EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CNET, INC.
CNET ACQUISITION CORP.
U.VISION, INC.
AND
THE STOCKHOLDERS OF
U.VISION, INC.
TABLE OF CONTENTS
Page No.
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ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
SECTION 1.01. THE MERGER 5
SECTION 1.02. CLOSING; CLOSING DATE; EFFECTIVE TIME 5
SECTION 1.03. EFFECT OF THE MERGER 6
SECTION 1.04. ARTICLES OF INCORPORATION; BYLAWS 6
SECTION 1.05. DIRECTORS AND OFFICERS 6
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . . . .6
SECTION 2.01. MERGER CONSIDERATION, CONVERSION AND CANCELLATION OF
SECURITIES 6
SECTION 2.02. EXCHANGE AND SURRENDER OF CERTIFICATES 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 3.01. ORGANIZATION AND QUALIFICATION 8
SECTION 3.02. ARTICLES AND BYLAWS 8
SECTION 3.03. CAPITALIZATION 8
SECTION 3.04. AUTHORITY 9
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS 9
SECTION 3.06. PERMITS; COMPLIANCE 10
SECTION 3.07. FINANCIAL STATEMENTS 10
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS 11
SECTION 3.09. NO UNDISCLOSED LIABILITIES 11
SECTION 3.10. ABSENCE OF LITIGATION 12
SECTION 3.11. TAXES 12
SECTION 3.12. TAX MATTERS; POOLING 13
SECTION 3.13. CERTAIN BUSINESS PRACTICES 13
SECTION 3.14. BROKERS 13
SECTION 3.15. LEASED PROPERTIES 14
SECTION 3.16. CERTAIN MATERIAL CONTRACTS 14
SECTION 3.17. PRINCIPAL CUSTOMERS AND SUPPLIERS; COMPETING
INTERESTS 14
SECTION 3.18. INTELLECTUAL PROPERTY RIGHTS 15
SECTION 3.19. INVESTOR REPRESENTATIONS 15
SECTION 3.20. AFFILIATES AND EMPLOYEES 16
SECTION 3.21. INFORMATION SUPPLIED 16
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT COMPANIES. . . . . . 16
SECTION 4.01. ORGANIZATION AND QUALIFICATION 16
SECTION 4.03. AUTHORITY 16
SECTION 4.04. NO CONFLICT; REQUIRED FILINGS AND CONSENT 17
SECTION 4.04. SEC DOCUMENTS 17
SECTION 4.05. CAPITALIZATION 17
SECTION 4.06. FINANCIAL STATEMENTS 18
SECTION 4.07. UNDISCLOSED LIABILITIES 18
SECTION 4.08. ABSENCE OF CERTAIN CHANGES 18
SECTION 4.09. LITIGATION 19
SECTION 4.10. PERMITS; COMPLIANCE 19
SECTION 4.11. BROKERS 19
SECTION 4.12. TAX MATTERS; POOLING 19
ARTICLE V COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY 20
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY 20
SECTION 5.03. NON-SOLICITATION 21
SECTION 5.04. COVENANT NOT TO COMPETE 22
SECTION 5.05. ACCESS AND INFORMATION 23
SECTION 5.06. APPROPRIATE ACTION; CONSENTS; FILINGS 23
SECTION 5.07. POOLING; TAX TREATMENT 24
SECTION 5.08. PUBLIC ANNOUNCEMENTS 24
SECTION 5.09. NASDAQ LISTING 24
SECTION 5.10. FEES, EXPENSES AND OTHER PAYMENTS 24
SECTION 5.11. EMPLOYMENT AGREEMENTS 25
SECTION 5.11. VLG SHARES 25
ARTICLE VI CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.01. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE PARENT
COMPANIES 25
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE STOCKHOLDERS 26
ARTICLE VII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.01. INDEMNIFICATION OF PARENT COMPANIES 27
SECTION 7.02. SURVIVAL 27
SECTION 7.03. NOTICE 28
SECTION 7.04. DEFENSE OF CLAIMS 28
SECTION 7.05. EXCLUSIVE REMEDY 28
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . 29
SECTION 8.01. TERMINATION 29
SECTION 8.02. EFFECT OF TERMINATION 29
SECTION 8.03. AMENDMENT 30
SECTION 8.04. WAIVER 30
ARTICLE IX REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 9.01. REGISTRATION STATEMENT 30
SECTION 9.02. LIMITATIONS ON SALE 30
SECTION 9.03. INFORMATION 31
SECTION 9.04. EXPENSES 31
SECTION 9.05. INDEMNIFICATION 31
ARTICLE X GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10.01. NOTICES 32
SECTION 10.02. CERTAIN DEFINITIONS 33
SECTION 10.03. HEADINGS 34
SECTION 10.04. SEVERABILITY 34
SECTION 10.05. ENTIRE AGREEMENT 34
SECTION 10.06. ASSIGNMENT 34
SECTION 10.07. PARTIES IN INTEREST 34
SECTION 10.08. SPECIFIC PERFORMANCE 34
SECTION 10.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES
CUMULATIVE 34
SECTION 10.10. GOVERNING LAW 35
SECTION 10.11. COUNTERPARTS 35
EXHIBITS:
Exhibit A Form of Tonny Yu Employment Agreement
Exhibit B Form of Nora Yeung Employment Agreement
Exhibit C Form of Legal Opinion of Company's Counsel
Exhibit D Form of Legal Opinion of Parent's Counsel
SCHEDULES:
Company Disclosure Schedule
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of May 7, 1998 (this
"Agreement"), is by and among CNET, Inc., a Delaware corporation ("Parent"),
CNET Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
Parent ("Merger Sub"), U.Vision, Inc., a California corporation (the
"Company"), and the stockholders of the Company identified on the signature
pages hereto (the "Stockholders"). Parent and Merger Sub are referred to
together as the "Parent Companies."
WHEREAS, the Parent, Merger Sub and the Company have determined that the
merger of Merger Sub with and into the Company (the "Merger"), with the
Company surviving as a wholly owned subsidiary of Parent, and conversion of
the issued and outstanding shares of common stock, no par value, of the
Company (the "Company Common Stock") into the right to receive shares of
common stock, $0.0001 par value, of Parent (the "Parent Common Stock"), on
the terms and subject to the conditions of this Agreement and in accordance
with the General Corporation Law of the State of California ("California
Law") and the General Corporation Law of the State of Delaware ("Delaware
Law") would be advantageous and beneficial to their respective corporations
and stockholders;
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Merger is intended to be treated as a "pooling of
interests" for financial accounting purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. THE MERGER. On the terms and subject to the conditions
set forth in this Agreement, and in accordance with applicable federal and
state law, at the Effective Time (as defined in SECTION 1.02), Merger Sub
shall be merged with and into the Company. As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation of the Merger (the "Surviving
Corporation"). Certain terms used in this Agreement are defined in SECTION
10.02.
SECTION 1.02. CLOSING; CLOSING DATE; EFFECTIVE TIME. Unless this
Agreement is terminated pursuant to SECTION 8.01, and subject to the
satisfaction or waiver of the conditions set forth in ARTICLE VI, the
consummation of the Merger and the closing of the transactions contemplated
by this Agreement (the "Closing") shall take place at the offices of Parent
as soon as practicable (but in any event within five business days) after the
satisfaction or waiver of the
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conditions set forth in ARTICLE VI, or at such other date, time and place as
Parent and the Company may agree; provided, that the conditions set forth in
ARTICLE VI shall have been satisfied or waived at or prior to such time. The
date on which the Closing takes place is referred to herein as the "Closing
Date." As promptly as practicable on the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing a certificate of merger
with the Secretary of State of the State of California, in such form as
required by, and executed in accordance with the relevant provisions of,
California Law (the date and time of such filing, or such later date or time
agreed upon by Parent and the Company and set forth therein, being the
"Effective Time"). As promptly as practicable on the Closing Date, the
parties shall also file a certificate of merger with the Secretary of State
of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law.
SECTION 1.03. EFFECT OF THE MERGER. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
California Law and Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the properties,
rights, privileges and powers of the Company and Merger Sub will vest in the
Surviving Corporation, and all debts, liabilities and duties of the Company
and the Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.04. ARTICLES OF INCORPORATION; BYLAWS. At the Effective
Time, the Articles of Incorporation and bylaws of the Company, as in effect
immediately prior to the Effective Time, shall be the Articles of
Incorporation and bylaws of the Surviving Corporation unless and until
amended as provided therein and pursuant to California Law.
SECTION 1.05. DIRECTORS AND OFFICERS. The directors and officers of
Merger Sub immediately prior to the Effective Time shall be the directors and
officers of the Surviving Corporation at the Effective Time, each to hold
office in accordance with the bylaws of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. CONSIDERATION; CONVERSION AND CANCELLATION OF
SECURITIES. At the Effective Time, by virtue of the Merger and without any
action on the part of the Parent Companies, the Company or their respective
stockholders:
(a) Subject to the other provisions of this ARTICLE II, each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time shall be converted into a number of shares of Parent Common
Stock equal to (i) $18,000,000 (the "Purchase Price"), divided by (ii)
$33.02969, which equals the average closing price of Parent Common Stock on
the Nasdaq National Market System ("Nasdaq") for the 20 trading day period
ending on (and including) May 5, 1998 (the "Conversion Price") divided by
(iii) the total number of shares of Company Common Stock outstanding
immediately prior to the Effective Time.
