EXHIBIT 2.3
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated February 8, 1999, between Lycos,
Inc., a Delaware corporation ("Issuer"), and USA Networks, Inc., a Delaware
corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and
Plan of Reorganization of even date herewith (the "Reorganization Agreement"),
which agreement has been executed by the parties hereto immediately prior to the
execution of this Stock Option Agreement (the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the
Reorganization Agreement and in consideration therefor, Issuer has agreed to
grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements set forth herein and in the Reorganization
Agreement, the parties hereto agree as follows:
1. The Option. (a) Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms hereof, up to 7,559,785 fully paid and nonassessable shares of Issuer's
common stock, par value $0.01 per share (the "Common Stock"), at a price of
$127.14 per share (the "Option Price"); provided, that in no event shall the
number of shares of Common Stock for which this Option is exercisable exceed
17.51% (and together with the number of shares for which that certain option of
even date herewith granted to Ticketmaster Online-CitySearch, Inc. is
exercisable exceed 19.9%) of the Issuer's issued and outstanding shares of
Common Stock at the time of exercise. The number of shares of Common Stock that
may be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are issued or otherwise become outstanding after the date of this Agreement
(except for shares issued pursuant to this Agreement), the number of shares of
Common Stock subject to the Option shall be increased so that, after such
issuance, such number equals 17.51% (and together with the number of shares for
which that certain option of even date herewith granted to Ticketmaster
Online-CitySearch, Inc. is exercisable equals 19.9%) of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject or issued pursuant to the Option. Nothing contained in this Section 1(b)
or elsewhere in this Agreement shall be deemed to authorize Issuer to breach any
provision of the Reorganization Agreement.
2. Exercise; Transfer of Shares; Closing. (a) The Holder (as
defined below) may exercise the Option, in whole or part, and from time to time,
but only following an Initial Triggering Event (as defined below) that occurs
prior to the occurrence of an Exercise Termination Event (as defined below).
(b) Each of the following shall be an "Exercise Termination
Event":
(i) the Effective Time (as defined in the
Reorganization Agreement) of the Merger;
(ii) termination of the Reorganization Agreement in
accordance with the provisions thereof if such termination occurs prior
to the occurrence of an Initial Triggering Event, except a termination
by Grantee pursuant to Section 11.1(e) of the Reorganization Agreement
(unless the breach giving rise to such termination was not willful); or
(iii) the passage of 12 months after termination of
the Reorganization Agreement (or such later period as provided in
Section 10) if such termination (A) follows or is concurrent with the
occurrence of an Initial Triggering Event or (B) is a termination by
Grantee pursuant to Section 11.1(e) of the Reorganization Agreement.
(c) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer, without having received Grantee's prior
written consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as defined below) with any person (the term
"person" for purposes of this Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the stockholders of Issuer approve or accept any
Acquisition Transaction (other than the transactions referred to in the
Reorganization Agreement). For purposes of this Agreement, "Acquisition
Transaction" shall mean (w) a merger or consolidation, or any similar
transaction, involving Issuer, (x) a purchase, lease or other
acquisition or assumption of all or more than 30% of the assets of
Issuer, (y) a purchase or other acquisition (including by way of
merger, consolidation, share exchange or otherwise) of beneficial
ownership (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section 13(d) of the
Exchange Act, and the rules and regulations thereunder) of securities
representing 20% or more of the voting power of Issuer, or (z) any
substantially similar transaction; provided, however, that in no event
shall the transactions contemplated by the Wired Reorganization
Agreement (as defined in the Reorganization Agreement) or any merger,
consolidation, purchase or similar transaction involving only the
Issuer and one or more of its wholly-owned Subsidiaries or involving
only any two or more of such wholly-owned Subsidiaries, be deemed to be
an Acquisition Transaction, if such transaction is not entered into in
violation of the terms of the Reorganization Agreement;
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(ii) Issuer, without having received Grantee's prior
written consent, shall have authorized, recommended, proposed or
publicly announced its intention to authorize, recommend or propose, to
