accounting principle or practice or in its
methods of applying any such principle or practice; or
(k) entered into any agreement to do any of the foregoing.
2.10 Title to Assets. Except as set forth in Schedule 2.10, each of the Wired
Companies has good title to all personal property, tangible or intangible,
which it purports to own, including the tangible assets reflected on the
Unaudited Balance Sheet, other than (a) assets disposed of after the Balance
Sheet Date in the ordinary course of business, and (b) other assets disposed of
after the Balance Sheet Date and referred to in the Financial Statements.
Except as set forth in Schedule 2.10, all personal property, tangible or
intangible, owned by the Wired Companies is owned free and clear of all liens,
mortgages, pledges, charges, security interests or encumbrances except for (a)
liens for current taxes not yet due and payable, and (b) purchase money
security interest and common law liens, in each case for goods purchased in the
ordinary course of business, and (c) such imperfections of title and
encumbrances, if any, that are not material in character, amount or extent and
do not materially detract from the value, or materially interfere with the use
of, the property subject thereto or affected thereby. None of the Wired
Companies owns any real property or any interest in real property, except for
the leasehold interests created under the leases referred to in Schedule 2.15
hereto.
2.11 Intellectual Property.
(a) Except as set forth on Schedule 2.11(a), the Wired Companies own, or
are licensed or otherwise possess legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights and Internet
domain names, and any applications therefor, technology, know-how, computer
software programs and applications, and tangible and intangible proprietary
information or material that are used in the business of the Wired
Companies as currently conducted in all material respects (the
"Intellectual Property Rights"), free and clear of all liens, claims and
encumbrances. The Intellectual Property Rights are sufficient to carry on
the business of the Wired Companies as presently conducted in all material
respects.
(b) Schedule 2.11(b) sets forth a list of patents, registered and
material unregistered trademarks, trade names and service marks, Internet
domain names, and any pending applications therefor, included in the
Intellectual Property Rights and specifies, where applicable, the
jurisdictions in which each such Intellectual Property Right has been
issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(c) The present business activities or products of the Wired Companies do
not infringe any intellectual property rights of others, except where such
infringement would not have a Material Adverse Effect on Wired. Except as
set forth on Schedule 2.11, no material claims with respect to the
Intellectual Property Rights have been asserted and are pending against any
of the Wired Companies as of the date of this Agreement (1) to the effect
that the sale, licensing or use of any of the products of any of the Wired
Companies infringes any other party's valid copyright, trademark, service
mark, trade secret or other intellectual property right, (2) against the
use by any of the Wired Companies of any material trademarks, service
marks, trade names, trade secrets, copyrights, patents, technology, know-
how or computer software programs or applications used in the Wired
Companies' business as currently conducted, or (3)
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challenging the ownership by any of the Wired Companies, of any of the
Intellectual Property Rights owned by the Wired Companies.
(d) The Wired Companies have the right to use all trade secrets, customer
lists, hardware designs, programming processes, software and other
information required for its products or their business as presently
conducted where the absence of such right would have a Material Adverse
Effect on Wired. The Wired Companies have taken commercially reasonable
measures to protect and preserve the security and confidentiality of its
trade secrets and other confidential information. All employees and
consultants of the Wired Companies involved in the design, review,
evaluation or development of proprietary products or Intellectual Property
Rights have executed nondisclosure and assignment of inventions agreements
substantially in the form provided to Purchaser or otherwise sufficient to
give the Wired Companies the legal right to protect the confidentiality of
the Wired Companies' trade secrets and other confidential information and
to assign the interests of such employees or consultants in Intellectual
Property Rights to the Wired Companies.
2.12 Benefit Plans.
(a) Except as set forth on Schedule 2.12, none of the Wired Companies
maintains, is a party to, contributes to or is obligated to contribute to, or
has liability or contingent liability for, any of the following (whether or not
set forth in a written document):
(1) Any employee benefit plan, employee pension benefit plan, employee
welfare benefit plan, or multiemployer plan, all as defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), regardless of
whether or not a plan is exempt from some or all of the otherwise
applicable requirements of ERISA; or
(2) Any bonus, deferred compensation, incentive, restricted stock, stock
purchase, stock option, stock appreciation right, debenture, supplemental
pension, profit sharing, royalty pool, severance or termination pay, loan
guarantee, relocation assistance, employee loan or other extensions of
credit, or other similar plan, program, agreement, policy, commitment,
arrangement or benefit currently in effect which is applicable to any
present or former employee or his or her survivors (whether or not
published or generally known).
(b) As to each plan, program, agreement, policy, commitment, arrangement or
benefit listed on Schedule 2.12 (each, a "Benefit Plan"), Ventures has
furnished to Purchaser complete, accurate and current copies of the text
(including amendments) of the Benefit Plan if previously reduced to writing or
has provided in Schedule 2.12 a description of all material elements of the
Benefit Plan if not previously reduced to writing. With respect to each
employee benefit plan (as defined in section 3(3) of ERISA) listed on Schedule
2.12, Ventures has made available to Purchaser the following:
(1) Where applicable, the most recent summary plan description, as
described in section 102 of ERISA;
(2) Any summary of material modifications which has been distributed to
participants or filed with the U.S. Department of Labor but which has not
been incorporated in an updated summary plan description furnished under
paragraph (1) above;
(3) The annual reports, as described in section 103 of ERISA, for the
most recent three plan years for which an annual report has been prepared
(including any schedules), and any financial statements and opinions
required by Section 103(a)(3) of ERISA;
(4) Where applicable, the actuarial reports for the most recent three
reporting periods for which such a report has been prepared;
(5) Any trust agreement, investment management agreement, contract with
an insurance company or service provider, administration agreement or other
contract, agreement or insurance policy; and
(6) Where applicable, the most recent determination letter issued by the
Internal Revenue Service ("IRS").
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(c) With respect to each Benefit Plan:
(1) All of the currently applicable requirements of ERISA and regulations
thereunder have been fully and timely complied with in all material
respects and each Benefit Plan has been administered in material respects
in accordance with its terms;
(2) There is no act or omission of any of the Wired Companies, or any
other person or entity, which would constitute a material violation of or
material prohibited act (for which an exemption is not available) under any
applicable section of ERISA or the Code, or regulations under either, and
no amendment to such Benefit Plan is precluded by any waiver, extension or
prior amendment described in Section 412(f)(1) of the Code;
(3) All contributions, premiums or other payments due from any of the
Wired Companies to (or under) a Benefit Plan for all periods prior to the
date of this Agreement have been fully paid or adequately provided for on
the books of the Wired Companies and all accruals have been made in
accordance with generally accepted accounting principles;
(4) The provisions of each Benefit Plan intended to meet the requirements
of Section 401(a) of the Code meet such requirements; a favorable
determination letter covering the provisions of the Tax Reform Act of 1986
has been issued by the Internal Revenue Service (the "IRS") with respect to
each plan and trust; and nothing has occurred since the date of such
determination letter that would adversely affect the qualification of such
plan;
(5) None of the Benefit Plans nor any fiduciary thereof has been the
subject of an order or investigation or examination by a governmental
agency and there are no matters pending before the IRS, the Department of
Labor, or any other governmental agency pertaining to these Benefit Plans.
(d) The Wired Companies have not maintained or contributed to or in any way
directly or indirectly have any liability (whether contingent or otherwise)
with respect to any Benefit Plan subject to Title IV of ERISA; except as
indicated on Schedule 2.12, the Wired Companies have no obligation to provide
medical or other benefits to employees or former employees of the Wired
Companies or their survivors, dependents and beneficiaries, except as may be
required by the Consolidated Omnibus Budget Reconciliation Act of 1986 or
applicable state medical benefits continuation statues.
(e) Schedule 2.12(e) sets forth the names of all current employees of the
Wired Companies (the "Employees") and such Employee's job title, such
Employee's current salary, the amount of any bonuses or other compensation paid
since January 1, 1998 to such Employee, the date of employment of such Employee
and the accrued vacation time of such Employee. Except as set forth in Schedule
2.12(e), there are no outstanding loans from any Wired Company to any officer,
director, employee or consultant of any Wired Company.
(f) None of the Benefit Plans is a "multiple employer welfare plan" (as
defined in Section 3(40) of ERISA), or an employee benefit pension plan
maintained by more than one employer (as described in Section 413(c) of the
Code).
(g) With respect to any Benefit Plan that is an employee welfare benefit
plan, there are no understandings, agreements or undertakings, written or oral,
that would prevent any such plan (including any such plan covering retirees or
other former employees) from being amended or terminated without material
liability to Ventures or the Surviving Corporation on or at any time after the
Closing Date Time.
(h) Except as set forth in Schedule 2.12(h), no employee of Ventures will be
entitled to any additional compensation or benefits or any acceleration of the
time of payment or vesting of any compensation or benefits under any Benefit
Plan as a result of the transactions contemplated by this Agreement, except to
the extent required by operation of law in the event of a termination or
partial termination of the Benefit Plan.
(i) Except as set forth in Schedule 2.12(i), no amount that could be received
(whether in cash or property or the vesting of property) as a result of any of
the transactions contemplated by this Agreement by any
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employee, officer, or director of Ventures or any of its subsidiaries who is a
"disqualified individual" (as such term is defined in proposed Treasury
Regulation Section 1.280G-1) under any employment, severance or termination
agreement, other compensation arrangement or Benefit Plan currently in effect
would be an "excess parachute payment" (as such term is defined in Section
280G(b)(1) of the Code). Except as set forth in Schedule 2.12(i), no such
person is entitled to receive any additional payment from Ventures, the
Surviving Corporation or any other person in the event that the excise tax of
Section 4999(a) of the Code is imposed on such person.
(j) No person is entitled to receive a bonus or other compensation pursuant
to the Wired Ventures, Inc. Employee Transaction Bonus Plan as a result of the
consummation of the transactions contemplated by this Agreement.
2.13 Litigation. Schedule 2.13 sets forth, as of the date hereof, each
action, suit, proceeding or governmental investigation pending against any of
the Wired Companies or their respective properties, at law or in equity or
before any court, governmental department, commission, board, agency, authority
or instrumentality, domestic or foreign, or that have been settled, dismissed
or resolved on or since the Balance Sheet Date and each action, suit,
proceeding or governmental investigation known to Ventures as of the date
hereof that is overtly threatened against any of the Wired Companies or other
respective properties. Except as disclosed in Schedule 2.13, there are no
actions, suits, proceedings or governmental investigations pending against any
of the Wired Companies or their respective properties, at law or in equity or
before any court, governmental department, commission, board, agency, authority
or instrumentality, domestic or foreign, or that have been settled, dismissed
or resolved on or since the Balance Sheet Date, that have had or would
reasonably be expected to have a Material Adverse Effect on Wired and, to
Ventures' knowledge, no action, suit, proceeding or governmental investigation
that would reasonably be expected to have a Material Adverse Effect on Wired is
overtly threatened against any of the Wired Companies or their respective
properties. None of the Wired Companies is subject to any judgment,
stipulation, order or decree arising from any action, suit, proceeding or
investigation that individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect on Wired. There are no threatened
strikes or work stoppages by the employees of any of the Wired Companies and,
to Ventures' knowledge, there are no pending union organizing efforts with
respect to such employees. No action, suit, proceeding or governmental
investigation is pending or, to Ventures' knowledge, overtly threatened against
any of the Wired Companies that seeks to question, delay or prevent the
consummation of the transactions contemplated hereby. Ventures has not received
any Officer's Certificate (as such term is defined in Section 10.2(d) of the
Advance Agreement).