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(b) All shares of Company Common Stock shall cease to be
outstanding and shall automatically be canceled and retired, and each
certificate previously evidencing such Company Common Stock outstanding
immediately prior to the Effective Time (the "Converted Shares") shall
thereafter represent the right to receive Parent Common Stock in accordance
with this ARTICLE II. The Stockholders shall cease to have any rights with
respect to such Converted Shares except as otherwise provided herein or by
law. Certificates previously evidencing Converted Shares shall be exchanged
for Parent Common Stock upon the surrender of such certificates in accordance
with the provisions of SECTION 2.02, without interest.
(c) Each share of common stock, par value $0.01 per share, of
Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, no par value per share, of
the Surviving Corporation.
SECTION 2.02. EXCHANGE AND SURRENDER OF CERTIFICATES.
(a) Each Stockholder shall be entitled to receive, upon
surrender to Parent or its transfer agent of certificates previously
evidencing Converted Shares, as soon as practicable after the Closing Date, a
certificate representing the Converted Shares so surrendered, registered in
the name of such Stockholder. Until so surrendered and exchanged, each
certificate previously evidencing Converted Shares shall represent solely the
right to receive Parent Common Stock.
(b) All shares of Parent Common Stock issued upon the surrender
for exchange of certificates previously representing Converted Shares in
accordance with the terms hereof (including any adjustments pursuant to
SECTION 2.02(c)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such Converted Shares. At and after the Effective
Time, there shall be no further registration of transfers on the stock
transfer books of the Surviving Corporation of Company Common Stock that was
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates which previously evidenced Converted Shares are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this ARTICLE II.
(c) No certificates or scrip evidencing fractional shares of
Parent Common Stock shall be issued upon the surrender for exchange of
certificates, and such fractional share interests will not entitle the owner
thereof to any rights as a stockholder of Parent. In lieu of any such
fractional shares, the number of shares of Parent Common Stock issuable to
any Stockholder in connection with the Merger shall be rounded up to the
nearest whole share.
(d) Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any former
holder of Converted Shares such amounts as Parent (or any affiliate thereof)
is required to deduct and withhold with respect to the making of such payment
under the Code, or any provision of state, local or foreign tax law. To the
extent that amounts are so withheld by Parent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the former
holder of the Converted Shares in respect of which such deduction and
withholding was made by Parent.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE STOCKHOLDERS
Except as disclosed with respect to any particular representation or
warranty in a document dated as of the date hereof, signed by the parties
hereto and referring to the representations and warranties in this Agreement
(the "Company Disclosure Schedule"), the Company and the Stockholders hereby
represent and warrant to the Parent Companies that:
SECTION 3.01. ORGANIZATION AND QUALIFICATION . The Company is a
corporation duly organized, validly existing and in good standing under the
laws of California, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as it is now being
conducted and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary,
except where the failure to be so qualified would not reasonably be expected
to have a material adverse effect on the Company.
SECTION 3.02. ARTICLES AND BYLAWS. The Company has furnished to
Parent complete and correct copies of its Articles of Incorporation and
bylaws, in each case as amended or restated, of the Company. The Company is
not in violation of any of the provisions of its Articles of Incorporation or
bylaws.
SECTION 3.03. CAPITALIZATION.
(a) The authorized capital stock of the Company consists of
1,500 shares of common stock, no par value per share, all of which shares are
issued and outstanding. All of the outstanding capital stock of the Company
is held of record and beneficially by the Stockholders free and clear of all
security interests, liens, claims, pledges, agreements, charges or other
encumbrances of any nature whatsoever. All of the outstanding capital stock
of the Company is duly authorized, validly issued, fully paid and
nonassessable, and has not been issued in violation of (nor are any of the
authorized shares of capital stock of the Company subject to) any preemptive
or similar rights created by statute, the Articles of Incorporation or bylaws
of the Company or any agreement to which the Company is a party or bound.
(b) No shares of capital stock of the Company are reserved for
any purpose or held in treasury by the Company. There are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which the Company is a party relating to the issued or unissued
capital stock of the Company or obligating the Company to grant, issue or
sell any shares of the capital stock of the Company. There are no
obligations, contingent or otherwise, of the Company to (i) repurchase,
redeem or otherwise acquire any shares of the capital stock of the Company or
(ii) provide material funds to, or make any material investment in (in the
form of a loan, capital contribution or otherwise), or provide any guarantee
with respect to the obligations of, any other person. There are no
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on the revenues or earnings, or calculated in accordance
therewith, of
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the Company. There are no voting trusts, proxies or other agreements or
understandings to which the Company is a party or by which the Company is
bound with respect to the voting of any shares of capital stock of the
Company.
(c) The Company (i) does not directly or indirectly own, (ii)
has not agreed to purchase or otherwise acquire and (iii) does not hold any
interest convertible into or exchangeable or exercisable for, any capital
stock (or equivalent equity interest) of any corporation, partnership, joint
venture or other business association or entity.
SECTION 3.04. AUTHORITY. The Company has all requisite corporate
power and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and the
Stockholders and constitutes the legal, valid and binding obligation of the
Company and the Stockholders enforceable against the Company and the
Stockholders in accordance with its terms.
SECTION 3.05. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The execution and delivery of this Agreement by the Company
and the Stockholders does not, and the consummation of the transactions
contemplated hereby will not (i) conflict with or violate the Articles of
Incorporation or bylaws, in each case as amended or restated, of the Company,
(ii) conflict with or violate any federal, state, foreign or local law,
statute, ordinance, rule, regulation, order, judgment or decree
(collectively, "Laws") applicable to the Stockholders or the Company or by
which any of their properties or assets is bound or subject or (iii) result
in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or require
payment under, or result in the creation of any lien or encumbrance on any of
the properties or assets of the Company pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any Stockholder or the Company is a party
or by or to which any Stockholder or the Company or any of their properties
or assets is bound or subject, except, in the case of clauses (ii) and (iii)
above, such as would not reasonably be expected, individually or in the
aggregate, to have a material adverse effect on the Company. The Board of
Directors of the Company has taken all actions necessary under California
Law, including approving the transactions contemplated by this Agreement and
taking appropriate actions under California Law or any other applicable
stockholder protection laws, to ensure that any restrictions on business
combinations or the owning or voting of the capital stock of the Company do
not, and will not, apply with respect to or as a result of the transactions
contemplated by this Agreement.
(b) The execution and delivery of this Agreement by the Company
and the Stockholders does not, and consummation of the transactions
contemplated hereby will not, require the Company or any Stockholder to
obtain any consent, license, permit, approval, waiver, authorization or order
of, or to make any filing with or notification to, any governmental or
5
regulatory authority, domestic or foreign (each individually, a "Governmental
Entity," and collectively, "Governmental Entities"), except for the filing
and recordation of appropriate merger documents as required by California Law
and Delaware Law.
SECTION 3.06. PERMITS; COMPLIANCE. The Company is in possession of
all franchises, grants, authorizations, licenses, permits, easements,
variances, exemptions, consents, certificates, approvals and orders necessary
to own, lease and operate its properties and to carry on its business as it
is now being conducted (collectively, the "Company Permits"), and there is no
action, proceeding or investigation pending or, to the Company's knowledge,
threatened regarding suspension or cancellation of any of the Company
Permits, except where the failure to possess or the suspension or
cancellation of such would not reasonably be expected to have a material
adverse effect on the Company. The Company and its assets and operations are
currently and, to the Company's knowledge, have at all times been in
compliance with all Laws applicable to the Company and its operations or by
or to which any of its assets is bound or subject, including without
limitation all Laws related to environmental protection, employee benefits,
labor and employment and occupational health and safety, except where such
failure to comply would not reasonably be expected to have a material adverse
effect on the Company. The Company has not received from any Governmental
Entity any written notification with respect to possible violations of Laws.
SECTION 3.07. FINANCIAL STATEMENTS.
(a) SECTION 3.07(a) of the Company Disclosure Schedule includes
(i) the unaudited balance sheet of the Company as of December 31, 1997 and
the unaudited profit and loss statements and statement of cash flows of the
Company for the year ended on such date and (ii) the unaudited balance sheet
of the Company (the "Latest Balance Sheet") as of March 31, 1998 (the "Latest
Balance Sheet Date") and the unaudited profit and loss statements and
statement of cash flows for the three months ended on such date.
(b) Except as set forth in Section 3.07(b) of the Company
Disclosure Schedule, each of the foregoing financial statements (i) has been
prepared in accordance with generally accepted accounting principles applied
on a consistent basis throughout the periods involved and (ii) fairly present
in all material respects the financial position of the Company as of the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, except that the interim financial statements are
subject to normal and recurring year-end adjustments, which will not be
material individually or in the aggregate.