engage in an Acquisition Transaction with any person other than Grantee
or a Grantee Subsidiary or shall have authorized or engaged in, or
announced its intention to authorize or engage in, any negotiations
regarding an Acquisition Transaction with any person other than the
Grantee or a Grantee Subsidiary, or the Board of Directors of Issuer
shall have failed to recommend or shall have publicly withdrawn or
modified, or publicly announced its intention to withdraw or modify, in
any manner adverse to Grantee, its recommendation that the stockholders
of Issuer approve the transactions contemplated by the Reorganization
Agreement in anticipation of engaging in an Acquisition Transaction;
(iii) The shareholders of Issuer shall have voted and
failed to approve and adopt the Reorganization Agreement and the
Reorganization at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Reorganization Agreement or shall have
been canceled prior to termination of the Reorganization Agreement if,
prior to such meeting (or if such meeting shall not have been held or
shall have been canceled, prior to such termination), any person (other
than the Grantee or a Grantee Subsidiary) shall have made a bona fide
proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee, any Grantee
Subsidiary or any Issuer Subsidiary acting in a fiduciary capacity in
the ordinary course of its business shall have acquired beneficial
ownership or the right to acquire beneficial ownership of 20% or more
of the then outstanding shares of Common Stock or (b) any group (the
term "group" having the meaning assigned in Section 13(d)(3) of the
Exchange Act), other than a group of which the Grantee or any Grantee
Subsidiary is a member, shall have been formed that beneficially owns
20% or more of the shares of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee
Subsidiary shall have made a bona fide proposal to Issuer or its
stockholders by public announcement or written communication that is or
becomes the subject of public disclosure to engage in an Acquisition
Transaction; or
(vi) After an overture is made by a third party to
Issuer or its stockholders to engage in an Acquisition Transaction,
Issuer shall have breached any covenant or obligation contained in the
Reorganization Agreement and such breach (x) would entitle Grantee to
terminate the Reorganization Agreement and (y) shall not have been
cured prior to the Notice Date (as defined below).
(d) The term "Subsequent Triggering Event" shall mean either
of the following events or transactions occurring after the date hereof:
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(i) The acquisition by any person or by a group of
beneficial ownership of 50% or more of the then outstanding Common
Stock; or
(ii) The occurrence of the Initial Triggering Event
described in paragraph (i) of subsection (c) of this Section 2, except
that the percentage referred to in clause (y) shall be 50%; provided
that in no event shall any merger, consolidation or similar transaction
involving Issuer in which the voting securities of Issuer outstanding
immediately prior thereto continue to represent (by either remaining
outstanding or being converted into the voting securities of the
surviving entity of any such transaction) at least 65% of the combined
voting power of the voting securities of the Issuer or the surviving
entity (or any entity controlling the surviving entity) outstanding
immediately after the consummation of such merger, consolidation or
similar transaction be deemed to be an Acquisition Transaction for the
purposes of this clause (ii).
(e) Issuer shall notify Grantee promptly in writing of the
occurrence of any Initial Triggering Event or Subsequent Triggering Event of
which it has notice (together, a "Triggering Event"), it being understood that
the giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to
exercise the Option (or any portion thereof), it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of shares it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); provided that if prior notification to or
approval of any regulatory agency is required in connection with such purchase,
the Holder shall promptly file the required notice or application for approval
and shall expeditiously process the same and the period of time that otherwise
would run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
(g) At the closing referred to in subsection (f) of this
Section 2, the Holder shall pay to Issuer the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Issuer; provided that failure or refusal of Issuer to designate such a bank
account shall not preclude the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (g) of this Section 2,
Issuer shall deliver to the Holder a certificate or certificates representing
the number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares of Common Stock purchasable
hereunder, and the Holder shall deliver to Issuer a copy of this Agreement and a
letter agreeing
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that the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable law or the provisions of this Agreement.
