Agreement and Plan of Merger and Reorganization - Quokka Sports inc. and Total Sports Inc.
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
between:
QUOKKA SPORTS, INC.,
a Delaware corporation
and
TOTAL SPORTS, INC.,
a Delaware corporation
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Dated as of July 20, 2000
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SECTION 1 DESCRIPTION OF TRANSACTION....................................................1
1.1 Merger of the Company into Parent.............................................1
1.2 Effect of the Merger..........................................................1
1.3 Closing; Effective Time.......................................................2
1.4 Certificate of Incorporation and Bylaws; Directors and Officers...............2
1.5 Conversion of Shares..........................................................2
1.6 Closing of the Company's Transfer Books.......................................3
1.7 Exchange of Certificates......................................................3
1.8 Escrow........................................................................5
1.9 Lockup........................................................................5
1.10 Closing Balance Sheet; Merger Consideration Adjustment........................6
1.11 Dissenting Shares.............................................................8
1.12 Tax Consequences..............................................................8
1.13 Accounting Treatment..........................................................8
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................9
2.1 Subsidiaries; Due Organization; Etc...........................................9
2.2 Certificate of Incorporation and Bylaws; Records..............................9
2.3 Capitalization, Etc..........................................................10
2.4 Financial Statements.........................................................11
2.5 Absence of Changes...........................................................12
2.6 Title to Assets..............................................................14
2.7 Receivables; Customers; Inventories..........................................14
2.8 Real Property; Equipment; Leasehold..........................................14
2.9 Proprietary Assets...........................................................15
2.10 Contracts....................................................................18
2.11 Liabilities..................................................................20
2.12 Compliance with Legal Requirements...........................................20
2.13 Governmental Authorizations..................................................21
2.14 Tax Matters..................................................................21
2.15 Employee and Labor Matters; Benefit Plans....................................22
2.16 Environmental Matters........................................................25
2.17 Insurance....................................................................25
2.18 Related Party Transactions...................................................26
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2.19 Legal Proceedings; Orders....................................................26
2.20 Authority; Inapplicability of Anti-takeover Statutes; Binding Nature of
Agreement....................................................................27
2.21 Section 203 of the DGCL Not Applicable.......................................27
2.22 No Existing Discussions......................................................27
2.23 Vote Required................................................................27
2.24 Non-Contravention; Consents..................................................28
2.25 Full Disclosure..............................................................29
SECTION 3 REPRESENTATIONS AND WARRANTIES OF PARENT.....................................29
3.1 Due Organization; Subsidiaries; Etc..........................................29
3.2 SEC Filings; Financial Statements............................................29
3.3 Authority; Binding Nature of Agreement.......................................30
3.4 Vote Required................................................................31
3.5 Valid Issuance...............................................................31
3.6 Capitalization...............................................................31
3.7 Absence of Changes...........................................................31
3.8 Liabilities..................................................................32
3.9 Compliance with Legal Requirements...........................................32
3.10 Tax Matters..................................................................32
3.11 Environmental Matters........................................................32
3.12 Legal Proceedings; Orders....................................................33
3.13 Non-Contravention; Consents..................................................33
3.14 Board Approval...............................................................34
3.15 No Brokers...................................................................34
3.16 Section 203 of the DGCL Not Applicable.......................................34
3.17 Governmental Authorizations..................................................35
3.18 Employee and Labor Matters; Benefit Plans....................................35
SECTION 4 CERTAIN COVENANTS OF THE COMPANY AND PARENT..................................35
4.1 Access and Investigation.....................................................35
4.2 Operation of the Company's Business..........................................36
4.3 No Solicitation..............................................................39
4.4 Operation of Parent's Business...............................................40
SECTION 5 ADDITIONAL COVENANTS OF THE PARTIES..........................................40
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5.1 Form S-4 Registration Statement; Joint Proxy Statement/Prospectus; Form
S-3 Registration Statement...................................................40
5.2 Company Stockholders' Meeting................................................42
5.3 Parent Stockholders' Meeting.................................................43
5.4 Regulatory Approvals.........................................................43
5.5 Stock Options and Warrants...................................................44
5.6 Employee Benefits............................................................46
5.7 Directors' and Officers' Indemnification and Insurance.......................46
5.8 Provision of Information.....................................................47
5.9 Additional Agreements........................................................48
5.10 Disclosure...................................................................48
5.11 Listing......................................................................48
5.12 Tax Matters..................................................................48
5.13 Letters of the Company's Accountants.........................................49
5.14 Resignation of Officers and Directors........................................49
5.15 Election of Director.........................................................49
5.16 Termination of Obligations Under Certain Agreements..........................49
SECTION 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT................................50
6.1 Accuracy of Representations..................................................50
6.2 Performance of Covenants.....................................................50
6.3 Effectiveness of Form S-4 Registration Statement.............................50
6.4 Stockholder Approval.........................................................51
6.5 Consents.....................................................................51
6.6 Documents....................................................................51
6.7 Employees....................................................................51
6.8 No Material Adverse Effect...................................................51
6.9 HSR Act......................................................................52
6.10 Listing......................................................................52
6.11 No Restraints................................................................52
SECTION 7 CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY............................52
7.1 Accuracy of Representations..................................................52
7.2 Performance of Covenants.....................................................52
7.3 Effectiveness of Registration Statements.....................................52
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7.4 Stockholder Approval.........................................................53
7.5 Documents....................................................................53
7.6 No Material Adverse Effect...................................................53
7.7 HSR Act......................................................................53
7.8 Listing......................................................................53
7.9 No Restraints................................................................53
7.10 Election of Director.........................................................53
7.11 Financing....................................................................53
SECTION 8. TERMINATION..................................................................54
8.1 Termination..................................................................54
8.2 Effect of Termination........................................................55
8.3 Expenses; Termination Fees...................................................56
SECTION 9 INDEMNIFICATION, ETC.........................................................56
9.1 Survival of Representations, Etc.............................................56
9.2 Indemnification and Escrow...................................................57
9.3 Deductible Amount............................................................57
9.4 Satisfaction of Indemnification Claim; Limitation of Liability...............57
9.5 [Intentionally Omitted]......................................................58
9.6 Defense of Third-Party Claims................................................58
9.7 Tax Contests.................................................................59
9.8 Exercise of Remedies by Indemnitees Other Than Parent........................59
SECTION 10 MISCELLANEOUS PROVISIONS.....................................................59
10.1 Designated Company Agent.....................................................59
10.2 Amendment....................................................................60
10.3 Waiver.......................................................................60
10.4 Entire Agreement; Counterparts...............................................60
10.5 Applicable Law; Jurisdiction.................................................60
10.6 Company Disclosure Schedule..................................................61
10.7 Attorneys' Fees..............................................................61
10.8 Assignability; Third-Party Beneficiaries.....................................61
10.9 Notices......................................................................62
10.10 Severability.................................................................62
10.11 Construction.................................................................63
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EXHIBITS
A Definitions
B Allocation of Merger Consideration
C Closing Balance Sheet Principles
D Form of opinion of Wyrick Robbins Yates & Ponton LLP
E Form of opinion of Cooley Godward LLP
F Form of Escrow Agreement
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made and entered into as of July 20, 2000, by and among QUOKKA SPORTS, INC., a
Delaware corporation ("Parent"), and TOTAL SPORTS, INC., a Delaware corporation
(the "Company"). Certain capitalized terms used in this Agreement are defined in
Exhibit A.
RECITALS
A. Parent and the Company intend to effect a merger of the Company
into Parent in accordance with this Agreement and the Delaware General
Corporation Law (the "Merger"). Upon consummation of the Merger, Parent will be
the surviving corporation, and the Company will cease to exist.
B. It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code"). For financial reporting purposes, it is
intended that the Merger be treated as a "purchase."
C. The respective boards of directors of Parent and the Company have
approved this Agreement and approved the Merger.
D. In order to induce Parent to enter into this Agreement and to
consummate the Merger, concurrently with the execution and delivery of this
Agreement, certain stockholders of the Company are executing voting agreements
(the "Company Stockholder Voting Agreements"). In order to induce the Company to
enter into this Agreement and to consummate the Merger, concurrently with the
execution and delivery of this Agreement, certain stockholders of Parent are
executing voting agreements (the "Parent Stockholder Voting Agreements").
E. In order to induce Parent to enter into this Agreement,
concurrently with the execution and delivery of this Agreement, certain
employees of the Company are entering into new or amended Employment and
Non-Competition Agreements.
AGREEMENT
The parties to this Agreement, intending to be legally bound, agree as
follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF THE COMPANY INTO PARENT. Upon the terms and subject to the
conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3), the Company will be merged with and into Parent, the separate
existence of the Company will cease and Parent will be the surviving corporation
in the Merger.
1.2 EFFECT OF THE MERGER. The Merger will have the effects set forth in
this Agreement and in the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
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1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") will 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 mutually agreed between Parent and the Company
(the "Closing Date"), which date will be no later than the fifth business day
after the satisfaction or waiver of the last to be satisfied or waived of the
conditions set forth in Sections 6 and 7 (other than those conditions that by
their nature are to be satisfied at the Closing, but subject to the satisfaction
or waiver of such conditions). Subject to the provisions of this Agreement, a
certificate of merger satisfying the applicable requirements of the DGCL will be
duly executed by the Company and concurrently with or as soon as practicable
following the Closing delivered to the Secretary of State of the State of
Delaware for filing. The Merger will become effective upon the filing of such
certificate of merger with the Secretary of State of the State of Delaware (the
"Effective Time").
1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS. As
of the Effective Time:
(a) the certificate of incorporation of the surviving corporation
in the Merger will be the certificate of incorporation of Parent as in effect
immediately prior to the Effective Time;
(b) the Bylaws of the surviving corporation in the Merger will be
the Bylaws of Parent as in effect immediately prior to the Effective Time; and
(c) the directors and officers of the surviving corporation in
the Merger will be the respective individuals who are directors and officers of
Parent immediately prior to the Effective Time.
1.5 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any further action on the part of Parent, the Company or any stockholder of the
Company:
(i) any shares of Company Stock then held by the
Company or any wholly owned Subsidiary of the Company (or held in the Company's
treasury) will be canceled and retired and will cease to exist, and no
consideration will be delivered in exchange therefor;
(ii) any shares of Company Stock then held by Parent
will be canceled and retired and will cease to exist, and no consideration will
be delivered in exchange therefor; and
(iii) except as provided in clauses (i) and (ii) above
and subject to Sections 1.5(b), 1.5(c) and 1.5(d), the holder of a share of each
class and series of Company Stock then outstanding (other than Dissenting
Shares, as defined in Section 1.11) will be entitled to receive the percentage
interest in the Merger Consideration Shares (a portion of which will be
represented by Escrow Shares) set forth with respect to such class or series of
Company Stock on Exhibit B.
With respect to each class and series of Company Stock, the number of shares or
fraction of a share of Parent Common Stock specified in Section 1.5(a)(iii) (as
such fraction may be adjusted
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in accordance with this Section 1.5(b)) is referred to as the "Exchange Ratio"
applicable to such class or series of Company Stock.
(b) If, between the date of this Agreement and the Effective
Time, the outstanding shares of Company Stock or Parent Common Stock are changed
into a different number or class of shares by reason of any stock split,
division or subdivision of shares, stock dividend, reverse stock split,
consolidation of shares, reclassification, recapitalization or other similar
transaction, then the Exchange Ratio applicable to each class and series of
Company Stock will be appropriately adjusted.
(c) If any shares of Company Stock outstanding immediately prior
to the Effective Time are unvested or are subject to a repurchase option, risk
of forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company or under which the Company has any
rights, then the shares of Parent Common Stock issued in exchange for such
shares of Company Stock will also be unvested and subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company will take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
(d) No fractional shares of Parent Common Stock will be issued in
connection with the Merger, and no certificates or scrip for any such fractional
shares will be issued. Any holder of Company Stock who would otherwise be
entitled to receive a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock issuable to such
holder) will, in lieu of such fraction of a share and, upon surrender of such
holder's Company Stock Certificate(s) (as defined in Section 1.6), be paid in
cash the dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the closing price of a share of
Parent Common Stock on the Nasdaq National Market on the date the Merger becomes
effective.
1.6 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective Time: (a)
all shares of Company Stock outstanding immediately prior to the Effective Time
will automatically be canceled and retired and will cease to exist, and all
holders of certificates representing shares of Company Stock that were
outstanding immediately prior to the Effective Time will cease to have any
rights as stockholders of the Company; and (b) the stock transfer books of the
Company will be closed with respect to all shares of Company Stock outstanding
immediately prior to the Effective Time. No further transfer of any such shares
of Company Stock will be made on such stock transfer books after the Effective
Time. If, after the Effective Time, a valid certificate previously representing
any shares of Company Stock (a "Company Stock Certificate") is presented to the
Exchange Agent (as defined in Section 1.7) or to Parent, such Company Stock
Certificate will be canceled and will be exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) On or prior to the Closing Date, Parent will select a
reputable bank or trust company to act as exchange agent in the Merger (the
"Exchange Agent"). On or prior to the
3.
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Effective Time, Parent will deposit with the Exchange Agent (i) certificates
representing the shares of Parent Common Stock issuable pursuant to this Section
1, and (ii) cash sufficient to make payments in lieu of fractional shares in
accordance with Section 1.5(d). The shares of Parent Common Stock and cash
amounts so deposited with the Exchange Agent, together with any dividends or
distributions received by the Exchange Agent with respect to such shares, are
referred to collectively as the "Exchange Fund."
(b) As soon as reasonably practicable after the Effective Time,
Parent will deliver or cause to be delivered to Gary Stevenson a certificate
representing the Stevenson Compensation Shares (other than the portion
representing Escrow Shares) and cause the Exchange Agent to mail to the record
holders of Company Stock Certificates (i) a letter of transmittal in customary
form and containing such provisions as Parent may reasonably specify (including
a provision confirming that delivery of Company Stock Certificates will be
effected, and risk of loss and title to Company Stock Certificates will pass,
only upon delivery of such Company Stock Certificates to the Exchange Agent),
and (ii) instructions for use in effecting the surrender of Company Stock
Certificates in exchange for certificates representing Parent Common Stock. Upon
surrender of a Company Stock Certificate to the Exchange Agent for exchange,
together with a duly executed letter of transmittal and such other documents as
may be reasonably required by the Exchange Agent or Parent, (1) the holder of
such Company Stock Certificate will be entitled to receive in exchange therefor
a certificate representing the number of whole shares of Parent Common Stock
that such holder has the right to receive pursuant to the provisions of Section
1.5, taking into account the Escrow Shares, as defined below (and cash in lieu
of any fractional share of Parent Common Stock), and (2) the Company Stock
Certificate so surrendered will be canceled. Until surrendered as contemplated
by this Section 1.7(b), each Company Stock Certificate will be deemed, from and
after the Effective Time, to represent only the right to receive shares of
Parent Common Stock, taking into account the Escrow Shares (and cash in lieu of
any fractional share of Parent Common Stock) as contemplated by Section 1. If
any Company Stock Certificate has been lost, stolen or destroyed, Parent may, in
its discretion and as a condition to the issuance of any certificate
representing Parent Common Stock, require the owner of such lost, stolen or
destroyed Company Stock Certificate to provide an appropriate affidavit and to
deliver a bond (in such sum as Parent may reasonably direct) as indemnity
against any claim that may be made against the Exchange Agent or Parent with
respect to such Company Stock Certificate.
(c) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holder of any unsurrendered Company Stock Certificate with
respect to the shares of Parent Common Stock that such holder has the right to
receive in the Merger until such holder surrenders such Company Stock
Certificate in accordance with this Section 1.7 (at which time such holder will
be entitled, subject to the effect of applicable escheat or similar laws, to
receive all such dividends and distributions, without interest).
(d) Any portion of the Exchange Fund that remains undistributed
to holders of Company Stock Certificates as of the date 180 days after the
Closing Date will be delivered to Parent upon demand, and any holders of Company
Stock Certificates who have not theretofore surrendered their Company Stock
Certificates in accordance with this Section 1.7 will thereafter look only to
Parent for satisfaction of their claims for Parent Common Stock, cash in lieu of
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fractional shares of Parent Common Stock and any dividends or distributions with
respect to Parent Common Stock.
(e) Each of the Exchange Agent and Parent will be entitled to
deduct and withhold from any consideration payable or otherwise deliverable
pursuant to this Agreement to any holder or former holder of Company Stock such
amounts as may be required to be deducted or withheld therefrom under the Code
or any provision of state, local or foreign tax law. To the extent such amounts
are so deducted or withheld, such amounts will be treated for all purposes under
this Agreement as having been paid to the Person to whom such amounts would
otherwise have been paid.
(f) Parent will not be liable to any holder or former holder of
Company Stock or to any other Person with respect to any shares of Parent Common
Stock (or dividends or distributions with respect thereto), or for any cash
amounts, delivered to any public official pursuant to any applicable abandoned
property law, escheat law or similar Legal Requirement.
1.8 ESCROW. Parent will deposit 1,500,000 shares of the Merger
Consideration Shares with the Escrow Agent to be held and disbursed by the
Escrow Agent in accordance with the Escrow Agreement. Each holder of a Company
Stock Certificate and Gary Stevenson (each an "Escrow Stockholder") will be
deemed, without any act of such Escrow Stockholder, to have received and
deposited with the Escrow Agent pursuant to the Escrow Agreement a number of
Merger Consideration Shares representing such Escrow Stockholder's proportionate
interest in the Escrow Shares ("Escrow Percentage"). Each Escrow Stockholder's
Escrow Percentage will be determined based on (a) the number of Merger
Consideration Shares issuable hereunder with respect to all Company Stock
Certificates held by such Escrow Stockholder (together, in the case of Gary
Stevenson, with the Stevenson Compensation Shares) divided by (b) the sum of (i)
the aggregate number of Merger Consideration Shares issuable hereunder with
respect to all Company Stock Certificates held by all Escrow Stockholders and
(ii) the Stevenson Compensation Shares. The Escrow Shares will be represented by
a certificate registered in the name of the nominee of the Escrow Agent (with
each Escrow Stockholder being the beneficial owner of such Escrow Stockholder's
Escrow Percentage). To the extent that any dividend or distribution, or other
transaction, with respect to the Escrow Shares results in a liability for Tax,
such Tax liability will be that of the Escrow Stockholders (in proportion to
each Escrow Stockholder's proportionate interest in the Escrow Shares), and not
of Parent or the Company. Any and all voting rights with respect to the Escrow
Shares will be exercisable by the Escrow Stockholders or their authorized agent
as of the Effective Time. Parent, the Company and the Escrow Stockholders hereby
agree and acknowledge that the Escrow Shares will be treated as transferred to
and owned by the Escrow Stockholders as of the Effective Time and at all times
thereafter for all Tax purposes.
1.9 LOCKUP. Notwithstanding Parent's agreement to register the shares of
Parent Common Stock to be issued in the Merger as provided in Sections 5.1 and
5.5, prior to the expiration of one year after the Closing Date, no share of
Parent Common Stock issued in the Merger (including shares of Parent Common
Stock received upon exercise of Company Warrants assumed or replaced as provided
in Section 5.5) may be sold, transferred, hypothecated, pledged, made the
subject of an equity swap or similar agreement or otherwise transferred
(collectively, a "Disposition") without the prior written consent of Parent,
except as provided in this Section 1.9.
5.
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The persons receiving Parent Common Stock in the Merger (including the Stevenson
Compensation Shares) may effect Dispositions as follows: (a) up to an aggregate
of 10% of the shares of Parent Common Stock received by such persons in the
Merger (excluding Escrow Shares) at any time after the Closing Date; (b) up to a
cumulative aggregate of 22% of such shares at any time after the expiration of
90 days after the Closing Date; (c) up to a cumulative aggregate of 47% of such
shares at any time after the expiration of 180 days after the Closing Date; and
(d) up to a cumulative aggregate of 72% of such shares at any time after the
expiration of 270 days after the Closing Date. Within these totals, Gary
Stevenson may effect Dispositions of the Stevenson Compensation Shares as
follows: (a) up to an aggregate of 60% of the Stevenson Compensation Shares
(excluding Escrow Shares) at any time after the Closing Date; (b) up to a
cumulative aggregate of 65% of such shares at any time after the expiration of
90 days after the Closing Date; (c) up to a cumulative aggregate of 75% of such
shares at any time after the expiration of 180 days after the Closing Date; and
(d) up to a cumulative aggregate of 85% of such shares at any time after the
expiration of 270 days after the Closing Date. The maximum number of Stevenson
Compensation Shares that are permitted to be disposed of in each period will
reduce the aggregate number of other Merger Consideration Shares that are
permitted to be disposed of in that period, so that the total of the two equals
the maximum aggregate number of Merger Consideration Shares specified above for
that period. Each person receiving shares of Parent Common Stock in the Merger
(other than the Stevenson Compensation Shares) will be entitled to effect
Dispositions of such person's pro rata share of the maximum total number of
shares (other than the Stevenson Compensation Shares) available to be disposed
of during each period. Promptly after the Closing Date, Parent will determine in
good faith and advise the persons who received Parent Common Stock in the Merger
of the maximum number or percentage of such shares that may be disposed of in
each of the above-described periods. Parent, in its sole discretion, may legend
the certificates representing such shares of Parent Common Stock to give effect
to this Section 1.9 and place stop transfer instructions with Parent's stock
transfer agent to enforce this Section 1.9.
1.10 CLOSING BALANCE SHEET; MERGER CONSIDERATION ADJUSTMENT.
(a) As soon as practicable, and in any event within 45 days,
after the Closing, Parent will prepare in good faith, and will cause Parent's
independent auditors to audit, the consolidated balance sheet of the Company as
of the close of business on the Closing Date (the "Closing Balance Sheet") and a
calculation of the amount, if any, by which the Company's Net Deficit (as
defined in Exhibit C) reflected on the Closing Balance Sheet is greater than:
(i) $11,274,730 if the Closing Date is on or prior to
September 30, 2000;
(ii) $11,424,730 if the Closing Date is after September
30, 2000 and on or before October 15, 2000;
(iii) $11,574,730 if the Closing Date is after October
15, 2000 and on or before October 31, 2000;
(iv) $11,724,730 if the Closing Date is after October
31, 2000 and on or before November 15, 2000; or
6.
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(v) $11,874,730 if the Closing Date is after November
15, 2000
(the "Merger Consideration Adjustment"). The Closing Balance Sheet will be
prepared in accordance with the principles set forth in Exhibit C. Promptly
after their preparation and review, Parent will deliver copies of the Closing
Balance Sheet and the calculation of the Merger Consideration Adjustment to the
Designated Company Agent. For a period of 45 days thereafter, Parent will allow
the Designated Company Agent and his or her professional advisors, at reasonable
times and on reasonable advance notice, to review, copy and make extracts from
the source documents and work papers relied upon by Parent and its professional
advisors in preparing the Closing Balance Sheet. If the Designated Company Agent
has not given Parent notice of any objection to the Closing Balance Sheet or the
calculation of the Merger Consideration Adjustment (which notice must contain a
statement of the basis of the Designated Company Agent's objection and the
Designated Company Agent's calculation of the Merger Consideration Adjustment)
within 45 days after their delivery to the Designated Company Agent, then the
Closing Date Balance Sheet and calculation of the Merger Consideration
Adjustment in the forms delivered to the Designated Company Agent will be deemed
final upon the expiration of such 45-day period.
(b) If the Designated Company Agent provides notice of an
objection in accordance with Section 1.10(a), then the issues in dispute and
determination of the Merger Consideration Adjustment will be resolved in
accordance with this Section 1.10(b). First, Parent and the Designated Company
Agent will diligently attempt in good faith to resolve the issues and agree on
the amount of the Merger Consideration Adjustment. If Parent and the Designated
Company Agent are unable to resolve all of the issues within 45 days after
Parent's receipt of the Designated Company Agent's objection, then Parent and
the Designated Company Agent will submit the unresolved issues in dispute and
the determination of the Merger Consideration Adjustment to Arthur Andersen LLP,
independent auditors (the "Independent Auditors"), for final resolution. If
issues in dispute are submitted to the Independent Auditors for resolution,
then: (i) each party will furnish to the Independent Auditors such work papers
and other documents and information relating to the disputed issues as the
Independent Auditors may request and as are available to that party and will be
afforded the opportunity to present to the Independent Auditors any material
relating to the determination and to discuss the determination with the
Independent Auditors; (ii) the determination by the Independent Auditors of the
Merger Consideration Adjustment, as set forth in a written notice setting forth
such determination delivered to Parent and the Designated Company Agent by the
Independent Auditors (which will be requested within 30 days after the
submission to them of the issues in dispute), will be final, conclusive and
binding on the parties effective upon the delivery of such notice; and (iii)
Parent will bear the fees and costs of the Independent Auditors in making such
determination, subject to Parent's right to recover from the Escrow Fund: (x)
100% of such fees and costs if the final Merger Consideration Adjustment is
closer to the Merger Consideration Adjustment as calculated by Parent than it is
to the average of that number and the Merger Consideration Adjustment as
calculated by the Designated Company Agent; (y) none of such fees and costs if
the final Merger Consideration Adjustment is closer to the Merger Consideration
Adjustment as calculated by the Designated Company Agent than it is to the
average of that number and the Merger Consideration Adjustment as calculated by
Parent; and (z) 50% of such fees and costs in all other cases.
7.
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(c) At any time after a determination that the Merger
Consideration Adjustment is other than zero becomes final, Parent may deliver to
the Escrow Agent a copy, certified by Parent to be a true copy, of the final
determination thereof, whereupon the Merger Consideration Adjustment as so
delivered will represent an accepted claim under the Escrow Agreement.
1.11 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the
contrary, the shares of any holder of Company Stock who (i) has the right under
applicable law to demand dissenter's or appraisal rights for such shares, (ii)
has demanded and perfected such rights under applicable law and (iii) as of the
Effective Time, has not effectively withdrawn or lost such rights ("Dissenting
Shares"), will not be converted into Parent Common Stock pursuant to Section
1.5, but the holder thereof will only be entitled to such rights as are granted
by applicable law.
(b) Notwithstanding the foregoing, if any holder of shares of
Company Stock who has the right under applicable law to demand and who does
demand appraisal of such shares under applicable law effectively withdraws or
loses (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 will automatically be converted into and represent only Parent
Common Stock in accordance with Section 1.5.
(c) The Company will give Parent (i) prompt written notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other instruments served on the Company pursuant to applicable law and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under applicable law. The Company will not voluntarily make any
payment with respect to any demands for appraisal and will not, except with the
prior written consent of Parent, settle or offer to settle any such demands.
1.12 TAX CONSEQUENCES. For federal income tax purposes, the Merger is
intended to constitute a reorganization within the meaning of Section 368 of 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.
1.13 ACCOUNTING TREATMENT. For financial reporting purposes, the Merger
is intended to be treated as a "purchase."
8.
<PAGE> 15
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows:
2.1 SUBSIDIARIES; DUE ORGANIZATION; ETC.
(a) The Company has no Subsidiaries, except for the corporations
identified in Part 2.1(a) of the Company Disclosure Schedule; and neither the
Company nor any of the other corporations identified in Part 2.1(a) of the
Company Disclosure Schedule owns any capital stock of, or any equity interest of
any nature in, any other Entity, other than the Entities identified in Part
2.1(a) of the Company Disclosure Schedule. (The Company and each of its
Subsidiaries are referred to collectively in this Agreement as the "Acquired
Corporations.") None of the Acquired Corporations has agreed or is obligated to
make, or is bound by any Contract under which it may become obligated to make,
any future investment in or capital contribution to any other Entity. None of
the Acquired Corporations has, at any time, been a general partner of, or has
otherwise been liable for any of the debts or obligations of, any general
partnership, limited partnership or other Entity.
(b) Each of the Acquired Corporations is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary power and authority: (i) to
conduct its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Material Contracts by which it is bound.
(c) Set forth in Part 2.1(c) of the Company Disclosure Schedule
is a list of each jurisdiction where each of the Acquired Corporations is
qualified to do business. Except as set forth in Part 2.1(c) of the Company
Disclosure Schedule or as will not at any time be deemed to have a Material
Adverse Effect on the Acquired Corporations, each of the Acquired Corporations
is qualified to do business as a foreign corporation, and is in good standing,
under the laws of all jurisdictions where the nature of its business requires
such qualification.
2.2 CERTIFICATE OF INCORPORATION AND BYLAWS; RECORDS. The Company has
delivered to Parent accurate and complete copies of: (i) the certificate of
incorporation, bylaws and other charter and organizational documents of the
respective Acquired Corporations, including all amendments thereto, other than
the Company Charter Amendment; (ii) the stock records of the Company; and (iii)
except as set forth in Part 2.2 of the Company Disclosure Schedule, the minutes
and other records of the meetings and other proceedings (including any actions
taken by written consent or otherwise without a meeting) of the stockholders of
the Company, the board of directors of the Company and all committees of the
board of directors of the Company. There have been no formal meetings or other
proceedings of the stockholders of the Company, the board of directors of the
Company or any committee of the board of directors of the Company that are not
fully reflected in all material respects in such minutes or other records. There
has not been any material violation of any of the provisions of the Company's
articles of incorporation or bylaws, and the Company has not taken any action
that is inconsistent in any material respect with any resolution adopted by the
Company's stockholders, the Company's board of directors or any committee of the
Company's board of directors. The books of account, stock records and
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minute books of the Company are accurate, up-to-date and complete in all
material respects and have been maintained in accordance with prudent business
practices.
2.3 CAPITALIZATION, ETC.
(a) As of the date of this Agreement, the authorized capital
stock of the Company consists of: (i) 20,000,000 shares of Common Stock, of
which 2,891,546 shares have been issued and are outstanding as of the date of
this Agreement; and (ii) 7,500,000 shares of Company Preferred Stock, of which
761,903 are undesignated Preferred Stock (none of which are outstanding),
125,000 are designated Series A Redeemable Preferred Stock, par value $10.00 per
share, 518,841 are designated Series B Convertible Preferred Stock, par value
$4.492 per share, 1,418,200 are designated Series C Convertible Preferred Stock,
par value $.001 per share, 630,756 are designated Series C1 Convertible
Preferred Stock, par value $.001 per share, 2,230,260 are designated Series D
Convertible Preferred Stock, par value $.001 per share, 1,003,617 are designated
Series D1 Convertible Preferred Stock, par value $.001 per share, and 811,423
are designated Series E Convertible Preferred Stock, par value $.001 per share,
of the Company. 125,000, 445,263, 1,418,200, 630,756, 2,140,873, 0, and 811,423
shares of Series A Redeemable Preferred Stock, Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock, Series C1 Convertible Preferred
Stock, Series D Convertible Preferred Stock, Series D1 Convertible Preferred
Stock and Series E Convertible Preferred Stock, respectively, have been issued
and are outstanding as of the date of this Agreement. Part 2.3(a) of the Company
Disclosure Schedule sets forth the number of shares of Company Common Stock into
which each outstanding share of each series the Company Preferred Stock (other
than undesignated Company Preferred Stock) is convertible as of the date of this
Agreement. Except as set forth in Part 2.3(a) of the Company Disclosure
Schedule, the Company does not hold any shares of its capital stock in its
treasury. All of the outstanding shares of Company Stock have been duly
authorized and validly issued, and are fully paid and nonassessable. As of the
date of this Agreement, there are no shares of Company Stock held by any of the
other Acquired Corporations. Except as set forth in Part 2.3(a) of the Company
Disclosure Schedule: (i) none of the outstanding shares of Company Stock is
entitled or subject to any preemptive right, right of participation, right to
maintain interest or any similar right; (ii) none of the outstanding shares of
Company Stock is subject to any right of first refusal in favor of the Company;
and (iii) there is no Acquired Corporation Contract relating to the voting or
registration of, or restricting any Person from purchasing, selling, pledging or
otherwise disposing of (or granting any option or similar right with respect
to), any shares of Company Stock. None of the Acquired Corporations is under any
obligation, or is bound by any Contract pursuant to which it may become
obligated, to repurchase, redeem or otherwise acquire any outstanding shares of
Company Stock.