(c) SECTION 3.07(c) of the Company Disclosure Schedule sets
forth certain statistics concerning the operations of the Company, which are
accurate (subject to the margins of error indicated for certain of such
statistics).
(d) All accounts receivable reflected in the Latest Balance
Sheet or generated since the Latest Balance Sheet Date arose in the ordinary
course of business and are fully collectible in the ordinary course of
business, without resort to litigation, at the face amount thereof less any
reserve reflected in the Latest Balance Sheet, and will not be subject to
counterclaim, set-off or other reduction.
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SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set
forth in SECTION 3.08 of the Company Disclosure Schedule, since the Latest
Balance Sheet Date, the Company has conducted its business only in the
ordinary course and in a manner consistent with past practice and there has
not been: (a) any damage, destruction or loss (whether or not covered by
insurance) with respect to any material assets of the Company; (b) any change
by the Company in its accounting methods, principles or practices; (c) any
declaration, setting aside or payment of any dividends or distributions in
respect of shares of the capital stock of the Company or any redemption,
purchase or other acquisition by the Company of any of its securities; (d)
any increase in the benefits under, or the establishment or amendment of, any
bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing or other employee benefit plan, or any increase in the
compensation payable or to become payable to directors, officers or employees
of the Company, except for annual bonuses or merit increases in salaries or
wages in the ordinary course of business and consistent with past practice;
(e) any payment or other transfer of assets by the Company to any
Stockholder, other than compensation payments in the ordinary course of
business and consistent with past practice; (f) any revaluation by the
Company of any of its assets, including the writing down or off of notes or
accounts receivable, other than in the ordinary course of business and
consistent with past practices; (g) any entry by the Company into any
commitment or transaction material to the Company including, without
limitation, incurring or agreeing to incur capital expenditures in excess of
$50,000; (h) any incurrence of indebtedness for borrowed money other than
trade payables incurred in the ordinary course of business; (i) a loss, or
written notice threatening a loss, of any customer or supplier set forth on
SECTION 3.17 of the Company Disclosure Schedule; (j) the termination of
employment (whether voluntary or involuntary) of any officer or key employee
of the Company; or (k) any change, occurrence or circumstance having or
reasonably likely to have, individually or in the aggregate, a material
adverse effect on the business, operations, assets, financial condition,
results of operations or prospects of the Company.
SECTION 3.09. NO UNDISCLOSED LIABILITIES. The Company does not have
any direct or indirect debts, liabilities or obligations, whether known or
unknown, absolute, accrued, contingent or otherwise ("Liabilities"), except
(a) Liabilities fully reflected in the Latest Balance Sheet; (b) trade
payables and accrued expenses incurred in the ordinary course of business and
consistent with past practice since the Latest Balance Sheet Date; (c)
obligations to be performed in the ordinary course of business, consistent
with past practice, under the Material Contracts (as defined in SECTION 3.16)
or under agreements not required to be disclosed pursuant to SECTION 3.16;
and (d) Liabilities described in SECTION 3.09 of the Company Disclosure
Schedule.
SECTION 3.10. ABSENCE OF LITIGATION. Except as set forth in SECTION
3.10(a) of the Company Disclosure Schedule, there is no claim, action, suit,
litigation, proceeding or arbitration of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or, to
the Company's knowledge, threatened against the Company or any assets or
rights of the Company. The Company is not subject to any continuing order
of, consent decree, settlement agreement or other similar written agreement
with, or, to the Company's knowledge, any continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or
award of any Government Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
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SECTION 3.11. TAXES.
(a) Except as set forth on SECTION 3.11(a) of the Company
Disclosure Schedule, (i) all returns and reports ("Tax Returns") of or with
respect to any Tax which is required to be filed on or before the Closing
Date by or with respect to the Company have been or will be duly and timely
filed, (ii) all items of income, gain, loss, deduction and credit or other
items required to be included in each such Tax Return have been or will be so
included and all information provided in each such Tax Return is true,
correct and complete, (iii) all Taxes which have become or will become due
with respect to the period covered by each such Tax Return have been or will
be timely paid in full, (iv) all withholding Tax requirements imposed on or
with respect to the Company have been or will be satisfied in full in all
respects, and (v) no penalty, interest or other charge is or will become due
with respect to the late filing of any such Tax Return or late payment of any
such Tax.
(b) All Tax Returns of or with respect to the Company with
extended or waived statutes of limitations, which have not been audited by
the applicable governmental authority, are set forth in SECTION 3.11(b) of
the Company Disclosure Schedule.
(c) Except as set forth on SECTION 3.11(c) of the Company
Disclosure Schedule, there is not in force any extension of time with respect
to the due date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment, collection or payment of any Tax of or with respect to the
Company that is still in effect.
(d) There are no pending audits, actions, proceedings,
investigations, disputes or claims with respect to or against the Company for
or with respect to any Taxes of the Company, and no assessment, deficiency or
adjustment has been assessed or proposed with respect to any Tax Return of or
with respect to the Company, and no material issue has been raised during the
past five years by any federal, state, local or foreign taxing authority
which, if raised with regard to any other period not so examined, could
reasonably be expected to result in a claim for material Taxes against the
Company, other than those disclosed (and to which are attached true and
complete copies of all audit or similar reports) on SECTION 3.11(d) of the
Company Disclosure Schedule.
(e) The Company has previously delivered to Parent true and
complete copies of each written Tax allocation or sharing agreement and a
true and complete description of each unwritten Tax allocation or sharing
arrangement affecting the Company, if any.
(f) Except for statutory liens for current Taxes not yet due, no
liens for Taxes exist upon the assets of any of the Company.
(g) The Company will not be required to include any amount in
income for any taxable period beginning after the Closing Date as a result of
a change in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with respect
to any such taxable period.
8
(h) Except as set forth on SECTION 3.11(i) of the Company
Disclosure Schedule, none of the property of the Company is held in an
arrangement for which partnership Tax Returns are being filed, and the
Company does not own any interest in any controlled foreign corporation (as
defined in section 957 of the Code), passive foreign investment company (as
defined in section 1296 of the Code) or other entity the income of which is
required to be included in the income of the Company.
(i) The Company has never been subject to Taxes in any
jurisdiction outside the United States.
(j) The Company has had in effect since its corporate inception
a valid, binding, timely filed election to be taxed pursuant to Subchapter S
of the Code, is not liable for any federal income taxes as a "C corporation,"
and has no net unrealized built-in gain potentially subject to tax under
Section 1374 of the Code.
SECTION 3.12. TAX MATTERS; POOLING. Neither the Company nor any of
its Stockholders or other affiliates has taken or agreed to take any action
that would prevent the Merger from (i) constituting a reorganization
qualifying under the provisions of section 368(a) of the Code or (ii) being
treated for financial accounting purposes as a "pooling of interests" (the
"Pooling Transaction") in accordance with generally accepted accounting
principles and the rules, regulations and interpretations of the Securities
and Exchange Commission (the "SEC").
SECTION 3.13. CERTAIN BUSINESS PRACTICES. Neither the Company, the
Stockholders nor their agents or other representatives has, directly or
indirectly, made or authorized any payment, contribution or gift of money,
property or services, whether or not in contravention of applicable law, (a)
to any political organization, or the holder of or any aspirant to any
elective or appointive public office, except for personal political
contributions not involving the direct or indirect use of funds of the
Company, or (b) as a kickback or bribe to any person.
SECTION 3.14. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Company.
SECTION 3.15. LEASED PROPERTIES. SECTION 3.15 of the Company
Disclosure Schedule sets forth a description (including the street address)
of all real property leased by the Company (the "Leased Properties"). No
premises other than the Leased Properties are used in the business of the
Company.
SECTION 3.16. CERTAIN MATERIAL CONTRACTS.
(a) SECTION 3.16(a) of the Company Disclosure Schedule lists
each agreement and arrangement (whether written or oral and including all
amendments thereto) to which the Company is a party or a beneficiary or by
which the Company is bound that is material, directly or indirectly, to the
business of the Company (collectively, the "Material Contracts"), including
without limitation (i) any advertising, promotion, consulting or services
agreements pursuant to which the Company earns revenue; (ii) any supply or
services agreements pursuant which the Company is entitled or obligated to
acquire any assets or services from any person; (iii) any insurance policies;
(iv) any
9
employment, consulting, noncompetition, separation, collective bargaining,
union or labor agreements or arrangements; (v) any agreement evidencing,
securing, guarantying or otherwise relating to any indebtedness for which the
Company has any Liability, (vi) any agreement with or for the benefit of any
Stockholder of the Company, or any affiliate or family member thereof (which
agreements are specifically identified as such in SECTION 3.16(a) of the
Company Disclosure Schedule); (vii) any capital or operating leases or
conditional sales agreements relating to vehicles or equipment; and (viii)
any other agreement or arrangement pursuant to which the Company could be
required to make or be entitled to receive aggregate payments in excess of
$50,000.
(b) The Company has performed in all material respects all of
its obligations under each Material Contract and there exists no breach or
default (or event that with notice or lapse of time would constitute a breach
or default) under any Material Contract, except for such breaches or defaults
that would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the Company.