(i) Certificates for Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and Issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy
of such agreement is on file at the principal office of Issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act of 1933, as amended (the "1933 Act"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Issuer, to the effect that such legend is
not required for purposes of the 1933 Act; (ii) the reference to the provisions
of this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares of Common Stock delivered
pursuant hereto have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(j) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (f) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder.
3. Covenants of Issuer. In addition to its other agreements
and covenants herein, Issuer agrees: (i) that it shall at all times maintain,
free from subscriptive or preemptive rights, sufficient authorized but unissued
or treasury shares of Common Stock so that the Option may be exercised without
additional authorization of Common Stock after giving effect to all other
options, warrants, convertible securities and other rights to purchase Common
Stock; (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; (iii) promptly to take all action as may from time to time be required
(including complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. Section 18a and regulations
promulgated thereunder) in order to permit
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the Holder to exercise the Option and Issuer to duly and effectively issue
shares of Common Stock pursuant hereto; (iv) promptly to take all action
provided herein to protect the rights of the Holder against dilution; and (v)
not to enter or agree to enter into any Acquisition Transaction unless the other
party or parties thereto agree to assume in writing all of Issuer's obligations
hereunder; provided that nothing in this Section 3 or elsewhere in this
Agreement shall be deemed to authorize Issuer to breach any provision of the
Reorganization Agreement. Notwithstanding any notice of revocation delivered
pursuant to the proviso to Section 7(c), a Holder may require such other party
or parties to perform Issuer's obligations under Section 7(a) unless such other
party or parties are prohibited by law or regulation from such performance.
4. Exchange; Replacement. This Agreement (and the Option
granted hereby) are exchangeable, without expense, at the option of the Holder,
upon presentation and surrender of this Agreement at the principal office of
Issuer, for other Agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and "Option"
as used herein include any Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
5. Adjustments. In addition to the adjustment in the number of
shares of Common Stock that are purchasable upon exercise of the Option pursuant
to Section 1 of this Agreement, the number of shares of Common Stock purchasable
upon the exercise of the Option and the Option Price shall be subject to
adjustment from time to time as provided in this Section 5. In the event of any
change in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares, distributions on or in respect of the Common
Stock that would be prohibited under the terms of the Reorganization Agreement,
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the Issuer's
obligations hereunder.
6. Registration. Upon the occurrence of a Subsequent
Triggering Event that occurs prior to an Exercise Termination Event, Issuer
shall, at the request of Grantee delivered within 180 days (or such later period
as provided in Section 10) of such Subsequent Triggering Event (whether on its
own behalf or on behalf of any subsequent holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a shelf registration statement under the 1933 Act
covering this Option and any
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shares issued and issuable pursuant to this Option and shall use its reasonable
best efforts to cause such registration statement to become effective and remain
current in order to permit the sale or other disposition of this Option and any
shares of Common Stock issued upon total or partial exercise of this Option
("Option Shares") in accordance with any plan of disposition requested by
Grantee. Issuer will use its reasonable best efforts to cause such registration
statement promptly to become effective and then to remain effective for a period
not in excess of 180 days from the day such registration statement first becomes
effective or such shorter time as may be reasonably necessary, in the judgment
of the Grantee or the Holder, to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. The Issuer shall
bear the costs of such registrations (including, but not limited to, Issuer's
attorneys' fees, printing costs and filing fees, except for underwriting
discounts or commissions, brokers' fees and the fees and disbursements of
Grantee's counsel related thereto). The foregoing notwithstanding, if, at the
time of any request by Grantee for registration of the Option or Option Shares
as provided above, Issuer is in registration with respect to an underwritten