(b) As of the date of this Agreement, 3,200,000 shares of
undesignated Company Preferred Stock (which will be designated pursuant to the
Company Charter Amendment) and 1,185,000 shares of Company Common Stock are
reserved for future issuance pursuant to Company Options. Part 2.3(b) of the
Company Disclosure Schedule sets forth the following information with respect to
each Company Option outstanding as of the date of this Agreement: (i) the
particular plan (if any) pursuant to which such Company Option was granted; (ii)
the name of the optionee; (iii) the class, series and number of shares of
Company Stock subject to such Company Option; (iv) the exercise price of such
Company Option; (v) the date on which such Company Option was granted; (vi) the
applicable vesting schedule, and the extent to which
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<PAGE> 17
such Company Option is vested and exercisable as of the date of this Agreement;
and (vii) the date on which such Company Option expires. The Company has
delivered to Parent accurate and complete copies of all stock option plans
pursuant to which any of the Acquired Corporations has ever granted stock
options, and the forms of all stock option agreements evidencing such options.
(c) Except for the Company Warrants and as set forth in Part
2.3(c) of the Company Disclosure Schedule, as of the date of this Agreement
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of any of the Acquired Corporations; (ii) outstanding
security, instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of any of
the Acquired Corporations; (iii) stockholder rights plan (or similar plan
commonly referred to as a "poison pill") or Contract under which any of the
Acquired Corporations is or may become obligated to sell or otherwise issue any
shares of its capital stock or any other securities; or (iv) condition or
circumstance that could reasonably be expected to give rise to or provide a
basis for the assertion of a claim by any Person to the effect that such Person
is entitled to acquire or receive any shares of capital stock or other
securities of any of the Acquired Corporations.
(d) All outstanding capital stock, options and other securities
of the Acquired Corporations have been issued and granted in compliance, in all
material respects, with (i) all applicable securities laws and other applicable
Legal Requirements, and (ii) all requirements set forth in applicable Contracts.
(e) All of the outstanding shares of capital stock of the
corporations identified in Part 2.1(a) of the Company Disclosure Schedule have
been duly authorized and are validly issued, are fully paid and nonassessable
and free of preemptive rights, with no personal liability attaching to the
ownership thereof, and are owned beneficially and of record by the Company, free
and clear of any Encumbrances.
2.4 FINANCIAL STATEMENTS.
(a) The Company has delivered to Parent the following financial
statements and notes (collectively, the "Company Financial Statements"):
(i) the audited consolidated balance sheets of the
Acquired Corporations as of December 31, 1999 and 1998 and the related
audited statements of operations, statements of stockholders' equity and
statements of cash flows of the Acquired Corporations for the years then
ended, together with the notes thereto and the report and opinion of
Deloitte & Touche LLP relating thereto; and
(ii) the unaudited consolidated balance sheet of the
Acquired Corporations as of May 31, 2000 (the "Unaudited Interim Balance
Sheet"), and the related unaudited income statement of the Acquired
Corporations for the five months then ended.
(b) The Company Financial Statements are accurate and complete in
all material respects and present fairly, in all material respects, the
financial positions of the Acquired
11.
<PAGE> 18
Corporations as of the respective dates thereof and the results of
operations and (in the case of the financial statements referred to in
Section 2.4(a)(i)) cash flows of the Acquired Corporations for the
periods covered thereby. The Company Financial Statements have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods covered (except
that the financial statements referred to in Section 2.4(a)(ii) do not
contain footnotes and are subject to normal and recurring year-end audit
adjustments, which will not, individually or in the aggregate, be
material in magnitude).
2.5 ABSENCE OF CHANGES. Except as set forth in Part 2.5 of the Company
Disclosure Schedule, since December 31, 1999 (the "Audited Balance Sheet Date"):
(a) there has not arisen any event, condition, fact or
circumstance that, considered together with all other events, conditions, facts
and circumstances, is deemed to have a Material Adverse Effect on the Acquired
Corporations;
(b) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, the assets of any of the
Acquired Corporations taken as a whole (whether or not covered by insurance);
(c) none of the Acquired Corporations has (i) declared, accrued,
set aside or paid any dividend or made any other distribution in respect of any
shares of capital stock, or (ii) repurchased, redeemed or otherwise reacquired
any shares of capital stock or other securities, except for the cancellation of
Company Options or Company Warrants without payment of any consideration by the
Company;
(d) except in connection with the Bridge Financing, none of the
Acquired Corporations has sold, issued or granted, or authorized the issuance
of, (i) any capital stock or other security (except for Company Common Stock
issued upon the valid exercise of outstanding Company Options or Company
Warrants), (ii) any option, warrant or right to acquire any capital stock or any
other security (except for Company Options identified and described in Part
2.3(b) or Part 2.3(c) of the Company Disclosure Schedule), or (iii) any
instrument convertible into or exchangeable for any capital stock or other
security;
(e) the Company has not amended or waived any of its material
rights under, or permitted the acceleration of vesting under, (i) any provision
of any of the Company's stock option plans, (ii) any provision of any Contract
evidencing any outstanding Company Option, or (iii) any restricted stock
purchase agreement;
(f) there has been no amendment to the certificate of
incorporation, bylaws or other charter or organizational documents of any of the
Acquired Corporations, and none of the Acquired Corporations has effected or
been a party to any merger, consolidation, share exchange, business combination,
recapitalization, reclassification of shares, stock split, reverse stock split
or similar transaction, except for the Company Charter Amendment;
(g) none of the Acquired Corporations has formed any Subsidiary
or acquired any equity interest or other interest in any other Entity;
12.
<PAGE> 19
(h) none of the Acquired Corporations has made any capital
expenditure which, when added to all other capital expenditures made on behalf
of the Acquired Corporations since the Audited Balance Sheet Date exceeds
$100,000 in the aggregate;
(i) none of the Acquired Corporations has: (i) entered into or
permitted any of the assets owned or used by it to become bound by any Contract
that is or would constitute a Material Contract (as defined in Section 2.10),
except for the Company Charter Amendment and the Bridge Financing; or (ii)
amended or terminated, or waived any right or remedy under, any Material
Contract;
(j) none of the Acquired Corporations has (i) acquired, leased or
licensed any right or other asset from any other Person, (ii) sold or otherwise
disposed of, or leased or licensed, any right or other asset to any other
Person, or (iii) waived or relinquished any right, except, in the case of
clauses (i) through (iii), for immaterial rights or other immaterial assets
acquired, leased, licensed, waived, relinquished or disposed of in the ordinary
course of business and consistent with past practices;
(k) none of the Acquired Corporations has made any pledge of any
of its assets or otherwise permitted any of its assets to become subject to any
Encumbrance, except for Permitted Liens and pledges of immaterial assets made in
the ordinary course of business and consistent with past practices;
(l) none of the Acquired Corporations has (i) lent money to any
Person (other than pursuant to routine travel advances made to employees in the
ordinary course of business), or (ii) incurred or guaranteed any indebtedness
for borrowed money in excess of $50,000 in the aggregate;
(m) none of the Acquired Corporations has (i) adopted,
established or entered into any Employee Plan (as defined in Section 2.15), (ii)
caused or permitted any Employee Plan to be amended in any material respect,
(iii) paid any bonus (other than bonuses not exceeding $20,000 in the aggregate
to any individual employee) or made any profit-sharing or similar payment to any
of its directors, officers or employees or consultants, or (iv) except in the
ordinary course of business and consistent with past practices, increased the
amount of the wages, salary, commissions, fringe benefits or other compensation
or remuneration payable to any of its directors, officers or employees or
consultants or hired any new employees or consultants at the level of director
or above;
(n) none of the Acquired Corporations has changed any of its
methods of accounting or accounting practices in any respect, except as required
by generally accepted accounting principles;
(o) none of the Acquired Corporations has made any material Tax
election;
(p) through the date of this Agreement, none of the Acquired
Corporations has commenced or settled any Legal Proceeding;
13.
<PAGE> 20
(q) none of the Acquired Corporations has entered into any
material transaction or taken any other material action that has had, or could
reasonably be expected to have, a Material Adverse Effect on the Acquired
Corporations;
(r) none of the Acquired Corporations has entered into any
material transaction or taken any other material action outside the ordinary
course of business or inconsistent with past practices except for the Company
Charter Amendment and the Bridge Financing; and
(s) none of the Acquired Corporations has agreed or committed to
take any of the actions referred to in clauses "(c)" through "(s)" above.
2.6 TITLE TO ASSETS. The Acquired Corporations own, and have good and
valid title to, all assets purported to be owned by them, including: (i) all
assets reflected on the Unaudited Interim Balance Sheet (except for the
disposition of the Offline Publishing Assets described in Part 2.6(a) of the
Company Disclosure Schedule and inventory sold or otherwise disposed of in the
ordinary course of business since the date of the Unaudited Interim Balance
Sheet); and (ii) all other assets reflected in the books and records of the
Acquired Corporations as being owned by the Acquired Corporations. Except as
described in Part 2.6(a) of the Company Disclosure Schedule, all of such assets
are owned by the Acquired Corporations free and clear of any Encumbrances other
than Permitted Liens.
2.7 RECEIVABLES; CUSTOMERS; INVENTORIES.
(a) Part 2.7(a) of the Company Disclosure Schedule provides
complete and accurate information with respect to each account maintained by or
for the benefit of the Acquired Corporations at any bank or other financial
institution.
(b) Part 2.7(b) of the Company Disclosure Schedule provides an
accurate and complete breakdown and aging of all accounts receivable, notes
receivable and other receivables of the Acquired Corporations as of June 28,
2000. Except as set forth in Part 2.7(b) of the Company Disclosure Schedule, all
existing accounts receivable of the Acquired Corporations (including those
accounts receivable reflected on the Unaudited Interim Balance Sheet that have
not yet been collected and those accounts receivable that have arisen since the
Audited Balance Sheet Date, and have not yet been collected) (i) represent valid
obligations of customers of the Acquired Corporations arising from bona fide
transactions entered into in the ordinary course of business, and (ii), as of
the date of this Agreement and subject to the allowance for doubtful accounts
reflected on the Unaudited Interim Balance Sheet, are current and believed by
the Company to be collectible.
(c) Part 2.7(c) of the Company Disclosure Schedule contains an
accurate and complete list as of the date of this Agreement of all loans and
advances made by any of the Acquired Corporations to any employee, director,
consultant or independent contractor, other than routine travel advances made to
employees in the ordinary course of business.
(d) Part 2.7(d) of the Company Disclosure Schedule accurately
identifies, and provides an accurate and complete breakdown of the revenues
received from, each customer or other Person that accounted for (i) more than
$750,000 of the consolidated gross revenues of the
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<PAGE> 21
Acquired Corporations in fiscal year 1999, or (ii) more than $750,000 of the
consolidated gross revenues of the Acquired Corporations in the four months
ended April 30, 2000.
2.8 REAL PROPERTY; EQUIPMENT; LEASEHOLD. All material items of equipment
and other tangible assets owned by or leased to the Acquired Corporations are in
good and safe condition and repair (ordinary wear and tear for items of
comparable age and usage excepted) and are in all material respects and in the
aggregate adequate for the conduct of the business of the Acquired Corporations
substantially in the manner in which such business is currently being conducted.
Except as set forth in Part 2.8 of the Company Disclosure Schedule, none of the
Acquired Corporations own any real property or any interest in real property.
Part 2.8 of the Company Disclosure Schedule contains an accurate and complete
list of all the Acquired Corporations' real property leases.
2.9 PROPRIETARY ASSETS.
(a) Part 2.9(a)(i) of the Company Disclosure Schedule sets forth,
with respect to each Proprietary Asset owned by the Acquired Corporations and
registered with any Governmental Body or for which an application has been filed
with any Governmental Body, (i) a brief description of such Proprietary Asset,
and (ii) the names of the jurisdictions covered by the applicable registration
or application. Part 2.9(a)(ii) of the Company Disclosure Schedule identifies
and provides a brief description of all other Proprietary Assets owned by the
Acquired Corporations that are material to the business of the Acquired
Corporations. Part 2.9(a)(iii) of the Company Disclosure Schedule identifies and
provides a brief description of, and identifies any ongoing royalty or payment
obligations in excess of $40,000 per year with respect to, each Proprietary
Asset that is licensed or otherwise made available to the Acquired Corporations
by any Person and is material to the business of the Acquired Corporations
(except for any Proprietary Asset that is licensed to the Acquired Corporations
under any third-party software license generally available to the public or that
was at the time the license was entered into available on substantially similar
terms to companies that are similarly situated), and identifies the Contract
under which such Proprietary Asset is being licensed or otherwise made available
to such Acquired Corporation. The Acquired Corporations have good and valid
title to all of the Acquired Corporation Proprietary Assets purported to be
owned by the Acquired Corporations, free and clear of all Encumbrances other
than Permitted Liens. The Acquired Corporations have a valid right to use,
license and otherwise exploit all Proprietary Assets required to be identified
in Part 2.9(a)(iii) of the Company Disclosure Schedule subject to the terms of
any applicable Contracts. Except as set forth in Part 2.9(a)(iv) of the Company
Disclosure Schedule, none of the Acquired Corporations has developed jointly
with any other Person any Acquired Corporation Proprietary Asset that is
material to the business of the Acquired Corporations with respect to which such
other Person has any rights. Except as set forth in Part 2.9(a)(v) of the
Company Disclosure Schedule, there is no Acquired Corporation Contract (with the
exception of end-user license agreements in the form previously delivered by the
Company to Parent) pursuant to which any Person has any right (whether or not
currently exercisable) to use, license or otherwise exploit any Acquired
Corporation Proprietary Asset.
(b) The Acquired Corporations have taken reasonable measures and
precautions to protect and maintain the confidentiality, secrecy and value of
all material Acquired Corporation Proprietary Assets (except Acquired
Corporation Proprietary Assets whose value
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<PAGE> 22
would be unimpaired by disclosure). Without limiting the generality of the
foregoing, except as set forth in Part 2.9(b) of the Company Disclosure
Schedule, (i) each current or former employee of any Acquired Corporation who is
or was involved in, or who has contributed to, the creation or development of
any material Acquired Corporation Proprietary Asset has executed and delivered
to such Acquired Corporation an agreement (containing no exceptions to or
exclusions from the scope of its coverage) that is in substance the same as the
form of Confidential Information and Invention Assignment Agreement previously
delivered by the Company to Parent, and (ii) each current and former consultant
or independent contractor to any Acquired Corporation who is or was involved in,
or who has contributed to, the creation or development of any material Acquired
Corporation Proprietary Asset has executed and delivered to such Acquired
Corporation an agreement (containing no exceptions to or exclusions from the
scope of its coverage) that is in substance the same as the form of Consultant
Confidential Information and Invention Assignment Agreement previously delivered
to Parent. No current or former employee, officer, director, stockholder,
consultant or independent contractor has any right, claim or interest in or with
respect to any material Acquired Corporation Proprietary Asset.
(c) Except as set forth in Part 2.9(c) of the Company Disclosure
Schedule: (i) all patents, trademarks, service marks and copyrights held by any
of the Acquired Corporations are valid, enforceable and subsisting; (ii) none of
the Acquired Corporation Proprietary Assets and no Proprietary Asset that is
currently being developed by any of the Acquired Corporations (either by itself
or with any other Person) infringes, misappropriates or conflicts with any
Proprietary Asset owned or used by any other Person; (iii) none of the products,
systems, software, computer programs, source code, models, algorithms, formula,
compounds, inventions, designs, technology, proprietary rights or intangible
assets that is or has been designed, created, developed, assembled, manufactured
or sold by any of the Acquired Corporations is infringing, misappropriating or
making any unlawful or unauthorized use of any Proprietary Asset owned or used
by any other Person; (iv) none of the Acquired Corporations has received any
written or, to the Company's Knowledge, unwritten notice or other communication
regarding any actual or alleged infringement, misappropriation or unlawful or
unauthorized use of any Proprietary Asset owned or used by any other Person; (v)
to the Company's Knowledge, no other Person is infringing, misappropriating or
making any unlawful or unauthorized use of, and no Proprietary Asset owned or
used by any other Person infringes or conflicts with, any material Acquired
Corporation Proprietary Asset; and (vi) none of the Acquired Corporation
Proprietary Assets infringe upon the rights of privacy or rights of publicity of
any Person.
(d) The Acquired Corporation Proprietary Assets constitute all
the Proprietary Assets necessary to enable the Acquired Corporations to conduct
their business substantially in the manner in which such business is being
conducted. Except as set forth in Part 2.9(d) of the Company Disclosure
Schedule, none of the Acquired Corporations has (i) licensed any of the material
Acquired Corporation Proprietary Assets to any Person on an exclusive basis, or
(ii) entered into any covenant not to compete or Contract limiting or purporting
to limit the ability of any Acquired Corporation to exploit fully any material
Acquired Corporation Proprietary Assets or to transact business in any market or
geographical area or with any Person.
(e) Except as set forth in Part 2.9(e)(i) of the Company
Disclosure Schedule, none of the Acquired Corporations has disclosed or
delivered to any Person, or permitted the disclosure or delivery to any escrow
agent or other Person, of any Acquired Corporation Source
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<PAGE> 23
or Object Code, except for disclosure or delivery to employees or independent
contractors who have signed agreements that are in substance the same as the
form of Confidential Information and Invention Assignment Agreement previously
delivered by the Company to Parent. No event has occurred, and no circumstance
or condition exists, that (with or without notice or lapse of time) could
reasonably be expected to, result in the disclosure or delivery to any Person of
any Acquired Corporation Source or Object Code or the release from any escrow of
any other Acquired Corporation Proprietary Asset, except for disclosure or
delivery to employees or independent contractors who have signed agreements that
are in substance the same as the form of Confidential Information and Invention
Assignment Agreement previously delivered by the Company to Parent. Part
2.9(e)(ii) of the Company Disclosure Schedule identifies each Contract pursuant
to which the Company has deposited or is required to deposit with an escrow
holder or any other Person of any Acquired Corporation Source or Object Code,
and further describes whether the execution of this Agreement or the
consummation of any of the transactions contemplated hereby could reasonably be
expected to result in the release or disclosure of any Acquired Corporation
Source or Object Code or the release from any escrow of any other Acquired
Corporation Proprietary Asset.
(f) Except as set forth in Part 2.9(f)(i) of the Company
Disclosure Schedule, each computer, computer program and other item of software
that is owned by any of the Acquired Corporations and, to the Company's
Knowledge, each computer, computer program and other item of software that is
used by any of the Acquired Corporations for its internal business operations
(in each case whether installed on a computer or on any other piece of
equipment, including firmware), is Year 2000 Compliant. To the Company's
Knowledge, except as set forth in Part 2.9(f)(ii) of the Company Disclosure
Schedule, each computer program and other item of software that has been
designed, developed, sold, licensed or otherwise made available to any Person by
any of the Acquired Corporations is Year 2000 Compliant. For purposes of this
Section 2.9, a computer, computer program or other item of software is deemed to
be "Year 2000 Compliant" if, except for such deviations from the following as do
not adversely affect its functioning in any material respect: (i) the functions,
calculations and other computing processes of such computer, program or software
perform in a consistent and correct manner without interruption regardless of
the date on which such functions, calculations or other processes are actually
performed and regardless of the date input to the applicable computer system,
whether before, on, or after January 1, 2000; (ii) such computer, program or
software accepts, calculates, compares, sorts, extracts, sequences, and
otherwise processes date inputs and date values, and returns and displays date
values, in a consistent and correct manner regardless of the dates used whether
before, on, or after January 1, 2000; (iii) such computer, program or software
accepts and responds to year input, if any, in a manner that resolves any
ambiguities as to century in a defined, predetermined, and appropriate manner;
(iv) such computer, program or software stores and displays date information in
ways that are unambiguous as to the determination of the century; and (v) such
computer, program or software determines leap years by the following standard:
(A) if dividing the year by 4 yields an integer, it is a leap year, except for
years ending in 00; but (B) a year ending in 00 is a leap year if dividing it by
400 yields an integer.
(g) Except with respect to demonstration or trial copies, no
product, system, program or software module designed, developed, sold, licensed
or otherwise made available by any of the Acquired Corporations to any Person
contains any material "back door," "time bomb," "Trojan horse," "worm," "drop
dead device," "virus" or other software routines or hardware
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components designed to permit unauthorized access or to disable or erase
software, hardware or data without the consent of the user.
(h) Except as set forth in Part 2.9(h) of the Company Disclosure
Schedule: (i) each Acquired Corporation Proprietary Asset conforms in all
material respects with any written specification, documentation, performance
standard, representation or statement made or provided with respect thereto by
or on behalf of the Company; and (ii) there has not been any claim by any
customer or other Person alleging that any Acquired Corporation Proprietary
Asset (including each version thereof that has ever been licensed or otherwise
made available by the Company to any Person) does not conform in all material
respects with any written specification, documentation, performance standard,
representation or statement made or provided by or on behalf of the Company,
and, to the Company's Knowledge, there is no basis for any such claim. The
Company has established adequate reserves on the Unaudited Interim Balance Sheet
to cover all costs associated with any obligations that the Company may have
with respect to the correction or repair of programming errors or other defects
in the Acquired Corporation Proprietary Assets.
2.10 CONTRACTS.
(a) Part 2.10 of the Company Disclosure Schedule identifies each
Acquired Corporation Contract that constitutes a "Material Contract." (For
purposes of this Agreement, each of the following will be deemed to constitute a
"Material Contract":
(i) any Contract (A) relating to the employment of, or
the performance of services by, any employee, consultant, or independent
contractor, (B) pursuant to which any of the Acquired Corporations is or may
become obligated to make any severance, termination or similar payment to any
current or former employee, director, consultant or independent contractor or
(C) pursuant to which any of the Acquired Corporations is or may become
obligated to make any bonus or similar payment (other than payments constituting
base salary) in excess of $25,000 to any current or former employee or director,
consultant or independent contractor;
(ii) any Contract relating to the acquisition, transfer,
use, development, sharing or license of any material Proprietary Asset (except
for any Contract pursuant to which (A) any Proprietary Asset is licensed to the
Acquired Corporations under any third party software license generally available
to the public at a cost of less than $10,000, or (B) any Proprietary Asset is
licensed by any of the Acquired Corporations to any Person on a non-exclusive
basis);
(iii) any Contract that provides for indemnification of
any officer, director, employee or agent;
(iv) any Contract imposing any material restriction on
the right or ability of any Acquired Corporation (A) to compete with any other
Person, (B) to acquire any product or other asset or any services from any other
Person, (C) to solicit, hire or retain any Person as an employee, consultant or
independent contractor, (D) to develop, sell, supply, distribute, offer, support
or service any product or any technology or other asset to or for any
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other Person, (E) to perform services for any other Person, or (F) to transact
business or deal in any other manner with any other Person;
(v) except with respect to the Bridge Financing, any
Contract (other than Contracts evidencing Company Options) (A) relating to the
acquisition, issuance, voting, registration, sale or transfer of any securities,
(B) providing any Person with any preemptive right, right of participation,
right of maintenance or any similar right with respect to any securities, or (C)
providing any of the Acquired Corporations with any right of first refusal with
respect to, or right to repurchase or redeem, any securities;
(vi) any Contract incorporating or relating to any
material guaranty, indemnity (other than for breach by an Acquired Corporation
of its own contractual obligations) or similar obligation;
(vii) any Contract relating to any currency hedging;
(viii) any Contract containing "standstill" or similar
provisions;
(ix) any Contract (A) to which any Governmental Body is
a party or under which any Governmental Body has any rights or obligations, or
(B) directly or indirectly benefiting any Governmental Body (including any
subcontract or other Contract between any Acquired Corporation and any
contractor or subcontractor to any Governmental Body);
(x) except with respect to the Bridge Financing, any
Contract requiring that any of the Acquired Corporations give any notice or
provide any information to any Person prior to considering or accepting any
Acquisition Proposal or similar proposal, or prior to entering into any
discussions, agreement, arrangement or understanding relating to any Acquisition
Transaction or similar transaction;
(xi) except with respect to the Bridge Financing, any
Contract that involves the payment or delivery of cash or other consideration in
an amount or having a value in excess of $100,000 and may not be terminated by
an Acquired Corporation (without penalty) within 60 days after the delivery of a
termination notice by such Acquired Corporation;
(xii) except with respect to the Bridge Financing, any
Contract that contemplates or involves the payment or delivery of cash or other
consideration in an amount or having a value in excess of $100,000 in the
aggregate, or contemplates or involves the performance of services having a
value in excess of $100,000 in the aggregate, other than purchase orders issued
in the ordinary course of business;
(xiii) any Contract that could reasonably be expected to
have a material effect on the ability of the Company to perform any of its
obligations, or to consummate any of the transactions contemplated by, this
Agreement;
(xiv) any Contract (A) creating or involving any agency
relationship, distribution arrangement or franchise relationship, or (B)
creating or relating to any partnership or joint venture or any sharing of
profits or losses; and
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(xv) except with respect to the Bridge Financing, any
other Contract entered into outside the ordinary course of business.
The Company has delivered to Parent an accurate and complete copy of each
Acquired Corporation Contract that constitutes a Material Contract, including
all amendments thereto.
(b) Each Acquired Corporation Contract that constitutes a
Material Contract is valid and in full force and effect and is enforceable
against the Company and, to the Company's Knowledge, each other party thereto in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
(c) Except as set forth in Part 2.10(c) of the Company Disclosure
Schedule: (i) none of the Acquired Corporations has, in any material respect,
violated or breached, or committed any default under, any Material Contract
(except for violations, breaches and defaults that have been fully cured within
applicable cure periods or affirmatively waived by the other party to the
affected Acquired Corporation Contract), and, to the Company's Knowledge, no
other Person has, in any material respect, violated or breached, or committed
any default under, any Material Contract (except for violations, breaches and
defaults that have been fully cured within applicable cure periods or
affirmatively waived by the Company), (ii) to the Company's Knowledge, no event
has occurred, and no circumstance or condition exists, that (with or without
notice or lapse of time) could reasonably be expected to, (A) result in a
violation or breach, in any material respect, of any of the provisions of any
Material Contract, (B) give any Person the right to declare a material default
or exercise any material remedy in respect of a default under any Material
Contract, (C) give any Person the right to receive or require a rebate,
chargeback, penalty or change in delivery schedule under any Material Contract,
(D) give any Person the right to accelerate the maturity or performance of any
Material Contract, (E) result in the disclosure, release or delivery of any
Acquired Corporation Source or Object Code, or (F) give any Person the right to
cancel, terminate or modify any Material Contract, (iii) since the Audited
Balance Sheet Date, none of the Acquired Corporations has received any written
or, to the Company's Knowledge, unwritten notice or other communication
regarding any actual or possible material violation or breach of, or material
default under, any Material Contract; and (iv) none of the Acquired Corporations
has waived any of its material rights under any Material Contract.
(d) The Contracts identified in Part 2.10 of the Company
Disclosure Schedule collectively constitute all of the Contracts necessary to
enable the Company to conduct its business substantially in the manner in which
its business is currently being conducted.
2.11 LIABILITIES. None of the Acquired Corporations has any accrued,
contingent or other liabilities of any nature, either matured or unmatured that
would be required to be reflected on a balance sheet prepared in accordance with
generally accepted accounting principles, whether due or to become due, and that
could reasonably be expected to have a Material Adverse Effect on the Company,
except for: (a) liabilities identified as such in the Unaudited Interim Balance
Sheet; (b) accounts payable and other liabilities that have been incurred by the
Company since May 31, 2000 in the ordinary course of business and consistent
with the Company's past practices; (c) liabilities under Material Contracts; (d)
other liabilities identified in the Company
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Disclosure Schedule; and (e) liabilities arising under any agreement entered
into to effect the Bridge Financing.
2.12 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as will not at any time
be deemed to have a Material Adverse Effect on the Acquired Corporations, each
of the Acquired Corporations has complied in all material respects with all
applicable Legal Requirements. Except as will not at any time be deemed to have
a Material Adverse Effect on the Acquired Corporations, since the Audited
Balance Sheet Date, none of the Acquired Corporations has received any written
or, to the Company's Knowledge, unwritten notice or other communication from any
Governmental Body or other Person alleging any violation of, or failure to
comply with, any Legal Requirement.
2.13 GOVERNMENTAL AUTHORIZATIONS.
(a) Except as will not at any time be deemed to have a Material
Adverse Effect on the Acquired Corporations, the Acquired Corporations hold all
Governmental Authorizations necessary to enable the Acquired Corporations to
conduct their respective businesses substantially in the manner in which such
businesses are currently being conducted. All such Governmental Authorizations
are valid and in full force and effect and have been identified in Part 2.13(a)
of the Company Disclosure Schedule. The Company has delivered to Parent complete
and accurate copies of all such Governmental Authorizations. Each Acquired
Corporation is in substantial compliance with the terms and requirements of such
Governmental Authorizations. Since the Audited Balance Sheet Date, none of the
Acquired Corporations has received any written or, to the Company's Knowledge,
unwritten notice or other communication from any Governmental Body alleging (a)
any violation of or failure to comply with any term or requirement of any
Governmental Authorization, or (b) any revocation, withdrawal, suspension,
cancellation, termination or modification of any Governmental Authorization.
Except as will not at any time be deemed to have a Material Adverse Effect on
the Acquired Corporations, no Governmental Body has at any time challenged in
writing the right of any of the Acquired Corporations to design, manufacture,
offer or sell any of its products or services.
(b) Part 2.13(b) of the Company Disclosure Schedule describes the
terms of each grant, incentive or subsidy provided or made available to or for
the benefit of any of the Acquired Corporations by any U.S. or foreign
Governmental Body. Each of the Acquired Corporations is in full compliance with
all of the terms and requirements of each grant, incentive and subsidy
identified or required to be identified in Part 2.13(b) of the Company
Disclosure Schedule. Neither the execution, delivery or performance of this
Agreement, nor the consummation of the Merger or any of the other transactions
contemplated by this Agreement, will (with or without notice or lapse of time)
give any Person the right to revoke, withdraw, suspend, cancel, terminate or
modify, any grant, incentive or subsidy identified or required to be identified
in Part 2.13(b) of the Company Disclosure Schedule.
2.14 TAX MATTERS.
(a) Each of the material Tax Returns required to be filed by or
on behalf of the respective Acquired Corporations with any Governmental Body
with respect to any taxable period ending on or before the Closing Date (the
"Acquired Corporation Returns") (i) has been
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or will be filed on or before the applicable due date (including any extensions
of such due date), and (ii) has been, or will be when filed, complete and
correct in all material respects. All amounts shown on the Acquired Corporation
Returns to be due on or before the Closing Date have been or will be paid on or
before the Closing Date. The Company has delivered to Parent accurate and
complete copies of the Acquired Corporation Returns previously filed.
(b) The Unaudited Interim Balance Sheet fully accrues all actual
and contingent liabilities for Taxes with respect to all periods through May 31,
2000 in accordance with generally accepted accounting principles.
(c) No Acquired Corporation Return has ever been examined or
audited by any Governmental Body or other Person. No extension or waiver of the
limitation period applicable to any of the Acquired Corporation Returns has been
granted (by the Company or any other Person), and no such extension or waiver
has been requested from any Acquired Corporation.
(d) No claim or Legal Proceeding asserting an actual or potential
Tax liability is pending or, to the Company's Knowledge, has been overtly
threatened against or with respect to any Acquired Corporation in respect of any
Tax. There are no unsatisfied liabilities for Taxes (including liabilities for
interest, additions to tax and penalties thereon and related expenses) with
respect to any notice of deficiency or similar document received by any Acquired
Corporation with respect to any Tax (other than liabilities for Taxes asserted
under any such notice of deficiency or similar document which are being
contested in good faith by the Acquired Corporations and with respect to which
adequate reserves for payment have been established on the Unaudited Interim
Balance Sheet). There are no material liens for Taxes upon any of the assets of
any of the Acquired Corporations except liens for current Taxes not yet due and
payable. None of the Acquired Corporations has entered into or become bound by
any agreement or consent pursuant to Section 341(f) of the Code (or any
comparable provision under state or foreign Tax laws).
(e) Except as set forth in Part 2.14(e) of the Company Disclosure
Schedule, none of the Acquired Corporations is, or has ever been, a party to or
bound by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract. There is no agreement, plan, arrangement or other
Contract covering any employee or independent contractor or former employee or
independent contractor of any of the Acquired Corporations that, considered
individually or considered collectively with any other such Contracts, 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 or Section
162 of the Code (or any comparable provision of state or foreign Tax laws).