(c) Each Material Contract is valid, binding and in full force
and effect and, to the knowledge of the Company, enforceable in accordance
with its respective terms. There has been no termination or, to the
Company's knowledge, threatened termination or notice of default under any
Material Contract. The Company has delivered to Parent a copy of each
written Material Contract and a written summary of the material terms of each
oral Material Contract.
SECTION 3.17. PRINCIPAL CUSTOMERS AND SUPPLIERS; COMPETING INTERESTS.
Set forth in SECTION 3.17(a) of the Company Disclosure Schedule is a list of
the ten largest customers by dollar volume of the Company and the ten largest
suppliers by dollar volume of the Company (with the amount of revenues or
payments, as applicable, attributable to each such customer and supplier) for
1997 and the first three months of 1998. Since January 1, 1997, no such
supplier or customer of the Company has notified the Company that it has
canceled or otherwise terminated, or, to the Company's knowledge, threatened
to cancel or otherwise terminate, its relationship with the Company, and
there has not been any material dispute with any such customer or supplier.
Except as described in SECTION 3.17(b) of the Company Disclosure Schedule,
none of the Stockholders, the Company, nor, to the Company's knowledge, any
director or officer of the Company owns, directly or indirectly, an interest
in any entity that is a competitor, customer or supplier of the Company or
that otherwise has material business dealings with the Company.
SECTION 3.18. INTELLECTUAL PROPERTY RIGHTS. There are no registered
patents, trademarks, service marks, trade names or copyrights, or
applications for or licenses (to or from the Company) with respect to any of
the foregoing, that (a) is owned by the Company, or with respect to which the
Company has any rights, or (b) is used, whether directly or indirectly, by
the Company, other than the trade names, trademarks and patents (or
applications therefor) set forth on SECTION 3.18 of the Company Disclosure
Schedule. The Company owns or has the right to use the trademarks, trade
names and patents (or applications therefor) set forth on SECTION 3.18 of the
Company Disclosure Schedule, and the Company owns or has the right to use all
other content, graphics, trade dress, domain names, computer software, data
base content, intellectual property, proprietary information, trade secrets,
trademarks, trade names, copyrights, material specifications, inventions,
data, drawings and designs used by the Company or necessary in connection
with the operation of the business of the Company as currently carried out or
as may be carried out in the future (collectively, "Intellectual Property"),
without infringing on or
10
otherwise acting adversely to the rights or claimed rights of any person,
except where the failure to own or have the right to use such Intellectual
Property has not, and could not reasonably be expected to have, a material
adverse effect on the Company. No Company content is obscene or defamatory.
The Company is not obligated to pay any royalty or other consideration to any
person in connection with the use of any Intellectual Property. To the
Company's knowledge, no other person is infringing the rights of the Company
in any of its Intellectual Property.
SECTION 3.19. INVESTOR REPRESENTATIONS.
(a) The Company and the Stockholders understand that the Parent
Common Stock to be issued to them in the Merger will constitute "restricted
securities" under the Securities Act of 1933, as amended (the "Securities
Act"). Consequently, the Stockholders will be able to resell such Parent
Common Stock only (i) pursuant to an effective registration statement
covering such resale or (ii) pursuant to an exemption from registration, such
as the exemption provided under rule 144 under the Securities Act ("Rule
144").
(b) Each Stockholder is an "accredited investor" within the
meaning of Rule 501(a) under the Securities Act.
(c) The Stockholders acknowledge receipt of the SEC Documents
(as defined in SECTION 4.04) and acknowledge that they have been given the
opportunity to ask questions of representatives of Parent and to receive
reasonable additional information to the extent requested in connection with
their evaluation of an investment in the Parent Common Stock.
(d) The Stockholders acknowledge that the Parent Common Stock
will bear a restrictive legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS, AND THE HOLDER HEREOF CANNOT MAKE ANY SALE,
ASSIGNMENT, OR OTHER TRANSFER OF SUCH SECURITIES WITHOUT REGISTRATION
UNDER OR EXEMPTION FROM SUCH ACTS AND LAWS. THE ISSUER MAY REQUIRE
EVIDENCE OF SUCH REGISTRATION OR EXEMPTION PRIOR TO ANY SUCH
TRANSFER."
SECTION 3.20. AFFILIATES AND EMPLOYEES. The Stockholders are the
only persons who may be deemed to be "affiliates" of the Company within the
meaning of Rule 144 under the Securities Act.
SECTION 3.21. INFORMATION SUPPLIED. Without limiting any of the
representations and warranties contained herein, none of the representations
or warranties of the Company or the Stockholders contained in this Agreement
or in the Company Disclosure Schedule, when such representations and
warranties are read together as an entirety, contains any untrue statement of
material fact, or omits to state a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which
such statements were made, not misleading.
11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE PARENT COMPANIES
The Parent Companies hereby represent and warrant to the Company that:
SECTION 4.01. ORGANIZATION AND QUALIFICATION. Each of the Parent
Companies is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted and is
duly qualified and in good standing to do business in each jurisdiction in
which the nature of the business conducted by it or the ownership or leasing
of its properties makes such qualification necessary, except where the
failure to be so qualified would not reasonably be expected to have a
material adverse effect on Parent and its subsidiaries, taken as a whole.
SECTION 4.02. AUTHORITY. Each of the Parent Companies has all
requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement by each of the Parent Companies and the consummation by each of the
Parent Companies of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate
proceedings on the part of any of the Parent Companies are necessary to
authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of the
Parent Companies and constitutes the legal, valid and binding obligation of
each of the Parent Companies, enforceable against them in accordance with its
terms.
SECTION 4.03. NO CONFLICT; REQUIRED FILINGS AND CONSENT.
(a) The execution and delivery of this Agreement by each of the
Parent Companies does not, and the consummation of the transactions
contemplated hereby will not (i) conflict with or violate the charter or
bylaws, in each case as amended or restated, of any Parent Company, (ii)
conflict with or violate any Laws applicable to any Parent Company or by
which any of their properties or assets is bound or subject, or (iii) result
in any breach of or constitute a default (or an event that with notice or
lapse of time or both would become a default) under any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which any Parent Company is a party or by or to
which any Parent Company or any of their respective properties is bound or
subject, except, in the case of clauses (ii) and (iii) above, such as would
not reasonably be expected, individually or in the aggregate, to have a
material adverse effect on Parent and its subsidiaries, taken as a whole.
(b) The execution and delivery of this Agreement by each of the
Parent Companies does not, and the consummation of the transactions
contemplated hereby will not, require any of the Parent Companies to obtain
any consent, license, permit, approval, waiver, authorization or order of, or
to make any filing with or notification to, any Governmental Entities, except
for the filing and recordation of appropriate merger documents as required by
California
12
Law and Delaware Law and except for any filings required pursuant to
California "blue sky" or securities laws.
SECTION 4.04. SEC DOCUMENTS. Parent has filed all forms, reports
and documents required to be filed by Parent with the SEC and has delivered
to the Company and the Stockholders a true and complete copy of Parent's
Annual Report on Form 10-K for the year ended December 31, 1997, its
definitive proxy statement for its annual meeting of stockholders to be held
in 1998, and any other forms, reports and registration statements filed with
the SEC by Parent since January 1, 1998 (together, the "SEC Documents"). As
of their respective dates, the SEC Documents complied in all material
respects with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC thereunder, and 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 to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
SECTION 4.05. CAPITALIZATION. The authorized and outstanding
capitalization of Parent consists of (i) a total of 5,000,000 authorized
shares of preferred stock, $.01 par value per share (the "Preferred Stock"),
none of which is issued or outstanding, and (ii) a total of 25,000,000
authorized shares of Common Stock, of which 14,871,813 shares were issued and
outstanding as of April 10, 1998. All of such outstanding shares are validly
issued, fully paid and nonassessable, and none of such outstanding shares was
issued in violation of any preemptive rights. In addition to the foregoing,
as of April 10, 1998, Parent had reserved an aggregate of 4,608,203
additional shares for future issuance, consisting of the following: (a)
666,700 shares reserved for issuance upon exercise of outstanding warrants;
(b) 1,442,128 shares reserved for issuance upon exercise of outstanding
options granted under Parent's 1994 Stock Option Plan; and (c) 999,375 shares
reserved for issuance upon exercise of outstanding stock options granted
under Parent's 1997 Stock Plan, of which options to purchase 743,056 shares
were outstanding as of such date. An additional 1,500,000 shares were
reserved for issuance under the 1997 Stock Option Plan in connection with an
amendment to such plan adopted by Parent's Board of Directors on April 15,
1998, at which time options to purchase an additional 436,500 shares of
Parent Common Stock were granted under such plan. Except for the foregoing
warrants and options that have been or may be granted under the 1994 Stock
Option Plan and the 1997 Stock Option Plan, there are not outstanding any
options, warrants or similar agreements for the purchase from Parent any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of Parent's capital stock.