public offering of shares of Common Stock, and if in the good faith judgment of
the managing underwriter or managing underwriters, or, if none, the sole
underwriter or underwriters, of such offering the inclusion of the Holder's
Option or Option Shares would interfere with the successful marketing of the
shares of Common Stock offered by Issuer, the number of Option Shares otherwise
to be covered in the registration statement contemplated hereby may be reduced;
provided, however, that after any such required reduction the number of Option
Shares to be included in such offering for the account of the Holder shall
constitute at least 25% of the total number of shares to be sold by the Holder
and Issuer in the aggregate; and provided further, however, that if such
reduction occurs, then the Issuer shall file a registration statement for the
balance of such shares of Common Stock issuable pursuant to this Option as
promptly as practical following such reduction and no reduction in the number of
shares of Common Stock to be sold by the Holder shall thereafter occur. Each
such Holder shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If requested by
any such Holder in connection with such registration, Issuer shall become a
party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating itself in respect of representations,
warranties, indemnities and other agreements customarily included in secondary
offering underwriting agreements for the Issuer. Upon receiving any request
under this Section 6 from any Holder, Issuer agrees to send a copy thereof to
any other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid, to
the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
7. Repurchase of Option and/or Option Shares. (a) At any time
after the occurrence of a Repurchase Event (as defined below), (i) following a
request of the Holder, given prior to an Exercise Termination Event (or such
later period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the Market/Offer Price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the
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"Owner"), delivered within 90 days of such occurrence (or such later period as
provided in Section 10), Issuer shall repurchase such number of the Option
Shares from the Owner as the Owner shall designate at a price (the "Option Share
Repurchase Price") equal to the Market/Offer Price multiplied by the number of
Option Shares so designated; provided, however, that the Option Repurchase Price
and the Option Share Repurchase Price, individually and in the aggregate and as
paid from time to time, shall be subject to the limitations on Notional Total
Profit set forth in Section 14. The term "Market/Offer Price" shall mean the
greatest of (i) the price per share of Common Stock at which a tender offer or
exchange offer therefor has been made, (ii) the price per share of Common Stock
to be paid by any third party pursuant to an agreement with Issuer, (iii) the
highest closing price per share of Common Stock within the six-month period
immediately preceding the date on which the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm mutually
selected by the Holder or the Owner, as the case may be, on the one hand, and
the Issuer, on the other, divided by the number of shares of Common Stock of
Issuer outstanding at the time of such sale. In determining the Market/Offer
Price, the value of consideration other than cash shall be determined by a
nationally recognized investment banking firm mutually selected by the Holder or
Owner, as the case may be, on the one hand, and the Issuer, on the other.
(b) Following a Repurchase Event, the Holder or the Owner, as
the case may be, may exercise its right to require Issuer to repurchase the
Option and any Option Shares pursuant to this Section 7 by surrendering for such
purpose to Issuer, at its principal office, a copy of this Agreement or
certificates for Option Shares, as applicable, accompanied by a written notice
or notices stating that the Holder or the Owner, as the case may be, elects to
require Issuer to repurchase this Option and/or the Option Shares, as the case
may be, in accordance with the provisions of this Section 7. Prior to the later
of (x) the date that is five business days after the surrender of the Option
and/or certificates representing Option Shares and the receipt of such notice or
notices relating thereto and (y) the day on which a Repurchase Event occurs,
Issuer shall deliver or cause to be delivered to the Holder the Option
Repurchase Price and/or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited under applicable law and
regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable
law or regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and thereafter
shall deliver or cause to be delivered, from time to time, to the Holder and/or
the Owner, as appropriate, that portion of the Option Repurchase Price and the
Option Share Repurchase Price, respectively, that it is no longer prohibited
from delivering, in each case within five business days after the date on which
Issuer is no longer so prohibited; provided, however, that if Issuer at any time
after delivery of a notice of repurchase delivered by the Holder or the Owner