2.14 Taxes. Except as set forth in Schedule 2.14, with respect to Taxes (as
defined below):
(a) Each of the Wired Companies has filed or will file or cause to be
filed (or extensions of the time for filing have been or will be duly
filed), within the time prescribed by law, all returns, reports and other
filings ("Returns") required to be filed under federal, state, local or any
foreign laws by such company for all taxable periods ending on or prior to
the Closing Date and such Returns have been, or will be when filed prior to
the Closing Date, accurately and completely prepared in all material
respects in compliance with all laws, rules and regulations;
(b) Each of the Wired Companies has, within the time and in the manner
prescribed by law, paid (and until the Closing will, within the time and in
the manner prescribed by law, pay) all Taxes (as defined below) that are
shown on Returns filed prior to the Closing to be due on or before the
Closing Date;
(c) Since the Balance Sheet Date, Ventures has established (and until the
Closing Ventures will continue to maintain) on its books and records
reserves that are adequate under GAAP for the payment of all Taxes not yet
due and payable; at the Closing, such reserves as adjusted in accordance
with past practice will be sufficient for the then unpaid Taxes of the
Wired Companies attributable to periods prior to or ending on the Closing
Date;
(d) Ventures has not filed (and will not file prior to the Closing Date)
any consent agreement under Section 341(f) of the Code (or any
corresponding provision of state, local or foreign law) or agreed to
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have Section 341(f)(2) of the Code (or any corresponding provision of
state, local or foreign law) apply to any disposition of the subsection (f)
asset (as such term is defined in Section 341(f)(4) of the Code) owned by
any of the Wired Companies;
(e) No deficiency or adjustment for any Taxes has been proposed or
asserted in writing, or assessed against any of the Wired Companies and no
federal, state or local audits or other administrative proceedings or your
proceedings are presently pending with regard to any Taxes, there are no
matters under discussion with any governmental authority regarding claims
for the assessment or collection of Taxes, and no waiver or consent
extending any statute of limitations for the assessment or collection of
any Taxes, which waiver or consent remains in effect, has been executed by
(or on behalf of ) any of the Wired Companies nor are any requests for such
waiver or consent pending;
(f) Ventures has not elected to be treated as an S Corporation pursuant
to Section 1362(a) of the Code;
(g) None of the Wired Companies is, or has at any time been a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code;
(h) There is no agreement, plan or arrangement covering any employee or
independent contractor or former employee or independent contractor of the
Wired Companies 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;
(i) None of the Wired Companies is or has ever been a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar agreement or arrangement and none of them has any
liability for Taxes of any person (other than such Wired Company) under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law);
(j) Each of the Wired Companies has withheld 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; and
(k) For purposes of this Agreement, "Taxes" in the plural and "Tax" in
the singular shall refer to all or any taxes, charges, fees, levies or
other assessments of whatever kind or nature, including, without
limitation, all net income, gross income, gross receipts, value added,
unitary, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, social security, payroll, employment, excise, estimated,
severance, stamp, occupancy or property taxes, customs duties, fees,
assessments or charges of any kind whatsoever, including the recapture of
any tax items, (together with any interest and any penalties, additions to
tax or additional amounts) imposed by any taxing authority (domestic or
foreign) upon or payable by any of the Wired Companies.
2.15 Contracts. Ventures has made available to Purchaser a copy or
description of any outstanding written or oral (a) contract or arrangement for
the employment of any person by any of the Wired Companies providing for cash
compensation equal to or greater than $100,000 per annum, (b) collective
bargaining agreement to which any of the Wired Companies is a party, (c)
mortgage, indenture, credit facility, note or installment obligation or other
instrument or contract for or relating to any borrowing of an amount in excess
of $50,000 by any of the Wired Companies (other than intercompany borrowings
between the Wired Companies), (d) guaranty of any loan obligation in excess of
$50,000 by any of the Wired Companies (excluding any endorsement made in the
ordinary course of business for collection), (e) agreement between any of the
Wired Companies and any holder of 5% or more of the outstanding Ventures
Capital Stock or any officer or director of any Wired Company, (f) lease or
real or personal property under which any of the Wired Companies is lessor,
except equipment leases entered into in the ordinary course of business, (g)
lease of real property under which any of the Wired Companies is lessee
involving annual rentals in excess of $50,000, (h) lease of personal property
under which any of the Wired Companies is lessee and under which any such
entity is obligated to make annual aggregate payments of more than $50,000, (i)
agreement for the purchase by any of
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the Wired Companies of equipment involving outstanding commitments in excess of
$50,000, (j) agreement materially limiting the freedom of any of the Wired
Companies to compete in any line of business, with any person or other entity
or in any geographical area, (k) other agreement, contract or obligation of any
of the Wired Companies calling for or involving the payment by or to any Wired
Company, potential payment by or to any Wired Company or accrued obligation by
such company, form the date hereof through the earliest date such agreement,
contract or obligation can be terminated unilaterally without material penalty
by such company, of an amount in excess of $100,000, (1) any contract,
arrangement or understanding not otherwise identified on the Disclosure
Schedule and relating to the acquisition, issuance or transfer of any
securities, (m) any material contract, arrangement or understanding having more
than one year remaining on its term and relating to the acquisition, transfer,
distribution, use, development, sharing or license of any Intellectual Property
Rights, and (n) any outstanding offer, commitment or obligation to enter into
any contract or arrangement of the nature described in subsections (a) through
(m) of this subsection 2.15. A list or description of each of the items
described in the previous sentence ("Material Contracts") is set forth on
Schedule 2.15. Except as disclosed in Schedule 2.15, all of the Material
Contracts are in full force and effect and, as to each Material Contract, there
does not exist thereunder any material breach on the part of any of the Wired
Companies, nor (to the best knowledge of the Wired Companies) is any other
party in material breach of any Material Contract, and there does not exist any
event, occurrence or condition, including the consummation of the transactions
contemplated hereunder, which (after notice, passage of time, or both) would
constitute a material breach thereunder on the part of any of the Wired
Companies.
2.16 Insurance. Schedule 2.16 contains a list of all material insurance
policies maintained by or on behalf of or covering any of the Wired Companies
(the "Policies"), 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. Ventures has made
available to Purchaser copies of all current declaration sheets relating to the
Policies. Except as noted on Schedule 2.16, as of the date hereof, the Policies
are in full force and effect, no notices of cancellation or nonrenewal have
been received by any of the Wired Companies with respect thereto, and all
premiums due thereon have been paid.
(a) To Ventures' knowledge, during the period of time that the Wired
Companies have leased or owned their respective properties, none of the Wired
Companies used, generated, manufactured, installed, released, discharged,
stored or disposed of any "Hazardous Materials," as defined below, on, under,
in or about the site of such properties. The term "Hazardous Materials" shall
mean any substance, material or waste which is regulated by any local
government authority, the State of California, or the United States Government,
including, without limitation, any material or substance that is (1) defined as
a "hazardous waste," "hazardous material," "hazardous substance," "extremely
hazardous waste" or "restricted hazardous waste" under any provision of
California or any other applicable law, (2) petroleum, (3) asbestos, (4)
designated as a "hazardous substance" pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. (S) 1251 et seq. (33 U.S.C. (S) 1321) or listed pursuant
to Section 307 of the Clean Water Act (33 U.S.C. (S) 1317), (5) defined as a
"hazardous waste" pursuant to Section 1004 of the Resource Conservation and
Recovery Act, 42 U.S.C. (S) 6901 et seq. (42 U.S.C. (S) 6903), or (6) defined
as a "hazardous substance" pursuant to Section 101 of the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et
seq. (42 U.S.C. (S) 9601).
(b) The conduct of the Wired Companies' business complies in all material
respects with all applicable Federal, state and local laws, ordinances and
regulations pertaining to air and water quality, Hazardous Materials, waste,
disposal or other environmental matters, including the Clean Water Act, the
Clean Air Act, the Federal Water Pollution Control Act, the Solid Waste
Disposal Act, the Resource Conservation Recovery Act, the Comprehensive
Environmental Response, Compensation, and Liability Act, and the rules,
regulations and ordinances of the city and county in which their business is
located, the Environmental Protection Agency and all other applicable Federal,
state, regional and local agencies and bureaus.
(c) To Ventures' knowledge, none of the Wired Companies (1) has ever sent a
Hazardous Material to a site that, pursuant to any applicable Federal, state or
local law, ordinance and regulation pertaining to
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environmental matters, (A) has been placed on the "National Priorities List" of
hazardous waste sites, the "CERCLIS" list, or any similar state list, or (B) is
subject to a claim, an administrative order or other request to take "removal"
or "remedial" action, as defined in any applicable Federal, state or local law,
ordinance and regulation pertaining to environmental matters, or to pay for the
costs of cleaning up the site, (2) is not in compliance in all material
respects with all applicable Federal, state or local laws, ordinances and
regulations pertaining to environmental matters in all of its activities and
operations, (3) is involved in any suit or proceeding or has received any
notice or request for information from any governmental agency or authority or
other third party with respect to a release or threatened release of any
Hazardous Material or a violation or alleged violation of any applicable
Federal, state or local law, ordinance and regulation pertaining to
environmental matters, or has received notice of any claims from any person or
entity relating to property damage or to personal injuries from exposure to any
Hazardous Material, or (4) has failed to timely file any report required to be
filed, failed to acquire all necessary certificates, approvals and permits or
failed to generate and maintain all required data, documentation and records
under all applicable Federal, state or local laws, ordinances and regulations
pertaining to environmental matter.
2.18 Brokers. No agent, broker, person or firm acting on behalf of Ventures
or its stockholders is, or will be, entitled to any commission or broker's or
finder's fees from any of the parties hereto, or from and person controlling,
controlled by or under common control with any of the parties hereto, in
connection with any of the transactions contemplated herein, except for Lazard
Freres LLC, whose fees and expenses will be paid as provided in Section 12.4. A
copy of the Lazard Freres LLC, engagement letter setting forth such fees and
expenses has been made available to Purchaser.
2.19 Statements; Proxy Statement/Prospectus. The information supplied by
Ventures for inclusion in the Form S-4 Registration Statement (as defined in
Section 3.7) shall not, at the time the Form S-4 Registration Statement becomes
effective under the Securities Act of 1933, as amended (the "Securities Act"),
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The information supplied by Ventures for inclusion in the proxy
statement/prospectus or information statement/prospectus to be sent to
stockholders of Ventures in connection with a meeting of Ventures' stockholders
(or, alternatively, the solicitation of written consents in lieu of a meeting)
to approve and adopt this Agreement and approve the Merger (such proxy
statement/prospectus or information statement/prospectus as amended or
supplemented being referred to herein as the "Proxy Statement") shall not, on
the date the Proxy Statement is first mailed to Ventures stockholders or at the
time of the meeting of stockholders (or, alternatively, on the date the
necessary written consent under applicable law has been obtained) contain any
untrue statement of material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Notwithstanding the foregoing, Ventures makes no representation or warranty
with respect to any information provided by Purchaser or Acquisition Sub that
is contained in any of the foregoing documents.
2.20 Governmental Permits. The Wired Companies have in force, and are 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 and where the
absence of such compliance would have a Material Adverse Effect on Wired, 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.
2.21 Major Customers. Schedule 2.21 sets forth a complete and correct list of
the ten largest customers of the Wired Companies, in terms of revenue
recognized in respect of such customers during the fiscal year ended December
31, 1997 and the six months ended June 30, 1998, showing the amount of revenue
recognized for each such customer during such period. Except as set forth on
Schedule 2.21, as of the date hereof, to the knowledge of the Wired Companies,
none of the Wired Companies has received any written notice or other written
communication from any of the customers listed as customers for the six (6)
months ended June 30,
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1998 in Schedule 2.21 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 Wired Companies.
2.22 Traffic. Schedule 2.22 attached hereto sets forth certain statistics
regarding Ventures' business which are true and correct in all material
respects as of the dates stated in such Schedule. Without limiting the
materiality of any other representations, warranties and covenants of Ventures
contained herein, Ventures specifically acknowledges that the accuracy in all
material respects of this representation is material to the Purchaser's
decision to enter into the transactions contemplated by this Agreement and to
pay the Merger Consideration.
2.23 Accounts Receivable. All accounts receivable of the Wired Companies (a)
arose from bona fide transactions in the ordinary course of business and
consistent with past practice, (b) except as set forth on Schedule 2.23, are
owned by the Wired Companies free and clear of any claim, security interest,
lien or other encumbrance and (c) with respect to accounts receivable owned by
the Wired Companies as of the Balance Sheet Date, are accurately and fairly
reflected on the Balance Sheet, or, with respect to accounts receivable of the
Wired Companies created after the Balance Sheet Date, are accurately and fairly
reflected in the books and records of the Wired Companies. The reserves for bad
debts reflected on the Balance Sheet and in the balance sheet included in the
Financial Statements are reasonable and were calculated in accordance with
generally accepted accounting principles consistent with past practice.