SECTION 4.06. FINANCIAL STATEMENTS. The financial statements of
Parent, including the notes thereto, included in the Parent SEC Documents
(the "Parent Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, and have been prepared in
accordance with United States generally accepted accounting principles
applied on a basis consistent throughout the periods indicated and consistent
with each other (except as may be indicated in the notes thereto). The
Parent Financial Statements fairly present the consolidated financial
condition and operating results of Parent and its subsidiaries at the dates
and during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments). There has been
13
no material change in Parent accounting policies except as described in the
notes to the Parent Financial Statements.
SECTION 4.07. UNDISCLOSED LIABILITIES. Parent has no obligations or
liabilities of any nature (matured or unmatured, fixed or contingent) other
than (a) those set forth or adequately provided for in the most recent
balance sheet included within the Parent Financial Statements (the "Parent
Balance Sheet") and those described in the SEC Documents, (b) those incurred
in the ordinary course of business and not required to be set forth in the
Parent Balance Sheet under United States generally accepted accounting
principles, (iii) those incurred in the ordinary course of business since the
Parent Balance Sheet Date and consistent with past practice, and (iv) those
that would not reasonably be expected to have a material adverse effect on
Parent and its subsidiaries, taken as a whole.
SECTION 4.08. ABSENCE OF CERTAIN CHANGES. Since the date of the
Parent Balance Sheet, there has not occurred: (a) any change, event or
condition (whether or not covered by insurance) that has resulted in, or
would reasonably be expected to result in, a material adverse effect on
Parent and its subsidiaries, taken as a whole (provided that continuing
operating losses will not be deemed to constitute such an effect); (b) any
declaration, setting aside, or payment of a dividend or other distribution
with respect to the shares of Parent, or any direct or indirect redemption,
purchase or other acquisition by Parent of any material portion of its
capital stock; (iii) any material amendment or change to Parent's Certificate
of Incorporation or Bylaws; or (iv) any agreement by Parent to do any of the
things described in the preceding clauses (i) through (iii) (other than
negotiations with the Company and its representatives regarding the
transactions contemplated by this Agreement and other than the proposed
amendment to Parent's Certificate of Incorporation that is described in the
SEC Documents).
SECTION 4.09. LITIGATION. Except as set forth in the SEC Documents,
there is no claim, action, suit, litigation, proceeding or arbitration of any
kind, at law or in equity (including actions or proceedings seeking
injunctive relief), pending or, to Parent's knowledge, threatened against
Parent or any of its subsidiaries or any assets or rights of Parent or its
subsidiaries that would reasonably be expected, individually or in the
aggregate, to have a material adverse effect on Parent and its subsidiaries,
taken as a whole. Neither Parent nor any of its subsidiaries is subject to
any continuing order of, consent decree, settlement agreement or other
similar written agreement with, or, to Parent's knowledge, any continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Government Entity or arbitrator,
including, without limitation, cease-and-desist or other orders that could
prevent, enjoin or materially alter or delay any of the transactions
contemplated by this Agreement or that would reasonably be expected to have a
material adverse effect on Parent and its subsidiaries, taken as a whole.
SECTION 4.10. PERMITS; COMPLIANCE. Parent and its subsidiaries are
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and
orders necessary to own, lease and operate its properties and to carry on its
business as it is now being conducted (collectively, the "Parent Permits"),
and there is no action, proceeding or investigation pending or, to Parent's
knowledge, threatened regarding suspension or cancellation of any of the
Parent Permits, except where the failure to possess or the suspension or
cancellation of such would not reasonably be expected to have a material
adverse
14
effect on Parent and its subsidiaries, taken as a whole. Parent and its
subsidiaries and their respective assets and operations are currently and
have at all times been in compliance with all Laws applicable to Parent or
its subsidiaries or their respective operations or by or to which any of
their assets is bound or subject, including without limitation all Laws
related to environmental protection, employee benefits, labor and employment
and occupational health and safety, except where such failure to comply would
not reasonably be expected to have a material adverse effect on Parent and
its subsidiaries, taken as a whole. Parent has not received from any
Governmental Entity any written notification with respect to possible
violations of Laws, except where such violation would not reasonably be
expected to have a material adverse effect on Parent and its subsidiaries,
taken as a whole.
SECTION 4.11. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent.
SECTION 4.12. TAX MATTERS; POOLING.
(a) None of the Parent Companies, nor, to the knowledge of
Parent, any of their affiliates has taken or agreed to take any action that
would prevent the Merger from constituting a reorganization qualifying under
the provisions of section 368(a) of the Code.
(b) Parent has on or prior to the date of this Agreement
received reasonable verbal assurances from KPMG Peat Marwick, Parent's
independent auditors, setting forth its preliminary conclusion (subject to
various assumptions and qualifications) that the Merger will qualify for
pooling-of-interests accounting treatment if consummated in accordance with
this Agreement.
ARTICLE V
COVENANTS
SECTION 5.01. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company
hereby covenants and agrees that, prior to the Effective Time, unless
otherwise expressly contemplated by this Agreement or consented to in writing
by Parent, the Company will:
(a) operate its business only in the usual and ordinary course
consistent with past practices;
(b) use commercially reasonable efforts to preserve
substantially intact its business organization, maintain its Material
Contracts, Company Permits and Intellectual Property and other material
rights, retain the services of its respective officers and key employees and
maintain its relationships with its material customers and suppliers;
(c) maintain and keep its properties and assets in as good
repair and condition as at present, ordinary wear and tear excepted;
15
(d) maintain and keep in full force and effect insurance
comparable in amount and scope of coverage to that currently in effect; and
(e) from the date of this Agreement and to the Effective Time,
promptly supplement or amend the Schedules to this Agreement with respect to
any material matter that arises or that is required to be set forth or listed
in the Schedules or is necessary to complete or correct any information in
the Schedules; provided, that for purposes of determining the rights and
obligations of the parties hereunder (other than the obligation of the
Company under this SECTION 5.01(e)), any such supplemental or amended
disclosure will not be deemed to have been disclosed to Parent unless Parent
otherwise expressly consents in writing.
SECTION 5.02. NEGATIVE COVENANTS OF THE COMPANY. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by
Parent, from the date of this Agreement until the Effective Time, the Company
will not do any of the following:
(a) amend or otherwise modify any of the Material Contracts or
Company Permits in a manner that is material to the Company, individually or
in the aggregate;
(b) (i) effect any reorganization or recapitalization; (ii)
issue any capital stock or any option, warrant or similar agreement with
respect to its capital stock; (iii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of its
capital stock; or (iv) adopt or propose to adopt any amendments to its
Articles of Incorporation or bylaws;
(c) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets, except for dispositions
of inventories and of assets in the ordinary course of business and
consistent with past practice;
(d) settle or compromise any claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy;
(e) knowingly take (and will use reasonable best efforts to
prevent any affiliate of the Company from taking) any action that, in the
written judgment of KPMG Peat Marwick would cause the Merger not to be
treated as a Pooling Transaction for financial accounting purposes;
(f) take any action that would result in a material breach (as
of the Closing) of any of the representations and warranties of the Company
set forth in SECTION 3.08;
(g) pay or agree to pay any dividend, distribution, or other
payment to any of its Stockholders; PROVIDED, HOWEVER, that notwithstanding
any contrary provision of this Agreement, the Company may distribute to the
Stockholders, in accordance with past practice, any income earned by the
Company prior to the Closing (to the extent not previously distributed), up
to a maximum of $90,000, provided that the Company has at least $200,000 of
working capital at the Closing; for such purposes, "working capital" is
defined as current assets minus
16
current liabilities, in each case calculated in accordance with generally
accepted accounting principles, applied in a manner consistent with that used
in preparing the Latest Balance Sheet;
(h) pay or agree to pay any bonus, incentive compensation, or
similar payment to any of its employees or increase the compensation of any
Stockholder or other employee;
(i) make any material expenditure or commitment except in the
ordinary course of business consistent with past practice; or
(j) agree in writing or otherwise to do any of the foregoing.
SECTION 5.03. NON-SOLICITATION. Each of the Company and the
Stockholders hereby covenants and agrees that it will not, and will not
authorize any of its affiliates, as applicable, to initiate, knowingly
solicit or knowingly encourage (including by way of furnishing information or
assistance), or knowingly take any other action to facilitate, any inquiries
or the making of any proposal relating to, or that may reasonably be expected
to lead to, any Competing Transaction (as defined below), or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the officers, directors or
employees of the Company or any investment banker, financial advisor,
attorney, accountant or other representative retained by the Company, any
Stockholder or any of their affiliates, as applicable, to take any such
action, and the Company or the Stockholders, as the case may be, shall
promptly notify Parent of the material substance of any such inquiries and
proposals received by the Company, or, to the Company's knowledge, any of its
affiliates, as applicable, or, to the Company's knowledge, by any such
officer, director, investment banker, financial advisor, accountant or other
representative relating to any of such matters; provided, however, that
nothing contained herein shall require the Company to disclose any
communication or other confidential information protected by attorney-client
confidentiality between the Company and its legal counsel. For purposes of
this Agreement, "Competing Transaction" means any of the following (other
than the transactions contemplated by this Agreement) involving the Company:
(a) any merger, consolidation, share exchange, business combination or
similar transaction; (b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition of 5% or more of the assets of the Company, or
(c) any offer for 5% or more of the outstanding shares of capital stock of
the Company.