pursuant to paragraph (b) of this Section 7 is prohibited under applicable law
or regulation from delivering to the Holder and/or the Owner, as the case may
be, the Option Repurchase Price or the Option Share Repurchase Price,
respectively, in full (and
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Issuer hereby undertakes to use its best efforts to obtain all required
regulatory and legal approvals and to file any required notices as promptly as
practicable in order to accomplish such repurchase), the Holder or Owner may
revoke its notice of repurchase of the Option or the Option Shares either in
whole or to the extent of the prohibition, whereupon, in the latter case, Issuer
shall promptly (i) deliver to the Holder and/or the Owner, as appropriate, that
portion of the Option Repurchase Price or the Option Share Repurchase Price that
Issuer is not prohibited from delivering; and (ii) deliver, as appropriate,
either (A) to the Holder, a new Stock Option Agreement evidencing the right of
the Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered Stock
Option Agreement was exercisable at the time of delivery of the notice of
repurchase by a fraction, the numerator of which is the Option Repurchase Price
less the portion thereof theretofore delivered to the Holder and the denominator
of which is the Option Repurchase Price, or (B) to the Owner, a certificate for
the Option Shares it is then so prohibited from repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall
be deemed to have occurred (i) upon the consummation of any merger,
consolidation or similar transaction involving Issuer or any purchase, lease or
other acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition Transaction
pursuant to the provisos to Sections 2(c)(i) or 2(d)(ii) hereof or (ii) upon the
acquisition by any person of beneficial ownership of more than 50% of the then
outstanding shares of Common Stock; provided that no such event shall constitute
a Repurchase Event unless a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event. The parties hereto agree that Issuer's
obligations to repurchase the Option or Option Shares under this Section 7 shall
not terminate upon the occurrence of an Exercise Termination Event unless no
Subsequent Triggering Event shall have occurred prior to the occurrence of an
Exercise Termination Event.
8. Substitute Option. (a) In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or one of its Subsidiaries, then, and
in each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as defined below) or (y)
any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
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(1) "Acquiring Corporation" shall mean (i) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a merger in which Issuer
is the continuing, surviving or acquiring person, and (iii) the
transferee of all or substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common
stock (or similar equity interest) issued by the issuer of the
Substitute Option upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the Market/Offer
Price, as defined in Section 7.
(4) "Average Price" shall mean the average closing
price of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in question but
in no event higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by the person merging into Issuer or by any company which
controls or is controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the
Option; provided, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
to the terms of the Option and in no event less advantageous to the Holder. The
issuer of the Substitute Option shall also enter into an agreement with the then
Holder or Holders of the Substitute Option in substantially the same form as
this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number
of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs,
shall the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than 19.9%
of the shares of Substitute Common Stock outstanding prior to exercise but for
this clause (e), the issuer of the Substitute Option (the "Substitute Option
Issuer") shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value
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shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any person
that controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder.
9. Repurchase of Substitute Option. (a) At the request of the
holder of the Substitute Option (the "Substitute Option Holder"), the Substitute
Option Issuer shall repurchase the Substitute Option from the Substitute Option
Holder at a price (the "Substitute Option Repurchase Price") equal to the sum of
the amount by which (i) the Highest Closing Price (as defined below) exceeds
(ii) the exercise price of the Substitute Option, multiplied by the number of
shares of Substitute Common Stock for which the Substitute Option may then be
exercised (after giving effect to any limitations on such number under the
provisions of Section 14 hereof), and at the request of the owner (the
"Substitute Share Owner") of shares of Substitute Common Stock (the "Substitute
Shares"), the Substitute Option Issuer shall repurchase the Substitute Shares at