2.24 Bank Accounts; Powers of Attorney. Schedule 2.24 sets forth a complete
and correct list showing:
(i) all bank accounts of the Wired Companies, 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 Wired
Companies and a summary statement of the terms thereof.
2.25 Minute Books, Etc. The minute books, stock certificate book and stock
ledger of the Wired Companies are complete and correct in all material
respects. The minute books of the Wired Companies contain accurate and complete
records of all formal actions taken at meetings or by written consent of the
Board of Directors and stockholders of the Wired Companies and accurately
reflect all formal corporate actions of the Wired Companies which are required
by law to be passed upon by the Board of Directors or stockholders of the WIred
Companies.
2.26 Company Action. The Board of Directors of Ventures, by unanimous written
consent or at a meeting duly called and held, has (a) determined that the
Merger is fair and in the best interests of Ventures and its stockholders, (b)
approved the Merger and this Agreement in accordance with the provisions of the
DGCL and any applicable California law, and (c) directed that this Agreement
and the Merger be submitted to Ventures' stockholders for their approval and
resolved to recommend that Ventures' stockholders vote favor of the approval of
this Agreement and the Merger.
2.27 Disclosure. No representation or warranty by any of the Wired Companies
contained in this Agreement, when considered together with the statements
contained in the Disclosure Schedule and any certificates or other documents or
instruments delivered or to be delivered by the Wired Companies pursuant to
this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
AND ACQUISITION SUB
Purchaser and Acquisition Sub jointly and severally represent and warrant to
Ventures as follows:
3.1 Organization and Standing of Purchaser. Each of Purchaser and Acquisition
sub is a corporation duly organized, validly existing and in good standing
under the laws of its state of incorporation and has all requisite corporate
power and authority to enter into this Agreement, to carry out the transactions
contemplated hereby and to perform its obligations hereunder.
3.2 Charter and Bylaws. Purchaser has delivered or made available to Ventures
a true and correct copy of the charter and Bylaws of Purchaser and Acquisition
Sub, each as amended to date, and each such instrument is in full force and
effect. Neither Purchaser nor Acquisition Sub is in violation of any of the
provisions of its charter or Bylaws.
3.3 Capitalization of Purchaser. The authorized capital stock of Purchaser
consists of: (a) 5,000,000 shares of Preferred Stock, par value .01 per share;
and (b) 100,000,000 shares of Purchaser Common Stock. As of August 31, 1998,
the shares of Purchaser's capital stock that are issued and outstanding consist
of 42,847,741 shares of Purchaser Common Stock. Each issued and outstanding
share of Purchaser Common Stock has been duly authorized and validly issued and
is fully paid and nonassessable. The Purchaser Common Stock to be issued in the
Merger, when issued by Purchaser pursuant to the terms of this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
3.4 Authorization. Each of Purchaser and Acquisition Sub 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 all other documents and instruments executed or to be executed by Purchaser
or Acquisition Sub pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate and other action on the part of Purchaser and Acquisition
Sub. This Agreement and all other documents and instruments executed or to be
executed by Purchaser or Acquisition Sub pursuant to this Agreement have been,
or will have been, at the time of their respective executions and deliveries,
duly executed and delivered by a duly authorized officer of Purchaser or
Acquisition Sub.
3.5 Enforceability. This Agreement and all other agreements executed or to be
executed by Purchaser or Acquisition Sub pursuant to this Agreement constitute,
or will constitute, the valid and legally binding obligations of Purchaser and
Acquisition Sub, enforceable in accordance with their respective terms, except
as such enforceability may be limited by equitable principles and by applicable
bankruptcy, insolvency, reorganization, arrangement moratorium or similar laws
relating to or affecting the rights of creditors generally.
3.6 Compliance with Other Instruments and Laws. The execution and delivery of
this Agreement and all other documents and instruments executed or to be
executed by Purchaser or Acquisition Sub pursuant to this Agreement, and the
consummation of the transactions contemplated hereby, will not (A) conflict
with or result in any violation of or default under any provision of the
charter or bylaws of Purchaser or Acquisition Sub, (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 any note,
bond, security agreement, mortgage, indenture, trust, lease, partnership or
other agreement or other instrument, permit, concession, grant, franchise or
license, or give rise to any right of termination, cancellation, modification
or acceleration under, or require any consent or the giving of any notice
under, any agreement or other instrument or obligation to which Purchaser or
Acquisition Sub is a party, or by which Purchaser or Acquisition Sub or any of
their 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 Purchaser or Acquisition Sub pursuant to the
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terms of any such instrument or obligation, the result of which (either
individually or in the aggregate) would have a material adverse effect on the
business, operations, financial condition or results of operations of Purchaser
and its subsidiaries, taken as a whole (a "Material Adverse Effect on
Purchaser"), or (C) violate or conflict with any law, judgment, order, decree,
statute, law, ordinance, rule or regulation, writ injunction, decree or other
instrument of any Federal, state, local or foreign court or governmental or
regulatory body, agency or authority applicable to Purchaser or Acquisition Sub
or by which any of their properties or assets may be bound the result of which
(either individually or in the aggregate) would have a Material Adverse Effect
on Purchaser.
3.7 Government Authorizations and Consents. No material consents, licenses,
approvals or authorizations of, or registrations or declarations with, any
governmental authority, bureau, agency or commission, or any third party, are
required to be obtained or made by Purchaser or Acquisition Sub in connection
with the execution, delivery, performance, validity and enforceability of this
Agreement or the Merger, other than (a) a filing with the Federal Trade
Commission and the Department of Justice under the HSR Act, (b) the filing of a
Form S-4 Registration Statement covering the issuance of the Purchaser Common
Stock issuable pursuant to Section 1.6 (a) (the "Form S-4 Registration
Statement") with, and the declaration of the effectiveness of the Form S-4
Registration Statement by, the Securities and Exchange Commission (the "SEC")
in accordance with the Securities Act, the filing of the Certificate of Merger
in accordance with the DGCL (d) other consents, licenses, approvals,
authorizations, registrations or declarations, where the failure to obtain such
would not have a Material Adverse Effect on Purchaser.
3.8 Litigation. There are no actions, suits, proceedings or governmental
investigations pending against Purchaser or Acquisition Sub or their respective
properties, at law or in equity or before any court, governmental department,
commission, board, agency, authority or instrumentality, domestic or foreign,
or that have been settled, dismissed or resolved on or since the Balance Sheet
Date, that have had or would reasonably be expected to have a Material Adverse
Effect on Purchaser and, to Purchaser's knowledge, no action, suit, proceeding
or governmental investigation that would reasonably be expected to have a
Material Adverse Effect on Purchaser has been overtly threatened against
Purchaser or Acquisition Sub or their respective properties. Neither Purchaser
nor Acquisition Sub is subject to any judgment, stipulation, order or decree
arising from any action, suit, proceeding or investigation that individually or
in the aggregate would reasonably be expected to have a Material Adverse Effect
on Purchaser. There are no threatened strikes or work stoppages by the
employees or Purchaser or Acquisition Sub and, to Purchaser's knowledge, there
are no pending union organizing efforts with respect to such employees. No
action, suit, proceeding or governmental investigation is pending or, to
Purchaser's knowledge, overtly threatened against Purchaser or Acquisition Sub
that seeks to question, delay or prevent the consummation of the transactions
contemplated hereby.
3.9 Brokers. No agent, broker, person or firm acting on behalf of Purchaser,
Acquisition Sub or their respective stockholders is, or will be, entitled to
any commission or broker's or finder's fees from any of the parties hereto, or
from and person controlling, controlled by or under common control with any of
the parties hereto, in connection with any of the transactions contemplated
herein, except for Hambrecht & Quist LLC, whose fees and expenses will be paid
by the Purchaser.
3.10 Public Filings.
(a) Purchaser has filed all forms, reports and documents required to be filed
by Purchaser with the SEC since July 31, 1997 and has made available to
Purchaser such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that Purchaser may
file subsequent to the date of this Agreement) are referred to herein as the
"SEC Reports." As of their respective dates, the SEC Reports (1) were prepared
in accordance with, and in compliance with, the requirements of the Securities
Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such SEC Reports and (2) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) contain any untrue statement of a material fact or omit to
state a material fact required to be stated
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therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of Purchaser's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in ease case,
any related notes thereto) contained in the SEC Reports (the "Purchaser
Financials"), including any SEC Reports filed after the date hereof until the
Closing, (1) complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, (2) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved and (3) present fairly in all material respects the consolidated
financial position of Purchaser as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended, except
that the unaudited financial statements were prepared on an interim basis, are
subject to normal year-end adjustments and do not contain all the footnote
disclosures required by GAAP.
3.11 Statements; Proxy Statement/Prospectus.
The information supplied by Purchaser for inclusion in or incorporation by
reference the Form S-4 Registration Statement shall not at the time the Form S-
4 Registration Statement at the time it becomes effective under the Securities
Act contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The information supplied by Purchaser for inclusion or
incorporation by reference in the Proxy Statement shall not, on the date the
Proxy Statement is first mailed to Ventures stockholders or at the time of the
meeting of stockholders (or, alternatively, on the date the necessary written
consent under applicable law has been obtained) contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. Notwithstanding the
foregoing, neither Purchaser nor Acquisition Sub makes any representation or
warranty with respect to any information provided by Ventures that is contained
in any of the foregoing documents.
3.12 Ownership of Ventures Stock. Purchaser does not own, beneficially or of
record, any shares of Ventures Capital Stock.
3.13 Material Adverse Effect. Since July 31, 1998, Purchaser has not
experienced any Material Adverse Effect on Purchaser.
ARTICLE 4
COVENANTS OF VENTURES
4.1 Conduct of Business. Between the date of this Agreement and the Closing
Date, except as contemplated by this Agreement or referred to in the Disclosure
Schedule, and except as may be necessary to carry out the transactions
contemplated by this Agreement or to comply with the terms of the contracts
referred to in this Agreement or the Disclosure Schedule, Ventures will carry
on its business in the usual, regular and ordinary course in substantially the
same manner as previously conducted, pay its debts and taxes when due, subject
to good faith disputes over such debts or taxes, and perform all other
obligations when due and, to the extent consistent with such business, use
commercially reasonable efforts to preserve intact its present business
organization, maintain its existing insurance policies, keep available the
services of its officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it to the end that its goodwill and ongoing business
shall not be materially impaired at the Effective Time. Purchaser acknowledges
that the transactions contemplated by this Agreement and attendant publicity
may adversely affect Ventures' ability to preserve intact its business and
relationships and to keep available the services of employees. Except as
expressly contemplated by this Agreement, none of the Wired Companies shall,
without Purchaser's prior written consent:
(a) amend its charter documents or by-laws;
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(b) enter into any agreement to dissolve, merge, consolidate or, except
in the ordinary course of business, sell any material assets of the Wired
Companies, or acquire or agree to acquire by merging or consolidating with,
or by purchasing an equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets in excess of $50,000 in the aggregate;
(c) enter into any material transaction;
(d) declare or pay any dividends on or make any other distributions
(whether in cash, stock, equity securities or property) in respect of any
Ventures Capital Stock or split, combine or reclassify any Ventures Capital
Stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for any Ventures Capital Stock;
(e) repurchase, redeem or otherwise acquire, directly or indirectly, any
shares of Ventures Capital Stock, except repurchases of unvested shares at
cost in connection with the termination of the employment or consulting
relationship with any employee or consultant pursuant to agreements in
effect as of the date hereof;
(f) issue or sell, or authorize the issuance or sale of, any shares of
Ventures Capital Stock or any securities convertible into or exercisable
for Ventures Capital Stock other than (1) shares of Ventures Common Stock
pursuant to the exercise of Options outstanding on the date hereof, (2)
shares of Ventures Series A Preferred Stock pursuant to the exercise of
Warrants outstanding on the date hereof and (3) certain options to be
granted prior to the Closing Date as described on Schedule 2.3;
(g) conduct its business in a manner that departs materially from the
manner in which such business was being conducted prior to the date of this
Agreement;
(h) make any capital expenditures in excess of $25,000 per month in the
aggregate;
(i) 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 (except for salary increases consistent with past practice in
connection with annual performance evaluations and increases pursuant to
existing contractual obligations which have been disclosed to Purchaser on
Schedule 2.12), hire any employee or consultant, or accelerate, amend or
change the period of exercisability, the exercise price, or the vesting
schedule of options or restricted stock 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;
(j) amend or terminate any material contract, agreement or license to
which it is a party, except in the ordinary course of business;
(k) enter into any inbound content licensing agreement providing
exclusivity to the licensor or any outbound content license or distribution
agreement providing exclusivity to the licensee or any other agreement in
which the obligation of Ventures or any Wired Company exceeds $50,000 or
any other agreement which shall not terminate or be subject to termination
for convenience (without penalty or premium) within 180 days following
execution;
(l) enter into or terminate any lease of, or purchase or sell, any real
property, or enter into any leases of personal property involving
individually in excess of $25,000 annually or in the aggregate in excess of
$100,000 annually;
(m) accelerate receivables or delay payables inconsistent with practices
followed in the operation of the business of Wired Digital, Inc. during the
three months ended August 31, 1998 (after giving effect to the working
capital adjustments upon which Purchaser and Ventures agreed in arriving at
the working capital amount set forth in Section 1.5(b)(18) above); or
(n) agree or commit to do any of the foregoing.