SECTION 5.04. COVENANT NOT TO COMPETE. For a period of one year
following the Closing, neither of the Stockholders will, directly or
indirectly, on its own behalf or as an officer, director, employee,
consultant or other agent of, or as a stockholder, partner or other investor
in, any person (other than Parent or Surviving Corporation or their
affiliates):
(a) engage in the business of operating an Internet site or
service designed to facilitate or provide information (such as pricing and
availability) concerning the purchase of products (the "Business");
(b) directly or indirectly influence or attempt to influence any
advertising customer or potential advertising customer of Parent or the
Surviving Corporation to purchase advertising or other promotions on
Internet sites engaged in the Business; or
17
(c) employ, attempt to employ or solicit for employment in any
position related to the conduct of the Business any individual who is an
employee of Parent or Surviving Corporation at such time or was an employee
of Parent or Surviving Corporation during the four months prior to such
time;
provided that (i) the foregoing will not apply to any investment in publicly
traded securities constituting less than 1% of the outstanding securities in
such class and (ii) a Stockholder will be relieved of the restrictions set
forth in this SECTION 5.04 if he or she is terminated (including through a
"constructive termination") by Parent without "cause." For such purposes,
the terms "constructive termination" and "cause" will have the meanings
assigned to such terms in the Employment Agreements referenced in SECTION
5.11 below.
SECTION 5.05. ACCESS AND INFORMATION.
(a) The Company shall (i) afford to Parent and its officers,
directors, employees, accountants, consultants, legal counsel, agents and
other reasonably appointed representatives (collectively, the "Parent
Representatives") reasonable access at reasonable times, upon reasonable
prior notice, to the officers, employees, agents, properties, offices and
other facilities of the Company and to the books and records thereof, (ii)
furnish promptly to Parent and the Parent Representatives such information
concerning the business, properties, contracts, records and personnel of the
Company (including, without limitation, financial, operating and other data
and information) as may be reasonably requested, from time to time, by
Parent, and (iii) authorize Parent to contact and obtain relevant information
from the Company's accountants, material customers and suppliers and any
governmental agencies having dealings with the Company.
(b) Any information received pursuant to the preceding paragraph
shall be subject to the provisions of the Nondisclosure Agreement dated April
15, 1998, by and between the Company and Parent (the "Nondisclosure
Agreement"), which will remain in effect in accordance with its terms without
regard to the execution of this Agreement.
(c) No investigation by the parties hereto made heretofore or
hereafter shall affect the representations and warranties of the parties
which are herein contained and each such representation and warranty shall
survive such investigation.
SECTION 5.06. APPROPRIATE ACTION; CONSENTS; FILINGS.
(a) Each of Parent, the Stockholders and the Company shall use
(and shall cause each of their respective subsidiaries to use, as applicable)
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or
advisable under applicable Law or otherwise to consummate and make effective
the transactions contemplated by this Agreement, and (ii) obtain from any
Governmental Entities or other third parties any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made
by Parent or the Company or any of their subsidiaries or affiliates, as
applicable, in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
including, without limitation, the Merger. The Stockholders, the Company and
Parent shall furnish all information
18
required for any application or other filing to be made pursuant to the rules
and regulations of any applicable Law in connection with the transactions
contemplated by this Agreement.
(b) Each of Parent, the Stockholders and the Company shall give
(or shall cause their respective subsidiaries and affiliates, as applicable,
to give) any notices to third parties, and use (and cause their respective
subsidiaries and affiliates, as applicable, to use) all reasonable efforts to
obtain any third party consents (i) necessary, proper or advisable to
consummate the transactions contemplated by this Agreement, or (ii) otherwise
required under any Material Contracts, Company Permits or other agreements in
connection with, or in order to allow the Company to continue to be entitled
to the benefits thereof following, the consummation of the transactions
contemplated hereby. In the event that any party shall fail to obtain any
third party consent described above and the parties agree to consummate the
Merger without such consent, such party shall use its best efforts, and shall
take any such actions reasonably requested by the other parties, to limit the
adverse effect upon the Company and Parent, their respective subsidiaries,
and their respective businesses resulting, or which could reasonably be
expected to result after the Effective Time, from the failure to obtain such
consent.
(c) Parent shall take such steps as may be necessary to comply
with the securities and blue sky laws of California in connection with the
issuance of Parent Common Stock in the Merger. The Company and the
Stockholders shall use their respective best efforts to assist Parent as may
be necessary to comply with such securities and blue sky laws in connection
with the transactions contemplated herein.
SECTION 5.07. POOLING; TAX TREATMENT.
(a) The Company and the Stockholders will use all reasonable
efforts to cause the Merger to be treated for financial accounting purposes
as a Pooling Transaction, and shall not take, and shall use all reasonable
efforts to prevent any of their affiliates from taking, any actions which
could prevent the Merger from being treated for financial accounting purposes
as a Pooling Transaction.
(b) Each party hereto shall use all reasonable efforts to cause
the Merger to qualify, and shall not take, and shall use all reasonable
efforts to prevent any affiliate of such party from taking, any actions which
could prevent the Merger from qualifying as a reorganization under the
provisions of section 368(a) of the Code.
SECTION 5.08. PUBLIC ANNOUNCEMENTS. Each party hereto shall consult
with the other parties hereto before issuing any press release or otherwise
making any public statements with respect to the Merger and shall not issue
any such press release or make any such public statement prior to such
consultation, except as otherwise required by applicable Law.
SECTION 5.09. NASDAQ LISTING. Prior to the Effective Time, Parent
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Securities and shall take all other action necessary to cause the
shares of Parent Common Stock to be issued in the Merger to be approved for
listing on Nasdaq as soon as practicable following the Effective Time.
19
SECTION 5.10. FEES, EXPENSES AND OTHER PAYMENTS. At the Closing,
Parent will pay all transaction costs and expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment
bankers, experts and consultants to a party hereto and its affiliates)
incurred by the Company or the Stockholders in connection with or related to
the authorization, preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby (collectively,
"Company Expenses"), up to a maximum amount of $100,000. Any Company
Expenses in excess of such amount will be paid by the Stockholders, either
directly or through a reduction in the number of shares of Parent Common
Stock to be issued in the Merger (based on the Conversion Price).
SECTION 5.11. EMPLOYMENT AGREEMENTS. At the Closing, the
Stockholders and Parent will enter into employment agreements substantially
in the forms of EXHIBIT A and EXHIBIT B attached hereto.
SECTION 5.12. VLG SHARES. Prior to the Closing, the Stockholders
will transfer (on a pro rata basis, based on their respective ownership of
Company Common Stock) an aggregate of 1.0% of the outstanding Company Common
Stock to VLG Investments 1998 ("VLG") and will obtain from VLG and Venture
Law Group an acknowledgment that such transfer satisfies the Company's
obligation to pay cash or common stock to VLG or Venture Law Group that is
referenced in SECTION 3.03(b) of the Company Disclosure Schedule. Parent
acknowledges that this transfer will take place and agrees that this transfer
will not constitute a breach of any covenant contained in this Agreement.
ARTICLE VI
CLOSING CONDITIONS
SECTION 6.01. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE PARENT
COMPANIES. The obligations of the Parent Companies to effect the Merger and
the other transactions contemplated hereby are also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any
or all of which may be waived in writing by Parent, in whole or in part:
(a) Each of the representations and warranties of the Company
and the Stockholders contained in this Agreement shall be true and correct in
all material respects as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date). The Parent Companies shall have received a certificate signed
by the President of the Company and by each of the Stockholders, dated the
Closing Date, to such effect.
(b) Each of the Company and the Stockholders shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Closing Date. The Parent Companies shall have received a
certificate signed by the President of the Company and by each of the
Stockholders, dated the Closing Date, to such effect.
20
(c) No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger (an "Order"); and no such Governmental
Entity or third party shall have initiated or threatened to initiate any
proceeding seeking an Order.
(d) Counsel to the Company shall have delivered to the Parent
Companies its written opinion substantially in the form of EXHIBIT C attached
hereto.
(e) Each of the Company and the Stockholders shall have obtained
each consent and approval necessary in order that the transactions
contemplated hereby do not constitute a material breach or violation of, or
result in a right of termination or acceleration of any encumbrance on any
material portion of the Company's properties or assets, any Material
Contract, material arrangement or understanding or any material license,
franchise or Company Permit.
(f) Parent shall have received reasonably satisfactory
assurances from KPMG Peat Marwick on the Closing Date that the Merger should
be treated for financial accounting purposes as a Pooling Transaction.
(g) All proceedings taken by the Company and all instruments
executed and delivered by the Company and the Stockholders, as applicable, on
or prior to the Closing Date in connection with the transactions herein
contemplated shall be reasonably satisfactory in form and substance to Parent.