a price (the "Substitute Share Repurchase Price") equal to the Highest Closing
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding the
date the Substitute Option Holder gives notice of the required repurchase of the
Substitute Option or the Substitute Share Owner gives notice of the required
repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder or the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option or the Substitute
Shares, as the case may be, pursuant to this Section 9 by surrendering for such
purpose to the Substitute Option Issuer, at its principal executive office, the
agreement for such Substitute Option (or, in the absence of such an agreement, a
copy of this Agreement) and certificates for Substitute Shares accompanied by a
written notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as case may be, elects to require the Substitute Option
Issuer to repurchase the Substitute Option and/or the Substitute Shares, as the
case may be, in accordance with the provisions of this Section 9. As promptly as
practicable, and in any event within five business days after the surrender of
the Substitute Option and/or certificates representing Substitute Shares and the
receipt of such notice or notices delivered pursuant to this subsection (b) of
this Section 9 relating thereto, the Substitute Option Issuer shall deliver or
cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price or, in either case, the portion thereof which the Substitute
Option Issuer is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that the Substitute Option Issuer is
prohibited under applicable law or regulation from repurchasing the Substitute
Option and/or the Substitute Shares in part or in full, the Substitute Option
Issuer, following a request for repurchase pursuant to this Section 9, shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and shall thereafter deliver or cause to be delivered, from time to time,
to the Substitute Option
11
Holder and/or the Substitute Share Owner, as appropriate, that portion of the
Substitute Share Repurchase Price, respectively, which it is no longer
prohibited from delivering, in each case, within five business days after the
date on which the Substitute Option Issuer is no longer so prohibited; provided,
however, that if the Substitute Option Issuer at any time after delivery of a
notice of repurchase delivered by the Substitute Share Owner or Substitute
Option Holder pursuant to subsection (b) of this Section 9 is prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder or Substitute Share
Owner may revoke its notice of repurchase of the Substitute Option or the
Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly (i)
deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Substitute Option Holder, a new Substitute Option evidencing the right of the
Substitute Option Holder to purchase that number of shares of the Substitute
Common Stock obtained by multiplying the number of shares of the Substitute
Common Stock for which the surrendered Substitute Option was exercisable at the
time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Substitute Option Repurchase Price less the portion thereof
theretofore delivered to the Substitute Option Holder and the denominator of
which is the Substitute Option Repurchase Price, or (B) to the Substitute Share
Owner, a certificate for the Substitute Common Shares it is then so prohibited
from repurchasing.
10. Extension. The period for exercise of certain rights under
Sections 6, 7 and 13 shall be extended: (i) to the extent necessary to obtain
all regulatory approvals for the exercise of such rights, and for the expiration
of all statutory waiting periods; and (ii) to the extent necessary to avoid
liability under Section 16(b) of the 1934 Act by reason of such exercise.
11. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
12
at any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and will not be subject to any preemptive
rights.
(c) The execution, delivery and performance of this Agreement
does not or will not, and the consummation by Issuer of any of the transactions
contemplated hereby will not, constitute or result in (i) a breach or violation
of or a default under, its articles or certificate of incorporation or by-laws,
or the comparable governing instruments of any of its subsidiaries, or (ii) a
breach or violation of or a default under, any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation of it or any of its
subsidiaries (with or without the giving of notice, the lapse of time or both)
or under any law, rule, ordinance or regulation or judgment, decree, order,
award or governmental or non-governmental permit or license to which it or any
of its subsidiaries is subject.
(d) No "fair price", "moratorium", "control share acquisition"
or other similar anti-takeover statute or regulation enacted under state or
federal laws applicable to the Issuer or any of its Subsidiaries is applicable
to this Agreement or any of the transactions contemplated hereby.
12. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in conformance with Section 2(a)
hereof and in a transaction registered or exempt from registration under the
Securities Act.