In addition, Ventures will promptly advise Purchaser of the commencement of,
or overt threat of (to the extent that such threat comes to the knowledge of
the Wired Companies), any claim, action, suit, proceeding or investigation
against, relating to or involving the Wired Companies or any of their
directions, officers or
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employees, in connection with their businesses or the transactions contemplated
hereby that would reasonably be expected to have a Material Adverse Effect.
4.2 Access. Between the date of this Agreement and the Closing Date, and
subject to the provisions of the Non-Disclosure Agreement between Ventures and
Purchaser dated June 24, 1998 (the "Non-Disclosure Agreement"), Ventures shall,
after receiving reasonable advance notice from Purchaser, give Purchaser
reasonable access (during normal business hours) to the books, records,
contracts and officers of Ventures for the purpose of enabling Purchaser to
further familiarize itself, at Purchaser's sole expense, with the business,
operations and legal affairs of Ventures.
4.3 No-Shop Provision. From and after the date of this Agreement until the
earlier of the Effective Time or termination of this Agreement pursuant to its
terms, the Wired Companies will not, and will instruct their respective
officers, directors, employees, agents, representatives and affiliates not to,
directly or indirectly (a) solicit or knowingly encourage submission of any
Acquisition Proposal (as defined below) by any person, entity or group (other
than Purchaser) or (b) participate in any discussions or negotiations with, or
disclose any non-public information concerning Ventures or any of its
subsidiaries to, any person, entity or group (other than Purchaser) in
connection with any Acquisition Proposal with respect to Ventures or any
material subsidiary. For the purposes of this Agreement, "Acquisition Proposal"
means any proposal or offer for any merger, consolidation, sale of substantial
assets, equity or debt financing, disposition of all or any substantial portion
of the Intellectual Property Rights or similar transactions involving Ventures
or any of its material subsidiaries (other than sales of assets in the ordinary
course of business or as permitted by the terms of this Agreement). Upon
execution of this Agreement, Ventures will immediately cease any and all
existing activities, discussion or negotiations with any parties conducted
heretofore with respect to any Acquisition Proposal. In the event Ventures
receives any Acquisition Proposal after the date of this Agreement, it will as
promptly as practicable thereafter notify Purchaser of the existence and all
material terms of such Acquisition Proposal.
4.4 Meeting of Stockholders. Promptly after the date hereof, Ventures will
take all action necessary in accordance with the DGCL, other applicable law,
Ventures' Certificate of Incorporation and Ventures' Bylaws to convene and hold
a meeting of stockholders (or, alternatively, solicit the written consent of
the requisite number of stockholders in lieu of a meeting) as promptly as
practicable, and in any event within 30 days after the date on which Purchaser
makes available sufficient quantities of the final Prospectus/Proxy Statement
included in the Form S-4 Registration Statement, for the purpose of approving
and adopting this Agreement and approving the Merger. In soliciting such
proxies or written consents, the Board of Directors of Ventures will recommend
to the stockholders of Ventures that they approve this Agreement and the Merger
and shall use best efforts to obtain the approval of the stockholders of
Ventures entitled to vote on or consent to this Agreement and the Merger in
accordance with the DGCL, other applicable law, and Ventures' Certificate of
Incorporation and By-laws.
4.5 Consent of Ventures' Stockholders to Certain Payments. Ventures will use
commercially reasonable efforts to obtain, as promptly as practicable after the
date of this Agreement, the requisite approval of its stockholders with respect
to any payments identified on Schedule 2.12(i) made or to be made to persons
who are to be employed by any of the Wired Companies as of the Effective Time.
ARTICLE 5
COVENANTS OF PURCHASER AND ACQUISITION SUB
5.1 Confidentiality. Purchaser and Acquisition Sub shall hold in strict
confidence, and shall cause each of their respective stockholders, affiliates,
directors, officers, employees, agents, attorneys, accountants and
representatives and those of their respective affiliates ("Associates") to hold
in strict confidence, all documents and information obtained with respect to
the Wired Companies. Purchaser shall not permit any of such documents or
information to be improperly utilized or to be disclosed or conveyed to any
other person or entity, and Purchaser shall comply in all respects with the
provisions of the Non-Disclosure Agreement.
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Without limiting the generality of the foregoing, and except as required by law
or pursuant to valid legal process, (a) neither Purchaser nor Acquisition Sub
shall disclose to any person, or permit any of its Associates to disclose to
any person or entity, the existence of this Agreement or any of the terms or
provisions hereof and (b) neither Purchaser nor Acquisition Sub shall contact
any customers or employees of any of the Wired Companies without the prior
consent of an officer of Ventures.
5.2 Investigation. In conducting its review of the business, operations and
legal affairs of Ventures, neither Purchaser nor Acquisition Sub shall
interfere in any manner with the business of operations of the Wired Companies
or with the performance of any of their employees.
5.3 Employees. Purchaser will offer each Employee who is employed by any of
the Wired Companies on the Closing Date employment after the Closing Date as an
employee at will and will provide such Employee with benefit plans which in the
aggregate are no less favorable to such Employee that those provided from time
to time by Purchaser to similarly situated employees. Purchaser's offer of
employment to each of the persons named on Schedule 5.3 will include the grant
of a standard Purchaser stock option covering a number of shares of Purchaser
Common Stock no less than the number of shares of Ventures Common Stock set
forth opposite such employee's name on Schedule 5.3, appropriately adjusted to
reflect the exchange ratio of shares of Purchaser Common Stock for shares of
Ventures Common Stock pursuant to this Agreement.
5.4 Indemnification. Purchaser will cause each of the Wired Companies to ensure
the following;
(a) The respective certificates of incorporation, by-laws and other
governing documents of each of the Wired Companies shall contain the
provisions with respect to indemnification set forth in the respective
certificates of incorporation, by-laws and other governing documents of the
Wired Companies on the date of this Agreement, which provisions shall not,
for a period of six years from the Closing Date, be amended, repealed or
otherwise modified in any manner that would adversely affect the rights
therender of individuals who at or prior to the Closing Date were
directors, officers, employees or agents of the Wired Companies, unless
such modification is required by law.
(b) From and after the Closing Date, each of the Wired Companies shall
honor all of the indemnity agreements entered into prior to the date of
this Agreement by the Wired Companies with their respective directors and
officers, all of which are listed on Schedule 2.15, whether or not such
persons continue in their positions with the Wired Companies following the
Closing Date.
(c) The provisions of Sections 5.3 and 5.4 shall survive the Closing and
are intended to be for the benefit of, and shall be enforceable by, each
Employee and by each director and officer of the Wired Companies described
in this Section 5.4 and his or her heirs, representatives and assigns.
5.5 Stock Options.
(a) At the Effective Time, each outstanding Option, whether or not
exercisable, will be assumed by Purchaser. Each Option so assumed by
Purchaser under this Agreement will continue to have, and be subject to,
the same terms and conditions set forth in Ventures' 1996 Equity Incentive
Plan immediately prior to the Effective Time and the stock option agreement
by which it is evidenced, except that (1) each Option will be exercisable
(or will become exercisable in accordance with its terms) for that number
of whole sales of Purchaser Common Stock (including Escrow Shares, if
applicable) into which the shares of Ventures Common Stock subject to such
option would have been converted pursuant to Section 1.6A(a), 1.6B(a) or
1.6C(a), whichever is applicable, if such option had been exercised in its
entirety immediately prior to the Effective Time, rounded down to the
nearest whole share of Purchaser Common Stock, and (2) the per share
exercise price for the shares of Purchaser Common Stock issuable upon
exercise of such Option will be equal to the quotient determined by
dividing (A) the aggregate exercise price of such option, less any cash in
lieu of a fractional share to which the holder of the Option would have
been entitled had such Option been exercised immediately prior to the
Effective Time, by (B) the number of shares of Purchaser Common Stock
issuable upon exercise of such Option pursuant to clause (1) above, and
rounding the resulting exercise price up to the nearest whole cent. As soon
as practicable following
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the Effective Time, Purchaser will issue to each holder of an Option a
notice describing the foregoing assumption of such Option by Purchaser.
(b) Purchaser will, within fifteen (15) business days after the Closing,
file a registration statement on Form S-8 covering the shares of Purchaser
Common Stock issuable upon exercise of the assumed Options and deliver
prospectuses relating thereto to the holders thereof in accordance with the
rules and regulations of the SEC.
5.6 Nasdaq National Market. Purchaser shall cause appropriate notice to be
filed with Nasdaq National Market with respect to the issuance of the Purchaser
Common Stock in the Merger.
5.7 Advance Agreement. Following the Closing Date, Purchaser shall take all
such action as may be reasonably necessary (including, without limitation,
using commercially reasonable efforts to amend the Advance Agreement), to
irrevocably designate the Stockholder Representatives to act as agents and
attorneys-in-fact on behalf of Ventures in connection with the Escrow Fund (as
defined in the Adverse Agreement) established pursuant to the Advance
Agreement, with sole power and full authority to do all acts and things with
respect to such Escrow Fund that Ventures could otherwise do, including,
without limitation, to give and receive notices and communications, to
authorize delivery to Advance of cash from such Escrow Fund in satisfaction of
claims by Advance, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, to demand arbitration, to comply with
orders of courts and awards of arbitrators with respect to such claims, to
appoint substitute Stockholder Representatives, and to take all such actions
necessary or appropriate in the judgment of the Stockholder Representatives for
the accomplishment of the foregoing; provided, however, that the assets subject
to the authority of the Stockholder Representatives to enter into any such
settlement or compromise shall be limited to the assets held in the Advance
Escrow. All costs and expenses reasonably incurred by Purchaser in complying
with its obligations under this Section 5.7 will be paid out of the Escrow
Fund. Upon release of any funds from such Escrow fund from time to time,
Ventures and the Stockholder Representatives shall promptly (but in no event
later than two business days after receipt thereof) deliver all such funds to
the Escrow Agent (as hereinafter defined). Ventures and the Stockholder
Representatives shall take all such action as may be necessary to ensure the
delivery of such funds to the former holders of Ventures Capital Stock, Options
and Warrants in accordance with Schedule 5.7 hereto.
5.8 Tax Refund Amount. Within 15 days following the receipt of any tax refund
(including any offset to tax payments that would otherwise be required)
applicable to any tax year of Purchaser or the Wired Companies following the
Closing Date, Purchaser shall calculate the Tax Refund Amount with respect to
such recently-ended tax year and shall pay such amount to the Escrow Agent for
distribution to the former holders of Ventures Capital Stock, Options and
Warrants as set forth in the Escrow Agreement. Purchaser shall prepare and file
its post-Closing period tax returns and shall make its tax elections in a
manner so as to maximize the dollar amount of any Tax Refund Amount and shall
use its best efforts to take such other actions, including with respect to the
manner in which Purchaser shall operate the Wired Companies and Purchaser
following the Closing, as shall maximize the dollar amount of any Tax Refund
Amount. Purchaser shall provide the Stockholder Representatives with copies of
all tax returns filed on behalf of, or including the taxable results of, any of
the Wired Companies with respect to the first three tax years of the Wired
Companies following the Closing. Without limiting the materiality of any other
representations, warranties and covenants of Purchaser contained herein,
Purchaser specifically acknowledges that Purchaser's performance in all
material respects of its obligations under this Section 5.8 is material to
Ventures' decision to enter into the transactions contemplated by this
Agreement.