SECTION 6.02. ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY AND
THE STOCKHOLDERS. The obligation of the Company to effect the Merger and the
other transactions contemplated hereby is also subject to the satisfaction at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in writing by the Company, in whole or in part:
(a) Each of the representations and warranties of the Parent
Companies contained in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of the
Closing Date (except to the extent such representations and warranties
specifically relate to an earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
earlier date). The Company shall have received a certificate of the
President of the Parent, dated the Closing Date, to such effect.
(b) The Parent Companies shall have performed or complied in all
material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date. The Company shall have received a certificate of the President of the
Parent, dated the Closing Date, to that effect.
(c) No Governmental Entity or federal or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any Order which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger; and no such
21
Governmental Entity or third party shall have initiated or threatened to
initiate any proceeding seeking an Order.
(d) Counsel to the Parent Companies shall have delivered to the
Company its written opinion substantially in the form of EXHIBIT D attached
hereto.
(e) Counsel to the Company shall have delivered to the
Stockholders its written opinion with respect to the treatment of the Merger
as a reorganization under Section 368(a) of the Code, in a form reasonably
acceptable to the Stockholders. In rendering such opinion, counsel shall be
entitled to rely upon, among other things, reasonable assumptions, as well as
representations of the Parent Companies and the Company.
(f) All proceedings taken by the Parent Companies and all
instruments executed and delivered by the Parent Companies on or prior to the
Closing Date in connection with the transactions herein contemplated shall be
reasonably satisfactory in form and substance to the Company.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. INDEMNIFICATION OF PARENT COMPANIES. Notwithstanding
any investigation by Parent or the Parent Representatives, the Stockholders,
jointly and severally, will indemnify and hold Parent, its subsidiaries
(including the Surviving Corporation) and their respective affiliates,
directors, officers, employees and agents (collectively, the "Parent
Indemnified Parties") harmless from any and all Liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all court costs
and reasonable attorneys' fees (collectively, "Losses"), that any Parent
Indemnified Party may suffer or incur as a result of or relating to:
(a) the breach of any representation or warranty made by the
Company or the Stockholders in this Agreement or pursuant hereto or any
allegation by a third party that, if true, would constitute such a breach; or
(b) the breach of any covenant or agreement of the Company or
the Stockholders under this Agreement or any allegation by a third party
that, if true, would constitute such a breach;
provided that (i) the Parent Indemnified Parties will not be entitled to
indemnification under paragraph (a) of this SECTION 7.01 unless the aggregate
amount of all Losses for which indemnification is sought by the Parent
Indemnified Parties pursuant to such paragraph exceeds $100,000, in which
case the Parent Indemnified Parties will be entitled to indemnification for
the full amount of all such Losses; and (ii) the Parent Indemnified Parties
will not be entitled to indemnification under paragraph (a) of this SECTION
7.01 in an aggregate amount exceeding $3,600,000. Any claim for
indemnification under this SECTION 7.01 will be satisfied through the return
by the Stockholders of Parent Common Stock having a value (based on the
Conversion Price) equal to the amount of such claim.
SECTION 7.02. SURVIVAL. The Parent Indemnified Parties' rights to
indemnification under paragraph (a) of this SECTION 7.01 will survive the
execution and delivery of this Agreement
22
and the consummation of the transactions contemplated hereby until the first
anniversary of the Closing; provided that any claim for indemnification will
survive until such claim is finally resolved if a Parent Indemnified Party
notifies the Stockholders of such claim in reasonable detail prior to the
date on which such claim would otherwise expire hereunder.
SECTION 7.03. NOTICE. The Parent Indemnified Parties entitled to
receive indemnification under this ARTICLE VII agree to give prompt written
notice to the Stockholders upon the occurrence of any indemnifiable Loss or
the assertion of any claim or the commencement of any action or proceeding in
respect of which such a Loss may reasonably be expected to occur (a "Claim"),
but the Parent Indemnified Parties' failure to give such notice will not
affect their rights to indemnification under this ARTICLE VII, except to the
extent that the Stockholders are materially prejudiced thereby. Such written
notice will include a reference to the event or events forming the basis of
such Loss or Claim and the amount involved, unless such amount is uncertain
or contingent, in which event the Parent Indemnified Parties will give a
later written notice when the amount becomes fixed.
SECTION 7.04. DEFENSE OF CLAIMS. The Stockholders may elect to
assume and control the defense of any Claim, including the employment of
counsel reasonably satisfactory to the Parent Indemnified Parties and the
payment of expenses related thereto, if (a) the Stockholders acknowledge
their obligation to indemnify the Parent Indemnified Parties for any Losses
resulting from such Claim and provide reasonable evidence to the Parent
Indemnified Parties of its financial ability to satisfy such obligation; (b)
the Claim does not seek to impose any liability or obligation on the Parent
Indemnified Parties other than for money damages; and (c) the Claim does not
relate to the Parent Indemnified Parties' relationship with their customers
or employees. If such conditions are satisfied and the Parent Indemnifying
Parties elect to assume and control the defense of a Claim, then (i) the
interests represented by the Stockholders will not be liable for any
settlement of such Claim effected without the consent of the Parent
Indemnifying Parties, which consent will not be unreasonably withheld; (ii)
the Stockholders may settle such Claim without the consent of the Parent
Indemnified Parties; and (iii) the Parent Indemnified Parties may employ
separate counsel and participate in the defense thereof, but the Parent
Indemnified Parties will be responsible for the fees and expenses of such
counsel unless (A) the Stockholders have failed to adequately assume the
defense of such Claim or to employ counsel with respect thereto or (B) a
conflict of interest exists between the interests of the Parent Indemnified
Parties and the interests represented by the Stockholders that requires
representation by separate counsel, in which case the reasonable fees and
expenses of such one separate counsel will be paid by the Stockholders. If
such conditions are not satisfied, the Parent Indemnified Parties may assume
and control the defense of the Claim; provided that the Parent Indemnified
Parties may not settle any such Claim without the consent of the
Stockholders, which consent will not be unreasonably withheld, and further
provided that the Stockholders are given a reasonable opportunity to
participate in such defense (at the Stockholders' expense).
SECTION 7.05. EXCLUSIVE REMEDY. Parent Indemnified Parties' right to
indemnification under this ARTICLE VII shall be their sole and exclusive
remedy for any breach of the Company's and Stockholders' representations and
warranties contained in this Agreement.
23
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated at any
time prior to the Effective Time, as follows:
(a) by mutual consent of Parent and the Company;
(b) by Parent, upon a material breach of any representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue, in either case such that the conditions set forth in SECTIONS
6.02(a) or (b) would be incapable of being satisfied by May 31, 1998;
provided that, in any case, a willful breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this SECTION
8.01(b);
(c) by the Company, upon a material breach of any
representation, warranty, covenant or agreement on the part of the Parent
Companies set forth in this Agreement, or if any representation or warranty
of the Parent Companies shall have become untrue, in either case such that
the conditions set forth in SECTIONS 6.03(a) or (b) would be incapable of
being satisfied by April 30, 1998; provided that, in any case, a willful
material breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this SECTION 8.01(c);
(d) by either Parent or the Company, if there shall be any Order
that is final and nonappealable preventing the consummation of the Merger,
except if the party relying on such Order to terminate this Agreement has not
complied with its obligations under SECTION 5.06 of this Agreement;
(e) by either Parent or the Company, if the Merger shall not
have been consummated before May 31, 1998.
The right of any party hereto to terminate this Agreement pursuant to this
SECTION 8.01 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers, directors,
representatives or agents, whether prior to or after the execution of this
Agreement.
SECTION 8.02. EFFECT OF TERMINATION. In the event of the termination
of this Agreement pursuant to SECTION 8.01, this Agreement shall forthwith
become void, there shall be no liability on the part of the parties to the
other parties and all rights and obligations of any party hereto shall cease,
except that nothing herein shall relieve any party of any liability for any
breach of such party's representations, warranties, covenants or agreements
contained in this Agreement. Nothing herein shall be construed to cause the
Nondisclosure Agreement to terminate upon the termination of this Agreement.
SECTION 8.03. AMENDMENT. This Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
24
SECTION 8.04. WAIVER. At any time prior to the Effective Time,
Parent, on the one hand, and the Company, on the other hand, may (a) extend
the time for the performance of any of the obligations or other acts of the
other party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other party with any of the
agreements or conditions contained herein. Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the
party to be bound thereby. For purposes of this SECTION 8.04, the Parent
Companies as a group shall be deemed to be one party and the Company shall be
deemed to be one party.
ARTICLE IX
REGISTRATION RIGHTS
SECTION 9.01. REGISTRATION STATEMENT. Within 30 days after the
Closing Date, Parent will prepare and file with the SEC, pursuant to the
Securities Act, a registration statement on Form S-3 (the "Registration
Statement") covering the resale of 20% of the Parent Common Stock issued to
the Stockholders in the Merger and all shares of Parent Common Stock issued
to VLG in the Merger (the "Registered Shares") by the Stockholders and VLG,
respectively, in a continuous offering. For purposes of this Section 9 only,
the term "Stockholder" shall include VLG. Parent will use commercially
reasonable efforts to cause the Registration Statement to become effective as
soon as practicable after the Closing and to remain effective until the
earlier of (i) the date that all of the Registered Shares have been sold by
the Stockholders or (ii) the first anniversary of the Closing. The
Stockholders will not sell any Registered Shares under the Registration
Statement unless, at the time of sale, the Registration Statement (and the
most recently filed post-effective amendment thereto, if any) has been
declared effective. The period of time during which the Registration
Statement is effective is referred to as the "Registration Period."