Notwithstanding the foregoing, the parties have agreed that the
non-deductibility of any payment by reason of Section 280G or Section 162 of the
Code (or any comparable provision of state or foreign Tax laws) would not in any
event (i) constitute Damages, or otherwise give rise to any claim by Parent
against the Company or the Escrow Fund, under this Agreement, or (ii) be taken
into account in determining whether the condition set forth in Section 6.1 has
been satisfied.
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2.15 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.15(a) of the Company Disclosure Schedule identifies
each salary, bonus, vacation, deferred compensation, incentive compensation,
stock purchase, stock option, severance pay, termination pay, death and
disability benefits, hospitalization, medical, life or other insurance, flexible
benefits, supplemental unemployment benefits, profit-sharing, pension or
retirement plan, program or agreement and each other employee benefit plan or
arrangement (collectively, the "Employee Plans") sponsored, maintained,
contributed to or required to be contributed to by any of the Acquired
Corporations for the benefit of any current or former employee of any of the
Acquired Corporations. Part 2.15(a) of the Company Disclosure Schedule also
identifies each Legal Requirement pursuant to which any of the Acquired
Corporations is required to establish any reserve or make any contribution for
the benefit of any current or former employee located in any jurisdiction
outside of the United States.
(b) Part 2.15(a) of the Company Disclosure Schedule includes any
employee pension benefit plan (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any similar
pension benefit plan under the laws of any foreign jurisdiction, whether or not
excluded from coverage under specific Titles or Subtitles of ERISA for the
benefit of employees or former employees of any of the Acquired Corporations (a
"Pension Plan").
(c) Part 2.15(a) of the Company Disclosure Schedule includes any
employee welfare benefit plan (as defined in Section 3(1) of ERISA or any
similar welfare benefit plan under the laws of any foreign jurisdiction, whether
or not excluded from coverage under specific Titles or Subtitles of ERISA), for
the benefit of any current or former employees or directors of any of the
Acquired Corporations (a "Welfare Plan").
(d) With respect to each Employee Plan, the Company has delivered
to Parent: (i) an accurate and complete copy of such Employee Plan (including
all amendments thereto); (ii) an accurate and complete copy of the annual
report, if required under ERISA, with respect to such Employee Plan for the last
two years; (iii) an accurate and complete copy of the most recent summary plan
description, together with each summary of material modifications, if required
under ERISA, with respect to such Employee Plan, (iv) if such Employee Plan is
funded through a trust or any third party funding vehicle, an accurate and
complete copy of the trust or other funding agreement (including all amendments
thereto) and accurate and complete copies the most recent financial statements
thereof; (v) accurate and complete copies of all material Contracts relating to
such Employee Plan, including service provider agreements, insurance contracts,
minimum premium contracts, stop-loss agreements, investment management
agreements, subscription and participation agreements and record-keeping
agreements; and (vi) an accurate and complete copy of the most recent
determination letter received from the Internal Revenue Service with respect to
such Employee Plan (if such Employee Plan is intended to be qualified under
Section 401(a) of the Code).
(e) None of the Acquired Corporations is or has ever been
required to be treated as a single employer with any other Person under Section
4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code, except for
the Acquired Corporations. None of the Acquired Corporations has ever been a
member of an "affiliated service group" within the meaning of
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Section 414(m) of the Code. None of the Employee Plans identified in the Company
Disclosure Schedule is a multiemployer plan (within the meaning of Section 3(37)
of ERISA). None of the Acquired Corporations has ever made a complete or partial
withdrawal from a multiemployer plan, as such term is defined in Section 3(37)
of ERISA, resulting in "withdrawal liability," as such term is defined in
Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under either Section 4207 or 4208 of ERISA).
(f) None of the Acquired Corporations has any plan or commitment
to create any Welfare Plan or any Pension Plan, or to modify or change any
existing Welfare Plan or Pension Plan (other than to comply with applicable law)
in a manner that would affect any current or former employee or director of any
of the Acquired Corporations.
(g) No Employee Plan provides death, medical or health benefits
(whether or not insured) with respect to any current or former employee or
director of any of the Acquired Corporations after any termination of service of
such employee or director (other than benefit coverage mandated by applicable
law, including coverage provided pursuant to Section 4980B of the Code).
(h) With respect to any Employee Plan constituting a group health
plan within the meaning of Section 4980B(g)(2) of the Code, the provisions of
Section 4980B of the Code ("COBRA") have been complied with in all material
respects. Part 2.15(h) of the Company Disclosure Schedule describes all
obligations of the Acquired Corporations as of the date of this Agreement under
any of the provisions of COBRA.
(i) Each of the Employee Plans has been operated and administered
in all material respects in accordance with its terms and with applicable Legal
Requirements, including ERISA, the Code and applicable foreign Legal
Requirements. The Acquired Corporations have performed, in all material
respects, all of their respective obligations under the Employee Plans.
(j) Each of the Employee Plans intended to be qualified under
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service, and nothing has occurred that would adversely
affect such determination.
(k) Except as set forth in Part 2.15(k) of the Company Disclosure
Schedule, neither the execution, delivery or performance of this Agreement, nor
the consummation of the Merger or any of the other transactions contemplated by
this Agreement, will result in any bonus, golden parachute, severance or other
payment or obligation to any current or former employee or director of any of
the Acquired Corporations (whether or not under any Employee Plan), or
materially increase the benefits payable or provided under any Employee Plan, or
result in any acceleration of the time of payment or vesting of any such
benefits. Without limiting the generality of the foregoing (and except as set
forth in Part 2.15(k) of the Company Disclosure Schedule), the consummation of
the Merger will not result in the acceleration of vesting of any unvested
Company Options.
(l) Part 2.15(l) of the Company Disclosure Schedule contains a
list of all salaried employees of each of the Acquired Corporations as of the
date of this Agreement, and correctly reflects, in all material respects, their
salaries, any other compensation payable to them
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(including compensation payable pursuant to bonus, deferred compensation or
commission arrangements but excluding Company Options), their dates of
employment and their positions. None of the Acquired Corporations is a party to
any collective bargaining contract or other Contract with a labor union
involving any of its employees. Except as set forth in Part 2.15(l) of the
Company Disclosure Schedule, all of the employees of the Acquired Corporations
are "at will" employees.
(m) Part 2.15(m) of the Company Disclosure Schedule identifies
each employee of any of the Acquired Corporations who, as of the date of this
Agreement, is not fully available to perform work because of long-term
disability or other leave and sets forth the basis of such disability or leave
and the anticipated date of return to full service.
(n) Each of the Acquired Corporations is in compliance in all
material respects with all applicable Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters, except as will not at any time be
deemed to have a Material Adverse Effect on the Acquired Corporations.
(o) The Acquired Corporations, taken as a whole, have good labor
relations. To the Company's Knowledge, there are no facts indicating that (i)
the consummation of the Merger or any of the other transactions contemplated by
this Agreement will have a material adverse effect on the labor relations of the
Acquired Corporations taken as a whole, or (ii) as of the date of this
Agreement, any of the employees of any of the Acquired Corporations identified
in Part 2.15(o) of the Company Disclosure Schedule intends to terminate his or
her employment with the Acquired Corporation with which such employee is
employed.
2.16 ENVIRONMENTAL MATTERS. Each of the Acquired Corporations (i) is in
compliance in all material respects with all applicable Environmental Laws and
(ii) possesses all permits and other Governmental Authorizations required under
applicable Environmental Laws, and is in compliance with the terms and
conditions thereof in all material respects. None of the Acquired Corporations
has received any notice or other communication (in writing or otherwise),
whether from a Governmental Body, citizens group, employee or otherwise, that
alleges that any of the Acquired Corporations is not in compliance in all
material respects with any Environmental Law, and, to the Company's Knowledge,
there are no circumstances that could reasonably be expected to prevent or
interfere with the Acquired Corporations' future compliance in all material
respects with any existing Environmental Law. To the Company's Knowledge, (a)
all property that is leased to, controlled by or used by any of the Acquired
Corporations, and all surface water, groundwater and soil associated with or
adjacent to such property, is free of any material environmental contamination
of any nature, (b) none of the property leased to, controlled by or used by any
of the Acquired Corporations contains any underground storage tanks, asbestos,
equipment using PCBs, underground injection wells, and (c) none of the property
leased to, controlled by or used by any of the Acquired Corporations contains
any septic tanks in which process wastewater or any Materials of Environmental
Concern have been disposed. No Acquired Corporation has ever sent or
transported, or arranged to send or transport, any Materials of Environmental
Concern to a site that, pursuant to any applicable Environmental Law (i) has
been placed on the "National Priorities List" of hazardous waste sites or any
similar state list, (ii) is otherwise designated or identified as a potential
site for remediation, cleanup, closure or other environmental remedial activity,
or (iii) is subject to a Legal Requirement to take
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"removal" or "remedial' action as detailed in any applicable Environmental Law
or to make payment for the cost of cleaning up any site.
2.17 INSURANCE. Part 2.17 of the Company Disclosure Schedule identifies
all insurance policies maintained by, at the expense of or for the benefit of
the Acquired Corporations and identifies any material claims thereunder that
have been made within two years prior to the date of this Agreement or have not
been fully adjusted. The Company has delivered to Parent accurate and complete
copies of the insurance policies and self insurance programs and arrangements
relating to the business, assets and operations of the Acquired Corporations.
Each of such insurance policies is in full force and effect. Since the Audited
Balance Sheet Date, none of the Acquired Corporations has received any notice or
other communication regarding any actual or overtly threatened (a) cancellation
or invalidation of any insurance policy, (b) refusal of any coverage or
rejection of any material claim under any insurance policy, or (c) material
adjustment in the amount of the premiums payable with respect to any insurance
policy.
2.18 RELATED PARTY TRANSACTIONS.. Except as set forth in Part 2.18 of
the Company Disclosure Schedule and except with respect to the Bridge Financing:
(a) no Related Party has, and no Related Party has had at any time since the
Audited Balance Sheet Date, any direct or indirect interest in any material
asset used in or otherwise relating to the business of the Company; (b) no
Related Party is, or has been at any time since the Audited Balance Sheet Date,
indebted to the Company; (c) since the Audited Balance Sheet Date, no Related
Party has entered into, or has had any direct or indirect financial interest in
(other than through de minimis stock ownership in public companies), any
material Contract, transaction or business dealing involving the Company; (d) no
Related Party is competing, or has competed at any time since the Audited
Balance Sheet Date, directly or indirectly, with the Company; and (e) no Related
Party has any claim or right against the Company (other than rights under
Company Options, warrants of the Company and rights to receive compensation for
services performed as an employee of the Company).
2.19 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.19(a) of the Company Disclosure
Schedule, there is no pending Legal Proceeding, and, to the Company's Knowledge,
no Person has overtly threatened to commence any Legal Proceeding: (i) that
involves any of the Acquired Corporations or any of the assets owned or used by
any of the Acquired Corporations; or any Person whose liability has or may have
been retained or assumed, in any manner, by any of the Acquired Corporations; or
(ii) that challenges, or that could reasonably be expected to have the effect of
preventing, delaying, making illegal or otherwise interfering with, the Merger
or any of the other transactions contemplated by this Agreement. To the
Company's Knowledge, except as set forth in Part 2.19(a) of the Company
Disclosure Schedule, no event has occurred, and no claim, dispute or other
condition or circumstance exists, that could reasonably be expected to give rise
to or serve as a basis for the commencement of any such Legal Proceeding, except
for any such Legal Proceeding that will not at any time be deemed to have a
Material Adverse Effect on the Acquired Corporations.
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(b) As of the date of this Agreement, except as set forth in Part
2.19(b) of the Company Disclosure Schedule, no Legal Proceeding has ever been
commenced by or has ever been pending against any Acquired Corporation.
(c) There is no order, writ, injunction, judgment or decree to
which any of the Acquired Corporations, or any of the assets owned or used by
any of the Acquired Corporations, is subject. To the Company's Knowledge, no
officer or key employee of any of the Acquired Corporations is subject to any
order, writ, injunction, judgment or decree that relates to the Acquired
Corporations' businesses or to any assets owned or used by the Acquired
Corporations. To the Company's Knowledge, no officer or other employee of the
Acquired Corporations is subject to any order, writ, injunction, judgment or
decree that prohibits such officer or other employee from engaging in or
continuing any conduct, activity or practice relating to the business of any of
the Acquired Corporations.
2.20 AUTHORITY; INAPPLICABILITY OF ANTI-TAKEOVER STATUTES; BINDING
NATURE OF AGREEMENT. The Company has full corporate power and authority to enter
into and to perform its obligations under this Agreement. The board of directors
of the Company (at a meeting duly called and held) has (a) unanimously
determined that the Merger is advisable and fair and in the best interests of
the Company and its stockholders, (b) unanimously authorized and approved the
execution, delivery and performance of this Agreement by the Company and
unanimously approved the Merger, (c) unanimously recommended the adoption of
this Agreement by the holders of Company Stock and directed that this Agreement
and the Merger be submitted for consideration by the Company's stockholders at
the Company Stockholders' Meeting (as defined in Section 5.2), and (d) to the
extent necessary, adopted a resolution having the effect of causing the Company
not to be subject to any state takeover law or similar Legal Requirement that
might otherwise apply to the Merger or any of the other transactions
contemplated by this Agreement. This Agreement constitutes the legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with its terms, subject to (i) laws of general application relating
to bankruptcy, insolvency and the relief of debtors, and (ii) rules of law
governing specific performance, injunctive relief and other equitable remedies.
No takeover statute or similar Legal Requirement of the State of North Carolina
applies or purports to apply to the Merger, this Agreement or any of the
transactions contemplated hereby.
2.21 SECTION 203 OF THE DGCL NOT APPLICABLE. As of the date hereof and
at all times on or prior to the Effective Time, the board of directors and
stockholders of the Company have taken and will take all actions within their
power so that the restrictions applicable to business combinations contained in
Section 203 of the DGCL are, and will be, inapplicable to the execution,
delivery and performance of this Agreement and to the consummation of the Merger
and the other transactions contemplated by this Agreement.
2.22 NO EXISTING DISCUSSIONS. None of the Acquired Corporations, and no
Representative of any of the Acquired Corporations, is engaged, directly or
indirectly, in any discussions or negotiations with any other Person relating to
any Acquisition Proposal.
2.23 VOTE REQUIRED. The only vote of the holders of any class or series
of the Company's capital stock necessary to adopt this Agreement and approve the
Merger and the other transactions contemplated by this Agreement (the "Required
Company Stockholder Vote")
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is as follows: (a) under the DGCL and the Company's certificate of
incorporation, the affirmative vote of the holders of a majority of the shares
of Company Stock (excluding the Series A Convertible Preferred Stock and the
Series E Convertible Preferred Stock) outstanding on the record date for the
Company Stockholders' Meeting; and (b) under Contracts of the Company: (i) the
affirmative vote of the holders of a majority of the shares of Company's Series
A Convertible Preferred Stock outstanding on the record date for the Company
Stockholders' Meeting; (ii) the affirmative vote of the holders of 80% of the
shares of Company's Series B Convertible Preferred Stock outstanding on the
record date for the Company Stockholders' Meeting; (iii) the affirmative vote of
the holders of 80% of the shares of Company's Series C Convertible Preferred
Stock and C-1 Convertible Preferred Stock outstanding on the record date for the
Company Stockholders' Meeting, voting together as a single class; and (iv) the
consent required pursuant to Section 1 of the Consent Agreement referred to in
paragraph (10) of Part 6.5 of the Company Disclosure Schedule. Based on the
shares of Company Stock outstanding as of the date of this Agreement, if all of
the Persons that have executed and delivered to Parent the Company Stockholder
Voting Agreements vote the shares of Company Stock shown as being owned by them
in such agreements in the manner required by such agreements, the Required
Company Stockholder Vote will be achieved.
2.24 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance by the Company of this Agreement or any of the other agreements
referred to in this Agreement, nor (2) the consummation by the Company of the
Merger or any of the other transactions contemplated by this Agreement, will
directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of the certificate of incorporation, bylaws or other charter
or organizational documents of any of the Acquired Corporations, or (ii) any
resolution adopted by the stockholders, the board of directors or any committee
of the board of directors of any of the Acquired Corporations;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
any of the Acquired Corporations, or any of the assets owned or used by any of
the Acquired Corporations, is subject, except as will not at any time be deemed
to have a Material Adverse Effect on the Acquired Corporations;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by any of the Acquired Corporations, except as will not at any time
be deemed to have a Material Adverse Effect on the Acquired Corporations;
(d) except as disclosed in Part 2.24(a) of the Company Disclosure
Schedule, contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any Acquired Corporation Contract
that constitutes a Material Contract, or require the consent of any party to any
such Acquired Corporation Contract, or give any Person the right to (i) declare
a default or exercise any material remedy in respect of a default under any such
Acquired Corporation Contract, (ii) obtain a rebate, chargeback, penalty or
change in delivery schedule under any such Acquired Corporation Contract, (iii)
accelerate the maturity or
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performance of any such Acquired Corporation Contract, or (iv) cancel, terminate
or modify any term of such Acquired Corporation Contract;
(e) result in the imposition or creation of any Encumbrance upon
or with respect to any asset owned or used by any of the Acquired Corporations
(except for Permitted Liens), except as will not at any time be deemed to have a
Material Adverse Effect on the Acquired Corporations; or
(f) result in, or increase the likelihood of, the disclosure or
delivery to any escrow holder or other Person of the Acquired Corporation Source
or Object Code, or the transfer of any material asset of any of the Acquired
Corporations to any Person, except as will not at any time be deemed to have a
Material Adverse Effect on the Acquired Corporations.
Except as set forth in Part 2.24(b) of the Company Disclosure Schedule, none of
the Acquired Corporations is or will be required to make any material filing
with or give any material notice to, or to obtain any material Consent from, any
Governmental Body in connection with (x) the execution, delivery or performance
by the Company of this Agreement or any of the other agreements referred to in
this Agreement, or (y) the consummation by the Company of the Merger or any of
the other transactions contemplated by this Agreement.
2.25 FULL DISCLOSURE.
(a) This Agreement (including the Company Disclosure Schedule)
does not (i) contain any representation or warranty of the Company that is false
or misleading with respect to any material fact, or (ii) omit to state any
material fact necessary in order to make the representations and warranties of
the Company contained herein (in the light of the circumstances under which such
representations and warranties were made) not false or misleading.
(b) None of the information supplied or to be supplied by or on
behalf of the Company for inclusion or incorporation by reference in the Form
S-4 Registration Statement or the Form S-3 Registration Statement will, at the
time the Form S-4 Registration Statement or the Form S-3 Registration Statement,
as applicable, 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 the
light of the circumstances under which they are made, not misleading. None of
the information supplied or to be supplied by or on behalf of the Company for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
will, at the time the Joint Proxy Statement/Prospectus is mailed to the
stockholders of the Company or the stockholders of Parent or at the time of the
Company Stockholders' Meeting or the Parent Stockholders' Meeting, 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
the light of the circumstances under which they are made, not misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
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3.1 DUE ORGANIZATION; SUBSIDIARIES; ETC. Each of Parent and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware (or, in the case Subsidiaries
such other jurisdiction(s) in which they may be incorporated) and has all
necessary power and authority to: (a) conduct its business in the manner in
which its business is currently being conducted; (b) own and use its assets in
the manner in which its assets are currently owned and used; and (c) perform its
obligations under all Contracts by which it is bound. Each of Parent and each of
its Subsidiaries is duly qualified to do business as a foreign corporation, and
is in good standing, under the laws of all jurisdictions where the nature of its
business requires such qualification.
3.2 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has filed with the SEC all documents that it is
required to have filed with the SEC since July 27, 1999. Parent has delivered or
made available to the Company accurate and complete copies (excluding copies of
exhibits) of each report, registration statement and definitive proxy statement
filed by Parent with the SEC since July 27, 1999 (the "Parent SEC Documents").
As of the time it was filed with the SEC (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing):
(i) each of the Parent SEC Documents complied in all material respects with the
applicable requirements of the Securities Act or the Exchange Act (as the case
may be); and (ii) none of the Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. As of the
date of this Agreement, the Parent SEC Documents, considered in the aggregate
together with this Agreement (including the Parent Disclosure Schedule) and
disregarding any statements therein that have been amended, corrected or
superseded by statements contained in later-filed Parent SEC Documents, do not
contain any untrue statement by Parent of a material fact or omit to state a
material fact required to be stated therein by Parent or necessary in order to
make the statements therein by Parent, in the light of the circumstances under
which they were made, not misleading.
(b) The consolidated financial statements contained in the Parent
SEC Documents: (i) complied as to form in all material respects with the
published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods covered (except as may be indicated in
the notes to such financial statements and, in the case of unaudited statements,
as permitted by Form 10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject to year-end audit
adjustments, which will not, individually or in the aggregate, be material in
magnitude); and (iii) fairly present the consolidated financial position of
Parent and its subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its subsidiaries for the
periods covered thereby.
(c) None of the information supplied or to be supplied by or on
behalf of Parent for inclusion or incorporation by reference in the Form S-4
Registration Statement or the Form S-3 Registration Statement will, at the time
the Form S-4 Registration Statement or the Form S-3 Registration Statement, as
applicable, becomes effective under the Securities Act, contain any
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<PAGE> 37
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
the light of the circumstances under which they are made, not misleading. None
of the information supplied or to be supplied by or on behalf of Parent for
inclusion or incorporation by reference in the Joint Proxy Statement/Prospectus
will, at the time the Joint Proxy Statement/Prospectus is mailed to the
stockholders of the Company or the stockholders of Parent or at the time of the
Company Stockholders' Meeting or the Parent Stockholders' Meeting, 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
the light of the circumstances under which they are made, not misleading.
3.3 AUTHORITY; BINDING NATURE OF AGREEMENT. Parent has full corporate
power and authority to perform its obligations under this Agreement and the
execution, delivery and performance by Parent of this Agreement (including
without limitation performance of its obligations under Section 5.2) has been
duly authorized by all necessary action on the part of the board of directors of
Parent. This Agreement constitutes the legal, valid and binding obligation of
Parent, enforceable against Parent in accordance with its terms, subject to (i)
laws of general application relating to bankruptcy, insolvency and the relief of
debtors, and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
3.4 VOTE REQUIRED. The only vote of Parent's stockholders required to
approve the Merger and the issuance of Parent Common Stock in the Merger is the
affirmative vote of the holders of a majority of the shares of Parent Common
Stock outstanding on the record date for the Parent Stockholders' Meeting (the
"Required Parent Stockholder Vote"). Based on the number of shares of Parent
Common Stock outstanding as of the date of this Agreement, if all of the Persons
that have executed and delivered to the Company the Parent Stockholder Voting
Agreements vote the shares of Parent Common Stock shown as being owned by them
in such agreements in the manner required by such agreements, the Required
Parent Stockholder Vote will be achieved.
3.5 VALID ISSUANCE. The Parent Common Stock to be issued in the Merger
will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable.
3.6 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital
stock of Parent consists of 110,000,000 shares of Parent Common Stock and
10,000,000 shares of Preferred Stock, par value $.0001 per share. As of July 5,
2000, approximately 46,300,000 shares of Parent Common Stock were issued and
outstanding. As of the date of this Agreement, no shares of preferred stock of
Parent are outstanding. All of the outstanding shares of Parent Common Stock
have been duly authorized and validly issued and are fully paid, nonassessable
and free of preemptive rights.
(b) Except as disclosed in the Parent SEC Documents filed prior
to the date of this Agreement or in Part 3.6 of the Parent Disclosure Schedule,
there is no (i) outstanding subscription, option , call, warrant or right
(whether or not currently exercisable) to acquire any
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shares of the capital stock or other securities Parent or any of its
Subsidiaries; (ii) outstanding security, instrument or obligation that is or may
become convertible into or exchangeable for any shares of the capital stock or
other securities of Parent or any of its Subsidiaries; (iii) stockholder rights
plan (or similar plan commonly referred to as a "poison pill") or Contract under
which Parent or any of its Subsidiaries is or may become obligated to sell or
otherwise issue any shares of its capital stock or any other securities.
(c) All of the outstanding shares of capital stock of Parent's
Subsidiaries have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights and, except to the extent otherwise
disclosed in the Parent SEC Documents filed prior to the date of this Agreement
or in Part 3.6 of the Parent Disclosure Schedule, are owned beneficially and of
record by Parent or its Subsidiaries, free and clear of any Encumbrances other
than Permitted Liens.
(d) The copies of Parents' certificate of incorporation and
bylaws previously made available to the Company are true and correct.
3.7 ABSENCE OF CHANGES. Since December 31, 1999, except as disclosed in
the Parent SEC Documents filed prior to the date of this Agreement or in Part
3.7 of the Parent Disclosure Schedule: (a) there has not arisen any event,
condition, fact or circumstance that, considered together with all other events,
conditions, facts and circumstances, is deemed to have a Material Adverse Effect
on Parent; (b) Parent and its Subsidiaries have conducted their business in the
ordinary course consistent with past practice; and (c) Parent has not (i)
declared, accrued, set aside or paid any dividend or made any other distribution
in respect of any shares of capital stock, (ii) repurchased, redeemed or
otherwise reacquired any shares of capital stock or other securities (except for
repurchases of Parent Common Stock from former employees or consultants pursuant
to contractual rights to do so) or (iii) changed any of its methods of
accounting or accounting practices in any material respect except as required by
generally accepted accounting principles.
3.8 LIABILITIES. Parent and its Subsidiaries have no accrued, contingent
or other liabilities of any nature, either matured or unmatured, that would be
required to be reflected in financial statements prepared in accordance with
generally accepted accounting principles, whether due or to become due, and that
could reasonably be expected to have a Material Adverse Effect on Parent, except
for: (a) liabilities identified as such in the Parent SEC Documents filed prior
to the date of this Agreement; (b) accounts payable and other liabilities that
have been incurred by Parent since December 31, 1999 in the ordinary course of
business and consistent with Parent's past practices; (c) liabilities under
material Contracts of Parent or its Subsidiaries; and (d) liabilities described
in Part 3.8 of the Parent Disclosure Schedule.
3.9 COMPLIANCE WITH LEGAL REQUIREMENTS. Except as disclosed in the
Parent SEC Documents: (a) Parent and its Subsidiaries have complied with all
applicable Legal Requirements, except where the failure to comply will not at
any time be deemed to have a Material Adverse Effect on Parent; and (b) since
December 31, 1999, none of Parent or its Subsidiaries has received any written
notice from any Governmental Body alleging any violation of, or failure to
comply with, any Legal Requirement, except where the failure to comply will not
at any time be deemed to have a Material Adverse Effect on Parent.
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3.10 TAX MATTERS. Except as disclosed in the Parent SEC Documents filed
prior to the date of this Agreement:
(a) Each of the material Tax Returns required to be filed by or
on behalf of Parent or any of its Subsidiaries with any Governmental Body with
respect to any taxable period ending on or before the Closing Date (the "Parent
Returns") (i) has been, or will be, filed on or before the applicable due date
(including any extensions of such due date), and (ii) was, or will be, when
filed complete and correct in all material respects. All amounts shown on the
Parent Returns to be due on or before the Closing Date have been, or will be,
paid on or before the Closing Date. All material Taxes payable by or with
respect to Parent and its Subsidiaries but not reflected on any Tax Return
required to have been filed prior to the date of the most recent balance sheet
included in Parent's Form 10-Q have been fully paid or adequate provision
therefor has been made and reflected on such balance sheet.
(b) No Parent Return has ever been examined or audited by any
Governmental Body or other Person. No extension or waiver of the limitation
period applicable to any of the Parent Returns has been granted (by Parent or
any other Person), and no such extension or waiver has been requested from
Parent or any of its Subsidiaries.
3.11 ENVIRONMENTAL MATTERS. Except as disclosed in the Parent SEC
Documents filed prior to the date of this Agreement: (a) Parent and its
Subsidiaries (i) are in compliance in all material respects with all applicable
Environmental Laws and (ii) possess all permits and other Governmental
Authorizations required under applicable Environmental Laws and are in
compliance with the terms and conditions thereof; (b) Parent and its
Subsidiaries have not received any written notice, whether from a Governmental
Body, citizens group, employee or otherwise, that alleges that any of them is
not in compliance in all material respects with any Environmental Law; (c)
Parent and its Subsidiaries have never sent or transported, or arranged to send
or transport, any Materials of Environmental Concern to a site that, pursuant to
any applicable Environmental Law (1) has been placed on the "National Priorities
List" of hazardous waste sites or any similar state list, (2) is otherwise
designated or identified as a potential site for remediation, cleanup, closure
or other environmental remedial activity, or (3) is subject to a Legal
Requirement to take "removal" or "remedial' action as detailed in any applicable
Environmental Law or to make payment for the cost of cleaning up any site.
3.12 LEGAL PROCEEDINGS; ORDERS.
(a) Except as disclosed in the Parent SEC Documents filed prior
to the date of this Agreement or in Part 3.12 of the Parent Disclosure Schedule,
there is no pending Legal Proceeding, and (to Parent's knowledge) no Person has
overtly threatened to commence any Legal Proceeding: (i) except as would not
reasonably be expected to have a Material Adverse Effect on Parent, that
involves Parent or its Subsidiaries or any of the assets owned or used by any of
them; or any Person whose liability has or may have been retained or assumed, in
any manner, by any of them or (ii) that challenges, or that may have the effect
of preventing, delaying, making illegal or otherwise interfering with, the
Merger or any of the other transactions contemplated by this Agreement.
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(b) Except as disclosed in the Parent SEC Documents filed prior
to the date of this Agreement: (i) there is no order, writ, injunction, judgment
or decree to which Parent or any of its Subsidiaries, or any of the assets owned
or used by any of them, is subject; (ii) to Parent's knowledge, no officer or
key employee of Parent or its Subsidiaries is subject to any order, writ,
injunction, judgment or decree that relates to Parent's or its Subsidiaries'
businesses or to any assets owned or used by Parent or its Subsidiaries; (iii)
to Parent's knowledge, no officer or other employee of Parent or any of its
Subsidiaries is subject to any order, writ, injunction, judgment or decree that
prohibits such officer or other employee from engaging in or continuing any
conduct, activity or practice relating to Parent's or its Subsidiaries'
businesses (except, in the case of any order, writ, injunction, judgment or
decree entered after the date of this Agreement, as would not reasonably be
expected to have a Material Adverse Effect on Parent).
3.13 NON-CONTRAVENTION; CONSENTS. Neither (1) the execution, delivery or
performance of this Agreement or any of the other agreements referred to in this
Agreement by Parent, nor (2) the consummation by Parent of the Merger or any of
the other transactions contemplated by this Agreement, will directly or
indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of (i) any
of the provisions of Parent's or its Subsidiaries' certificates of incorporation
or bylaws, or (ii) any resolution adopted by the stockholders, the board of
directors or any committee of the board of directors of Parent or any of its
Subsidiaries;
(b) contravene, conflict with or result in a violation of any
Legal Requirement or any order, writ, injunction, judgment or decree to which
Parent or any of its Subsidiaries, or any of the assets owned or used by any of
them, is subject;
(c) contravene, conflict with or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate or modify, any Governmental Authorization
that is held by Parent or any of its Subsidiaries;
(d) except as disclosed in Part 3.13 of the Parent Disclosure
Schedule, contravene, conflict with or result in a violation or breach of, or
result in a default under, any provision of any material Contract of Parent or
any of its Subsidiaries; or
(e) except as disclosed in Part 3.13 of the Parent Disclosure
Schedule, result in the imposition or creation of any Encumbrance upon or with
respect to any asset owned or used by Parent or any of its Subsidiaries;
except, in the case of each of paragraphs (b) through (e) above, as will not at
any time be deemed to have a Material Adverse Effect on Parent.
Except as required by the HSR Act or in connection with the Form S-4
Registration Statement, Parent is not and will not be required to make any
material filing with or give any material notice to, or to obtain any material
Consent from, any Governmental Body in connection with (x) the execution and
delivery or performance by Parent of this Agreement or any of the other
agreements referred to in this Agreement or (y) the consummation of the Merger
or any of other
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transactions contemplated by this Agreement.
3.14 BOARD APPROVAL. The Board of Directors of Parent, by resolutions
duly adopted by unanimous vote of those voting at a meeting duly called and held
and not subsequently rescinded or modified in any way (the "Parent Board
Approval"), has duly (a) determined that this Agreement and the Merger are fair
to and in the best interests of Parent and its stockholders and declared the
Merger to be advisable; (b) approved this Agreement and the Merger; and (c)
recommended that the stockholders of Parent adopt this Agreement and directed
that such matter be submitted for consideration by Parent's stockholders at the
Parent Stockholders Meeting.