ARTICLE 6
COVENANTS OF ALL PARTIES
6.1 Best Efforts; Further Assurances. Subject to the terms and conditions of
this Agreement, each party will use all its best efforts to take, or cause to
be taken, all actions and to do, or cause to be done, all
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things necessary or desirable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement. Ventures, Purchaser
and Acquisition Sub each will execute and deliver such other documents,
certificates, agreements and other writings and to take such other actions as
may be necessary or desirable in order to consummate or implement expeditiously
the transactions contemplated by this Agreement.
6.2 Certain Filings. Ventures, Purchaser and Acquisition Sub shall cooperate
with one another (a) in determining whether any action by or in respect of, or
filing with, any governmental body, agency, official or authority is required,
or any actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, in furnishing such information as may be required in
connection therewith, including without limitation filings under the HSR Act,
and in seeking timely to obtain any such actions, consents, approvals or
waivers.
6.3 Public Announcements. The parties will not issue any press release or
make any public statement with respect to this Agreement or the transactions
contemplated hereby prior to or within three (3) business days after the
Closing except as mutually agreed by Purchaser and Ventures, or except as may
be required by law or applicable regulatory authority (including, without
limitation, the rules applicable to Nasdaq National Market companies). Prior to
the issuance of any such press release or public statement determined by
Purchaser or Ventures to be required by law or applicable regulatory authority,
the party making such determination shall use commercially reasonable efforts
to consult with the other party regarding the appropriate contents of such
press release or public statement.
6.4 Tax Returns.
(a) Ventures shall prepare and submit to Purchaser all returns or reports of
each of the Wired Companies for Taxes for any taxable period that, under
applicable law, ends with or prior to the Closing Date, and shall prepare and
submit to Purchaser for its review and approval (which review and approval
shall not be unreasonably withheld or delayed) not later than 30 days before
the due date of such return or report (or extension thereof) all returns or
reports of each of the Wired Companies for Taxes for any taxable period that,
under applicable law, does not end on or prior to the Closing Date but that
includes any portion of the Pre-Closing Tax Period (as defined below).
(1) Any such return or report referred to in this Section 6.4 shall be
prepared on a basis consistent with returns or reports prepared for prior
taxable periods. If Purchaser reasonably determines that changes or
supplements are required on any return or report described in this Section
6.4, the parties shall meet in an effort to agree on any such changes.
(2) Purchaser and Ventures shall deliver to the Stockholder
Representatives such information and data concerning the operations of each
of the Wired Companies as they relate to any Taxes for the Pre-Closing Tax
Period and make available such knowledgeable employees of each of the Wired
Companies as the Stockholder Representatives may reasonably request,
including providing the information and the data required by Ventures'
customary tax and accounting questionnaires, in order to enable each of the
Wired Companies to complete and file all forms and reports which it may be
required to file with respect to its Pre-Closing Tax Period operations and
business with respect to such operations, and otherwise to enable it to
satisfy accounting, tax and other legitimate requirements.
(b) Purchaser, Ventures and the Stockholder Representatives will furnish or
cause to be furnished to each other as promptly as practicable such information
(including access to books and records) and assistance relating to each of the
Wired Companies as is reasonably requested for the filing of any return,
determining a Tax liability or right to refund, the preparation for any audit
or other proceeding, the prosecution or defense of any claim, suit or
proceeding relating to any proposed adjustment, and the enforcement of this
Agreement, and shall cooperate with each other in the conduct of any Tax audit
or other Tax proceedings involving any of the Wired Companies. Such parties
shall execute and deliver such powers of attorney and other documents as are
reasonably requested to carry out the provisions and purposes of this
Agreement.
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(c) Purchaser, Ventures and their respective successors and assigns will use
commercially reasonable efforts to preserve and retain all books, records,
returns, schedules, work papers, and other documents (including, without
limitation, appraisals and other background information) relating to any
returns, claims, audits or other proceedings that relate to Pre-Closing Tax
Periods of the Wired Companies until the expiration of the statutory period of
limitations (including extensions) of the taxable periods to which such
documents relate or until the Final Determination (as defined below) of any
payments which may be required with respect to such taxable periods, whichever
period is longer. Purchaser, Ventures and The Stockholder Representatives and
their successors shall make such documents available to each other's
representatives upon reasonable notice for purposes specified in such notice
and at reasonable times, it being understood that such representatives shall be
entitled to make copies of any such materials as they shall deem necessary.
(d) Each of the parties hereto agrees to permit representatives of the other
parties to meet with their employees (and the employees of their successors) on
a mutually convenient basis in order to enable such representatives to obtain
additional information and explanations of any document described in this
Section 6.4. The parties shall make available, or cause to be made available,
to the representatives of the other parties sufficient work space and
facilities to perform the activities described in this Section 6.4. Any
information obtained pursuant to this Section 6.4 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns
or claims or refund or in conducting any audit or other proceeding.
(e) The following terms, as used herein, have the following meaning:
(1) "Final Determination" means the later to occur of: (a) a decision of
the United States Tax Court, or a judgment, decree or other order by
another court of competent jurisdiction, which has become final and
unappealable; (b) a closing agreement under Code Section 7121; and (c) any
other final disposition by reason of an agreement between the affected
party or parties and the appropriate tax authority, the expiration of the
application statute of limitations, or otherwise.
(2) "Pre-Closing Tax Period" means any period ending with, on or prior to
the Closing Date with respect to which any of the Wired Companies is
required to report and/or pay any Tax.
6.5 Proxy Statement and Registration Statements.
(a) As promptly as practicable following the execution of this Agreement,
Purchaser and Ventures will prepare the Proxy Statement and will prepare and
file with the SEC the Form S-4 Registration Statement. Each of Ventures and
Purchaser will respond to any comments of the SEC and will use its respective
reasonable best efforts to have the Form S-4 Registration Statement declared
effective under the Securities Act as promptly as practicable following such
filing. Ventures will use its reasonable best efforts to cause the Proxy
Statement to be mailed to the Ventures stockholders at the earliest practicable
time following the time the Form S-4 Registration Statement is declared
effective by the SEC.
(b) As promptly as practicable after the date of this Agreement, each of
Purchaser and Ventures will prepare and file any other filings required to be
filed by it under the Exchange Act, the Securities Act or any other Federal,
state or foreign laws relating to the Merger and the transactions contemplated
by this Agreement (the "Other Filings"). Purchaser and Ventures will notify
each other promptly upon the receipt of any comments from the SEC or its staff
or any other government officials for amendments or supplements to the Form S-4
Registration Statement, the Proxy Statement or any Other Filings. Each of
Ventures and Purchaser will cause all documents that it is responsible for
filing with the SEC or other regulatory authorities under this Section 6.5 to
comply in all material respects with all applicable requirements of law the
rules and regulations promulgated thereunder.
(c) Purchaser will cause each of the shares of Purchaser Common Stock
issuable pursuant to Section 1.6A, 1.6B or 1.6C, whichever is applicable, to be
listed for trading on the NNM at the Effective Time. Purchaser will cause each
of the shares of Purchaser Common Stock issuable upon exercise of the Options
to be listed for trading on the NNM on or prior to the effective date of the
Form S-8 registration statement filed pursuant to Section 5.5(b).
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6.6 Tax-Free Reorganization. No party shall take any action either prior to
or after the Effective Time that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368 of the Code.
6.7 Tax Representation Letters. At or prior to the filing of the Form S-4
Registration Statement with the SEC and, to the extent necessary, at the
Closing, Purchaser and Ventures shall each execute and deliver to Hutchins,
Wheeler & Dittmar and Cooley Godward LLP management tax representation letters
in the form attached hereto as Exhibit B and Exhibit C, respectively. Each of
Purchaser and Ventures shall use its reasonable efforts to cause Hutchins,
Wheeler & Dittmar and Cooley Godward llp, respectively, to deliver promptly to
it a legal opinion satisfying the requirements of Item 601 of Regulation S-K
promulgated under the Securities Act. In rendering such opinion, each of such
counsel shall be entitled to rely on the management tax representation letters.
6.8 Marketing Program Funding. Purchaser and Ventures have agreed that,
between the date of this Agreement and the Closing Date, Wired Digital, Inc.
will carry out certain intensive marketing activities, including a television
advertising campaign previously described to Purchaser, that are beyond the
scope of its ordinary ongoing marketing programs. Ventures will obtain
Purchaser's written approval for all expenditures in connection with such
activities, and the aggregate amount of such approved expenditures (the
"Marketing Program Funding Amount") shall be deemed to be Wired Cash at Closing
as described in Section 1.5(b)(16). Production costs incurred prior to the date
hereof are not included in the Marketing Program Funding Amount, and the cost
(approximately $700,000) of television advertising during the week beginning
Sunday, October 18, 1998 is included in the Marketing Program Funding Amount.
Except with Purchaser's written approval, the cost of television advertising
scheduled to air after the Closing Date will not be included in the Marketing
Program Funding Amount.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF PURCHASER AND ACQUISITION SUB TO CLOSE
The obligations of Purchaser and Acquisition Sub to effect the Merger and
otherwise consummate the transactions that are to be consummated at the Closing
are subject to the satisfaction, as of the Closing Date, of the following
conditions (any of which may be waived by Purchaser in whole or in part):
7.1 Accuracy of Representations and Warranties. The representations and
warranties of Ventures set forth in Article 2 shall be accurate in all material
respects as of the Closing, as though made on and as of the Closing Date,
except to the extent that (a) any of such representations and warranties refers
specifically to another date, in which such case such representation or
warranty shall have been accurate as of such other date or (b) the accuracy of
any of such representations and warranties is affected by any of the
transactions contemplated by this Agreement.
7.2 Performance. Ventures shall have performed, in all material respects, all
obligations required by this Agreement to be performed by Ventures on or before
the Closing Date.
7.3 Certificate. Purchaser shall have received from a duly a authorized
officer of Ventures a certificate dated the Closing Date confirming, to such
person's knowledge, that the conditions in Sections 7.1 and 7.2 have been met.
7.4 Employment Agreements. Elizabeth Vanderslice, Richard D. Boyce, Joel
Truher, June Cohen, Mary M. Moore and Barbara Kuhr shall have entered into
employment agreements in the form attached hereto as Exhibit D, and Purchaser's
Nondisclosure and Developments Agreement in the form attached hereto as Exhibit
E.
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7.5 No Injunction. There shall not be in effect, at the Closing, any
injunction or other binding order of any court or other tribunal having
jurisdiction over Purchaser or Acquisition Sub that prohibits the Merger or
that limits or restricts the conduct or operation of the business of the Wired
Companies after the Merger.
7.6 HSR Act. Any applicable waiting period under the HSR Act relating to the
transactions contemplated hereby shall have expired or been terminated.
7.7 Legal Opinion. Purchaser shall have received from Cooley Godward LLP, to
counsel to Ventures, an opinion in substantially the form of Exhibit F attached
hereto.
7.8 Stockholder Approval. The Merger shall have been approved by the
stockholders of Ventures in accordance with applicable law.
7.9 Consents. All approvals, consents, waivers and authorizations required to
be obtained by Ventures in connection with the Merger and the other
transactions contemplated by this Agreement set forth on Schedule 7.9 shall
have been obtained and shall be in full force and effect.
7.10 Escrow Agreement. Purchaser shall have entered into the Escrow Agreement
annexed as Exhibit G hereto (the "Escrow Agreement"), duly executed by the
Stockholder Representatives, together with counterparts signed by the escrow
agent named therein and blank stock powers executed by each of the holders with
respect to such holder's portion of the Escrow Shares.
7.11 Resignations. Purchaser shall have received resignations of all
directors and officers of all subsidiaries of Ventures, effective as of the
Effective Time.
7.12 Appraisal Rights. The holders of those outstanding shares of Ventures
Capital Stock representing the right to receive no more than 5% of the Merger
Consideration shall have affirmatively demanded appraisal rights in respect of
the Merger.
7.13 Termination of Agreements. The agreements identified on Schedule 7.13
between Ventures and certain of its stockholders shall have been terminated,
effective no later than the Effective Time.
7.14 Form S-4 Registration Statement. The Form S-4 Registration Statement
shall have been declared effective under the Securities Act and shall not be
subject to a stop order or any threatened stop order. All necessary state
securities and blue sky permits, approvals and exemption orders required in
connection with the transactions contemplated by this Agreement shall have been
obtained.