13. Assignment. Neither of the parties hereto may assign any
of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that in the event a Subsequent Triggering Event shall have
occurred prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within 90 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
14. Notional Total Profit. (a) Notwithstanding any other
provision of this Agreement, this Option may not be exercised, and this Option
and/or the Option Shares issued
13
upon exercise hereof may not be presented for repurchase under Sections 2, 7 or
9 hereof, for a number of shares, or a total repurchase price, as the case may
be, that would, as of the date of exercise or presentment, result in a Notional
Total Profit (as defined below) of more than $176,000,000. Notwithstanding the
foregoing, this Section 14 shall not apply to any exercise of this Option by
Grantee pursuant to Section 2(a) hereof; provided, however, that if (x) at any
time prior to the one-year anniversary of any such exercise, the holder of any
Option Shares issued upon such exercise shall sell, tender for sale, convey,
hypothecate, transfer or otherwise dispose of ("Transfer") such Option Shares
(or any other securities into which such Option Shares are converted or
exchanged), or any interest therein, including any transaction contemplated by
Sections 7 or 9 hereof (other than in connection with a merger, consolidation or
similar business combination pursuant to the terms of which the Common Stock is
exchanged solely for equity or equity-related securities of another corporation
and cash in lieu of fractional shares thereof and any remaining unexercised
portion of this Option is converted in such transaction into an Option to
acquire such equity or equity-related securities) or (y) this Option is
presented for repurchase under Section 7 or 9 hereof, then this Section 14 shall
be deemed to retroactively apply to any and all exercises of this Option
preceding such Transfer or presentment, without giving effect to the exception
therefrom provided by this sentence, as if such exercises had occurred on the
date of such Transfer. In such an event, such holder shall, within 10 business
days of such Transfer, notify the Issuer of such Transfer and pay to the Issuer,
by wire transfer of immediately available funds, the excess of any Notional
Total Profit (calculated in respect of all transactions covered by this Section
14 without giving effect to the exception from this Section 14 provided by the
foregoing sentence) over $176,000,000 (the "Repayment"); provided, however,
that, at the Issuer's election, the Repayment shall be paid in shares of Common
Stock to the extent that Grantee then holds such shares, and the per share value
of such shares of Common Stock shall be deemed to be the closing price of the
Common Stock on the trading date immediately preceding the date the Repayment is
due.
(b) As used herein and subject to Section 14(a), the term
"Notional Total Profit" with respect to any number of shares as to which
Grantee may propose to, or be deemed to, exercise this Option shall be the
Total Profit determined as of the date of such proposed exercise assuming that
this Option were exercised on such date for such number of shares and assuming
that such shares, together with all other Option Shares held by Grantee and
its affiliates as of such date, were sold for cash at the closing market price
for the Common Stock as of the close of business on the preceding trading day
(less customary brokerage commissions).
(c) As used herein, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) the
Grantee's purchase price for such Option Shares, (iii) (x) the net cash
amounts received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged) to
any unaffiliated party, less (y) the Grantee's purchase price of such Option
Shares, (iv) any amounts received by Grantee on the transfer of the Option (or
any portion thereof) to any unaffiliated party, and (v) any amount equivalent
to the foregoing with respect to the Substitute Option.
14
15. Best Efforts. Each of Grantee and Issuer will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including without limitation making application
for quotation on the Nasdaq National Market of the shares of Common Stock
issuable hereunder upon official notice of issuance.
16. Specific Performance. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement by either
party hereto and that the obligations of the parties hereto shall be enforceable
by either party hereto through injunctive or other equitable relief.
17. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to Section 7, the
full number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention of
Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Reorganization Agreement or such other address as
shall be provided in writing.
19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
20. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
21. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
22. Entire Agreement. Except as otherwise expressly provided
herein or in the Reorganization Agreement, this Agreement contains the entire
agreement between the parties with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereof, written or oral. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors
15
and permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
23. Captions; Capitalized Terms. The section and paragraph
captions herein are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of the
provisions hereof. Capitalized terms used in this Agreement and not defined
herein shall have the meanings assigned thereto in the Reorganization Agreement.
16
IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
LYCOS, INC.
By /s/ Robert M. Davis
---------------------------------------
Name: Robert M. Davis
Title: President and Chief Executive
Officer
USA NETWORKS, INC.
By: /s/ Victor A. Kaufman
--------------------------------------
Name: Victor A. Kaufman
Title: Office of the Chairman and
Chief Financial Officer
[Lycos/USA Stock Option]