3.15 NO BROKERS. Parent has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
the Company or Parent to pay any finder's fee, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except as
set forth in Part 3.15 of the Parent Disclosure Schedule. Any fees, commissions
or other payments arising out of the items set forth in Part 3.15 of the Parent
Disclosure Schedule will be borne by Parent.
3.16 SECTION 203 OF THE DGCL NOT APPLICABLE. The board of directors of
Parent approved this Agreement, the other agreements referred to in this
Agreement, the Merger and the other transactions contemplated by this Agreement
on July 14, 2000. At all times on or prior to the Effective Time, the board of
directors of Parent will take all actions within its power so that the
restrictions applicable to business combinations contained in Section 203 of the
DGCL are, and will be, inapplicable to the execution, delivery and performance
of this Agreement and to the consummation of the Merger and the other
transactions contemplated by this Agreement.
3.17 GOVERNMENTAL AUTHORIZATIONS. Parent and its Subsidiaries hold all
Governmental Authorizations necessary to enable them to conduct their respective
businesses substantially in the manner in which such businesses are currently
being conducted, except where the failure to have a Governmental Authorization
will not at any time be deemed to have a Material Adverse Effect on Parent.
Parent and each of its Subsidiaries is in substantial compliance with the terms
and requirements of such Governmental Authorizations.
3.18 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS. All salary, bonus,
vacation, deferred compensation, incentive compensation, stock purchase, stock
option, severance pay, termination pay, death and disability benefits,
hospitalization, medical, life or other insurance, flexible benefits,
supplemental unemployment benefits, profit-sharing, pension or retirement plan,
program or agreement and each other employee benefit plan or arrangement
(collectively, the "Parent Employee Plans") sponsored, maintained, contributed
to or required to be contributed to by Parent or any of its Subsidiaries for the
benefit of any current or former employee of any of them has been operated and
administered in all material respects in accordance with its terms and with
applicable Legal Requirements, including ERISA, the Code and applicable foreign
Legal Requirements. Parent and each of its Subsidiaries have performed, in all
material respects, all of their respective obligations under the Parent Employee
Plans.
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SECTION 4. CERTAIN COVENANTS OF THE COMPANY AND PARENT
4.1 ACCESS AND INVESTIGATION.
(a) During the period from the date of this Agreement through the
Effective Time (the "Pre-Closing Period"), the Company will, and will cause the
respective Representatives of the Acquired Corporations to: (i) provide Parent
and Parent's Representatives with reasonable access to the Acquired
Corporations' Representatives, personnel and assets and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to the Acquired Corporations; and (ii) provide Parent and Parent's
Representatives with such copies of the existing books, records, Tax Returns,
work papers and other documents and information relating to the Acquired
Corporations, and with such additional financial, operating and other data and
information regarding the Acquired Corporations, as Parent may reasonably
request. Without limiting the generality of the foregoing, during the
Pre-Closing Period, the Company will promptly provide Parent with copies of: (A)
all material operating and financial reports prepared by the Acquired
Corporations for the Company's senior management, including (1) copies of the
unaudited monthly consolidated balance sheets of the Acquired Corporations and
the related unaudited monthly consolidated statements of operations, statements
of stockholders' equity and statements of cash flows and (2) copies of any sales
forecasts, marketing plans, development plans, discount reports, write-off
reports, hiring reports and capital expenditure reports prepared for the
Company's senior management; (B) any written materials or communications sent by
or on behalf of the Company to its stockholders; (C) any material notice,
document or other communication sent by or on behalf of any of the Acquired
Corporations to any party to any Acquired Corporation Contract or sent to any of
the Acquired Corporations by any party to any Acquired Corporation Contract
(other than any communication that relates solely to routine commercial
transactions between an Acquired Corporation and the other party to any such
Acquired Corporation Contract and that is of the type sent in the ordinary
course of business and consistent with past practices); (D) any notice, report
or other document filed with or sent to any Governmental Body on behalf of any
of the Acquired Corporations in connection with the Merger or any of the other
transactions contemplated by this Agreement; and (E) any material notice, report
or other document received by any of the Acquired Corporations from any
Governmental Body.
(b) During the period from the date of this Agreement through the
Effective Time (the "Pre-Closing Period"), Parent will, and will cause the
respective Representatives of Parent to: (i) provide the Company and the
Company's Representatives with reasonable access to Parent's Representatives,
personnel and assets and to all existing books, records, Tax Returns, work
papers and other documents and information relating to Parent; and (ii) provide
the Company and the Company's Representatives with such copies of the existing
books, records, Tax Returns, work papers and other documents and information
relating to Parent, and with such additional financial, operating and other data
and information regarding Parent, as the Company may reasonably request.
4.2 OPERATION OF THE COMPANY'S BUSINESS.
(a) During the Pre-Closing Period: (i) the Company will ensure
that each of the Acquired Corporations conducts its business and operations in
the ordinary course and consistent
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with past practices; (ii) the Company will use all reasonable efforts to ensure
that each of the Acquired Corporations preserves intact its current business
organization, keeps available the services of its current officers and employees
and maintains its relations and goodwill with all suppliers, customers,
landlords, creditors, licensors, licensees, employees and other Persons having
business relationships with the respective Acquired Corporations; (iii) the
Company will cause to be provided all notices, assurances and support required
by any Acquired Corporation Contract relating to any Proprietary Asset in order
to ensure that no condition under such Acquired Corporation Contract occurs that
could reasonably be expected to result in or increase the likelihood of, (1) any
transfer or disclosure by any Acquired Corporation of any Acquired Corporation
Source or Object Code, or (2) a release from any escrow of any Acquired
Corporation Source or Object Code that has been deposited or is required to be
deposited in escrow under the terms of such Acquired Corporation Contract; (iv)
the Company will promptly notify Parent of (1) any written or, to the Company's
Knowledge, unwritten notice or other communication from any Person alleging that
the Consent of such Person is or may be required in connection with any of the
transactions contemplated by this Agreement, and (2) any Legal Proceeding
commenced or, to the Company's Knowledge, overtly threatened against, relating
to or involving or otherwise affecting any of the Acquired Corporations that
relates to the consummation of the transactions contemplated by this Agreement;
(v) the Company will (to the extent reasonably requested by Parent) cause its
officers to report to Parent concerning the status of the Company's business.
Notwithstanding anything to the contrary in this Agreement, the Company will be
permitted to, and the Company will not be deemed to have been the subject of a
Material Adverse Effect or to have breached any representation, warranty,
covenant or agreement contained herein, if the Company shall: (i) obtain interim
financing through the sale and issuance of securities constituting, or that as
of the Effective Time will constitute, Company Stock; (ii) discontinue or
dispose of the Offline Publishing Business; (iii) take necessary actions,
including seeking and obtaining the approval of its stockholders, to effect the
Company Charter Amendment; and (iv) pay bonuses to its employees to the extent
such bonuses do not exceed an aggregate of $20,000 to any individual employee
during the Pre-Closing Period. In addition, notwithstanding anything to the
contrary in this Agreement, the Company will not be deemed to have been the
subject of a Material Adverse Effect, or to have breached any representation,
warranty, covenant or agreement contained herein, if National Broadcasting
Company, Inc. ("NBC") exercises its right to discontinue Promotion under
paragraph 2 of the Letter Agreement Re: NBC Sports/Total Sports Joint Venture
dated November 11, 1999 between the Company and NBC Sports, a division of NBC.
The Bridge Financing may be structured so that the closing of such financing is
conditioned upon the satisfaction (or waiver) of all conditions to the Merger
hereunder and/or so that such financing is consummated at the Closing hereunder
but immediately prior to the Effective Time, and, in connection therewith,
Parent will cooperate with the Company as reasonably requested by the Company,
it being acknowledged that the Company will need to prepare an offering
memorandum which contains or incorporates by reference information prepared for
the Joint Proxy Statement/Prospectus and the Form S-4 Registration Statement.
(b) During the Pre-Closing Period, except as expressly permitted
by Section 4.2(a), the Company will not (without the prior written consent of
Parent), and will not permit any of the other Acquired Corporations to:
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(i) declare, accrue, set aside or pay any dividend or
make any other distribution in respect of any shares of capital stock, or
repurchase, redeem or otherwise reacquire any shares of capital stock or other
securities, except for the cancellation of Company Options or Company Warrants
without payment of any consideration by the Company;
(ii) sell, issue, grant or authorize the issuance or
grant of (1) any capital stock or other security, (2) any option, call, warrant
or right to acquire any capital stock or other security, or (3) any instrument
convertible into or exchangeable for any capital stock or other security (except
that the Company may (A) issue Company Stock upon the valid conversion of
convertible securities outstanding as of the date of this Agreement, (B) issue
Company Stock upon the valid exercise of Company Options or Company Warrants
outstanding as of the date of this Agreement, and (C) grant options under its
2000 Stock Plan as described in Part 4.2(b)(ii) of the Company Disclosure
Schedule;
(iii) amend or waive any of its material rights under, or
accelerate the vesting under, any provision of any of the Company's stock option
plans, any provision of any agreement evidencing any outstanding stock option or
any restricted stock purchase agreement, or otherwise modify any of the terms of
any outstanding option, warrant or other security or any related Contract;
(iv) amend or permit the adoption of any amendment to
its certificate of incorporation or bylaws or other charter or organizational
documents, or effect or become a party to any merger, consolidation, share
exchange, business combination, amalgamation, recapitalization, reclassification
of shares, stock split, reverse stock split, division or subdivision of shares,
consolidation of shares or similar transaction;
(v) form any Subsidiary or acquire any equity interest
or other interest in any other Entity;
(vi) make any capital expenditure (except that the
Acquired Corporations may make capital expenditures that, when added to all
other capital expenditures made on behalf of the Acquired Corporations during
the Pre-Closing Period, do not exceed $200,000 in the aggregate);
(vii) enter into or become bound by, or permit any of the
assets owned or used by it to become bound by, any Material Contract, or amend
or terminate, or waive or exercise any material right or remedy under, any
Material Contract;
(viii) acquire, lease or license any right or other asset
from any other Person or sell or otherwise dispose of, or lease or license, any
right or other asset to any other Person (except in each case for immaterial
assets acquired, leased, licensed or disposed of by the Company in the ordinary
course of business and consistent with past practices), or waive or relinquish
any right that is material to the Acquired Corporations, taken as a whole;
(ix) lend money to any Person, or incur or guarantee any
indebtedness make routine borrowings in the ordinary course of business;
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(x) establish, adopt or amend any employee benefit
plan, pay any bonus or make any profit-sharing or similar payment to, or
increase the amount of the wages, salary, commissions, fringe benefits or other
compensation or remuneration payable to, any of its directors, officers or
employees (except that the Company (A) may make routine, reasonable salary
increases in connection with the Company's customary employee review process,
and (B) may pay customary bonus payments and profit sharing payments consistent
with past practices payable in accordance with existing bonus and profit sharing
plans referred to in Part 2.15(a) of the Company Disclosure Schedule);
(xi) hire any new employee at the level of director or
above or with an annual base salary in excess of $100,000, promote any employee
except in order to fill a position vacated after the date of this Agreement, or
engage any consultant or independent contractor for a period that is not
terminable by the Company (without penalty) within 30 days;
(xii) change, in any material respect that is adverse to
the Acquired Corporations, any of its pricing policies, product return policies,
product maintenance polices, service policies, product modification or upgrade
policies, personnel policies or other business policies, or any of its methods
of accounting or accounting practices;
(xiii) make any material Tax election;
(xiv) settle any Legal Proceeding on terms that would
impose any obligation on Parent after the Effective Time without first advising
and consulting with Parent;
(xv) take any other material action outside the ordinary
course of business;
(xvi) take any action that would or would reasonably be
expected to result in (1) any of the conditions to the Merger set forth in
Section 6 not being satisfied or (2) a material delay in the satisfaction of
such conditions; or
(xvii) agree or commit to take any of the actions
described in clauses "(i)" through "(xvi)" of this Section 4.2(b).
4.3 NO SOLICITATION.
(a) The Company will not directly or indirectly, and will not
authorize or permit any of the other Acquired Corporations or any Representative
of any of the Acquired Corporations directly or indirectly to, (i) solicit,
initiate, encourage, induce or facilitate the making, submission or announcement
of any Acquisition Proposal or take any action that could reasonably be expected
to lead to an Acquisition Proposal, (ii) furnish any information regarding any
of the Acquired Corporations to any Person in connection with or in response to
an Acquisition Proposal or an inquiry or indication of interest that could lead
to an Acquisition Proposal, (iii) engage in discussions or negotiations with any
Person with respect to any Acquisition Proposal, (iv) approve, endorse or
recommend any Acquisition Proposal or (v) enter into any letter of intent or
similar document or any Contract contemplating or otherwise relating to any
Acquisition Transaction. Without limiting the generality of the foregoing, the
Company acknowledges and agrees that any action inconsistent with of any of the
provisions set forth in
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the preceding sentence by any Representative of any of the Acquired
Corporations, whether or not such Representative is purporting to act on behalf
of any of the Acquired Corporations, will be deemed to constitute a breach of
this Section 4.3 by the Company.
(b) The Company will promptly (and in no event later than 24
hours after receipt of any Acquisition Proposal, any inquiry or indication of
interest that could reasonably be expected to lead to an Acquisition Proposal or
any request for nonpublic information) advise Parent orally and in writing of
any Acquisition Proposal, any inquiry or indication of interest that could
reasonably be expected to lead to an Acquisition Proposal or any request for
nonpublic information relating to any of the Acquired Corporations (including
the identity of the Person making or submitting such Acquisition Proposal,
inquiry, indication of interest or request, and the terms thereof) that is made
or submitted by any Person during the Pre-Closing Period. The Company will keep
Parent fully informed with respect to the status of any such Acquisition
Proposal, inquiry, indication of interest or request and any modification or
proposed modification thereto.
(c) The Company will immediately cease and cause to be terminated
any existing discussions with any Person that relate to any Acquisition
Proposal.
(d) The Company agrees not to release or permit the release of
any Person from, or to waive or permit the waiver of any provision of, any
confidentiality, "standstill" or similar agreement to which any of the Acquired
Corporations is a party or under which any of the Acquired Corporations has any
rights, and will use its best efforts to enforce or cause to be enforced each
such agreement at the request of Parent.
4.4 OPERATION OF PARENT'S BUSINESS. Except as set forth in Part 4.4 of
the Parent Disclosure Schedule, during the Pre-Closing Period, Parent will not
(without the prior written consent of the Company):
(a) declare, accrue, set aside or pay any dividend or make any
other distribution in respect of any shares of capital stock, purchase, redeem
or otherwise reacquire, directly or indirectly, any shares of capital stock or
other securities (except for repurchases of Parent Common Stock from former
employees or consultants pursuant to contractual rights to do so);
(b) issue any capital stock at less than fair market value (other
than (i) pursuant to any Parent employee stock option plans, (ii) upon
conversion or exercise of presently-outstanding securities convertible into or
exercisable for capital stock or (iii) pursuant to presently-outstanding
contractual rights to acquire such capital stock) or permit any of its
Subsidiaries to effect such an issuance, or effect any split of its capital
stock;
(c) issue any capital stock (other than (i) pursuant to any
Parent employee stock option plans, (ii) upon conversion or exercise of
presently-outstanding securities convertible into or exercisable for capital
stock or (iii) pursuant to presently-outstanding rights to acquire such capital
stock) if the effect of such issuance would be that the Persons that have
executed and delivered to the Company the Parent Stockholder Voting Agreements
would not hold sufficient shares of Parent Common Stock to approve the Merger
and the issuance of Parent Common Stock in the Merger;
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(d) amend or permit the adoption of any amendment to its
certificate of incorporation or bylaws, or effect or become a party to, or
permit any of its Subsidiaries to effect or become a party to, any Acquisition
Transaction;
(e) take any action that would or would reasonably be expected to
result in (i) any of the conditions to the Merger set forth in Section 7 not
being satisfied or (ii) a material delay in the satisfaction of such conditions.
(f) agree or commit to take any of the actions described in
clauses "(a)" through "(d)" of this Section 4.4.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1 FORM S-4 REGISTRATION STATEMENT; JOINT PROXY STATEMENT/PROSPECTUS;
FORM S-3 REGISTRATION STATEMENT.
(a) As promptly as practicable after the date of this Agreement,
Parent and the Company will prepare and cause to be filed with the SEC the Joint
Proxy Statement/Prospectus and Parent will prepare and cause to be filed with
the SEC the Form S-4 Registration Statement, in which the Joint Proxy
Statement/Prospectus will be included as a prospectus. Each of Parent and the
Company will use all reasonable efforts to cause the Form S-4 Registration
Statement and the Joint Proxy Statement/Prospectus to comply with the rules and
regulations promulgated by the SEC, to respond promptly to any comments of the
SEC or its staff and to have the Form S-4 Registration Statement declared
effective under the Securities Act as promptly as practicable after it is filed
with the SEC. Parent will use all reasonable efforts to cause the Joint Proxy
Statement/Prospectus to be mailed to Parent's stockholders, and the Company will
use all reasonable efforts to cause the Joint Proxy Statement/Prospectus to be
mailed to the Company's stockholders, as promptly as practicable after the Form
S-4 Registration Statement is declared effective under the Securities Act. Each
of the Company and Parent will promptly furnish to the other party all
information concerning such party and its stockholders that may be required or
reasonably requested in connection with any action contemplated by this Section
5.1. If the Company or Parent becomes aware of any information, that should be
disclosed in an amendment or supplement to the Form S-4 Registration Statement
or the Joint Proxy Statement/Prospectus, then such party will promptly inform
the other party thereof and will cooperate with such other party in filing such
amendment or supplement with the SEC and, if appropriate, in mailing such
amendment or supplement to the stockholders of the Company and Parent.
(b) Prior to the Effective Time, Parent will use reasonable
efforts to obtain all regulatory approvals needed to ensure that the Parent
Common Stock to be issued in the Merger will be registered or qualified under
the securities law of every jurisdiction of the United States in which any
registered holder of Company Stock has an address of record on the record date
for determining the stockholders entitled to notice of and to vote at the
Company Stockholders' Meeting; provided, however, that Parent will not be
required (i) to qualify to do business as a foreign corporation in any
jurisdiction in which it is not now qualified or (ii) to file a general consent
to service of process in any jurisdiction.
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(c) As promptly as practicable after the date on which it becomes
eligible to register securities on Form S-3, Parent will cause to be filed with
the SEC the Form S-3 Registration Statement to register the resale in brokers'
transactions of the Parent Common Stock received in the Merger by those
stockholders of the Company who will be subject to the resale restrictions set
forth in paragraph (c) of Rule 145 under the Securities Act (the "Rule 145
Sellers"). Parent will use all reasonable efforts to cause the Form S-3
Registration Statement to comply with the rules and regulations promulgated by
the SEC, to respond promptly to any comments of the SEC or its staff and to have
the Form S-3 Registration Statement declared effective under the Securities Act
as promptly as practicable after it is filed with the SEC and in any event prior
to the Closing Date. The Company will keep the Form S-3 Registration Statement
continuously effective under the Securities Act for a period ending one year
after the Closing and during such period will supplement or amend the Form S-3
Registration Statement if and as required by the Securities Act or the rules and
regulations promulgated by the SEC thereunder.
(d) As a condition precedent to using the Form S-3 Registration
Statement, each of the Rule 145 Sellers will enter into an agreement with Parent
containing the following provisions:
(i) In the event that (1) there occurs an event
described in paragraph (ii) below or (2) in the reasonable judgment of Parent,
it becomes advisable to suspend use of the prospectus included in the Form S-3
Registration Statement (the "Resale Prospectus") for a discrete period of time
due to pending material corporate developments or similar material events that
have not yet been publicly disclosed and as to which Parent believes public
disclosure will be prejudicial to Parent, Parent will deliver to the Rule 145
Sellers a certificate to such effect, signed by an authorized officer of Parent.
Each of the Rule 145 Sellers will refrain from executing any sales of securities
pursuant to the Resale Prospectus from the time of receipt of such certificate
until such Rule 145 Seller is advised in writing by Parent that the Resale
Prospectus may again be used and has received copies of any additional or
supplemental filings that are incorporated or deemed incorporated by reference
in the Resale Prospectus. Parent will use all reasonable efforts to ensure that
the use of the Resale Prospectus may be resumed as soon as practicable and, in
the case of a pending development or event referred to above, as soon as the
earlier of (1) public disclosure of such pending material corporate development
or similar material event or (2) in the judgment of Parent, public disclosure of
such material corporate development or similar material event would not be
prejudicial to Parent. Parent will be entitled to exercise its right to suspend
use of the Resale Prospectus under this Section 5.1(d)(i) only for a period or
periods not to exceed an aggregate of 30 days in any three-month period or 90
days in any 12-month period.
(ii) The events referred to in the first sentence of
paragraph (i) above are: (i) any request by the SEC for amendments or
supplements to the Form S-3 Registration Statement or the Resale Prospectus or
for additional information; (ii) the issuance by the SEC of any stop order
suspending the effectiveness of the Form S-3 Registration Statement or the
initiation or overt threatening of any proceedings for that purpose; (iii) the
receipt by Parent of any notification with respect to the suspension of the
qualification or exemption from qualification of the Parent Common Stock for
sale in any jurisdiction or the initiation or overt threatening of any
proceeding for such purpose; and (iv) the existence of any fact or occurrence of
any event that makes any statement of a material fact in the Form S-3
Registration Statement or the Resale Prospectus or any document incorporated or
deemed to be incorporated by
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reference therein untrue or that would require the making of any changes in the
Form S-3 Registration Statement or Resale Prospectus in order that, in the case
of the Form S-3 Registration Statement, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and that in
the case of the Resale Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
5.2 COMPANY STOCKHOLDERS' MEETING.
(a) The Company will take all action necessary under all
applicable Legal Requirements to call, give notice of and hold a meeting of the
holders of Company Stock to vote on a proposal to adopt this Agreement (the
"Company Stockholders' Meeting"). The Company Stockholders' Meeting will be held
as promptly as practicable after the Form S-4 Registration Statement is declared
effective under the Securities Act. The Company will ensure that all proxies
solicited in connection with the Company Stockholders' Meeting are solicited in
compliance with all applicable Legal Requirements.
(b) Subject to Section 5.2(c): (i) the Joint Proxy
Statement/Prospectus will include a statement to the effect that the board of
directors of the Company recommends that the Company's stockholders vote to
adopt this Agreement at the Company Stockholders' Meeting (the recommendation of
the Company's board of directors that the Company's stockholders vote to adopt
this Agreement being referred to as the "Company Board Recommendation"); and
(ii) the Company Board Recommendation will not be withdrawn or modified in a
manner adverse to Parent, and no resolution by the board of directors of the
Company or any committee thereof to withdraw or modify the Company Board
Recommendation in a manner adverse to Parent will be adopted or proposed.
(c) Notwithstanding anything to the contrary contained in Section
5.2(b), at any time prior to the adoption of this Agreement by the Required
Company Stockholder Vote, the Company Board Recommendation may be withdrawn or
modified in a manner adverse to Parent if the Company's board of directors
determines in good faith, after having taken into account the written advice of
the Company's outside legal counsel, that the withdrawal or modification of the
Company Board Recommendation is required in order for the Company's board of
directors to comply with its fiduciary obligations to the Company's stockholders
under applicable law.
(d) The Company's obligation to call, give notice of and hold the
Company Stockholders' Meeting in accordance with Section 5.2(a) will not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission of any Acquisition Proposal or by any withdrawal or modification of
the Company Board Recommendation.
5.3 PARENT STOCKHOLDERS' MEETING.
(a) Parent will take all action necessary to call, give notice of
and hold a meeting of the holders of Parent Common Stock to vote on the issuance
of Parent Common Stock in the Merger (the "Parent Stockholders' Meeting"). The
Parent Stockholders' Meeting will be held as
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promptly as practicable after the Form S-4 Registration Statement is declared
effective under the Securities Act. Parent will ensure that all proxies
solicited in connection with the Parent Stockholders' Meeting are solicited in
compliance with all applicable Legal Requirements.
(b) Subject to Section 5.3(c): (i) the Joint Proxy
Statement/Prospectus will include a statement to the effect that the board of
directors of Parent recommends that Parent's stockholders vote to approve the
issuance of Parent Common Stock in the Merger (the recommendation of Parent's
board of directors that Parent's stockholders vote to approve the issuance of
Parent Common Stock in the Merger being referred to as the "Parent Board
Recommendation"); and (ii) the Parent Board Recommendation will not be withdrawn
or modified in a manner adverse to the Company, and no resolution by the board
of directors of Parent or any committee thereof to withdraw or modify the Parent
Board Recommendation in a manner adverse to the Company will be adopted or
proposed.
(c) Notwithstanding anything to the contrary contained in Section
5.3(b)(i), at any time prior to the approval of the issuance of Parent Common
Stock in the Merger by the stockholders of Parent, the Parent Board
Recommendation may be withdrawn or modified if the board of directors of Parent
concludes in good faith, after having taken into account the written advice of
Parent's outside legal counsel, that the withdrawal or modification of the
Parent Board Recommendation is required in order for the board of directors of
Parent to comply with its fiduciary obligations to Parent's stockholders under
applicable law.
(d) Parent's obligation to call, give notice of and hold the
Parent Stockholders' Meeting will not be limited or otherwise affected by any
withdrawal or modification of the Parent Board Recommendation.
5.4 REGULATORY APPROVALS. Each party will use all reasonable efforts to
file, as soon as practicable after the date of this Agreement, all notices,
reports and other documents required to be filed by such party with any
Governmental Body with respect to the Merger and the other transactions
contemplated by this Agreement, and to submit promptly any additional
information requested by any such Governmental Body. Without limiting the
generality of the foregoing, the Company and Parent will, promptly after the
date of this Agreement, prepare and file the notifications required under the
HSR Act and any applicable foreign antitrust laws or regulations in connection
with the Merger. The Company and Parent will respond as promptly as practicable
to (i) any inquiries or requests received from the Federal Trade Commission or
the Department of Justice for additional information or documentation and (ii)
any inquiries or requests received from any state attorney general, foreign
antitrust authority or other Governmental Body in connection with antitrust or
related matters. Each of the Company and Parent will (1) give the other party
prompt notice of the commencement or overt threat of commencement of any Legal
Proceeding by or before any Governmental Body with respect to the Merger or any
of the other transactions contemplated by this Agreement, (2) keep the other
party informed as to the status of any such Legal Proceeding or threat, and (3)
promptly inform the other party of any communication to or from the Federal
Trade Commission, the Department of Justice or any other Governmental Body
regarding the Merger. Except as may be prohibited by any Governmental Body or by
any Legal Requirement, (a) the Company and Parent will consult and cooperate
with one another, and will consider in good faith the views of one another, in
connection with any analysis, appearance, presentation, memorandum, brief,
argument, opinion or proposal made or
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submitted in connection with any Legal Proceeding under or relating to the HSR
Act or any other foreign, federal or state antitrust or fair trade law, and (b)
in connection with any such Legal Proceeding, each of the Company and Parent
will permit authorized Representatives of the other party to be present at each
meeting or conference relating to any such Legal Proceeding and to have access
to and be consulted in connection with any document, opinion or proposal made or
submitted to any Governmental Body in connection with any such Legal Proceeding.
5.5 STOCK OPTIONS AND WARRANTS.
(a) Subject to Section 5.5(c), at the Effective Time, each
Company Option which is outstanding and unexercised immediately prior to the
Effective Time, whether or not vested, will be converted into and become an
option to purchase Parent Common Stock, and Parent will assume each such Company
Option in accordance with the terms (as in effect as of the date of this
Agreement) of the stock option plan under which it was issued and the terms of
the stock option agreement by which it is evidenced. Accordingly, from and after
the Effective Time, (i) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (ii) the number of shares of Parent
Common Stock subject to each such Company Option will be equal to the number of
shares of Company Stock subject to such Company Option immediately prior to the
Effective Time multiplied by the Exchange Ratio applicable to the class or
series of Company Stock for which such Company Option was exercisable
immediately prior to the Effective Time, rounding down to the nearest whole
share, (iii) the per-share exercise price under each such Company Option will be
adjusted by dividing the per-share exercise price under such Company Option by
the applicable Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such Company Option will continue in full
force and effect and the term, exercisability, vesting schedule and other
provisions of such Company Option will otherwise remain unchanged; provided,
however, that each Company Option assumed by Parent in accordance with this
Section 5.5(a) will, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, division or subdivision of
shares, stock dividend, reverse stock split, consolidation of shares,
reclassification, recapitalization or other similar transaction subsequent to
the Effective Time. The assumption of Company Options provided for in this
Section 5.5(a) is intended to be effected in a manner which is consistent with
Section 424(a) of the Code with respect to Company Options that are intended to
be "incentive stock options." In connection with the assumption or substitution
of Company Options, Parent intends to take such actions as may be necessary to
ensure that, prior to the expiration of one year after the Closing Date, no
shares of Parent Common Stock received upon exercise of assumed or substituted
Company Options may be the subject of a Disposition (as defined in Section 1.9)
without the prior written consent of Parent, except that each optionee may
dispose of: (a) up to an aggregate of 10% of the total number of shares of
Parent Common Stock covered by such options at any time after the Closing Date;
(b) up to a cumulative aggregate of 47% of such shares at any time after the
expiration of 180 days after the Closing Date; and (c) up to a cumulative
aggregate of 72% of such shares at any time after the expiration of 270 days
after the Closing Date. Parent, in its sole discretion, may legend the
certificates representing such shares of Parent Common Stock to give effect to
any applicable legal or contractual restrictions on resale. Parent will file
with the SEC, no later than 10 days after the Closing Date, a registration
statement on Form S-8 relating to the shares of Parent Common Stock issuable
with respect to the Company Options assumed by Parent in accordance with this
Section 5.5(a) or replaced with new options by Parent in accordance with Section
5.5(c);
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provided, however, that Parent will have no obligation to register, at any point
in time, a greater number of shares than could then be resold in compliance with
the limitations set forth above in this Section 5.5(a).
(b) Subject to Section 5.5(c), at the Effective Time, each
Company Warrant which survives the Merger will be assumed by Parent in
accordance with the terms (as in effect as of the date of this Agreement) of any
agreement by which such Company Warrant is evidenced. All rights with respect to
Company Common Stock under outstanding Company Warrants will thereupon be
converted into rights with respect to Parent Common Stock. Accordingly, from and
after the Effective Time, (i) each Company Warrant assumed by Parent may be
exercised solely for shares of Parent Common Stock, (ii) the number of shares of
Parent Common Stock subject to each such assumed Company Warrant will be equal
to the number of shares of Company Common Stock that were subject to such
Company Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio applicable to the class or series of Company Stock for which such
Company Warrant was exercisable immediately prior to the Effective Time, rounded
up to the nearest whole number of shares of Parent Common Stock, (iii) the per
share exercise price for the Parent Common Stock issuable upon exercise of each
such assumed Company Warrant will be determined by dividing the exercise price
per share of Company Common Stock subject to such Company Warrant, as in effect
immediately prior to the Effective Time, by the Exchange Ratio for which such
Company Warrant was exercisable immediately prior to the Effective Time, and
rounding the resulting exercise price up to the nearest whole cent, and (iv) all
restrictions on the exercise of each such assumed Company Warrant will continue
in full force and effect, and the term, exercisability, vesting schedule and
other provisions of such Company Warrant will otherwise remain unchanged;
provided, however, that each such assumed Company Warrant will, in accordance
with its terms, be subject to further adjustment as appropriate to reflect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction effected by Parent after the Effective Time.
(c) Notwithstanding anything to the contrary contained in this
Section 5.5, in lieu of assuming outstanding Company Options in accordance with
Section 5.5(a) or outstanding Company Warrants in accordance with Section
5.5(b), Parent may, at its election, cause such outstanding Company Options or
Company Warrants to be replaced by issuing reasonably equivalent replacement
stock options or warrants (as the case may be) in substitution therefor.
(d) Prior to the Effective Time, the Company will take all action
that may be necessary (under the plans pursuant to which Company Options are
outstanding and otherwise) to effectuate the provisions of this Section 5.5 and
to ensure that, from and after the Effective Time, holders of Company Options
and Company Warrants have no rights with respect thereto other than those
specifically provided in this Section 5.5.