7.15 Tax Opinion. Purchaser shall have received a written opinion from
Hutchins, Wheeler & Dittmar in form and substance reasonably satisfactory to
them, to the effect that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code and such opinion shall not have been
withdrawn; provided, however, that if Hutchins, Wheeler & Dittmar does not
render such opinion or withdraws or modifies such opinion to Purchaser, this
condition shall nonetheless be deemed to be satisfied if counsel to Ventures
renders such opinion to Purchaser. In rendering such tax opinion, counsel shall
be entitled to rely on the management tax representation letters referred to in
Section 6.7.
7.16 Quotation on Nasdaq National Market. The Purchaser Common Stock issuable
in the Merger shall have been approved for quotation on the Nasdaq National
Market upon official notice of issuance thereof.
7.17 Consent of Ventures' Stockholders to Certain Payments. Ventures shall
have either (a) obtained the requisite approval of its stockholders with
respect to any payments identified on Schedule 2.12(i) made or to be made to
persons who are to be employed by any of the Wired Companies as of the
Effective Time (the "Recipients") or (b) made available to Purchaser and the
Recipients, by amendment of this Agreement or otherwise, such arrangements
(including the establishment of an additional cash escrow fund in an
appropriate amount) as may be necessary to indemnify Purchaser and the
Recipients fully against any after-tax cost to them (including the after-tax
cost of any tax "gross-up" obligation of Ventures) of Ventures' failure to
obtain such approval.
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ARTICLE 8
CONDITIONS TO OBLIGATION OF VENTURES TO CLOSE
The obligation of Ventures to effect the Merger and otherwise consummate the
transactions that are to be consummated at the Closing is subject to the
satisfaction, as of the Closing Date, of the following conditions (any of which
may be waived by Ventures):
8.1 Accuracy of Representations and Warranties. The representations and
warranties of Purchaser and Acquisition Sub set forth in Article 3 shall be
accurate in all material respects as of the Closing, as though made on and as
of the Closing Date, except to the extent that (a) any of such representations
and warranties refers specifically to a date other than the Closing Date, in
which such case such representation or warranty shall have been accurate in all
material respects of such other or (b) the accuracy of any of such
representations and warranties is affected by any of the transactions
contemplated by this Agreement.
8.2 Performance. Purchaser and Acquisition Sub shall have performed, in all
material respects, all obligations required by this Agreement to be performed
by Purchaser and Acquisition Sub on or before the Closing Date.
8.3 Certificate. Ventures shall have received from a duly authorized officer
of Purchaser a certificate dated the Closing Date confirming, to such person's
knowledge, that the conditions in Sections 8.1 and 8.2 have been met.
8.4 No Injunction. There shall not be in effect, at the Closing, any
injunction or other binding order of any court or other tribunal having
jurisdiction over Ventures that prohibits the Merger or that limits or
restricts the conduct or operations of Purchaser after the Merger.
8.5 HSR Act. Any applicable waiting period under the HSR Act relating to the
transactions contemplated shall have expired or been terminated.
8.6 Consents. The consents, licenses, approvals, releases and authorizations
specified on Schedule 2.6 shall have been obtained, except where the failure to
obtain such consents did not and would not reasonably be expected to result in
a Material Adverse Effect on Purchaser or a material adverse effect on the
transactions contemplated by this Agreement.
8.7 Legal Opinion. Ventures shall have received from Hutchins, Wheeler &
Dittmar, counsel to Purchaser, an opinion in substantially the form of Exhibit
H attached hereto.
8.8 Stockholder Approval. The Merger shall have been approved by the
stockholders of Ventures in accordance with applicable law.
8.9 Tax Opinion. Ventures shall have received a written opinion from Cooley
Godward LLP in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Code and such opinion shall not have been withdrawn;
provided, however, that if Cooley Godward LLP does not render such opinion or
withdraws or modifies such opinion to Ventures, this condition shall
nonetheless be deemed to be satisfied if counsel to Purchaser renders such
opinion to Ventures. In rendering such tax opinion, counsel shall be entitled
to rely on the management tax representation letters referred to in Section
6.7.
8.10 Form S-4 Registration Statement. The Form S-4 Registration Statement
shall have been declared effective under the Securities Act and shall not be
subject to a stop order or any threatened stop order. All necessary state
securities and blue sky permits, approvals and exemption orders required in
connection with the transactions contemplated by this Agreement shall have been
obtained.
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8.11 Quotation on Nasdaq National Market. The Purchaser Common Stock issuable
in the Merger shall have been approved for quotation on the Nasdaq National
Market upon official notice of issuance thereof.
ARTICLE 9
TERMINATION
9.1 Right to Terminate Agreement. This Agreement may be terminated prior to
the Closing:
(a) by mutual agreement of Ventures and Purchaser;
(b) by Purchaser at any time after 282 days after signing (excluding the
number of days, if any, elapsed during the dispute resolution proceedings
relating to the Preliminary Closing Balance Sheet pursuant to Section
1.5(c)), if the Closing shall not have occurred on or prior to such date;
provided, however, that the right to terminate this Agreement under this
Section 9.1(b) shall not be available to Purchaser if the action of
Purchaser or Acquisition Sub or any of their Associates has been a
principal cause of or resulted in the failure of the Merger to occur on or
before such date and such action or failure to act constitutes a breach of
this Agreement; or
(c) by Ventures at any time after 282 days after signing (excluding the
number of days, if any, elapsed during the dispute resolution proceedings
relating to the Preliminary Closing Balance Sheet pursuant to Section
1.5(c)), if the Closing shall not have occurred on or prior to such date;
provided, however, that the right to terminate this Agreement under this
Section 9.1(c) shall not be available to Ventures if the action of Ventures
or any of its Associates (including those persons who have signed the
Voting Agreement) has been a principal cause of or resulted in the failure
of the Merger to occur on or before such date and such action or failure to
act constitutes a breach of this Agreement.
9.2 Effect of Termination. Upon the termination of this Agreement pursuant to
Section 9.1:
(a) Purchaser and Acquisition Sub shall promptly cause to be returned to
Ventures all documents and information obtained in connection with this
Agreement and the transactions contemplated by this Agreement and all
documents and information obtained in connection with the Purchaser's
investigation of Ventures' business, operations and legal affairs,
including any copies made by or supplied to Purchaser or any of Purchaser's
agents of any such documents or information; and
(b) No party hereto shall have any obligation or liability to other
parties hereto, except that the parties hereto shall remain bound by the
provisions of this Section 9.2 and Sections 5.1, 6.3 and 9.3 and Article 12
and by the provisions of the Non-Disclosure Agreement, and except that
nothing herein shall relieve any party from liability for a breach of this
Agreement prior to the termination hereof.
9.3 Failure to Close.
(a) If Purchaser fails to consummate the transactions contemplated on its
part to occur on the Closing Date, in circumstances whereby this Agreement
has not been terminated and all conditions of the Closing set forth in
Article 7 have been satisfied in all material respects or waived, Purchaser
shall be liable to Ventures for damages to the extent provided by law and
Ventures shall be entitled to be reimbursed by Purchaser for its expenses
as provided in Section 12.4.
(b) If Ventures fails to consummate the transactions contemplated on its
part to occur on the Closing Date, in circumstances whereby this Agreement
has not been terminated and all conditions of the Closing set forth in
Article 8 have been satisfied in all material respects or waived, Ventures
shall be liable to Purchaser for damages to the extent provided by law and
Purchaser shall be entitled to be reimbursed by Ventures for its expenses
as provided in Section 12.4.
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ARTICLE 10
ADJUSTMENT PROCEDURES
10.1 Preparation of Final Closing Balance Sheet.
(a) For purposes of this Article 10:
(1) "Final Cash at Closing" shall mean all cash and cash equivalents held
by the Wired Companies as of the Closing (including any cash held by
Ventures that represents the exercise price of stock options exercised for
cash after the date hereof), as shown on the Final Closing Balance Sheet
(as hereinafter defined), minus the Cash Exclusions; provided, however,
that, for purposes of calculating Final Cash at Closing, Ventures shall be
deemed to hold an incremental amount of cash equal to the sum of (A) the
Marketing Program Funding Amount described in Section 6.8, (B) any amounts
paid by Ventures at or prior to the Closing pursuant to Section 12.4, (C)
the aggregate exercise price of all stock options presently held by or
hereafter granted to employees of the Wired Companies (but not non-
employees), as described in Schedule 2.3, and Warrants to the extent such
stock options and Warrants are either held unexercised at the Closing Date
or net-exercised between the date hereof and the Closing Date and (D) the
amounts set forth on Schedule 10.1(a) hereto.
(2) "Final Borrowings at Closing" shall mean all indebtedness for
borrowed money of the Wired Companies as of the Closing, as shown on the
Final Closing Balance Sheet.
(3) "Final Adjusted Working Capital Shortfall at Closing" shall mean the
absolute value of the difference between (i) $432,172 and (ii) the adjusted
working capital (i.e., current assets less current liabilities) of the
Wired Companies as of the Closing, as reflected on the Final Closing
Balance Sheet; provided, however, that, for the purpose of calculating
Final Adjusted Working Capital Shortfall at Closing only, Final Cash at
Closing (together with the offsetting Cash Exclusions) and Final Borrowings
at Closing shall be disregarded, and amounts payable by Ventures as
contemplated by Section 6.8 or Section 12.4 at or prior to Closing shall
not be deemed to be a current liability. Notwithstanding the foregoing,
Final Adjusted Working Capital Shortfall at Closing shall be zero if the
adjusted working capital described in subparagraph (ii) above is $432,172
or greater.
(b) As soon as practicable following the Closing, Purchaser shall prepare in
good faith, and shall cause Purchaser's independent auditors to review, the
consolidated balance sheet of Ventures and the other Wired Companies as of the
Closing Date (the "Final Closing Balance Sheet"). Except for the absence of
footnotes, the Final Closing Balance Sheet shall be prepared in accordance with
GAAP on a basis consistent with that used in the preparation of the Financial
Statements. Based on the Final Closing Balance Sheet, Purchaser shall
calculate, and shall cause Purchaser's independent auditors to review, Final
Cash at Closing, Final Borrowings at Closing and Final Adjusted Working Capital
Shortfall at Closing, and Purchaser shall deliver such calculations to the
Stockholder Representatives with the Final Closing Balance Sheet. If the
Stockholder Representatives have not given the Purchaser notice of their
objection to the Final Closing Balance Sheet (which notice must contain a
statement of the basis of the Stockholder Representatives' objection) within
fifteen (15) days after delivery of such Final Closing Balance Sheet, then
Final Cash at Closing and Final Adjusted Working Capital Shortfall at Closing
based on the Final Closing Balance Sheet as delivered by Purchaser shall be
used in computing the Escrow Adjustment Shares (as hereinafter defined).
(c) In the event the Stockholder Representatives have provided notice of
their objection in accordance with Section 10.1(b) within such fifteen (15) day
period, then the issues in dispute shall be resolved in accordance with this
Section 10.1(c). First, Purchaser and the Stockholder Representatives shall
attempt to resolve the issues outstanding with respect to the Final Closing
Balance Sheet and the calculation of Final Cash at Closing, Final Borrowings at
Closing and Final Adjusted Working Capital Shortfall at Closing. If Purchaser
and the Stockholder Representatives are unable to resolve those issues within
thirty (30) days of Purchaser's receipt of the Stockholders Representatives'
objections, then Purchaser and the Stockholder Representatives shall submit the
remaining issues in dispute to Arthur Andersen LLP, independent auditors (the
"Independent Auditors"), for resolution. If issues in dispute are submitted to
the Independent Auditors for resolution, (1)
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each party shall furnish to the Independent Auditors such workpapers and other
documents and information relating to the disputed issues as the Independent
Auditors may request and as are available to that party and shall be afforded
the opportunity to present to the Independent Auditors and material relating to
the determination and to discuss the determination with the Independent
Auditors; (2) the Determination by the Independent Auditors, as set forth in a
notice delivered to both Purchaser and the Stockholder Representatives by the
Independent Auditors within thirty (30) days of the submission to them of the
issues in dispute, shall be binding and conclusive on the parties and any
determination of Final Cash at Closing, Final Borrowings at Closing and Final
Adjusted Working Capital Shortfall at Closing made by the Independent Auditors
in their determination of the issues in dispute shall be used in computing the
Escrow Adjustment Shares; and (3) Purchaser shall bear the fees and costs of
the Independent Auditors in making such determination and shall be entitled to
recover 50% of such fees and cost from the Escrow Fund.