SECTION 9.02. LIMITATIONS ON SALE.
(a) Each Stockholder will notify Parent two business days prior
to selling any Registered Shares pursuant to the Registration Statement. If,
upon receipt of such a notice, the Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer of Parent certifies to such Stockholder in
writing that (i) due to a change in circumstances or a pending transaction,
the Registration Statement contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (ii) the public disclosure
required to correct such misstatement or omission would, in the good faith
judgment of such officer, be impracticable or injurious to Parent, then the
Stockholder will refrain from selling any Registered Shares pursuant to the
Registration Statement for the period of time requested by Parent (a
"Blackout Period"). Parent may impose no more than four Blackout Periods,
which may not exceed 45 calendar days each and may not exceed 60 calendar
days in the aggregate. Parent will use reasonable efforts to minimize the
time period during which the Stockholders are required to refrain from
selling under this paragraph.
(b) In addition to the foregoing restrictions, the Stockholders
will not sell, transfer or otherwise dispose of any shares of Parent Common
Stock or otherwise reduce their
25
risk of loss with respect to any of the Parent Common Stock issued to them in
the Merger until Parent has publicly released earnings covering at least 30
days of combined operations of the Surviving Corporation. Parent will use
commercially reasonable efforts to release such earnings as soon as
reasonably practicable after the Closing; provided that Parent will not be
required to publicly release earnings for a period other than a full calendar
quarter.
SECTION 9.03. INFORMATION. Each Stockholder will furnish to Parent,
at Parent's reasonable request, such information regarding the ownership of
Registered Shares by such Stockholder and the intended method of disposition
thereof as is required in connection with the preparation of a registration
statement covering the Registered Shares.
SECTION 9.04. EXPENSES. Parent will bear all expenses arising or
incurred in connection with any registration of the Registered Shares
hereunder, including without limitation registration fees, printing expenses
and Parent's accounting and legal fees and expenses; provided that each
Stockholder will bear the expense of any underwriting fees, discounts or
commissions applicable to its sale of the Registered Shares and the fees and
expenses of any separate legal counsel or accounting firm engaged by such
Stockholder.
SECTION 9.05. INDEMNIFICATION.
(a) Parent agrees to indemnify the Stockholders and each
underwriter and selling broker of the Registered Shares registered hereunder
and their respective officers and directors and each person or entity, if
any, who controls any of the foregoing within the meaning of Section 15 of
the Securities Act and their respective successors against all Losses arising
out of or relating to any untrue statement (or alleged untrue statement) of a
material fact contained in the Registration Statement or any prospectus
included therein or incident thereto or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and agrees to reimburse the
Stockholders and such other persons for any legal and other expenses
reasonably incurred by them in connection with investigating or defending any
claim or action related to such a Loss; PROVIDED, HOWEVER, that Parent will
not be liable in any such case if and to the extent that (i) such statement
or omission was made in reliance upon information (including, without
limitation, written negative responses to inquiries) furnished to Parent in
writing by a Stockholder expressly for use in the Registration Statement or
such a prospectus or (ii) a Stockholder fails to deliver or cause to be
delivered a copy of the final prospectus relating to such offering (as then
amended or supplemented) to the person asserting such claim and such final
prospectus would have cured the defect giving rise to such Loss.
(b) Each Stockholder will indemnify Parent, the other
Stockholders and their respective officers and directors and each person or
entity, if any, who controls any of the foregoing within the meaning of
Section 15 of the Securities Act and their respective successors against all
Losses arising out of or relating to any untrue statement (or alleged untrue
statement) of a material fact contained in the Registration Statement or any
prospectus included therein or incident thereto or any omission (or alleged
omission) to state therein a material fact required to be stated or necessary
to make the statements therein not misleading, and will reimburse Parent, the
other Stockholders and such other persons for any legal and any other
expenses reasonably incurred by them in connection with investigating or
defending any claim or action related to such
26
a Loss; PROVIDED, HOWEVER, that this subparagraph (b) shall apply only in the
case of and to the extent specified in clauses (i) and (ii) of the preceding
paragraph.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to any of the two preceding paragraphs, the
indemnified and indemnifying parties shall comply with the notice and defense
of claims provisions of SECTIONS 7.03 and 7.04 with respect to such
proceeding.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. NOTICES. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given upon receipt, if delivered personally or by overnight delivery
service or if mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses (or at such
other address for a party as shall be specified by like changes of address)
or sent by electronic transmission to the facsimile number specified below:
(a) If to any of the Parent Companies, to:
CNET, Inc.
150 Chestnut Street
San Francisco, California 94111
Attention: Shelby W. Bonnie
Facsimile: (415) 395-9205
with a copy to:
Hughes & Luce, L.L.P.
1717 Main Street
Suite 2800
Dallas, Texas 75201
Attention: Jon L. Mosle
Facsimile: (214) 939-5849
(b) If to the Company, to:
U.Vision, Inc.
695 Oak Grove Avenue, Suite #3B
Menlo Park, California 94025
Attention: Tonny Yu, President
Facsimile: (650) 369-1005
27
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Robert Zipp
Facsimile: (650) 854-1121
SECTION 10.02. CERTAIN DEFINITIONS. For the purposes of this
Agreement, the term:
(a) "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person.
(b) "business day" means any day other than a day on which banks
in the State of California are authorized or obligated to be closed.
(c) "control" (including the terms "controlled," "controlled
by," and "under common control with") means the possession, directly or
indirectly, or as trustee or executor, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of stock or as trustee or executor, by contract or credit
arrangement or otherwise.
(d) "knowledge" of or "known" by a person, with respect to any
matter in question, means (i) in the case of the Company, if any Stockholder
or any executive officer of the Company has actual knowledge of such matter
or would have knowledge of such matter following due inquiry, and (ii) in the
case of Parent, if any executive officer of Parent has actual knowledge of
such matter or would have knowledge of such matter following due inquiry.
(e) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
used in Section 13(d) of the Exchange Act).
(f) "Tax" or "Taxes" means any and all taxes, charges, fees,
levies, assessments, duties or other amounts payable to any federal, state,
local or foreign taxing authority or agency, including, without limitation,
(i) income, franchise, profits, gross receipts, minimum, alternative minimum,
estimated, ad valorem, value added, sales, use, service, real or personal
property, capital stock, license, payroll, withholding, disability,
employment, social security, workers compensation, unemployment compensation,
utility, severance, excise, stamp, windfall profits, transfer and gains
taxes, (ii) customs, duties, imposts, charges, levies or other similar
assessments of any kind, and (iii) interest, penalties and additions to tax
imposed with respect thereto.
SECTION 10.03. HEADINGS. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement Section references herein are, unless the
context otherwise requires, references to sections of this Agreement.
28
SECTION 10.04. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced,
the parties hereto shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 10.05. ENTIRE AGREEMENT. This Agreement (together with the
Exhibits and the Schedules to this Agreement) and the Nondisclosure Agreement
constitute the entire agreement of the parties, and supersede all prior
agreements and undertakings, both written and oral, among the parties or
between any of them, with respect to the subject matter hereof.
SECTION 10.06. ASSIGNMENT. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 10.07. PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement, except as expressly provided with respect to
Indemnified Parties in ARTICLE VII.
SECTION 10.08. SPECIFIC PERFORMANCE. The parties hereby acknowledge
and agree that the failure of any party to perform its agreements and
covenants hereunder, including its failure to take all actions as are
necessary on its part to the consummation of the Merger, will cause
irreparable injury to the other parties for which damages, even if available,
will not be an adequate remedy. Accordingly, each party hereby consents to
the issuance of injunctive relief by any court of competent jurisdiction to
compel performance of such party's obligations and to the granting by any
court of the remedy of specific performance of its obligations hereunder.
SECTION 10.09. FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of any party hereto in the exercise of any
right hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are cumulative to, and not exclusive
to, and not exclusive of, any rights or remedies otherwise available.
SECTION 10.10. GOVERNING LAW. This Agreement shall 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 law.
SECTION 10.11. COUNTERPARTS. This Agreement may be executed in
multiple counterparts, and by the different parties hereto in separate
counterparts, each of which when
29
executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
30
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
CNET, INC.
By: /s/ Halsey M. Minor
----------------------------------
Halsey M. Minor
President and
Chief Executive Officer
CNET ACQUISITION CORP.
By: /s/ Douglas N. Woodrum
----------------------------------
Douglas N. Woodrum
President
U.VISION, INC.
By: /s/ Tonny Yu
----------------------------------
Tonny Yu
President
STOCKHOLDERS:
/s/ Tonny Yu
-------------------------------------
Tonny Yu
/s/ Nora Yeung
-------------------------------------
Nora Yeung
31