5.6 EMPLOYEE BENEFITS.
(a) Parent agrees that all employees of the Acquired Corporations
who continue employment with Parent or any Subsidiary of Parent after the
Effective Time ("Continuing Employees") will be eligible to continue to
participate in Parent's health and welfare benefit plans; provided, however,
that (i) nothing in this Section 5.6 or elsewhere in this Agreement will limit
the right of Parent to amend or terminate any such health or welfare benefit
plan at any
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time, and (ii) if Parent terminates any such health or welfare benefit plan,
then (upon expiration of any appropriate transition period), the Continuing
Employees will be eligible to participate in Parent's health and welfare benefit
plans, to substantially the same extent as similarly situated employees of
Parent. Nothing in this Section 5.6 or elsewhere in this Agreement will be
construed to create a right in any employee to employment with Parent or any
other Subsidiary of Parent and the employment of each Continuing Employee will
be "at will" employment.
(b) The Company agrees to take (or cause to be taken) all actions
necessary or appropriate to terminate, effective immediately prior to the
Effective Time, any employee benefit plan sponsored by any of the Acquired
Corporations (or in which any of the Acquired Corporations participate) that
contains a cash or deferred arrangement intended to qualify under Section 401(k)
of the Code.
(c) Part 5.6(c) of the Company Disclosure Schedule sets forth
certain existing commitments to pay bonuses to employees of the Company who
remain employed by the Company (or by Parent or any of Parent's affiliates)
through December 15, 2000 (the "Stay Bonuses"). Parent agrees to pay the
specified Stay Bonuses to employees who remain employed by the Company (or by
Parent or any of Parent's affiliates) through December 15, 2000. In addition,
Parent agrees to pay the specified Stay Bonuses, together with severance as
specified in Part 5.6 of the Parent Disclosure Schedule, to any of such
employees whose employment is terminated by Parent, other than for cause, prior
to December 15, 2000.
5.7 DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE.
(a) All rights to indemnification existing in favor of any Person
who is now, or had been at any time prior to the date of this Agreement or who
becomes prior to the Effective Time, a director or officer of any of the
Acquired Corporations (the "Indemnified Persons") for acts and omissions
occurring prior to the Effective Time, as provided in the Company's certificate
of incorporation and bylaws (as in effect as of the date of this Agreement) and
as provided in any indemnification agreements between the Company and the
Indemnified Persons (as in effect as of the date of this Agreement) in the forms
disclosed by the Company to Parent prior to the date of this Agreement,
including, in the case of Gary Stevens, any replacement for such agreement
containing substantially identical indemnification provisions, will survive the
Merger and will be observed by Parent to the fullest extent available under
applicable law for a period of six years from the Effective Time.
(b) Parent will include and cause to be maintained in effect in
its (or any successor's) certificate of incorporation and bylaws after the
Effective Time, provisions regarding elimination of liability of directors,
indemnification of officers, directors and employees and advancement of expenses
which are, in the aggregate, no less advantageous to the intended beneficiaries
than the corresponding provisions contained as of the date of this Agreement in
the certificate of incorporation and bylaws of the Company.
(c) From the Effective Time until the sixth anniversary of the
Effective Time, Parent will maintain in effect, for the benefit of the
Indemnified Persons with respect to acts or omissions occurring prior to the
Effective Time, the existing policy of directors' and officers' liability
insurance maintained by the Company as of the date of this Agreement in the form
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disclosed by the Company to Parent prior to the date of this Agreement (the
"Existing Policy"); provided, however, that (i) Parent may substitute for the
Existing Policy a policy or policies of comparable coverage, and (ii) Parent
will not be required to pay annual premiums for the Existing Policy (or for any
substitute policies) in excess of $60,000 in the aggregate. In the event any
future annual premiums for the Existing Policy (or any substitute policies)
exceeds $60,000 in the aggregate, Parent will be entitled to reduce the amount
of coverage of the Existing Policy (or any substitute policies) to the amount of
coverage that can be obtained for an annual premium equal to $60,000.
(d) The obligations of Parent under this Section 5.7 may not be
terminated or modified in such a manner as to adversely affect any of the
Indemnified Persons without the consent of each such affected Indemnified Person
(it being expressly agreed that the Indemnified Persons are intended third party
beneficiaries of this Section 5.7).
5.8 PROVISION OF INFORMATION. During the Pre-Closing Period, each of the
Company and Parent will promptly notify the other party in writing of: (i) the
discovery by it of any event, condition, fact or circumstance that occurred or
existed on or prior to the date of this Agreement and that caused or constitutes
a material inaccuracy in any representation or warranty made by it in this
Agreement; (ii) any material breach of any covenant or obligation of it; and
(iii) any event, condition, fact or circumstance that, considered together with
all other events, conditions, facts and circumstances, would make the timely
satisfaction of any of the conditions set forth in Section 6 or Section 7
impossible or unlikely or is deemed to have a Material Adverse Effect on the
Acquired Corporations (in the case of the Company) or a Material Adverse Effect
on Parent (in the case of Parent). Without limiting the generality of the
foregoing, each of the Company and Parent will promptly advise the other party
in writing of any Legal Proceeding or material claim overtly threatened,
commenced or asserted against or with respect to any of the Acquired
Corporations (in the case of Parent) or Parent. No notification given pursuant
to this Section 5.8 will limit or otherwise affect any of the representations,
warranties, covenants or obligations of the parties contained in this Agreement.
5.9 ADDITIONAL AGREEMENTS.
(a) Subject to Section 5.9(b), Parent and the Company will use
all reasonable efforts to take, or cause to be taken, all actions necessary to
consummate the Merger and make effective the other transactions contemplated by
this Agreement. Without limiting the generality of the foregoing, but subject to
Section 5.9(b), each party to this Agreement (i) will make all filings (if any)
and give all notices (if any) required to be made and given by such party in
connection with the Merger and the other transactions contemplated by this
Agreement, (ii) will use all reasonable efforts to obtain each Consent (if any)
required to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such party in connection with the Merger or any of
the other transactions contemplated by this Agreement, and (iii) will use all
reasonable efforts to lift any restraint, injunction or other legal bar to the
Merger. Each of the Company and Parent will promptly deliver to the other party
a copy of each such filing made, each such notice given and each such Consent
obtained during the Pre-Closing Period.
(b) Notwithstanding anything to the contrary contained in this
Agreement, Parent will not have any obligation under this Agreement: (i) to
dispose or transfer or cause any of its
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Subsidiaries to dispose of or transfer any assets, or to commit to cause any of
the Acquired Corporations to dispose of any assets; (ii) to discontinue or cause
any of its Subsidiaries to discontinue offering any product or service, or to
commit to cause any of the Acquired Corporations to discontinue offering any
product or service; (iii) to license or otherwise make available, or cause any
of its Subsidiaries to license or otherwise make available, to any Person, any
technology, software or other Proprietary Asset, or to commit to cause any of
the Acquired Corporations to license or otherwise make available to any Person
any technology, software or other Proprietary Asset; (iv) to hold separate or
cause any of its Subsidiaries to hold separate any assets or operations (either
before or after the Closing Date), or to commit to cause any of the Acquired
Corporations to hold separate any assets or operations; or (v) to make or cause
any of its Subsidiaries to make any commitment to any Governmental Body
regarding its future operations or the future operations of any of the Acquired
Corporations,.
5.10 DISCLOSURE. Parent and the Company will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the Merger or any of the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the Company will
not, and will not permit any of its Subsidiaries or any Representative of any of
the Acquired Corporations to, make any public disclosure regarding the Merger or
any of the other transactions contemplated by this Agreement unless (a) Parent
shall have approved such disclosure or (b) the Company shall have been advised
in writing by its outside legal counsel that such disclosure is required by
applicable law.
5.11 LISTING. Parent will use all reasonable efforts to cause the shares
of Parent Common Stock being issued in the Merger to be approved for listing
(subject to notice of issuance) on the Nasdaq National Market no later than the
Closing Date.
5.12 TAX MATTERS. At or prior to the filing of the Form S-4 Registration
Statement, the Company and Parent will execute and deliver to Cooley Godward LLP
and to Clifford Chance, Rogers & Wells LLP tax representation letters in
customary form. Parent and the Company will each confirm to Cooley Godward LLP
and to Clifford Chance, Rogers & Wells LLP the accuracy and completeness as of
the Effective Time of the tax representation letters delivered pursuant to the
immediately preceding sentence. Parent and the Company will use all reasonable
efforts prior to and after the Effective Time to cause the Merger to qualify as
a tax-free reorganization under Section 368(a)(1) of the Code. Following
delivery of the tax representation letters pursuant to the first sentence of
this Section 5.12, each of Parent and the Company will use its reasonable
efforts to cause Cooley Godward LLP and Clifford Chance, Rogers & Wells LLP,
respectively, to deliver to it a tax opinion satisfying the requirements of Item
601 of Regulation S-K promulgated under the Securities Act. In rendering such
opinions, each of such counsel will be entitled to rely on the tax
representation letters referred to in this Section 5.12. For a period of at
least two years from the date the Merger becomes effective, except for actions
taken in the ordinary course of business or as otherwise required by applicable
Law, Parent and its Subsidiaries will not sell, transfer, distribute or
otherwise dispose of any of the operating assets acquired from the Company in
the Merger, whether by merger or otherwise, in a transaction or series of
transactions that would cause the Merger to fail to satisfy the continuity of
business enterprise requirements of a reorganization under Section 368(a) of the
Code or the applicable Treasury Regulations.
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5.13 LETTERS OF THE COMPANY'S ACCOUNTANTS. The Company will use all
reasonable efforts to cause to be delivered to Parent:
(a) a letter from Deloitte & Touche LLP to Parent, dated no more
than two business days before the date on which the Form S-4 Registration
Statement becomes effective and reasonably satisfactory in form and substance to
Parent, that is customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4 Registration Statement; and
(b) a letter from Deloitte & Touche LLP to Parent, dated the
Closing Date and reasonably satisfactory in form and substance to Parent,
updating the letter referred to in paragraph (a) above;
provided, however, that, in the case of each of such letters, the Company will
have such obligation only to the extent Parent is using reasonable efforts to
cause a comparable letter to be delivered by PricewaterhouseCoopers LLP.
5.14 RESIGNATION OF OFFICERS AND DIRECTORS. The Company will use all
reasonable efforts to obtain and deliver to Parent on or prior to the Closing
Date the resignation of each officer and director of each of the Acquired
Corporations, effective no later than the Effective Time.
5.15 ELECTION OF DIRECTOR. Parent will use all reasonable efforts to
secure the election of an individual who is mutually acceptable to Parent and
the Company to Parent's board of directors, effective no later than the
Effective Time.
5.16 TERMINATION OF OBLIGATIONS UNDER CERTAIN AGREEMENTS. Prior to the
Closing Date, the Company will take and procure such actions as may be necessary
so that (a) all convertible promissory notes issued by the Company and
outstanding as of the date of this Agreement and all other securities issued by
the Company in connection with the Bridge Financing will be converted into
Company Stock on or before the Effective Time, and (b) from and after the
Effective Time, Parent will have no obligations under the Management Rights
Agreement dated as of November 12, 1999 between the Company and TCV III(Q), L.P.
and no obligations that would restrict its capitalization or business, or the
issuance, transfer or voting of its securities, under any provision of the
agreements identified in items (3) and (5)-(12) of Part 2.3(a) of the Company
Disclosure Schedule. Prior to the Closing Date, the Company will use all
reasonable efforts to ensure that, from and after the Effective Time, Parent
will have no other obligations under the agreements identified in items (3) and
(5)-(12) of Part 2.3(a) of the Company Disclosure Schedule.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligation of Parent to effect the Merger and otherwise consummate
the transactions contemplated by this Agreement is subject to the satisfaction,
at or prior to the Closing, of each of the following conditions (each of which
may be waived in whole or in part by Parent in its sole discretion):
6.1 ACCURACY OF REPRESENTATIONS.
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(a) The representations and warranties of the Company contained
in this Agreement shall have been accurate in all respects as of the date of
this Agreement, except that any inaccuracies in such representations and
warranties will be disregarded if the circumstances giving rise to all such
inaccuracies (considered collectively) do not constitute, and could not
reasonably be expected to have, a Material Adverse Effect on the Acquired
Corporations; provided, however that, for purposes of determining the accuracy
of such representations and warranties, (i) all "Material Adverse Effect"
qualifications and other materiality qualifications, and any similar
qualifications, contained in such representations and warranties will be
disregarded and (ii) any update of or modification to the Company Disclosure
Schedule made or purported to have been made after the date of this Agreement
will be disregarded.
(b) The representations and warranties of the Company contained
in this Agreement shall be accurate in all respects as of the Closing Date as if
made on and as of the Closing Date, except that any inaccuracies in such
representations and warranties will be disregarded if the circumstances giving
rise to all such inaccuracies (considered collectively) do not constitute, and
could not reasonably be expected to have, a Material Adverse Effect on the
Acquired Corporations; provided, however that, for purposes of determining the
accuracy of such representations and warranties, (i) all "Material Adverse
Effect" qualifications and other materiality qualifications, and any similar
qualifications, contained in such representations and warranties will be
disregarded and (ii) any update of or modification to the Company Disclosure
Schedule made or purported to have been made after the date of this Agreement
will be disregarded.
6.2 PERFORMANCE OF COVENANTS. Each covenant or obligation that the
Company is required to comply with or to perform at or prior to the Closing
shall have been complied with and performed in all material respects.
6.3 EFFECTIVENESS OF FORM S-4 REGISTRATION STATEMENT. The Form S-4
Registration Statement shall have become effective in accordance with the
provisions of the Securities Act, and no stop order shall have been issued, and
no proceeding for that purpose shall have been initiated or be overtly
threatened, by the SEC with respect to the Form S-4 Registration Statement.
6.4 STOCKHOLDER APPROVAL.
(a) This Agreement shall have been duly adopted by the Required
Company Stockholder Vote.
(b) The issuance of Parent Common Stock in the Merger shall have
been duly approved by the Required Parent Stockholder Vote.
(c) The holders of Company Stock representing the right to
receive at least 90% of the Merger Consideration Shares shall have either voted
such shares in favor of the adoption of this Agreement and approval of the
Merger or effectively withdrawn or lost (through failure to perfect or
otherwise) the right to exercise dissenter's or appraisal rights with respect to
such shares in connection with the Merger.
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6.5 CONSENTS. Each of the Consents identified in Part 6.5 of the Company
Disclosure Schedule shall have been obtained and shall be in full force and
effect.
6.6 DOCUMENTS. Parent shall have received the following documents:
(a) a certificate, dated the Closing Date and executed on behalf
of the Company by its Chief Executive Officer and Chief Financial Officer,
confirming that the conditions set forth in Sections 6.1, 6.2, 6.4(a), 6.5 and
6.8 have been duly satisfied
(b) a legal opinion of Wyrick Robbins Yates & Ponton LLP, dated
the Closing Date, substantially in the form of Exhibit D; and
(c) the written resignations of all officers and directors of
each of the Acquired Corporations, effective no later than the Effective Time.
6.7 EMPLOYEES. Unless Parent shall have expressed an intention not to
continue a particular individual's employment, none of the individuals
identified in Part 2.15(o) of the Company Disclosure Schedule shall have either
ceased to be employed by the Company or expressed to Parent an intention to
terminate employment with the Company. None of the Acquired Corporations will
have any liability or obligation to be satisfied or performed after the
Effective Time under or with respect to the termination of the employment
agreements identified in Part 2.10(a) of the Company Disclosure Schedule, except
to the extent the Company has obligations that survive the Merger under the
terms of the agreements with Gary Stevenson identified in paragraphs (3) and (4)
of Part 2.10(a)(i)(A) of the Company Disclosure Schedule.
6.8 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have occurred or arisen any event, condition, fact or circumstance
that is deemed to have a Material Adverse Effect on the Acquired Corporations.
6.9 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and any Consent
required under any applicable foreign antitrust law or regulation shall have
been obtained.
6.10 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
6.11 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement applicable to the Merger
that makes consummation of the Merger illegal.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligation of the Company to effect the Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of the following conditions (each of
which may be waived in whole or in part by the Company in its sole discretion):
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7.1 ACCURACY OF REPRESENTATIONS.
(a) The representations and warranties of Parent contained in
this Agreement shall have been accurate in all respects as of the date of this
Agreement, except that any inaccuracies in such representations and warranties
will be disregarded if the circumstances giving rise to all such inaccuracies
(considered collectively) do not constitute, and could not reasonably be
expected have, a Material Adverse Effect on Parent; provided, however, that, for
purposes of determining the accuracy of such representations and warranties as
of the Closing Date, all "Material Adverse Effect" qualifications and other
materiality qualifications, and any similar qualifications, contained in such
representations and warranties will be disregarded.
(b) The representations and warranties of Parent contained in
this Agreement shall be accurate in all respects as of the Closing Date as if
made on and as of the Closing Date, except that any inaccuracies in such
representations and warranties will be disregarded if the circumstances giving
rise to all such inaccuracies (considered collectively) do not constitute, and
could not reasonably be expected have, a Material Adverse Effect on Parent;
provided, however, that, for purposes of determining the accuracy of such
representations and warranties as of the Closing Date, all "Material Adverse
Effect" qualifications and other materiality qualifications, and any similar
qualifications, contained in such representations and warranties will be
disregarded.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations that
Parent is required to comply with or to perform at or prior to the Closing shall
have been complied with and performed in all material respects.
7.3 EFFECTIVENESS OF REGISTRATION STATEMENTS. The Form S-4 Registration
Statement and the Form S-3 Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order shall
have been issued, and no proceeding for that purpose shall have been initiated
or be overtly threatened, by the SEC with respect to the Form S-4 Registration
Statement or the Form S-3 Registration Statement.
7.4 STOCKHOLDER APPROVAL.
(a) This Agreement shall have been duly adopted by the Required
Company Stockholder Vote.
(b) The issuance of Parent Common Stock in the Merger shall have
been duly approved by the Required Parent Stockholder Vote.
7.5 DOCUMENTS. The Company shall have received the following documents:
(a) a legal opinion of Clifford Chance Rogers & Wells LLP, dated
the Closing Date, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368 of the Code (it being understood that in
rendering such opinion, Clifford Chance Rogers & Wells LLP may rely upon the tax
representation letters referred to in Section 5.12;
(b) a legal opinion of Cooley Godward LLP, dated the Closing
Date, substantially in the form of Exhibit E; and
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(c) a certificate executed on behalf of Parent by an executive
officer of Parent, confirming that conditions set forth in Sections 7.1, 7.2,
7.4(b) and 7.6 have been duly satisfied.
7.6 NO MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there
shall not have occurred or arisen any event, condition, fact or circumstance
that is deemed to have a Material Adverse Effect on Parent.
7.7 HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated and any Consent
required under any applicable foreign antitrust law or regulation shall have
been obtained.
7.8 LISTING. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing (subject to notice of issuance) on
the Nasdaq National Market.
7.9 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Merger by
the Company shall have been issued by any court of competent jurisdiction and
remain in effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Merger that makes consummation of the Merger by the Company
illegal.
7.10 ELECTION OF DIRECTOR. An individual who is mutually acceptable to
Parent and the Company shall have been elected to Parent's board of directors,
effective no later than the Effective Time.
7.11 FINANCING. Parent shall have completed one or more transactions
with investors in which Parent shall have received cash proceeds equal to at
least $27,500,000.
SECTION 8. TERMINATION
8.1 TERMINATION. This Agreement may be terminated prior to the Effective
Time (whether before or after adoption of this Agreement by the Company's
stockholders and whether before or after approval of the issuance of Parent
Common Stock in the Merger by Parent's stockholders):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Merger shall not have
been consummated by December 31, 2000; provided, however, that (i) Parent will
not be permitted to terminate this Agreement pursuant to this Section 8.1(b) if
the failure to consummate the Merger by December 31, 2000 is attributable to (1)
a failure on Parent's part to perform any covenant in this Agreement required to
be performed by Parent at or prior to the Effective Time or (2) Parent's failure
to obtain the Required Parent Stockholder Vote by reason of the breach of any of
the Parent Stockholder Voting Agreements (which failure will be deemed a breach
of this Agreement by Parent), and (ii) the Company will not be permitted to
terminate this Agreement pursuant to this Section 8.1(b) if the failure to
consummate the Merger by December 31, 2000 is attributable to (1) a failure on
the Company's part to perform any covenant in this Agreement required to be
performed by the Company at or prior to the Effective Time or (2) the Company's
failure to obtain the Required Company Stockholder Vote by reason of the breach
of any of the
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Company Stockholder Voting Agreements (which failure will be deemed a breach of
this Agreement by the Company);
(c) by either Parent or the Company if a court of competent
jurisdiction or other Governmental Body shall have issued a final and
non-appealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Merger;
(d) by either Parent or the Company if (i) the Company
Stockholders' Meeting (including any adjournments and postponements thereof)
shall have been held and completed and the Company's stockholders shall have
taken a final vote on a proposal to adopt this Agreement, and (ii) this
Agreement shall not have been adopted at the Company Stockholders' Meeting (and
shall not have been adopted at any adjournment or postponement thereof) by the
Required Company Stockholder Vote; provided, however, that (A) a party will not
be permitted to terminate this Agreement pursuant to this Section 8.1(d) if the
failure to have this Agreement adopted by the Required Company Stockholder Vote
is attributable to a failure on the part of such party to perform any covenant
in this Agreement required to be performed by such party at or prior to the
Effective Time, and (B) the Company will not be permitted to terminate this
Agreement pursuant to this Section 8.1(d) (1) if the failure to have this
Agreement adopted by the Required Company Stockholder Vote is attributable to
the breach of any of the Company Stockholder Voting Agreements (which failure
will be deemed a breach of this Agreement by the Company) and (2) in any event,
unless the Company shall have paid to Parent the fee required to be paid to
Parent pursuant to Section 8.3(b);
(e) by either Parent or the Company if (i) the Parent
Stockholders' Meeting (including any adjournments and postponements thereof)
shall have been held and completed and Parent's stockholders shall have taken a
final vote on a proposal to adopt this Agreement, and (ii) this Agreement shall
not have been adopted at the Parent Stockholders' Meeting (and shall not have
been approved at any adjournment or postponement thereof) by the Required Parent
Stockholder Vote; provided, however, that (A) a party will not be permitted to
terminate this Agreement pursuant to this Section 8.1(e) if the failure to have
this Agreement adopted by the Required Parent Stockholder Vote is attributable
to a failure on the part of the party seeking to terminate this Agreement to
perform any covenant in this Agreement required to be performed by such party at
or prior to the Effective Time, and (B) Parent will not be permitted to
terminate this Agreement pursuant to this Section 8.1(e) (1) if the failure to
have this Agreement adopted by the Required Parent Stockholder Vote is
attributable to the breach of any of the Parent Stockholder Voting Agreements
(which failure will be deemed a breach of this Agreement by Parent) and (2) in
any event, unless Parent shall have paid to the Company the fee required to be
paid to the Company pursuant to Section 8.3(b);
(f) by Parent if (i) any of the Company's representations and
warranties contained in this Agreement shall be inaccurate as of the date of
this Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), in either case
after giving effect to the proviso to Section 6.1, such that the condition set
forth in Section 6.1 would not be satisfied, or (ii) any of the Company's
covenants contained in this Agreement shall have been breached such that the
condition set forth in Section 6.2 would not be satisfied; provided, however,
that if an inaccuracy in any of the Company's
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representations and warranties as of a date subsequent to the date of this
Agreement or a breach of a covenant by the Company is curable by the Company,
then Parent may not terminate this Agreement under this Section 8.1(f) on
account of such inaccuracy or breach until after Parent has given the Company
written notice of its intention to do so and, if the Company thereupon commences
exercising all reasonable efforts to cure such inaccuracy or breach, for so long
thereafter as the Company is continuing to do so; or
(g) by the Company if (i) any of Parent's representations and
warranties contained in this Agreement shall be inaccurate as of the date of
this Agreement, or shall have become inaccurate as of a date subsequent to the
date of this Agreement (as if made on such subsequent date), in either case
after giving effect to the proviso to Section 7.1, such that the condition set
forth in Section 7.1 would not be satisfied, or (ii) if any of Parent's
covenants contained in this Agreement shall have been breached such that the
condition set forth in Section 7.2 would not be satisfied; provided, however,
that if an inaccuracy in any of Parent's representations and warranties as of a
date subsequent to the date of this Agreement or a breach of a covenant by
Parent is curable by Parent, then the Company may not terminate this Agreement
under this Section 8.1(g) on account of such inaccuracy or breach until after
the Company has given Parent written notice of its intention to do so and, if
Parent thereupon commences exercising all reasonable efforts to cure such
inaccuracy or breach, for so long thereafter as Parent is continuing to do so.
8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 8.1, this Agreement will be of no further force
or effect; provided, however, that (i) this Section 8.2, Section 8.3 and Section
10 will survive the termination of this Agreement and will remain in full force
and effect, and (ii) the termination of this Agreement will not relieve any
party from any liability for any material breach of any representation,
warranty, covenant, obligation or other provision contained in this Agreement.
8.3 EXPENSES; TERMINATION FEES.
(a) All fees and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement will be paid by
the party incurring such expenses, whether or not the Merger is consummated, it
being understood that, if the Merger is consummated, the Company's fees and
expenses will be borne by Parent as the surviving corporation in the Merger.
(b) If this Agreement is terminated by Parent or the Company
pursuant to Section 8.1(d), then the Company will pay to Parent, in cash at the
time specified in Section 8.3(c) a nonrefundable fee in the amount of
$7,500,000. If this Agreement is terminated by Parent or the Company pursuant to
Section 8.1(e), then Parent will pay to the Company, at the time specified in
Section 8.3(c), a nonrefundable fee in the amount of $7,500,000.
(c) In the case of termination of this Agreement by the Company
pursuant to Section 8.1(d), any fee payable pursuant to Section 8.3(b) will be
paid by the Company prior to the time of such termination; and in the case of
termination of this Agreement by Parent pursuant to Section 8.1(d), any fee
payable pursuant to Section 8.3(b) will be paid by the Company within two
business days after such termination. In the case of termination of this
Agreement by Parent
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pursuant to Section 8.1(e), any fee payable pursuant to Section 8.3(b) will be
paid by Parent prior to the time of such termination; and in the case of
termination of this Agreement by the Company pursuant to Section 8.1(e), any fee
payable pursuant to Section 8.3(b) will be paid by Parent within two business
days after such termination.
SECTION 9. INDEMNIFICATION, ETC.
9.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Company will
survive the Closing and will expire on the date one year after the Closing Date
(such date will be referred to as the "Survival Expiration Date"); provided,
however, that if, at any time prior to the Survival Expiration Date, any
Indemnitee (acting in good faith) delivers to the Designated Company Agent (as
defined in Section 10.1) a written notice alleging the existence of an
inaccuracy in or a breach of any of the representations and warranties made by
the Company (and setting forth in reasonable detail the basis for such
Indemnitee's belief that such an inaccuracy or breach may exist) and asserting a
claim for recovery under Section 9.2 or Section 9.3 based on such alleged
inaccuracy or breach, then the claim asserted in such notice will survive the
Survival Expiration Date until such time as such claim is fully and finally
resolved. All representations and warranties made by Parent will terminate and
expire as of the Closing Date, and any liability of Parent with respect to such
representations and warranties will thereupon cease.
(b) The representations, warranties, covenants and obligations of
the Company, and the rights and remedies that may be exercised by the
Indemnitees, will not be limited or otherwise affected by or as a result of any
information furnished to, or any investigation made by or knowledge of, any of
the Indemnitees or any of their Representatives.
(c) For purposes of this Agreement, each statement or other item
of information set forth in the Company Disclosure Schedule or in any update to
the Company Disclosure Schedule will be deemed to be a representation and
warranty made by the Company in this Agreement. Without limiting the foregoing,
however, it is understood by the parties that no updated Company Disclosure
Schedule will be deemed to supplement or amend the Company Disclosure Schedule
for the purposed of determining the accuracy as of the date of this Agreement of
any of the representations and warranties made by the Company in this Agreement.
9.2 INDEMNIFICATION AND ESCROW.
(a) From and after the Effective Time (but subject to Section
9.1(a)) the Escrow Fund will be available to compensate and reimburse each of
the Indemnitees for any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are directly
or indirectly connected with:
(i) any inaccuracy in or breach of any representation,
warranty, covenant or obligation made by the Company herein and any Legal
Proceeding relating to any
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such inaccuracy or breach (including any Legal Proceeding commenced by any
Indemnitee for the purpose of enforcing any of its rights under this Section 9);
or
(ii) any of the following: (1) any Merger Consideration
Adjustment pursuant to Section 1.10; (2) any Company Transaction Expenses to the
extent the aggregate of all such expenses exceeds $2,200,000; and (3) the claims
described in paragraphs (3) and (4) of Part 2.19(a) of the Company Disclosure
Schedule (the "Patent Claims").
(b) Indemnification pursuant to this Section 9.2 will be the
exclusive remedy available to the Indemnitees for Damages of the type referred
to in the foregoing sentence, provided however that such limitation will not
apply with respect to claims based on the fraud of the Company.
9.3 DEDUCTIBLE AMOUNT.
(a) Except as otherwise expressly provided in Section 9.3(b), the
Indemnitees will be entitled to indemnification only if and to the extent the
aggregate amount of Damages that have been directly or indirectly suffered or
incurred by any one or more of the Indemnitees, or to which any one or more of
the Indemnitees has or have otherwise become subject, exceeds $500,000 (the
"Deductible Amount").
(b) The Deductible Amount will not apply to any Damages which
arise from or as a result of or are directly or indirectly connected with (i)
the Patent Claims, or (ii) the fraud of the Company.
9.4 SATISFACTION OF INDEMNIFICATION CLAIM; LIMITATION OF LIABILITY.
(a) From and after the Effective Time, all claims against the
Escrow Stockholders under this Agreement will be satisfied exclusively and, to
the extent possible given such limitation, in full from the Escrow Fund in
accordance with the Escrow Agreement. Without limiting the foregoing, from and
after the Effective Time, the maximum liability of any Escrow Stockholder for
any breach of a representation, warranty or covenant of the Company or other
indemnified matter will be limited to such Escrow Stockholder's proportionate
interest in the Escrow Fund. Any Escrow Fund assets used to satisfy a claim
against the Escrow Stockholders under this Agreement will be taken from all of
the Escrow Stockholders on a pro rata basis in proportion to such Escrow
Stockholders' respective interests in the Escrow Fund.
(b) In no event will the Indemnitees be entitled to receive from
the Escrow Fund an aggregate amount greater than $500,000 in respect of the
Patent Claims. The parties hereto agree that the ability of the Indemnitees to
be indemnified for Patent Claims without application of the Deductible Amount
(but subject to the indemnification cap set forth herein) is the exclusive
remedy in respect of Patent Claims under this Agreement and will not be included
as part of a separate indemnification claim that would have the effect of
negating the limitations applicable to Patent Claims hereunder.
(c) In no event will the Indemnitees be entitled to receive from
the Escrow Fund an amount already recovered by Parent pursuant to the Merger
Consideration Adjustment
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provided for in Section 1.10 and in no event will any Damages include any amount
for which an accrual is included as a liability on the Final Closing Balance
Sheet.
9.5 [INTENTIONALLY OMITTED].
9.6 DEFENSE OF THIRD-PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
Parent, against Parent or against any other Person) with respect to which any
Indemnitee may be entitled to make a claim pursuant to this Section 9, Parent
will notify the Designated Company Agent of such assertion or commencement
promptly after receiving notice thereof. The failure to give or delay in giving
such notice will not reduce the amount of any such claim, except to the extent
of any prejudice resulting from such failure or delay. The Escrow Stockholders,
acting through the Designated Company Agent, will defend the Indemnitees in such
action with counsel selected by the Designated Company Agent and reasonably
satisfactory to Parent.
(a) If the Designated Company Agent so proceeds with the defense
of any such claim or Legal Proceeding:
(i) The Designated Company Agent may obtain
reimbursement for all reasonable expenses relating to the defense of such claim
or Legal Proceeding as provided in the Escrow Agreement;
(ii) Parent will make available to the Designated
Company Agent any documents and materials in its possession or control that may
be necessary to the defense of such claim or Legal Proceeding; and
(iii) The Designated Company Agent will have the right to
settle, adjust or compromise such claim or Legal Proceeding with the consent of
Parent; provided, however, that such consent will not be unreasonably withheld.