(d) Within one (1) business day after Final Cash at Closing, Final Borrowings
at Closing and Final Adjusted Working Capital Shortfall at Closing have been
determined pursuant to Section 10.1(b), Section 10.1(c) or any combination
thereof, the "Escrow Adjustment Shares" shall mean and be calculated as
follows: the number of shares of Purchaser Common Stock, rounded to the nearest
full share, equal to the absolute value of the Adjustment Amount (as
hereinafter defined) shall be divided by the Average Closing Stock Price. The
term "Adjustment Amount" shall mean the aggregate of: (1) Final Cash at Closing
minus Wired Cash at Closing minus Excess Expenses, (2) Wired Borrowings at
Closing minus Final Borrowings at Closing and (3) Wired Adjusted Working
Capital Shortfall at Closing minus Final Adjusted Working Capital Shortfall at
Closing. The term "Excess Expenses" shall mean (i) the amount paid or payable
by Ventures pursuant to Section 12.4 (except to the extent such amount was
included as a Closing Expense Adjustment Amount thereby reducing the Cash
Balance as determined pursuant to Section 1.5(b)(2) or to the extent Purchaser
has made a claim against the Escrow Fund with respect to such amount under
Section 12.4), minus (ii) $2.5 million; provided that the amount in clause (i)
above exceeds the amount in clause (ii) above.
10.2 Adjustment of Escrow Fund. If the Adjustment Amount is greater than
zero, Purchaser shall issue the Escrow Adjustment Shares and deposit such
shares in the Escrow Fund within five (5) business days following the
determination of the Escrow Adjustment Shares. If the Adjustment Amount is less
than zero, then, within five (5) business days following the determination of
the Escrow Adjustment Shares, Purchaser and the Stockholder Representatives
shall deliver to the Escrow Agent a notice authorizing the release to the
Purchaser from the Escrow Fund of (a) the number of shares of Purchaser Common
Stock equal to the Escrow Adjustment Shares or (b) if the number of Escrow
Shares remaining in the Escrow Fund (the "Remaining Escrow Shares") is less
than the number of Escrow Adjustment Shares, all of the remaining Escrow Shares
(if any) plus an amount of cash equal to the product of (i) the difference
between the number of Escrow Adjustment Shares and the number of Remaining
Escrow Shares and (ii) the Average Closing Stock Price. If the Adjustment
Amount is negative and the amount exceeds $2 million, then, within five (5)
business days following the determination of the Escrow Adjustment Shares,
Purchaser and the Stockholder Representatives shall deliver to the Escrow Agent
a notice instructing the Escrow Agent that: (a) it is promptly to release to
Purchaser from the Escrow Fund a number of shares of Purchaser Common Stock
having a value, based on the Average Closing Stock Price, of $2 million and if
there are not enough Escrow Shares remaining, then the amount of cash as
determined pursuant to the preceding sentence; and (b) if it subsequently (but
before the end of the Escrow Period) receives any funds released from the
Advance Escrow as contemplated by Section 5.7, an amount of such funds equal to
the Adjustment Amount in excess of $2 million shall be added to the Escrow Fund
and promptly released to Purchaser before any distribution of the balance, if
any, of such funds to the former holders of Ventures capital stock. In the
event that the cash received from the Advance Escrow is not sufficient to
reimburse Purchaser for the entire Adjustment Amount, an additional number of
shares of Purchaser Common Stock, with a value based on the Average Closing
Stock Price (or cash as determined above), shall be released from the Escrow
Fund such that Purchaser is reimbursed for the entire Adjustment Amount. In the
event of any increase or decrease in the number of shares of Purchaser Common
Stock or cash held in the Escrow Fund pursuant to this Section 10.2, the term
"Escrow Fund" shall thereafter mean the Escrow Fund as adjusted.
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ARTICLE 11
CERTAIN REMEDIES AND LIMITATIONS
11.1 Expiration of Representations, Warranties and Covenants. All of the
representations and warranties of Ventures set forth in this Agreement and all
of the covenants set forth in Article 4 shall terminate and expire, and shall
cease to be of any force or effect, at 5:00 p.m., Massachusetts time, on the
first anniversary of the Closing Date, and all liability with respect to such
representations, warranties and covenants shall thereupon be extinguished.
Notwithstanding the foregoing, if, prior to such date, Purchaser shall have in
good faith delivered a Claim Notice (as defined below) to the Stockholder
Representatives and the Escrow Agent in conformity with all of the applicable
procedures set forth in the Escrow Agreement, then the specific indemnification
claim set forth in such Claim Notice shall survive such date and shall not be
extinguished thereby.
11.2 Escrow Fund. At the Effective Time, Ventures' stockholders and Warrant
and Option holders will be deemed to have received and deposited the Escrow
Shares with the Escrow Agent without any act of any stockholder, Warrant holder
or Option holder. At the Closing, the Escrow Shares, without any act of
stockholder, Warrant holder or Option holder will be deposited with State
Street Bank and Trust Company (or other institution acceptable to Purchaser and
the Stockholder Representatives), as Escrow Agent (the "Escrow Agent"), such
deposit for a period of one year from the Closing Date to constitute an escrow
fund (the "Escrow Fund") to be governed by the terms set forth herein and in
the Escrow Agreement. The Escrow Fund shall be available to compensate
Purchaser and its affiliates for any and all losses, damages, deficiencies,
liabilities, obligations, actions, claims, suits, proceedings, demands,
assessments, judgments, recoveries, fees, costs and expenses (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 or to be
realized by Purchaser (collectively, "Losses"), arising out of, based upon or
resulting from (1) any inaccuracy in or breach of any representation and
warranty of Ventures which is contained in this Agreement or any Schedule or
certificate delivered pursuant hereto or thereto; (2) any breach or non-
fulfillment of, or any failure to perform, any of the covenants, agreements or
undertakings of Ventures (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 or made pursuant to the terms and conditions of this
agreement; (3) any losses of Purchaser or any Wired Company (whether or not
disclosed on a Schedule hereto) to the extent arising out of the Wired
Companies' obligations to provide indemnification in excess of the amount of
the Advance Escrow pursuant to Section 10.3(b) of the Advance Agreement or
otherwise resulting from or relating to the operation or sale of the Business
(as such term is defined in the Advance Agreement); or (4) any Losses resulting
from the delayed form filings described in paragraph (c) of Schedule 2.12.
Purchaser may not receive any payment from the Escrow Fund unless and until
Officer's Certificates (as defined in the Escrow Agreement) identifying Losses,
the aggregate amount of which exceed $500,000, have been delivered to the
Escrow Agent as provided in the Escrow Agreement; in such case, Purchaser may
recover from the Escrow Fund its Losses in excess of the first $500,000 (the
"Deductible"); provided, however, that in no event shall the Deductible apply
to the Losses resulting from any inaccuracy or breach of any representation and
warranty contained in Sections 2.1(b), 2.2, 2.14 or 2.18, any Losses arising
under clause (3) or (4) above, any fees and costs that Purchaser is entitled to
recover pursuant to Section 10.1(c), or any negative Adjustment Amount
determined pursuant to Section 10.1(d), and provided, further, that any such
Losses or fees and costs or Adjustment Amount shall not be taken into account
in determining whether aggregate Losses exceed the threshold of the Deductible
or whether the Deductible has been satisfied for purposes of calculating
Purchaser's recovery from the Escrow Fund.
11.3 Indemnification by Purchaser. Subject to the limitations and the
provisions set forth herein, Purchaser and the Surviving Corporation, jointly
and severally, will indemnify and hold harmless the stockholders, Warrant
holders and Option holders of Ventures from, against and in respect of the net
amount (after deduction of the amount of any insurance proceeds recoverable and
net of any tax benefit) of any and all Losses actually suffered by them as a
direct result of the failure of any representation or warranty made by
Purchaser or Acquisition Sub in Article 3 to have been true in all material
respects when made.
11.4 Defense of Third Party Actions. If either Purchaser, on the one hand, or
the Stockholder Representatives, on the other hand (the "Indemnitee"), receives
notice or otherwise obtains knowledge of any
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matter or any threatened matter that may give rise to an indemnification claim
against the Escrow Fund, on the one hand, or Purchaser, on the other hand (the
"Indemnifying Party"), then the Indemnitee shall promptly deliver to the
Indemnifying Party a written notice describing such matter in reasonable detail
(the "Claim Notice"). The timely delivery of such written notice by the
Indemnitee to the Indemnifying Party shall be a condition precedent to any
liability on the part of the Indemnifying Party under this Article 11 with
respect to such matter. The Indemnifying Party shall have the right at its
option (acting through the Stockholder Representatives, if the "Indemnifying
Party" is the Escrow Fund), to assume the defense of any such matter with its
own counsel, but only if the Indemnifying Party simultaneously agrees to
indemnify the Indemnitee for such matter. If the Indemnifying Party elects to
assume the defense of and indemnification for any such matter, then:
(a) notwithstanding anything to the contrary contained in this Agreement, the
Indemnifying Party shall not be required to pay or otherwise indemnify the
Indemnitee against any attorneys' fees or other expenses incurred on behalf of
the Indemnitee in connection with such matter following the Indemnifying
Party's election to assume the defense of such matter;
(b) the Indemnitee shall make available to the Indemnifying Party all books,
records and other documents and materials that are under the direct or indirect
control of the Indemnitee or any of the Indemnitee's agents and that the
Indemnifying Party considers necessary or desirable for the defense of such
matter;
(c) the Indemnitee shall execute such documents and take such other actions
as the Indemnifying Party may reasonably request for the purpose of
facilitating the defense of, or any settlement, comprise or adjustment relating
to, such matter;
(d) the Indemnitee shall otherwise fully cooperate as reasonably requested by
the Indemnifying Party in the defense of such matter; and
(e) the Indemnitee shall not admit any liability with respect to such matter.
Notwithstanding the foregoing, the Indemnifying Party shall not, without the
prior written consent of the Indemnitee, agree to settlement of any third party
claim, unless the settlement provides an unconditional release and discharge of
the Indemnitee. If the Indemnifying Party elects not to assume the defense of
and indemnification for such matter, then the Indemnitee shall proceed
diligently to defend such matter with the assistance of counsel reasonably
satisfactory to the Indemnifying Party; provided, however, that the Indemnitee
shall not settle, adjust or compromise such matter, or admit any liability with
respect to such matter, without the prior written consent of the Indemnifying
Party, such consent not to be unreasonably withheld or delayed. In the event
the Escrow Fund is the "Indemnifying Party" in connection with a matter, the
Stockholder Representatives shall have the right to pay any attorneys' fees and
other expenses of any defense of a matter assumed pursuant to this Section 11.4
out of the amount then available thereunder.
11.5 Subrogation; No Contribution. To the extent that the Indemnifying Party
makes or is required to make any indemnification payment to the Indemnitee, the
Indemnifying Party shall be entitled to exercise, and shall be subrogated to,
any rights and remedies (including rights of indemnity, rights of contribution
and other rights of recovery) that the Indemnitee or any of the Indemnitee's
affiliates may have against any other person with respect to any Losses,
circumstances or matter to which such indemnification payment is directly or
indirectly related. The Indemnitee shall permit the Indemnifying Party to use
the name of the Indemnitee and the names of the Indemnitee's affiliates in any
transaction or in any proceeding or other matter involving any of such rights
or remedies; and the Indemnitee shall take such actions as the Indemnifying
Party may reasonably request for the purpose of enabling the Indemnitee to
perfect or exercise the Indemnifying Party's right of subrogation hereunder.
Notwithstanding the foregoing, the Stockholder Representative, on behalf of all
holders of Ventures Capital Stock, Warrants and Options, hereby waives, and
acknowledges and agrees that no holder of Ventures Capital Stock, Warrants or
Options shall have and shall not exercise or assert (or attempt to exercise or
assert), any right of contribution, right of indemnity or other right or remedy
against Purchaser or Ventures in connection with any indemnification obligation
to which such stockholder may become subject under this Agreement or the Escrow
Agreement.