(b) To the extent that the Designated Company Agent fails to
provide such defense in a timely manner, Parent will have the right to proceed
with the defense of such claim or Legal Proceeding with counsel selected by
Parent. If Parent so proceeds with the defense of any such claim or Legal
Proceeding:
(i) All reasonable expenses relating to the defense of
such claim or Legal Proceeding will be indemnifiable under Section 9.2;
(ii) The Designated Company Agent defined below will
make available to Parent any documents and materials in his or her possession or
control that may be necessary to the defense of such claim or Legal Proceeding;
and
(iii) Parent will have the right to settle, adjust or
compromise such claim or Legal Proceeding with the consent of the Designated
Company Agent; provided, however, that such consent will not be unreasonably
withheld.
9.7 TAX CONTESTS. Parent will have the sole right to conduct any tax
audit or other tax contest relating to tax return of Parent; provided, however,
prior to the termination of the Escrow,
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the Designated Company Agent will have the right to conduct any Tax examination,
audit or contest relating to a Tax Return of the Company that is subject to the
indemnification obligations under Section 9 and will have the right to settle,
adjust or compromise any such tax contest with the consent of Parent, which
consent will not be unreasonably withheld. The Designated Company Agent may
obtain reimbursement in accordance with the Escrow Agreement for all reasonable
expenses relating to the conduct of any such Tax examination, audit or contest.
9.8 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PARENT. No Indemnitee
(other than Parent or any successor thereto or assign thereof) will be permitted
to assert any indemnification claim or exercise any other remedy under this
Agreement unless Parent (or any successor thereto or assign thereof) will have
consented to the assertion of such indemnification claim or the exercise of such
other remedy.
SECTION 10. MISCELLANEOUS PROVISIONS
10.1 DESIGNATED COMPANY AGENT. Prior to the Closing Date, the Company
will appoint a Person to serve as the agent for the Escrow Stockholders for
purposes of this Agreement (the "Designated Company Agent"). Parent will be
entitled to deal exclusively with the Designated Company Agent on all matters
relating to this Agreement, and will be entitled to rely conclusively (without
further evidence of any kind whatsoever) on any document executed or purported
to be executed on behalf of the Company and the Escrow Stockholders by the
Designated Company Agent, and on any other action taken or purported to be taken
on behalf of the Company and the Escrow Stockholders by the Designated Company
Agent, as fully binding upon the Company and the Escrow Stockholders. If the
person acting as the Designated Company Agent should die, become disabled or
otherwise be unable to fulfill his or her responsibilities as agent of the
Company or in the event that a majority in interest of the Escrow Stockholders
shall elect to terminate the responsibilities of the person acting as Designated
Company Agent, then a majority in interest of the Escrow Stockholders will
appoint a new representative to serve as the Designated Company Agent and will
promptly notify Parent of the identity of such successor. Any such successor
will become the "Designated Company Agent" for purposes of this Agreement.
10.2 AMENDMENT. This Agreement may be amended with the approval of the
respective boards of directors of the Company and Parent at any time (whether
before or after adoption of this Agreement by the Company's stockholders and
whether before or after approval of the issuance of Parent Common Stock in the
Merger by Parent's stockholders); provided, however, that (i) after any such
adoption of this Agreement by the Company's stockholders, no amendment will be
made which by law requires further approval of the stockholders of the Company
without the further approval of such stockholders, and (ii) after any such
approval of the issuance of Parent Common Stock in the Merger by Parent's
stockholders, no amendment will be made which by law or NASD regulation requires
further approval of Parent's stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
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10.3 WAIVER.
(a) No failure on the part of any party to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of any
party in exercising any power, right, privilege or remedy under this Agreement,
will operate as a waiver of such power, right, privilege or remedy; and no
single or partial exercise of any such power, right, privilege or remedy will
preclude any other or further exercise thereof or of any other power, right,
privilege or remedy.
(b) No party will be deemed to have waived any claim arising out
of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy is
expressly set forth in a written instrument duly executed and delivered on
behalf of such party; and any such waiver will not be applicable or have any
effect except in the specific instance in which it is given.
10.4 ENTIRE AGREEMENT; COUNTERPARTS. This Agreement and the other
agreements referred to herein constitute the entire agreement and supersede all
other prior agreements and understandings, both written and oral, among or
between any of the parties with respect to the subject matter hereof and
thereof; provided, however, that the letter agreement dated April 6, 2000
between the Company and Parent (relating to the protection of confidential
information) will not be superseded and will remain in full force and effect.
This Agreement may be executed in several counterparts, each of which will be
deemed an original and all of which will constitute one and the same instrument.
10.5 APPLICABLE LAW; JURISDICTION. The procedures applicable to and
effect of the Merger will be governed by the laws of the State of Delaware.
Subject to the immediately preceding sentence, this Agreement will be governed
by, and construed in accordance with, the laws of the State of California,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. In any action between any of the parties arising
out of or relating to this Agreement or any of the transactions contemplated by
this Agreement: (a) each of the parties irrevocably and unconditionally consents
and submits to the exclusive jurisdiction and venue of the state and federal
courts located in Denver, Colorado; (b) if any such action is commenced in a
state court, then, subject to applicable law, no party will object to the
removal of such action to any federal court located in Colorado; (c) each of the
parties irrevocably waives the right to trial by jury; and (d) each of the
parties irrevocably consents to service of process by first class certified
mail, return receipt requested, postage prepaid, to the address at which such
party is to receive notice in accordance with Section 10.9.
10.6 COMPANY DISCLOSURE SCHEDULE. The Company Disclosure Schedule will
be arranged in separate parts corresponding to the numbered and lettered
sections contained in Section 2, and the information disclosed in any numbered
or lettered part will be deemed to relate to and to qualify only the particular
representation or warranty set forth in the corresponding numbered or lettered
section in Section 2, and will not be deemed to relate to or to qualify any
other representation or warranty.
10.7 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit will be
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entitled to receive a reasonable sum for its attorneys' fees and all other
reasonable costs and expenses incurred in such action or suit.
10.8 ASSIGNABILITY; THIRD-PARTY BENEFICIARIES. This Agreement will be
binding upon, and will be enforceable by and inure solely to the benefit of, the
parties hereto and their respective successors and assigns; provided, however,
that neither this Agreement nor any party's rights hereunder may be assigned by
such party without the prior written consent of each other party, and any
attempted assignment of this Agreement or any of such rights by any party
without such consent will be void and of no effect. Nothing in this Agreement,
express or implied, is intended to or will confer upon any Person (other than
the parties hereto) any right, benefit or remedy of any nature whatsoever,
except that (a) the Rule 145 Sellers (as defined in Section 5.1(c)) will be
third-party beneficiaries of Section 5.1(c), (b) the Indemnified Persons (as
defined in Section 5.7) will be third-party beneficiaries of Section 5.7, and
(c) the Indemnitees (as defined in Section 9.2) will be third-party
beneficiaries of Section 9.2.
10.9 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement must be in writing and will be
deemed properly delivered, given and received (a) upon receipt when delivered by
hand, or (b) two business days after sent by registered mail or by courier or
express delivery service, provided that in each case the notice or other
communication is sent to the address set forth beneath the name of such party
below (or to such other address as such party shall have specified in a written
notice given to the other parties hereto):
IF TO PARENT:
Quokka Sports, Inc.
525 Brannan Street
Ground Floor
San Francisco, CA 94107
Attn: Chief Executive Officer
WITH A COPY TO:
Kenneth L. Guernsey
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111
IF TO THE COMPANY:
Total Sports, Inc.
133 Fayetteville Street Mall
Sixth Floor
Raleigh, NC 27601
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Attn: Chief Executive Officer
WITH COPIES TO:
Steven A. Hobbs
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
AND:
Larry E. Robbins
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
10.10 SEVERABILITY In the event that any provision of this Agreement, or
the application of any such provision to any Person or set of circumstances,
shall be determined to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application of such provision
to Persons or circumstances other than those as to which it is determined to be
invalid, unlawful, void or unenforceable, will not be impaired or otherwise
affected and will continue to be valid and enforceable to the fullest extent
permitted by law.
10.11 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number will include the plural, and vice versa; the
masculine gender will include the feminine and neuter genders; the feminine
gender will include the masculine and neuter genders; and the neuter gender will
include masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to the
effect that ambiguities are to be resolved against the drafting party will not
be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, will not be deemed to be terms of
limitation, but rather will be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections," "Exhibits" and "Schedules" are intended to refer to
Sections of this Agreement and Exhibits or Schedules to this Agreement.
(e) The bold-faced headings contained in this Agreement are for
convenience of reference only, will not be deemed to be a part of this Agreement
and will not be referred to in connection with the construction or
interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first above written.
QUOKKA SPORTS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
TOTAL SPORTS, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
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EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
ACQUIRED CORPORATION CONTRACT. "Acquired Corporation Contract" means any
Contract: (a) to which any of the Acquired Corporations is a party; (b) by which
any of the Acquired Corporations or any asset of any of the Acquired
Corporations is bound or under which any of the Acquired Corporations has any
obligation; or (c) under which any of the Acquired Corporations has any right or
interest.
ACQUIRED CORPORATION PROPRIETARY ASSET. "Acquired Corporation
Proprietary Asset" means any Proprietary Asset owned by or licensed to any of
the Acquired Corporations or otherwise used by any of the Acquired Corporations.
ACQUIRED CORPORATION SOURCE OR OBJECT CODE. "Acquired Corporation Source
or Object Code" means any source or object code, or any portion, aspect or
segment of any source or object code, relating to any Proprietary Asset owned by
or licensed to any of the Acquired Corporations or otherwise used by any of the
Acquired Corporations.
ACQUISITION PROPOSAL. "Acquisition Proposal" means any offer, proposal,
inquiry or indication of interest (other than an offer, proposal, inquiry or
indication of interest made or submitted by Parent) contemplating or otherwise
relating to any Acquisition Transaction.
ACQUISITION TRANSACTION. "Acquisition Transaction" means:
(a) in the case of the Company, any transaction or series of
transactions involving:
(i) any merger, consolidation, share exchange, business
combination, issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction (excluding the Bridge Financing) (1)
in which, in the case of a merger or consolidation, any of the Acquired
Corporations is a constituent corporation, (2) in which a Person or "group" (as
defined in the Exchange Act and the rules promulgated thereunder) of Persons
directly or indirectly acquires beneficial or record ownership of securities
representing more than 20% of the outstanding securities of any class of voting
securities of any of the Acquired Corporations, or (3) in which any of the
Acquired Corporations issues securities representing more than 20% of the
outstanding securities of any class of voting securities of any of the Acquired
Corporations;
(ii) any sale, lease, exchange, transfer, license,
acquisition or disposition of any business or businesses or assets that
constitute or account for 20% or more of the consolidated net revenues, net
income or assets the Acquired Corporations taken as a whole; or
(iii) any liquidation or dissolution of any of the
Acquired Corporations; and
1.
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(b) in the case of Parent, any transaction or series of
transactions involving:
(i) any merger, consolidation, share exchange, business
combination, issuance of securities, acquisition of securities, tender offer,
exchange offer or other similar transaction (excluding the financing referred to
in Section 7.11) (1) in which, in the case of a merger or consolidation, Parent
is a constituent corporation and is not the surviving or acquiring corporation,
(2) in which a Person or "group" (as defined in the Exchange Act and the rules
promulgated thereunder) of Persons directly or indirectly acquires beneficial or
record ownership of securities representing more than 20% of the outstanding
securities of any class of voting securities of Parent, or (3) in which Parent
issues securities representing more than 20% of the outstanding securities of
any class of its voting securities;
(ii) any sale, lease, exchange, transfer, license,
acquisition or disposition of any business or businesses or assets (including
the stock of any Subsidiaries) that constitute or account for 20% or more of the
consolidated net revenues, net income or assets of Parent and its Subsidiaries
taken as a whole; or
(iii) any liquidation or dissolution of Parent.
AGREEMENT. "Agreement" means the Agreement and Plan of Merger and
Reorganization to which this Exhibit A is attached, as it may be amended from
time to time.
BRIDGE FINANCING. "Bridge Financing" means a bridge financing of the
Company as described in, and conducted in compliance with, Section 4.2(a).
CODE. "Code" means the Internal Revenue Code of 1986, as amended.
COMPANY COMMON STOCK. "Company Common Stock" means the Common Stock, par
value $.001 per share, of the Company.
COMPANY CHARTER AMENDMENT. "Company Charter Amendment" means the
amendment of the Company's certificate of incorporation, to be effected prior to
the Closing, to make the following changes in the Company's authorized capital
stock: (a) increase the total number of authorized shares of capital stock to
approximately 42,145,000; (b) increase the authorized number of shares of Series
D Convertible Preferred Stock to approximately 3,675,000; and (c) designate a
new series of Company Preferred Stock, called "Senior Employee Preferred Stock,"
consisting of approximately 3,200,000 shares.
COMPANY DISCLOSURE SCHEDULE. "Company Disclosure Schedule" means the
disclosure schedule (dated as of the date of this Agreement) that has been
prepared by the Company in accordance with the requirements of Section 10.6 of
the Agreement and that has been delivered by the Company to Parent on the date
of this Agreement.
COMPANY OPTIONS. "Company Options" means options to purchase shares of
Company Stock, whether granted by the Company pursuant to the Company's stock
option plans, assumed by the Company in connection with any merger, acquisition
or similar transaction or otherwise issued or granted.
2.
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COMPANY PREFERRED STOCK. "Company Preferred Stock" means the
undesignated Preferred Stock, par value $.001 per share, Series A Redeemable
Preferred Stock, par value $10.00 per share, Series B Convertible Preferred
Stock, par value $4.492 per share, Series C Convertible Preferred Stock, par
value $.001 per share, Series C1 Convertible Preferred Stock, par value $.001
per share, Series D Convertible Preferred Stock, par value $.001 per share,
Series D1 Convertible Preferred Stock, par value $.001 per share, and Series E
Convertible Preferred Stock, par value $.001 per share, of the Company.
COMPANY STOCK. "Company Stock" means Company Common Stock and Company
Preferred Stock.
COMPANY TRANSACTION EXPENSES. "Company Transaction Expenses" means the
aggregate amount of payments made and liabilities incurred for out-of-pocket
expenses (including without limitation investment banking, legal, accounting and
other professional fees and disbursements) that become payable by the Acquired
Corporations as a result of the Merger or the other transactions contemplated by
this Agreement (including without limitation the negotiation and execution of
this Agreement and the other agreements contemplated hereby and the interim
financing arrangements described in Section 4.2(a)), excluding any amounts paid
or payable to Deloitte & Touche LLP in respect of the letters referred to in
Section 5.13.
COMPANY WARRANTS. "Company Warrants" means warrants to purchase 907,782
shares of Company Common Stock, 50,346 shares of the Company's Series D
Convertible Preferred Stock and 963,370 shares of the Company's Series D1
Convertible Preferred Stock that are outstanding on the date of this Agreement.
COMPANY'S KNOWLEDGE. "Company's Knowledge means the collective actual
knowledge of the following persons: Gary Stevenson, Frank Daniels, Ezra Kucharz,
Drue Moore, Colin Boatwright, Petra Weishaupt and Will York.
CONSENT. "Consent" means any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" means any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan or legally
binding commitment or undertaking of any nature.
DAMAGES. "Damages" means losses, damages, liabilities, claims,
judgments, settlements, fines, costs and expenses (including reasonable
attorney's fees).
ENCUMBRANCE. "Encumbrance" means any lien, pledge, hypothecation,
mortgage, security interest or encumbrance.
ENTITY. "Entity" means any corporation (including any non-profit
corporation), general partnership, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any company
limited by shares, limited liability company or joint stock company), firm,
society or other enterprise, association, organization or entity.
3.
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ENVIRONMENTAL LAW. "Environmental Law" means any federal, state, local
or foreign Legal Requirement relating to pollution or protection of human health
or the environment (including ambient air, surface water, ground water, land
surface or subsurface strata), including any law or regulation relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern.
ESCROW AGENT. "Escrow Agent" means the party serving from time to time
as Escrow Agent pursuant to the Escrow Agreement, initially State Street Bank
and Trust Company of California, N.A.
ESCROW AGREEMENT. "Escrow Agreement" means an escrow agreement in the
form attached hereto as Exhibit F, as the same may be amended from time to time.
ESCROW FUND. "Escrow Fund" means the Escrow Shares and any other assets
that may be held from time to time by the Escrow Agent pursuant to the Escrow
Agreement.
ESCROW SHARES. "Escrow Shares" means the shares of Parent Common Stock
deposited in escrow by Parent, reduced by any portion thereof that may be used
to satisfy claims against the Escrow Stockholders in accordance with the Escrow
Agreement.
EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
FORM S-3 REGISTRATION STATEMENT. "Form S-3 Registration Statement" means
the registration statement on Form S-3 to be filed with the SEC by Parent in
connection with certain resales of Parent Common Stock to be issued in the
Merger, as such registration statement may be amended prior to the time it is
declared effective by the SEC.
FORM S-4 REGISTRATION STATEMENT. "Form S-4 Registration Statement" means
the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with issuance of Parent Common Stock in the Merger, as such
registration statement may be amended prior to the time it is declared effective
by the SEC.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" means any: (a)
permit, license, certificate, franchise, permission, variance, clearance,
registration, qualification or authorization issued, granted, given or otherwise
made available by or under the authority of any Governmental Body or pursuant to
any Legal Requirement; or (b) right under any Contract with any Governmental
Body.
GOVERNMENTAL BODY. "Governmental Body" means any: (a) nation, state,
commonwealth, province, territory, county, municipality, district or other
jurisdiction of any nature; (b) federal, state, local, municipal, foreign or
other government; or (c) governmental or quasi-governmental authority of any
nature.
HSR ACT. "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
4.
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INDEMNITEES. "Indemnitees" will mean the following Persons: (a) Parent
(including in its capacity as the surviving corporation in the Merger); (b)
Parent's current and future affiliates; (c) the respective Representatives of
the Persons referred to in clauses "(a)" and "(b)" above; and (d) the respective
successors and assigns of the Persons referred to in clauses "(a)", "(b)" and
"(c)" above; provided, however, that the securityholders of the Company
immediately prior to the Effective Time will not be deemed to be "Indemnitees."
JOINT PROXY STATEMENT/PROSPECTUS. "Joint Proxy Statement/Prospectus"
means the joint proxy statement/prospectus to be sent to the Company's
stockholders in connection with the Company Stockholders' Meeting and to
Parent's stockholders in connection with the Parent Stockholders' Meeting.
LEGAL PROCEEDING. "Legal Proceeding" means any action, suit, litigation,
arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, inquiry, audit, examination or
investigation commenced, brought, conducted or heard by or before, or otherwise
involving, any court or other Governmental Body or any arbitrator or arbitration
panel.
LEGAL REQUIREMENT. "Legal Requirement" means any federal, state, local,
municipal, foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, edict, decree, rule, regulation, ruling or
requirement issued, enacted, adopted, promulgated, implemented or otherwise put
into effect by or under the authority of any Governmental Body (or under the
authority of the Nasdaq National Market).
MATERIAL ADVERSE EFFECT. An event, condition, fact, circumstance,
violation, inaccuracy or other matter will be deemed to have a "Material Adverse
Effect" on the Acquired Corporations if such event, condition, fact,
circumstance, violation, inaccuracy or other matter (either individually or, to
the extent expressly specified elsewhere in this Agreement, considered together
with other events, conditions, facts, circumstances, violations, inaccuracies
and other matters) had or could reasonably be expected to have a material
adverse effect on (i) the business, financial condition, capitalization, assets,
liabilities, operations or results of operations of the Acquired Corporations
taken as a whole, or (ii) the ability of the Company to consummate the Merger or
any of the other transactions contemplated by the Agreement or to perform any of
its obligations under the Agreement; provided, however, that neither of the
following, in and of itself or in combination with the other, will be deemed to
have a Material Adverse Effect on the Acquired Corporations: (x) the disposition
or discontinuation of the Offline Publishing Business; and (y) the depletion of
the Acquired Corporations' liquidity and capital resources through the
incurrence of continued operating losses consistent with past experience. An
event, condition, fact, circumstance, violation, inaccuracy or other matter will
be deemed to have a "Material Adverse Effect" on Parent if such event,
condition, fact, circumstance, violation, inaccuracy or other matter (either
individually or, to the extent specified elsewhere in this Agreement, considered
together with other events, conditions, facts, circumstances, violations,
inaccuracies and other matters) had or could reasonably be expected to have a
material adverse effect on (i) the business, financial condition,
capitalization, assets, liabilities, operations or results of operations of
Parent and its Subsidiaries taken as a whole or (ii) the ability of Parent to
consummate the Merger or any of the other transactions contemplated by the
Agreement or to perform any of its obligations under the Agreement; provided,
however, that a decline in Parent's
5.
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stock price, in and of itself, will not be deemed to have a Material Adverse
Effect on Parent. For purposes of determining whether there has been a Material
Adverse Effect, all of the following, in and of themselves and in combination
with the others, will be disregarded: (i) any change, effect, event or
occurrence resulting from this Agreement or the transactions contemplated hereby
or the announcement thereof; (ii) any change, effect, event or occurrence
relating to the economy or securities markets of the United States or any other
region in general; (iii) any change, effect, event or occurrence relating to the
new media industry in general, and not specifically related to any of the
Acquired Corporations or Parent and its Subsidiaries; and (iv) the failure to
meet the predictions of securities analysts.
MATERIALS OF ENVIRONMENTAL CONCERN. "Materials of Environmental Concern"
means chemicals, pollutants, contaminants, wastes, toxic substances, petroleum
and petroleum products and any other substance that is now or hereafter
regulated by any Environmental Law or that is otherwise a danger to health,
reproduction or the environment.
MERGER CONSIDERATION SHARES. "Merger Consideration Shares" means an
aggregate of 15,000,000 shares of Parent Common Stock, subject to adjustment as
provided in Sections 1.5 (b), 1.5(d) and 1.10. For avoidance of doubt, the
Merger Consideration Shares include the Stevenson Compensation Shares and any
shares of Parent Common Stock issuable upon exercise of Company Options or
Company Warrants assumed by Parent in connection with the Merger or any stock
options or warrants issued by Parent in substitution for Company Options or
Company Warrants as provided in Section 5.5.
OFFLINE PUBLISHING ASSETS. "Offline Publishing Assets" means the assets
associated the Acquired Corporations employed in the Offline Publishing Business
and not employed in any other aspect of the business of the Acquired
Corporations.
OFFLINE PUBLISHING BUSINESS. "Offline Publishing Business" refers to the
operations of the Company's print publishing division, the assets of which
include: (a) the Company's copyright rights pertaining to the publications
created pursuant to the contracts listed on Part 2.5(r) of the Company
Disclosure Schedule (the "Works"); (b) all inventory of the Works in the control
or possession of the Company; (c) all film plates and other production materials
inventory for the Works in the control or possession of the Company; (d) all
furniture, fixtures, owned equipment and personal property of the Company
located in its Kingston, NY, office; (e) all office supplies on hand for the
Publishing Division; and (f) all claims against any parties related to the TS
Publishing assets.
PARENT COMMON STOCK. "Parent Common Stock" means the Common Stock, $.001
par value per share, of Parent.
PARENT DISCLOSURE SCHEDULE. "Parent Disclosure Schedule" means the
disclosure schedule (dated as of the date of this Agreement) that has been
prepared by Parent and that has been delivered by Parent to the Company on the
date of this Agreement.
PERMITTED LIEN. "Permitted Lien" means any (a) lien for current taxes
not yet due and payable, (b) lien that does not (in any individual case or in
the aggregate) materially detract from the value of the assets subject thereto
or materially impair the operations of any of the Acquired
6.
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Corporations, or (iii) mechanics or similar lien arising by operation of law
securing obligations not yet due and payable or in respect of which adequate
reserves have been established.
PERSON. "Person" means any individual, Entity or Governmental Body.
PROPRIETARY ASSET. "Proprietary Asset" means any: (a) patent, patent
application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application, copyright (whether
registered or unregistered), copyright application, domain name, maskwork,
maskwork application, trade secret, know-how, customer list, computer software,
computer program, source code, proprietary algorithm, invention, proprietary
product, technology, proprietary right or other intellectual property right or
intangible asset; or (b) right to use or exploit any of the foregoing.
RELATED PARTY. "Related Party" means any: (a) individual who is, or who
has been at any time since the Audited Balance Sheet Date, a director or officer
of the Company; (b) member of the immediate family of each of the individuals
referred to in clause (a) above; and (c) trust or other Entity (other than the
Company) in which any one of the individuals referred to in clauses (a) and (b)
above holds (or in which more than one of such individuals collectively hold),
beneficially or otherwise, a material voting, proprietary or equity interest.
REPRESENTATIVES. "Representatives" means officers, directors, employees,
agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" means the United States Securities and Exchange Commission.
SECURITIES ACT. "Securities Act" means the Securities Act of 1933, as
amended.
STEVENSON COMPENSATION SHARES. "Stevenson Compensation Shares" means the
shares of Parent Common Stock payable to Gary Stevenson by reason of the Merger
under the Compensation and Equity Rights Agreement dated July 20, 2000 between
the Company and Gary Stevenson.
SUBSIDIARY. An entity will be deemed to be a "Subsidiary" of another
Person if such Person directly or indirectly owns, beneficially or of record,
(a) an amount of voting securities of or other interests in such Entity that is
sufficient to enable such Person to elect a majority of the members of such
Entity's board of directors or other governing body, or (b) at least 50% of the
outstanding equity or financial interests of such Entity.
TAX. "Tax" means any tax (including any income tax, franchise tax,
capital gains tax, gross receipts tax, value-added tax, surtax, estimated tax,
unemployment tax, excise tax, ad valorem tax, transfer tax, stamp tax, sales
tax, use tax, property tax, business tax, withholding tax or payroll tax), levy,
assessment, tariff or duty (including any customs duty), and any related charge
or amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" means any return (including any information
return), report, statement, declaration, estimate, schedule, notice,
notification, form, election, certificate or other
7.
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document or information filed with or submitted to, or required to be filed with
or submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
8.
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EXHIBIT B
MERGER CONSIDERATION AND EXCHANGE RATIOS
A. The following exchange ratios shall be calculated by reference to the
formula in paragraph B and the definitions in paragraph C of this Exhibit B.
1. Senior Employee Preferred Stock Exchange Ratio of Parent Common
Stock received for each Senior Employee Preferred Stock share
equals:
[Senior Employee Preferred Stock Amount] divided by [Senior
Employee Preferred Stock]
2. Series A Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series A Preferred Stock Unit equals:
[Series A Preferred Stock Amount] divided by [Series A Preferred
Stock Units]
3. Series B Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series B Preferred Stock Unit equals:
[Series B Preferred Stock Amount] divided by [Series B Preferred
Stock Units]
4. Series C Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series C Preferred Stock Unit equals:
[Series C Preferred Stock Amount] divided by [Series C Preferred
Stock Units]
5. Series C1 Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series C1 Preferred Stock Unit equals:
[Series C1 Preferred Stock Amount] divided by [Series C1
Preferred Stock Units]
6. Series D Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series D Preferred Stock Unit equals:
[Series D Preferred Stock Amount] divided by [Series D Preferred
Stock Units]
1.
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7. Series D1 Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series D1 Preferred Stock Unit equals:
[Series D1 Preferred Stock Amount] divided by [Series D1
Preferred Stock Units]
8. Series E Preferred Stock Exchange Ratio of Parent Common Stock
received for each Series E Preferred Stock share equals:
[Series E Preferred Stock Amount] divided by [Series E Preferred
Stock]
9. Series E Preferred Stock Unit Maximum Amount Exchange Ratio per
Series E Preferred Stock Unit equals:
[Series E Preferred Stock Unit Maximum Amount] divided by
[Series E Preferred Stock Units]
10. Common Stock Exchange Ratio per Common Stock share equals:
[Common Stock Amount] divided by [Common Stock]
2.
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B. The Merger Consideration Shares shall be allocated among and
distributed to the holders of the Company Stock in the priorities set forth
below:
1. Merger Consideration Shares:
Less: Stevenson Compensation Shares:
2. Shares Available for Distribution, if any:
Less: Senior Employee Preferred Stock Amount(1):
3. Shares Available for Distribution, if any:
Less: Series A Preferred Stock Amount:
4. Shares Available for Distribution, if any:
Less: Senior Preferred Stock Amount:
5. Shares Available for Distribution, if any:
Less: Series E Preferred Stock Amount:
6. Shares Available for Distribution, if any:
Less: Series E Preferred Stock Maximum
Amount:
7. Common Stock Amount:
--------
(1) Only to the extent that such shares are authorized by the Certificate of
Incorporation of Total Sports.
3.
<PAGE> 82
C. The Exchange Ratios shall be determined in accordance with the
formulas set forth above in paragraph B and by reference to the following
defined terms. Capitalized terms not defined in this Exhibit shall have the same
definitions and meanings ascribed to such terms in the Agreement.
1. Merger Consideration Shares means an aggregate of 15,000,000
shares of Parent Common Stock, subject to adjustment as set forth
in the Agreement.
2. Senior Employee Preferred Stock means the number of shares of
Senior Employee Preferred Stock which may be acquired pursuant to
options granted and vested under the 2000 Stock Plan which remain
outstanding as of the Effective Date.
3. Senior Employee Preferred Stock Amount means a number of shares
of Parent Common Stock equal to the product of (i) the Merger
Consideration Shares, (ii) eight (8%) percent and (iii) the
fraction (expressed as a percentage) of which the numerator is
the Senior Employee Preferred Stock and the denominator is
3,200,000.
4. Series A Preferred Stock means the number of shares of the
Company's Series A Redeemable Preferred Stock issued and
outstanding and the number of shares of the Company's Series A
Redeemable Preferred Stock issuable upon exercise of options or
warrants outstanding as of the Effective Date.
5. Series A Preferred Stock Amount means the amount if any,
remaining after payment of the Stevenson Compensation Shares and
Senior Employee Preferred Stock Amount, in an amount of shares of
Parent Common Stock equal to the quotient of (i) the product of
(A) the Series A Preferred Stock and (B) the Series A Liquidation
Preference and (ii) the Effective Date Value.
6. Series A Liquidation Preference means an aggregate amount equal
to $10.00 for each share of Series A Preferred Stock outstanding
(as defined in Definition 4), plus accrued but unpaid dividends
at the rate of $1.20 per share per annum accruing each year
beginning on the date of issuance of such shares of Series A
Preferred Stock.
7. Series A Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series A Liquidation
Preference for each share of Series A Preferred Stock and (ii)
$10.00. The Series A Preferred Stock Amount shall be
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allocated among the holders of Series A Preferred Stock by
reference to the number of Units held by each such holder in
relation to the total number of Series A Preferred Stock Units.
8. Series B Preferred Stock means the number of shares of the
Company's Series B Convertible Preferred Stock issued and
outstanding and the number of shares of the Company's Series B
Convertible Preferred Stock issuable upon exercise of options or
warrants outstanding as of the Effective Date.
9. Series B Preferred Stock Amount means a number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount and Series A Preferred Stock Amount, in an amount equal to
the quotient of (i) the amount to be distributed to the holders
of Series B Preferred Stock calculated under the Senior Preferred
Stock Amount and designated as the Series B Liquidation Amount
and assuming the exercise in full of all warrants to purchase the
Company's Series B Preferred Stock which remain outstanding as of
the Effective Date and (ii) the Effective Date Value.
10. Series B Liquidation Preference means an aggregate amount equal
to $4.492 for each share of Series B Preferred Stock (as set
forth in Definition 8), plus accrued but unpaid dividends at the
rate of $0.54 per share per annum accruing each year beginning on
the date of issuance of such shares of Series B Preferred Stock.
11. Series B Conversion Amount means the value of the portion of
Merger Consideration Shares based upon the Effective Date Value
which would have been paid with respect to the aggregate number
of shares of Common Stock issuable upon conversion of the Series
B Preferred Stock, assuming the conversion on a one-to-one basis
of all Senior Preferred Stock immediately prior to the Effective
Date.
12. Series B Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series B Liquidation
Preference for each share of Series B Preferred Stock and (ii)
$4.492; provided, however if a holder of Series B Preferred Stock
receives the Series B Conversion Amount in lieu of the Series B
Liquidation Preference for its Series B Preferred Stock, the
number of Units held by such holder shall be equal to the number
of shares of Series B Preferred Stock held by such holder. The
Series B Preferred Stock Amount shall be allocated among the
holders of Series B Preferred Stock by reference to the number of
Units held by each such holder in relation to the total number of
Series B Preferred Stock Units.
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13. Series C Preferred Stock means the number of shares of the
Company's Series C Convertible Preferred Stock issued and
outstanding and the number of shares of Series C Preferred Stock
issuable upon exercise of options or warrants outstanding as of
the Effective Date.
14. Series C Preferred Stock Amount means a number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount and Series A Preferred Stock Amount, in an amount equal to
the quotient of (i) the amount to be distributed to the holders
of Series C Preferred Stock calculated under the Senior Preferred
Stock Amount and designated as the Series C Liquidation Amount
divided by (ii) the Effective Date Value.
15. Series C Liquidation Preference means an aggregate amount equal
to $7.106 for each share of Series C Preferred Stock (as set
forth in Definition 13) plus accrued but unpaid dividends at the
rate of $0.85 per share per annum accruing each year beginning on
the date of issuance of such shares of Series C Preferred Stock.
16. Series C Conversion Amount means the value of the portion of
Merger Consideration Shares based upon the Effective Date Value
which would have been paid with respect to the aggregate number
of shares of Common Stock issuable upon conversion of the Series
C Preferred Stock, assuming the conversion on a one-to-one basis
of all outstanding Senior Preferred Stock immediately prior to
the Effective Date.
17. Series C Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series C Liquidation
Preference for each share of Series C Preferred Stock and (ii)
$7.106; provided, however if a holder of Series C Preferred Stock
receives the Series C Conversion Amount in lieu of the Series C
Liquidation Preference for its Series C Preferred Stock, the
number of Units held by such holder shall be equal to the number
of shares of Series C Preferred Stock held by such holder. The
Series C Preferred Stock Amount shall be allocated among the
holders of Series C Preferred Stock by reference to the number of
Units held by each such holder in relation to the total number of
Series C Preferred Stock Units.
18. Series C1 Preferred Stock means the number of shares of the
Company's Series C1 Convertible Preferred Stock issued and
outstanding and the number of shares of Series C1 Preferred Stock
issuable upon exercise of options or warrants outstanding as of
the Effective Date.
6.
<PAGE> 85
19. Series C1 Preferred Stock Amount means a number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount and Series A Preferred Stock Amount, in an amount equal to
the quotient of (i) the amount to be distributed to the holders
of Series C1 Preferred Stock calculated under the Senior
Preferred Stock Amount and designated as the Series C1
Liquidation Amount and (ii) the Effective Date Value.
20. Series C1 Liquidation Preference means an aggregate amount equal
to $9.49 for each share of Series C1 Preferred Stock (as set
forth in Definition 18) plus accrued but unpaid dividends at the
rate of $1.14 per share per annum accruing each year beginning on
the date of issuance of such shares of Series C1 Preferred Stock.
21. Series C1 Conversion Amount means the value of the portion of
Merger Consideration Shares based upon the Effective Date Value
which would have been paid with respect to the aggregate number
of shares of Common Stock issuable upon conversion of the Series
C1 Preferred Stock assuming the conversion on a one-to-one basis
of all outstanding Senior Preferred Stock immediately prior to
the Effective Date.
22. Series C1 Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series C1
Liquidation Preference for each share of Series C1 Preferred
Stock and (ii) $9.49; provided, however, if a holder of Series C1
Preferred Stock receives the Series C1 Conversion Amount in lieu
of the Series C1 Liquidation Preference for its Series C1
Preferred Stock, the number of Units held by such holder shall be
equal to the number of shares of Series C1 Preferred Stock held
by such holder. The Series C1 Preferred Stock Amount shall be
allocated among the holders of Series C1 Preferred Stock by
reference to the number of Series C1 Preferred Stock Units held
by each such holder in relation to the total number of Series C1
Preferred Stock Units.
23. Series D Preferred Stock means the number of shares of the
Company's Series D Convertible Preferred Stock issued and
outstanding and the number of shares of the Company's Series D
Convertible Preferred Stock issuable upon exercise of options or
warrants outstanding as of the Effective Date.
24. Series D Preferred Stock Amount means a number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount and Series A Preferred Stock Amount,
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<PAGE> 86
in an amount equal to the quotient of (i) the amount to be
distributed to the holders of Series D Preferred Stock and
calculated under the Senior Preferred Stock Amount as the Series
D Liquidation Amount and assuming the exercise in full of all
warrants to purchase the Company's Series D Preferred Stock which
remain outstanding as of the Effective Date and (ii) the
Effective Date Value.
25. Series D Liquidation Preference means an aggregate amount equal
to $33.18 for each share of Series D Preferred Stock (as set
forth in Definition 23), plus accrued but unpaid dividends at the
rate of $1.99 per share per annum accruing each year beginning on
the date of issuance of such shares of Series D Preferred Stock.
26. Series D Conversion Amount means the value of the portion of
Merger Consideration Shares based upon the Effective Date Value
which would have been paid with respect to the aggregate number
of shares of Common Stock issuable upon Conversion of the Series
D Preferred Stock assuming the conversion on a one-to-one basis
of all outstanding Senior Preferred Stock immediately prior to
the Effective Date.
27. Series D Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series D Liquidation
Preference for each share of Series D Preferred Stock and (ii)
$33.18; provided, however, if a holder of Series D Preferred
Stock receives the Series D Conversion Amount in lieu of the
Series D Liquidation Preference for its Series D Preferred Stock,
the number of Units held by such holder shall be equal to the
number of shares of Series D Preferred Stock held by such holder.
The Series D Preferred Stock Amount shall be allocated among the
holders of Series D Preferred Stock by reference to the number of
Series D Preferred Stock Units held by each such holder in
relation to the total number of Series D Preferred Stock Units.
28. Series D1 Preferred Stock means the number of shares of the
Company's Series D1 Convertible Preferred Stock issued and
outstanding and the number of shares of the Company's Series D1
Convertible Preferred Stock issuable upon exercise of options or
warrants outstanding as of the Effective Date.
29. Series D1 Preferred Stock Amount means a number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount and Series A Preferred Stock Amount, in an amount equal to
the quotient of (i) the amount to be distributed to the holders
of Series D1 Preferred Stock and calculated under the Senior
Preferred Stock Amount as the Series D1 Liquidation Amount and
assuming the exercise in
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<PAGE> 87
full of all warrants to purchase the Company's Series D1
Preferred Stock which remain outstanding as of the Effective Date
and (ii) the Effective Date Value.
30. Series D1 Liquidation Preference means an aggregate amount equal
to $16.59 for each share of Series D1 Preferred Stock (as set
forth in Definition 26), plus accrued but unpaid dividends at the
rate of $1.99 per share per annum accruing each year beginning on
the date of issuance of such shares of Series D1 Preferred Stock.
31. Series D1 Conversion Amount means the value of the portion of
Merger Consideration Shares based upon the Effective Date Value
which would have been paid with respect to the aggregate number
of shares of Common Stock issuable upon conversion of the Series
D1 Preferred Stock assuming the conversion on a one-to-one basis
of all outstanding Senior Preferred Stock immediately prior to
the Effective Date.
32. Series D1 Preferred Stock Units means the aggregate number
determined by taking the quotient of (i) the Series D1
Liquidation Preference for each share of Series D1 Preferred
Stock and (ii) $16.59; provided, however, if a holder of Series
D1 Preferred Stock receives the Series D1 Conversion Amount in
lieu of the Series D1 Liquidation Preference for its Series D1
Preferred Stock, the number of Units held by such holder shall be
equal to the number of shares of Series D1 Preferred Stock held
by such holder. The Series D1 Preferred Stock Amount shall be
allocated among the holders of Series D1 Preferred Stock by
reference to the number of Series D1 Preferred Stock Units held
by each such holder in relation to the total number of Series D1
Preferred Stock Units.
33. Series E Preferred Stock means the number of shares of the
Company's Series E Convertible Preferred Stock issued and
outstanding and the number of shares of the Company's Series E
Preferred Stock issuable upon exercise of options or warrants
outstanding as of the Effective Date.
34. Series E Preferred Stock Amount means the number of shares of
Parent Common Stock, if any, remaining after payment of the
Stevenson Compensation, Senior Employee Preferred Stock Amount,
Series A Preferred Stock Amount and Senior Preferred Stock
Amount, in an amount equal to the quotient of (i) the product of
(A) the amount, if any, by which $32.11 exceeds the per share
amount, if any, distributable on each share of Common Stock and
(B) the Series E Preferred Stock, and (ii) the Effective Date
Value, where the Common Stock Amount is calculated by assuming
the Series E Preferred Stock Amount to be the quotient of
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(i) the product of (A) $32.11 and (B) the Series E Preferred
Stock and (ii) the Effective Date Value.
35. Series E Preferred Stock Unit means the number of shares of
Series E Preferred Stock held by the holders of Common Stock.
36. Series E Preferred Stock Unit Maximum Amount means an amount, if
any, remaining after payment of the Stevenson Compensation,
Senior Employee Preferred Stock Amount, Series A Preferred Stock
Amount and Senior Preferred Stock Amount, in an amount equal to
the quotient of (i) the product of (A) $32.11, minus any amounts
distributed with respect to the Series E Preferred Stock or the
per share amount distributable on each share of Common Stock, and
(B) the Series E Preferred Stock Units and (ii) the Effective
Date Value.
37. Common Stock means the number of shares of the Company's Common
Stock issued and outstanding and the number of shares of the
Company's Common Stock issuable upon the exercise of options and
warrants outstanding as of the Effective Date.
38. Common Stock Amount means the number of Merger Consideration
Shares, if any, remaining to be distributed after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount, the Series A Preferred Stock Amount, the Senior Preferred
Stock Amount, the Series E Preferred Stock Amount and the Series
E Preferred Stock Unit Minimum Amount.
39. Effective Date Value means the average of the last sales price of
Parent Common Stock quoted on the NASDAQ Stock Market for the
five consecutive business days ending on the day immediately
prior to the Effective Date.
40. Stevenson Compensation Shares means the aggregate number of the
Merger Consideration Shares payable to Gary Stevenson pursuant to
his agreement with the Company as of the Effective Time.
41. Senior Preferred Stock Amount means the number of Merger
Consideration Shares, if any, remaining after payment of the
Stevenson Compensation Shares, Senior Employee Preferred Stock
Amount, Series A Preferred Stock Amount and payable to all Senior
Preferred Stock, in an amount equal to the greater of the
quotient of (i) (A) the Senior Preferred Stock Liquidation
Preference, or (B) the Senior Conversion Amount and (ii) the
Effective Date Value; provided, however,
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that if (A) the amount of the Senior Preferred Stock Liquidation
Preference is greater than the amount of the Senior Conversion
Amount, and (B) the Effective Date Value of the Merger
Consideration Shares distributable to the holders of Senior
Preferred Stock is less than the Senior Preferred Stock
Liquidation Preference, then the amount of Merger Consideration
Shares available to be distributed to the holders of Senior
Preferred Stock shall be distributed ratably among the holders of
Senior Preferred Stock in proportion to the Series B Liquidation
Preference, Series C Liquidation Preference, Series C1
Liquidation Preference, Series D Liquidation Preference and
Series D1 Liquidation Preference. Notwithstanding the foregoing,
in the event that the Senior Conversion Amount exceeds the Senior
Preferred Stock Liquidation Preference, but the per share amount
determined with respect to the Senior Conversion Amount is less
than the per share amount payable under the Series B Liquidation
Preference, the Series C Liquidation Preference, the Series C1
Liquidation Preference, the Series D Liquidation Preference or
the Series D1 Liquidation Preference, individually, then any
holder of Senior Preferred Stock may elect to receive its
respective liquidation preference for such holder's Senior
Preferred Stock in lieu of the Senior Conversion Amount and the
amount payable with respect to any non-electing holders of Senior
Preferred Stock shall be adjusted to reflect the priority of such
payment. (For example, if the Senior Conversion Amount equates to
a Series D Conversion Amount equal to $28.00 per share, the
Series D Liquidation Preference per share would be greater than
this value. In this scenario, the holder of Series D Preferred
Stock could elect to receive the Series D Liquidation Preference
in lieu of the Series D Conversion Amount; if the holders so
elected, the Senior Conversion Amount would be reduced by the
value of the Series D Liquidation Preference.) Each amount
calculated under this definition with respect to the Series B
Preferred Stock, the Series C Preferred Stock, the Series C1
Preferred Stock, the Series D Preferred Stock, and the Series D1
Preferred Stock and included in this Senior Preferred Stock
Amount shall be designated respectively as the Series B
Liquidation Amount, the Series C Liquidation Amount, the Series
C1 Liquidation Amount, the Series D Liquidation Amount and the
Series D1 Liquidation Amount.
42. Senior Preferred Stock Liquidation Preference means the sum of
(i) the Series B Liquidation Preference; (ii) the Series C
Liquidation Preference; (iii) the Series C1 Liquidation
Preference; (iv) the Series D Liquidation Preference and (v) the
Series D1 Liquidation Preference.
43. Senior Conversion Amount means the sum of (i) the Series B
Conversion Amount; (ii) the Series C Conversion Amount; (iii) the
Series C1 Conversion Amount; (iv) the Series D Conversion Amount
and (v) the Series D1 Conversion Amount.
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44. Senior Preferred Stock means collectively the Series B Preferred
Stock, the Series C Preferred Stock the Series C1 Preferred
Stock, the Series D Preferred Stock and the Series D1 Preferred
Stock.
45. Company Stock means collectively the Common Stock, Senior
Employee Preferred Stock, Senior Preferred Stock and Series E
Preferred Stock, including shares of Company Stock issuable upon
exercise of outstanding options or warrants.
12.
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EXHIBIT C
CLOSING BALANCE SHEET PRINCIPLES
1. For purposes of Section 1.10 of the Agreement and this Exhibit C, "Net
Deficit" means the total assets of the Acquired Corporations minus the total
liabilities of the Acquired Corporations, in each case on a consolidated basis,
which total liabilities will include, without limitation, any current
liabilities, long term liabilities, redeemable preferred stock, and any other
commitments and contingencies requiring accrual in accordance with generally
accepted accounting principles.
2. Except as otherwise set forth in this Exhibit C, the Closing Balance
Sheet will be prepared in accordance with generally accepted accounting
principles.
3. Except as otherwise set forth in this Exhibit C, the Closing Balance
Sheet will reflect all assets and liabilities of the Acquired Corporations that
arise upon or as a consequence of the Merger, except that the Closing Balance
Sheet:
(a) will be prepared as if the Acquired Corporations had not paid or
incurred liability for any Company Transaction Expenses;
(b) will include all liabilities and adjustments necessary to fairly
reflect (1) if the Offline Publishing Business is divested or discontinued on or
prior to the Closing Date, the effects of such divestiture or discontinuation,
or (2) if the Offline Publishing Business is not divested or discontinued on or
prior to the Closing Date, the effects of the discontinuation of such business
effective as of the Closing Date;
(c) will not include any liabilities in respect of the Patent Claims
(as defined in Section 9.4); and
(d) will disregard (i) any shares of Parent Common Stock received by
the Company in connection with Parent's purchase of the Company's membership
interest in Golf.com, L.L.C. and (ii) any receivables from Parent under the
Production Services Agreement dated June 8, 2000 between Golf.com, L.L.C. and
the Company.
1.
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EXHIBIT D
FORM OF OPINION OF WYRICK ROBBINS YATES & PONTON LLP
Agreements = Merger Agreement and Parent Stockholder Voting Agreements
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own its property and
assets, to conduct its business as such business is currently being
conducted, to enter into the Agreements and to consummate the
transactions contemplated thereby. To our knowledge, the Company is
qualified as a foreign corporation to do business and is in good
standing in each jurisdiction in the United States in which the
ownership of its property or the conduct of its business requires such
qualification and where the failure to qualify would have a Material
Adverse Effect on the Company.
3. All corporate action required to be taken on the part of the Company and
its stockholders to authorize the Agreements and consummate the
transaction contemplated thereby has been taken.
4. Each of the Agreements has been duly and validly authorized, executed
and delivered by the Company and constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by applicable laws
and except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar
laws affecting creditors' rights, and subject to general equity
principles and to limitations on availability of equitable relief,
including specific performance and injunctive relief.
5. The execution and delivery of the Agreements and the consummation by the
Company of the merger contemplated thereby are not prohibited by, and
will not violate or conflict with (i) any provision of the certificate
of incorporation or bylaws of the Company, (ii) any resolution adopted
by the Company's stockholders, the Company's board of directors or any
committee of the Company's board of directors, (iii) to the best of our
knowledge, subject to receipt by the Company of the third-party consents
identified on the Company Disclosure Schedule, any material Contract of
the Company or, to the best of our knowledge, any of its Subsidiaries,
except as would not be expected to have a Material Adverse Effect on the
Company, or (iv) any law, rule or regulation, the violation or
contravention of which would be expected to have a Material Adverse
Effect on the Company.
6. To our knowledge, except as set forth in the Disclosure Schedule, there
are no civil, criminal or administrative actions, suits or proceedings
pending or threatened against the Company before any court, arbitrator,
or administrative,
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governmental or regulatory authority, domestic or foreign, that question
the validity or enforceability of the Agreements or the right of the
Company to enter into the Agreements or could have a Material Adverse
Effect on the Company.
7. Immediately prior to the Effective Time, the authorized capital stock of
the Company consisted of (i) 20,000,000 shares of Common Stock and (ii)
7,500,000 shares of Company Preferred Stock, of which 761,903 are
undesignated Preferred Stock (none of which are outstanding), 125,000
are designated Series A Redeemable Preferred Stock, par value $10.00 per
share, 518,841 are designated Series B Convertible Preferred Stock, par
value $4.492 per share, 1,418,200 are designated Series C Convertible
Preferred Stock, par value $.001 per share, 630,756 are designated
Series C1 Convertible Preferred Stock, par value $.001 per share,
2,230,260 are designated Series D Convertible Preferred Stock, par value
$.001 per share, 1,003,617 are designated Series D1 Convertible
Preferred Stock, par value $.001 per share, and 811,423 are designated
Series E Convertible Preferred Stock, par value $.001 per share, of the
Company. 125,000, 445,263, 1,418,200, 630,756, 2,140,873, 0, and 811,423
shares of Series A Redeemable Preferred Stock, Series B Convertible
Preferred Stock, Series C Convertible Preferred Stock, Series C1
Convertible Preferred Stock, Series D Convertible Preferred Stock,
Series D1 Convertible Preferred Stock and Series E Convertible Preferred
Stock, respectively, have been issued and are outstanding as of the date
of this Agreement, based upon the Company's records, which are to our
knowledge, accurate. To our knowledge, based upon a certificate of an
officer of the Company, all of the outstanding shares of capital stock
of the Company which have been issued have been duly authorized and
validly issued, and are fully paid and non-assessable. To our knowledge,
all of the outstanding shares of capital stock of the Company were
issued in transactions exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended. To our knowledge,
except as set forth in the Disclosure Schedule, none of the outstanding
shares of the Company Common Stock or Company Preferred Stock is subject
to any repurchase option or restrictions on transfer in favor of, or
imposed by, the Company (other than restrictions on transfer imposed by
virtue of applicable federal and state securities laws). Except as set
forth in the Agreement and on the Disclosure Schedule, to our knowledge,
there are no options, warrants, conversion privileges, preemptive rights
or other rights presently outstanding to purchase any of the authorized
but unissued capital stock of the Company.
9. Immediately prior to the Closing Date, except as set forth in the
Disclosure Schedule, to our knowledge there was no: (a) outstanding
subscription, option, call, warrant or right (whether or not currently
exercisable) to acquire from the Company any authorized but unissued
shares of the capital stock or other securities of the Company; (b)
outstanding security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the capital stock or
other securities of the Company or (c) contract under which the Company
is or may become obligated to sell or otherwise issue any shares of its
capital stock or any other securities.
2.
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EXHIBIT E
FORM OF OPINION OF COOLEY GODWARD LLP
We have acted as counsel for Quokka Sports, Inc., a Delaware corporation
(the "Company"), in connection with that certain Agreement and Plan of Merger
and Reorganization (the "Agreement"), dated as of July 20, 2000, by and between
the Company and Total Sports, Inc., a Delaware corporation ("Seller"). We are
rendering this opinion pursuant to Section 7.5(b) of the Agreement. Except as
otherwise defined herein, capitalized terms used but not defined herein have the
respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and
authenticity of all signatures on original documents; the authenticity of all
documents submitted to us as originals; the conformity to originals of all
documents submitted to us as copies; the accuracy, completeness and authenticity
of certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement, the Escrow Agreement and the Company
Stockholder Voting Agreements (collectively, the "Agreements")), where
authorization, execution and delivery are prerequisites to the effectiveness of
such documents. We have also assumed: that all individuals executing and
delivering documents had the legal capacity to so execute and deliver; that you
have received all documents you were to receive under the Agreements; that the
Agreement is an obligation binding upon you; if you are a corporation or other
entity, that you have filed any required California franchise or income tax
returns and have paid any required California franchise or income taxes; and
that there are no extrinsic agreements or understandings among the parties to
the Agreements that would modify or interpret the terms of the Agreements or the
respective rights or obligations of the parties thereunder.
Our opinion is expressed only with respect to the federal laws of the
United States of America, the laws of the State of California and the General
Corporation Law of Delaware. Our opinion in paragraph 4 below as to the
validity, binding effect and enforceability of the Agreements is premised upon
the result that would obtain if a California court were to apply the internal
laws of the State of California to the interpretation and enforcement of the
Agreements. We express no opinion as to whether the laws of any particular
jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. We are not rendering any opinion as to compliance with any
antifraud law, rule or regulation relating to securities, or to the sale or
issuance thereof.
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With regard to our opinion in paragraph 8 below, we have examined and
relied upon a certificate executed by an officer of the Company, to the effect
that the consideration for all outstanding shares of capital stock of the
Company was received by the Company in accordance with the provisions of the
applicable Board of Directors resolutions and any agreement relating to the
issuance of such shares, and we have undertaken no independent verification with
respect thereto.
On the basis of the foregoing, in reliance thereon and with the
foregoing qualifications, we are of the opinion that:
4. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
5. The Company has the requisite corporate power to own its property and
assets, to conduct its business as such business is currently being conducted,
to enter into the Agreements and to consummate the transactions contemplated
thereby. To our knowledge, the Company is qualified as a foreign corporation to
do business and is in good standing in each jurisdiction in the United States in
which the ownership of its property or the conduct of its business requires such
qualification and where the failure to qualify would have a Material Adverse
Effect on the Company.
6. All corporate action required to be taken on the part of the Company to
authorize the Agreements and consummate the transaction contemplated thereby has
been taken.
7. Each of the Agreements has been duly and validly authorized, executed
and delivered by the Company and constitutes a valid and binding agreement of
the Company, enforceable against the Company in accordance with its terms,
except as enforcement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors' rights, and
subject to general equity principles and to limitations on availability of
equitable relief, including specific performance and injunctive relief.
8. The execution and delivery of the Agreements and the consummation by the
Company of the merger contemplated thereby are not prohibited by, and will not
violate or conflict with (i) any provision of the certificate of incorporation
or bylaws of the Company, (ii) any resolution adopted by the Company's
stockholders, the Company's board of directors or any committee of the Company's
board of directors, (iii) to the best of our knowledge, any material Contract of
the Company or, to the best of our knowledge, any of its Subsidiaries, except as
would not be expected to have a Material Adverse Effect on the Company, or (iv)
any law, rule or regulation, the violation or contravention of which would be
expected to have a Material Adverse Effect on the Company.
9. To our knowledge, except as set forth in the Parent Disclosure Schedule,
there are no civil, criminal or administrative actions, suits or proceedings
pending or threatened against the Company before any court, arbitrator, or
administrative, governmental or regulatory authority, domestic or foreign, that
question the validity or enforceability of the Agreements or the right of
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the Company to enter into the Agreements or could have a Material Adverse Effect
on the Company.
10. The shares of Parent Common Stock to be issued pursuant to the Agreement
have been duly authorized, and upon issuance and delivery against payment
therefor in accordance with the terms of the Agreement, will be validly issued,
outstanding, fully paid and nonassessable.
11. Immediately prior to the Effective Time, the authorized capital stock of
the Company consisted of (i) [110,000,000] shares of Common Stock, of which
__________ are issued and outstanding based upon the Company's records, which
are to our knowledge, accurate, and (ii) 10,000,000 shares of Preferred Stock,
none of which are issued and outstanding. To our knowledge, all of the
outstanding shares of capital stock of the Company which have been issued have
been duly authorized and validly issued, and are fully paid and non-assessable.
This opinion is intended solely for your benefit and is not to be made
available to or be relied upon by any other person, firm, or entity without our
prior written consent.
3.
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EXHIBIT F
FORM OF ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is made and entered into as of
______, 2000 by and among: QUOKKA SPORTS, INC., a Delaware corporation
("Parent") _________________, as the designated company agent appointed pursuant
to the Merger Agreement ("Designated Company Agent"), and STATE STREET BANK AND
TRUST COMPANY OF CALIFORNIA, N.A., a national banking association (the "Escrow
Agent").
RECITALS
A. Parent and the Company have entered into an Agreement and Plan of
Merger and Reorganization dated as of July ____, 2000 (the "Merger Agreement"),
pursuant to which the Parent will be the surviving corporation, the Company will
cease to exist and the Company's stockholders and Gary Stevenson ("Escrow
Stockholders") will have the right to receive shares of Common Stock of Parent.
B. Section 1.8 of the Merger Agreement contemplates the
establishment of an escrow arrangement to secure the indemnification and other
obligations of the Company under Section 9 of the Merger Agreement.
C. Pursuant to Section 10.1 of the Merger Agreement and Section 10
of this Agreement, the Escrow Stockholders have irrevocably appointed
________________, as representative, to serve as Designated Company Agent for,
among other things, all matters set forth in Section 9 of the Merger Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINED TERMS. Capitalized terms used in this Agreement and not
otherwise defined shall have the meanings given to them in the Merger Agreement,
a copy of which is attached hereto.
2. ESCROW AND INDEMNIFICATION.
(a) SHARES PLACED IN ESCROW. At the Effective Time, which shall
be set forth in a written notice by Parent to Escrow Agent: Parent shall issue
and deliver to Escrow Agent certificates for shares of Parent Common Stock
registered in the name of "Embassy & Co.," the nominee of the Escrow Agent,
representing the amounts with respect to the Escrow Stockholders as set forth on
EXHIBIT A hereto (the total number of such Parent Common Stock being placed in
escrow at the Effective Time being referred to herein as the "Initial Escrow
Shares"), evidencing the shares of Parent Common Stock to be held in escrow in
accordance with this Agreement and containing the following legend: "THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN ESCROW AGREEMENT, DATED AS OF
________, 2000, BY AND AMONG QUOKKA SPORTS, INC., A DESIGNATED COMPANY AGENT
IDENTIFIED THEREIN AND STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, N.A."
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(the "Escrow Legend"). The shares of Parent Common Stock being held in escrow
pursuant to this Agreement (the "Escrow Shares"), together with any Escrow Cash
(as defined below) resulting from the sale by Escrow Agent of Escrow Shares (as
further described herein), shall constitute an escrow fund (the "Escrow Fund")
with respect to the indemnification obligations of the Company under Section
9.2(a) of the Merger Agreement. The Escrow Fund shall be held as a trust fund
and shall not be subject to any lien, attachment, trustee process or any other
judicial process of any creditor of any Escrow Stockholder or of any party
hereto. The Escrow Agent agrees to accept delivery of the Escrow Fund and to
hold the Escrow Fund in an escrow account (the "Escrow Account"), subject to the
terms and conditions of this Agreement.
(b) VOTING OF ESCROW SHARES. The Escrow Stockholders, as
beneficial owners of the Escrow Shares, shall be entitled to exercise all voting
rights with respect to such Escrow Shares and the Escrow Agent shall not have
any authority to exercise any such voting rights. The Escrow Agent shall have no
responsibility for the genuineness, validity, market value, title or sufficiency
for any intended purpose of the Escrow Shares. The Escrow Agent shall be under
no obligation to preserve, protect or exercise rights in the Escrow Shares, and
shall be responsible only for reasonable measures to maintain the physical
safekeeping thereof, and otherwise to perform and observe such duties on its
part as are expressly set forth in this Agreement. The Escrow Agent shall not be
responsible for forwarding to any party, notifying any party with respect to, or
taking any action with respect to, any notice, solicitation or other document or
information, written or otherwise, received from the issuer or other person with
respect to the Escrow Shares, including but not limited to, proxy material,
tenders, options, the pendency of calls and maturities and expiration of rights
(such materials being referred to generally as "Proxy Materials"); provided,
however, that the Escrow Agent shall, within two (2) business days of receipt of
Proxy Materials that entitle the Escrow Stockholders to vote, send to Parent's
transfer agent a written notice identifying the number of Escrow Shares held in
the Escrow Fund as of the record date set forth in the Proxy Materials (the
"Record Date Escrow Shares"), including a copy of the pro rata interest of each
Escrow Stockholder shown on EXHIBIT A, and requesting that the transfer agent
(i) distribute the Proxy Materials to the Escrow Stockholders as beneficial
owners of the Escrow Shares and (ii) prepare proxy cards for each Escrow
Stockholder entitling each such Escrow Stockholder to vote the number of shares
(rounding down in order to avoid fractional shares) determined by multiplying
the Record Date Escrow Shares by the pro rata interest of each Escrow
Stockholder shown on EXHIBIT A.
(c) DIVIDENDS, ETC. Any securities or other property
distributable (whether by way of dividend, stock split or otherwise) in a
tax-free transaction in respect of or in exchange for any Escrow Shares shall
not be distributed to the Escrow Stockholders, but rather shall be distributed
to and held by the Escrow Agent in the Escrow Account. Ordinary cash dividends
and any other taxable dividends, distributions or exchange proceeds will be paid
by Parent directly to the Escrow Stockholders and not to the Escrow Agent.
Unless and until the Escrow Agent shall actually receive such additional
securities or other property, it may assume without inquiry that the Escrow
Shares currently being held by it in the Escrow Account are all that the Escrow
Agent is required to hold. At the time any Escrow Shares are required to be
released from the Escrow Account to any Person pursuant to this Agreement, any
securities or other property previously received by the Escrow Agent in respect
of or in exchange for such Escrow Shares shall be released from the Escrow to
such Person.
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(d) TRANSFERABILITY. The interests of the Escrow Stockholders in
the Escrow Account and in the Escrow Shares shall not be assignable or
transferable, other than by operation of law. No transfer of any of such
interests by operation of law shall be recognized or given effect until Parent
and the Escrow Agent shall have received written notice of such transfer.
(e) FRACTIONAL SHARES. No fractional shares of Parent Common
Stock shall be retained in or released from the Escrow Account pursuant to this
Agreement. In connection with any release of Escrow Shares from the Escrow
Account, Parent and the Escrow Agent shall "round down" in order to avoid
retaining any fractional share in the Escrow Account and in order to avoid
releasing any fractional share from the Escrow Account. When shares are "rounded
down", no cash-in-lieu payments need to be made.
(f) SALE OF ESCROW SHARES.
(i) VOLUNTARY SALE. Subject to the lockup restrictions
identified below, the Designated Company Agent may direct the Escrow Agent to
sell any or all of the Escrow Shares held in the Escrow Fund by delivery to the
Escrow Agent and Parent of a written notice stating the number of Escrow Shares
to be sold by the Escrow Agent and the minimum price per share to be realized
from such sale (the "Sale Notice"). Notwithstanding anything to the contrary
herein, without Parent's written consent (which consent the Escrow Agent shall
not be required to request) the Escrow Agent shall not sell any of the Escrow
Shares pursuant to this Section 2(f)(i) prior to the expiration of one year
after the Closing Date, except for (a) up to an aggregate of 10% of the Initial
Escrow Shares at any time after the Closing Date; (b) up to a cumulative
aggregate of 22% of the Initial Escrow Shares at any time after the expiration
of 90 days after the Closing Date; (c) up to a cumulative aggregate of 47% of
the Initial Escrow Shares at any time after the expiration of 180 days after the
Closing Date; and (d) up to a cumulative aggregate of 72% of the Initial Escrow
Shares at any time after the expiration of 270 days after the Closing Date. To
the extent directed to do so by the Designated Company Agent (and provided that
the Sale Notice does not contemplate a sale of Escrow Shares in violation of the
lockup restriction identified above), the Escrow Agent shall, pursuant to the
provisions in Section 2(g) below, within two (2) business days of receipt of the
Sale Notice (provided that the minimum price per share indicated may be
realized) direct the sale of the number of Escrow Shares set forth in the Sale
Notice and shall add the proceeds of such sale less commission and Escrow Agent
fees (the "Transaction Fees") to the Escrow Fund (the proceeds, net of the
Transaction Fees, being referred to as "Escrow Cash"). Any liability resulting
from sales of Escrow Shares in violation of the lockup restrictions identified
above shall not be borne by the Escrow Agent but rather shall be borne by the
Escrow Stockholders indirectly as a result of their pro rata interest in the
Escrow Fund.