11.6 Exclusivity. The right of each party hereto to assert indemnification
claims and receive indemnification payments pursuant to this Article 11 shall
be the sole and exclusive right and remedy
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exercisable by such party with respect to any breach by the other party hereto
of any representation, warranty or covenant, except for claims based on fraud.
11.7 Retention of Records. From and after the date of this Agreement,
Purchaser shall preserve, and shall cause the Surviving Corporation and the
Wired Companies to preserve, all books, records and other documents, materials
and information relevant to the representations, warranties and covenants set
forth in this Agreement for a period of six years following the date of this
Agreement or for such longer period as the rights of the parties hereunder may
exist.
11.8 Notice as to Representations. Without limiting any of the other
obligations of the respective parties hereunder, if at any time after the date
of this Agreement, Purchaser shall have any reason to believe that any
representation or warranty made by Ventures hereunder may have been untrue,
Purchaser shall promptly provide the Stockholder Representatives written notice
to that effect, indicating the basis for Purchaser's belief that such
representation or warranty may have been untrue. For purposes of this Article
11, Ventures shall not be deemed to have breached any representation or
warranty if Purchaser, prior to the Closing Date, had knowledge of the breach,
or facts and circumstances constituting or resulting in a breach, of such
representation or warranty, and consummated the Merger notwithstanding such
knowledge.
11.9 No Rescission. Neither Purchaser, Acquisition Sub nor Ventures shall be
entitled to rescind the Merger by virtue of any failure of any party's
representations and warranties herein to have been true or any breach of any
party's obligations hereunder.
ARTICLE 12
MISCELLANEOUS
12.1 Material Adverse Effect. Any adverse change, event or effect that is
proximately caused by conditions affecting the United States economy generally
shall not be taken into account in determining whether there has been or would
be a Material Adverse Effect on Wired or a Material Adverse Effect on Purchaser
(unless such conditions adversely affect Ventures or Purchaser, as the case may
be, in a materially disproportionate manner). Any adverse change, event or
effect that is proximately caused by any industry in which Purchaser or
Ventures competes shall not be taken into account in determining whether there
has been or would be a Material Adverse Effect on Purchaser or Material Adverse
Effect on Ventures (unless such conditions adversely affect Ventures or
Purchaser, as the case may be, in a materially disproportionate manner). Any
adverse change, event or effect that is proximately caused by the announcement
or pendency of the Merger shall not be taken into account in determining
whether there has been or would be a Material Adverse Effect on Purchaser or a
Material Adverse Effect on Wired. Any adverse change, event or effect that is
proximately caused by any breach by Purchaser or Ventures of any covenant or
obligation set forth in this Agreement shall not be taken into account in
determining whether there has been or would be a Material Adverse Effect on
Wired or Material Adverse Effect on Purchaser, respectively.
12.2 Knowledge of Ventures. As used in this Agreement, a corporate party's
"knowledge" means the actual knowledge of any director or executive officer of
such party.
12.3 Memorandum; Disclaimer of Projections. Ventures makes no representation
or warranty to Purchaser or Acquisition Sub except as specifically made in this
Agreement. In particular, Ventures makes no representation or warranty to
Purchaser or Acquisition Sub with respect to any financial projection or
forecast delivered by or on behalf of Ventures to Purchaser. Purchaser and
Acquisition sub acknowledge that (a) there are uncertainties inherent in
attempting to make such projections and forecasts, (b) they are familiar with
such uncertainties, (c) they are taking full responsibility for making their
own evaluation of the adequacy and accuracy of all such projections and
forecasts so furnished to them and (d) they shall have no claim against
Ventures or its stockholders with respect thereto.
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12.4 Expenses.
(a) If the Merger is consummated or if this Agreement is terminated under
circumstances other than those specified in Section 9.3(a) or (b), Ventures and
Purchaser shall pay their own respective expenses and costs incidental to the
preparation of this Agreement, the performance and compliance with all
agreements contained in this Agreement to be performed or complied with by them
and the consummation of the transactions contemplated hereby. Ventures shall
pay all such legal, accounting, investment banking and other fees and expenses
that are payable by it in full at or prior to the Closing against appropriate
invoices therefor. So that Purchaser may calculate the Cash Balance pursuant to
Section 1.5(b)(2), Ventures shall provide Purchaser with an estimate of amounts
to be paid by Ventures at or prior to the Closing at least two days prior to
the Effective Time. Notwithstanding anything to the contrary contained herein,
if the Merger is consummated, and if the aggregate legal, accounting,
investment banking and other fees and expenses paid or payable by Ventures and
determined by Ventures to be substantially related to the preparation for,
negotiation of or consummation of this Agreement or the transactions
contemplated hereby exceed $2.5 million and have not otherwise been included as
a Closing Expense Adjustment Amount thereby reducing the Cash Balance pursuant
to Section 1.5(b)(2) or included in the definition of Excess Expenses as
defined in Section 10.1(d), Purchaser shall be entitled to seek
indemnification, by making a claim against the Escrow Fund pursuant to Article
11, with respect to the amount by which such fees and expenses exceed $2.5
million. The Deductible shall not apply to any such claim, and any such claim
shall not be taken into account in determining whether aggregate Losses exceed
the threshold of the Deductible or whether the Deductible has been satisfied
for purposes of calculating Purchaser's recovery from the Escrow Fund.
(b) If the Merger is not consummated under the circumstances described in
Section 9.3(a), Purchaser shall pay (1) all of its own expenses and costs and
(2) the reasonable expenses and costs of Ventures incidental to the preparation
of this Agreement, the performance and compliance with all agreements contained
in this Agreement and the consummation of the transactions contemplated hereby
including, without limitation, the reasonable fees and expenses of their
respective counsel and investment bankers, in an aggregate amount not to exceed
$200,000.
(c) If the Merger is not consummated under the circumstances described in
Section 9.3(b), Ventures shall pay (1) all of its own expenses and costs and
(2) the reasonable expenses and costs of Purchaser incidental to the
preparation of this Agreement, the performance and compliance with all
agreements contained in this Agreement and the consummation of the transactions
contemplated hereby including, without limitation, the reasonable fees and
expenses of their respective counsel and investment bankers, in an aggregate
amount not to exceed $200,000.
12.5 Notices. All notices, instructions and other communications given
hereunder or in connection herewith shall be in writing. Any such notice,
instruction or communication shall be sent either (a) by registered or
certified mail, return receipt requested, postage prepaid, or (b) via a
reputable nationwide overnight courier service, in each case to the address set
forth below. Any such notice, instruction or communication shall be deemed to
have been delivered three business days after it is sent prepaid, or one
business day after it is sent via a reputable nationwide overnight courier
service.
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If to Purchaser, Acquisition Sub or the Surviving Corporation to:
Lycos, Inc.
400-2 Totten Pond Road
Waltham, MA 02451
Attention: General Counsel
Tel: (781) 370-2700
Fax: (781) 370-2600
with a copy to:
Hutchins, Wheeler & Dittmar
A Professional Corporation
101 Federal Street
Boston, MA 02110
Attention: Mary Ellen O'Mara
Tel: (617) 951-6663
Fax: (617) 951-1295
If to Ventures, to:
Wired Ventures, Inc.
660 Third Street, 4th Floor
San Francisco, CA 94107
Attention: President
Tel: (415) 276-8400
Fax: (415) 276-8699
with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Kenneth L. Guernsey
Tel: (415) 693-2000
Fax: (415) 951-3699
If to the Stockholder Representatives, to:
H. William Jesse, Jr.
222 Sutter Street, 8th Floor
San Francisco, CA 94108
Tel: (415) 274-4550
Fax: (415) 274-4567
and to:
Louis Rossetto
1678 Shattuck Avenue
Berkeley, CA 94709
Tel: (510) 841-4430
Fax: (510) 841-4431
and to:
Paul J. Salem
901 Fleet Center
50 Kennedy Plaza
Providence, RI 02903
Tel: (401) 751-6763
Fax: (401) 751-1790
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with a copy to:
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
Attention: Kenneth L. Guernsey
Tel: (415) 693-2000
Fax: (415) 951-3699
or, in each case, to such other address as may be specified in writing to the
other parties.
Any party may give any notice, instruction or communication in connection
with this Agreement using any other means (including personal delivery,
telecopy or ordinary mail), but no such notice, instruction or communication
shall be deemed to have been delivered unless and until it is actually received
by the party to whom it was sent. Any party may change the address to which
notices, instructions or communications are to be delivered by giving the other
parties to this Agreement notice thereof in the manner set forth in this
Section 12.5.
12.6 Assignment. No party may assign or otherwise transfer this Agreement or
any of his rights hereunder to any person or entity, without the prior written
consent of Purchaser, Ventures and the Stockholder Representatives, which
consent shall not be unreasonably withheld or delayed. Subject to the
foregoing, this Agreement shall inure to the benefit of and be binding upon the
parties hereto and their successors and assigns.
12.7 Entire Agreement; Amendment; Governing Law; Etc. This Agreement
(together with the Exhibits and Schedules hereto) and the Non-Disclosure
Agreement embody the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof. This Agreement may be
amended, modified, waived, discharged or terminated only by (and any consent
hereunder shall be effective only if contained in) an instrument in writing
signed by the party against which enforcement of such amendment, modification,
waiver, discharge, termination or consent is sought. This Agreement shall be
construed in accordance with and governed by the laws of the State of Delaware
as it applies to contracts to be performed entirely within the State of
Delaware.
12.8 Counterparts. This Agreement may be executed in several counterparts,
each of which is an original, but all of which shall constitute one instrument.
12.9 Venue. If any legal proceeding or other action relating to this
Agreement or any of the other agreements being executed and delivered in
connection herewith, or any of the transactions contemplated hereby or thereby,
is brought or otherwise initiated, the venue therefor shall be in the city and
state in which the principal executive offices of the party who is not
initiating the legal proceeding, which shall be deemed to be a convenient
forum. Each of the parties hereto hereby expressly and irrevocably consents and
submits to the jurisdiction of the Federal and State courts sitting in such
city and state in connection with any such legal proceeding or other action.
12.10 Third-Party Rights. The stockholders of Ventures and holders of Options
and Warrants, acting solely through the Stockholder Representatives, are
intended third-party beneficiaries of the obligations of Purchaser and
Acquisition Sub set forth in Articles 1, 5, 6, 10, 11 and 12 of this Agreement.
Except as otherwise set forth herein, the parties do not intend to confer any
benefit hereunder on any person or entity other than the parties hereto and
their respective successors in interest. The Stockholder Representatives are
signatories to this Agreement solely for the purpose of establishing their
authority hereunder and identity and shall not have any liability hereunder or
be deemed "parties" hereto for any purpose. Any decision or act of a majority
of the Stockholder Representatives shall be deemed the decision or act of the
Stockholder Representatives, and the remaining Stockholder Representative(s)
shall have the authority to appoint a replacement for any Stockholder
Representative who ceases to serve as such.
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12.11 Titles and Headings. Titles and headings of sections of this Agreement
and the "Table of Contents" and the "Table of Exhibits" included herewith are
for convenience of reference only and shall not affect the construction of any
provision of this Agreement.
12.12 Exhibits and Schedules. Each of the Exhibits and Schedules referred to
herein and attached hereto is an integral part of this Agreement and is
incorporated herein by this reference.
12.13 Pronouns. All pronouns and any variations thereof used in this
Agreement shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as appropriate.
12.14 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any jurisdiction, as to such jurisdiction, shall be
ineffective to the extent of such invalidity or unenforceability, without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
12.15 Time of Essence. Time is of the essence of this Agreement.
12.16 Interpretation. Each party acknowledges that such party, either
directly or through such party's representatives, has participated in the
drafting of this Agreement and any applicable rule of constructions that
ambiguities are to be resolved against the drafting party should not be applied
in connection with the construction or interpretation of this Agreement.
In Witness Whereof, the parties hereto have duly caused this Agreement to be
executed as of the date first above written.
Lycos, Inc.,
a Delaware corporation
By: _________________________________
Its: ________________________________
BF Acquisition Corp.,
a Delaware corporation
By: _________________________________
Its: ________________________________
Wired Ventures, Inc.,
a Delaware corporation
By: _________________________________
Its: ________________________________
Stockholder Representatives:
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