(ii) REQUIRED SALE. Satisfaction of any indemnification
claim pursuant to this Agreement shall be made only with Escrow Cash and not
with Escrow Shares.
(A) In order to satisfy any claims pursuant to
Section 3 hereunder, the Designated Company Agent shall direct the Escrow Agent
to sell such number of Escrow Shares held in the Escrow Fund as shall be
necessary to satisfy such claim by delivery to the Escrow Agent of a written
notice stating the number of Escrow Shares to be sold. To the extent directed to
do so by the Designated Company Agent, the Escrow Agent shall, pursuant to
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the provisions in Section 2(g) below, within two (2) business days of receipt of
such notice sell such number of Escrow Shares as is designated by the Designated
Company Agent, and shall add the Escrow Cash realized by the sale to the Escrow
Fund.
(B) In the event the Designated Company Agent shall
be deemed to have agreed (pursuant to Sections 3(b), (c) or (g) hereunder) that
Escrow Shares shall be sold by the Escrow Agent to satisfy an indemnification
claim, the Escrow Agent shall sell such number of Escrow Shares held in the
Escrow Fund as shall be necessary to satisfy such claim and shall add the Escrow
Cash realized by the sale to the Escrow Fund.
(g) MECHANICS OF SALE OF ESCROW SHARES.
(i) In connection with any sale of Escrow Shares pursuant
to Section 2(f) of this Agreement, the Escrow Agent shall be entitled to receive
and rely upon, prior to taking action in that regard, written direction from the
Designated Company Agent as to the manner and method to be undertaken in
carrying out such sale, including without limitation written direction (i)
identifying the number of Escrow Shares to be sold and (ii) identifying the
brokerage firm the Designated Company Agent requests to be used or instructing
the Escrow Agent to use a brokerage service of its choice, and (iii) setting
forth any necessary or special instructions with respect to the sale (including
any stop loss or minimum price per share instruction); and the Designated
Company Agent shall execute and deliver any instruments reasonably required by
the Escrow Agent in order to carry out such sale.
(ii) The Escrow Agent shall have no responsibility in
connection with such sale other than to make delivery of the Escrow Shares to
the selected brokerage firm, with instruction (including any special instruction
provided by the Designated Company Agent), and to receive and deposit into the
Escrow Fund the Escrow Cash received therefrom. The Escrow Agent shall have no
liability for any actions or omissions of any such brokerage firm and shall have
no liability for the price or execution achieved. Without limiting the
generality of the foregoing, the Designated Company Agent expressly acknowledges
that (a) the Escrow Shares may need to be sent to a transfer agent to be
reissued in saleable form, (b) the Escrow Shares may contain or be subject to
transfer restrictions that may limit their marketability and impose restrictions
upon the number of types of purchasers to whom they can be offered or sold, and
(c) the Escrow Agent shall have no liability for any failure or delay (or any
price change during such delay) on the part of the Designated Company Agent or
any transfer agent, or caused by any necessary registration or delivery
procedures, or compliance with any applicable transfer restrictions, involved in
the sale of such Escrow Shares.
(iii) The Escrow Agent shall be entitled to contract with
any brokerage firm (which may be selected by the Escrow Agent without liability
on its part unless the Designated Company Agent shall have indicated a brokerage
firm to be used, in which event such brokerage firm shall be used), which may be
affiliated with the Escrow Agent. The Escrow Agent shall be indemnified
hereunder for any costs, expenses and risks associated therewith or arising
thereunder (other than resulting from its own gross negligence, bad faith or
wilful misconduct), and the Escrow Cash attributable to the Escrow Fund shall be
net of all brokerage commissions and charges (including the Escrow Agent's
charges). Any Escrow Shares to be sold by the Escrow Agent pursuant to the terms
of this Agreement shall reduce the Escrow
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Shares attributable to the Escrow Stockholders on a pro rata basis, in
proportion to their respective interests set forth on EXHIBIT A.
(iv) In connection with any sale of Escrow Shares, the
Escrow Agent shall within five (5) business days of such sale, provide the
Designated Company Agent and Parent with written notice of the Escrow Cash
realized from such sale (net of all brokerage commissions and Escrow Agent
charges). In addition, after satisfaction of a claim hereunder, the Escrow Agent
shall within five (5) business days after satisfaction of such claim, provide
the Designated Company Agent and Parent with a written notice of the Escrow Cash
remaining in the Escrow Fund.
(v) In the event of a sale of Escrow Shares pursuant to
Section 2(f) hereunder, the Escrow Agent shall invest the Escrow Cash realized
from the sale of Escrow Shares (within two (2) business days of receipt thereof)
in the SSgA U.S. Treasury Money Market Fund; provided, however, that the Escrow
Agent shall (within 2 business days of receipt of a written request from the
Designated Company Agent) invest the Escrow Cash realized from a voluntary sale
pursuant to Section 2(f)(i) hereunder in accordance with the Designated Company
Agent's written request; provided, however, that the Designated Company Agent
may only request that the investment of Escrow Cash be made in treasury or money
market accounts of a nationally recognized financial institution (if the Escrow
Agent is unable to determine whether the financial institution is nationally
recognized, the Escrow Agent shall request and obtain Parent's consent prior to
making the requested investment, which consent shall not be unreasonably
withheld). Interest earnings on investments of Escrow Cash shall be reinvested
by the Escrow Agent in the investment to which such interest earnings pertain
unless otherwise instructed by the Designated Company Agent; provided, however,
that if such reinvestment is impracticable, the Escrow Agent shall notify the
Designated Company Agent requesting written instructions and, absent such
written instructions, shall not reinvest such interest earnings. To the extent
required by applicable laws or regulations, the Escrow Agent shall allocate any
interest earnings resulting from any investment of the Escrow Cash to the Escrow
Stockholders pro rata in accordance with each Escrow Stockholder's proportionate
interest in the Escrow Shares.
3. ADMINISTRATION OF ESCROW ACCOUNT. Except as otherwise provided
herein, with respect to any claim pursuant to Section 9 of the Merger Agreement,
the Escrow Agent shall be entitled to rely on the instructions of the Designated
Company Agent on behalf of the Escrow Stockholders and shall administer the
Escrow Account as follows:
(a) If any Indemnitee has or claims to have incurred or suffered
Damages for which it is or may be entitled to indemnification, compensation or
reimbursement under Section 9 of the Merger Agreement, such Indemnitee may
deliver a claim notice (a "Claim Notice") to the Designated Company Agent and to
the Escrow Agent, on or prior to, but not after, the one year anniversary of the
Closing Date under the Merger Agreement (such one year anniversary being
referred to herein as the "Termination Date"); provided, however, that if, at
any time on or prior to the Termination Date, any Indemnitee (acting in good
faith) delivers to the Designated Company Agent and the Escrow Agent a Claim
Notice, then the claim asserted in such Claim Notice will survive the
Termination Date until such time as such claim is fully and finally resolved in
accordance with the provisions of this Section 3. The Escrow Agent shall not
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<PAGE> 102
be deemed to have knowledge of termination of this Agreement earlier than the
Termination Date unless notice in writing of such earlier date has been provided
by Parent. Each Claim Notice shall state that such Indemnitee is entitled to
indemnification, compensation or reimbursement under Section 9.2(a) of the
Merger Agreement and shall contain a brief description of the circumstances
supporting such Indemnitee's belief and shall contain a non-binding, preliminary
estimate of the amount of Damages such Indemnitee claims to have so incurred or
suffered (the "Claimed Amount").
(b) Within 45 business days after receipt by the Designated
Company Agent of a Claim Notice, the Designated Company Agent may deliver to the
Indemnitee who delivered the Claim Notice and to the Escrow Agent a written
response (the "Response Notice") in which the Designated Company Agent: (i)
agrees that a whole number of Escrow Shares having a value equal to the full
Claimed Amount shall be sold by the Escrow Agent pursuant to Sections 2(f) and
(g) and the Escrow Cash realized by the sale may be released from the Escrow
Account to the Indemnitee; (ii) agrees that Escrow Shares having a value equal
to part, but not all, of the Claimed Amount (the "Agreed Amount") shall be sold
by the Escrow Agent pursuant to Sections 2(f) and (g) and the Escrow Cash
realized by the sale may be released from the Escrow Account to the Indemnitee
or (iii) indicates that no part of the Claimed Amount may be released from the
Escrow Account to the Indemnitee. Any part of the Claimed Amount that is not to
be released to the Indemnitee shall be the "Contested Amount." If a Response
Notice is not received by the Escrow Agent within such 45 business-day period,
then the Designated Company Agent shall be deemed to have agreed that Escrow
Shares having a value equal to the full Claimed Amount shall be sold by the
Escrow Agent pursuant to Sections 2(f) and (g) and the Escrow Cash realized by
the sale may be released to the Indemnitee from the Escrow Account.
(c) If the Designated Company Agent delivers a Response Notice
agreeing that Escrow Shares having a value equal to the full Claimed Amount
shall be sold by the Escrow Agent pursuant to Sections 2(f) and (g) and the
Escrow Cash realized by the sale may be released from the Escrow Account to the
Indemnitee, or if the Designated Company Agent does not deliver a Response
Notice in accordance with Section 3(b) within the 45 business-day period
specified in Section 3(b), the Escrow Agent shall within five (5) business days
following the receipt of the Response Notice (or, if the Escrow Agent has not
received a Response Notice, within three (3) business days following the
expiration of the 45 business-day period referred to in Section 3(b)), sell or
cause to be sold such Escrow Shares pursuant to Sections 2(f) and (g) and the
Escrow Agent shall deliver or cause to be delivered to such Indemnitee the
Escrow Cash realized by the sale. Such payment shall be deemed to be made in
full satisfaction of the claim described in such Claim Notice and Escrow Agent
shall not be liable for the Claim Amount so released.
(d) If the Designated Company Agent delivers a Response Notice
agreeing that Escrow Shares having a value equal to part, but not all, of the
Claimed Amount shall be sold by the Escrow Agent pursuant to Sections 2(f) and
(g) and the Escrow Cash realized by the sale may be released from the Escrow
Account to the Indemnitee, the Escrow Agent shall within five (5) business days
following the receipt of the Response Notice sell or cause to be sold such
Escrow Shares pursuant to Sections 2(f) and (g) and the Escrow Agent shall
deliver or cause to be delivered to such Indemnitee the Escrow Cash equal to the
Agreed Amount.
6.
<PAGE> 103
(e) If the Designated Company Agent delivers a Response Notice
indicating that there is a Contested Amount, the Designated Company Agent and
the Indemnitee shall attempt in good faith to resolve the dispute related to the
Contested Amount. If the Indemnitee and the Designated Company Agent shall
resolve such dispute, such resolution shall be binding on all of the Escrow
Stockholders and all of the Indemnitees and a settlement agreement shall be
signed by the Indemnitee and the Designated Company Agent and sent to the Escrow
Agent, who shall, within five (5) business days following receipt thereof, if
applicable, sell or cause to be sold pursuant to Section 2(g) Escrow Shares from
the Escrow Account in accordance with such agreement and having a value
approximately equal to the amount set forth in such settlement agreement (the
"Settlement Amount") and shall deliver or cause to be delivered to the
Indemnitee Escrow Cash equal to the Settlement Amount.
(f) If the Designated Company Agent and the Indemnitee are unable
to resolve the dispute relating to any Contested Amount within 45 days after the
delivery of the Claim Notice, then the Escrow Agent shall retain the Contested
Amount in the Escrow Account until it receives either (i) a final non-appealable
court order from a court of competent jurisdiction, or (ii) written instructions
signed by Parent and the Designated Company Agent, in which case the Escrow
Agent shall follow the instructions set forth in such court order or written
instructions.
(g) Any Escrow Cash released from the Escrow Account to an
Indemnitee shall be deemed to reduce the Escrow Cash pro rata with respect to
each Escrow Stockholder in accordance with each Escrow Stockholder's percentage
interest in the Escrow Fund set forth in EXHIBIT A.
4. RELEASE OF ESCROW SHARES AND ESCROW CASH.
(a) Within five (5) business days after the Termination Date, the
Escrow Agent shall distribute or cause the stock transfer agent for the Parent
Common Stock to distribute to each of the Escrow Stockholders at such Escrow
Stockholder's address set forth on EXHIBIT A (or at such other address(es) as
the Designated Company Agent shall provide the Escrow Agent) such Escrow
Stockholder's pro-rata portion of the Escrow Shares and Escrow Cash then held in
escrow (less any shares or cash distributed to the Designated Company Agent
pursuant to Section 10 hereof) and based on the percentage interests in the
Escrow Fund set forth in EXHIBIT A; provided, however, that if prior to the
Termination Date, any Indemnitee has given a Claim Notice containing a claim
which has not been resolved prior to the Termination Date in accordance with
Section 3, the Escrow Agent shall retain in the Escrow Account after the
Termination Date Escrow Shares and/or Escrow Cash having a value equal to 100%
of the Claimed Amount or Contested Amount, as the case may be, with respect to
all claims which have not then been resolved.
(b) The Escrow Agent is not the stock transfer agent for the
Parent Common Stock. Accordingly, if a distribution of a number of shares of
Parent Common Stock less than all of the Escrow Shares is to be made, the Escrow
Agent must requisition the appropriate number of shares from such stock transfer
agent, delivering to it the appropriate stock certificate(s). For the purposes
of this Agreement, the Escrow Agent shall be deemed to have delivered Parent
Common Stock to the Person entitled to it when the Escrow Agent has delivered
such certificates to such stock transfer agent with instructions to deliver it
to the appropriate Person. Distributions
7.
<PAGE> 104
of Parent Common Stock shall be made to Parent or the Escrow Stockholders, as
appropriate, at the addresses described in Section 11(b) or set forth on EXHIBIT
A hereto. Whenever a distribution of Escrow Shares or Escrow Cash is to be made
to the Escrow Stockholders, pro rata distributions shall be made to each of them
based on their proportionate interest in the Escrow Fund and at their addresses
set forth in EXHIBIT A.
(c) Whenever a release of Escrow Shares occurs pursuant to the
terms of this Agreement, the Escrow Agent shall be authorized to request and
shall request that the transfer agent for the Parent Common Stock remove the
Escrow Legend from the Escrow Shares being released.
(d) In the event the Designated Company Agent has assumed the
defense of a third-party claim pursuant to Section 9.6 of the Merger Agreement,
the Designated Company Agent shall be authorized to direct the Escrow Agent to
use Escrow Cash then held in the Escrow Fund (or to sell Escrow Shares pursuant
to Section 2(f)(i) and use the Escrow Cash realized thereby) to cover the costs
of such defense without regard to the lockup restrictions set forth in Section
2(f)(i) hereof. Upon receipt of a written notice from the Designated Company
Agent specifying the amount of Escrow Cash to be distributed to cover the
defense of such a third-party claim (or the number of Escrow Shares to be sold
by the Escrow Agent pursuant to Section 2(f)(i)) and the manner of such
distribution, the Escrow Agent shall so distribute the amount of Escrow Cash
specified in such notice or sell the number of Escrow Shares specified in such
notice and distribute the Escrow Cash realized thereby.
5. STOCK SPLITS. All numbers contained in, and all calculations required
to be made pursuant to, this Agreement shall be adjusted as appropriate to
reflect any stock split, reverse stock split, stock dividend or similar
transaction effected by Parent after the date hereof; provided, however, that
the Escrow Agent shall have received notice of such stock split or other action
and shall have received the appropriate number of additional shares of Parent
Common Stock or other property pursuant to Section 2(c) hereof. In the event of
any such stock split or other similar occurrence, Parent and the Designated
Company Agent shall deliver to the Designated Company Agent, within five (5)
business days of such event, a revised EXHIBIT A setting forth the new number of
Escrow Shares to be held in the Escrow Fund. Unless and until the Escrow Agent
receives the certificates representing additional shares of Parent Common Stock
or other property pursuant to Section 2(c), the Escrow Agent may assume without
inquiry that no such stock or other property has been or is required to be
issued with respect to Escrow Shares.
6. FEES AND EXPENSES. Upon the execution of this Agreement by all
parties hereto and the initial deposit of the Escrow Fund in the Escrow Account,
fees and expenses, in accordance with EXHIBIT B attached hereto, will be payable
to the Escrow Agent. This annual Escrow Agent fee will cover the first twelve
months of the escrow. In accordance with EXHIBIT B attached hereto, the Escrow
Agent will also be entitled to reimbursement for reasonable and documented
out-of-pocket expenses, including those of its counsel, incurred by the Escrow
Agent in the performance of its duties hereunder and the execution and delivery
of this Agreement. All such fees and expenses shall be paid by Parent, except
for the payment of Transaction Fees (it being understood that the payment of
Transaction Fees shall reduce the net
8.
<PAGE> 105
proceeds realized from the sale of Escrow Shares and shall have the effect of
reducing the amount of Escrow Cash held in the Escrow Fund).
7. LIMITATION OF ESCROW AGENT'S LIABILITY.
(a) The Escrow Agent undertakes to perform such duties as are
specifically set forth in this Agreement only each of which are solely
ministerial in nature, and shall have no duty under or obligation to determine
compliance with, any other agreement or document notwithstanding their being
referred to herein or attached hereto as an exhibit. The Escrow Agent shall not
be liable except for the performance of such duties as are specifically set
forth in this Agreement, and no implied covenants or obligations shall be read
into this Agreement against the Escrow Agent. The Escrow Agent shall not be
deemed to be a fiduciary and shall incur no liability with respect to any action
taken by it or for any inaction on its part in reliance upon any notice,
direction, instruction, consent, statement or other document believed by it to
be genuine and duly authorized, nor for any other action or inaction except for
its own willful misconduct or negligence. In all questions arising under this
Agreement, the Escrow Agent may rely on the advice of counsel, and for anything
done, omitted or suffered in good faith by the Escrow Agent based upon such
advice the Escrow Agent shall not be liable to anyone. The Escrow Agent shall
not be required to take any action hereunder involving any expense unless the
payment of such expense is made or provided for in a manner reasonably
satisfactory to it. In no event shall the Escrow Agent be liable for incidental,
punitive or consequential damages whatsoever, even if the Escrow Agent has been
advised of the likelihood of such damages.
(b) Parent hereby agrees to indemnify the Escrow Agent, its
officers, directors, employees and agents for, and hold it harmless against, any
loss, liability or expense incurred without negligence or willful misconduct on
the part of Escrow Agent, arising out of or in connection with its carrying out
of its duties hereunder. This right of indemnification shall survive the
termination of this Agreement, and the resignation of the Escrow Agent. The
costs and expenses of enforcing this right of indemnification shall also be paid
by Parent.
(c) In the event that the Escrow Agent should at any time be (i)
confronted with inconsistent or conflicting claims or demands by the other
parties hereto or (ii) unsure of its duties hereunder, the Escrow Agent shall
have the right to interplead the parties in any California court or any court of
competent jurisdiction and request that such court determine the respective
rights of the parties with respect to this Agreement and, upon doing so, the
Escrow Agent shall be released from any obligations or liability to the other
parties as a consequence of any such claims or demands. The Escrow Agent may
consult counsel satisfactory to it, including in-house counsel, and will be
protected in respect of any action taken or omitted in reliance thereon.
(d) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder, either directly or
by or through its agents or attorneys. Nothing in this Agreement shall be deemed
to impose upon the Escrow Agent any duty to qualify to do business in any
jurisdiction other than California. The Escrow Agent shall not be responsible
for and shall not be under a duty to examine, inquire into or pass upon the
validity, binding effect, execution or sufficiency of this Agreement or of any
amendment or supplement hereto.
9.
<PAGE> 106
8. TERMINATION. This Agreement shall terminate on the Termination Date
or, if earlier, upon the release by the Escrow Agent of the entire Escrow Fund
in accordance with this Agreement; provided, however, that if the Escrow Agent
has received from any Indemnitee a Claim Notice setting forth a claim that has
not been resolved by the Termination Date, then this Agreement shall continue in
full force and effect until the claim has been resolved and the Escrow Shares
sold and the Escrow Cash released in accordance with this Agreement.
9. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
unavailable or unwilling to continue as escrow agent under this Agreement, the
Escrow Agent may resign and be discharged from its duties and obligations
hereunder by giving its written resignation to the parties to this Agreement.
Such resignation shall take effect not less than 30 calendar days after it is
given to all parties hereto. Parent may appoint a successor Escrow Agent only
with the consent of a majority in interest of the Escrow Stockholders (which
consent shall not be unreasonably withheld or delayed). If the parties fail to
agree on a successor Escrow Agent within such time, the Escrow Agent shall have
the right to apply to a court of competent jurisdiction for the appointment of a
successor Escrow Agent. The successor Escrow Agent shall execute and deliver to
the Escrow Agent an instrument accepting such appointment, and the successor
Escrow Agent shall, without further acts, be vested with all the estates,
property rights, powers and duties of the predecessor Escrow Agent as if
originally named as Escrow Agent herein. The Escrow Agent shall act in
accordance with written instructions from Parent and the Designated Company
Agent as to the transfer of the Escrow Fund to a successor escrow agent.
10. DESIGNATED COMPANY AGENT. Pursuant to Section 10.1 of the Merger
Agreement, the Company irrevocably appointed _______________, as Designated
Company Agent, to act on behalf of the Company and the Escrow Stockholders as
their agent for purposes of the Merger Agreement, which includes their consent
to allow the Designated Company Agent to give and receive notices and
communications, to authorize delivery to Parent of Parent Common Stock, Escrow
Cash or other property from the Escrow Fund, to object to such deliveries, to
agree to, negotiate, enter into settlements and compromises, comply with orders
of courts with respect to such claims and to take all actions necessary or
appropriate in the judgment of the Designated Company Agent for the
accomplishment of the foregoing. Section 10.1 of the Merger Agreement provides
that a majority in interest of the Escrow Stockholders shall appoint a new
representative to serve as the Designated Company Agent if the person acting as
the Designated Company Agent should die, become disabled or otherwise be unable
to fulfill his or her responsibilities. The Designated Company Agent shall not
be responsible for any act done or omitted thereunder as Designated Company
Agent while acting in good faith and in the exercise of reasonable judgment. The
Designated Company Agent shall be indemnified out of the Escrow Fund and held
harmless against any loss, liability or expense incurred without gross
negligence, bad faith or willful misconduct on the part of the Designated
Company Agent and arising out of or in connection with the acceptance or
administration of the Designated Company Agent's duties hereunder, including the
reasonable fees and expenses of any legal counsel or other professional retained
by the Designated Company Agent. The Designated Company Agent shall be paid (i)
the reasonable fees of the Designated Company Agent relating to his services
performed in such capacity and (ii) all costs and expenses, including those of
any legal counsel or other professional retained by the Designated Company
Agent, in connection with the acceptance and administration of the Designated
Company Agent's duties hereunder. Subject to the prior right of Parent to make
claims for Damages, the Designated Company Agent
10.
<PAGE> 107
shall have the right to recover from the Escrow Fund, prior to any distribution
to the Escrow Stockholders pursuant to Section 4(a) or Section 4(b) hereof, a
number of Escrow Shares (or an equivalent amount of Escrow Cash then held in
escrow) set forth in a certificate of the Designated Company Agent delivered to
the Escrow Agent at least two (2) business days prior to the date on which a
distribution is to be made to the Escrow Stockholders equal to the quotient
obtained by dividing (i) any reasonable fees, costs and expenses set forth in
such certificate, including those of any legal counsel or other professional
retained by the Designated Company Agent, in connection with the acceptance and
administration of the Designated Company Agent's duties hereunder, by (ii) the
average of the closing sales price of Parent Common Stock on the Nasdaq National
Market as reported in the Wall Street Journal for the twenty (20) trading days
preceding the Closing Date under the Merger Agreement. The Escrow Agent shall
not be required to verify or confirm the amounts set forth in such certificate
or determine that reasonableness of such amounts and shall be entitled to rely
on such certificate in making payments to Designated Company Agent hereunder.
The Escrow Agent agrees to deliver to the Designated Company Agent such number
of Escrow Shares, or an equivalent amount of Escrow Cash then held in escrow,
prior to making any distribution of Escrow Shares or Escrow Cash to the Escrow
Stockholders.
11. MISCELLANEOUS.
(a) ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto (other than the Escrow Agent, whose rights to
reimbursement for its attorneys fees, costs and disbursement are set forth in
Sections 6 and 7), the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).
(b) NOTICES. Any notice or other communication required or
permitted to be delivered to any party under this Agreement shall be in writing
and shall be deemed properly delivered, given and received when delivered (by
hand, by registered mail or by courier or express delivery service) to the
address set forth in Section 10.9 of the Merger Agreement or to the Escrow Agent
at the address set forth below (or to such other address as such party shall
have specified in a written notice given to the other parties hereto):
State Street Bank and Trust Company of California, N.A.
Corporate Trust Division
633 West 5th Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust Administration:
[Quokka Sports, Inc./Total Sports Inc.]
Telephone: (213) 362-7334
The Escrow Agent may assume that any Claim Notice, Response Notice or other
notice of any kind required to be delivered to the Escrow Agent and any other
Person has been received by such other Person if it has been received by the
Escrow Agent, but the Escrow Agent need not inquire into or verify such receipt.
11.
<PAGE> 108
(c) HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
(d) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
(e) GOVERNING LAW. This Agreement shall be construed in
accordance with, and governed in all respects by, the internal laws of the State
of California (without giving effect to principles of conflicts of laws).
(f) SUCCESSORS AND ASSIGNS. No party hereto may assign or
transfer any right or obligation under this Agreement without the written
consent of the other parties hereto. Subject to the foregoing limitations, this
Agreement shall inure to the benefit of Parent, Escrow Agent, the Designated
Company Agent and the respective successors and assigns, if any, of the
foregoing.
(g) WAIVER. No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and no delay on the part
of any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right, privilege or remedy
shall preclude any other or further exercise thereof or of any other power,
right, privilege or remedy. No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege or remedy under
this Agreement, unless the waiver of such claim, power, right, privilege or
remedy is expressly set forth in a written instrument duly executed and
delivered on behalf of such Person; and any such waiver shall not be applicable
or have any effect except in the specific instance in which it is given.
(h) AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto; provided,
however, that each of Parent and the Designated Company Agent may amend this
Agreement solely to (i) add additional parties to EXHIBIT A as a result of
death, divorce, mergers or similar events, upon execution of a counterpart
signature page of this Agreement or (ii) to update EXHIBIT A appropriate contact
information for Escrow Stockholders.
(i) SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
(j) ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
12.
<PAGE> 109
(k) WAIVER OF JURY TRIAL. Each of the parties hereto hereby
irrevocably waives any and all right to trial by jury in any Legal Proceeding
arising out of or related to this Agreement or the transactions contemplated
hereby.
(l) TAX REPORTING INFORMATION AND CERTIFICATION OF TAX
IDENTIFICATION Numbers.
(i) The parties hereto agree that, for tax reporting
purposes, all taxable dividends, interest on or other income, if any,
attributable to the Escrow Shares or any other amount held in escrow by the
Escrow Agent pursuant to this Agreement shall be allocable to the Escrow
Stockholders in accordance with their percentage interests in the Escrow Fund
set forth in EXHIBIT A.
(ii) Parent agrees to furnish the Escrow Stockholders with
necessary tax forms to enable the Escrow Stockholders to provide the Escrow
Agent with certified tax identification numbers for each of them by furnishing
appropriate forms W-9 (or Forms W-8, in the case of non-U.S. persons) and any
other forms and documents that the Escrow Agent may reasonably request
(collectively, "Tax Reporting Documentation") to the Escrow Agent within 30 days
after the date hereof. The parties hereto understand that, if such Tax Reporting
Documentation is not so certified to the Escrow Agent, the Escrow Agent shall be
required by the Internal Revenue Code, as it may be amended from time to time,
to withhold and remit to the Internal Revenue Service a portion of any interest
or other income earned on the investment of monies or other property held by the
Escrow Agent pursuant to this Agreement.
(n) CONSTRUCTION. For purposes of this Agreement, whenever the
context requires: the singular number shall include the plural, and vice versa;
the masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders. The parties hereto agree that
any rule of construction to the effect that ambiguities are to be resolved
against the drafting party shall not be applied in the construction or
interpretation of this Agreement. As used in this Agreement, the words "include"
and "including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
[Signature Page Follows on the Next Page]
13.
<PAGE> 110
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the day and year first above written.
QUOKKA SPORTS, INC.
Signature: ____________________________
Printed Name: _________________________
Title: ________________________________
DESIGNATED COMPANY AGENT:
Signature: ____________________________
Printed Name: _________________________
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
AS ESCROW AGENT
Signature: ____________________________
Printed Name: _________________________
Title: ________________________________
14.
<PAGE> 111
EXHIBIT A
ESCROW STOCKHOLDERS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
SHARES TO BE PRO RATA
HELD IN PERCENTAGE
ESCROW INTEREST IN
ESCROW STOCKHOLDER ADDRESS ACCOUNT ESCROW FUND
<S> <C> <C> <C>
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
TOTAL 100.00%
---------------------------------------------------------------------------------------------------
</TABLE>
15.
<PAGE> 112
EXHIBIT B
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, N.A.
Schedule of Fees for Escrow Services
Project Deep South
<TABLE>
<S> <C>
ACCEPTANCE FEE: $750.00
This one-time charge, payable at closing, includes acceptance and
assumption of responsibility and duties as Escrow Agent; review and
comment on the form of agreement; and establishment of account(s) in
accordance with governing document.
LEGAL COUNSEL: AT COST
ESCROW AGENT FEE: $3,500.00
Payable at funding and annually thereafter, if applicable. Compensates
State Street for administrative services in accordance with the Escrow
Agreement.
ADDITIONAL FEES, IF APPLICABLE:
PRO-RATA PERCENTAGE: Should the Escrow Agreement require pro-rata
distribution of principal cash or investment income to the
beneficiaries, STATE STREET WILL ASSESS an additional $100, for each
beneficiary pro-rata distribution, which may be offset at State Street's
discretion against each distribution.
DIRECTED SALE: State Street will charge $500.00, plus broker commission,
for each Directed Sale. In addition, if State Street is required to
retain the proceeds from the Directed Sale, an annual fee of $250.00
will be charged to open and maintain a segregated account. THE FEES
ASSOCIATED WITH A DIRECTED SALE, SHAREHOLDER ACCOUNTING AND INVESTMENT
FEES, IN ANY, WILL BE PAID FROM THE PROCEEDS OF SUCH SALE.
CLAIMS (if applicable):
Uncontested $500.00
Contested BILLED AT COST
WIRE TRANSFER FEE (This fee will be deducted from wire amount, if applicable)
International $40.00
Domestic $20.00
INVESTMENT FEE: $65.00
Per security purchased (i.e. Treasuries, Agencies, etc.)
INVESTMENT IN STATE STREET INVESTMENT VEHICLES: 40 BASIS POINTS (.0040)
(Calculated on the Average Daily Net Assets)
INVESTMENT VEHICLES:
SSgA Prime Money Market Fund
SSgA US Treasury Money Market Fund
SSgA Tax Free Money Market Fund
OUT-OF-POCKET EXPENSE: AT COST
</TABLE>
The transaction underlying this proposal, and all related documentation, is
subject to review and acceptance by State Street in accordance with its policies
and procedures. Should the actual transaction materially differ from the
assumptions used herein, State Street reserves the right to modify this
proposal. In the event that the subject transaction fails to close for reasons
beyond the control of State Street, the party requesting these services agrees
to pay State Street's acceptance fees, legal fees and out-of-pocket expenses.
This proposal is a confidential document and should not be duplicated and/or
distributed.
16.